-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L8V1NhGlg3Xb0btVI7RlxrYbMIvnCMM4Q14wR18S+ITmxLZfM7GGUgvZaL7EpBuf zcE567gC1LAeeHrns8o25w== 0000320351-96-000026.txt : 19960424 0000320351-96-000026.hdr.sgml : 19960424 ACCESSION NUMBER: 0000320351-96-000026 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960423 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY SELECT PORTFOLIOS CENTRAL INDEX KEY: 0000320351 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [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: 96549572 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 ZH1 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 ANNUAL REPORT FOR THE YEAR ENDING FEBRUARY 29, 1996 AND PROSPECTUS DATED APRIL 29, 1996 CONTENTS PERFORMANCE OVERVIEW AND MARKET RECAP A-2 FUND UPDATES* CONSUMER SECTOR A-4 CONSUMER PRODUCTS A-10 FOOD AND AGRICULTURE A-16 LEISURE A-23 MULTIMEDIA A-29 RETAILING CYCLICALS SECTOR A-35 AIR TRANSPORTATION A-41 AUTOMOTIVE A-47 CHEMICALS A-53 CONSTRUCTION AND HOUSING A-59 ENVIRONMENTAL SERVICES A-65 INDUSTRIAL EQUIPMENT A-71 INDUSTRIAL MATERIALS A-77 PAPER AND FOREST PRODUCTS A-82 TRANSPORTATION ENERGY, UTILITIES AND A-87 AMERICAN GOLD NATURAL RESOURCES SECTOR A-93 ENERGY A-99 ENERGY SERVICE A-105 NATURAL GAS A-111 PRECIOUS METALS AND MINERALS A-117 UTILITIES GROWTH FINANCIAL SERVICES SECTOR A-123 BROKERAGE AND INVESTMENT MANAGEMENT A-128 FINANCIAL SERVICES A-133 HOME FINANCE A-139 INSURANCE A-145 REGIONAL BANKS HEALTH CARE SECTOR A-150 BIOTECHNOLOGY A-157 HEALTH CARE A-163 MEDICAL DELIVERY * FUND UPDATES FOR EACH SELECT PORTFOLIO INCLUDE: PERFORMANCE AND INVESTMENT SUMMARY, MANAGER'S OVERVIEW, INVESTMENTS, AND FINANCIAL STATEMENTS.
TECHNOLOGY SECTOR A-169 COMPUTERS A-176 DEFENSE AND AEROSPACE A-182 DEVELOPING COMMUNICATIONS A-188 ELECTRONICS A-195 SOFTWARE AND COMPUTER SERVICES A-201 TECHNOLOGY A-209 TELECOMMUNICATIONS A-216 MONEY MARKET NOTES TO FINANCIAL STATEMENTS A-222 FOOTNOTES TO THE FINANCIAL STATEMENTS REPORT OF INDEPENDENT ACCOUNTANTS A-225 THE AUDITORS' OPINION DISTRIBUTIONS A-226 FIDELITY SELECT PORTFOLIOS PROSPECTUS P-1
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, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. PERFORMANCE OVERVIEW DEAR SHAREHOLDER: The 12-month period ended February 29, 1996, was a very rewarding year for equity investors, with strong performance in many sectors. The Standard & Poor's Composite Index of 500 Stocks (S&P 500) returned 34.70% during the period, including reinvested dividends. Overall, 16 of our 35 Select equity portfolios outperformed the S&P 500, and all 35 produced positive returns. On top was Select Electronics, which generated a return of 72.75%, while at the bottom was Select Paper and Forest, which produced a gain of 9.18%. The market environment remained very positive as corporate earnings in many industries proved better than expected. Signs of slowing economic activity as 1995 progressed caused the Federal Reserve to lower short-term interest rates from 6.00% to 5.25% from a year ago, encouraging continued capital investment by companies and individuals. As a result of the sustained favorable environment, the TECHNOLOGY sector showed the broadest strength of any sector. Returns for Electronics, Computers, Defense and Aerospace, Technology, and Software and Computers Services ranged from 72.75% to 40.17%. Developing Communications lagged the rest of the technology sector with a 21.84% return, driven largely by disappointing performance in the wireless service providers and cellular equipment stocks. Falling interest rates were perceived as a positive for the FINANCIAL SERVICES sector. Continued loan growth, healthy balance sheets, and stable profit margins combined to drive solid fundamentals. Merger and acquisition activity in this sector also heated up. As a result, Home Finance, Regional Banks and Financial Services generated above-market returns. The same perception of a slowdown was seen as a negative for certain CYCLICALS, whose profitability levels tend to rise and fall in step with the economy. Automotive and Transportation showed weak performance as a result. However, Air Transportation and Industrial Equipment managed to generate very strong returns due to surprisingly strong earnings and more favorable competitive environments for companies in these industries. The slower economy combined with excessive capacity additions resulted in deteriorating commodity prices, negatively impacting Paper and Forest Products. Returns in the CONSUMER sector were varied. Food and Agriculture posted a solid gain of 37.92% as many investors were attracted by the strong earnings growth posted by these companies, especially the tobacco and beverage companies. Merger and acquisition activity also continued to buoy these stocks. Consumer Products gained 30.01% with the help of better-than-expected earnings growth. Retailing was relatively weak, as overcapacity and pricing pressures continue to afflict this group. HEALTH CARE sector funds did well, due to a variety of factors. The especially strong returns of Biotechnology and Health Care were driven by acceleration of unit growth of pharmaceuticals, increased effort by the FDA to approve new therapies quickly, and a diminished fear of government regulation of these industries. Medical Delivery had moderate returns relative to the others, as concerns about pricing pressures and higher costs suffered by the health care payers offset the positive revenue and consolidation trends enjoyed by the health care providers. Investors' expectations of improvement in the supply and demand outlook for gold, combined with improved stock valuations, benefited the NATURAL RESOURCES sector and helped both American Gold and Precious Metals and Minerals to strong returns. The ENERGY sector continued to turn in varied results. Energy Service gained 39.15% due largely to higher levels of profitability and higher spending activity by the oil services customers. Strength in oil and natural gas prices in the latter half of the year was not enough to offset the low prices of the first half of the year, causing Energy and Natural Gas to suffer. Chemicals performed slightly better than these last two, as a huge increase in volumes and margins generated record returns for many chemical companies. Performance in the UTILITIES sector closely followed the bond market, showing positive performance but underperforming the S&P 500. Utilities stocks continued to be restrained by concerns over future deregulation of the industry and the competitive pressures that should result. Emphasis on telephone utilities, whose growth opportunities are superior to electric utilities', positively impacted the fund's returns. The past 12 months have been a very good period for financial investments, as lower interest rates and the benign economic environment continued to make equities very attractive, pushing the stock market to new highs. However, recent increases in fixed-income yields could mean a more competitive environment for stocks if the trend continues. Given the widespread positive performance seen over the last 12 months, Select investors should maintain reasonable expectations in the months ahead. What follows are detailed summaries of all the funds. We hope you find them useful in evaluating your investments. As always, we thank you for your continued interest in Fidelity Select Portfolios. Sincerely, Bart A. Grenier Select Group Leader CUMULATIVE TOTAL RETURNS FOR THE YEAR ENDED FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 72.75 Row: 2, Col: 1, Value: 54.91 Row: 3, Col: 1, Value: 52.79000000000001 Row: 4, Col: 1, Value: 50.71 Row: 5, Col: 1, Value: 47.4 Row: 6, Col: 1, Value: 47.02 Row: 7, Col: 1, Value: 44.97 Row: 8, Col: 1, Value: 43.24 Row: 9, Col: 1, Value: 40.94 Row: 10, Col: 1, Value: 40.17 Row: 11, Col: 1, Value: 39.68 Row: 12, Col: 1, Value: 39.15 Row: 13, Col: 1, Value: 39.05 Row: 14, Col: 1, Value: 37.92 Row: 15, Col: 1, Value: 37.74 Row: 16, Col: 1, Value: 36.86 Row: 17, Col: 1, Value: 34.7 Row: 18, Col: 1, Value: 34.15 Row: 19, Col: 1, Value: 31.98 Row: 20, Col: 1, Value: 30.01 Row: 21, Col: 1, Value: 29.85 Row: 22, Col: 1, Value: 29.51 Row: 23, Col: 1, Value: 27.61 Row: 24, Col: 1, Value: 27.49 Row: 25, Col: 1, Value: 27.48 Row: 26, Col: 1, Value: 27.1 Row: 27, Col: 1, Value: 25.82 Row: 28, Col: 1, Value: 25.79 Row: 29, Col: 1, Value: 21.84 Row: 30, Col: 1, Value: 21.77 Row: 31, Col: 1, Value: 20.92 Row: 32, Col: 1, Value: 16.56 Row: 33, Col: 1, Value: 13.38 Row: 34, Col: 1, Value: 12.95 Row: 35, Col: 1, Value: 10.13 Row: 36, Col: 1, Value: 9.18 Electronics 72.75%Air Transportation 54.91%Computers 52.79%Technology 50.71%Defense and Aerospace 47.40%American Gold 47.02%Biotechnology 44.97%Home Finance 43.24%Regional Banks 40.94%Software and Computer Services 40.17%Health Care 39.68%Energy Service 39.15%Financial Services 39.05%Food and Agriculture 37.92%Precious Metals and Minerals 37.74%Industrial Equipment 36.86%S&P 500 34.70%Medical Delivery 34.15%Multimedia 31.98%Consumer Products 30.01%Brokerage and Investment Management 29.85%Insurance 29.51%Leisure 27.61%Environmental Services 27.49%Chemicals 27.48%Natural Gas 27.10%Utilities Growth 25.82%Telecommunications 25.79%Developing Communications 21.84%Construction and Housing 21.77%Energy 20.92%Retailing 16.56%Industrial Materials 13.38%Transportation 12.95%Automotive 10.13%Paper and Forest Products 9.18% PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. TOTAL RETURNS INCLUDE CHANGES IN A FUND'S SHARE PRICE, PLUS REINVESTMENT OF ANY DIVIDENDS AND CAPITAL GAINS BUT DOES NOT INCLUDE SELECT'S 3% SALES CHARGE, AND CERTAIN FEES PAID BY SHAREHOLDERS UPON EXCHANGE OR REDEMPTION. FIGURES FOR THE STANDARD & POOR'S COMPOSITE OF 500 STOCKS (S&P 500 (registered trademark)), AN UNMANAGED INDEX OF COMMON STOCK PRICES, INCLUDE REINVESTMENT OF DIVIDENDS. S&P 500 IS A REGISTERED TRADEMARK OF STANDARD & POOR'S. 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. IF FMR HAD NOT REIMBURSED CERTAIN EXPENSES FOR SOME OF THE FUNDS, THOSE RETURNS WOULD HAVE BEEN LOWER. 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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past one year, five year, and life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND CONSUMER PRODUCTS 30.01% 108.76% 127.48% CONSUMER PRODUCTS 26.11% 102.50% 120.65% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 111.64% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years, 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 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND CONSUMER PRODUCTS 30.01% 15.86% 15.58% CONSUMER PRODUCTS 26.11% 15.16% 14.96% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.12% 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 19900629 9700.00 10000.00 19900731 9670.90 9980.27 19900831 8943.40 9078.05 19900930 8439.00 8635.95 19901031 8749.40 8598.82 19901130 9234.40 9154.30 19901231 9593.72 9409.71 19910131 9808.43 9819.97 19910228 10569.68 10522.10 19910331 11077.18 10776.73 19910430 10950.31 10802.60 19910531 11477.33 11269.27 19910630 10911.27 10753.14 19910731 11623.72 11254.23 19910831 12101.94 11520.96 19910930 11994.59 11328.56 19911031 12375.21 11480.36 19911130 11857.95 11017.70 19911231 13290.07 12278.13 19920131 13379.46 12049.75 19920229 13836.37 12206.40 19920331 13677.45 11968.38 19920430 13717.18 12320.25 19920531 13627.78 12380.62 19920630 13015.69 12196.14 19920731 13388.15 12694.97 19920831 13253.65 12434.72 19920930 13377.81 12581.45 19921031 13595.08 12625.48 19921130 14246.90 13056.01 19921231 14427.78 13216.60 19930131 14331.67 13327.62 19930228 13851.10 13508.88 19930331 14662.73 13793.92 19930430 14566.61 13460.10 19930531 15719.98 13820.83 19930630 15730.66 13860.91 19930731 15880.17 13805.47 19930831 16916.07 14328.70 19930930 17289.85 14218.37 19931031 17823.81 14512.69 19931130 17428.68 14374.82 19931231 17987.73 14548.75 19940131 17835.98 15043.41 19940228 17789.29 14635.73 19940331 16645.36 13997.61 19940430 16823.06 14176.78 19940531 16600.01 14409.28 19940630 15684.31 14056.26 19940731 16106.94 14517.30 19940831 17046.12 15112.51 19940930 16729.15 14742.25 19941031 17057.86 15073.95 19941130 16224.34 14524.96 19941231 16716.09 14740.37 19950131 16569.67 15122.58 19950228 16972.32 15711.91 19950331 17435.98 16175.57 19950430 17815.10 16651.94 19950531 18145.91 17317.52 19950630 18133.66 17719.80 19950731 18893.31 18307.39 19950831 18856.56 18353.34 19950930 19861.26 19127.86 19951031 20755.69 19059.57 19951130 21980.94 19896.28 19951231 21446.67 20279.49 19960131 21446.67 20969.80 19960229 22065.08 21164.19 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 February 29, 1996, your investment would have grown to $22,065 - a 120.65% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $21,164 over the same period - a 111.64% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Alberto-Culver Co. Class A 7.5 America Online, Inc. 5.7 Avon Products, Inc. 5.3 Gillette Co. 5.2 PepsiCo, Inc. 5.2 Ralston Purina Co. 5.0 Luxottica Group Spa sponsored ADR 4.1 HFS, Inc. 4.1 General Electric Co. 3.9 AT&T Corp. 3.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Cosmetics 22.4% Computer Services 7.0% Soft Drinks 5.7% Footwear 5.7% Grain Mill Products 5.0% All Others 54.2% * Row: 1, Col: 1, Value: 54.2 Row: 1, Col: 2, Value: 5.0 Row: 1, Col: 3, Value: 5.7 Row: 1, Col: 4, Value: 5.7 Row: 1, Col: 5, Value: 7.0 Row: 1, Col: 6, Value: 22.4 * INCLUDES SHORT-TERM INVESTMENTS CONSUMER PRODUCTS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Mary B. English, Portfolio Manager of Fidelity Select Consumer Products Portfolio Q. HOW DID THE FUND PERFORM, MARY? A. For the 12 months ended February 29, 1996, the fund returned 30.01%. The S&P 500 Index returned 34.70% for the same time period. Q. HOW WOULD YOU CATEGORIZE THE FUND'S PERFORMANCE DURING THE PAST SIX MONTHS? A. Although I would like to have beaten the S&P 500, I think the fund did pretty well during the period. For a consumer products fund, I think performance was quite strong during a time in which semiconductors and other tech-related stocks drove the market to such dizzying heights. I also think the fund benefited from a reduction in the number of holdings, and the increased concentration of the top holdings. In general, I'm pleased that the fund's performance during the past six months was better than that of the previous six months. Q. WHAT INVESTMENT STRATEGIES HELPED THE FUND'S PERFORMANCE? A. There were a couple of things. Owning the key multinational cosmetics companies helped during the period, as did continuing my theme of "consumerology" stocks. By consumerology I mean technology stocks that appeal directly to the consumer, such as on-line services. In each case, owning the core brand names in the industry has been the key to performance. Q. LET'S START WITH THE TRADITIONAL CONSUMER STOCKS. WHAT CAN YOU TELL US ABOUT YOUR TOP HOLDINGS? A. I've found that the best way to be positioned in traditional consumer nondurables is to own companies that have the greatest potential for solid appreciation due to their name-brand equity. Most important, however, is that they have a strong multinational presence. With worldwide sales and strong brand recognition, I thought stocks such as Gillette had the potential to do well, even in a slow-growth environment. Some of the fund's top holdings, such as Alberto-Culver and Avon, have been implementing managerial realignments and strategic initiatives that may enable them to continue to expand and grow. Stocks such as Ralston Purina and PepsiCo were attractive because they were among the best consumer nondurable companies in their industries. Finally, how much the fund owned of any given stock is a function of how expensive it gets relative to its peers. Q. AND THE CONSUMEROLOGY THEME . . . A. While this is not a technology fund, I think stocks such as America Online, the fund's second largest holding, have a place in consumer products funds. It is currently the key consumer brand in on-line services and Internet access. I think America Online combines the best of name brand recognition with the predictability of a service company and the growth potential of a technology company. Q. WHAT OTHER STOCKS DID YOU LIKE AT THE END OF FEBRUARY? A. Luxottica is the world's premium manufacturer of eyeglasses and sunglasses. It owns high-priced brands such as Giorgio Armani and others that have done very well at retail. It is also a beneficiary of the trend toward luxury goods, as well as a major player in the increasing distribution channel for sunglasses. I also liked H&R Block. It should have a strong showing in its core business going into tax season, as well as benefit from spinning off its subsidiary, CompuServe. Q. SIX MONTHS AGO YOU SAID YOU WERE CONSIDERING GETTING BACK INTO RETAIL. WHAT HAPPENED DURING THE PERIOD? A. I am currently moving back into retail and am being very cautious as I continue to make selective investments. In general, I think retailers have begun to address space concerns by shutting down unprofitable stores - a trend that could help the industry as a whole. Though this investment strategy may be short-lived, I've been buying some of the better retailers that I think have the potential to go up after being beaten up with the rest of the industry. Q. ANY DISAPPOINTMENTS DURING THE PAST SIX MONTHS? A. Not many. I was pretty pleased with the way many of the fund's top holdings performed; the fund didn't own any real disasters in the consumer products sector. There was a lot of money moving in and out of the fund, and because of the increased inflows and outflows, turnover was much higher than usual. Q. WHAT'S YOUR OUTLOOK GOING FORWARD? A. I really haven't changed my investment philosophy and don't expect to. The fund will probably continue to be somewhat defensive - owning the core consumer brand names across the spectrum is what I really think helps performance. This is a portfolio of the top names in consumer products. I'll just keep investing stock by stock in those companies that I believe have the potential for strong performance. FUND FACTS START DATE: June 29, 1990 TRADING SYMBOL: FSCPX SIZE: as of February 29, 1996 more than $22 million MANAGER: Mary B. English, since 1994; manager, Fidelity Select Retailing Portfolio, 1993-1994; equity analyst, specialty retail and advertising industries, 1991-1993; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. CONSUMER PRODUCTS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 91.8% SHARES VALUE (NOTE 1) ADVERTISING - 0.2% CKS Group, Inc. (a) 1,000 $ 33,250 APPAREL STORES - 1.1% GENERAL APPAREL STORES - 1.1% Gymboree Corp. 10,000 260,000 BEVERAGES - 5.7% SOFT DRINKS - 5.7% Coca-Cola Company (The) 1,600 129,200 PepsiCo, Inc. 18,800 1,189,100 1,318,300 COMPUTER SERVICES & SOFTWARE - 7.7% COMPUTER SERVICES - 7.0% America Online, Inc. (a) 26,500 1,301,810 Verity, Inc. (a) 6,500 308,750 1,610,560 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.3% Forefront Group, Inc. (a) 10,000 66,563 PREPACKAGED COMPUTER SOFTWARE - 0.4% Netscape Communications Corp. (a) 1,200 61,200 Spyglass, Inc. (a) 800 18,500 79,700 TOTAL COMPUTER SERVICES & SOFTWARE 1,756,823 COMPUTERS & OFFICE EQUIPMENT - 0.3% MAGNETIC & OPTICAL RECORDING MEDIA - 0.3% Boca Research, Inc. (a) 3,000 60,750 DRUGS & PHARMACEUTICALS - 0.8% BIOTECHNOLOGY - 0.4% Pharmacia & Upjohn, Inc. 2,350 98,406 DRUGS - 0.4% Bristol-Myers Squibb Co. 1,000 85,125 TOTAL DRUGS & PHARMACEUTICALS 183,531 ELECTRICAL EQUIPMENT - 3.9% ELECTRICAL MACHINERY - 3.9% General Electric Co. 12,000 906,000 ENTERTAINMENT - 2.1% MOTION PICTURE PRODUCTION - 2.1% Disney (Walt) Co. 7,500 491,250 FOODS - 6.0% FOOD - 1.0% Kellogg Co. 3,100 234,050 GRAIN MILL PRODUCTS - 5.0% Ralston Purina Co. 17,000 1,139,000 TOTAL FOODS 1,373,050 HOUSEHOLD PRODUCTS - 28.5% COSMETICS - 22.4% Alberto-Culver Co. Class A 52,500 1,719,375 Avon Products, Inc. 15,100 1,213,663 Estee Lauder Companies, Inc. 11,000 402,875 Gillette Co. 22,000 1,190,750 Helene Curtis Industries, Inc. 9,000 627,750 5,154,413 SHARES VALUE (NOTE 1) MANUFACTURED PRODUCTS - 4.2% First Brands Corp. 500 $ 13,375 Luxottica Group Spa sponsored ADR 13,400 941,350 954,725 SOAPS & DETERGENTS - 1.9% Colgate-Palmolive Co. 5,500 430,375 TOTAL HOUSEHOLD PRODUCTS 6,539,513 LEISURE DURABLES & TOYS - 2.9% TOYS & GAMES - 2.9% Galoob (Lewis) Toys, Inc. (a) 41,300 671,125 LODGING & GAMING - 4.6% HOTELS, MOTELS, & TOURIST COURTS - 4.6% Bally Entertainment Corp. 2,000 31,000 HFS, Inc. (a) 20,000 930,000 Host Marriott Corp. (a) 8,000 104,000 1,065,000 PAPER & FOREST PRODUCTS - 1.3% PAPER - 1.3% Kimberly-Clark Corp. 4,000 305,500 PHOTOGRAPHIC EQUIPMENT - 0.5% Eastman Kodak Co. 1,500 107,250 RESTAURANTS - 0.2% Wendy's International, Inc. 3,000 54,375 SERVICES - 9.7% BUSINESS SERVICES - 0.8% Franklin Quest Co. (a) 9,500 190,000 COMMUNICATION, ECONOMY, SOCIAL & EDUCATION RESEARCH - 3.7% Gartner Group, Inc. Class A (a) 15,500 838,938 GENERAL SERVICES - 3.7% Service Corp. International 18,500 839,438 PERSONAL SERVICES - 1.5% Block (H & R), Inc. 10,000 353,750 TOTAL SERVICES 2,222,126 TELEPHONE SERVICES - 3.7% AT&T Corp. 13,300 846,213 TEXTILES & APPAREL - 9.0% APPAREL - 3.3% Warnaco Group, Inc. Class A 29,000 754,000 FOOTWEAR - 5.7% NIKE, Inc. Class B 10,000 648,750 Wolverine World Wide, Inc. 23,000 661,250 1,310,000 TOTAL TEXTILES & APPAREL 2,064,000 TOBACCO - 3.6% TOBACCO MANUFACTURERS - 3.6% Philip Morris Companies, Inc. 8,300 821,700 TOTAL COMMON STOCKS (Cost $18,497,329) 21,079,756 REPURCHASE AGREEMENTS - 8.2% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 1,883,283 $ 1,883,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $20,380,329) $ 22,962,756 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $184,011,927 and $185,299,481, respectively (see Note 3 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 $91,856 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $29,878,000 and $8,636,476, respectively. The weighted average interest rate paid was 6.3% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $20,439,507. Net unrealized appreciation aggregated $2,523,249, of which $2,668,930 related to appreciated investment securities and $145,681 related to depreciated investment securities. The fund hereby designates approximately $334,000 as a capital gain dividend for the purpose of the dividend paid deduction. The fund intends to elect to defer to its fiscal year ending February 28, 1997 approx- imately $2,016,000 of losses recognized during the period November 1, 1995 to February 29, 1996. A total of 21% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. CONSUMER PRODUCTS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $1,883,000) (cost $20,380,329) - $ 22,962,756 See accompanying schedule Cash 809 Receivable for investments sold 505,781 Receivable for fund shares sold 144,857 Dividends receivable 21,102 Redemption fees receivable 503 Other receivables 1,486 TOTAL ASSETS 23,637,294 LIABILITIES Payable for investments purchased $ 730,674 Payable for fund shares redeemed 498,796 Accrued management fee 12,820 Other payables and 32,713 accrued expenses TOTAL LIABILITIES 1,275,003 NET ASSETS $ 22,362,291 Net Assets consist of: Paid in capital $ 21,178,100 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (1,398,236 ) Net unrealized appreciation (depreciation) on investments 2,582,427 NET ASSETS, for 1,253,340 $ 22,362,291 shares outstanding NET ASSET VALUE and redemption price per share ($22,362,291 (divided by) 1,253,340 shares) $17.84 Maximum offering price per share (100/97.00 of $17.84) $18.39
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 490,967 Dividends Interest 189,745 TOTAL INCOME 680,712 EXPENSES Management fee $ 219,534 Transfer agent 222,743 Fees Redemption fees (74,744 ) Accounting fees and expenses 59,535 Non-interested trustees' compensation 171 Custodian fees and expenses 21,346 Registration fees 62,572 Audit 18,158 Legal 103 Interest 31,874 Miscellaneous 307 Total expenses before reductions 561,599 Expense reductions (41,531 520,068 ) NET INVESTMENT INCOME 160,644 REALIZED AND UNREALIZED GAIN (LOSS) (15,575 Net realized gain (loss) on ) investment securities Change in net unrealized appreciation (depreciation) 2,287,139 on investment securities NET GAIN (LOSS) 2,271,564 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 2,432,208 OTHER INFORMATION $ 372,748 Sales charges paid to FDC Deferred sales charges withheld $ 1,264 by FDC Exchange fees withheld by FSC $ 58,785 Expense reductions $ 16,087 Directed brokerage arrangements Custodian interest credits 414 Transfer agent interest credits 2,195 FMR reimbursement 22,835 $ 41,531
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 160,644 $ (85,126 Net investment income (loss) ) Net realized gain (loss) (15,575 323,207 ) Change in net unrealized appreciation (depreciation) 2,287,139 (648,664 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,432,208 (410,583 ) Distributions to shareholders (179,260 - From net investment income ) From net realized gain (51,276 (290,362 ) ) In excess of net realized gain (1,382,081 - ) TOTAL DISTRIBUTIONS (1,612,617 (290,362 ) ) Share transactions 203,425,708 18,706,244 Net proceeds from sales of shares Reinvestment of distributions 1,603,782 284,767 Cost of shares redeemed (204,220,866 (6,171,937 ) ) Paid in capital portion of redemption fees 232,770 9,205 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 1,041,394 12,828,279 TOTAL INCREASE (DECREASE) IN NET ASSETS 1,860,985 12,127,334 NET ASSETS Beginning of period 20,501,306 8,373,972 End of period $ 22,362,291 $ 20,501,306 OTHER INFORMATION Shares Sold 11,665,407 1,341,627 Issued in reinvestment of distributions 90,434 21,383 Redeemed (11,976,587 (438,536 ) ) Net increase (decrease) (220,746 924,474 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992 Net asset value, beginning of period $ 13.91 $ 15.24 $ 12.97 $ 13.81 $ 11.22 Income from Investment Operations Net investment income (loss) .08 (.15) (.20) (.09) (.07) Net realized and unrealized gain (loss) 3.97 (.60) 3.84 .20 2.86 Total from investment operations 4.05 (.75) 3.64 .11 2.79 Less Distributions (.02) - - - - From net investment income From net realized gain (.01) (.60) (1.40) (.97) (.22) In excess of net realized gain (.20) - - - - Total distributions (.23) (.60) (1.40) (.97) (.22) Redemption fees added to paid in capital .11 .02 .03 .02 .02 Net asset value, end of period $ 17.84 $ 13.91 $ 15.24 $ 12.97 $ 13.81 TOTAL RETURN B, C 30.01% (4.59)% 28.43% .98% 25.27% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 22,362 $ 20,501 $ 8,374 $ 7,005 $ 7,553 Ratio of expenses to average net assets 1.53% 2.49% 2.48% 2.47% A 2.48% F F F F , F Ratio of expenses to average net assets after expense reductions 1.48% 2.49% 2.48% 2.47% A 2.48% E Ratio of net investment income (loss) to average net assets .46% (1.08)% (1.34)% (.80)% (.56)% A Portfolio turnover rate 601% 190% 169% 215% A 140% A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS FOOD AND AGRICULTURE 37.92% 117.55% 452.45% FOOD AND AGRICULTURE 33.79% 111.03% 435.87% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS FOOD AND AGRICULTURE 37.92% 16.82% 18.64% FOOD AND AGRICULTURE 33.79% 16.11% 18.28% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10341.07 10558.00 19860430 10722.66 10438.69 19860531 11134.78 10994.03 19860630 11760.58 11179.83 19860731 11096.62 10554.88 19860831 11630.84 11338.05 19860930 10692.13 10400.39 19861031 10928.72 11000.50 19861130 11058.46 11267.81 19861231 10760.82 10980.48 19870131 12073.49 12459.55 19870228 13012.20 12951.70 19870331 13409.05 13326.01 19870430 13363.26 13207.41 19870531 13279.31 13322.31 19870630 14050.12 13995.09 19870731 14561.45 14704.64 19870831 15072.78 15253.12 19870930 14920.14 14919.08 19871031 11554.52 11705.51 19871130 11043.19 10740.97 19871231 11569.26 11558.36 19880131 12021.86 12044.97 19880229 12617.40 12606.27 19880331 12704.74 12216.73 19880430 12744.44 12352.34 19880531 12839.73 12459.80 19880630 13363.80 13031.71 19880731 13459.09 12982.19 19880831 13451.15 12540.79 19880930 13991.10 13075.03 19881031 14642.21 13438.52 19881130 14300.77 13246.35 19881231 14666.85 13478.16 19890131 15423.28 14464.76 19890228 15144.60 14104.59 19890331 15717.89 14433.22 19890430 16530.07 15182.31 19890531 17549.26 15797.19 19890630 17894.08 15707.15 19890731 19601.00 17125.50 19890831 19298.82 17461.16 19890930 19380.49 17389.57 19891031 19184.48 16986.13 19891130 19911.35 17332.65 19891231 20367.48 17748.63 19900131 18950.76 16557.70 19900228 19221.86 16771.29 19900331 20052.65 17215.73 19900430 19973.95 16785.34 19900531 21714.23 18421.91 19900630 22418.61 18296.64 19900731 22409.77 18238.09 19900831 20774.99 16589.37 19900930 20112.24 15781.47 19901031 20589.42 15713.61 19901130 21437.74 16728.71 19901231 22267.16 17195.44 19910131 22906.24 17945.16 19910228 24631.74 19228.24 19910331 25836.85 19693.56 19910430 25444.27 19740.82 19910531 26375.50 20593.63 19910630 25288.80 19650.44 19910731 26347.14 20566.15 19910831 27396.20 21053.57 19910930 26913.45 20701.97 19911031 26922.73 20979.38 19911130 26737.06 20133.91 19911231 29857.97 22437.23 19920131 29412.90 22019.90 19920229 29248.42 22306.16 19920331 28600.18 21871.19 19920430 28271.22 22514.20 19920531 28522.78 22624.52 19920630 28210.92 22287.41 19920731 29300.57 23198.97 19920831 29170.61 22723.39 19920930 29660.45 22991.53 19921031 29980.35 23072.00 19921130 31129.98 23858.75 19921231 31657.20 24152.21 19930131 31667.43 24355.09 19930228 31585.55 24686.32 19930331 32445.30 25207.20 19930430 31185.51 24597.19 19930531 32167.39 25256.39 19930630 31847.21 25329.64 19930731 31452.32 25228.32 19930831 32957.17 26184.47 19930930 32850.44 25982.85 19931031 34088.47 26520.70 19931130 33693.58 26268.75 19931231 34448.55 26586.60 19940131 35490.41 27490.55 19940228 35277.56 26745.55 19940331 33630.75 25579.45 19940430 33254.97 25906.86 19940531 33013.33 26331.74 19940630 33266.48 25686.61 19940731 34382.65 26529.13 19940831 36568.96 27616.82 19940930 36638.00 26940.21 19941031 37328.42 27546.37 19941130 36419.37 26543.13 19941231 36547.83 26936.76 19950131 38088.58 27635.23 19950228 38852.98 28712.18 19950331 39736.81 29559.47 19950430 40605.32 30430.00 19950531 42062.45 31646.29 19950630 43058.15 32381.43 19950731 43531.72 33455.20 19950831 43458.86 33539.17 19950930 46870.97 34954.52 19951031 46943.83 34829.74 19951130 48789.52 36358.76 19951231 49938.52 37059.03 19960131 51998.10 38320.52 19960229 53587.28 38675.75 Let's say you invested $10,000 in Fidelity Select Food and Agriculture Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $53,587 - a 435.87% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Philip Morris Companies, Inc. 9.9 RalCorp Holdings, Inc. 7.7 Ralston Purina Co. 7.7 PepsiCo, Inc. 7.3 Kellogg Co. 5.5 Nabisco Holdings Class A 5.1 RJR Nabisco Holdings Corp. 4.8 DEKALB Genetics Corp. Class B 4.5 Chiquita Brands International, Inc. 4.0 Panamerican Beverages, Inc. Class A 3.4 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Food 14.4% Soft Drinks 12.3% Tobacco Manufacturers 10.3% Cereal Breakfast Foods 7.7% Grain Mill Products 7.7% All Others 47.6% * Row: 1, Col: 1, Value: 47.6 Row: 1, Col: 2, Value: 7.7 Row: 1, Col: 3, Value: 7.7 Row: 1, Col: 4, Value: 10.3 Row: 1, Col: 5, Value: 12.3 Row: 1, Col: 6, Value: 14.4 * 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. HOW HAS THE FUND DONE OVER THE PAST YEAR, BILL? A. For the 12 months ended February 29, 1996, the fund had a total return of 37.92%. The S&P 500 Index returned 34.70% for the same period. Q. WHAT HELPED THE FUND POST SUCH A STRONG RETURN? A. The stocks in this fund - as well as many in the sector - are those of companies that generally have provided strong earnings growth regardless of the economic backdrop. Over the past six to eight months, economic statistics have indicated that economic growth has been inconsistent and sluggish. As a result, investors have been more interested in the "safe" stocks found in this sector, rather than investing in other companies that might be affected by the economic slowdown. In addition, the individual stocks that I've chosen for the portfolio generally have done quite well. Q. CAN YOU GIVE US SOME EXAMPLES? A. The names that have worked best for the fund over the past year have been those where I thought there was a discrepancy between the company's growth rate and its valuation. The two most pronounced examples would be Philip Morris and PepsiCo. With Philip Morris, the story was its aggressive redeployment of cash flow. The company maintained growth in its tobacco, food and brewing businesses, and used its free cash flow to repurchase shares and increase its dividend. In the case of PepsiCo, many people in the investment community were questioning the company's long-term growth rate, especially with respect to the significant exposure it has in restaurants, including Taco Bell, KFC and Pizza Hut. My belief was that the market was overreacting to the problems and that management would come up with a solution. In fact it has, by pursuing internal fixes and refranchising more of its restaurants. By doing so, PepsiCo has been able to extract capital from its restaurant business and reinvest it in higher-returning, faster-growing international snack food and beverage businesses. Furthermore, the company's beverage and Frito-Lay snack food divisions have performed well. Q. WHAT OTHER STOCKS PERFORMED WELL FOR THE FUND? A. Kellogg was one, on the strength of continued earnings growth, cost cutting and stock repurchases. DEKALB Genetics was another, as it received a patent for a potentially revolutionary corn seed that is resistant to a harmful pest, the European corn borer. DEKALB's stock price also surged recently because Monsanto bought a 40% stake in the company. Q. WHICH STOCKS DIDN'T PERFORM AS WELL AS YOU WOULD HAVE LIKED? A. I'd say the main disappointment was Tyson Foods. The company made some great strategic moves that helped it materially increase production volumes. However, it has hit a rough patch due to an increase in corn prices. Corn is the major raw material cost for the poultry business and prices for it have reached the highest level in about a decade. In addition, low beef and pork prices have made those meats a more attractive alternative to poultry. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. It's hard to say which direction the economy or the market will take. I'll be focusing on finding the companies with the best prospects that are trying to make positive changes. Most companies are benefiting from moderate price increases that should help offset moderate raw material cost inflation, and are not resorting to deep price discount promotions to increase market share. One problem I can foresee is that valuations are fairly high in the sector so, among other things, I'll need to be diligent in trying to sell a stock at or around its peak. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FDFAX SIZE: as of February 29, 1996, more than $301 million MANAGER: William Mankivsky, since 1993; manager, Fidelity Select Energy Service Portfolio, 1991-1994; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FOOD AND AGRICULTURE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 87.4% SHARES VALUE (NOTE 1) AGRICULTURE - 7.7% CROPS - 7.7% DEKALB Genetics Corp. Class B 208,700 $ 13,826,374 Pioneer Hi-Bred International, Inc. 175,400 9,449,675 Sylvan Foods Holdings, Inc. (a) 14,900 184,388 23,460,437 BEVERAGES - 13.0% MALT BEVERAGE - 0.7% Anheuser-Busch Companies, Inc. 20,000 1,347,500 Fomento Economico Mexicano SA de CV Class B 36,000 90,544 Quilmes Industries SA 28,000 526,400 1,964,444 SOFT DRINKS - 12.3% Celestial Seasonings, Inc. (a) 184,200 4,075,425 Panamerican Beverages, Inc. Class A 257,700 10,436,850 PepsiCo, Inc. 351,400 22,226,050 Serm Suk Co. Ltd. 38,800 985,006 37,723,331 TOTAL BEVERAGES 39,687,775 CONGLOMERATES - 1.7% Whitman Corp. 225,600 5,245,200 FOODS - 44.7% BAKERY PRODUCTS - 0.8% Flowers Industries, Inc. 4,000 54,500 Interstate Bakeries Corp. 114,400 2,516,800 2,571,300 CANNED SPECIALTIES - 0.2% Campbell Soup Co. 11,000 679,250 CEREAL BREAKFAST FOODS - 7.7% RalCorp Holdings, Inc. (a) 848,466 23,544,932 COOKIES & CRACKERS - 5.1% Nabisco Holdings Class A 443,400 15,574,425 DAIRY - 2.2% Dean Foods Co. 259,600 6,652,250 FOOD - 14.4% Chiquita Brands International, Inc. 776,800 12,234,600 Dole Food, Inc. 90,100 3,626,525 General Mills, Inc. 167,500 9,631,250 Kellogg Co. 221,600 16,730,800 Nestle SA (Reg.) 1,280 1,397,661 Universal Foods Corp. 14,000 530,250 44,151,086 GENERAL FOOD PREPARATIONS - 0.0% Herdez SA de CV Class B (a) 438,846 128,597 GRAIN MILL PRODUCTS - 7.7% Archer-Daniels-Midland Co. 4,000 77,000 Ralston Purina Co. 349,900 23,443,300 23,520,300 MEAT & FISH - 5.2% Golden Poultry Co., Inc. 12,000 121,500 GoodMark Foods, Inc. (b) 445,300 7,013,475 Hormel Foods Corp. 17,000 427,125 Hudson Foods, Inc. Class A 43,000 580,500 Sanderson Farms, Inc. 43,000 462,250 Tyson Foods, Inc. 306,600 6,898,500 WLR Foods, Inc. 26,000 334,750 15,838,100 SHARES VALUE (NOTE 1) POULTRY SLAUGHTER & PROCESSING - 0.1% Pilgrims Pride Corp. 25,000 $ 175,000 RICE MILLING - 0.4% Riviana Foods, Inc. 88,000 1,254,000 SUGAR & CANDIES - 0.9% Grist Mill Co. (a)(b) 392,400 2,599,650 TOTAL FOODS 136,688,890 GROCERY STORES - 0.8% GROCERY - RETAIL - 0.8% Giant Food, Inc. Class A 70,600 2,320,975 HOLDING COMPANIES - 0.1% Triarc Companies, Inc. Class A (a) 35,000 446,250 INDUSTRIAL MACHINERY & EQUIPMENT - 0.5% FARM MACHINERY & EQUIPMENT - 0.5% Case Corp. 32,350 1,718,594 RESTAURANTS - 3.8% Brinker International, Inc. (a) 28,500 388,313 Darden Restaurants, Inc. 500,100 6,126,225 McDonald's Corp. 100,000 5,000,000 11,514,538 TOBACCO - 15.1% CIGARETTES - 4.8% RJR Nabisco Holdings Corp. 435,620 14,647,723 TOBACCO MANUFACTURERS - 10.3% Philip Morris Companies, Inc. 307,400 30,432,600 UST, Inc. 34,000 1,207,000 31,639,600 TOTAL TOBACCO 46,287,323 TOTAL COMMON STOCKS (Cost $226,484,119) 267,369,982 REPURCHASE AGREEMENTS - 12.6% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $38,556,793 38,551,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $265,035,119) $ 305,920,982 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. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE GoodMark Foods, Inc. $ 746,500 $ - $ - $ 7,013,475 Grist Mill Co. 403,519 - - 2,599,650 $ 1,150,019 $ - $ - $ 9,613,125 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $262,497,688 and $235,514,079, respectively (see Note 3 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 $213,864 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the period for which the loan was outstanding amounted to $2,871,000. The weighted average interest rate paid was 6.1% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $265,255,405. Net unrealized appreciation aggregated $40,665,577, of which $43,614,164 related to appreciated investment securities and $2,948,587 related to depreciated investment securities. The fund hereby designates approximately $4,015,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 30% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. FOOD AND AGRICULTURE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $38,551,000) (cost $265,035,119) - $ 305,920,982 See accompanying schedule Cash 328 Receivable for investments sold 285,008 Receivable for fund shares sold 2,735,439 Dividends receivable 366,228 Redemption fees receivable 614 Other receivables 10,900 TOTAL ASSETS 309,319,499 LIABILITIES Payable for investments purchased $ 6,912,049 Payable for fund shares redeemed 968,596 Accrued management fee 145,832 Other payables and accrued expenses 190,689 TOTAL LIABILITIES 8,217,166 NET ASSETS $ 301,102,333 Net Assets consist of: Paid in capital $ 239,376,056 Undistributed net investment income 1,092,171 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 19,747,185 Net unrealized appreciation (depreciation) on investments 40,886,921 and assets and liabilities in foreign currencies NET ASSETS, for 7,144,275 shares outstanding $ 301,102,333 NET ASSET VALUE and redemption price per share ($301,102,333 (divided by) 7,144,275 shares) $42.15 Maximum offering price per share (100/97.00 of $42.15) $43.45
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 3,785,119 Dividends Interest 1,269,478 TOTAL INCOME 5,054,597 EXPENSES Management fee $ 1,286,233 Transfer agent 1,510,275 Fees Redemption fees (143,943 ) Accounting fees and expenses 210,607 Non-interested trustees' compensation 927 Custodian fees and expenses 19,323 Registration fees 84,772 Audit 21,216 Legal 897 Interest 488 Miscellaneous 1,560 Total expenses before reductions 2,992,355 Expense reductions (15,543 2,976,812 ) NET INVESTMENT INCOME 2,077,785 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 29,465,665 Foreign currency transactions (823 29,464,842 ) Change in net unrealized appreciation (depreciation) on: Investment securities 31,021,039 Assets and liabilities in 1,024 31,022,063 foreign currencies NET GAIN (LOSS) 60,486,905 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 62,564,690 OTHER INFORMATION $ 1,756,887 Sales charges paid to FDC Deferred sales charges withheld $ 2,759 by FDC Exchange fees withheld by FSC $ 113,280 Expense reductions $ 12,099 Directed brokerage arrangements Custodian interest credits 808 Transfer agent interest credits 2,636 $ 15,543
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 2,077,785 $ 456,946 Net investment income Net realized gain (loss) 29,464,842 7,641,023 Change in net unrealized appreciation (depreciation) 31,022,063 1,271,971 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 62,564,690 9,369,940 Distributions to shareholders (1,144,034 (213,103 From net investment income ) ) From net realized gain (12,658,077 (5,012,131 ) ) TOTAL DISTRIBUTIONS (13,802,111 (5,225,234 ) ) Share transactions 355,816,771 177,269,912 Net proceeds from sales of shares Reinvestment of distributions 13,613,779 5,111,970 Cost of shares redeemed (314,447,812 (84,479,607 ) ) Paid in capital portion of redemption fees 227,026 72,669 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 55,209,764 97,974,944 TOTAL INCREASE (DECREASE) IN NET ASSETS 103,972,343 102,119,650 NET ASSETS Beginning of period 197,129,990 95,010,340 End of period (including undistributed net investment income of $1,092,171 and $245,442, respectively) $ 301,102,333 $ 197,129,990 OTHER INFORMATION Shares Sold 9,278,227 5,597,630 Issued in reinvestment of distributions 361,809 172,511 Redeemed (8,554,944 (2,728,534 ) ) Net increase (decrease) 1,085,092 3,041,607
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 32.53 $ 31.49 $ 30.86 $ 29.22 $ 27.87 Income from Investment Operations Net investment income .37 .15 .09 .05 .13 Net realized and unrealized gain (loss) 11.61 2.80 3.29 3.26 2.89 Total from investment operations 11.98 2.95 3.38 3.31 3.02 Less Distributions (.20) (.08) (.06) (.10) (.11) From net investment income From net realized gain (2.20) (1.85) (2.70) (1.57) (1.59) Total distributions (2.40) (1.93) (2.76) (1.67) (1.70) Redemption fees added to paid in capital .04 .02 .01 - .03 Net asset value, end of period $ 42.15 $ 32.53 $ 31.49 $ 30.86 $ 29.22 TOTAL RETURN B, C 37.92% 10.14% 11.69% 11.72% 11.11% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 301,102 $ 197,130 $ 95,010 $ 108,377 $ 108,922 Ratio of expenses to average net assets 1.43% 1.70% 1.65% 1.67% 1.83% A Ratio of expenses to average net assets after expense reductions 1.42% 1.68% 1.64% 1.67% 1.83% E E E A Ratio of net investment income to average net assets .99% .49% .29% .21% .46% A Portfolio turnover rate 124% 126% 96% 515% 63% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS LEISURE 27.61% 139.86% 275.36% LEISURE 23.78% 132.66% 264.10% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS LEISURE 27.61% 19.12% 14.14% LEISURE 23.78% 18.40% 13.79% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10465.29 10558.00 19860430 10780.97 10438.69 19860531 11484.07 10994.03 19860630 11751.92 11179.83 19860731 10627.11 10554.88 19860831 10977.03 11338.05 19860930 9908.09 10400.39 19861031 10416.19 11000.50 19861130 10286.77 11267.81 19861231 9831.39 10980.48 19870131 10866.78 12459.55 19870228 12036.38 12951.70 19870331 12180.19 13326.01 19870430 11902.17 13207.41 19870531 12391.10 13322.31 19870630 12923.18 13995.09 19870731 13877.07 14704.64 19870831 14164.68 15253.12 19870930 13857.90 14919.08 19871031 9903.29 11705.51 19871130 9213.04 10740.97 19871231 10391.42 11558.36 19880131 10551.37 12044.97 19880229 11473.75 12606.27 19880331 11857.63 12216.73 19880430 11932.27 12352.34 19880531 11623.03 12459.80 19880630 12399.35 13031.71 19880731 12502.45 12982.19 19880831 12014.07 12540.79 19880930 12849.74 13075.03 19881031 12849.74 13438.52 19881130 12355.93 13246.35 19881231 13093.93 13478.16 19890131 14211.77 14464.76 19890228 13983.86 14104.59 19890331 14640.45 14433.22 19890430 15470.69 15182.31 19890531 16241.24 15797.19 19890630 16395.25 15707.15 19890731 17771.11 17125.50 19890831 17913.63 17461.16 19890930 18028.74 17389.57 19891031 16729.62 16986.13 19891130 16926.96 17332.65 19891231 17180.26 17748.63 19900131 15096.74 16557.70 19900228 14962.89 16771.29 19900331 15079.28 17215.73 19900430 14491.48 16785.34 19900531 15690.37 18421.91 19900630 15509.95 18296.64 19900731 14974.52 18238.09 19900831 13246.02 16589.37 19900930 11988.93 15781.47 19901031 11849.25 15713.61 19901130 12792.07 16728.71 19901231 13351.55 17195.44 19910131 14098.20 17945.16 19910228 15179.97 19228.24 19910331 15432.77 19693.56 19910430 15473.93 19740.82 19910531 16008.93 20593.63 19910630 15109.42 19650.44 19910731 15832.55 20566.15 19910831 15997.17 21053.57 19910930 16408.71 20701.97 19911031 16902.56 20979.38 19911130 16091.24 20133.91 19911231 17749.16 22437.23 19920131 18148.94 22019.90 19920229 18783.89 22306.16 19920331 18401.74 21871.19 19920430 18607.51 22514.20 19920531 18719.22 22624.52 19920630 18431.14 22287.41 19920731 18519.33 23198.97 19920831 18254.76 22723.39 19920930 18613.39 22991.53 19921031 18754.49 23072.00 19921130 20030.27 23858.75 19921231 20629.94 24152.21 19930131 21141.43 24355.09 19930228 21029.72 24686.32 19930331 22123.25 25207.20 19930430 21624.67 24597.19 19930531 23178.02 25256.39 19930630 23801.81 25329.64 19930731 24437.83 25228.32 19930831 26119.61 26184.47 19930930 27422.23 25982.85 19931031 28938.89 26520.70 19931130 27862.55 26268.75 19931231 28789.84 26586.60 19940131 29089.07 27490.55 19940228 28840.77 26745.55 19940331 27096.32 25579.45 19940430 27150.95 25906.86 19940531 26863.60 26331.74 19940630 25728.22 25686.61 19940731 26723.43 26529.13 19940831 27788.72 27616.82 19940930 27781.71 26940.21 19941031 27683.59 27546.37 19941130 26499.16 26543.13 19941231 26821.55 26936.76 19950131 27312.14 27635.23 19950228 28531.62 28712.18 19950331 29281.53 29559.47 19950430 29540.95 30430.00 19950531 30112.57 31646.29 19950630 31276.99 32381.43 19950731 33450.57 33455.20 19950831 34523.24 33539.17 19950930 34579.70 34954.52 19951031 32914.23 34829.74 19951130 33986.91 36358.76 19951231 34052.04 37059.03 19960131 34556.74 38320.52 19960229 36409.97 38675.75 Let's say you invested $10,000 in Fidelity Select Leisure Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $36,410 - a 264.10% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Omnicom Group, Inc. 3.3 Time Warner, Inc. 2.5 PepsiCo, Inc. 2.5 Sierra On-Line, Inc. 2.3 American Express Co. 2.3 General Electric Co. 2.2 Hilton Hotels Corp. 2.2 Comcast Corp. Class A special 2.0 Disney (Walt) Co. 2.0 Renaissance Communications Corp. 1.9 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 61.2 Row: 1, Col: 2, Value: 4.0 Row: 1, Col: 3, Value: 6.2 Row: 1, Col: 4, Value: 7.2 Row: 1, Col: 5, Value: 7.4 Row: 1, Col: 6, Value: 14.0 Cable TV Operators 14.0% Hotels, Motels & Tourist Courts 7.4% Television Broadcasting 7.2% Advertising Agencies 6.2% Motion Picture Production 4.0% All Others 61.2% * * INCLUDES SHORT-TERM INVESTMENTS LEISURE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Katherine Collins, Portfolio Manager of Fidelity Select Leisure Portfolio Note to shareholders: On February 1, 1996, Katherine Collins replaced Deborah Wheeler as portfolio manager of the fund. Q. KATHERINE, HOW HAS THE FUND PERFORMED? A. For the 12 months ended February 29, 1996, the fund had a total return of 27.61%. The S&P 500 Index returned 34.70% during the same 12-month period. Q. WHAT FACTORS AFFECTED THE SECTOR AND THE FUND? A. In the broadcast industry, the passage of the federal telecommunications bill, mergers and acquisitions, and the economic backdrop affected stock performance. Through much of 1995, this industry generally performed well in anticipation of the telecommunications legislation, until broadcasting stocks hit a rough patch in October and November. At that time, Congressional budget haggling caused temporary concerns, as did statistics indicating that the economy was slowing down. When that slowdown occurred, it created a difficult advertising environment for broadcasters. Since then, though, the passage of the telecommunications bill and renewed merger and acquisition activity have helped these stocks recover. Q. WHAT ABOUT OTHER PARTS OF THE LEISURE SECTOR? A. On the entertainment side, stock performance has been driven by company-specific issues. There was continued merger activity, as the Disney/Capital Cities and Westinghouse/CBS transactions were completed. In addition, software-related companies posted strong performance for the fund, including Sierra On-Line, which benefited from strong new product sales, some disarray in its competition and, finally, a proposed merger during February. I've also maintained the fund's stake in cable equipment providers, such as California Amplifier, and increased investments in the lodging and gaming industry. Q. WHAT WAS THE APPEAL OF LODGING AND GAMING STOCKS? A. Lodging and gaming stocks were more attractively valued than alternatives. In addition, business prospects for the industry appeared to be solid, with supply and demand looking quite favorable. I've picked companies on individual merits, looking for such factors as new casino development. Hilton Hotels, one of the fund's 10 largest investments, posted strong stock price gains because of internal actions the company has pursued, as well as the appointment of a well-respected, experienced chief executive officer. Q. WHAT OTHER INVESTMENTS HELPED THE FUND'S PERFORMANCE? A. Along with Hilton Hotels and Sierra On-Line, Renaissance Communications attracted investor interest on the strength of a solid base business and very low debt levels. The latter quality made Renaissance attractive because it signaled the company's ability to make a large acquisition or become an attractive acquisition itself. Q. WERE THERE INVESTMENTS THAT DIDN'T TURN OUT AS WELL AS EXPECTED? A. I'd say the biggest disappointment toward the end of 1995 was Viacom. Concerns over the company's Blockbuster Video franchise hurt performance, as this business posted a weak fourth quarter. In addition, Viacom's Paramount Pictures business had a tough fourth quarter in 1995. Q. TWO OF THE 10 LARGEST INVESTMENTS CURRENTLY ARE GENERAL ELECTRIC AND PEPSICO. HOW DO THOSE STOCKS FIT INTO A LEISURE FUND? A. General Electric owns NBC, which has been the best performing network. Even though NBC is not an overwhelmingly large piece of GE, I believed it would be a mistake not to have it represented in the fund. PepsiCo is connected to the leisure sector through its KFC, Pizza Hut and Taco Bell restaurant businesses, as well as through its main beverage business. Q. WHAT'S YOUR OUTLOOK? A. Looking at broadcasting, I'd say the impact of the telecommunications bill and consolidation activity should be the most important factors going forward. I'll be looking for the companies with the best business and acquisition prospects selling at attractive valuations. On the film and entertainment side, large companies such as Viacom and Disney might have a hard time matching their strong first-half 1995 performance. In that area, I'll be looking for opportunities to find long-term winners with strong assets and that have a good mix of both content and distribution businesses. Beyond that, I'll be looking company-by-company for attractive stories in other sectors, with no other major themes on the horizon besides gaming and lodging. FUND FACTS START DATE: May 8, 1984 TRADING SYMBOL: FDLSX SIZE: as of February 29, 1996, more than $85 million MANAGER: Katherine Collins, since February 1996; assistant director of research, 1994-May 1995; manager, Fidelity Select Construction and Housing Portfolio, 1992-1994, analyst, since 1990; joined Fidelity in 1990 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. LEISURE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 87.2% SHARES VALUE (NOTE 1) ADVERTISING - 6.2% ADVERTISING AGENCIES - 6.2% ADVO-Systems, Inc. 50,000 $ 1,093,750 Omnicom Group, Inc. 67,200 2,746,800 WPP Group PLC ADR 50,000 1,375,000 5,215,550 AIR TRANSPORTATION - 0.9% AIR TRANSPORTATION, MAJOR NATIONAL - 0.6% Southwest Airlines Co. 5,000 153,750 UAL Corp. 2,000 357,250 511,000 AIR TRANSPORTATION, REGIONAL - 0.3% Atlantic Southeast Airlines, Inc. 10,000 262,500 TOTAL AIR TRANSPORTATION 773,500 APPAREL STORES - 0.7% GENERAL APPAREL STORES - 0.7% Gymboree Corp. (a) 21,300 553,800 BEVERAGES - 3.7% DISTILLED & BLENDED LIQUOR - 1.2% Seagram Co. Ltd. 30,000 1,020,725 SOFT DRINKS - 2.5% PepsiCo, Inc. 33,441 2,115,143 TOTAL BEVERAGES 3,135,868 BROADCASTING - 26.4% CABLE TV OPERATORS - 14.0% BET Holdings, Inc. Class A (a) 10,300 318,013 CAI Wireless Systems, Inc. (a) 48,600 431,325 Cablevision Systems Corp. Class A (a) 14,600 848,625 Comcast Corp. Class A special 86,000 1,687,750 Gaylord Entertainment Co. Class A 17,500 468,125 Heartland Wireless Communications, Inc. (a) 9,140 230,785 International Family Entertainment Class B (a) 2,500 38,125 People's Choice TV Corp. (a) 65,328 1,233,066 TCA Cable TV, Inc. 29,000 978,750 TCI Group Class A 70,500 1,480,500 Tele-Communications Liberty Media Group Series A (a) 10,875 300,422 Time Warner, Inc. 49,639 2,122,067 Turner Broadcasting System, Inc. Class B 11,100 321,900 Viacom, Inc. Class B (a): (non-vtg.) 13,555 532,034 (warrants C) 122,000 213,500 (warrants E) 50,000 209,375 Videotron Holdings PLC sponsored ADR (a) 25,000 421,875 Wireless One, Inc. (a) 1,000 14,750 11,850,987 COMMUNICATIONS SERVICES - 1.7% Lodgenet Entertainment Corp. (a) 45,000 596,250 PanAmSat Corp. (a) 27,500 821,563 1,417,813 RADIO BROADCASTING - 3.5% American Radio Systems Corp. Class A (a) 14,900 454,450 EZ Communications, Inc. Class A (a) 35,400 708,000 Emmis Broadcasting Corp. Class A (a) 18,900 722,925 Evergreen Media Corp. Class A (a) 3,858 127,796 SHARES VALUE (NOTE 1) Grupo Radio Centro SA de CV sponsored ADR 16,500 $ 136,125 Heftel Broadcasting Corp. Class A (a) 23,700 450,300 Infinity Broadcasting Corp. Class A (a) 6,150 253,688 Saga Communications, Inc. Class A (a) 5,000 91,250 2,944,534 TELEVISION BROADCASTING - 7.2% Australis Media Ltd. (a) 300,000 206,483 British Sky Broadcasting Group sponsored ADR 1,000 36,000 Capital Cities/ABC, Inc. 3,100 415,846 Carlton Communications PLC 37,500 240,183 Chris-Craft Industries, Inc. 12,030 509,771 Grupo Televisa SA de CV sponsored ADR 59,000 1,445,500 Home Shopping Network, Inc. (a) 20,600 216,300 Jacor Communications, Inc. Class A (a) 10,200 221,850 Renaissance Communications Corp. (a) 61,450 1,566,975 Sinclair Broadcast Group, Inc. Class A (a) 52,400 1,231,400 6,090,308 TOTAL BROADCASTING 22,303,642 CELLULAR - 1.1% CELLULAR & COMMUNICATION SERVICES - 1.1% AirTouch Communications, Inc. (a) 12,000 372,000 Cellular Communications, Inc., Series A (redeemable) (a) 5,600 288,400 International Cabletel, Inc. (a) 10,000 250,000 Rogers Communications, Inc. Class B (a) 2,000 20,068 930,468 COMMUNICATIONS EQUIPMENT - 0.7% DATACOMMUNICATIONS EQUIPMENT - 0.7% Echostar Communications Corp. Class A (a) 15,600 561,600 COMPUTER SERVICES & SOFTWARE - 3.0% CAD/CAM/CAE - 0.0% CSG Systems International, Inc. 1,000 22,000 PREPACKAGED COMPUTER SOFTWARE - 3.0% Maxis, Inc. (a) 10,200 295,800 Microsoft Corp. 2,000 198,250 Netscape Communications Corp. (a) 400 20,400 Sierra On-Line, Inc. (a) 52,000 1,982,500 Softkey International, Inc. (a) 400 9,644 2,506,594 TOTAL COMPUTER SERVICES & SOFTWARE 2,528,594 CONSUMER DURABLES - 0.5% MANUFACTURING INDUSTRIES - 0.5% Ballantyne of Omaha, Inc. (a) 44,000 387,750 CONSUMER ELECTRONICS - 0.9% RADIOS, TELEVISIONS, STEREOS - 0.9% Sony Corp. 13,200 772,451 CREDIT & OTHER FINANCE - 2.3% FINANCIAL SERVICES - 2.3% American Express Co. 42,200 1,941,200 ELECTRICAL EQUIPMENT - 7.3% ELECTRICAL MACHINERY - 2.7% Amphenol Corp. Class A (a) 15,400 375,375 General Electric Co. 25,000 1,887,500 2,262,875 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRICAL EQUIPMENT - CONTINUED TV & RADIO COMMUNICATION EQUIPMENT - 3.8% Avid Technology, Inc. (a) 17,000 $ 284,750 California Amplifier, Inc. (a) 32,300 1,508,006 Pinnacle Systems (a) 18,600 427,800 Scientific-Atlanta, Inc. 57,200 958,100 3,178,656 WIRING & LIGHTING - 0.8% Oak Industries, Inc. (a) 30,200 721,025 TOTAL ELECTRICAL EQUIPMENT 6,162,556 ENTERTAINMENT - 6.4% AMUSEMENT & RECREATION SERVICES - 0.9% IMAX Corp. (a) 26,000 750,750 MOTION PICTURE DISTRIBUTION - 0.3% All American Communications, Inc. Class B (non-vtg.) (a) 30,000 247,500 MOTION PICTURE PRODUCTION - 2.9% Cinergi Pictures Entertainment, Inc. (a) 21,400 22,738 Disney (Walt) Co. 25,200 1,650,600 Spelling Entertainment Group, Inc. (a) 65,000 755,625 2,428,963 MOVIE THEATERS - 1.7% AMC Entertainment, Inc. (a) 27,900 589,388 Carmike Cinemas, Inc. Class A (a) 21,600 507,600 Cineplex Odeon Corp. (a) 205,100 344,241 1,441,229 RECORDS & CD'S - 0.2% PolyGram NV ADR 2,200 128,425 RECREATIONAL SERVICES - 0.4% Cedar Fair LP (depositary units) 1,000 37,875 MGM Grand, Inc. (a) 10,300 342,475 380,350 TOTAL ENTERTAINMENT 5,377,217 GENERAL MERCHANDISE STORES - 0.7% DEPARTMENT STORES - 0.7% Carson Pirie Scott & Co. (a) 300 5,888 Federated Department Stores, Inc. 20,400 617,100 622,988 HOME FURNISHINGS - 0.3% FURNITURE STORES - 0.3% Ethan Allen Interiors, Inc. 11,700 267,638 HOUSEHOLD PRODUCTS - 0.8% COSMETICS - 0.8% Revlon, Inc. Class A 2,000 55,250 Estee Lauder Companies, Inc. 17,000 622,625 677,875 MANUFACTURED PRODUCTS - 0.0% Windmere Corp. (warrants) (a) 845 - TOTAL HOUSEHOLD PRODUCTS 677,875 LEISURE DURABLES & TOYS - 2.8% MOTORCYCLES - 0.9% Harley Davidson, Inc. 20,300 728,263 SPORTING & ATHLETIC GOODS - 0.5% Coleman, Inc. (a) 9,000 393,750 SHARES VALUE (NOTE 1) TOYS & GAMES - 1.4% Galoob (Lewis) Toys, Inc. (a) 15,000 $ 243,750 Mattel, Inc. 375 12,469 Namco Ltd. 8,000 253,076 Toy Biz, Inc. Class A (a) 31,200 709,800 1,219,095 TOTAL LEISURE DURABLES & TOYS 2,341,108 LODGING & GAMING - 8.8% HOTELS, MOTELS, & TOURIST COURTS - 7.4% Circus Circus Enterprises, Inc. 15,000 478,125 Hilton Hotels Corp. 20,000 1,875,000 Host Marriott Corp. (a) 100,000 1,300,000 ITT Corp. 6,400 386,400 Marriott International, Inc. 25,600 1,257,600 Mirage Resorts, Inc. (a) 20,500 950,688 6,247,813 RACING & GAMING - 1.4% International Speedway Corp. 1,700 493,000 Speedway Motorsports (a) 5,600 242,200 WMS Industries, Inc. (a) 26,900 484,200 1,219,400 TOTAL LODGING & GAMING 7,467,213 PHOTOGRAPHIC EQUIPMENT - 0.0% Polaroid Corp. 700 30,800 PRINTING - 0.7% COMMERCIAL PRINTING - 0.7% Valassis Communications, Inc. (a) 36,000 603,000 PUBLISHING - 3.0% NEWSPAPERS - 2.3% News International PLC 150,000 693,702 News Corp. Ltd. sponsored ADR (Ltd. vtg.) 20,000 400,000 Pulitzer Publishing Co. 16,000 808,000 1,901,702 PERIODICALS - 0.7% Meredith Corp. 14,600 640,575 TOTAL PUBLISHING 2,542,277 RESTAURANTS - 0.2% Host Marriott Services Corp. (a) 20,000 132,500 RETAIL & WHOLESALE, MISCELLANEOUS - 3.2% DURABLE GOODS - WHOLESALE - 1.8% Alliance Entertainment Corp. (a) 49,500 470,250 Sodak Gaming, Inc. (a) 36,400 982,800 1,453,050 LUMBER & BUILDING MATERIALS - RETAIL - 0.9% Lowe's Companies, Inc. 25,000 775,000 MAIL ORDER - 0.4% National Media Corp. (a) 20,000 355,000 MUSIC, TV, & ELECTRONIC STORES - 0.1% Tandy Corp. 2,200 96,250 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 2,679,300 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) SERVICES - 1.2% BUSINESS SERVICES - 0.9% Sotheby's Holdings, Inc. Class A 52,500 $ 780,938 GENERAL SERVICES - 0.3% Flextech PLC (a) 35,000 281,922 TOTAL SERVICES 1,062,860 TELEPHONE SERVICES - 1.5% SBC Communications, Inc. 23,000 1,262,125 TEXTILES & APPAREL - 2.1% APPAREL - 1.7% Warnaco Group, Inc. Class A 55,000 1,430,000 FOOTWEAR - 0.4% NIKE, Inc. Class B 5,000 324,375 TOTAL TEXTILES & APPAREL 1,754,375 TOBACCO - 1.8% TOBACCO MANUFACTURERS - 1.8% Philip Morris Companies, Inc. 15,000 1,485,000 TOTAL COMMON STOCKS (Cost $63,974,875) 73,573,255 CONVERTIBLE PREFERRED STOCKS - 1.8% CELLULAR - 0.7% CELLULAR & COMMUNICATION SERVICES - 0.7% Cellular Communications, Inc. $0.01 (a) 11,596 585,590 ENTERTAINMENT - 1.1% MOTION PICTURE PRODUCTION - 1.1% Time Warner Financing Trust $1.24 28,100 969,450 TOTAL PREFERRED STOCKS (Cost $1,449,248) 1,555,040 REPURCHASE AGREEMENTS - 11.0% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 9,257,391 9,256,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $74,680,123) $ 84,384,295 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $102,120,608 and $109,208,709, respectively (see Note 3 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 $61,874 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $6,979,000 and $1,433,455, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $74,825,957. Net unrealized appreciation aggregated $9,558,338, of which $11,930,292 related to appreciated investment securities and $2,371,954 related to depreciated investment securities. The fund hereby designates approximately $3,446,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 7% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. LEISURE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $9,256,000) (cost $74,680,123) - See $ 84,384,295 accompanying schedule Cash 122 Receivable for investments sold 1,228,520 Receivable for fund shares sold 1,383,917 Dividends receivable 25,560 Redemption fees receivable 69 Other receivables 33,965 TOTAL ASSETS 87,056,448 LIABILITIES Payable for investments purchased $ 1,682,460 Payable for fund shares redeemed 247,866 Accrued management fee 40,732 Other payables and 72,523 accrued expenses TOTAL LIABILITIES 2,043,581 NET ASSETS $ 85,012,867 Net Assets consist of: Paid in capital $ 69,776,847 Undistributed net investment income 3,611 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 5,528,157 Net unrealized appreciation (depreciation) on investments 9,704,252 and assets and liabilities in foreign currencies NET ASSETS, for 1,841,410 shares outstanding $ 85,012,867 NET ASSET VALUE and redemption price per share ($85,012,867 (divided by) 1,841,410 shares) $46.17 Maximum offering price per share (100/97.00 of $46.17) $47.60
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 458,018 Dividends Interest 463,263 TOTAL INCOME 921,281 EXPENSES Management fee $ 486,216 Transfer agent 712,201 Fees Redemption fees (40,678 ) Accounting fees and expenses 79,740 Non-interested trustees' compensation 508 Custodian fees and expenses 23,711 Registration fees 17,780 Audit 19,692 Legal 574 Interest 2,733 Miscellaneous 694 Total expenses before reductions 1,303,171 Expense reductions (12,762 1,290,409 ) NET INVESTMENT INCOME (LOSS) (369,128 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 14,883,047 Foreign currency transactions 142 14,883,189 Change in net unrealized appreciation (depreciation) on: Investment securities 3,622,966 Assets and liabilities in 72 3,623,038 foreign currencies NET GAIN (LOSS) 18,506,227 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 18,137,099 OTHER INFORMATION $ 451,945 Sales charges paid to FDC Deferred sales charges withheld $ 17,764 by FDC Exchange fees withheld by FSC $ 27,135 Expense reductions $ 11,148 Directed brokerage arrangements Custodian interest credits 1,158 Transfer agent interest credits 456 $ 12,762
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ (369,128 $ (380,902 Net investment income (loss) ) ) Net realized gain (loss) 14,883,189 203,901 Change in net unrealized appreciation (depreciation) 3,623,038 (3,201,870 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 18,137,099 (3,378,871 ) Distributions to shareholders from net realized gains (8,732,838 (8,699,446 ) ) Share transactions 62,794,252 28,459,652 Net proceeds from sales of shares Reinvestment of distributions 8,564,535 8,558,337 Cost of shares redeemed (65,359,698 (61,250,156 ) ) Paid in capital portion of redemption fees 40,287 46,644 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 6,039,376 (24,185,523 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 15,443,637 (36,263,840 ) NET ASSETS Beginning of period 69,569,230 105,833,070 End of period (including under (over) distribution of net investment income of $3,611 and $(68,073), $ 85,012,867 $ 69,569,230 respectively) OTHER INFORMATION Shares Sold 1,338,175 715,555 Issued in reinvestment of distributions 200,267 219,557 Redeemed (1,405,986 (1,562,185 ) ) Net increase (decrease) 132,456 (627,073 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 40.71 $ 45.30 $ 35.77 $ 31.65 $ 26.32 Income from Investment Operations Net investment income (loss) (.21) (.21) (.29) (.11) (.08) Net realized and unrealized gain (loss) 10.97 (.48) 12.98 4.21 5.40 Total from investment operations 10.76 (.69) 12.69 4.10 5.32 Less Distributions (5.32) (3.93) (3.26) - - From net realized gain Redemption fees added to paid in capital .02 .03 .10 .02 .01 Net asset value, end of period $ 46.17 $ 40.71 $ 45.30 $ 35.77 $ 31.65 TOTAL RETURN B, C 27.61% (1.07)% 37.14% 13.02% 20.25% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 85,013 $ 69,569 $ 105,833 $ 44,824 $ 40,051 Ratio of expenses to average net assets 1.64% 1.64% 1.55% 1.90% 2.21% A Ratio of expenses to average net assets after expense reductions 1.63% 1.62% 1.53% 1.90% 2.21% E E E A Ratio of net investment income (loss) to average net assets (.46)% (.52)% (.69)% (.39)% (.28)% A Portfolio turnover rate 141% 103% 170% 109% 45% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past five year and life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND MULTIMEDIA 31.98% 195.15% 386.04% MULTIMEDIA 28.02% 186.29% 371.46% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 247.69% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND MULTIMEDIA 31.98% 24.17% 17.75% MULTIMEDIA 28.02% 23.41% 17.38% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 13.74% 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 19860630 9700.00 10000.00 19860731 9253.80 9488.77 19860831 9777.60 10192.84 19860930 9263.50 9349.89 19861031 9700.00 9889.38 19861130 9777.60 10129.69 19861231 9486.60 9871.39 19870131 10621.50 11201.06 19870228 11911.60 11643.50 19870331 11872.80 11980.00 19870430 11688.50 11873.38 19870531 12231.70 11976.68 19870630 12745.80 12581.50 19870731 13725.50 13219.38 19870831 13715.80 13712.46 19870930 13386.00 13412.16 19871031 10660.30 10523.18 19871130 9923.10 9656.07 19871231 11377.70 10390.90 19880131 11566.11 10828.35 19880229 12340.67 11332.96 19880331 12874.49 10982.77 19880430 13031.50 11104.68 19880531 12811.69 11201.29 19880630 13254.20 11715.43 19880731 13232.54 11670.91 19880831 12734.43 11274.10 19880930 13535.74 11754.37 19881031 13687.34 12081.14 19881130 13579.06 11908.38 19881231 14432.31 12116.78 19890131 16155.73 13003.73 19890228 16122.38 12679.94 19890331 16878.46 12975.38 19890430 18012.59 13648.80 19890531 18879.86 14201.58 19890630 19266.45 14120.63 19890731 20732.13 15395.72 19890831 20709.75 15697.48 19890930 20385.29 15633.12 19891031 19009.12 15270.43 19891130 19121.00 15581.95 19891231 19129.10 15955.91 19900131 16589.03 14885.27 19900228 16170.05 15077.29 19900331 16012.93 15476.84 19900430 15253.52 15089.92 19900531 16706.86 16561.19 19900630 16562.84 16448.57 19900731 15646.32 16395.93 19900831 13616.88 14913.74 19900930 12451.59 14187.44 19901031 11914.77 14126.44 19901130 13145.53 15039.00 19901231 14114.42 15458.59 19910131 14873.82 16132.59 19910228 15973.65 17286.07 19910331 16405.72 17704.39 19910430 16968.73 17746.88 19910531 17060.38 18513.55 19910630 15711.78 17665.63 19910731 16300.98 18488.84 19910831 16811.61 18927.03 19910930 17832.88 18610.95 19911031 18736.30 18860.33 19911130 17453.17 18100.26 19911231 19456.43 20170.93 19920131 19967.06 19795.75 19920229 21079.98 20053.10 19920331 20543.16 19662.06 19920430 20857.39 20240.13 19920531 21171.63 20339.30 19920630 21250.19 20036.25 19920731 21302.56 20855.73 19920831 21014.51 20428.19 19920930 20883.58 20669.24 19921031 21224.00 20741.58 19921130 22769.00 21448.87 19921231 23639.18 21712.69 19930131 24116.74 21895.08 19930228 24222.86 22192.85 19930331 25177.98 22661.12 19930430 24526.88 22112.72 19930531 26198.86 22705.34 19930630 27021.36 22771.19 19930731 28032.64 22680.10 19930831 30419.26 23539.68 19930930 31147.38 23358.43 19931031 33480.06 23841.94 19931130 31295.13 23615.45 19931231 32626.91 23901.19 19940131 33092.22 24713.83 19940228 32667.96 24044.09 19940331 30669.84 22995.77 19940430 30684.72 23290.11 19940531 31813.18 23672.07 19940630 31102.09 23092.10 19940731 31859.55 23849.53 19940831 33776.38 24827.36 19940930 33544.50 24219.09 19941031 34301.96 24764.01 19941130 33219.88 23862.11 19941231 33933.14 24215.98 19950131 34316.74 24843.91 19950228 35723.30 25812.07 19950331 37992.97 26573.79 19950430 38872.06 27356.38 19950531 39079.85 28449.82 19950630 40582.31 29110.71 19950731 42979.84 30076.02 19950831 44338.45 30151.51 19950930 45601.15 31423.90 19951031 44258.53 31311.72 19951130 45968.77 32686.31 19951231 45359.40 33315.84 19960131 45636.93 34449.91 19960229 47146.02 34769.27 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 February 29, 1996, your investment would have grown to $47,146 - a 371.46% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $34,769 over the same period - a 247.69% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Meredith Corp. 7.3 Scientific-Atlanta, Inc. 6.1 People's Choice TV Corp. 4.7 California Amplifier, Inc. 4.6 Times Mirror Co. Class A 4.3 ADVO-Systems, Inc. 3.6 Belo (A.H.) Corp. Class A 3.2 TCI Group Class A 3.2 NYNEX Corp. 3.1 DSC Communications Corp. 2.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Newspaper 21.2% Cable TV Operators 14.0% TV & Radio Communication Equipment 12.2% Periodicals 9.6% Telephone Services 7.9% All Others 35.1% * Row: 1, Col: 1, Value: 35.1 Row: 1, Col: 2, Value: 7.9 Row: 1, Col: 3, Value: 9.6 Row: 1, Col: 4, Value: 12.2 Row: 1, Col: 5, Value: 14.0 Row: 1, Col: 6, Value: 21.1 * INCLUDES SHORT-TERM INVESTMENTS MULTIMEDIA PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Porter, Portfolio Manager of Fidelity Select Multimedia Portfolio Note to shareholders: On February 1, 1996, John Porter replaced Stephen DuFour as portfolio manager of the fund. Q. HOW DID THE FUND PERFORM, JOHN? A. For the 12-month period ended February 29, 1996, the fund returned 31.98%. For the same period, the S&P 500 Index returned 34.70%. Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE? A. Regional Bell phone companies were an important part of the portfolio during the period. Over the past year and a half, these companies have performed well in an environment of deregulation. Additionally, the fund owned some selected publishing and cable equipment stocks that appreciated significantly in value. Q. ONE WOULD IMAGINE THAT THE PASSAGE OF THE NEW TELECOMMUNICATIONS LAW WAS A MONUMENTAL EVENT FOR THE MULTIMEDIA INDUSTRY . . . A. Clearly the new telecommunications law will have dramatic effects for some time to come. The telecom law gave the long-distance phone service, local phone service and broadcast and cable industries the regulatory freedom to enter markets where they were previously excluded. For example, long-distance carriers such as AT&T may compete for local services against the Baby Bells and vice versa. The telecom law also allows cable TV providers to expand their existing businesses as well as explore new communications areas by reducing regulatory barriers. Cable equipment companies such as Scientific-Atlanta, therefore, will be essential in providing the equipment necessary to expand the cable providers' businesses. Q. THE STRONG PERFORMANCE OF RADIO STOCKS HAS BEEN WELL DOCUMENTED IN THE FINANCIAL MEDIA. WHY DOESN'T THE FUND OWN SOME OF THE MAJOR RADIO STOCKS? A. Radio stocks have performed well, but they have been expensive for a while. Because it was expected for some time that the telecom law would allow radio companies to expand the number of stations they may hold in one market, investors have bid up the prices of many radio company stocks. In addition, radio companies are facing increasing competition from other forms of media for advertising revenues. Q. HAS THE SAME SITUATION DEVELOPED WITH BROADCASTING COMPANIES? A. Not to the same degree. In fact, that's what makes some of them attractive right now. Let me explain. The telecom law allows companies to own TV stations that serve 35% of the population, up from 25%. What this means is freedom for broadcasting companies to own more stations. Unlike radio, however, this hasn't been priced into the stocks of broadcast companies. In my opinion, there is the potential to benefit from any merger and acquisition activity involving broadcast companies. Q. WHAT DOES ALL THIS MEAN FOR SOME OF THE COMPANIES THE FUND OWNS? A. The new environment created by the telecom law creates new opportunities. As a portfolio manager, it is up to me to identify those opportunities. For example, Wall Street didn't seem to recognize the value of TV stations to be either an asset a company could spin off or a business a media company could grow. That's why the fund owned companies such as Meredith, Belo and E.W. Scripps - all companies that own TV stations in addition to their other core businesses. Q. WERE THERE ANY DISAPPOINTMENTS? A. Newspaper stocks continued to underperform as newsprint costs soared and advertising revenues showed only modest growth. The combination of these factors served to hold earnings down relative to the earnings of companies in other markets. That said, the price of newsprint appears to have leveled off and the combination of the Olympics in Atlanta along with a presidential election bodes well for advertising revenue growth. Q. WHAT'S YOUR OUTLOOK? A. I'm optimistic about the potential in the multimedia industries that has been unlocked by the passage of the telecom law. Of course, not every company is going to be a winner in what is sure to be a more competitive environment. For example, long distance phone companies are going to have to learn how to compete with the Baby Bells and vice versa. Going forward, however, I will seek to identify the companies I believe are most likely to thrive in this new era. FUND FACTS START DATE: June 30, 1986 TRADING SYMBOL: FBMPX SIZE: as of February 29, 1996, more than $94 million MANAGER: John Porter, since February 1996; joined Fidelity in 1995 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. MULTIMEDIA PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.1% SHARES VALUE (NOTE 1) ADVERTISING - 5.1% ADVERTISING - 0.2% Cordiant PLC sponsored ADR 51,000 $ 255,000 ADVERTISING AGENCIES - 4.9% ADVO-Systems, Inc. 160,000 3,500,000 Interpublic Group of Companies, Inc. 30,000 1,263,728 4,763,728 TOTAL ADVERTISING 5,018,728 BEVERAGES - 0.4% DISTILLED & BLENDED LIQUOR - 0.4% Seagram Co. Ltd. 11,900 404,887 BROADCASTING - 17.0% CABLE TV OPERATORS - 14.0% American Telecasting, Inc. (a) 1,900 31,113 CAI Wireless Systems, Inc. (a) 204,400 1,814,050 Gaylord Entertainment Co. Class A 8,000 214,000 Heartland Wireless Communications, Inc. 5,004 126,351 People's Choice TV Corp. (a) 242,912 4,584,964 TCI Group Class A 150,000 3,150,000 Tele-Communications Liberty Media Group, Series A (a) 13,750 379,844 Time Warner, Inc. 30,000 1,282,500 Videotron Holdings PLC sponsored ADR (a) 126,000 2,126,250 13,709,072 RADIO BROADCASTING - 1.1% Grupo Radio Centro SA de CV sponsored ADR 137,200 1,131,900 TELEVISION BROADCASTING - 1.9% Central European Media Class C (a) 25,000 559,377 Grupo Televisa SA de CV sponsored ADR 53,100 1,300,950 Lambert Communications, Inc. (a) 150,000 - 1,860,327 TOTAL BROADCASTING 16,701,299 CELLULAR - 1.8% CELLULAR & COMMUNICATION SERVICES - 1.8% AirTouch Communications, Inc. (a) 28,400 880,400 Mobile Telecommunications Technologies, Inc. 40,000 575,000 Vodafone Group PLC sponsored ADR 10,300 364,363 1,819,763 COMMUNICATIONS EQUIPMENT - 5.5% TELEPHONE EQUIPMENT - 3.5% DSC Communications Corp. (a) 85,800 2,616,900 Westell Technologies, Inc. Class A (a) 21,900 854,100 3,471,000 TELEPHONE INTERCONNECT SYSTEMS - 2.0% General Instrument Corp. (a) 70,600 1,923,850 TOTAL COMMUNICATIONS EQUIPMENT 5,394,850 COMPUTER SERVICES & SOFTWARE - 6.6% CAD/CAM/CAE - 1.1% CSG Systems International, Inc. 50,000 1,100,000 SHARES VALUE (NOTE 1) COMPUTER SERVICES - 0.5% Visioneer, Inc. (a) 26,000 $ 442,000 PREPACKAGED COMPUTER SOFTWARE - 5.0% Broderbund Software, Inc. (a) 20,000 905,000 Hogan Systems, Inc. (a) 50,000 612,500 Maxis, Inc. (a) 50,000 1,450,000 Oracle Systems Corp. (a) 11,900 618,800 Sterling Software, Inc. 20,000 1,332,500 4,918,800 TOTAL COMPUTER SERVICES & SOFTWARE 6,460,800 COMPUTERS & OFFICE EQUIPMENT - 5.5% COMPUTERS & OFFICE EQUIPMENT - 2.3% International Business Machines Corp. 18,100 2,219,513 GRAPHICS WORKSTATIONS - 1.1% Silicon Graphics, Inc. (a) 43,800 1,095,000 MINI & MICRO COMPUTERS - 0.3% Compaq Computer Corp. (a) 5,200 263,250 OFFICE AUTOMATION - 1.8% Bell & Howell Co. 60,000 1,792,500 TOTAL COMPUTERS & OFFICE EQUIPMENT 5,370,263 CONSUMER ELECTRONICS - 0.5% RADIOS, TELEVISIONS, STEREOS - 0.5% Sony Corp. ADR 9,300 544,050 ELECTRICAL EQUIPMENT - 12.2% TV & RADIO COMMUNICATION EQUIPMENT - 12.2% California Amplifier, Inc. (a) 96,500 4,505,344 Leitch Technology (a) 46,400 1,439,048 Scientific-Atlanta, Inc. 356,900 5,978,075 Spectrain Corp. (a) 1,000 24,750 11,947,217 ENTERTAINMENT - 0.3% MOTION PICTURE PRODUCTION - 0.3% Alliance Communications Corp.: Class A (vtg.) (a) 12,500 142,527 Class B (non-vtg) 12,500 136,826 279,353 LODGING & GAMING - 0.1% RACING & GAMING - 0.1% WMS Industries, Inc. (a) 6,600 118,800 PUBLISHING - 30.5% NEWSPAPERS - 20.9% Belo (A.H.) Corp. Class A 90,000 3,150,000 Central Newspapers, Inc. Class A 60,000 2,197,500 Hollinger International, Inc. Class A 229,900 2,413,950 Knight-Ridder, Inc. 30,000 2,077,500 New York Times Co. (The) Class A 30,000 825,000 News Corp. sponsored ADR (ltd. vtg.) 86,700 1,734,000 Pulitzer Publishing Co. 43,850 2,214,425 Scripps (E.W.) Co. Class A 34,700 1,457,400 Times Mirror Co. Class A 122,900 4,178,600 Washington Post Co. Class B 800 230,400 20,478,775 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) PUBLISHING - CONTINUED PERIODICALS - 9.6% Big Flower Press Holdings, Inc. (a) 45,000 $ 849,375 K-III Communications Corp. (a) 80,000 930,000 Marvel Entertainment Group, Inc. (a) 41,700 479,550 Meredith Corp. 163,200 7,160,400 9,419,325 TOTAL PUBLISHING 29,898,100 SERVICES - 1.7% GENERAL SERVICES - 1.7% Flextech PLC (a) 211,100 1,700,390 TELEPHONE SERVICES - 7.9% AT&T Corp. 22,300 1,418,838 Frontier Corp. 14,000 420,000 NYNEX Corp. 60,000 3,090,000 SBC Communications, Inc. 17,400 954,845 Telebras sponsored ADR 35,000 1,837,500 7,721,183 TOTAL COMMON STOCKS (Cost $84,231,615) 93,379,683 NONCONVERTIBLE PREFERRED STOCKS - 0.3% PUBLISHING - 0.3% NEWSPAPERS - 0.3% News Corp. Ltd. (ltd. vtg.) (Cost $177,478) 50,669 255,744 REPURCHASE AGREEMENTS - 4.6% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 4,518,679 4,518,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $88,927,093) $ 98,153,427 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $218,280,519 and $179,395,447, respectively (see Note 3 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 $76,336 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $7,608,000 and $1,754,000, respectively. The weighted average interest rate paid was 6.5% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 85.8% United Kingdom 4.5 Mexico 2.5 Canada 2.2 Australia 2.0 Brazil 1.9 Others (individually less than 1%) 1.1 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $89,632,528. Net unrealized appreciation aggregated $8,520,899 of which $12,699,332 related to appreciated investment securities and $4,178,433 related to depreciated investment securities. The fund hereby designates approximately $5,134,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 13% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. MULTIMEDIA PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $4,518,000) (cost $88,927,093) - See $ 98,153,427 accompanying schedule Cash 828 Receivable for investments sold 2,064,190 Receivable for fund shares sold 584,105 Dividends receivable 48,774 Redemption fees receivable 68 Other receivables 231 TOTAL ASSETS 100,851,623 LIABILITIES Payable for investments purchased $ 5,437,950 Payable for fund shares redeemed 319,193 Accrued management fee 47,376 Other payables and accrued expenses 77,383 TOTAL LIABILITIES 5,881,902 NET ASSETS $ 94,969,721 Net Assets consist of: Paid in capital $ 77,671,343 Undistributed net investment income 16,907 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 8,055,137 Net unrealized appreciation (depreciation) on investments 9,226,334 NET ASSETS, for 3,493,792 shares outstanding $ 94,969,721 NET ASSET VALUE and redemption price per share ($94,969,721 (divided by) 3,493,792 shares) $27.18 Maximum offering price per share (100/97.00 of $27.18) $28.02
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 711,561 Dividends Interest 846,589 TOTAL INCOME 1,558,150 EXPENSES Management fee $ 587,354 Transfer agent 845,342 Fees Redemption fees (105,634 ) Accounting fees and expenses 96,559 Non-interested trustees' compensation 364 Custodian fees and expenses 20,431 Registration fees 29,946 Audit 17,496 Legal 374 Interest 1,893 Miscellaneous 769 Total expenses before reductions 1,494,894 Expense reductions (16,245 1,478,649 ) NET INVESTMENT INCOME 79,501 REALIZED AND UNREALIZED GAIN (LOSS) 15,081,916 Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) 7,021,515 on investment securities NET GAIN (LOSS) 22,103,431 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 22,182,932 OTHER INFORMATION $ 923,712 Sales charges paid to FDC Deferred sales charges withheld $ 3,278 by FDC Exchange fees withheld by FSC $ 85,584 Expense reductions $ 15,095 Directed brokerage arrangements Custodian interest credits 343 Transfer agent interest credits 807 $ 16,245
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 79,501 $ (21,240 Net investment income (loss) ) Net realized gain (loss) 15,081,916 713,620 Change in net unrealized appreciation (depreciation) 7,021,515 (46,862 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 22,182,932 645,518 Distributions to shareholders (62,595 - From net investment income ) From net realized gain (6,860,366 (5,781,614 ) ) TOTAL DISTRIBUTIONS (6,922,961 (5,781,614 ) ) Share transactions 226,094,070 35,047,458 Net proceeds from sales of shares Reinvestment of distributions 6,804,045 5,728,603 Cost of shares redeemed (191,430,375 (46,707,859 ) ) Paid in capital portion of redemption fees 84,905 48,397 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 41,552,645 (5,883,401 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 56,812,616 (11,019,497 ) NET ASSETS Beginning of period 38,157,105 49,176,602 End of period (including undistributed net investment income of $16,907 and $0, respectively) $ 94,969,721 $ 38,157,105 OTHER INFORMATION Shares Sold 8,957,896 1,606,026 Issued in reinvestment of distributions 262,403 293,006 Redeemed (7,433,399 (2,252,403 ) ) Net increase (decrease) 1,786,900 (353,371 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 22.35 $ 23.87 $ 18.26 $ 15.93 $ 12.96 Income from Investment Operations Net investment income (loss) .02 (.01) (.10) (.07) (.17) Net realized and unrealized gain (loss) 7.00 1.67 6.28 2.61 3.08 Total from investment operations 7.02 1.66 6.18 2.54 2.91 Less Distributions (.02) - - - - From net investment income From net realized gain (2.19) (3.21) (.65) (.23) - Total distributions (2.21) (3.21) (.65) (.23) - Redemption fees added to paid in capital .02 .03 .08 .02 .06 Net asset value, end of period $ 27.18 $ 22.35 $ 23.87 $ 18.26 $ 15.93 TOTAL RETURN B, C 31.98% 9.35% 34.86% 16.14% 22.92% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 94,970 $ 38,157 $ 49,177 $ 16,647 $ 8,393 Ratio of expenses to average net assets 1.56% 2.05% 1.66% 2.49% A 2.49% F , F Ratio of expenses to average net assets after expense reductions 1.54% 2.03% 1.63% 2.49% A 2.49% E E E Ratio of net investment income (loss) to average net assets .08% (.07)% (.42)% (.52)% (1.22)% A Portfolio turnover rate 223% 107% 340% 70% A 111% A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS RETAILING 16.56% 114.55% 330.38% RETAILING 13.07% (INCL. 3% SALES CHARGE) 108.11% 317.47% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS RETAILING 16.56% 16.49% 15.71% RETAILING 13.07% 15.79% 15.36% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10571.81 10558.00 19860430 10764.52 10438.69 19860531 11985.05 10994.03 19860630 12278.71 11179.83 19860731 10663.58 10554.88 19860831 10663.58 11338.05 19860930 9883.54 10400.39 19861031 10755.35 11000.50 19861130 11049.01 11267.81 19861231 10268.97 10980.48 19870131 11122.42 12459.55 19870228 12416.37 12951.70 19870331 12792.62 13326.01 19870430 12398.01 13207.41 19870531 12618.26 13322.31 19870630 13306.53 13995.09 19870731 13976.44 14704.64 19870831 14288.46 15253.12 19870930 13269.82 14919.08 19871031 9305.39 11705.51 19871130 8663.01 10740.97 19871231 9513.03 11558.36 19880131 10113.96 12044.97 19880229 11285.26 12606.27 19880331 11427.86 12216.73 19880430 11784.34 12352.34 19880531 11448.23 12459.80 19880630 12456.57 13031.71 19880731 12344.53 12982.19 19880831 12313.97 12540.79 19880930 13037.13 13075.03 19881031 13312.13 13438.52 19881130 13128.80 13246.35 19881231 13195.06 13478.16 19890131 13847.57 14464.76 19890228 13661.14 14104.59 19890331 14313.64 14433.22 19890430 15121.50 15182.31 19890531 16167.58 15797.19 19890630 15879.75 15707.15 19890731 17160.38 17125.50 19890831 17992.79 17461.16 19890930 17950.10 17389.57 19891031 17085.68 16986.13 19891130 17192.39 17332.65 19891231 17091.69 17748.63 19900131 15756.79 16557.70 19900228 16305.72 16771.29 19900331 17640.62 17215.73 19900430 17391.11 16785.34 19900531 19711.59 18421.91 19900630 19462.07 18296.64 19900731 18663.63 18238.09 19900831 15981.35 16589.37 19900930 14197.33 15781.47 19901031 13536.12 15713.61 19901130 15382.52 16728.71 19901231 16231.84 17195.44 19910131 17807.51 17945.16 19910228 19458.21 19228.24 19910331 21484.06 19693.56 19910430 21784.19 19740.82 19910531 23597.45 20593.63 19910630 22847.13 19650.44 19910731 24310.25 20566.15 19910831 25598.29 21053.57 19910930 25323.18 20701.97 19911031 24847.98 20979.38 19911130 24372.78 20133.91 19911231 27291.12 22437.23 19920131 28804.44 22019.90 19920229 30189.52 22306.16 19920331 29586.75 21871.19 19920430 28381.23 22514.20 19920531 28971.17 22624.52 19920630 27618.82 22287.41 19920731 28847.51 23198.97 19920831 28193.10 22723.39 19920930 29034.48 22991.53 19921031 31024.43 23072.00 19921130 33374.97 23858.75 19921231 33315.98 24152.21 19930131 33545.84 24355.09 19930228 32274.86 24686.32 19930331 34762.74 25207.20 19930430 32767.44 24597.19 19930531 34582.46 25256.39 19930630 33751.15 25329.64 19930731 33917.41 25228.32 19930831 35469.19 26184.47 19930930 36549.89 25982.85 19931031 37117.96 26520.70 19931130 37478.19 26268.75 19931231 37657.57 26586.60 19940131 35979.91 27490.55 19940228 37313.05 26745.55 19940331 36534.14 25579.45 19940430 37642.59 25906.86 19940531 35785.18 26331.74 19940630 35485.60 25686.61 19940731 36084.76 26529.13 19940831 38376.57 27616.82 19940930 37627.61 26940.21 19941031 37792.38 27546.37 19941130 36474.22 26543.13 19941231 35770.20 26936.76 19950131 35485.60 27635.23 19950228 35815.14 28712.18 19950331 36219.57 29559.47 19950430 34811.53 30430.00 19950531 35425.68 31646.29 19950630 37687.53 32381.43 19950731 39994.32 33455.20 19950831 39440.09 33539.17 19950930 40623.44 34954.52 19951031 38810.97 34829.74 19951130 40758.25 36358.76 19951231 40054.24 37059.03 19960131 38885.86 38320.52 19960229 41746.88 38675.75 Let's say you invested $10,000 in Fidelity Select Retailing Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $41,747 - a 317.47% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Sears, Roebuck & Co. 8.2 Home Depot, Inc. (The) 4.4 Federated Department Stores, Inc. 4.0 NIKE, Inc. Class B 3.9 Lowe's Companies, Inc. 3.8 Tandy Corp. 3.5 Strawbridge & Clothier Class A 3.4 McDonald's Corp. 3.0 Carson Pirie Scott & Co. 2.7 Talbots, Inc. 2.6 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Department Stores 20.0% General Apparel Stores 6.9% Apparel 5.7% Footwear 5.1% Music, TV & Electronic Stores 4.5% All Others 57.8% * Row: 1, Col: 1, Value: 57.8 Row: 1, Col: 2, Value: 4.5 Row: 1, Col: 3, Value: 5.1 Row: 1, Col: 4, Value: 5.7 Row: 1, Col: 5, Value: 6.9 Row: 1, Col: 6, Value: 20.0 * INCLUDES SHORT-TERM INVESTMENTS RETAILING PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Erin Sullivan, Portfolio Manager of Fidelity Select Retailing Portfollio Q. HOW HAS THE FUND BEEN PERFORMING, ERIN? A. Although the retailing sector trailed the market by a significant margin, the fund has done pretty well over the past 12 months. For the year ended February 29, 1996, the fund showed a 16.56% gain. The S&P 500 Index returned 34.70% for the same period. Q. WHAT WAS AT THE ROOT OF THE SECTOR'S PROBLEMS? A. Several factors. The retail industry continues to be plagued by a significant over-supply of stores, which makes it difficult for many retailers to post strong results. Compounding those problems was the fact that many retailers went into the holiday season with too much inventory, which forced them to begin discounting earlier than normal. When the holiday season produced weak sales, retail stocks languished. In February, however, annual comparable store sales numbers were positive, partly because the previous year was so weak. During the late part of the period, some investors looking for value began to favor retail stocks. Q. AT THE END OF THE PERIOD, 15.3% OF THE FUND'S ASSETS WAS IN CASH AND SHORT-TERM INVESTMENTS. DOES THAT SIGNAL THAT YOU BECAME MORE DEFENSIVE IN LIGHT OF THE NEGATIVE ENVIRONMENT FOR RETAILERS? A. Not at all. Rather, it was a reflection of a lot of money coming very quickly into the fund. In the last weeks of February, when investors became more enthusiastic about the retail sector in general, the fund attracted a lot of new shareholder funds. However, as a matter of policy, my goal is to keep the fund fully invested, which to me means keeping its cash level low under normal conditions. So as I find opportunities, I'll most likely selectively put this cash to work in the market. Q. WHICH COMPANIES WERE THE STRONGEST PERFORMERS THROUGHOUT THE YEAR? A. The fund's department store holdings did quite well during the year, in large part because they became more efficient operators by effectively managing costs. Sears, Roebuck & Co., one of the fund's largest holdings at the end of the period, has benefited significantly under the leadership of CEO Arthur Martinez, who joined the company in 1992. Not only has the company managed to reduce costs, it also has grown revenues by focusing on its apparel and other "soft" consumer goods. Federated Department Stores Inc., which acquired Macy's in 1994, enjoyed the benefits of its consolidation of the two operations, while Carson Pirie Scott & Co., which is a strong regional player, got a boost from remodeling its stores. Strawbridge & Clothier, another regional retailer which I purchased in the last half of the period, benefited from rumors that it was a potential takeover candidate. Q. GIVEN THE RATHER DISMAL PICTURE FOR MOST OF THE YEAR, WHAT OTHER STRATEGIES WORKED? A. The fund's investments in "niche" companies - those concentrating on one specialized line or product that dominates or leads their industry - has been a plus. Good examples of niche players that did well during the period were Gymboree, a mall-based retailer of children's clothing; Talbots, the women's specialty apparel company; and Sunglass Hut, a mall-based retailer of sunglasses that has expanded its franchises. Q. WHAT STOCKS DIDN'T WORK OUT AS WELL AS YOU HAD HOPED? A. Lowe's Companies, a home construction and improvement store, fell during the year and was disappointing. Slow activity in the housing market and disappointing sales and earnings caused Lowe's stock to fare poorly during the period. But I took advantage of the weakness in this sector to add Home Depot at a fairly attractive price. Q. WHAT'S YOUR OUTLOOK FOR THE RETAIL ENVIRONMENT OVER THE NEXT SIX MONTHS OR SO? A. I don't see any dramatic changes. I believe that excess capacity will continue to make it difficult for retailers, and I think apparel spending will remain sluggish. As a result, it's likely that we'll see some retailers shut down operations or close stores. On a positive note, retailers in general are being managed more conservatively. This should limit markup exposure, which in turn could hold their gross margins steady. Against that backdrop, I plan to continue to focus on stocks whose fundamentals and market positioning look the strongest, and identify opportunities among larger companies that have the financial resources to close stores if they need to, or to make acquisitions. And as I already mentioned, I'll focus on investing the fund's cash in situations I find attractive. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FSRPX SIZE: as of February 29, 1996, more than $44 million MANAGER: Erin Sullivan, since February 1995; equity analyst, medical technology and hospital supply industries, 1993-1995; analyst, initial public offerings 1991-1992; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. RETAILING PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 84.3% SHARES VALUE (NOTE 1) APPAREL STORES - 11.8% CHILDREN'S & INFANT'S WEAR STORES - 1.7% Baby Superstore, Inc. 20,000 $ 842,500 GENERAL APPAREL STORES - 6.9% Gymboree Corp. (a) 43,800 1,138,800 Men's Wearhouse, Inc. (The) 20,000 545,000 Ross Stores, Inc. 49,300 1,207,850 TJX Companies, Inc. 23,400 520,650 3,412,300 WOMEN'S CLOTHING STORES - 3.2% Cache, Inc. (a) 49,100 141,161 Mothers Work 10,400 175,500 Talbots, Inc. 42,400 1,282,600 1,599,261 TOTAL APPAREL STORES 5,854,061 BROADCASTING - 0.0% TELEVISION BROADCASTING - 0.0% Home Shopping Network, Inc. 900 9,450 COMPUTER SERVICES & SOFTWARE - 2.4% COMPUTER & SOFTWARE STORES - 1.8% CompUSA, Inc. (a) 21,900 876,000 ELECTRONIC INFORMATION RETRIEVAL - 0.6% CUC International, Inc. 10,000 323,561 TOTAL COMPUTER SERVICES & SOFTWARE 1,199,561 DRUG STORES - 1.7% General Nutrition Companies, Inc. (a) 10,000 226,250 Revco (D.S.), Inc. (a) 22,900 635,475 861,725 GENERAL MERCHANDISE STORES - 22.1% DEPARTMENT STORES - 20.0% Carson Pirie Scott & Co. (a) 68,172 1,337,876 Federated Department Stores, Inc. (a) 66,300 2,005,575 Mercantile Stores Co., Inc. 10,000 523,750 Neiman-Marcus Group, Inc. 5,000 99,025 Proffitts, Inc. (a) 8,052 211,365 Sears, Roebuck & Co. 90,200 4,092,825 Stein Mart, Inc. 200 2,450 Strawbridge & Clothier Class A 64,200 1,701,300 9,974,166 GENERAL MERCHANDISE STORES - 0.4% Wal-Mart Stores, Inc. 10,000 212,500 VARIETY STORES - 1.7% Consolidated Stores Corp. (a) 31,500 819,000 TOTAL GENERAL MERCHANDISE STORES 11,005,666 GROCERY STORES - 2.4% GROCERIES & RELATED PRODUCTS - WHOLESALE - 0.3% Provigo, Inc. (a) 30,000 166,928 GROCERY - RETAIL - 2.1% Albertson's, Inc. 10,000 370,000 Safeway, Inc. (a) 16,400 489,950 Stop & Shop Companies, Inc. (a) 3,000 69,000 Vons Companies, Inc. (a) 3,700 106,375 1,035,325 TOTAL GROCERY STORES 1,202,253 SHARES VALUE (NOTE 1) HOUSEHOLD PRODUCTS - 0.3% COSMETICS - 0.3% Estee Lauder Companies, Inc. 2,000 $ 73,250 Revlon, Inc. Class A 2,000 55,250 128,500 LEASING & RENTAL - 2.1% VIDEO TAPE RENTAL - 2.1% Hollywood Entertainment Corp. (a) 61,300 559,363 Movie Gallery, Inc. (a) 20,100 497,475 1,056,838 LEISURE DURABLES & TOYS - 0.0% BOAT DEALERS - RETAIL - 0.0% West Marine, Inc. (a) 100 4,375 MEDICAL EQUIPMENT & SUPPLIES - 2.4% OPHTHALMIC GOODS - 2.4% Oakley, Inc. 35,000 1,203,125 RESTAURANTS - 4.3% Apple South, Inc. 20,000 440,000 Brinker International, Inc. (a) 300 4,088 McDonald's Corp. 30,000 1,500,000 Starbucks Corp. (a) 10,000 176,250 2,120,338 RETAIL & WHOLESALE, MISCELLANEOUS - 19.8% BUILDING MATERIALS - RETAIL - 4.4% Home Depot, Inc. (The) 50,400 2,179,800 JEWELRY STORES - 1.6% Friedmans, Inc. Class A (a) 29,100 487,425 Zale Corp. (a) 20,000 302,500 789,925 LUMBER & BUILDING MATERIALS - RETAIL - 3.7% Lowe's Companies, Inc. 60,300 1,869,300 MAIL ORDER - 0.9% Micro Warehouse, Inc. (a) 10,000 475,000 MUSIC, TV, & ELECTRONIC STORES - 4.5% InterTan, Inc. (a) 34,500 172,500 Rex Stores Corp. (a) 24,600 316,725 Sound Advice, Inc. (warrants) (a) 50 - Tandy Corp. 40,000 1,750,000 2,239,225 RETAIL STORES - 2.1% Gadzooks, Inc. 38,000 1,035,500 RETAIL, GENERAL - 1.1% Sunglass Hut International, Inc. (a) 20,000 555,000 SEWING STORES - 1.5% Fabri-Centers of America, Inc. (a): Class A 35,000 428,750 Class B (non-vtg) 25,000 296,875 725,625 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 9,869,375 SERVICES - 0.3% GENERAL SERVICES - 0.3% Regis Corp. 5,400 152,550 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TEXTILES & APPAREL - 14.7% APPAREL - 5.7% Fila Holding Spa sponsored ADR . 19,600 $ 1,073,100 Liz Claiborne, Inc. 30,000 941,250 Warnaco Group, Inc. Class A 31,800 826,800 2,841,150 FOOTWEAR - 5.1% NIKE, Inc. Class B 30,000 1,946,250 Nine West Group, Inc. (a) 15,200 596,600 2,542,850 FOOTWEAR, EXCEPT RUBBER - 2.1% Adidas AG (a)(b) 1,000 63,818 Adidas AG (a) 15,000 957,274 1,021,092 MEN'S & BOYS' CLOTHING - 1.0% Mossimo, Inc. 21,000 514,500 WOMEN'S & MISSES' OUTERWEAR - 0.8% Jones Apparel Group, Inc. 10,000 413,750 TOTAL TEXTILES & APPAREL 7,333,342 TOTAL COMMON STOCKS (Cost $39,867,616) 42,001,159 REPURCHASE AGREEMENTS - 15.7% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 7,825,176 7,824,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $47,691,616) $ 49,825,159 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 $63,818 or 0.1% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $84,033,091 and $77,984,268, respectively (see Note 3 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 $55,131 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $497,475 and $502,500, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $5,939,000 and $5,054,800, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $48,130,494. Net unrealized appreciation aggregated $1,694,665, of which $3,161,722 related to appreciated investment securities and $1,467,057 related to depreciated investment securities. At February 29, 1996, the fund had a capital loss carryforward of approximately $591,000 which will expire on February 28, 2003. RETAILING PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $7,824,000) (cost $47,691,616) - See $ 49,825,159 accompanying schedule Cash 107,294 Receivable for investments sold 970,722 Receivable for fund shares sold 816,511 Dividends receivable 28,921 Redemption fees receivable 245 Other receivables 19,894 TOTAL ASSETS 51,768,746 LIABILITIES Payable for investments purchased $ 6,975,002 Payable for fund shares redeemed 180,027 Accrued management fee 17,782 Other payables and accrued expenses 42,252 Collateral on securities loaned, 502,500 at value TOTAL LIABILITIES 7,717,563 NET ASSETS $ 44,051,183 Net Assets consist of: Paid in capital $ 42,927,486 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (1,009,843 ) Net unrealized appreciation (depreciation) on investments 2,133,540 and assets and liabilities in foreign currencies NET ASSETS, for 1,580,707 $ 44,051,183 shares outstanding NET ASSET VALUE and redemption price per share ($44,051,183 (divided by) 1,580,707 shares) $27.87 Maximum offering price per $28.73 share (100/97.00 of $27.87)
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 229,906 Dividends Interest (including income on 284,580 securities loaned of $19,694) TOTAL INCOME 514,486 EXPENSES Management fee $ 226,958 Transfer agent 436,866 Fees Redemption fees (48,323 ) Accounting and security lending fees 49,640 Non-interested trustees' compensation 321 Custodian fees and expenses 11,649 Registration fees 20,037 Audit 18,787 Legal 325 Interest 4,318 Miscellaneous 660 Total expenses before reductions 721,238 Expense reductions (8,988 712,250 ) NET INVESTMENT INCOME (LOSS) (197,764 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 2,252,368 Foreign currency transactions 1,545 2,253,913 Change in net unrealized appreciation (depreciation) on: Investment securities 3,066,067 Assets and liabilities in (3 3,066,064 foreign currencies ) NET GAIN (LOSS) 5,319,977 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 5,122,213 OTHER INFORMATION $ 266,970 Sales charges paid to FDC Deferred sales charges withheld $ 5,475 by FDC Exchange fees withheld by FSC $ 35,813 Expense reductions $ 8,511 Directed brokerage arrangements Custodian interest credits 401 Transfer agent interest credits 76 $ 8,988
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ (197,764 $ (448,078 Net investment income (loss) ) ) Net realized gain (loss) 2,253,913 (3,125,930 ) Change in net unrealized appreciation (depreciation) 3,066,064 (4,256,876 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 5,122,213 (7,830,884 ) Share transactions 68,570,912 159,368,155 Net proceeds from sales of shares Cost of shares redeemed (60,782,922 (173,586,110 ) ) Paid in capital portion of redemption fees 50,523 349,164 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 7,838,513 (13,868,791 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 12,960,726 (21,699,675 ) NET ASSETS Beginning of period 31,090,457 52,790,132 End of period $ 44,051,183 $ 31,090,457 OTHER INFORMATION Shares Sold 2,635,958 6,306,112 Redeemed (2,355,724 (7,124,678 ) ) Net increase (decrease) 280,234 (818,566 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 23.91 $ 24.91 $ 23.87 $ 22.13 $ 17.42 Income from Investment Operations Net investment income (loss) (.14) (.18) (.22) (.08) (.03) Net realized and unrealized gain (loss) 4.07 (.96) 3.85 2.93 5.09 Total from investment operations 3.93 (1.14) 3.63 2.85 5.06 Less Distributions - - (2.63) (1.17) (.50) From net realized gain Redemption fees added to paid in capital .03 .14 .04 .06 .15 Net asset value, end of period $ 27.87 $ 23.91 $ 24.91 $ 23.87 $ 22.13 TOTAL RETURN B, C 16.56% (4.01)% 15.61% 13.72% 30.28% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 44,051 $ 31,090 $ 52,790 $ 74,878 $ 48,441 Ratio of expenses to average net assets 1.94% 2.07% 1.86% 1.77% 1.87% A Ratio of expenses to average net assets after expense reductions 1.92% 1.96% 1.83% 1.77% 1.87% E E E A Ratio of net investment income (loss) to average net assets (.53)% (.74)% (.87)% (.44)% (.13)% A Portfolio turnover rate 235% 481% 154% 171% 205% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past five and 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS AIR TRANSPORTATION 54.91% 108.74% 173.15% AIR TRANSPORTATION 50.26% 102.47% 164.95% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS AIR TRANSPORTATION 54.91% 15.86% 10.57% AIR TRANSPORTATION 50.26% 15.15% 10.23% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9717.83 10558.00 19860430 9548.44 10438.69 19860531 9566.27 10994.03 19860630 9031.34 11179.83 19860731 8487.50 10554.88 19860831 8719.30 11338.05 19860930 8897.61 10400.39 19861031 9370.13 11000.50 19861130 9486.03 11267.81 19861231 9637.59 10980.48 19870131 10502.39 12459.55 19870228 10948.16 12951.70 19870331 10573.71 13326.01 19870430 10582.63 13207.41 19870531 11215.63 13322.31 19870630 11358.27 13995.09 19870731 11607.90 14704.64 19870831 11705.97 15253.12 19870930 11278.03 14919.08 19871031 7872.33 11705.51 19871130 7337.41 10740.97 19871231 7646.98 11558.36 19880131 7861.10 12044.97 19880229 8513.64 12606.27 19880331 8880.70 12216.73 19880430 8778.74 12352.34 19880531 8646.19 12459.80 19880630 9757.55 13031.71 19880731 9472.06 12982.19 19880831 8941.87 12540.79 19880930 9533.24 13075.03 19881031 9716.77 13438.52 19881130 9492.46 13246.35 19881231 9869.71 13478.16 19890131 10787.35 14464.76 19890228 10991.27 14104.59 19890331 11541.85 14433.22 19890430 12000.67 15182.31 19890531 12306.55 15797.19 19890630 12245.03 15707.15 19890731 13107.21 17125.50 19890831 14102.83 17461.16 19890930 13548.57 17389.57 19891031 12481.10 16986.13 19891130 12357.93 17332.65 19891231 12468.69 17748.63 19900131 11185.46 16557.70 19900228 11655.98 16771.29 19900331 12265.51 17215.73 19900430 11816.38 16785.34 19900531 12639.79 18421.91 19900630 12671.87 18296.64 19900731 12286.90 18238.09 19900831 10340.67 16589.37 19900930 9303.40 15781.47 19901031 9795.30 15713.61 19901130 9645.59 16728.71 19901231 10201.66 17195.44 19910131 11410.03 17945.16 19910228 12693.26 19228.24 19910331 12639.79 19693.56 19910430 12329.68 19740.82 19910531 13056.84 20593.63 19910630 12781.53 19650.44 19910731 13174.47 20566.15 19910831 13010.74 21053.57 19910930 12574.14 20701.97 19911031 13185.38 20979.38 19911130 12595.97 20133.91 19911231 13982.18 22437.23 19920131 14789.89 22019.90 19920229 15455.71 22306.16 19920331 14549.76 21871.19 19920430 13796.63 22514.20 19920531 13982.18 22624.52 19920630 13528.14 22287.41 19920731 13450.39 23198.97 19920831 12883.95 22723.39 19920930 13306.01 22991.53 19921031 13783.60 23072.00 19921130 14116.81 23858.75 19921231 14900.50 24152.21 19930131 15035.24 24355.09 19930228 15271.05 24686.32 19930331 16955.35 25207.20 19930430 17147.02 24597.19 19930531 18126.53 25256.39 19930630 16775.48 25329.64 19930731 17349.68 25228.32 19930831 18385.48 26184.47 19930930 18013.94 25982.85 19931031 19049.75 26520.70 19931130 19094.78 26268.75 19931231 19502.85 26586.60 19940131 20256.03 27490.55 19940228 19537.09 26745.55 19940331 18407.31 25579.45 19940430 18286.26 25906.86 19940531 17521.81 26331.74 19940630 16987.90 25686.61 19940731 17873.70 26529.13 19940831 18553.22 27616.82 19940930 16478.26 26940.21 19941031 16611.74 27546.37 19941130 15507.53 26543.13 19941231 15262.24 26936.76 19950131 15753.39 27635.23 19950228 17104.03 28712.18 19950331 18209.10 29559.47 19950430 19670.25 30430.00 19950531 19989.49 31646.29 19950630 22518.87 32381.43 19950731 23280.14 33455.20 19950831 22383.81 33539.17 19950930 23206.47 34954.52 19951031 22936.34 34829.74 19951130 25895.47 36358.76 19951231 24349.23 37059.03 19960131 23796.98 38320.52 19960229 26495.48 38675.75 Let's say you invested $10,000 in Fidelity Select Air Transportation Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $26,495 - a 164.95% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS UAL Corp. 8.8 Northwest Airlines Corp. Class A 7.0 Atlantic Southeast Airlines, Inc. 6.1 Continental Airlines, Inc. 5.1 Boeing Co. 5.0 Airborne Freight Corp. 4.9 United Technologies Corp. 4.8 Textron, Inc. 4.2 America West Airlines, Inc. Class B 4.1 McDonnell Douglas Corp. 4.1 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Air Transportation, Major National 46.6% Conglomerates 11.6% Air Transportation, Regional 9.6% Aircraft 9.1% Air Courier Services 6.2% All Others 16.9% * Row: 1, Col: 1, Value: 16.9 Row: 1, Col: 2, Value: 6.2 Row: 1, Col: 3, Value: 9.1 Row: 1, Col: 4, Value: 9.6 Row: 1, Col: 5, Value: 11.6 Row: 1, Col: 6, Value: 46.6 * INCLUDES SHORT-TERM INVESTMENTS AIR TRANSPORTATION PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Jason Weiner, Portfolio Manager of Fidelity Select Air Transportation Portfolio Q. HOW DID THE FUND PERFORM, JASON? A. Very well. For the 12 months ended February 29, 1996, the fund had a total return of 54.91%. For the same period, the S&P 500 Index returned 34.70%. Q. WHY DID AIRLINE STOCKS DO SO WELL? A. The head-spinning performance of many airline stocks can be traced to two important factors. First, the companies that fell the hardest during the last industry downturn - such as Continental - came back the strongest. Historically in the airline industry, the weaker companies generally outperform when the industry turns up. Second, with decent consumer spending on travel and decreasing domestic capacity, the airline industry was able to raise revenues through higher ticket prices, while several airlines have taken proactive steps to lower costs. Q. HOW DOES THE AIRLINE INDUSTRY MEASURE "CAPACITY?" A. The industry measures capacity by available seat miles. That is, the number of seats in the air multiplied by the number of miles flown. Some carriers decreased domestic available seat miles by 20% in 1995. A company can cut capacity by retiring planes, eliminating markets or replacing wide body aircrafts with narrow body ones. Q. WHY HAVE SOME OF THE SMALLER REGIONAL "NO FRILLS" CARRIERS DONE WELL? A. The smaller regional carriers, such as ValuJet and Southwest Airlines, have lower fares than the majors, but also have lower costs. Specifically, their labor costs are much lower. Q. WHY ISN'T VALUJET IN THE PORTFOLIO ANYMORE, THEN? A. ValuJet has had phenomenal growth in the past year with a total return of over 300%. The fund, therefore, was able to take some profits as the stock got more expensive relative to the rest of the industry. Q. AMR - THE PARENT COMPANY OF AMERICAN AIRLINES - IS REPORTEDLY CONSIDERING SELLING ITS SABRE TICKET RESERVATION UNIT. WHAT'S YOUR OPINION ON THIS DEVELOPMENT? A. Sabre is a computer reservation system used by travel agents. Because the market seems to have priced the value of Sabre into AMR's stock price, there doesn't appear to be any additional value gained by spinning the company off. Additionally, Sabre generates its revenues from travelers booking trips through travel agents. In my mind, with more and more people owning computers with Internet access, I think the airline business is quickly moving towards direct sales. If that's the case, one has to question the growth prospects of Sabre or any other system as an independent entity. Q. IN THE FUND'S SEMIANNUAL REPORT, YOU DISCUSSED THE BENEFITS OF OWNING AIR FREIGHT CARRIERS THAT DO NOT OWN THEIR OWN FLEET OF PLANES. ARE YOU STILL INTERESTED IN THIS AREA OF THE MARKET? A. Sure. Asset-based freight companies - those that own their own fleets of planes - face higher fixed costs than non-asset-based freight companies. Therefore, I favor companies like Air Express International, which buy space in the belly of commercial airlines rather than use intermediaries to handle air transportation. Q. ARE YOU CONCERNED ABOUT CONGRESS RENEWING THE AIRLINE EXCISE TAX? A. During the current budget stalemate in Washington, Congress let a 10% excise tax on airline tickets expire. For a while, the airlines allowed consumers to pocket a 10% discount. However, many airlines incrementally raised fares to capture that 10% discount. Therefore, when Congress renews the tax, it's uncertain whether or not the industry will be able to maintain current fare levels. Q. WHAT'S YOUR OUTLOOK? A. The bottom line is that airlines is a cyclical industry and, as such, investors should consider their willingness to deal with any eventual downturn. That said, though, I will continue to look for airlines with good cash flow, strong route structures, a young fleet and good balance sheets. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FSAIX SIZE: as of February 29, 1996, more than $75 million MANAGER: Jason Weiner, since 1994; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. AIR TRANSPORTATION PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 86.7% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 9.1% AIRCRAFT - 9.1% Boeing Co. 45,100 $ 3,658,736 McDonnell Douglas Corp. 34,000 3,000,500 6,659,236 AIR TRANSPORTATION - 56.3% AIR TRANSPORTATION, MAJOR NATIONAL - 46.3% AMR Corp. (a) 29,800 2,614,950 Alaska Air Group, Inc. (a) 117,800 2,621,050 America West Airlines, Inc. Class B (a) 146,000 3,011,250 Atlantic Coast Airlines, Inc. (a) 47,400 545,100 Continental Airlines, Inc. Class B (a) 77,600 3,724,800 Delta Air Lines, Inc. 36,500 2,847,000 Finnair OY 8,300 69,250 Lufthansa 11,400 1,777,457 Mesaba Holdings, Inc. 10,000 88,750 Northwest Airlines Corp. Class A (a) 112,000 5,138,000 Pan Am Corp. (bankruptcy)(a) 5,900 - Southwest Airlines Co. 84,000 2,583,000 Trans World Airlines, Inc. (a) 81,394 1,383,698 UAL Corp. (a) 36,100 6,448,363 USAir Group, Inc. (a) 55,000 928,125 33,780,793 AIR TRANSPORTATION, REGIONAL - 9.6% Atlantic Southeast Airlines, Inc. 170,500 4,475,625 Comair Holdings, Inc. 76,700 2,387,288 SkyWest, Inc. 10,000 126,250 6,989,163 AIRPORTS & TERMINAL SERVICES - 0.4% Kobenhaven Lufthave AS 3,100 269,115 TOTAL AIR TRANSPORTATION 41,039,071 CONGLOMERATES - 11.6% Allied-Signal, Inc. 34,000 1,891,250 Textron, Inc. 38,500 3,031,875 United Technologies Corp. 32,700 3,515,250 8,438,375 RAILROADS - 1.6% RAILROAD EQUIPMENT - 1.6% Bombardier, Inc. Class B 76,300 1,141,424 SERVICES - 0.2% TRAVEL AGENCIES - 0.2% His Co. Ltd. 3,800 180,497 TRUCKING & FREIGHT - 7.9% AIR COURIER SERVICES - 6.2% Airborne Freight Corp. 128,800 3,590,300 Pittston Co. (Burlington Group) 50,000 937,500 4,527,800 FREIGHT FORWARDING - 1.7% Air Express International Corp. 46,600 1,141,700 Harper Group 3,900 68,250 1,209,950 TOTAL TRUCKING & FREIGHT 5,737,750 TOTAL COMMON STOCKS (Cost $59,740,206) 63,196,353 PREFERRED STOCKS - 1.0% SHARES VALUE (NOTE 1) CONVERTIBLE PREFERRED STOCKS - 0.8% CREDIT & OTHER FINANCE - 0.8% TRUSTS - 0.8% Continental Airlines Finance Trust $4.25 (a)(b) 10,000 $ 592,500 NONCONVERTIBLE PREFERRED STOCKS - 0.2% AIR TRANSPORTATION - 0.2% AIR TRANSPORTATION, MAJOR NATIONAL - 0.2% Trans World Airlines, Inc. 12% 1,700 122,400 TOTAL PREFERRED STOCKS (Cost $598,435) 714,900 NONCONVERTIBLE BONDS - 0.1% PRINCIPAL AMOUNT AIR TRANSPORTATION - 0.1% AIR TRANSPORTATION, MAJOR NATIONAL - 0.1% AMR Corp. 9 1/2%, 7/15/98 (Cost $79,922) $ 80,000 85,487 REPURCHASE AGREEMENTS - 12.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 8,935,343 8,934,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $69,352,563) $ 72,930,740 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 $592,500 or 0.8% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $333,787,440 and $305,216,487, respectively (see Note 3 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 $120,994 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $31,185,000 and $6,084,143, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $70,911,617. Net unrealized appreciation aggregated $2,019,123, of which $2,659,385 related to appreciated investment securities and $640,262 related to depreciated investment securities. A total of 3% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. AIR TRANSPORTATION PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $8,934,000) (cost $69,352,563) - See $ 72,930,740 accompanying schedule Cash 409 Receivable for investments sold 618,173 Receivable for fund shares sold 3,802,710 Dividends receivable 50,056 Interest receivable 950 Redemption fees receivable 247 Other receivables 510 TOTAL ASSETS 77,403,795 LIABILITIES Payable for investments purchased $ 1,411,172 Payable for fund shares redeemed 558,949 Accrued management fee 23,707 Other payables and accrued expenses 51,288 TOTAL LIABILITIES 2,045,116 NET ASSETS $ 75,358,679 Net Assets consist of: Paid in capital $ 60,602,974 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 11,177,528 Net unrealized appreciation (depreciation) on investments 3,578,177 NET ASSETS, for 3,570,505 shares outstanding $ 75,358,679 NET ASSET VALUE and redemption price per share ($75,358,679 (divided by) 3,570,505 shares) $21.11 Maximum offering price per share (100/97.00 of $21.11) $21.76
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 566,363 Dividends Interest 363,667 TOTAL INCOME 930,030 EXPENSES Management fee $ 425,938 Transfer agent 476,504 Fees Redemption fees (150,619 ) Accounting fees and expenses 73,290 Non-interested trustees' compensation 307 Custodian fees and expenses 29,193 Registration fees 96,985 Audit 17,848 Legal 329 Interest 44,262 Miscellaneous 874 Total expenses before reductions 1,014,911 Expense reductions (39,496 975,415 ) NET INVESTMENT INCOME (LOSS) (45,385 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 15,525,178 Foreign currency transactions (2,402 15,522,776 ) Change in net unrealized appreciation (depreciation) 2,826,938 on investment securities NET GAIN (LOSS) 18,349,714 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 18,304,329 OTHER INFORMATION $ 880,267 Sales charges paid to FDC Deferred sales charges withheld $ 1,398 by FDC Exchange fees withheld by FSC $ 99,893 Expense reductions $ 35,308 Directed brokerage arrangements Custodian interest credits 814 Transfer agent interest credits 3,374 $ 39,496
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ (45,385 $ (123,112 Net investment income (loss) ) ) Net realized gain (loss) 15,522,776 (856,081 ) Change in net unrealized appreciation (depreciation) 2,826,938 121,242 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 18,304,329 (857,951 ) Distributions to shareholders (3,187,856 (527,219 From net realized gain ) ) In excess of net realized gain - (98,627 ) TOTAL DISTRIBUTIONS (3,187,856 (625,846 ) ) Share transactions 431,292,376 30,972,770 Net proceeds from sales of shares Reinvestment of distributions 3,161,234 593,907 Cost of shares redeemed (393,536,104 (22,544,984 ) ) Paid in capital portion of redemption fees 691,969 60,093 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 41,609,475 9,081,786 TOTAL INCREASE (DECREASE) IN NET ASSETS 56,725,948 7,597,989 NET ASSETS Beginning of period 18,632,731 11,034,742 End of period $ 75,358,679 $ 18,632,731 OTHER INFORMATION Shares Sold 23,122,779 2,243,732 Issued in reinvestment of distributions 152,569 41,090 Redeemed (21,042,298 (1,592,005 ) ) Net increase (decrease) 2,233,050 692,817
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 13.93 $ 17.12 $ 13.60 $ 12.64 $ 11.53 Income from Investment Operations Net investment income (loss) (.01) (.18) (.18) (.09) E (.13) Net realized and unrealized gain (loss) 7.47 (2.01) 3.78 1.33 1.40 Total from investment operations 7.46 (2.19) 3.60 1.24 1.27 Less Distributions (.46) (.92) (.22) (.36) (.25) From net realized gain In excess of net realized gain - (.17) (.05) - - Total distributions (.46) (1.09) (.27) (.36) (.25) Redemption fees added to paid in capital .18 .09 .19 .08 .09 Net asset value, end of period $ 21.11 $ 13.93 $ 17.12 $ 13.60 $ 12.64 TOTAL RETURN B, C 54.91% (12.45)% 27.94% 10.69% 11.90% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 75,359 $ 18,633 $ 11,035 $ 11,868 $ 6,971 Ratio of expenses to average net assets 1.47% 2.50% 2.33% 2.48% A 2.51% G , G G Ratio of expenses to average net assets after expense reductions 1.41% 2.50% 2.31% 2.48% A 2.51% F F Ratio of net investment income (loss) to average net assets (.07)% (1.31)% (1.11)% (.90)% (1.04)% A Portfolio turnover rate 504% 200% 171% 96% A 261% A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.01 PER SHARE. F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). G DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND AUTOMOTIVE 10.13% 126.90% 210.11% AUTOMOTIVE 6.83% (INCL. 3% SALES CHARGE) 120.09% 200.80% S&P 500 34.70% 101.14% 247.69% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND AUTOMOTIVE 10.13% 17.81% 12.41% AUTOMOTIVE 6.83% 17.09% 12.05% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 13.74% 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 19860630 9700.00 10000.00 19860731 9176.20 9488.77 19860831 9603.00 10192.84 19860930 8943.40 9349.89 19861031 9399.30 9889.38 19861130 9506.00 10129.69 19861231 9341.10 9871.39 19870131 10747.60 11201.06 19870228 11707.90 11643.50 19870331 12028.00 11980.00 19870430 12202.60 11873.38 19870531 12183.20 11976.68 19870630 12367.50 12581.50 19870731 13230.80 13219.38 19870831 13744.90 13712.46 19870930 13541.20 13412.16 19871031 9476.90 10523.18 19871130 9098.60 9656.07 19871231 9952.20 10390.90 19880131 10402.71 10828.35 19880229 11068.24 11332.96 19880331 11866.87 10982.77 19880430 12071.65 11104.68 19880531 12030.69 11201.29 19880630 12726.94 11715.43 19880731 12583.59 11670.91 19880831 11999.98 11274.10 19880930 12051.17 11754.37 19881031 11959.02 12081.14 19881130 11703.05 11908.38 19881231 11948.78 12116.78 19890131 12501.68 13003.73 19890228 12368.58 12679.94 19890331 12604.07 12975.38 19890430 13167.21 13648.80 19890531 13361.75 14201.58 19890630 13126.26 14120.63 19890731 13587.01 15395.72 19890831 13720.11 15697.48 19890930 13402.71 15633.12 19891031 12286.67 15270.43 19891130 12399.29 15581.95 19891231 12438.82 15955.91 19900131 12110.37 14885.27 19900228 12470.61 15077.29 19900331 12936.80 15476.84 19900430 12894.42 15089.92 19900531 13625.49 16561.19 19900630 13869.48 16448.57 19900731 13912.45 16395.93 19900831 11914.22 14913.74 19900930 10775.44 14187.44 19901031 10560.57 14126.44 19901130 11183.68 15039.00 19901231 11602.66 15458.59 19910131 12258.00 16132.59 19910228 13257.12 17286.07 19910331 13364.55 17704.39 19910430 13514.95 17746.88 19910531 14600.02 18513.55 19910630 14567.79 17665.63 19910731 15169.41 18488.84 19910831 15663.59 18927.03 19910930 15201.64 18610.95 19911031 15599.14 18860.33 19911130 14825.62 18100.26 19911231 15933.39 20170.93 19920131 17654.69 19795.75 19920229 19432.62 20053.10 19920331 19851.62 19662.06 19920430 21119.95 20240.13 19920531 21108.62 20339.30 19920630 20983.04 20036.25 19920731 21175.86 20855.73 19920831 19860.16 20428.19 19920930 19531.24 20669.24 19921031 20347.88 20741.58 19921130 21334.65 21448.87 19921231 22564.01 21712.69 19930131 23605.96 21895.08 19930228 23953.28 22192.85 19930331 25238.35 22661.12 19930430 25092.53 22112.72 19930531 26620.52 22705.34 19930630 27086.08 22771.19 19930731 27396.46 22680.10 19930831 28351.45 23539.68 19930930 28649.89 23358.43 19931031 29258.70 23841.94 19931130 29258.70 23615.45 19931231 30548.19 23901.19 19940131 32289.60 24713.83 19940228 31247.21 24044.09 19940331 29052.05 22995.77 19940430 28461.32 23290.11 19940531 28039.67 23672.07 19940630 27680.03 23092.10 19940731 28510.92 23849.53 19940831 28039.67 24827.36 19940930 26849.13 24219.09 19941031 27357.59 24764.01 19941130 25708.20 23862.11 19941231 26652.41 24215.98 19950131 26019.14 24843.91 19950228 27313.22 25812.07 19950331 27175.55 26573.79 19950430 27092.95 27356.38 19950531 27643.62 28449.82 19950630 28331.96 29110.71 19950731 30369.43 30076.02 19950831 30094.10 30151.51 19950930 30245.53 31423.90 19951031 28841.32 31311.72 19951130 29557.20 32686.31 19951231 30231.77 33315.84 19960131 29873.83 34449.91 19960229 30080.33 34769.27 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 February 29, 1996, your investment would have grown to $30,080 - a 200.80% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $34,769 over the same period - a 247.69% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Echlin, Inc. 6.4 Genuine Parts Co. 6.0 Lear Seating Corp. 5.2 Michelin SA Cie Generale des Etablissements Class B 4.8 General Motors Corp. 4.6 Magna International, Inc. Class A 4.2 Gentex Corp. 4.2 Danaher Corp. 3.9 Tower Automotive, Inc. 3.7 Borg-Warner Automotive, Inc. 3.6 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Auto & Truck Parts 46.1% Motor Vehicles & Car Bodies 17.9% Tires & Inner Tubes 8.2% Auto Parts - Retail 6.6% Autos & Other Motor Vehicles 6.0% All Others 15.2% * Row: 1, Col: 1, Value: 15.2 Row: 1, Col: 2, Value: 6.0 Row: 1, Col: 3, Value: 6.6 Row: 1, Col: 4, Value: 8.199999999999999 Row: 1, Col: 5, Value: 17.9 Row: 1, Col: 6, Value: 46.1 * 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 PERFORM, BRENDA? A. For the 12 months ended February 29, 1996, the fund had a total return of 10.13%. For the same period, the S&P 500 Index returned 34.70%. Q. WHAT HURT THE FUND'S PERFORMANCE? A. Car sales were mediocre in 1995. The fact is, it's hard for the auto makers to have the earnings necessary to drive up their stocks when overall unit sales are down. Basically, because this is a cyclical industry, as the economy slows, car sales will trend downward. On the other hand, I am encouraged by the fact that in the last couple of months sales have improved. Q. IN YOUR LAST REPORT, YOU DISCUSSED THE BENEFITS OF OWNING THE STOCKS OF AUTO PARTS SUPPLIERS. ARE YOU STILL OPTIMISTIC ABOUT THIS AREA OF THE MARKET? A. Sure. As I explained in the last report, there is clearly a trend in the Big Three auto makers to outsource as much parts production as possible in order to lower their costs. Additionally, there is a great amount of consolidation in the parts supply industry. For example, Ford has stated it would like to pare its approximately 2,300 suppliers down to about 1,150. Therefore, parts companies that are low-cost/high-quality providers and have technologically advanced products will be the winners in a more consolidated industry. Q. WHICH AUTO PARTS SUPPLY COMPANIES SEEMED TO FIT THE BILL DURING THE PERIOD? A. Lear Seating, which makes seats, side panels, door moldings and other automotive accoutrements, showed it could successfully grow sales after it made some key acquisitions. I also look for suppliers that offer their products worldwide, such as Magna International. Q. HAVE YOU TARGETED ANY OTHER SPECIFIC AREAS OF THE AUTO MARKET? A. After enduring a hard 1995, I recently began adding to the fund's positions in auto parts retailers. The stock prices of retailers such as Pep Boys and Autozone were pushed down with other retailers as consumers kept a tight rein on their pursestrings. Additionally, a mild winter in 1994 brought less need for consumers to replace worn-out parts. This winter, however, has been anything but mild and many retailers have credited the severe weather for the recent jump in sales. Q. WHAT ABOUT FOREIGN HOLDINGS? A. For the most part, I've recently increased the fund's foreign holdings in Europe and Japan which, of course, have greater risks than U.S. securities. In Europe, Volkswagen and Daimler-Benz have embarked on aggressive restructuring and cost-cutting programs. Japanese auto companies, which continue to dominate the Asian market, have also aggressively cut costs as well as moved many more plants overseas - which helped to counter any negative currency effects. Q. HOW WILL THE INCREASINGLY GLOBAL NATURE OF THE AUTOMOTIVE INDUSTRY AFFECT YOUR DECISION MAKING IN THE FUTURE? A. New markets are beginning to open up around the world as the economies of regions like Eastern Europe begin to stabilize and consumer spending grows. In fact, the major auto makers already have fairly successful operations in Europe and South America. As these new markets develop, I will continue to look for companies that show the potential to grow earnings through market downturns, as well as those with the international market experience that will be necessary in the future. FUND FACTS START DATE: June 30, 1986 TRADING SYMBOL: FSAVX SIZE: as of February 29, 1996, more than $55 million MANAGER: Brenda Reed, since 1994; manager, Fidelity Select Air Transportation Portfolio, 1992-1994; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. AUTOMOTIVE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 93.1% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.8% AIRCRAFT EQUIPMENT - 0.8% Aviall, Inc. 40,000 $ 290,000 Simula, Inc. (a) 10,000 156,250 446,250 AUTOS, TIRES, & ACCESSORIES - 87.2% AUTO & TRUCK PARTS - 46.1% Borg-Warner Automotive, Inc. 60,000 1,965,000 Dana Corp. 26,800 810,700 Danaher Corp. 63,400 2,155,600 Echlin, Inc. 105,000 3,556,875 Federal-Mogul Corp. 20,000 370,000 Gentex Corp. (a) 93,000 2,301,750 Harvard Industries, Inc. (a) 18,500 467,125 Intermet Corp. (a) 20,000 260,000 Johnson Controls, Inc. 22,700 1,628,725 Lear Seating Corp. (a) 89,700 2,859,188 Magna International, Inc. Class A 58,500 2,326,595 MascoTech, Inc. 16,700 215,013 Masland Corp. 30,000 420,000 SPX Corp. 20,200 310,575 Safety Components International, Inc. (a) 1,000 14,125 Smith (A.O.) Corp. Class B 16,600 402,550 Snap-on Tools Corp. 40,200 1,798,950 Standard Products Co. 27,400 568,550 Superior Industries International, Inc. 3,600 89,550 TRW, Inc. 5,000 433,125 Titan Wheel International, Inc. 33,000 503,250 Tower Automotive, Inc. (a) 132,500 2,020,625 25,477,871 AUTO PARTS - RETAIL - 6.6% Autozone, Inc. (a) 68,100 1,753,572 Discount Auto Parts, Inc. 12,000 303,000 Monro Muffler Brake, Inc. 53,530 762,803 Pep Boys-Manny, Moe & Jack 27,600 828,000 3,647,375 AUTOS & OTHER MOTOR VEHICLES - 6.0% Genuine Parts Co. 78,200 3,343,050 MOTOR VEHICLE SUPPLIES & NEW PARTS - 1.4% APS Holding Corp. Class A (a) 44,000 693,000 Hahn Automotive Warehouse, Inc. 12,500 103,125 796,125 MOTOR VEHICLES & CAR BODIES - 17.9% Chrysler Corp. 27,800 1,567,225 Daimler-Benz AG Ord. 1,100 605,392 Ford Motor Co. 25,000 781,250 General Motors Corp. 49,300 2,526,625 Honda Motor Co. Ltd. 73,000 1,546,478 Hyundai Motor Co. sponsored GDR (a)(b) 5,500 85,250 Mitsubishi Motors Corp. 30,000 247,661 Suzuki Motor Corp. 21,000 245,381 Toyota Motor Corp. 36,000 776,326 Volkswagen AG 3,000 1,137,335 Volvo AB Class B 17,500 373,675 9,892,598 TIRES & INNER TUBES - 8.2% Bandag, Inc. 6,700 341,700 Cooper Tire & Rubber Co. 29,300 743,488 Goodyear Tire & Rubber Co. 15,500 736,250 Michelin SA Cie Generale des Etablissements Class B 60,000 2,681,710 4,503,148 SHARES VALUE (NOTE 1) TRUCK & BUS BODIES - 1.0% Miller Industries, Inc. (a) 20,000 $ 567,500 TOTAL AUTOS, TIRES, & ACCESSORIES 48,227,667 CHEMICALS & PLASTICS - 0.5% CHEMICALS - 0.5% Quaker State Corp. 20,000 280,000 COMMUNICATIONS EQUIPMENT - 1.1% DATACOMMUNICATIONS EQUIPMENT - 1.1% Lo Jack Corp. (a) 60,000 630,000 CONGLOMERATES - 1.1% Mark IV Industries, Inc. 30,000 600,000 INDUSTRIAL MACHINERY & EQUIPMENT - 2.4% METAL WORKING MACHINERY - 0.8% Exco Technologies Ltd. (a) 79,500 435,108 STORAGE BATTERIES - 1.6% Exide Corp. 28,400 866,200 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,301,308 TOTAL COMMON STOCKS (Cost $48,747,730) 51,485,225 REPURCHASE AGREEMENTS - 6.9% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 3,830,576 3,830,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $52,577,730) $ 55,315,225 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 $85,250 or 0.2% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $33,003,006 and $45,148,838, respectively (see Note 3 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 $23,214 for the period (see Note 4 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 81.1% Japan 5.1 Canada 5.0 France 4.8 Germany 3.1 Others (individually less than 1%) 0.9 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $52,862,154. Net unrealized appreciation aggregated $2,453,071, of which $4,808,784 related to appreciated investment securities and $2,355,713 related to depreciated investment securities. At February 29, 1996, the fund had a capital loss carryforward of approximately $2,947,000 which will expire on February 29, 2004. The fund intends to elect to defer to its fiscal year ending February 28, 1997 approximately $30,000 of losses recognized during the period November 1, 1995 to February 29, 1996. AUTOMOTIVE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $3,830,000) (cost $52,577,730) - See $ 55,315,225 accompanying schedule Cash 897 Receivable for investments sold 1,698,672 Receivable for fund shares sold 450,761 Dividends receivable 76,747 Redemption fees receivable 124 Other receivables 2,403 TOTAL ASSETS 57,544,829 LIABILITIES Payable for investments purchased $ 1,287,230 Payable for fund shares redeemed 419,450 Accrued management fee 28,698 Other payables and 55,968 accrued expenses TOTAL LIABILITIES 1,791,346 NET ASSETS $ 55,753,483 Net Assets consist of: Paid in capital $ 56,198,071 Undistributed net investment income 76,192 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (3,258,158 ) Net unrealized appreciation (depreciation) on investments 2,737,378 and assets and liabilities in foreign currencies NET ASSETS, for 2,551,419 $ 55,753,483 shares outstanding NET ASSET VALUE and redemption price per share ($55,753,483 (divided by) 2,551,419 shares) $21.85 Maximum offering price per share (100/97.00 of $21.85) $22.53
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 851,928 Dividends Interest 290,833 TOTAL INCOME 1,142,761 EXPENSES Management fee $ 363,327 Transfer agent 664,631 Fees Redemption fees (73,551 ) Accounting fees and expenses 60,082 Non-interested trustees' compensation 611 Custodian fees and expenses 15,850 Registration fees 20,356 Audit 19,860 Legal 419 Miscellaneous 1,127 Total expenses before reductions 1,072,712 Expense reductions (5,967 1,066,745 ) NET INVESTMENT INCOME 76,016 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,306,938 Foreign currency transactions 635 1,307,573 Change in net unrealized appreciation (depreciation) on: Investment securities 3,088,771 Assets and liabilities in (117 3,088,654 foreign currencies ) NET GAIN (LOSS) 4,396,227 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,472,243 OTHER INFORMATION $ 381,296 Sales charges paid to FDC Deferred sales charges withheld $ 3,109 by FDC Exchange fees withheld by FSC $ 54,600 Expense reductions $ 4,980 Directed brokerage arrangements Custodian interest credits 78 Transfer agent interest credits 909 $ 5,967
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 76,016 $ 346,115 Net investment income Net realized gain (loss) 1,307,573 11,541,717 Change in net unrealized appreciation (depreciation) 3,088,654 (31,661,358 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 4,472,243 (19,773,526 ) Distributions to shareholders - (154,502 From net investment income ) From net realized gain - (7,650,364 ) TOTAL DISTRIBUTIONS - (7,804,866 ) Share transactions 79,629,136 91,986,801 Net proceeds from sales of shares Reinvestment of distributions - 7,692,677 Cost of shares redeemed (88,521,546 (240,957,682 ) ) Paid in capital portion of redemption fees 98,432 233,563 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (8,793,978 (141,044,641 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS (4,321,735 (168,623,033 ) ) NET ASSETS Beginning of period 60,075,218 228,698,251 End of period (including undistributed net investment income of $76,192 and $165,781, respectively) $ 55,753,483 $ 60,075,218 OTHER INFORMATION Shares Sold 3,758,408 4,119,242 Issued in reinvestment of distributions - 397,089 Redeemed (4,235,574 (10,463,135 ) ) Net increase (decrease) (477,166 (5,946,804 ) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 19.84 $ 25.48 $ 20.69 $ 18.65 $ 12.58 Income from Investment Operations Net investment income .03 .08 .05 .13 .06 Net realized and unrealized gain (loss) 1.95 (3.46) 6.00 2.26 6.55 Total from investment operations 1.98 (3.38) 6.05 2.39 6.61 Less Distributions - (.05) (.05) (.06) - From net investment income From net realized gain - (2.26) (1.26) (.36) (.70) Total distributions - (2.31) (1.31) (.42) (.70) Redemption fees added to paid in capital .03 .05 .05 .07 .16 Net asset value, end of period $ 21.85 $ 19.84 $ 25.48 $ 20.69 $ 18.65 TOTAL RETURN B, C 10.13% (12.59)% 30.45% 13.42% 56.27% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 55,753 $ 60,075 $ 228,698 $ 110,360 $ 178,445 Ratio of expenses to average net assets 1.81% 1.82% 1.69% 1.57% 2.48% A Ratio of expenses to average net assets after expense reductions 1.80% 1.80% 1.68% 1.57% 2.48% E E E A Ratio of net investment income to average net assets .13% .34% .22% .72% .36% A Portfolio turnover rate 61% 63% 64% 140% 29% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS CHEMICALS 27.48% 123.42% 337.47% CHEMICALS 23.65% (INCL. 3% SALES CHARGE) 116.72% 324.35% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS CHEMICALS 27.48% 17.44% 15.90% CHEMICALS 23.65% 16.73% 15.55% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10218.32 10558.00 19860430 10258.71 10438.69 19860531 10548.16 10994.03 19860630 10803.96 11179.83 19860731 10096.59 10554.88 19860831 10846.74 11338.05 19860930 9988.47 10400.39 19861031 10596.69 11000.50 19861130 10779.16 11267.81 19861231 10583.18 10980.48 19870131 11995.62 12459.55 19870228 13110.71 12951.70 19870331 13509.43 13326.01 19870430 13806.79 13207.41 19870531 13624.32 13322.31 19870630 14387.99 13995.09 19870731 15327.36 14704.64 19870831 15888.28 15253.12 19870930 16172.12 14919.08 19871031 11252.23 11705.51 19871130 10873.78 10740.97 19871231 12151.99 11558.36 19880131 11853.95 12044.97 19880229 13168.04 12606.27 19880331 13838.64 12216.73 19880430 14001.21 12352.34 19880531 13472.86 12459.80 19880630 15254.34 13031.71 19880731 14793.73 12982.19 19880831 14150.23 12540.79 19880930 14326.34 13075.03 19881031 14549.88 13438.52 19881130 14062.17 13246.35 19881231 14698.90 13478.16 19890131 15681.08 14464.76 19890228 15484.64 14104.59 19890331 15653.99 14433.22 19890430 16101.05 15182.31 19890531 16473.60 15797.19 19890630 16276.91 15707.15 19890731 17314.13 17125.50 19890831 18107.30 17461.16 19890930 17463.27 17389.57 19891031 16229.46 16986.13 19891130 16575.20 17332.65 19891231 17243.47 17748.63 19900131 16014.85 16557.70 19900228 16122.00 16771.29 19900331 16600.59 17215.73 19900430 16214.86 16785.34 19900531 17629.20 18421.91 19900630 17773.09 18296.64 19900731 17831.90 18238.09 19900831 15450.39 16589.37 19900930 14685.96 15781.47 19901031 14855.01 15713.61 19901130 15847.31 16728.71 19901231 16530.89 17195.44 19910131 17640.79 17945.16 19910228 18993.25 19228.24 19910331 19448.97 19693.56 19910430 19294.61 19740.82 19910531 20632.37 20593.63 19910630 20071.65 19650.44 19910731 21039.05 20566.15 19910831 21452.59 21053.57 19910930 21290.13 20701.97 19911031 21629.82 20979.38 19911130 20551.66 20133.91 19911231 22922.01 22437.23 19920131 23362.23 22019.90 19920229 24204.73 22306.16 19920331 24030.16 21871.19 19920430 24903.02 22514.20 19920531 24758.81 22624.52 19920630 24024.92 22287.41 19920731 24783.01 23198.97 19920831 23936.21 22723.39 19920930 23960.40 22991.53 19921031 23718.46 23072.00 19921130 24436.23 23858.75 19921231 24963.15 24152.21 19930131 24937.47 24355.09 19930228 24500.87 24686.32 19930331 25083.00 25207.20 19930430 25548.24 24597.19 19930531 25935.07 25256.39 19930630 25284.50 25329.64 19930731 25671.32 25228.32 19930831 26928.52 26184.47 19930930 26075.74 25982.85 19931031 27060.39 26520.70 19931130 27262.59 26268.75 19931231 28147.72 26586.60 19940131 30338.69 27490.55 19940228 30290.85 26745.55 19940331 29381.93 25579.45 19940430 30802.82 25906.86 19940531 31544.48 26331.74 19940630 31149.57 25686.61 19940731 32555.83 26529.13 19940831 34443.68 27616.82 19940930 34193.25 26940.21 19941031 34135.46 27546.37 19941130 31457.79 26543.13 19941231 32306.64 26936.76 19950131 31462.41 27635.23 19950228 33288.31 28712.18 19950331 34309.24 29559.47 19950430 35044.73 30430.00 19950531 35393.68 31646.29 19950630 35991.88 32381.43 19950731 37696.76 33455.20 19950831 37856.28 33539.17 19950930 38454.48 34954.52 19951031 36540.23 34829.74 19951130 38135.44 36358.76 19951231 39235.86 37059.03 19960131 41039.31 38320.52 19960229 42434.84 38675.75 Let's say you invested $10,000 in Fidelity Select Chemicals Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $42,435 - a 324.35% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Cytec Industries, Inc. 5.0 du Pont (E.I.) de Nemours & Co. 4.8 Monsanto Co. 4.3 Praxair, Inc. 3.4 Ferro Corp. 3.3 Union Carbide Corp. 3.1 Albemarle Corp. 2.9 Raychem Corp. 2.8 Hanna (M.A.) Co. 2.7 Airgas, Inc. 2.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 36 Chemicals 40.9% Adhesives & Sealants 7.6% Industrial Gases 7.3% Agricultural Chemicals 6.9% Chemicals, General 4.1% All Others 33.2% * Row: 1, Col: 1, Value: 33.2 Row: 1, Col: 2, Value: 4.1 Row: 1, Col: 3, Value: 6.9 Row: 1, Col: 4, Value: 7.3 Row: 1, Col: 5, Value: 7.6 Row: 1, Col: 6, Value: 40.9 * INCLUDES SHORT-TERM INVESTMENTS CHEMICALS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Avery, Portfolio Manager of Fidelity Select Chemicals Portfolio Q. HOW DID THE FUND PERFORM, JOHN? A. For the 12 months ended February 29, 1996, the fund had a total return of 27.48%. For the same period, the S&P 500 Index returned 34.70%. Q. WHY DID THE FUND TRAIL THE GENERAL MARKET? A. In general, the chemical industry endured what is known as an inventory correction. Earlier in the year, buyers purchased large quantities of chemical products and built their inventories - which helped chemical stocks start 1995 on a positive note. However, when the economy slowed, these buyers curtailed their purchases and used their inventories, thus slowing the demand for chemical products. Q. GIVEN THEIR NAME, ONE WOULD ASSUME THERE IS A STRONG CORRELATION BETWEEN COMMODITY PRICES AND COMMODITY CHEMICAL STOCK PRICES . . . A. Absolutely. If you look at the prices of these raw materials - such as ethylene and methanol - and commodity chemical companies that supply them, they pretty much move in tandem. That really was a big part of the story last year. Throughout 1995, as economic reports indicated the economy was showing signs of slowing, commodity prices fell. Therefore, I positioned the portfolio for a slowdown in the economy by moving some assets into specialty chemical companies - diversified companies that are less susceptible to changes in the economy. Q. AND IS THAT WHAT WAS HAPPENING NEAR THE END OF THE PERIOD? A. A couple of months ago, there were signs the economy may have some strength. As a result, commodity prices began to rally. Therefore, I began repositioning some assets into commodity chemical stocks. This decision has paid off recently as the stock prices of many of the commodity chemical companies have moved with commodity prices. Q. LOOKING AT SOME SPECIFIC HOLDINGS, CYTEC INDUSTRIES CONTINUES TO BE ONE OF YOUR FAVORITE COMPANIES . . . A. Cytec is a specialty chemical company that had originally been part of American Cyanamid. When it was spun off from American Cyanamid two years ago, it was a company starved of capital and lacking independence. Since then, it has become a classic turnaround company. Cytec's management has focused on higher-return businesses, closed unprofitable plants and demonstrated an ability to generate consistent levels of profitability. While the company still has to bring its profitability up to the level of its peers, it has done the things necessary to make me optimistic about its future prospects. Q. WHILE CYTEC REMAINS A TOP HOLDING, W.R. GRACE IS A MUCH SMALLER PART OF THE PORTFOLIO NOW . . . A. Like many other diversified chemical companies, W.R. Grace performed pretty well in 1995. The stock, however, had achieved the target price level I had set for it earlier in the year. Therefore, I scaled back the fund's Grace position. Q. WHAT ABOUT FOREIGN HOLDINGS? A. A little more than a month ago, I increased the fund's foreign exposure. As in the U.S., foreign chemical companies have been sensitive to movements in commodity prices. Recently, foreign commodity prices bottomed. Therefore, I established some positions primarily in Europe in companies such as Imperial Chemical Industries of the United Kingdom and BASF of Germany. Q. WERE THERE ANY DISAPPOINTMENTS? A. Unfortunately, the cyclical nature of the chemical group as a whole often undermines the performance of some solid companies. Q. WHAT'S YOUR OUTLOOK? A. Recently, there have been signs that the economy may be stronger than the market once believed. Should this trend continue, it could benefit the commodity chemical companies. That said, I will continue to monitor economic reports for any drastic shifts in the economic environment and, if need be, shift the portfolio to more diversified chemical companies that are less economically sensitive. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FSCHX SIZE: as of February 29, 1996, more than $89 million MANAGER: John Avery, since July 1995; joined Fidelity in December 1994 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. CHEMICALS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 88.5% SHARES VALUE (NOTE 1) BUILDING MATERIALS - 0.4% PAINT & VARNISH - 0.4% Dexter Corp. 13,600 $ 319,600 CHEMICALS & PLASTICS - 79.7% ADHESIVES & SEALANTS - 7.6% Ferro Corp. 115,100 2,935,045 Fuller (H.B.) Co. 13,227 476,172 International Specialty Products, Inc. (a) 87,700 1,085,288 Loctite Corp. 14,000 742,000 Lydall, Inc. 20,000 485,000 Methanex Corp. (a) 97,500 747,072 Nalco Chemical Co. 11,500 365,125 6,835,702 AGRICULTURAL CHEMICALS - 6.9% Agrium, Inc. 61,600 949,611 First Mississippi Corp. 21,400 559,075 IMC Fertilizer Group, Inc. 52,100 2,149,125 OM Group, Inc. 37,600 1,316,000 Potash Corp. of Saskatchewan 5,900 438,082 Vigoro Corp. 11,900 788,375 6,200,268 CHEMICALS - 40.9% AKZO NV sponsored ADR 8,900 493,950 BASF AG 5,000 1,245,846 Cabot Corp. 8,900 538,450 Cytec Industries, Inc. (a) 58,171 4,479,167 Dow Chemical Co. 10,000 802,500 du Pont (E.I.) de Nemours & Co. 56,500 4,322,250 Engelhard Corp. 22,400 456,400 Ethyl Corp. 100,000 1,075,000 Grace (W.R.) & Co. 34,000 2,346,000 Hercules, Inc. 39,700 2,382,000 Imperial Chemical Industries PLC: ADR 30,000 1,668,750 Ord. 30,000 414,843 Minnesota Mining & Manufacturing Co. 19,500 1,269,938 Monsanto Co. 28,800 3,877,200 NL Industries, Inc. (a) 46,700 647,963 Olin Corp. 17,100 1,415,025 Raychem Corp. 38,200 2,478,225 Rohm & Haas Co. 11,700 814,613 Union Carbide Corp. 61,400 2,763,000 Uniroyal Chemical Corp. (a) 135,000 1,231,875 Witco Corp. 62,200 2,029,275 36,752,270 CHEMICALS & ALLIED PRODUCTS - 2.1% Kemira OY sponsored ADR (b) 61,100 1,084,525 Kemira OY 89,700 807,487 1,892,012 CHEMICALS, GENERAL - 4.1% Albemarle Corp. 136,700 2,631,475 Great Lakes Chemical Corp. 14,200 1,015,300 3,646,775 INDUSTRIAL GASES - 7.3% Air Products & Chemicals, Inc. 20,300 1,080,975 Airgas, Inc. (a) 66,600 2,397,600 Praxair, Inc. 89,653 3,093,029 6,571,604 SHARES VALUE (NOTE 1) INORGANIC CHEMICALS - 1.2% DSM NV 10,000 $ 932,897 Valspar Corp. 3,100 138,338 1,071,235 NITROGENOUS FERTILIZERS - 0.8% Soc Quimica y Minera de Chile ADR 14,300 725,725 ORGANIC CHEMICALS - 1.9% Cambrex Corp. 18,000 843,750 Lubrizol Corp. 28,300 827,775 1,671,525 PLASTICS & SYNTHETIC RESINS - 2.0% Geon Co. 11,400 304,950 Schulman (A.), Inc. 30,000 682,500 Sekisui Chemical Co. Ltd. 40,000 509,191 Spartech Corp. 44,100 336,263 1,832,904 PLASTICS - 3.8% Applied Extrusion Technologies Inc. (a) 41,700 500,400 Hanna (M.A.) Co. 86,350 2,439,388 Sealed Air Corp. (a) 14,900 439,550 3,379,338 PLASTICS, RESINS & ELASTOMERS - 1.1% AT Plastics, Inc. 30,000 265,443 PT Tri Polyta Indonesia sponsored ADR 50,900 712,600 978,043 TOTAL CHEMICALS & PLASTICS 71,557,401 DRUGS & PHARMACEUTICALS - 3.6% BIOTECHNOLOGY - 2.6% Sigma Aldrich Corp. 41,700 2,387,325 PHARMACEUTICAL PREPARATIONS - 1.0% Copley Pharmaceutical, Inc. (a) 47,300 892,788 TOTAL DRUGS & PHARMACEUTICALS 3,280,113 INDUSTRIAL MACHINERY & EQUIPMENT - 0.8% PUMPING EQUIPMENT - 0.8% Duriron Co., Inc. 25,000 681,250 METALS & MINING - 2.4% MISCELLANEOUS METAL ORES - 0.7% Stillwater Mining Co. (a) 7,700 169,400 Stillwater Mining Co. (a)(b) 19,400 426,800 596,200 NON-METALLIC MINERAL MINING - 1.7% Freeport McMoRan, Inc. 36,500 1,555,813 TOTAL METALS & MINING 2,152,013 OIL & GAS - 0.7% CRUDE PETROLEUM & GAS - 0.7% Occidental Petroleum Corp. 29,600 680,800 PRECIOUS METALS - 0.4% GOLD ORES - 0.4% Firstmiss Gold, Inc. (a) 15,140 408,780 TEXTILES & APPAREL - 0.5% CARPETS & RUGS - 0.5% Image Industries, Inc. (a) 40,300 453,375 TOTAL COMMON STOCKS (Cost $66,214,892) 79,533,332 CONVERTIBLE PREFERRED STOCKS - 0.5% SHARES VALUE (NOTE 1) OIL & GAS - 0.5% CRUDE PETROLEUM & GAS - 0.5% Atlantic Richfield Co. exchangeable $2.23 (Cost $342,523) 15,200 $ 410,400 REPURCHASE AGREEMENTS - 11.0% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 9,882,485 9,881,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $76,438,415) $ 89,824,732 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 $1,511,325 or 1.7% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $65,335,715 and $96,076,087, respectively (see Note 3 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 $70,381 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $1,328,000 and $1,161,500, respectively. The weighted average interest rate paid was 6.5% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 87.8% Canada 2.7 United Kingdom 2.3 Finland 2.1 Netherlands 1.6 Germany 1.4 Others (individually less than 1%) 2.1 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $76,460,811. Net unrealized appreciation aggregated $13,363,921, of which $15,008,907 related to appreciated investment securities and $1,644,986 related to depreciated investment securities. The fund hereby designates approximately $2,934,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 48% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. CHEMICALS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $9,881,000) (cost $76,438,415) - See $ 89,824,732 accompanying schedule Cash 460 Receivable for investments sold 443,043 Receivable for fund shares sold 497,774 Dividends receivable 166,711 Redemption fees receivable 121 Other receivables 62,675 TOTAL ASSETS 90,995,516 LIABILITIES Payable for investments purchased $ 707,548 Payable for fund shares redeemed 941,753 Accrued management fee 43,704 Other payables and 72,047 accrued expenses TOTAL LIABILITIES 1,765,052 NET ASSETS $ 89,230,464 Net Assets consist of: Paid in capital $ 70,976,617 Undistributed net investment income 15,890 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 4,851,743 Net unrealized appreciation (depreciation) on investments 13,386,214 and assets and liabilities in foreign currencies NET ASSETS, for 2,257,014 $ 89,230,464 shares outstanding NET ASSET VALUE and redemption price per share ($89,230,464 (divided by) 2,257,014 shares) $39.53 Maximum offering price per share (100/97.00 of $39.53) $40.75
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 1,328,564 Dividends Interest (including income on 250,530 securities loaned of $1,830) TOTAL INCOME 1,579,094 EXPENSES Management fee $ 481,260 Transfer agent 992,446 Fees Redemption fees (74,986 ) Accounting and security lending fees 79,105 Non-interested trustees' compensation 808 Custodian fees and expenses 16,693 Registration fees 30,728 Audit 33,352 Legal 865 Interest 835 Miscellaneous 870 Total expenses before reductions 1,561,976 Expense reductions (14,780 1,547,196 ) NET INVESTMENT INCOME 31,898 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 9,932,182 Foreign currency transactions (272 9,931,910 ) Change in net unrealized appreciation (depreciation) on: Investment securities 8,885,714 Assets and liabilities in (103 8,885,611 foreign currencies ) NET GAIN (LOSS) 18,817,521 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 18,849,419 OTHER INFORMATION $ 529,419 Sales charges paid to FDC Deferred sales charges withheld $ 23,318 by FDC Exchange fees withheld by FSC $ 53,220 Expense reductions $ 7,713 Directed brokerage arrangements Custodian interest credits 6,171 Transfer agent interest credits 896 $ 14,780
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 31,898 $ 1,534,984 Net investment income Net realized gain (loss) 9,931,910 4,787,546 Change in net unrealized appreciation (depreciation) 8,885,611 576,053 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 18,849,419 6,898,583 Distributions to shareholders (214,329 (1,029,165 From net investment income ) ) From net realized gain (6,011,068 (2,261,141 ) ) TOTAL DISTRIBUTIONS (6,225,397 (3,290,306 ) ) Share transactions 70,422,861 295,805,417 Net proceeds from sales of shares Reinvestment of distributions 6,107,748 3,230,231 Cost of shares redeemed (97,475,212 (267,599,716 ) ) Paid in capital portion of redemption fees 40,196 249,480 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (20,904,407 31,685,412 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (8,280,385 35,293,689 ) NET ASSETS Beginning of period 97,510,849 62,217,160 End of period (including undistributed net investment income of $15,890 and $426,403, respectively) $ 89,230,464 $ 97,510,849 OTHER INFORMATION Shares Sold 1,900,418 8,887,417 Issued in reinvestment of distributions 171,374 101,777 Redeemed (2,690,711 (8,078,436 ) ) Net increase (decrease) (618,919 910,758 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 33.91 $ 31.66 $ 28.62 $ 32.81 $ 26.25 Income from Investment Operations Net investment income .01 .36 .29 .30 .12 Net realized and unrealized gain (loss) 8.89 2.65 5.97 (.84) 7.27 Total from investment operations 8.90 3.01 6.26 (.54) 7.39 Less Distributions (.08) (.22) (.23) (.31) (.18) From net investment income From net realized gain (3.22) (.60) (3.05) (3.36) (.71) Total distributions (3.30) (.82) (3.28) (3.67) (.89) Redemption fees added to paid in capital .02 .06 .06 .02 .06 Net asset value, end of period $ 39.53 $ 33.91 $ 31.66 $ 28.62 $ 32.81 TOTAL RETURN B, C 27.48% 9.90% 23.63% (1.61)% 29.07% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 89,230 $ 97,511 $ 62,217 $ 28,796 $ 39,566 Ratio of expenses to average net assets 1.99% 1.52% 1.93% 1.89% 2.16% A Ratio of expenses to average net assets after expense reductions 1.97% 1.51% 1.93% 1.89% 2.16% E E A Ratio of net investment income to average net assets .04% 1.07% .97% 1.21% .40% A Portfolio turnover rate 87% 106% 81% 214% 87% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past five year and life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND CONSTRUCTION AND HOUSING 21.77% 104.11% 209.78% CONSTRUCTION AND HOUSING 18.12% 97.98% 200.49% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 270.48% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND CONSTRUCTION AND HOUSING 21.77% 15.34% 12.74% CONSTRUCTION AND HOUSING 18.12% 14.64% 12.38% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.90% 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 19860929 9700.00 10000.00 19860930 9709.70 9962.80 19861031 10262.60 10537.66 19861130 10369.30 10793.72 19861231 10437.20 10518.48 19870131 12192.90 11935.32 19870228 13483.00 12406.77 19870331 14307.50 12765.32 19870430 13327.80 12651.71 19870531 12949.50 12761.78 19870630 12804.00 13406.25 19870731 13599.40 14085.95 19870831 13890.40 14611.35 19870930 12823.40 14291.37 19871031 8749.40 11213.00 19871130 8109.20 10289.05 19871231 9141.24 11072.05 19880131 9466.31 11538.18 19880229 10352.85 12075.86 19880331 10766.57 11702.72 19880430 11081.79 11832.62 19880531 11012.83 11935.56 19880630 11662.97 12483.41 19880731 11544.76 12435.97 19880831 10953.73 12013.15 19880930 11288.65 12524.91 19881031 11367.45 12873.10 19881130 11229.54 12689.01 19881231 11809.46 12911.07 19890131 12529.18 13856.16 19890228 12377.13 13511.14 19890331 12691.37 13825.95 19890430 13188.08 14543.52 19890531 13654.38 15132.53 19890630 13645.75 15046.28 19890731 14199.39 16404.95 19890831 14438.22 16726.49 19890930 14698.76 16657.91 19891031 13873.72 16271.45 19891130 14079.98 16603.39 19891231 13769.49 17001.87 19900131 12900.94 15861.04 19900228 13167.30 16065.65 19900331 13908.46 16491.39 19900430 13503.14 16079.11 19900531 14753.86 17646.82 19900630 14487.50 17526.82 19900731 13731.86 17470.73 19900831 11986.06 15891.38 19900930 10748.37 15117.47 19901031 10370.55 15052.46 19901130 11373.73 16024.85 19901231 12442.05 16471.95 19910131 13536.43 17190.12 19910228 14722.01 18419.22 19910331 15086.80 18864.96 19910430 15321.31 18910.24 19910531 16845.63 19727.16 19910630 15985.76 18823.66 19910731 16402.66 19700.84 19910831 17080.14 20167.75 19910930 16702.32 19830.95 19911031 16415.69 20096.68 19911130 15594.91 19286.79 19911231 17582.47 21493.19 19920131 18889.56 21093.42 19920229 19198.76 21367.64 19920331 19184.71 20950.97 19920430 19451.75 21566.92 19920531 20070.16 21672.60 19920630 18636.06 21349.68 19920731 18973.62 22222.88 19920831 18326.63 21767.31 19920930 18565.74 22024.17 19921031 19212.72 22101.25 19921130 20323.86 22854.91 19921231 20872.39 23136.02 19930131 21744.42 23330.36 19930228 22138.23 23647.66 19930331 22658.64 24146.62 19930430 22123.98 23562.27 19930531 22363.23 24193.74 19930630 22630.63 24263.90 19930731 23404.69 24166.85 19930831 24375.78 25082.77 19930930 25163.91 24889.63 19931031 26078.71 25404.85 19931130 25670.57 25163.50 19931231 27887.78 25467.98 19940131 28798.86 26333.89 19940228 28215.20 25620.25 19940331 26563.85 24503.20 19940430 26503.76 24816.84 19940531 25101.29 25223.84 19940630 24485.92 24605.86 19940731 25187.15 25412.93 19940831 26145.98 26454.86 19940930 24686.27 25806.71 19941031 23956.42 26387.37 19941130 22983.28 25426.34 19941231 23441.19 25803.41 19950131 23544.07 26472.49 19950228 24675.71 27504.13 19950331 25116.61 28315.77 19950430 25146.00 29149.67 19950531 26380.52 30314.78 19950630 26630.37 31019.00 19950731 27864.89 32047.59 19950831 27879.58 32128.03 19950930 27717.92 33483.83 19951031 27703.22 33364.29 19951130 29408.04 34828.98 19951231 30186.91 35499.79 19960131 30125.46 36708.20 19960229 30048.65 37048.49 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 February 29, 1996, your investment would have grown to $30,049 - a 200.49% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $37,048 over the same period - a 270.48% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Lowe's Companies, Inc. 5.4 Sherwin-Williams Co. 5.0 Fluor Corp. 4.9 Masco Corp. 4.5 Pulte Corp. 3.4 Toro Co. 3.2 American Homestar Corp. 2.9 Champion Enterprises, Inc. 2.7 Beazer Homes USA, Inc. 2.5 Continental Homes Holding Corp. 2.4 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Operative Builders 11.2% Cement 7.5% Plumbing Supplies - Wholesale 5.6% Lumber & Building Materials - Retail 5.4% Paint & Varnish 5.0% All Others 65.3% * Row: 1, Col: 1, Value: 65.3 Row: 1, Col: 2, Value: 5.0 Row: 1, Col: 3, Value: 5.4 Row: 1, Col: 4, Value: 5.6 Row: 1, Col: 5, Value: 7.5 Row: 1, Col: 6, Value: 11.2 * INCLUDES SHORT-TERM INVESTMENTS CONSTRUCTION AND HOUSING PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW William Bower, Portfolio Manager of Fidelity Select Construction and Housing Portfolio Q. HOW DID THE FUND PERFORM, BILL? A. For the 12 months ended February 29, 1996, the fund had a total return of 21.77%. For the same period, the S&P 500 Index returned 34.70%. Q. WHAT DO YOU THINK HELD THE FUND BACK? A. Earlier in the period, I placed a significant amount of the fund's assets in the stocks of home building companies. Home builders' stocks, which have correlated historically to the performance of the 10-year U.S. Treasury note, faded as the bond market peaked in November and remained choppy for the remainder of the fund's reporting period. Q. SO DO YOU NOW HAVE A NEGATIVE OPINION ABOUT HOME BUILDERS? A. Not at all. Although I have scaled back the fund's weighting in home builders and redistributed the assets elsewhere, I still have a positive view of this part of the sector. During the period, many home building companies raised revenues and beat analysts' estimates, but they were undercut by the bond market as I discussed before. Q. HOW DID YOU REDISTRIBUTE THE ASSETS YOU DISCUSSED ABOVE? A. One area of the stock market that generally underperformed in 1995 was retail stocks. I sought to take advantage of the low stock prices in this area by buying more of construction-related retailers, such as Lowe's, Home Depot and Sherwin-Williams. I also shifted more assets into manufactured housing companies and related businesses. For example, companies like American Homestar, Champion Enterprises, Palm Harbor Homes and Green Tree Financial - which is the largest underwriter of manufactured housing loans - - tend to be less sensitive to interest rates. Q. WHY HAS FLUOR REMAINED A TOP HOLDING OF THE FUND FOR MOST OF LAST YEAR? A. Fluor is a construction and engineering contractor that specializes in worldwide infrastructure spending. The uptick in construction could be beneficial to some international firms such as Fluor. Q. WHAT WERE SOME STOCKS THAT PERFORMED WELL FOR THE FUND? A. Sherwin-Williams bucked the low-performance trend of many retail stocks as the paint company showed steady earnings growth during the period. Additionally, as many parts of the country were blanketed with over 100 inches of snow, Toro - the lawn and garden equipment maker - saw snowblower sales rise appreciably. Q. WERE THERE ANY OTHER DISAPPOINTMENTS? A. The cement industry had the same problem as the home building industry - solid prospects undermined by the bond market. Despite the interest rate environment, however, I found many cement companies to be attractively priced and able to fetch good prices for their product. Some companies the fund owned - which I call "cement and aggregates" because they often mine the rocks used to make cement as well as distribute it - include Medusa, Lafarge, Texas Industries and CalMat. Q. WHAT'S YOUR OUTLOOK? A. The cyclicality of the construction and housing market always plays a role in the fund's performance. I believe that if current economic conditions hold, these stocks have the potential to deliver better than expected earnings. Additionally, given a stable economy and reasonable valuations of construction and housing stocks, the fund would also appear to have solid prospects. FUND FACTS START DATE: September 29, 1986 TRADING SYMBOL: FSHOX SIZE: as of February 29, 1996, more than $42 million MANAGER: William Bower, since 1994; joined Fidelity in 1994 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. CONSTRUCTION AND HOUSING PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 89.4% SHARES VALUE (NOTE 1) AUTOS, TIRES, & ACCESSORIES - 1.3% AUTO & TRUCK PARTS - 1.1% Titan Wheel International, Inc. 30,000 $ 457,500 MOTOR VEHICLES & CAR BODIES - 0.2% Spartan Motors, Inc. 10,000 87,500 TOTAL AUTOS, TIRES, & ACCESSORIES 545,000 BUILDING MATERIALS - 21.8% ABRASIVES AND ASBESTOS - 0.0% Manville Corp. (a) 100 1,275 CEMENT - 7.5% Centex Construction Products 15,900 230,550 Lafarge Corp. 30,000 555,000 Medusa Corp. 27,700 810,225 Texas Industries, Inc. 10,000 617,500 Vulcan Materials Co. 17,000 922,250 3,135,525 CONCRETE, GYPSUM, PLASTER - 0.7% CalMat Co. 15,000 271,875 FABRICATED STRUCTURAL METAL - 0.5% United Dominion Industries Ltd. 9,100 219,141 HEATING & AIR-CONDITION EQUIPMENT - 1.4% Falcon Building Products, Inc. (a) 60,000 577,500 PAINT & VARNISH - 5.0% Sherwin-Williams Co. 48,900 2,072,133 PAVING, ROOFING & SIDING - 1.1% Elcor Corp. 21,000 467,250 PLUMBING SUPPLIES - WHOLESALE - 5.6% Masco Corp. 66,050 1,882,425 Shelter Components Corp. 36,000 472,500 2,354,925 TOTAL BUILDING MATERIALS 9,099,624 CHEMICALS & PLASTICS - 1.4% CHEMICALS - 1.1% PPG Industries, Inc. 10,000 463,750 PLASTICS - 0.3% Applied Extrusion Technologies Inc. (a) 10,000 120,000 TOTAL CHEMICALS & PLASTICS 583,750 CONSTRUCTION - 21.5% CONSTRUCTION - 1.7% Walter Industries, Inc. (a) 52,500 715,313 GENERAL BUILDING - 1.1% Crossman Communities, Inc. (a) 5,000 95,000 DR Horton, Inc. 33,000 371,250 466,250 MOBILE HOMES - 1.0% Oakwood Homes Corp. 5,300 236,513 Redman Industries, Inc. (a) 5,000 181,250 417,763 OPERATIVE BUILDERS - 11.2% Centex Corp. 8,100 232,875 Continental Homes Holding Corp. 48,600 1,002,375 Engle Homes, Inc. 20,000 195,000 Lennar Corp. 29,050 697,200 Pulte Corp. 47,000 1,404,125 SHARES VALUE (NOTE 1) Ryland Group, Inc. 10,000 $ 152,500 U.S. Home Corp. (a) 19,000 496,375 Washington Homes, Inc. (a) 101,700 483,075 4,663,525 PREFABRICATED WOOD BUILDINGS - 3.5% American Homestar Corp. (a) 76,000 1,197,000 Palm Harbor Homes, Inc. (a) 12,000 252,000 1,449,000 SINGLE-FAMILY HOUSING CONSTRUCTION - 3.0% Beazer Homes USA, Inc. (a) 55,000 1,045,000 Weitzer Homebuilders, Inc. Class A 50,000 200,000 1,245,000 TOTAL CONSTRUCTION 8,956,851 CONSUMER ELECTRONICS - 4.4% APPLIANCES - 3.8% Black & Decker Corp. 20,600 695,250 Sunbeam-Oster, Inc. 56,700 914,288 1,609,538 ELECTRIC HOUSEWARES & FANS - 0.6% Duracraft Corp. (a) 5,700 246,525 TOTAL CONSUMER ELECTRONICS 1,856,063 CREDIT & OTHER FINANCE - 2.3% MORTGAGE BANKERS - 2.3% Green Tree Financial Corp. 30,000 948,750 ENGINEERING - 5.9% ARCHITECTS & ENGINEERS - 4.9% Fluor Corp. 30,200 2,027,175 SPECIAL CONTRACTORS - 1.0% Foster Wheeler Corp. 10,000 440,000 TOTAL ENGINEERING 2,467,175 ENTERTAINMENT - 0.5% RECREATIONAL SERVICES - 0.5% Vacation Break USA, Inc. (a) 25,000 193,750 FEDERAL SPONSORED CREDIT - 1.7% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 1.7% Federal National Mortgage Association 23,200 733,700 GROCERY STORES - 0.4% NONDURABLE GOODS - WHOLESALE - 0.4% Central Garden & Pet Co. (a) 20,000 177,500 HOME FURNISHINGS - 4.7% FURNITURE - 2.9% Interco, Inc. (a) 45,000 410,625 Leggett & Platt, Inc. 35,000 818,125 1,228,750 FURNITURE STORES - 1.8% Haverty Furniture Companies, Inc. 41,750 511,438 Heilig-Meyers Co. 15,753 220,542 731,980 TOTAL HOME FURNISHINGS 1,960,730 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) HOUSEHOLD PRODUCTS - 1.4% SOAPS & DETERGENTS - 1.4% Rubbermaid, Inc. 20,500 $ 576,563 INDUSTRIAL MACHINERY & EQUIPMENT - 9.2% ACCESS & MEASURING CUTTING TOOLS - 0.1% Stanley Works 500 28,250 CONSTRUCTION EQUIPMENT - 0.8% Caterpillar, Inc. 5,100 341,063 FARM MACHINERY & EQUIPMENT - 2.9% Allied Products Corp. 10,200 244,800 Deere & Co. 25,000 978,125 1,222,925 GENERAL INDUSTRIAL MACHINERY - 2.2% Ingersoll-Rand Co. 21,900 895,163 LAWN, GARDEN TRACTORS, EQUIPMENT - 3.2% Toro Co. 40,200 1,346,700 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,834,101 IRON & STEEL - 0.6% BLAST FURNACES - 0.3% Northwestern Steel & Wire Co. (a) 16,100 128,800 IRON & STEEL BLAST FURNACES, MILLS - 0.3% Steel Technologies, Inc. 10,000 118,125 TOTAL IRON & STEEL 246,925 LEISURE DURABLES & TOYS - 3.1% MOTOR HOMES - 0.4% Thor Industries, Inc. 10,000 175,000 TRAVEL TRAILERS AND CAMPERS - 2.7% Champion Enterprises, Inc. (a) 37,000 1,119,250 TOTAL LEISURE DURABLES & TOYS 1,294,250 METALS & MINING - 1.8% METAL ORES - 0.9% Wolverine Tube, Inc. (a) 10,100 392,638 NON-METALLIC MINERAL MINING - 0.9% Martin Marietta Materials, Inc. 16,800 378,000 TOTAL METALS & MINING 770,638 POLLUTION CONTROL - 0.0% POLLUTION EQUIPMENT & DESIGN - 0.0% Zurn Industries, Inc. 100 2,163 REAL ESTATE - 0.4% SUBDIVIDED REAL ESTATE DEVELOPMENT - 0.4% Catellus Development Corp. (a) 20,000 152,500 RETAIL & WHOLESALE, MISCELLANEOUS - 7.0% BUILDING MATERIALS - RETAIL - 1.2% Home Depot, Inc. (The) 11,300 488,725 LUMBER & BUILDING MATERIALS - RETAIL - 5.4% Lowe's Companies, Inc. 73,000 2,263,000 LUMBER - WHOLESALE - 0.4% Cameron Ashley, Inc. (a) 20,000 177,500 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 2,929,225 TOTAL COMMON STOCKS (Cost $34,001,038) 37,329,258 REPURCHASE AGREEMENTS - 10.6% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 4,411,663 $ 4,411,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $38,412,038) $ 41,740,258 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $65,687,110 and $51,684,234, respectively (see Note 3 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 $27,836 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $3,426,000 and $2,078,462, respectively. The weighted average interest rate paid was 6.4% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $38,463,596. Net unrealized appreciation aggregated $3,276,662, of which $4,330,777 related to appreciated investment securities and $1,054,115 related to depreciated investment securities. The fund hereby designates approximately $710,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 28% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. CONSTRUCTION AND HOUSING PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements of $4,411,000) (cost $38,412,038) - See $ 41,740,258 accompanying schedule Cash 59 Receivable for investments sold 875,651 Receivable for fund shares sold 176,726 Dividends receivable 36,208 Redemption fees receivable 124 Other receivables 156 TOTAL ASSETS 42,829,182 LIABILITIES Payable for fund shares redeemed $ 108,620 Accrued management fee 21,898 Other payables and 30,651 accrued expenses TOTAL LIABILITIES 161,169 NET ASSETS $ 42,668,013 Net Assets consist of: Paid in capital $ 37,005,694 Undistributed net investment income 1,803 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 2,332,295 Net unrealized appreciation (depreciation) on investments 3,328,221 and assets and liabilities in foreign currencies NET ASSETS, for 2,181,801 $ 42,668,013 shares outstanding NET ASSET VALUE and redemption price per share ($42,668,013 (divided by) 2,181,801 shares) $19.56 Maximum offering price per share (100/97.00 of $19.56) $20.16
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 531,053 Dividends Interest 227,523 TOTAL INCOME 758,576 EXPENSES Management fee $ 258,650 Transfer agent 282,074 Fees Redemption fees (39,552 ) Accounting fees and expenses 49,539 Non-interested trustees' compensation 280 Custodian fees and expenses 16,231 Registration fees 14,601 Audit 16,932 Legal 201 Interest 4,837 Miscellaneous 1,316 Total expenses before reductions 605,109 Expense reductions (12,569 592,540 ) NET INVESTMENT INCOME 166,036 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 4,719,864 Foreign currency transactions (17 4,719,847 ) Change in net unrealized appreciation (depreciation) on investment securities 2,880,267 NET GAIN (LOSS) 7,600,114 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,766,150 OTHER INFORMATION $ 309,250 Sales charges paid to FDC Deferred sales charges withheld $ 1,448 by FDC Exchange fees withheld by FSC $ 27,915 Expense reductions $ 11,744 Directed brokerage arrangements Custodian interest credits 825 $ 12,569
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 166,036 $ (45,685 Net investment income (loss) ) Net realized gain (loss) 4,719,847 847,689 Change in net unrealized appreciation (depreciation) 2,880,267 (10,454,301 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,766,150 (9,652,297 ) Distributions to shareholders (162,155 - From net investment income ) From net realized gain (1,876,368 (804,434 ) ) TOTAL DISTRIBUTIONS (2,038,523 (804,434 ) ) Share transactions 90,250,248 23,825,749 Net proceeds from sales of shares Reinvestment of distributions 2,017,008 794,528 Cost of shares redeemed (72,254,026 (78,326,758 ) ) Paid in capital portion of redemption fees 64,179 27,046 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 20,077,409 (53,679,435 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 25,805,036 (64,136,166 ) NET ASSETS Beginning of period 16,862,977 80,999,143 End of period (including undistributed net investment income of $1,803 and $1,585, respectively) $ 42,668,013 $ 16,862,977 OTHER INFORMATION Shares Sold 4,943,241 1,308,527 Issued in reinvestment of distributions 103,809 47,271 Redeemed (3,869,788 (4,437,862 ) ) Net increase (decrease) 1,177,262 (3,082,064 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 16.79 $ 19.82 $ 15.74 $ 13.84 $ 11.76 Income from Investment Operations Net investment income (loss) .07 (.02) .01 .02 (.06) Net realized and unrealized gain (loss) 3.55 (2.50) 4.26 1.87 2.93 Total from investment operations 3.62 (2.52) 4.27 1.89 2.87 Less Distributions (.07) - - - - From net investment income From net realized gain (.81) (.52) (.22) (.01) (.88) Total distributions (.88) (.52) (.22) (.01) (.88) Redemption fees added to paid in capital .03 .01 .03 .02 .09 Net asset value, end of period $ 19.56 $ 16.79 $ 19.82 $ 15.74 $ 13.84 TOTAL RETURN B, C 21.77% (12.54)% 27.45% 13.81% 26.96% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 42,668 $ 16,863 $ 80,999 $ 31,111 $ 26,687 Ratio of expenses to average net assets 1.43% 1.76% 1.67% 2.02% 2.50% F A Ratio of expenses to average net assets after expense reductions 1.40% 1.74% 1.66% 2.02% 2.50% E E E A Ratio of net investment income (loss) to average net assets .39% (.11)% .03% .20% (.49)% A Portfolio turnover rate 139% 45% 35% 60% 183% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND ENVIRONMENTAL SERVICES 27.49% 8.45% 41.00% ENVIRONMENTAL SERVICES 23.67% 5.20% 36.77% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 140.35% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years, 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 FEBRUARY 29, 1996 YEAR YEARS FUND ENVIRONMENTAL SERVICES 27.49% 1.64% 5.28% ENVIRONMENTAL SERVICES 23.67% 1.02% 4.80% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.03% 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 19890629 9700.00 10000.00 19890630 9573.90 9761.13 19890731 10485.70 10642.57 19890831 10621.50 10851.16 19890930 11193.80 10806.67 19891031 10941.60 10555.96 19891130 11009.50 10771.30 19891231 11368.64 11029.81 19900131 10358.96 10289.71 19900228 10562.83 10422.44 19900331 11019.13 10698.64 19900430 11077.38 10431.17 19900531 12106.48 11448.21 19900630 12485.11 11370.37 19900731 12407.45 11333.98 19900831 10863.80 10309.39 19900930 10281.29 9807.32 19901031 10135.66 9765.15 19901130 10485.17 10395.98 19901231 11087.09 10686.03 19910131 12057.94 11151.94 19910228 12611.32 11949.30 19910331 12611.32 12238.47 19910430 12572.49 12267.85 19910531 12601.62 12797.82 19910630 11650.18 12211.68 19910731 12019.11 12780.74 19910831 12232.69 13083.64 19910930 11941.44 12865.15 19911031 11494.85 13037.54 19911130 10863.80 12512.13 19911231 11936.55 13943.51 19920131 13005.20 13684.17 19920229 13146.34 13862.06 19920331 11835.74 13591.75 19920430 11482.88 13991.35 19920531 11190.52 14059.90 19920630 10592.18 13850.41 19920731 10665.31 14416.89 19920831 10445.94 14121.35 19920930 10571.29 14287.98 19921031 11072.70 14337.99 19921130 11762.13 14826.91 19921231 11772.58 15009.28 19930131 12002.39 15135.36 19930228 11866.59 15341.20 19930331 11574.10 15664.90 19930430 11333.85 15285.81 19930531 11584.55 15695.47 19930630 11438.31 15740.99 19930731 10957.79 15678.02 19930831 11542.77 16272.22 19930930 11553.21 16146.93 19931031 11877.04 16481.17 19931130 11354.74 16324.60 19931231 11699.45 16522.12 19940131 12691.82 17083.88 19940228 12462.01 16620.90 19940331 11333.85 15896.23 19940430 11521.87 16099.70 19940531 11490.54 16363.74 19940630 10801.10 15962.83 19940731 11030.91 16486.41 19940831 11417.41 17162.35 19940930 11344.29 16741.87 19941031 10957.79 17118.56 19941130 10341.48 16495.11 19941231 10581.74 16739.73 19950131 10592.18 17173.79 19950228 10727.98 17843.05 19950331 11239.83 18369.60 19950430 12044.17 18910.59 19950531 12232.20 19666.44 19950630 12733.60 20123.29 19950731 13214.12 20790.58 19950831 13402.14 20842.77 19950930 13872.21 21722.33 19951031 12890.29 21644.78 19951130 13339.47 22594.99 19951231 13346.83 23030.17 19960131 13809.34 23814.11 19960229 13677.20 24034.87 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 February 29, 1996, your investment would have grown to $13,677 - a 36.77% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $24,035 over the same period - a 140.35% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Addington Resources, Inc. 9.0 Memtec Ltd. sponsored ADR 8.2 Harsco Corp. 6.2 WMX Technologies, Inc. 5.5 Allied Waste Industries, Inc. 4.8 Browning-Ferris Industries, Inc. 4.6 IMCO Recycling, Inc. 4.1 TSI, Inc. 4.0 Wheelabrator Technologies, Inc. 3.7 Cadiz Land, Inc. 3.3 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Refuse Systems 26.9% Pollution Equipment & Design 9.3% Coal 9.0% Manufactured Products 8.2% Ordnance 6.2% All Others 40.4% * Row: 1, Col: 1, Value: 40.4 Row: 1, Col: 2, Value: 6.2 Row: 1, Col: 3, Value: 8.199999999999999 Row: 1, Col: 4, Value: 9.0 Row: 1, Col: 5, Value: 9.300000000000001 Row: 1, Col: 6, Value: 26.9 * INCLUDES SHORT-TERM INVESTMENTS ENVIRONMENTAL SERVICES PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Robert Ewing, Portfolio Manager of Fidelity Select Environmental Services Portfolio Note to Shareholders: On January 3, 1996, Bob Ewing replaced Pip Barton as portfolio manager of the fund. Q. BOB, HOW HAS THE FUND PERFORMED? A. For the 12 months ended February 29, 1996, the fund had a total return of 27.49%. By comparison, the S&P 500 Index returned 34.70% during the same 12-month period. Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A. The fund underperformed the market due primarily to weakness in the stocks of the large solid waste companies during the second half of 1995. The principal reason that these stocks lagged was the influence of weakening paper prices. As the economy weakened, these companies received less and less for their recycled paper. At the same time, the fund was up more than 27% over the past 12 months. The fund did this well principally due to its positioning outside of the solid waste industry through most of the year, and because of its avoidance of the hazardous waste sector, consulting and other areas that underperformed dramatically over the year. Mid-capitalization solid waste companies helped the fund, as did individual situations such as small equipment and monitoring firms. Q. HOW HAVE YOU POSITIONED THE FUND SINCE TAKING IT OVER IN JANUARY? A. I'm concentrating on four strategies. First, I've increased investments in large solid waste companies that have recycling businesses. Current recycling prices are below long-term equilibrium levels and, if the economy improves at all, we should start to see the prices that these companies receive for their recycled paper go up. Examples of the fund's holdings that have exposure to recycled paper products are WMX and Browning-Ferris. Second, I'm trying to take advantage of consolidation activity in the mid-cap sector by owning companies that will benefit from the consolidating solid waste environment, as well as companies that are acquisition candidates. The third strategy is to stay away from sectors that are in supply/demand imbalances. Hazardous waste disposal, which is in serious oversupply, is a good example. Finally, I've also tried to concentrate the fund's holdings. Over time, you might see that the fund's top 20 holdings represent a bigger portion of fund assets, as I try to concentrate on the best opportunities at the fairest prices. Q. WHAT WERE SOME STOCKS THAT HELPED THE FUND? A. TSI was one. It makes environmental monitoring and protection equipment, and has specifically benefited from contracts to make military gas mask fit testers. Memtec is another. It makes filters, and has been one of the most attractively valued ways to participate in the water treatment industry. This industry is going through a lot of change in industrial and commercial applications. Companies and municipalities are starting to contract outside specialists to run drinking, process and waste water treatment facilities. Memtec makes the raw materials that go into this kind of plant. And finally, Allied Waste has been the beneficiary of consolidation in the solid waste industry. Q. WHAT WERE SOME OF THE STOCKS THAT DIDN'T TURN OUT AS WELL AS EXPECTED? A. Addington Resources was one example. It finally sold its non-environmental assets at the end of the year, but the story isn't well understood. Currently, it has some attractive but under-utilized assets. TETRA Technologies - which makes calcium chloride for oil rig drilling fluids and ice melt - suffered from fears that added capacity in the industry would hurt the commodity's price. Q. WHAT'S YOUR OUTLOOK? A. I'll be concentrating on three factors that I believe will be driving environmental stocks in 1996. First, I will closely monitor economic activity. If the economy accelerates, I would expect to see recycled paper prices increase, helping the fund's large solid waste company investments. Second, I'll watch for any hint of price stabilization in the hazardous waste sector. If there is any such stability, the stocks could become relatively attractive. Finally, I'll closely watch what happens in Congress with Superfund and other clean-up authorizations. FUND FACTS START DATE: June 29, 1989 TRADING SYMBOL: FSLEX SIZE: as of February 29, 1996, more than $27 million MANAGER: Robert Ewing, since January 1996; analyst, restaurant, foods, specialty retail, toy retail industries, initial public offerings, 1990-1993; analyst, insurance, mortgage, specialty finance industries, since 1993; joined Fidelity in 1990 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. ENVIRONMENTAL SERVICES PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 96.8% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 6.2% ORDNANCE - 6.2% Harsco Corp. 26,100 $ 1,722,600 BUILDING MATERIALS - 2.4% AIRCONDITIONING EQUIPMENT - 2.4% Thermo Power Corp. (a) 49,900 654,934 COAL - 9.0% Addington Resources, Inc. (a) 199,800 2,497,500 COMPUTER SERVICES & SOFTWARE - 0.3% PREPACKAGED COMPUTER SOFTWARE - 0.3% Telepanel Systems, Inc. (a) 70,400 97,610 CONSTRUCTION - 2.9% PREFABRICATED METAL BUILDINGS - 2.9% American Buildings Co. (a) 37,800 798,525 DRUGS & PHARMACEUTICALS - 1.6% COMMERCIAL LABORATORY RESEARCH - 1.6% Energy Biosystems Corp. (a) 49,900 336,825 Zenon Environmental, Inc. (a) 34,400 97,902 434,727 ELECTRONIC INSTRUMENTS - 5.2% INDUSTRIAL MEASUREMENT INSTRUMENTS - 4.0% TSI, Inc. 62,800 1,099,000 LABORATORY & RESEARCH EQUIPMENT - 1.2% Microfluidics International Corp. (a) 191,400 334,950 TOTAL ELECTRONIC INSTRUMENTS 1,433,950 ENERGY SERVICES - 2.0% OIL & GAS SERVICES - 2.0% Newpark Resources, Inc. 16,000 390,000 Serv-Tech, Inc. (a) 27,300 160,388 550,388 ENGINEERING - 3.6% ARCHITECTS & ENGINEERS - 3.6% Fluor Corp. 12,400 832,350 Harding Lawson Associations Group, Inc. (a) 27,900 174,375 1,006,725 HOUSEHOLD PRODUCTS - 8.2% MANUFACTURED PRODUCTS - 8.2% Memtec Ltd. sponsored ADR 96,000 2,280,000 INDUSTRIAL MACHINERY & EQUIPMENT - 5.5% SERVICE INDUSTRY MACHINERY - 2.8% Trojan Technologies Corp. (a) 99,300 778,980 SPECIAL INDUSTRIAL MACHINERY - 2.7% Thermo Fibertek, Inc. (a) 34,250 753,500 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,532,480 MEDICAL EQUIPMENT & SUPPLIES - 0.4% MEDICAL TECHNOLOGY - 0.1% Thermedics, Inc. (a) 1,000 26,000 X-RAY ELECTRO-MEDICAL APPARATUS - 0.3% Imatron, Inc. (a) 37,100 77,678 TOTAL MEDICAL EQUIPMENT & SUPPLIES 103,678 SHARES VALUE (NOTE 1) METALS & MINING - 4.1% SECONDARY NONFERROUS SMELTING - 4.1% IMCO Recycling, Inc. 52,700 $ 1,146,225 POLLUTION CONTROL - 41.7% HAZARDOUS WASTE MANAGEMENT - 2.8% American Ecology Corp. 77,100 250,575 TRC Companies, Inc. (a) 74,900 524,300 774,875 POLLUTION EQUIPMENT & DESIGN - 9.3% Ogden Corp. 42,400 906,300 Sevenson Environmental Services, Inc. 30,600 512,550 TETRA Technologies, Inc. (a) 36,300 494,588 Waste Management International PLC sponsored ADR (a) 33,700 341,213 Zurn Industries, Inc. 15,500 335,188 2,589,839 REFUSE SYSTEMS - 26.9% Allied Waste Industries, Inc. (a) 162,600 1,341,450 Biosafe International, Inc. 125,000 421,875 Browning-Ferris Industries, Inc. 43,300 1,282,763 Laidlaw, Inc. Class B 5,000 49,714 Sanifill, Inc. (a) 11,000 430,375 United Waste Systems, Inc. (a) 12,000 558,000 WMX Technologies, Inc. 53,100 1,513,350 Western Waste Industries, Inc. (a) 26,780 840,223 Wheelabrator Technologies, Inc. 64,800 1,028,700 7,466,450 SANITARY SERVICES - 2.7% Safety Kleen Corp. 10,000 145,000 USA Waste Services, Inc. (a) 28,000 598,500 743,500 TOTAL POLLUTION CONTROL 11,574,664 REAL ESTATE - 3.3% REAL ESTATE, GENERAL - 3.3% Cadiz Land, Inc. (a) 163,600 910,025 SERVICES - 0.4% BUSINESS SERVICES - 0.4% Prins Recycling Corp. 20,000 121,250 TOTAL COMMON STOCKS (Cost $26,427,853) 26,865,281 REPURCHASE AGREEMENTS - 3.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 883,133 883,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $27,310,853) $ 27,748,281 LEGEND 2. Non-income producing OTHER INFORMATION A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Microfluidics International Corp. $ 581,603 $ 1,065,109 $ - $ - Purchases and sales of securities, other than short-term securities, aggregated $41,139,581 and $52,729,523, respectively (see Note 3 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 $36,310 for the period (see Note 4 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 86.9% Australia 8.2 Canada 3.7 United Kingdom 1.2 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $27,358,288. Net unrealized appreciation aggregated $389,993, of which $3,064,683 related to appreciated investment securities and $2,674,690 related to depreciated investment securities. The fund intends to elect to defer to its fiscal year ending February 28, 1997 approximately $245,000 of losses recognized during the period November 1, 1995 to February 29, 1996. A total of 10% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. ENVIRONMENTAL SERVICES PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 ASSETS Investment in securities, at value (including repurchase agreements $ 27,748,281 of $883,000) (cost $27,310,853) - See accompanying schedule Cash 291,970 Receivable for investments sold 13,125 Receivable for fund shares sold 65,254 Dividends receivable 8,157 Redemption fees receivable 45 Other receivables 45,086 TOTAL ASSETS 28,171,918 LIABILITIES Payable for investments purchased $ 291,216 Payable for fund shares redeemed 232,335 Accrued management fee 14,750 Other payables and 46,397 accrued expenses TOTAL LIABILITIES 584,698 NET ASSETS $ 27,587,220 Net Assets consist of: Paid in capital $ 27,195,305 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (46,325 ) Net unrealized appreciation (depreciation) on investments 438,240 and assets and liabilities in foreign currencies NET ASSETS, for 2,221,547 $ 27,587,220 shares outstanding NET ASSET VALUE and redemption price per share ($27,587,220 (divided by) 2,221,547 shares) $12.42 Maximum offering price per share (100/97.00 of $12.42) $12.80
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 181,397 Dividends Interest 103,519 TOTAL INCOME 284,916 EXPENSES Management fee $ 195,326 Transfer agent 481,385 Fees Redemption fees (33,944 ) Accounting fees and expenses 47,732 Non-interested trustees' compensation 266 Custodian fees and expenses 21,274 Registration fees 19,522 Audit 18,892 Legal 487 Miscellaneous 1,320 Total expenses before reductions 752,260 Expense reductions (11,422 740,838 ) NET INVESTMENT INCOME (LOSS) (455,922 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (including realized loss of $680,343 on sales of investments in affiliated issuers)5,167,968 Foreign currency transactions (812 5,167,156 ) Change in net unrealized appreciation (depreciation) on: Investment securities 2,837,246 Assets and liabilities in 812 2,838,058 foreign currencies NET GAIN (LOSS) 8,005,214 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,549,292 OTHER INFORMATION $ 80,412 Sales charges paid to FDC Deferred sales charges withheld $ 12,652 by FDC Exchange fees withheld by FSC $ 25,095 Expense reductions $ 9,088 Directed brokerage arrangements Custodian interest credits 2,176 Transfer agent interest credits 158 $ 11,422
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ (455,922 $ (595,469 Net investment income (loss) ) ) Net realized gain (loss) 5,167,156 (2,723,480 ) Change in net unrealized appreciation (depreciation) 2,838,058 (5,250,926 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,549,292 (8,569,875 ) Distributions to shareholders from net realized gains (1,461,704 - ) Share transactions 22,448,123 27,529,233 Net proceeds from sales of shares Reinvestment of distributions 1,440,232 - Cost of shares redeemed (33,702,230 (53,674,761 ) ) Paid in capital portion of redemption fees 43,195 29,932 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (9,770,680 (26,115,596 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS (3,683,092 (34,685,471 ) ) NET ASSETS Beginning of period 31,270,312 65,955,783 End of period $ 27,587,220 $ 31,270,312 OTHER INFORMATION Shares Sold 1,846,010 2,591,147 Issued in reinvestment of distributions 120,119 - Redeemed (2,790,218 (5,072,812 ) ) Net increase (decrease) (824,089 (2,481,665 ) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of period $ 10.27 $ 11.93 $ 11.36 $ 11.39 $ 12.95 Income from Investment Operations Net investment income (loss) (.17) (.14) (.11) (.06) (.09) Net realized and unrealized gain (loss) 2.95 (1.53) .67 .42 (1.06) Total from investment operations 2.78 (1.67) .56 .36 (1.15) Less distributions From net realized gain (.65) - - (.39) (.42) Redemption fees added to paid in capital .02 .01 .01 - .01 Net asset value, end of period $ 12.42 $ 10.27 $ 11.93 $ 11.36 $ 11.39 TOTAL RETURN B, C 27.49% (13.91)% 5.02% 3.34% (8.67)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 27,587 $ 31,270 $ 65,956 $ 65,913 $ 65,132 Ratio of expenses to average net assets 2.36% 2.04% 2.07% 1.99% 2.03% A Ratio of expenses to average net assets after expense reductions 2.32% 2.01% 2.03% 1.99% 2.03% E E E A Ratio of net investment income (loss) to average net assets (1.43)% (1.32)% (1.02)% (.70)% (.74)% A Portfolio turnover rate 138% 82% 191% 176% 130% A A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past five year and life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND INDUSTRIAL EQUIPMENT 36.86% 141.56% 194.99% INDUSTRIAL EQUIPMENT 32.76% (INCL. 3% SALES CHARGE) 134.31% 186.14% S&P 500 34.70% 101.14% 270.48% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND INDUSTRIAL EQUIPMENT 36.86% 19.29% 12.16% INDUSTRIAL EQUIPMENT 32.76% 18.57% (INCL. 3% SALES CHARGE) 11.80% S&P 500 34.70% 14.99% 14.90% 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 19860929 9700.00 10000.00 19860930 9729.10 9962.80 19861031 10039.50 10537.66 19861130 10291.70 10793.72 19861231 10311.10 10518.48 19870131 11804.90 11935.32 19870228 12804.00 12406.77 19870331 12580.90 12765.32 19870430 12367.50 12651.71 19870531 12357.80 12761.78 19870630 12707.00 13406.25 19870731 13483.00 14085.95 19870831 14084.40 14611.35 19870930 14414.20 14291.37 19871031 8759.10 11213.00 19871130 8361.40 10289.05 19871231 9357.40 11072.05 19880131 9188.17 11538.18 19880229 10024.36 12075.86 19880331 10173.68 11702.72 19880430 10472.32 11832.62 19880531 10412.60 11935.56 19880630 11149.24 12483.41 19880731 10561.92 12435.97 19880831 9606.27 12013.15 19880930 9785.45 12524.91 19881031 9626.18 12873.10 19881130 9317.58 12689.01 19881231 9815.31 12911.07 19890131 10532.05 13856.16 19890228 10113.96 13511.14 19890331 10263.28 13825.95 19890430 10999.92 14543.52 19890531 11597.20 15132.53 19890630 11099.47 15046.28 19890731 11806.25 16404.95 19890831 12025.25 16726.49 19890930 11856.02 16657.91 19891031 11069.60 16271.45 19891130 11378.20 16603.39 19891231 11577.29 17001.87 19900131 11189.06 15861.04 19900228 11756.48 16065.65 19900331 12453.31 16491.39 19900430 12353.76 16079.11 19900531 13498.55 17646.82 19900630 13258.63 17526.82 19900731 13008.09 17470.73 19900831 10863.46 15891.38 19900930 9390.28 15117.47 19901031 9139.74 15052.46 19901130 9440.38 16024.85 19901231 9781.12 16471.95 19910131 10823.37 17190.12 19910228 11845.58 18419.22 19910331 11745.36 18864.96 19910430 11625.10 18910.24 19910531 12116.16 19727.16 19910630 11725.01 18823.66 19910731 11825.31 19700.84 19910831 12005.85 20167.75 19910930 12286.69 19830.95 19911031 12216.48 20096.68 19911130 11634.74 19286.79 19911231 12406.41 21493.19 19920131 13519.55 21093.42 19920229 14480.89 21367.64 19920331 14055.88 20950.97 19920430 14055.88 21566.92 19920531 14167.19 21672.60 19920630 13296.92 21349.68 19920731 13418.36 22222.88 19920831 12720.11 21767.31 19920930 12983.22 22024.17 19921031 12932.62 22101.25 19921130 13549.91 22854.91 19921231 13813.01 23136.02 19930131 14460.66 23330.36 19930228 15219.61 23647.66 19930331 15492.84 24146.62 19930430 16201.67 23562.27 19930531 17011.75 24193.74 19930630 17234.52 24263.90 19930731 17477.55 24166.85 19930831 18672.42 25082.77 19930930 18459.77 24889.63 19931031 19077.46 25404.85 19931130 19057.21 25163.50 19931231 19798.04 25467.98 19940131 20728.99 26333.89 19940228 21318.58 25620.25 19940331 20087.67 24503.20 19940430 19905.86 24816.84 19940531 19498.98 25223.84 19940630 18497.43 24605.86 19940731 19373.79 25412.93 19940831 20750.92 26454.86 19940930 20813.52 25806.71 19941031 21074.34 26387.37 19941130 20051.92 25426.34 19941231 20417.07 25803.41 19950131 20302.31 26472.49 19950228 20907.41 27504.13 19950331 22639.27 28315.77 19950430 23703.68 29149.67 19950531 24183.81 30314.78 19950630 25102.32 31019.00 19950731 27461.20 32047.59 19950831 26928.89 32128.03 19950930 25697.26 33483.83 19951031 25645.07 33364.29 19951130 26521.82 34828.98 19951231 26095.90 35499.79 19960131 27144.29 36708.20 19960229 28614.33 37048.49 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 February 29, 1996, your investment would have grown to $28,614 - a 186.14% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $37,048 over the same period - a 270.48% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Caterpillar, Inc. 7.4 Ingersoll-Rand Co. 7.0 International Business Machines Corp. 5.4 Harnischfeger Industries, Inc. 5.1 Dresser Industries, Inc. 4.7 Deere & Co. 4.6 Compaq Computer Corp. 4.6 Dover Corp. 4.4 General Electric Co. 4.4 Case Corp. 4.0 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 44.4 Row: 1, Col: 2, Value: 6.9 Row: 1, Col: 3, Value: 7.8 Row: 1, Col: 4, Value: 7.8 Row: 1, Col: 5, Value: 10.8 Row: 1, Col: 6, Value: 22.3 General Industrial Machinery 22.3% Farm Machinery & Equipment 10.8% Construction Equipment 7.8% Electrical Machinery 7.8% Computer & Office Equipment 6.9% All Others 44.4% * * INCLUDES SHORT-TERM INVESTMENTS INDUSTRIAL EQUIPMENT PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Robert Bertelson, Portfolio Manager of Fidelity Select Industrial Equipment Portfolio Q. HOW DID THE FUND PERFORM, BOB? A. The fund did well. For the 12-month period ending February 29, 1996, it returned 36.86%, while the S&P 500 Index returned 34.70%. Q. THE FUND ACHIEVED ITS RESULTS DURING AN INVESTMENT CLIMATE THAT WAS QUITE VOLATILE FOR INDUSTRIAL EQUIPMENT COMPANIES . . . A. From an investment perspective, I think the period could be divided into three different parts. There was a strong burst of enthusiasm during the first four months of the period, followed by a period of great pessimism and concern that started in the summer and ran through the end of the year. With the new year, though, the first signs of renewed optimism for the sector appeared. By focusing on global companies with leadership positions both in this country and abroad, the fund has moved from period to period with good results even compared to a market that was up strongly. Q. THE MAJORITY OF THE FUND'S LARGEST HOLDINGS AT THE END OF THE PERIOD WERE THE SAME AS YOUR TOP 10 HOLDINGS WHEN WE LAST SPOKE. ON THE FACE OF IT, IT SEEMS LIKE YOU'VE MAINTAINED A CONSISTENT STRATEGY FROM SIX MONTHS AGO . . . A. That's basically true. I've rearranged positions somewhat where there have been particularly strong price performances and tried to move some new names into the fund where there seemed to be greater upside potential and new earnings momentum developing. Dresser Industries, a supplier of capital goods to the energy industry, is a good example. After several years of stagnant earnings, the company seemed to be on the brink of some fairly significant earnings acceleration. Also, some of the strong performers in the agricultural equipment area have been trimmed a bit owing to their price appreciation. Q. WAS THERE ANY SIGNIFICANT CHANGE IN YOUR SECTOR ALLOCATION WITHIN THE INDUSTRIAL EQUIPMENT AREA? A. Not really. I've remained focused on the agricultural equipment area, as well as construction equipment. In addition, I've maintained a fairly good weighting in the technology-related parts of capital equipment. But I really examine the sector from a bottom-up, company-by-company approach, rather than on a sector basis. Q. THE FUND'S LARGEST HOLDING AT THE END OF FEBRUARY, CATERPILLAR, HAS BEEN AN UP AND DOWN RIDE DURING THE PERIOD, HASN'T IT? A. That's certainly been the case. It's been terrific over the last two months, but it went through a difficult period from the end of September right through the end of the year, after hitting an all-time high of $75 last July. It had an earnings disappointment during the third quarter, but fourth quarter performance was better than anticipated and the stock has bounced back sharply. Q. DESPITE THE FUND'S OUTPERFORMANCE OF THE MARKET IN GENERAL, THERE MUST HAVE BEEN SOME DISAPPOINTMENTS FOR YOU. A. While there were very few among the top 10 holdings, the component manufacturers have been somewhat less than inspiring in their recovery over the past couple of months. Several of the end-good manufacturers, such as Deere & Co., Caterpillar and Case, have done well. But the companies that supply them with equipment parts, including Parker-Hannifin and Titan Wheel, have been disappointing. In a different vein, Albany International, which is a terrific company, has gotten caught up in the bearish psychology lately in the paper industry and its stock has not performed. Note to shareholders: As of March 26, 1996, Paul Antico became manager of the portfolio. Q. PAUL, WHAT'S YOUR OUTLOOK GOING FORWARD? A. I'm relatively optimistic about the outlook for this sector. Over the last six months, the market has been reluctant to invest in cyclical areas because people have grown concerned about the outlook for the economy. So, this sector has been largely overlooked. But as people grow more confident that the U.S. will not go into recession, I think Wall Street will reassess the earnings outlook for many of the companies in this sector and become more positive about their prospects. FUND FACTS START DATE: September 29, 1986 TRADING SYMBOL: FSCGX SIZE: as of February 29, 1996, more than $137 million MANAGER: Robert Bertelson, since December 1994; manager, Fidelity Select Energy Portfolio, 1992-1994; equity analyst, since 1991; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. INDUSTRIAL EQUIPMENT PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 86.8% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.8% AIRCRAFT - 0.6% Boeing Co. 10,000 $ 811,250 TRAINING EQUIPMENT & SIMULATORS - 0.2% C A E Industries Ltd. 30,700 243,633 TOTAL AEROSPACE & DEFENSE 1,054,883 AUTOS, TIRES, & ACCESSORIES - 2.5% AUTO & TRUCK PARTS - 1.6% Titan Wheel International, Inc. 144,675 2,206,294 INDUSTRIAL TRUCKS - 0.9% NACCO Industries, Inc. Class A 21,600 1,204,200 TOTAL AUTOS, TIRES, & ACCESSORIES 3,410,494 BUILDING MATERIALS - 0.6% AIR CONDITIONING EQUIPMENT - 0.6% Tecumseh Products Co. Class A 14,600 824,900 COMMUNICATIONS EQUIPMENT - 1.7% DATACOMMUNICATIONS EQUIPMENT - 1.7% Cisco Systems, Inc. (a) 50,000 2,375,000 COMPUTERS & OFFICE EQUIPMENT - 14.3% COMPUTERS & OFFICE EQUIPMENT - 6.9% International Business Machines Corp. 60,300 7,394,288 Lexmark International Group, Inc. (a) 90,000 2,036,250 9,430,538 MINI & MICRO COMPUTERS - 4.6% Compaq Computer Corp. (a) 123,300 6,242,063 OFFICE AUTOMATION - 2.8% Xerox Corp. 30,000 3,907,500 TOTAL COMPUTERS & OFFICE EQUIPMENT 19,580,101 CONGLOMERATES - 2.0% Allied-Signal, Inc. 50,000 2,781,250 ELECTRICAL EQUIPMENT - 7.8% ELECTRICAL MACHINERY - 7.8% Emerson Electric Co. 60,000 4,672,500 General Electric Co. 80,000 6,040,000 10,712,500 ELECTRONICS - 0.8% SEMICONDUCTORS - 0.8% Intel Corp. 19,500 1,146,844 ENERGY SERVICES - 4.7% OIL & GAS SERVICES - 4.7% Dresser Industries, Inc. 226,700 6,375,938 INDUSTRIAL MACHINERY & EQUIPMENT - 50.0% BALL & ROLLER BEARINGS - 1.4% Bearings, Inc. 69,600 1,861,800 CONSTRUCTION EQUIPMENT - 7.8% Caterpillar, Inc. 152,000 10,165,000 Svedala Industrial 19,000 583,989 10,748,989 ENGINES & TURBINES - 1.1% Stewart & Stevenson Services, Inc. 61,500 1,568,250 SHARES VALUE (NOTE 1) FARM MACHINERY & EQUIPMENT - 10.8% AGCO Corp. 50,200 $ 1,361,675 Case Corp. 102,000 5,418,750 Deere & Co. 161,900 6,334,338 Varity Corp. (a) 45,100 1,702,525 14,817,288 GENERAL INDUSTRIAL MACHINERY - 22.3% Dover Corp. 135,800 6,043,100 Harnischfeger Industries, Inc. 184,317 6,981,006 Illinois Tool Works, Inc. 27,800 1,831,325 Ingersoll-Rand Co. 236,100 9,650,588 Parker-Hannifin Corp. 58,900 2,068,863 Timken Co. 77,400 3,483,000 TRINOVA Corp. 14,200 427,775 30,485,657 MACHINE TOOLS, METAL CUTTING - 2.9% Cincinnati Milacron, Inc. 50,000 1,437,500 Gleason Corp. 17,400 696,000 Greenfield Industries, Inc. 35,100 1,167,075 Kennametal, Inc. 20,400 660,450 3,961,025 PUMPING EQUIPMENT - 3.7% BW/IP Holdings, Inc. Class A 53,600 830,800 Duriron Co., Inc. 52,950 1,442,888 Goulds Pumps, Inc. 61,000 1,319,125 Keystone International, Inc. 74,800 1,505,350 5,098,163 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 68,541,172 PAPER & FOREST PRODUCTS - 1.6% PAPER - 1.6% Albany International Corp. Class A 109,700 2,125,434 TOTAL COMMON STOCKS (Cost $106,140,861) 118,928,516 REPURCHASE AGREEMENTS - 13.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 18,111,721 18,109,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $124,249,861) $ 137,037,516 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $111,416,956 and $127,547,957, respectively (see Note 3 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 $65,425 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $4,448,000 and $1,885,143, respectively. The weighted average interest rate paid was 6.6% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $124,388,497. Net unrealized appreciation aggregated $12,649,019, of which $14,833,465 related to appreciated investment securities and $2,184,446 related to depreciated investment securities. The fund hereby designates approximately $3,565,000 as a capital gain dividend for the purpose of the dividend paid deduction. 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 Equipment Portfolio. Automation and Machinery Portfolio has a capital loss carryover of approximately $74,000 available to offset future realized capital gains in Industrial Equipment Portfolio, to the extent provided by regulations. A total of 20% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. INDUSTRIAL EQUIPMENT PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 137,037,516 securities, at value (including repurchase agreements of $18,109,000) (cost $124,249,861 ) - See accompanyin g schedule Cash 164 Receivable for 4,876,561 investments sold Receivable for 7,988,796 fund shares sold Dividends 155,064 receivable Redemption 832 fees receivable Other 10,281 receivables TOTAL ASSETS 150,069,214 LIABILITIES Payable for $ 11,800,034 investments purchased Payable for 640,505 fund shares redeemed Accrued 48,646 management fee Other payables 60,041 and accrued expenses TOTAL 12,549,226 LIABILITIES NET ASSETS $ 137,519,988 Net Assets consist of: Paid in capital $ 117,117,848 Undistributed 51,339 net investment income Accumulated 7,563,146 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 12,787,655 appreciation (depreciation ) on investments NET ASSETS, for $ 137,519,988 5,476,600 shares outstanding NET ASSET $25.11 VALUE and redemption price per share ($137,519,98 8 (divided by) 5,476,600 shares) Maximum $25.89 offering price per share (100/97.00 of $25.11) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 1,375,984 Dividends Interest 376,525 TOTAL INCOME 1,752,509 EXPENSES Management fee $ 623,645 Transfer agent 885,579 Fees Redemption fees (114,602 ) Accounting fees and expenses 102,205 Non-interested trustees' compensation 754 Custodian fees and expenses 15,501 Registration fees 24,407 Audit 25,433 Legal 694 Interest 7,298 Miscellaneous 1,640 Total expenses before reductions 1,572,554 Expense reductions (11,613 1,560,941 ) NET INVESTMENT INCOME 191,568 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 16,164,118 Foreign currency transactions (483 16,163,635 ) Change in net unrealized appreciation (depreciation) on: Investment securities 13,213,444 Assets and liabilities in (15 13,213,429 foreign currencies ) NET GAIN (LOSS) 29,377,064 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 29,568,632 OTHER INFORMATION $ 541,013 Sales charges paid to FDC Deferred sales charges withheld $ 7,928 by FDC Exchange fees withheld by FSC $ 86,340 Expense reductions $ 10,255 Directed brokerage arrangements Custodian interest credits 35 Transfer agent interest credits 1,323 $ 11,613
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 191,568 $ 79,635 Net investment income Net realized gain (loss) 16,163,635 (1,498,946 ) Change in net unrealized appreciation (depreciation) 13,213,429 (14,340,997 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 29,568,632 (15,760,308 ) Distributions to shareholders (185,403 (37,665 From net investment income ) ) From net realized gain (7,003,238 (1,765,984 ) ) TOTAL DISTRIBUTIONS (7,188,641 (1,803,649 ) ) Share transactions 176,105,552 154,753,559 Net proceeds from sales of shares Reinvestment of distributions 7,099,056 1,784,486 Cost of shares redeemed (178,150,788 (235,232,664 ) ) Paid in capital portion of redemption fees 118,239 214,170 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 5,172,059 (78,480,449 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 27,552,050 (96,044,406 ) NET ASSETS Beginning of period 109,967,938 206,012,344 End of period (including undistributed net investment income of $51,339 and $45,655, respectively) $ 137,519,988 $ 109,967,938 OTHER INFORMATION Shares Sold 7,343,923 7,719,747 Issued in reinvestment of distributions 311,832 90,354 Redeemed (7,667,655 (12,319,237 ) ) Net increase (decrease) (11,900 (4,509,136 ) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of $ 20.04 $ 20.61 $ 15.04 $ 13.89 $ 11.60 period Income from Investment Operations Net investment income (loss) .04 .01 - .02 (.07) Net realized and unrealized gain 7.10 (.44) 5.92 1.09 2.39 (loss) Total from investment operations 7.14 (.43) 5.92 1.11 2.32 Less Distributions (.05) (.01) (.01) - - From net investment income In excess of net investment - - - - (.11) income From net realized gain (2.05) (.16) (.40) - - Total distributions (2.10) (.17) (.41) - (.11) Redemption fees added to paid in .03 .03 .06 .04 .08 capital Net asset value, end of period $ 25.11 $ 20.04 $ 20.61 $ 15.04 $ 13.89 TOTAL RETURN B, C 36.86% (1.93)% 40.07% 8.28% 20.91% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 $ 137,520 $ 109,968 $ 206,012 $ 14,601 $ 7,529 omitted) Ratio of expenses to average net 1.54% 1.80% 1.69% 2.49% A, 2.49% assets F F Ratio of expenses to average net 1.53% 1.78% 1.68% 2.49% A 2.49% assets after expense reductions E E E Ratio of net investment income .19% .06% .01% .15% A (.57)% (loss) to average net assets Portfolio turnover rate 115% 131% 95% 407% A 167%
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past five year and life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND INDUSTRIAL MATERIALS 13.38% 115.28% 180.01% INDUSTRIAL MATERIALS 9.98% 108.83% 171.61% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 270.48% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND INDUSTRIAL MATERIALS 13.38% 16.57% 11.54% INDUSTRIAL MATERIALS 9.98% 15.87% 11.18% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.90% 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 19860929 9700.00 10000.00 19860930 9729.10 9962.80 19861031 10262.60 10537.66 19861130 10621.50 10793.72 19861231 10233.50 10518.48 19870131 12008.60 11935.32 19870228 13017.40 12406.77 19870331 13958.30 12765.32 19870430 14123.20 12651.71 19870531 13764.30 12761.78 19870630 14482.10 13406.25 19870731 15820.70 14085.95 19870831 16363.90 14611.35 19870930 16606.40 14291.37 19871031 10301.40 11213.00 19871130 10252.90 10289.05 19871231 11834.99 11072.05 19880131 11222.33 11538.18 19880229 12544.89 12075.86 19880331 12768.56 11702.72 19880430 12788.01 11832.62 19880531 12476.82 11935.56 19880630 13838.28 12483.41 19880731 13322.87 12435.97 19880831 12603.24 12013.15 19880930 12710.21 12524.91 19881031 12476.82 12873.10 19881130 12360.12 12689.01 19881231 13117.42 12911.07 19890131 13908.23 13856.16 19890228 13305.24 13511.14 19890331 13166.85 13825.95 19890430 13572.13 14543.52 19890531 13750.06 15132.53 19890630 12949.38 15046.28 19890731 14115.81 16404.95 19890831 15242.70 16726.49 19890930 14313.51 16657.91 19891031 13137.19 16271.45 19891130 13325.01 16603.39 19891231 13700.64 17001.87 19900131 12652.83 15861.04 19900228 12870.30 16065.65 19900331 13245.93 16491.39 19900430 12287.08 16079.11 19900531 13028.46 17646.82 19900630 12890.20 17526.82 19900731 12738.07 17470.73 19900831 11267.51 15891.38 19900930 10466.31 15117.47 19901031 10344.61 15052.46 19901130 10892.27 16024.85 19901231 11348.65 16471.95 19910131 11754.32 17190.12 19910228 12616.37 18419.22 19910331 12788.78 18864.96 19910430 12809.06 18910.24 19910531 13904.37 19727.16 19910630 13752.20 18823.66 19910731 14302.29 19700.84 19910831 14638.46 20167.75 19910930 14444.91 19830.95 19911031 15066.30 20096.68 19911130 13864.26 19286.79 19911231 15412.65 21493.19 19920131 16084.98 21093.42 19920229 16869.37 21367.64 19920331 16573.95 20950.97 19920430 17439.83 21566.92 19920531 17643.57 21672.60 19920630 17215.31 21349.68 19920731 17602.63 22222.88 19920831 16491.63 21767.31 19920930 16267.40 22024.17 19921031 16450.86 22101.25 19921130 17062.42 22854.91 19921231 17319.00 23136.02 19930131 17687.49 23330.36 19930228 17851.26 23647.66 19930331 18148.10 24146.62 19930430 17881.97 23562.27 19930531 18618.95 24193.74 19930630 18669.79 24263.90 19930731 18926.53 24166.85 19930831 19419.46 25082.77 19930930 18813.56 24889.63 19931031 19922.66 25404.85 19931130 20189.67 25163.50 19931231 21021.49 25467.98 19940131 22726.21 26333.89 19940228 22253.82 25620.25 19940331 21627.38 24503.20 19940430 22439.14 24816.84 19940531 22665.59 25223.84 19940630 22428.85 24605.86 19940731 23262.60 25412.93 19940831 24518.37 26454.86 19940930 24209.57 25806.71 19941031 23890.48 26387.37 19941130 22202.40 25426.34 19941231 22743.96 25803.41 19950131 22101.83 26472.49 19950228 23955.73 27504.13 19950331 24504.65 28315.77 19950430 24618.13 29149.67 19950531 24369.15 30314.78 19950630 25458.44 31019.00 19950731 27657.79 32047.59 19950831 27585.17 32128.03 19950930 26807.10 33483.83 19951031 25250.96 33364.29 19951130 27574.79 34828.98 19951231 26244.23 35499.79 19960131 26650.56 36708.20 19960229 27161.06 37048.49 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 February 29, 1996, your investment would have grown to $27,161 - a 171.61% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $37,048 over the same period - a 270.48% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Inco Ltd. 9.7 Kaiser Aluminum Corp. 8.6 QNI Ltd. 7.5 Alumax, Inc. 7.2 Aluminum Co. of America 6.5 Monsanto Co. 4.6 Western Mining Holdings Ltd. 4.2 Pechiney SA Class A 4.1 Huntco, Inc. Class A 4.1 Western Atlas, Inc. 3.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Prime Nonferrous Smelting 18.0% Metal Ores 12.3% Aluminum Sheet, Plate & Foil 8.6% Chemicals 7.5% Blast Furnaces 7.4% All Others 46.2% * Row: 1, Col: 1, Value: 46.2 Row: 1, Col: 2, Value: 7.4 Row: 1, Col: 3, Value: 7.5 Row: 1, Col: 4, Value: 8.6 Row: 1, Col: 5, Value: 12.3 Row: 1, Col: 6, Value: 18.0 * INCLUDES SHORT-TERM INVESTMENTS INDUSTRIAL MATERIALS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Doug Chase, Portfolio Manager of Fidelity Select Industrial Materials Portfolio Q. HOW DID THE FUND PERFORM, DOUG? A. For the 12 months ended February 29, 1996, the fund returned 13.38%, while the S&P 500 Index returned 34.70%. Q. WHAT CAUSED THE FUND TO UNDERPERFORM THE OVERALL MARKET? A. During the past 12 months, we've seen very weak relative performance of cyclical stocks - those stocks that rise and fall in tandem with the economy. Because the U.S. economy slowed, and because expectations for the world economy fell, many commodity cyclicals suffered. This fund is geared toward cyclical commodities and, when people worry about the economy, the fund tends to underperform. Q. HAVE YOU MADE ANY SIGNIFICANT CHANGES TO THE FUND'S AREAS OF EMPHASIS DURING THE PAST SIX MONTHS? A. No, not really. I still believe that aluminum and nickel have the best overall supply/demand/inventory combination in the industrial materials universe. In fact, during the period, aluminum stocks such as Kaiser, Alcan and Aluminum Company of America were up by more than 20%. The overall market, however, was up even more. The fund largely avoided stocks in underperforming sectors such as copper, steel and paper. Q. LET'S START WITH ALUMINUM. WHAT HAPPENED DURING THE PERIOD? A. Aluminum is still a great story. Here's why: although inventory levels have begun to move up slightly, they're still very low on an overall basis. I believe that when investor sentiment toward the economy becomes more positive, aluminum stocks will have the potential to outperform. I also believe that the aluminum stocks in the fund are reasonably valued and should fare better than other commodity cyclicals regardless of how the economy performs. Q. AND NICKEL? A. While I like aluminum stocks very much, I like nickel stocks even more. During the period, I increased the fund's holdings in nickel stocks such as Inco Ltd, QNI and Western Mining. Unlike the aluminum market, nickel inventories continue to decline and remain at historically low levels. Again, once investor sentiment toward the world economy turns around - as it inevitably will - it should trigger price increases in both the commodity and the stocks. Q. THE FUND'S HOLDINGS IN INTERNATIONAL STOCKS HAVE INCREASED. WHY? A. There are a couple of reasons. First, there are no nickel investment opportunities in the U.S.; Inco is in Canada, and QNI and Western Mining are located in Australia. Secondly, foreign stocks in the industrial materials sectors are more attractive than their U.S. counterparts because of the phenomenal performance of the U.S. stock market during the past year. But, in any case, I employ a bottom-up strategy. I believe the foreign stocks the fund owns to be inexpensive relative to their history and the fundamentals. While foreign investing can be risky, it's important for investors in this fund to understand that cyclical commodities such as nickel and aluminum are traded nearly worldwide in U.S. dollars. No matter who is buying these materials, and regardless of where they are in the world, the pricing is almost always done in U.S. dollars. For that reason, there is less foreign currency exposure, which makes it more comfortable for the fund to invest in these particular foreign companies. Q. WHERE ELSE DID YOU FIND OPPORTUNITIES DURING THE PERIOD? A. I've slowly begun investing in several different areas of the steel industry. Steel prices peaked in February 1995 and I believe they have recently bottomed because inventories are low and some of the large steel producers have begun to raise prices. Huntco, a steel processor, is new to the fund's top 10 holdings. It has managed to increase its production by 40% per year, despite the market backdrop. I also think the stock is relatively inexpensive. I've also taken a position in LTV, a quality steel producer with strong cash flow. LTV was left behind when other steel companies participated in the overall market rally to date, making it attractive to me. Q. ANY SPECIFIC DISAPPOINTMENTS DURING THE PAST SIX MONTHS? A. Yes. I wish I'd held on to my investments in specialty chemicals longer than I did. The economic outlook slowed faster than I thought it would and the demand for growth-oriented cyclicals remained strong. Specialty chemicals continued to perform well during late 1995, but I'd already sold my position in them because I'd viewed them as fully valued. Q. WHAT'S YOUR OUTLOOK GOING FORWARD? A. I think that worldwide demand for industrial materials stocks is going to increase as soon as investor sentiment toward the worldwide economy improves. Japan's economy is poised to improve and I think the U.S. is economically strong. I believe my current investment strategy is sound and I will continue to try to own the commodity stocks that have the best supply/demand/inventory characteristics and reasonable valuations. FUND FACTS START DATE: September 29, 1986 TRADING SYMBOL: FSDPX SIZE: as of February 29, 1996, more than $86 million MANAGER: Douglas B. Chase, since 1994; equity analyst, steel, non-ferrous metals, since 1993; joined Fidelity in 1993 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. INDUSTRIAL MATERIALS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 97.4% SHARES VALUE (NOTE 1) BUILDING MATERIALS - 2.7% CEMENT - 0.9% Lafarge Corp. 40,000 $ 740,000 PAINT & VARNISH - 1.0% Sherwin-Williams Co. 20,000 847,500 PLUMBING SUPPLIES - WHOLESALE - 0.8% Masco Corp. 25,000 712,500 TOTAL BUILDING MATERIALS 2,300,000 CHEMICALS & PLASTICS - 7.5% CHEMICALS - 7.5% Lyondell Petrochemical Co. 40,000 1,075,000 Monsanto Co. 29,000 3,904,123 Raychem Corp. 3,610 234,199 Union Carbide Corp. 26,200 1,179,000 6,392,322 CONGLOMERATES - 1.0% Brascan Ltd. Class A 50,000 843,763 INDUSTRIAL MACHINERY & EQUIPMENT - 7.4% CONSTRUCTION EQUIPMENT - 1.1% Caterpillar, Inc. 14,000 936,250 GENERAL INDUSTRIAL MACHINERY - 5.1% Harnischfeger Industries, Inc. 60,000 2,272,500 Ingersoll-Rand Co. 51,900 2,121,413 4,393,913 STORAGE BATTERIES - 1.2% Exide Corp. 32,700 997,350 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 6,327,513 IRON & STEEL - 10.0% BLAST FURNACES - 7.4% Huntco, Inc. Class A 200,000 3,450,000 LTV Corp. (a) 200,000 2,550,000 Republic Engineered Steels, Inc. (a) 50,000 262,500 6,262,500 IRON & STEEL BLAST FURNACES MILLS - 2.6% Birmingham Steel Corp. 100,000 1,487,500 Inland Steel Industries, Inc. 30,000 731,250 2,218,750 TOTAL IRON & STEEL 8,481,250 METALS & MINING - 55.2% ALUMINUM SHEET, PLATE & FOIL - 8.6% Kaiser Aluminum Corp. (a) 481,629 7,284,639 ALUMINUM, EXTRUDED PRODUCTS - 7.1% Alumax, Inc. (a) 168,800 6,097,900 METAL MINING SERVICES - 3.6% Eramet SA 42,500 3,060,471 METAL ORES - 12.3% Falconbridge Ltd. 1st Installment Receipt (c) 78,900 626,145 Pechiney SA Class A 85,625 3,466,016 QNI Ltd. 3,104,484 6,362,733 10,454,894 MISCELLANEOUS METAL ORES - 1.3% Stillwater Mining Co. (a)(b) 50,000 1,100,000 SHARES VALUE (NOTE 1) PRIMARY PRODUCTION OF ALUMINUM - 4.3% Capral Aluminum Ltd. 636,200 $ 1,629,889 Reynolds Metals Co. 40,000 2,065,000 3,694,889 PRIME NONFERROUS SMELTING - 18.0% Alcan Aluminium Ltd. 51,975 1,588,246 Aluminum Co. of America 96,800 5,493,400 Inco Ltd. 260,000 8,253,366 15,335,012 TOTAL METALS & MINING 47,027,805 OIL & GAS - 0.1% OIL & GAS EXPLORATION - 0.1% British Petroleum PLC ADR 432 43,362 PRECIOUS METALS - 4.2% Western Mining Holdings Ltd. 549,400 3,533,492 RAILROADS - 5.6% Burlington Northern Santa Fe Corp. 29,592 2,367,360 CSX Corp. 54,000 2,423,250 4,790,610 SERVICES - 3.7% SURVEYING SERVICES - 3.7% Western Atlas, Inc. (a) 60,000 3,157,500 TOTAL COMMON STOCKS (Cost $80,696,396) 82,897,617 REPURCHASE AGREEMENTS - 2.6% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 2,228,335 2,228,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $82,924,396) $ 85,125,617 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 these securities amounted to $1,100,000 or 1.3% of net assets. 3. Purchased on an installment basis. Market value reflects only those payments made through February 29, 1996. The remaining installments aggregating CAD 1,499,100 are due July 31, 1996 and January 31, 1997. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $157,935,689 and $248,203,490, respectively (see Note 3 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 $116,889 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $1,843,000 and $1,336,500, respectively. The weighted average interest rate paid was 6.4% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 65.4% Australia 13.5 Canada 13.3 France 7.7 Others (individually less than 1%) 0.1 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $83,468,429. Net unrealized appreciation aggregated $1,657,188 of which $5,544,798 related to appreciated investment securities and $3,887,610 related to depreciated investment securities. The fund hereby designates approximately $783,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 100% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. INDUSTRIAL MATERIALS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 85,125,617 securities, at value (including repurchase agreements of $2,228,000) (cost $82,924,396) - - See accompanyin g schedule Receivable for 3,558,683 investments sold Receivable for 373,820 fund shares sold Dividends 256,212 receivable Redemption 268 fees receivable Other 325 receivables TOTAL ASSETS 89,314,925 LIABILITIES Payable to $ 7,147 custodian bank Payable for 2,053,756 investments purchased Payable for 794,700 fund shares redeemed Accrued 45,456 management fee Other payables 75,544 and accrued expenses TOTAL 2,976,603 LIABILITIES NET ASSETS $ 86,338,322 Net Assets consist of: Paid in capital $ 81,900,279 Undistributed 81,888 net investment income Accumulated 2,154,640 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 2,201,515 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 86,338,322 3,311,477 shares outstanding NET ASSET $26.07 VALUE and redemption price per share ($86,338,322 (divided by) 3,311,477 shares) Maximum $26.88 offering price per share (100/97.00 of $26.07) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 1,928,364 Dividends Interest (including income on 741,370 securities loaned of $87,837) TOTAL INCOME 2,669,734 EXPENSES Management fee $ 777,296 Transfer agent 1,259,761 Fees Redemption fees (187,229 ) Accounting and security lending fees 129,456 Non-interested trustees' compensation 1,059 Custodian fees and expenses 31,195 Registration fees 27,312 Audit 35,036 Legal 1,037 Interest 1,418 Miscellaneous 2,381 Total expenses before reductions 2,078,722 Expense reductions (36,761 2,041,961 ) NET INVESTMENT INCOME 627,773 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 13,695,198 Foreign currency transactions (6,229 13,688,969 ) Change in net unrealized appreciation (depreciation) on: Investment securities (3,691,291 ) Assets and liabilities in foreign (96 (3,691,387 currencies ) ) NET GAIN (LOSS) 9,997,582 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 10,625,355 OTHER INFORMATION $ 596,846 Sales charges paid to FDC Deferred sales charges withheld $ 12,636 by FDC Exchange fees withheld by FSC $ 148,268 Expense Reductions $ 32,034 Directed brokerage arrangements Custodian interest credits 1,799 Transfer agent interest credits 2,928 $ 36,761
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 627,773 $ 1,365,664 Net investment income Net realized gain (loss) 13,688,969 (284,364 ) Change in net unrealized appreciation (depreciation) (3,691,387 5,772,228 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 10,625,355 6,853,528 Distributions to shareholders from net investment income (782,540 (1,376,864 ) ) Share transactions 164,160,384 260,333,131 Net proceeds from sales of shares Reinvestment of distributions 774,191 1,355,960 Cost of shares redeemed (272,164,952 (239,750,488 ) ) Paid in capital portion of redemption fees 271,871 318,123 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (106,958,506 22,256,726 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (97,115,691 27,733,390 ) NET ASSETS Beginning of period 183,454,013 155,720,623 End of period (including undistributed net investment income of $81,888 and $242,884, respectively)$ 86,338,322 $ 183,454,013 OTHER INFORMATION Shares Sold 6,349,116 11,552,985 Issued in reinvestment of distributions 30,728 64,252 Redeemed (10,999,650 (10,870,758 ) ) Net increase (decrease) (4,619,806 746,479 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of $ 23.13 $ 21.67 $ 17.44 $ 17.12 $ 12.63 period Income from Investment Operations Net investment income .12 .17 .15 .12 .04 Net realized and unrealized gain 2.92 1.43 4.07 .19 4.32 (loss) Total from investment operations 3.04 1.60 4.22 .31 4.36 Less Distributions (.15) (.18) (.06) (.08) - From net investment income In excess of net investment - - - - (.06) income Total distributions (.15) (.18) (.06) (.08) (.06) Redemption fees added to paid in .05 .04 .07 .09 .19 capital Net asset value, end of period $ 26.07 $ 23.13 $ 21.67 $ 17.44 $ 17.12 TOTAL RETURN B, C 13.38% 7.65% 24.66% 2.36% 36.15% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 $ 86,338 $ 183,454 $ 155,721 $ 25,041 $ 22,184 omitted) Ratio of expenses to average net 1.64% 1.56% 2.10% 2.02% 2.47% F assets A Ratio of expenses to average net 1.61% 1.53% 2.08% 2.02% 2.47% assets after expense reductions E E E A Ratio of net investment income to .49% .77% .75% .86% .25% average net assets A Portfolio turnover rate 138% 139% 185% 273% 222% A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND PAPER AND FOREST PRODUCTS 9.18% 114.73% 187.12% PAPER AND FOREST PRODUCTS 5.90% (INCL. 3% SALES CHARGE) 108.29% 178.50% S&P 500 34.70% 101.14% 247.69% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND PAPER AND FOREST PRODUCTS 9.18% 16.51% 11.52% PAPER AND FOREST PRODUCTS 5.90% 15.81% 11.16% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 13.74% 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 19860630 9700.00 10000.00 19860731 9515.70 9488.77 19860831 10689.40 10192.84 19860930 10573.00 9349.89 19861031 11358.70 9889.38 19861130 11834.00 10129.69 19861231 11659.40 9871.39 19870131 14714.90 11201.06 19870228 15190.20 11643.50 19870331 16354.20 11980.00 19870430 15384.20 11873.38 19870531 14501.50 11976.68 19870630 15141.70 12581.50 19870731 15326.00 13219.38 19870831 16441.50 13712.46 19870930 15946.80 13412.16 19871031 11213.20 10523.18 19871130 10825.20 9656.07 19871231 12118.45 10390.90 19880131 11629.03 10828.35 19880229 12724.90 11332.96 19880331 12320.60 10982.77 19880430 12458.91 11104.68 19880531 12320.60 11201.29 19880630 13597.35 11715.43 19880731 12990.89 11670.91 19880831 12352.52 11274.10 19880930 12597.23 11754.37 19881031 12320.60 12081.14 19881130 12054.61 11908.38 19881231 12938.95 12116.78 19890131 13066.96 13003.73 19890228 12682.95 12679.94 19890331 12693.61 12975.38 19890430 13152.29 13648.80 19890531 13386.96 14201.58 19890630 12533.61 14120.63 19890731 13738.97 15395.72 19890831 14720.33 15697.48 19890930 13909.64 15633.12 19891031 13280.29 15270.43 19891130 13184.29 15581.95 19891231 13466.66 15955.91 19900131 12235.55 14885.27 19900228 12354.34 15077.29 19900331 12699.91 15476.84 19900430 11879.17 15089.92 19900531 12667.52 16561.19 19900630 12365.14 16448.57 19900731 12548.72 16395.93 19900831 11047.63 14913.74 19900930 9978.50 14187.44 19901031 9665.33 14126.44 19901130 10637.26 15039.00 19901231 11432.18 15458.59 19910131 12376.62 16132.59 19910228 12969.65 17286.07 19910331 13233.21 17704.39 19910430 13881.15 17746.88 19910531 15473.53 18513.55 19910630 15078.18 17665.63 19910731 15089.16 18488.84 19910831 15166.03 18927.03 19910930 14583.99 18610.95 19911031 15133.09 18860.33 19911130 13979.98 18100.26 19911231 15406.61 20170.93 19920131 16823.56 19795.75 19920229 16902.28 20053.10 19920331 17014.74 19662.06 19920430 17284.64 20240.13 19920531 16801.07 20339.30 19920630 16689.46 20036.25 19920731 16565.50 20855.73 19920831 15900.62 20428.19 19920930 15731.59 20669.24 19921031 16497.88 20741.58 19921130 17106.41 21448.87 19921231 17263.87 21712.69 19930131 17795.59 21895.08 19930228 18191.55 22192.85 19930331 18168.92 22661.12 19930430 18995.42 22112.72 19930531 19052.02 22705.34 19930630 18644.49 22771.19 19930731 18452.05 22680.10 19930831 18950.14 23539.68 19930930 18044.52 23358.43 19931031 18746.37 23841.94 19931130 19912.36 23615.45 19931231 20467.06 23901.19 19940131 22844.31 24713.83 19940228 22199.06 24044.09 19940331 19844.44 22995.77 19940430 19822.26 23290.11 19940531 20630.86 23672.07 19940630 20422.94 23092.10 19940731 22155.65 23849.53 19940831 24627.66 24827.36 19940930 25066.62 24219.09 19941031 23507.17 24764.01 19941130 22479.09 23862.11 19941231 23360.76 24215.98 19950131 23203.89 24843.91 19950228 25508.60 25812.07 19950331 25689.59 26573.79 19950430 25795.82 27356.38 19950531 26222.30 28449.82 19950630 28598.39 29110.71 19950731 29573.20 30076.02 19950831 29548.83 30151.51 19950930 29061.42 31423.90 19951031 28634.95 31311.72 19951130 29061.42 32686.31 19951231 28480.22 33315.84 19960131 29190.55 34449.91 19960229 27850.30 34769.27 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 February 29, 1996, your investment would have grown to $27,850 - a 178.50% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $34,769 over the same period - a 247.69% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Weyerhaeuser Co. 7.3 Rayonier, Inc. 7.1 Mosinee Paper Corp. 6.6 Westvaco Corp. 6.4 Wausau Paper Mills Co. 6.2 Boise Cascade Corp. 5.2 Champion International Corp. 4.9 Kimberly-Clark Corp. 4.0 Willamette Industries, Inc. 3.8 Georgia-Pacific Corp. 3.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Paper & Allied Products 87.8% Services for Print Industry 1.5% Paper Containers 0.9% All Others 9.8% * Row: 1, Col: 1, Value: 9.800000000000001 Row: 1, Col: 2, Value: 1.9 Row: 1, Col: 3, Value: 2.5 Row: 1, Col: 4, Value: 85.8 * INCLUDES SHORT-TERM INVESTMENTS PAPER AND FOREST PRODUCTS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Larry Rakers, Portfolio Manager of Fidelity Select Paper and Forest Products Portfolio Note to shareholders: On February 1, 1996, Larry Rakers replaced Scott Offen as portfolio manager of the fund. Q. LARRY, HOW HAS THE FUND PERFORMED OVER THE PAST YEAR? A. For the 12 months ended February 29, 1996, the fund had a total return of 9.18%. The S&P 500 Index returned 34.70% for the same period. Q. WHAT FACTORS AFFECTED THE SECTOR AND THE FUND'S RETURN? A. Paper and forest product stocks are driven by the global supply and demand fundamentals of the various grades of paper and forest products. There is a strong correlation between demand and general economic growth, while supply is determined by capacity additions. In the middle of 1995, the economic growth rate began to slow. At the same time, the improvement in paper prices encouraged many companies to add to capacity. These additions have been greater than the economic growth rate, resulting in the recent decline in commodity prices. Investors foresaw the current supply/demand imbalance in late 1995 and, as a result, the stocks have underperformed the broader market. Q. WHAT IS YOUR CURRENT STRATEGY AND WHAT CHANGES HAVE YOU MADE TO THE FUND SINCE TAKING IT OVER IN FEBRUARY? A. My strategy is to concentrate the fund's investments in companies that have a unique market niche or in companies that deal with paper grades that have the best supply/demand fundamentals. Globally, there appears to be a good deal of new capacity coming on in newsprint, pulp and containerboard - the latter used to make corrugated boxes. There is less capacity coming on in tissue, paper and some coated paper grades. When I took over the fund, it had major weightings in tissue, paper and niche producers, with minor weightings in newsprint, pulp and containerboard companies. Since taking over the fund, I have further reduced investments in newsprint, pulp and containerboard, increasing the emphasis on white papers and specialty grades. Because I am concerned that the recent decline in pulp prices could lead to a decline in tissue prices, I've modestly reduced investments in tissue producers. I also have increased investments in companies with an emphasis on timber. Q. WHAT WERE SOME OF THE OTHER STOCKS THAT YOU'VE TARGETED? A. Mosinee Paper, a company that buys pulp instead of creating it, was one. With pulp prices in a freefall, the company's profit margins have expanded. Wausau Paper Mills was another. This company produces specialty grades of paper, so it's been less sensitive to price declines. Finally, there was Rayonier, a company that produces specialty pulp - which tends to have more stable pricing - and timber. Q. WHAT WERE SOME OF THE STOCKS WHOSE PERFORMANCE HELPED THE FUND? A. The stocks that did well over the past six months were those with less business in commodity grades and more exposure to specialty grades, such as Wausau. In addition, Kimberly-Clark performed well, having benefited from rising tissue prices and a consolidation with Scott Paper in a cost-cutting plan. Q. WHICH STOCKS DIDN'T TURN OUT AS WELL AS EXPECTED? A. Those that suffered from downturns in commodity prices. Boise Cascade saw price drops in its uncoated white paper business. Bowater, one the largest producers of newsprint in the U.S., also saw share price declines, even though the price of newsprint hasn't collapsed. That's because paper and forest product stock prices tend to rise or fall six months in advance of product prices. As a result, I tend to manage the fund with an eye toward what I perceive the environment will be like in nine months or a year. Q. WHAT'S YOUR OUTLOOK? A. I look for continued downward pricing pressure in all of the commodity grades through most of this year. Those companies with exposure to specialty grades, tissue and lumber are more likely to perform better. I expect that prices of white and coated paper will be the first to rebound. FUND FACTS START DATE: June 30, 1986 TRADING SYMBOL: FSPFX SIZE: as of February 29, 1996, more than $27 million MANAGER: Larry Rakers, since February 1996; manager, Fidelity Select American Gold Portfolio, since July 1995; research analyst, since 1993; joined Fidelity in 1993 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. PAPER AND FOREST PRODUCTS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 88.9% SHARES VALUE (NOTE 1) PACKAGING & CONTAINERS - 0.9% PAPER CONTAINERS - 0.9% Mayr Melnhof Karton AG 5,000 $ 249,554 PAPER & FOREST PRODUCTS - 86.5% PAPER & ALLIED PRODUCTS - 86.5% Avenor, Inc. 20,000 280,950 Boise Cascade Corp. 40,000 1,410,000 Bowater, Inc. 13,500 499,500 Champion International Corp. 33,500 1,340,000 Domtar, Inc. 17,400 120,626 Donohue, Inc. (vtg.) 16,800 213,011 Enso-Gutzeit OY Class R Free shares 25,000 177,297 Fletcher Challenge Canada Ltd. Class A 25,000 328,383 Fort Howard Corp. (a) 37,500 862,500 Georgia-Pacific Corp. 16,000 1,010,000 IP Timberlands Ltd. Class A 20,000 442,500 International Paper Co. 24,500 872,813 Kimberly-Clark Corp. 14,430 1,102,091 Kymmene Corp. 6,000 167,307 Louisiana-Pacific Corp. 28,900 668,313 MacMillan Bloedel Ltd. 5,000 63,852 Mead Corp. 6,000 300,000 Metsa-Serla Ltd. Class B 2,500 77,396 Mo Och Domsjoe AB Class B 1,500 73,811 Mosinee Paper Corp. 64,000 1,792,000 Plum Creek Timber Co. LP depositary unit 10,000 267,500 QUNO Corp. (a) 29,000 650,746 Rayonier, Inc. 56,800 1,945,400 Repola OY 10,000 199,583 Slocan Forest Products Ltd. 30,000 279,126 Specialty Paperboard, Inc. (a) 20,000 242,500 Stone Consolidated Corp. (a) 55,400 656,949 Stora Kopparbergs B Free shares 7,000 89,992 SCA (Svenska Cellulosa Aktiebolaget) Class B Ord. 15,000 252,688 Temple-Inland, Inc. 10,000 402,500 Union Camp Corp. 7,500 349,688 Wausau Paper Mills Co. 75,637 1,701,833 Westvaco Corp. 60,000 1,740,000 Weyerhaeuser Co. 46,800 1,983,150 Willamette Industries, Inc. 20,000 1,050,000 23,614,005 PRINTING - 1.5% SERVICES FOR PRINT INDUSTRY - 1.5% Alco Standard Corp. 8,700 412,161 TOTAL COMMON STOCKS (Cost $24,619,692) 24,275,720 CONVERTIBLE PREFERRED STOCKS - 1.3% PAPER & FOREST PRODUCTS - 1.3% PAPER & ALLIED PRODUCTS - 1.3% James River Corp., Series P, $1.55 depositary shares representing 1/100 share (dividend enhanced conversion stock) (Cost $378,750) 14,000 364,000 REPURCHASE AGREEMENTS - 9.8% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 2,658,399 $ 2,658,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $27,656,442) $ 27,297,720 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $40,211,312 and $104,923,848, respectively (see Note 3 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 com-missions paid to these affiliated firms were $42,499 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $2,982,000 and $2,948,000, respectively. The weighted average interest rate paid was 6.4% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 85.8% Canada 9.5 Finland 2.3 Sweden 1.5 Others (individually less than 1%) 0.9 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $28,074,447. Net unrealized depreciation aggregated $776,727, of which $1,199,496 related to appreciated investment securities and $1,976,223 related to depreciated investment securities. The fund hereby designates approximately $2,469,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 27% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. PAPER AND FOREST PRODUCTS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 27,297,720 securities, at value (including repurchase agreements of $2,658,000) (cost $27,656,442) - - See accompanyin g schedule Cash 382 Receivable for 183,797 investments sold Receivable for 260,514 fund shares sold Dividends 71,432 receivable Redemption 180 fees receivable TOTAL ASSETS 27,814,025 LIABILITIES Payable for $ 483,998 fund shares redeemed Accrued 16,028 management fee Other payables 43,960 and accrued expenses TOTAL 543,986 LIABILITIES NET ASSETS $ 27,270,039 Net Assets consist of: Paid in capital $ 22,215,181 Undistributed 46,687 net investment income Accumulated 5,366,849 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized (358,678 appreciation ) (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 27,270,039 1,312,156 shares outstanding NET ASSET $20.78 VALUE and redemption price per share ($27,270,039 (divided by) 1,312,156 shares) Maximum $21.42 offering price per share (100/97.00 of $20.78) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 979,846 Dividends Interest (including income on 320,088 securities loaned of $2,764) TOTAL INCOME 1,299,934 EXPENSES Management fee $ 355,643 Transfer agent 714,803 Fees Redemption fees (106,137 ) Accounting and security lending fees 63,221 Non-interested trustees' compensation 456 Custodian fees and expenses 29,405 Registration fees 27,502 Audit 22,677 Legal 487 Interest 2,093 Miscellaneous 818 Total expenses before reductions 1,110,968 Expense reductions (7,391 1,103,577 ) NET INVESTMENT INCOME 196,357 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 10,194,135 Foreign currency transactions (1,485 10,192,650 ) Change in net unrealized appreciation (depreciation) on: Investment securities (5,417,427 ) Assets and liabilities in (12 (5,417,439 foreign currencies ) ) NET GAIN (LOSS) 4,775,211 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,971,568 OTHER INFORMATION $ 526,735 Sales charges paid to FDC Deferred sales charges withheld $ 3,068 by FDC Exchange fees withheld by FSC $ 76,058 Expense reductions $ 6,886 Directed brokerage arrangements Custodian interest credits 248 Transfer agent interest credits 257 $ 7,391
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 196,357 $ 27,739 Net investment income Net realized gain (loss) 10,192,650 2,948,989 Change in net unrealized appreciation (depreciation) (5,417,439 2,027,950 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 4,971,568 5,004,678 Distributions to shareholders (148,185 - From net investment income ) From net realized gain (4,557,795 (2,454,993 ) ) TOTAL DISTRIBUTIONS (4,705,980 (2,454,993 ) ) Share transactions 89,748,449 242,587,009 Net proceeds from sales of shares Reinvestment of distributions 4,602,520 2,407,320 Cost of shares redeemed (161,775,476 (220,695,611 ) ) Paid in capital portion of redemption fees 210,077 462,733 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (67,214,430 24,761,451 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (66,948,842 27,311,136 ) NET ASSETS Beginning of period 94,218,881 66,907,745 End of period (including undistributed net investment income of $46,687 and $31,587, respectively) $ 27,270,039 $ 94,218,881 OTHER INFORMATION Shares Sold 3,969,187 12,091,048 Issued in reinvestment of distributions 214,948 132,918 Redeemed (7,328,171 (11,180,290 ) ) Net increase (decrease) (3,144,036 1,043,676 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of $ 21.14 $ 19.61 $ 16.08 $ 15.37 $ 12.64 period Income from Investment Operations Net investment income (loss) .08 .01 (.01) .06 .13 Net realized and unrealized gain 1.83 2.53 3.38 .65 2.64 (loss) Total from investment operations 1.91 2.54 3.37 .71 2.77 Less Distributions (.08) - (.01) (.09) (.30) From net investment income From net realized gain (2.27) (1.17) - - - Total distributions (2.35) (1.17) (.01) (.09) (.30) Redemption fees added to paid in .08 .16 .17 .09 .26 capital Net asset value, end of period $ 20.78 $ 21.14 $ 19.61 $ 16.08 $ 15.37 TOTAL RETURN B, C 9.18% 14.91% 22.03% 5.25% 24.52% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 $ 27,270 $ 94,219 $ 66,908 $ 25,098 $ 28,957 omitted) Ratio of expenses to average net 1.91% 1.88% 2.08% 2.21% 2.05% assets A Ratio of expenses to average net 1.90% 1.87% 2.07% 2.21% 2.05% assets after expense reductions E E E A Ratio of net investment income .34% .05% (.08)% .49% .92% (loss) to average net assets A Portfolio turnover rate 78% 209% 176% 222% 421% A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past one year, five year, and life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND TRANSPORTATION 12.95% 158.67% 267.04% TRANSPORTATION 9.56% 150.91% 256.03% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 270.48% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND TRANSPORTATION 12.95% 20.93% 14.79% TRANSPORTATION 9.56% 20.20% 14.42% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.90% 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 19860929 9700.00 10000.00 19860930 9748.50 9962.80 19861031 10039.50 10537.66 19861130 10204.40 10793.72 19861231 10039.50 10518.48 19870131 10737.90 11935.32 19870228 11397.50 12406.77 19870331 11397.50 12765.32 19870430 11475.10 12651.71 19870531 11649.70 12761.78 19870630 11998.90 13406.25 19870731 12474.20 14085.95 19870831 12474.20 14611.35 19870930 11795.20 14291.37 19871031 7992.80 11213.00 19871130 7527.20 10289.05 19871231 8284.50 11072.05 19880131 8698.73 11538.18 19880229 9418.69 12075.86 19880331 9704.70 11702.72 19880430 9734.29 11832.62 19880531 9675.11 11935.56 19880630 10661.36 12483.41 19880731 10523.29 12435.97 19880831 10030.16 12013.15 19880930 10690.95 12524.91 19881031 11036.14 12873.10 19881130 11134.76 12689.01 19881231 11470.09 12911.07 19890131 12456.34 13856.16 19890228 12584.55 13511.14 19890331 12969.19 13825.95 19890430 13403.14 14543.52 19890531 13975.16 15132.53 19890630 13889.01 15046.28 19890731 14730.77 16404.95 19890831 15688.27 16726.49 19890930 15383.13 16657.91 19891031 14404.59 16271.45 19891130 14530.85 16603.39 19891231 14737.71 17001.87 19900131 13812.21 15861.04 19900228 14456.54 16065.65 19900331 14890.01 16491.39 19900430 14327.68 16079.11 19900531 14854.86 17646.82 19900630 14691.33 17526.82 19900731 14642.53 17470.73 19900831 12494.96 15891.38 19900930 10884.28 15117.47 19901031 10713.45 15052.46 19901130 11152.72 16024.85 19901231 11555.39 16471.95 19910131 12543.76 17190.12 19910228 13763.97 18419.22 19910331 13776.18 18864.96 19910430 13739.57 18910.24 19910531 14825.56 19727.16 19910630 14702.46 18823.66 19910731 15596.12 19700.84 19910831 15877.68 20167.75 19910930 15583.88 19830.95 19911031 16734.61 20096.68 19911130 15694.05 19286.79 19911231 17811.89 21493.19 19920131 17971.04 21093.42 19920229 18938.14 21367.64 19920331 18485.20 20950.97 19920430 18962.63 21566.92 19920531 19354.37 21672.60 19920630 18521.92 21349.68 19920731 18791.24 22222.88 19920831 18228.12 21767.31 19920930 18950.39 22024.17 19921031 19758.35 22101.25 19921130 21190.65 22854.91 19921231 22049.78 23136.02 19930131 23037.27 23330.36 19930228 23349.77 23647.66 19930331 24912.25 24146.62 19930430 24850.15 23562.27 19930531 25778.43 24193.74 19930630 25853.69 24263.90 19930731 25853.69 24166.85 19930831 26330.38 25082.77 19930930 26393.10 24889.63 19931031 26945.04 25404.85 19931130 27095.57 25163.50 19931231 28513.94 25467.98 19940131 29763.83 26333.89 19940228 29763.83 25620.25 19940331 28967.19 24503.20 19940430 29508.50 24816.84 19940531 29034.13 25223.84 19940630 29006.23 24605.86 19940731 29982.87 25412.93 19940831 30875.80 26454.86 19940930 30052.63 25806.71 19941031 30499.09 26387.37 19941130 28671.38 25426.34 19941231 29616.40 25803.41 19950131 29416.80 26472.49 19950228 31520.20 27504.13 19950331 31934.73 28315.77 19950430 32410.69 29149.67 19950531 31443.43 30314.78 19950630 31105.66 31019.00 19950731 33777.12 32047.59 19950831 33746.42 32128.03 19950930 33439.35 33483.83 19951031 33024.81 33364.29 19951130 34160.95 34828.98 19951231 34108.67 35499.79 19960131 34628.42 36708.20 19960229 35602.96 37048.49 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 February 29, 1996, your investment would have grown to $35,603 - a 256.03% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $37,048 over the same period - a 270.48% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Burlington Northern Santa Fe Corp. 10.1 CSX Corp. 9.1 Hunt (J.B.) Transport Services, Inc. 8.6 Wisconsin Central Transportation Corp. 7.4 Kirby Corp. 5.4 Delta Air Lines, Inc. 4.6 Eaton Corp. 4.6 AMR Corp. 3.7 PACCAR, Inc. 3.5 Atlantic Southeast Airlines, Inc. 2.5 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Railroads 27.3% Air Transport, Major National 17.9% Trucking, Long Distance 9.7% Auto & Truck Parts 6.7% Shipping 6.7% All Others 31.7% * Row: 1, Col: 1, Value: 31.7 Row: 1, Col: 2, Value: 6.7 Row: 1, Col: 3, Value: 6.7 Row: 1, Col: 4, Value: 9.699999999999999 Row: 1, Col: 5, Value: 17.9 Row: 1, Col: 6, Value: 27.3 * INCLUDES SHORT-TERM INVESTMENTS TRANSPORTATION PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Stephen DuFour, Portfolio Manager of Fidelity Select Transportation Portfolio Q. STEVE, HOW DID THE FUND PERFORM? A. Fidelity Select Transportation had a total return of 12.95% for the year that ended February 29, 1996. During the same period, the S&P 500 Index had a total return of 34.70%. Q. HOW WOULD YOU SUM UP THE FUND'S PERFORMANCE DURING THE PAST YEAR? A. The fund invests primarily in three sectors: railroads, airlines and trucking. The main reason the fund trailed the broader market during the past 12 months was that I overemphasized trucking and underemphasized airlines. On average, airline stocks outperformed the broader market during the fund's fiscal year, railroad stocks matched the broader market and trucking stocks underperformed. The reasons for the disparity have to do with separate issues of supply and demand that apply individually to each sector. Q. DID RAILROADS STILL CONSTITUTE THE LARGEST SECTOR IN THE FUND AT THE END OF THE PERIOD? A. Yes, although the percentage was not as high as it was six months ago. At the end of the period, railroad stocks totaled 27.3% of the fund's investments, compared to 43.6% at the end of August. As the economy slowed down, I looked for opportunities in less economically sensitive sectors, namely airlines. Nevertheless, railroads still dominate the fund. My two largest holdings at the end of the period were both railroads - Burlington Northern Santa Fe and CSX. Together they accounted for about 20% of the fund's investments. Burlington Northern Santa Fe is a cost-cutting story following its recent merger with Santa Fe Pacific. CSX is more of a turnaround story - cost-cutting, debt reduction and better asset utilization. Q. WHAT'S BEEN RESPONSIBLE FOR THE RECENT STRONG PERFORMANCE BY AIRLINES? A. Basic economics. The demand for seats was greater than the new capacity added during the year, resulting in higher yields per plane. One of the biggest concerns lately has been that discount carriers such as Southwest and ValuJet - both of which the fund owned - would erode pricing throughout the industry. While that happened in isolated markets, the overall impact was less than expected, and that, too, was a positive factor. Airline stocks totaled 21.7% of the fund's investments at the end of the period. The largest holdings were two industry leaders: AMR, the parent company of American Airlines, and Delta. Both have strong route structures and a commitment to cost-containment. Q. HOW DO YOU EXPLAIN THE SUBPAR PERFORMANCE BY THE FUND'S TRUCKING-RELATED STOCKS? A. The story here was pretty much the opposite of the airlines: lower volume, measured in terms of tonnage transported, and more trucks on the road. Nineteen ninety-five was a record year for new truck deliveries. Among the fund's largest trucking holdings at the end of the period was J.B. Hunt. I'm a believer in J.B. Hunt's intermodal strategy, which could be very profitable for the company once the economy improves and tonnage increases. Lately, I've increased the fund's stake in truck manufacturers such as Eaton. Manufacturers tend to be among the first companies to respond to an increase in economic activity. At the end of February, trucking stocks totaled about 21% of the fund's investments. Q. WHAT'S THE OUTLOOK? A. As I've tried to explain, transportation stocks are driven mostly by the law of supply and demand. The companies themselves determine supply, and that's something I try to monitor closely. For example, the airlines have started to order more planes and Boeing is increasing production; that's a negative sign. The truckers, on the other hand, have cut back on new orders; that's a good sign. The railroads, finally, have less ability to add capacity than other sectors, and that's the main reason I think railroads may be the most promising sector in the long run. Demand, on the other hand, determines revenue growth, and that will always be a function of how fast the economy is growing. After all, we're talking about companies that build and operate vehicles that transport the nation's economic output. I'll continue to look for companies that have the resources to weather the inevitable economic downturns, as well as the leverage to outperform the broader market once the economy improves. FUND FACTS START DATE: September 29, 1986 TRADING SYMBOL: FSRFX SIZE: as of February 29, 1996, more than $11 million MANAGER: Stephen Dufour, since 1994; manager, Fidelity Select Multimedia Portfolio, 1993-February 1996; equity analyst, media, 1992-1993; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. TRANSPORTATION PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 88.7% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 1.4% Boeing Co. 2,000 $ 162,250 AIR TRANSPORTATION - 21.7% AIR TRANSPORT, MAJOR NATIONAL - 17.9% AMR Corp. (a) 5,000 438,750 America West Airlines, Inc. Class B 11,000 226,875 Atlantic Coast Airlines, Inc. (a) 10,000 115,000 Continental Airlines, Inc. Class B (a) 4,000 192,000 Delta Air Lines, Inc. 7,000 546,000 Northwest Airlines Corp. Class A 2,000 91,750 Southwest Airlines Co. 7,000 215,250 Trans World Airlines, Inc. 1,000 17,000 UAL Corp. 1,000 178,625 USAir Group, Inc. (a) 2,200 37,125 ValuJet, Inc. (a) 2,000 46,250 2,104,625 AIR TRANSPORTATION, REGIONAL - 3.8% Atlantic Southeast Airlines, Inc. 11,300 296,625 Comair Holdings, Inc. 5,000 155,625 452,250 TOTAL AIR TRANSPORTATION 2,556,875 AUTOS, TIRES, & ACCESSORIES - 11.7% AUTO & TRUCK PARTS - 6.7% Cummins Engine Co., Inc. 5,800 244,325 Eaton Corp. 9,400 544,025 788,350 MOTOR VEHICLES & CAR BODIES - 5.0% General Motors Corp. 54 2,768 PACCAR, Inc. 8,800 415,800 Sime Darby Hongkong Ltd. 20,000 20,695 Volvo AB ADR Class B 7,000 148,750 588,013 TRUCK & BUS BODIES - 0.0% Grupo Dina sponsored ADR, Series L 11 10 TOTAL AUTOS, TIRES, & ACCESSORIES 1,376,373 HOLDING COMPANIES - 1.4% Norfolk Southern Corp. 2,100 171,150 RAILROADS - 27.3% Burlington Northern Santa Fe Corp. 14,930 1,194,400 CSX Corp. 24,000 1,077,000 Illinois Central Corp., Series A 2,200 81,950 Wisconsin Central Transportation Corp. (a) 11,700 868,723 3,222,073 SECURITIES INDUSTRY - 0.1% Alleghany Corp. 30 5,910 SHIPPING - 9.1% DEEP SEA TRANSPORT - 2.4% Pacific Basin Bulk Shipping Ltd. 10,010 118,869 Pacific Basin Bulk Shipping Ltd. (warrants) (a) 1,000 813 Transportacion Maritima Mexicana SA de CV ADR representing L share (a) 20,000 162,500 282,182 SHIPPING - 6.7% Bergesen Group Class B 5,000 89,666 IM Skaugen AS (a) 50,000 26,510 SHARES VALUE (NOTE 1) Kirby Corp. (a) 35,100 $ 640,575 Storli Skibs, Series A AS 2,000 31,344 788,095 TOTAL SHIPPING 1,070,277 TRUCKING & FREIGHT - 16.0% AIR COURIER SERVICES - 1.9% Federal Express Corp. 3,000 222,000 TRUCKING, LOCAL & LONG DISTANCE - 4.4% Caliber System, Inc. 3,200 135,200 Hitachi Transport System Co. 5,000 50,349 Landstar System, Inc. (a) 4,000 100,500 M.S. Carriers, Inc. (a) 14,000 232,750 518,799 TRUCKING, LONG DISTANCE - 9.7% Hunt (J.B.) Transport Services, Inc. 55,500 1,012,875 PST Vans, Inc. (a) 7,500 32,813 TNT Freightways Corp. 5,000 103,750 1,149,438 TOTAL TRUCKING & FREIGHT 1,890,237 TOTAL COMMON STOCKS (Cost $9,567,824) 10,455,145 REPURCHASE AGREEMENTS - 11.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 1,326,199 1,326,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $10,893,824) $ 11,781,145 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $17,403,862 and $19,782,975, respectively (see Note 3 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 $7,351 for the period (see Note 4 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $10,938,431. Net unrealized appreciation aggregated $842,714, of which $1,065,782 related to appreciated investment securities and $223,068 related to depreciated investment securities. The fund hereby designates aproximately $474,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 37% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. TRANSPORTATION PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 11,781,145 securities, at value (including repurchase agreements of $1,326,000) (cost $10,893,824) - - See accompanyin g schedule Cash 886 Receivable for 57,448 fund shares sold Dividends 13,634 receivable Redemption 32 fees receivable Other 5,875 receivables TOTAL ASSETS 11,859,020 LIABILITIES Payable for $ 338,357 investments purchased Payable for 52,744 fund shares redeemed Accrued 1,733 management fee Other payables 20,953 and accrued expenses TOTAL 413,787 LIABILITIES NET ASSETS $ 11,445,233 Net Assets consist of: Paid in capital $ 9,847,898 Accumulated 710,014 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 887,321 appreciation (depreciation ) on investments NET ASSETS, for $ 11,445,233 522,138 shares outstanding NET ASSET $21.92 VALUE and redemption price per share ($11,445,233 (divided by) 522,138 shares) Maximum $22.60 offering price per share (100/97.00 of $21.92) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 135,444 Dividends Special dividend from PACCAR, Inc. 26,400 Interest 56,549 TOTAL INCOME 218,393 EXPENSES Management fee $ 66,606 Transfer agent 148,272 Fees Redemption fees (20,247 ) Accounting fees and expenses 47,681 Non-interested trustees' compensation 83 Custodian fees and expenses 15,277 Registration fees 15,140 Audit 18,189 Legal 74 Miscellaneous 225 Total expenses before reductions 291,300 Expense reductions (26,009 265,291 ) NET INVESTMENT INCOME (LOSS) (46,898 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,652,647 Foreign currency transactions 1,541 1,654,188 Change in net unrealized appreciation (depreciation) on: Investment securities (414,455 ) Assets and liabilities in (13 (414,468 foreign currencies ) ) NET GAIN (LOSS) 1,239,720 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,192,822 OTHER INFORMATION $ 157,256 Sales charges paid to FDC Deferred sales charges withheld $ 2,170 by FDC Exchange fees withheld by FSC $ 16,530 Expense reductions $ 3,305 Directed brokerage arrangements Custodian interest credits 55 FMR reimbursement 22,649 $ 26,009
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ (46,898 $ (105,448 Net investment income (loss) ) ) Net realized gain (loss) 1,654,188 1,298,543 Change in net unrealized appreciation (depreciation) (414,468 (804,930 ) ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,192,822 388,165 Distributions to shareholders from net realized gains (578,339 (1,219,559 ) ) Share transactions 23,608,416 21,385,934 Net proceeds from sales of shares Reinvestment of distributions 567,930 1,177,973 Cost of shares redeemed (26,101,274 (22,133,063 ) ) Paid in capital portion of redemption fees 51,261 28,174 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (1,873,667 459,018 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (1,259,184 (372,376 ) ) NET ASSETS Beginning of period 12,704,417 13,076,793 End of period $ 11,445,233 $ 12,704,417 OTHER INFORMATION Shares Sold 1,097,987 1,018,198 Issued in reinvestment of distributions 26,954 62,121 Redeemed (1,221,676 (1,064,813 ) ) Net increase (decrease) (96,735 15,506 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset value, beginning of $ 20.53 $ 21.67 $ 18.68 $ 15.49 $ 11.26 period Income from Investment Operations Net investment income (loss) (.09) F (.17) (.20) (.07) (.05) Net realized and unrealized gain 2.60 1.17 5.07 3.55 4.18 (loss) Total from investment operations 2.51 1.00 4.87 3.48 4.13 Less Distributions - - - - (.04) From net investment income From net realized gain (1.22) (2.19) (1.96) (.36) - Total distributions (1.22) (2.19) (1.96) (.36) (.04) Redemption fees added to paid in .10 .05 .08 .07 .14 capital Net asset value, end of period $ 21.92 $ 20.53 $ 21.67 $ 18.68 $ 15.49 TOTAL RETURN B, C 12.95% 5.90% 27.47% 23.14% 38.01% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 $ 11,445 $ 12,704 $ 13,077 $ 10,780 $ 2,998 omitted) Ratio of expenses to average net 2.47% 2.37% 2.40% 2.48% A 2.43% assets G , G G Ratio of expenses to average net 2.44% 2.36% 2.39% 2.48% A 2.43% assets after expense reductions E E E Ratio of net investment income (.43)% (.83)% (.96)% (.53)% (.34)% (loss) to average net assets A Portfolio turnover rate 175% 178% 115% 116% A 423%
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND FROM PACCAR, INC. WHICH AMOUNTED TO $ .05 PER SHARE. G DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS AMERICAN GOLD 47.02% 99.19% 177.32% AMERICAN GOLD 42.61% 93.22% (INCL. 3% SALES CHARGE) 169.00% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS AMERICAN GOLD 47.02% 14.78% 10.74% AMERICAN GOLD 42.61% 14.08% 10.40% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10091.13 10558.00 19860430 9885.79 10438.69 19860531 9934.68 10994.03 19860630 9954.23 11179.83 19860731 9905.34 10554.88 19860831 11029.84 11338.05 19860930 11567.64 10400.39 19861031 11401.41 11000.50 19861130 11587.20 11267.81 19861231 11567.64 10980.48 19870131 13327.72 12459.55 19870228 14706.45 12951.70 19870331 17111.90 13326.01 19870430 18177.72 13207.41 19870531 17209.68 13322.31 19870630 16671.88 13995.09 19870731 19898.69 14704.64 19870831 19566.23 15253.12 19870930 20397.38 14919.08 19871031 14442.44 11705.51 19871130 16750.10 10740.97 19871231 16253.00 11558.36 19880131 13812.07 12044.97 19880229 14179.20 12606.27 19880331 15598.12 12216.73 19880430 15697.34 12352.34 19880531 15598.12 12459.80 19880630 15905.71 13031.71 19880731 15866.02 12982.19 19880831 14933.31 12540.79 19880930 14288.35 13075.03 19881031 14437.19 13438.52 19881130 14635.64 13246.35 19881231 14228.82 13478.16 19890131 14744.78 14464.76 19890228 15518.74 14104.59 19890331 14973.00 14433.22 19890430 14248.66 15182.31 19890531 13732.69 15797.19 19890630 14506.64 15707.15 19890731 14655.48 17125.50 19890831 15399.67 17461.16 19890930 15488.97 17389.57 19891031 15647.73 16986.13 19891130 17642.14 17332.65 19891231 17364.31 17748.63 19900131 18128.34 16557.70 19900228 17622.30 16771.29 19900331 16937.65 17215.73 19900430 15101.99 16785.34 19900531 16431.60 18421.91 19900630 15379.82 18296.64 19900731 16451.45 18238.09 19900831 16153.77 16589.37 19900930 16143.85 15781.47 19901031 13494.55 15713.61 19901130 13325.87 16728.71 19901231 14377.65 17195.44 19910131 12383.24 17945.16 19910228 13504.48 19228.24 19910331 13454.86 19693.56 19910430 12978.58 19740.82 19910531 13425.10 20593.63 19910630 14328.04 19650.44 19910731 14169.28 20566.15 19910831 13018.27 21053.57 19910930 12799.98 20701.97 19911031 13782.30 20979.38 19911130 13752.54 20133.91 19911231 13494.55 22437.23 19920131 13821.99 22019.90 19920229 13395.33 22306.16 19920331 12482.46 21871.19 19920430 11847.42 22514.20 19920531 12690.83 22624.52 19920630 13514.40 22287.41 19920731 14367.73 23198.97 19920831 14099.82 22723.39 19920930 14020.44 22991.53 19921031 13603.70 23072.00 19921130 12452.69 23858.75 19921231 13077.81 24152.21 19930131 12829.75 24355.09 19930228 14040.29 24686.32 19930331 15617.96 25207.20 19930430 17592.53 24597.19 19930531 19547.26 25256.39 19930630 20688.34 25329.64 19930731 22335.47 25228.32 19930831 21164.62 26184.47 19930930 18922.14 25982.85 19931031 21750.04 26520.70 19931130 21769.89 26268.75 19931231 23367.41 26586.60 19940131 23377.33 27490.55 19940228 22484.31 26745.55 19940331 23030.04 25579.45 19940430 21085.24 25906.86 19940531 21998.11 26331.74 19940630 20916.56 25686.61 19940731 20608.96 26529.13 19940831 21581.36 27616.82 19940930 23466.63 26940.21 19941031 21769.89 27546.37 19941130 19190.05 26543.13 19941231 19755.63 26936.76 19950131 17691.76 27635.23 19950228 18297.03 28712.18 19950331 21105.08 29559.47 19950430 21025.70 30430.00 19950531 21462.29 31646.29 19950630 21759.97 32381.43 19950731 22345.39 33455.20 19950831 22395.00 33539.17 19950930 22385.08 34954.52 19951031 19686.17 34829.74 19951130 21511.90 36358.76 19951231 21968.34 37059.03 19960131 25867.87 38320.52 19960229 26899.80 38675.75 Let's say you invested $10,000 in Fidelity Select American Gold Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $26,900 - a 169.00% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Newmont Mining Corp. 10.3 Barrick Gold Corp. 8.3 Euro-Nevada Mining Corp. 4.6 Cambior, Inc. 4.3 Kinross Gold Corp. 4.3 Agnico Eagle Mines Ltd. 4.1 Bre-X Minerals Ltd. 3.9 Pegasus Gold, Inc. 3.9 Placer Dome, Inc. 3.8 Firstmiss Gold, Inc. 3.5 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Gold Ores 76.4% Metal Mining Services 4.6% Miscellaneous Metal Ores 4.1% Copper Ores 2.2% Investment Managers 1.7% All Others 11.0% * Row: 1, Col: 1, Value: 11.3 Row: 1, Col: 2, Value: 1.4 Row: 1, Col: 3, Value: 2.2 Row: 1, Col: 4, Value: 4.1 Row: 1, Col: 5, Value: 4.6 Row: 1, Col: 6, Value: 76.40000000000001 * INCLUDES SHORT-TERM INVESTMENTS AMERICAN GOLD PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Larry Rakers, Portfolio Manager of Fidelity Select American Gold Portfolio Q. LARRY, HOW HAS THE FUND PERFORMED? A. It has done quite well. For the 12 months ended February 29, 1996, the fund had a total return of 47.02%. That beat the S&P 500 Index, which returned 34.70% during the same 12-month period. Q. WHAT HELPED THE FUND POST SUCH A STRONG PERFORMANCE? A. There were two reasons. First, gold prices were favorable, rising as investors became more interested in owning this commodity. Second and more importantly, the fund's performance was helped by individual stock selection. I was able to select companies that were able to grow production and reserves faster than others. The focus of the fund is to buy stocks of gold companies that are showing solid cash-flow growth. When I've done supply and demand analysis on gold recently, it has looked favorable, convincing me that over the long term the price of gold is going higher. But, over the short-term there are a lot of unknowns and variables that make the movement of gold's price almost incalculable. With that kind of backdrop, my strategy is to buy stocks that are growing production and reserves, because I should get capital appreciation and growth, even in a flat gold price environment. Q. WHAT WERE THE FACTORS THAT HELPED GOLD BECOME MORE ATTRACTIVE? A. For several complex reasons, demand has exceeded supply, and has done so since 1990. Around 35% of demand is being met from inventory and the deficit continues to grow. In other words, we're consuming more gold than we mine. This has been the case for several years. Q. DO THE FUND'S LARGER HOLDINGS REFLECT YOUR GROWTH STRATEGY? A. Yes, they do, or they were attractive "buy" candidates because of their valuations - their stock prices compared to other measures such as earnings or cash flow. For example, the stock of Cambior plummeted in August because a dam failed at one of its mines, causing cyanide to taint a river. The company closed the mine and the stock fell sharply. My research showed that the mine would be out of commission for only about six months, leading me to believe the stock's valuation could rebound. So I bought the stock. But in most of the other cases, I've bought the stocks because the companies are growing reserves or production faster than the industry average. Q. WHICH STOCKS PERFORMED WELL FOR THE FUND? A. Most of the stocks in the sector have shown positive performance, especially those I've chosen for the fund's largest investments. Bre-X Minerals, a Canadian company, discovered a gold deposit in Indonesia that holds at least 30 million ounces of gold. Its exploration success continued to drive the stock higher. FirstMiss Gold, spun off from a fertilizer company, has a strong new management team running its property in Nevada. Newmont Mining Corporation had strong production and reserve growth coming from properties in Nevada and Peru. Euro-Nevada had a new project in Nevada where it found large reserves. Kinross has two growth prospects in Nevada and Canada where it found reserves and is developing production. Agnico Eagle has a project in Quebec where it found deep reserves. Barrick Gold has some projects in Nevada and in Chile, where it was able to grow reserves and production at a faster-than-average rate. Placer Dome has projects throughout Latin America, where it was growing reserves and production. In every case, I'm buying the companies that are growing reserves and production. Q. WHICH STOCKS DIDN'T PERFORM AS WELL AS YOU WOULD HAVE LIKED OVER THE PAST SIX MONTHS? A. Stillwater Mining, a company that produces platinum and palladium, showed strong growth potential. Unfortunately, the price of both metals fell faster than the company's growth, due largely to alleged dumping of inventory by Russia and a perception that automobile demand was weakening; both metals are used in auto production. The other disappointment for me was that the rally in gold prices was not sustained through the end of the period. I should add that I always want to caution the investor that the short-term price movement of gold is very unpredictable. That can lead to volatility in fund performance, but I continue to believe there is a long-term upward bias in the price of gold. Q. WHAT'S YOUR OUTLOOK? A. Because of the unpredictable nature of short-term gold price movements, I'm going to continue to focus on growth. At the same time, because I'm optimistic about the long-term increase in the price of gold, I will also try to keep the fund structured so that it can take advantage of gold price movements. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FSAGX SIZE: as of February 29, 1996, more than $451 million MANAGER: Larry Rakers, since July 1995; manager, Fidelity Select Paper and Forest Products Portfolio, since February 1996; research analyst following precious metals, coal and restaurants, since 1993; joined Fidelity in 1993 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. AMERICAN GOLD PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 91.6% SHARES VALUE (NOTE 1) CANADA - 58.8% HOLDING COMPANIES - 0.1% HOLDING COMPANY OFFICES - 0.1% Bolivar Goldfields Ltd. (a) 613,900 $ 640,622 METALS & MINING - 5.8% METAL MINING - 0.8% Altai Resources, Inc. 100,000 186,084 Dayton Mining Corp. (a) 320,100 1,722,726 Etruscan Enterprises Ltd. (a) 43,300 91,634 Morgain Minerals, Inc. (a) 400,000 213,084 Southernera Resources Ltd. (a)(c) 253,900 1,158,007 3,371,535 METAL MINING SERVICES - 4.6% Bre-X Minerals Ltd. (a) 151,300 17,596,554 Da Capo Resources Ltd. (a)(c) 665,700 2,088,890 Eldorado Ltd. (a) 100,000 574,671 Pentland Firth Ventures Ltd. (a) 365,900 435,230 20,695,345 MISCELLANEOUS NONMETAL MINERALS - 0.4% DIA Metropolitan Minerals Ltd. (a): Class A 42,450 360,113 Class B 154,800 1,482,650 Winspear Resources Ltd. (a)(c) 100,000 72,974 1,915,737 MISCELLANEOUS METAL ORES - 0.0% Redaurum Red Lake Mines Ltd. (a) 50,000 52,176 TOTAL METALS & MINING 26,034,793 PRECIOUS METALS - 52.9% GOLD & SILVER ORES - 1.4% GoldCorp, Inc. Class A 65,000 1,233,262 Greenstone Resources Ltd. (a) 704,800 3,085,927 La Teko Resources Ltd. (a) 800 2,510 Mentor Exploration & Development Co. Ltd. (a)(c) 188,000 1,989,273 6,310,972 GOLD ORES - 51.1% Aber Resources Ltd. (a) 14,900 182,124 Adrian Resources Ltd. (a) 83,400 349,947 Agnico Eagle Mines Ltd. 1,108,700 18,709,591 Barrick Gold Corp. 1,243,300 37,652,388 Cambior, Inc. 1,412,900 19,332,196 Campbell Resources, Inc. (a) 847,800 977,505 Campbell Resources, Inc. (warrants) (a) 212,500 83,738 Canaarc Resources Corp. (a) 280,000 480,169 Cathedral Gold Corp. (a) 211,000 275,616 Crown Resources Corp. (a) 144,600 822,413 Echo Bay Mines Ltd. 353,100 4,895,757 Euro-Nevada Mining Corp. 551,000 20,908,527 Franco Nevada Mining Corp. 232,000 14,094,209 Golden Knight Resources, Inc. (a) 403,700 2,577,717 Golden Star Resources Ltd. (a) 892,100 5,452,138 Iamgold International African Mining Gold Corp. 100,000 419,601 International Gold Resources Corp. (a) 452,300 1,732,824 Kinross Gold Corp. (a) 2,075,000 19,306,199 Loki Gold Corp. (a) 97,400 206,123 Mountain Province Mining, Inc. (a) 362,100 2,047,853 Naxos Resources Ltd. (a) 40,000 270,004 SHARES VALUE (NOTE 1) Orvana Minerals Corp. (a) 1,099,400 $ 6,819,353 Pegasus Gold, Inc. (a) 1,114,900 17,492,137 Placer Dome, Inc. 608,400 17,259,496 Prime Resources Group, Inc. (a) 742,300 7,177,345 Rayrock Yellowknife Resources, Inc. (a) 264,100 2,119,969 Royal Oak Mines, Inc. (a) 175,000 766,228 Royal Oak Mines, Inc. (warrants)(a) 100,000 21,162 Silver Standard Resources, Inc. (a)(c) 103,400 660,233 Sudbury Contact Mines Ltd. (a) 420,100 5,403,191 TVI Pacific, Inc. (a) 2,328,100 4,298,240 TVX Gold, Inc. (a) 1,294,700 12,754,734 War Eagle Mining, Inc. (a) 490,000 1,001,204 Wharf Resources Ltd. 570,000 4,055,533 230,605,464 SILVER ORES - 0.4% Pan American Silver Corp. (a) 151,700 1,508,310 Rea Gold Corp. (a) 125,000 305,579 1,813,889 TOTAL PRECIOUS METALS 238,730,325 TOTAL CANADA 265,405,740 FRANCE - 0.3% PRECIOUS METALS - 0.3% GOLD ORES - 0.3% Guyanor Resources SA Class B 313,440 823,428 Guyanor Resources SA Class B (a)(b) 200,000 525,413 1,348,841 GHANA - 1.8% PRECIOUS METALS - 1.8% GOLD ORES - 1.8% Ashanti Goldfields Co. Ltd. GDR (b) 23,000 523,250 Ashanti Goldfields Co. Ltd. GDR 342,000 7,780,500 8,303,750 PERU - 1.8% PRECIOUS METALS - 1.8% GOLD ORES - 1.8% Buenaventura (Cia de Minas) Class T 741,700 5,985,207 Minera Buenaventura SA 255,673 2,109,818 8,095,025 UNITED STATES OF AMERICA - 28.9% METALS & MINING - 6.3% COPPER ORES - 2.2% Freeport McMoRan Copper & Gold, Inc. Class A 304,900 9,756,800 METAL MINING - 0.0% Arizona Star Resource Corp. (a) 13,000 10,435 MISCELLANEOUS METAL ORES - 4.1% Stillwater Mining Co. (a) 384,700 8,463,400 Stillwater Mining Co. (a)(b) 460,600 10,133,200 18,596,600 TOTAL METALS & MINING 28,363,835 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) PRECIOUS METALS - 20.9% GOLD ORES - 20.9% Amax Gold, Inc. (a) 180,300 $ 1,352,250 Canyon Resources Corp. (a) 499,200 1,622,400 Coeur d'Alene Mines Corp. 205,152 4,846,716 Firstmiss Gold, Inc. (a) 592,348 15,993,396 Homestake Mining Co. 61,230 1,186,331 Newmont Gold Co. 211,700 11,908,125 Newmont Mining Corp. 820,190 46,648,306 Santa Fe Pacific Gold Corp. 696,200 10,878,125 94,435,649 SECURITIES INDUSTRY - 1.7% INVESTMENT MANAGERS - 1.7% Pioneer Group, Inc. 258,800 7,505,200 TOTAL UNITED STATES OF AMERICA 130,304,684 TOTAL COMMON STOCKS (Cost $307,352,404) 413,458,040 CONVERTIBLE PREFERRED STOCKS - 0.4% UNITED STATES OF AMERICA - 0.4% PRECIOUS METALS - 0.4% GOLD ORES - 0.4% Battle Mountain Gold Co. $3.25 (Cost $1,845,881) 29,000 1,638,500 CONVERTIBLE BONDS - 0.1% PRINCIPAL AMOUNT UNITED STATES OF AMERICA - 0.1% PRECIOUS METALS - 0.1% GOLD ORES - 0.1% Canyon Resources Corp. 6%, 6/1/98 (Cost $249,000)(b) $300,000 294,000 REPURCHASE AGREEMENTS - 7.9% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 35,721,367 35,716,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $345,163,285) $ 451,106,540 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 $11,475,863 or 2.5% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Bolivar Goldfields Ltd. $ - $ - $ - $ - Da Capo Resources Ltd. - - - 2,088,890 Mentor Exploration & Development Co. Ltd. - - - 1,989,273 Orvana Minerals Corp. 345,266 352,657 - - Silver Standard Resources, Inc. - - - 660,233 Southernera Resources, Inc. - - - 1,158,007 Winspear Resources Ltd. - - - 72,974 Totals $ 345,266 $ 352,657 $ - $ 5,969,377 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $205,833,041 and $182,603,857, respectively (see Note 3 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 $341,569 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the period for which the loan was outstanding amounted to $4,084,000. The weighted average interest rate paid was 6.4% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: Canada 58.8% United States 37.3 Ghana 1.8 Peru 1.8 France 0.3 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $345,837,712. Net unrealized appreciation aggregated $105,268,828, of which $118,163,177 related to appreciated investment securities and $12,894,349 related to depreciated investment securities. At February 29, 1996, the fund had a capital loss carryforward of approximately $10,611,000 of which $2,272,000 and $8,339,000 will expire on February 29, 2000, and February 28, 2001, respectively. AMERICAN GOLD PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 451,106,540 securities, at value (including repurchase agreements of $35,716,000) (cost $345,163,285 ) - See accompanyin g schedule Cash 645 Receivable for 3,961,587 investments sold Receivable for 9,673,103 fund shares sold Dividends 223,787 receivable Interest 4,450 receivable Redemption 1,195 fees receivable Other 3,500 receivables TOTAL ASSETS 464,974,807 LIABILITIES Payable for $ 1,426,038 investments purchased Payable for 11,550,153 fund shares redeemed Accrued 231,233 management fee Other payables 274,288 and accrued expenses TOTAL 13,481,712 LIABILITIES NET ASSETS $ 451,493,095 Net Assets consist of: Paid in capital $ 357,289,998 Accumulated (458,668 net ) investment (loss) Accumulated (11,281,490 undistributed ) net realized gain (loss) on investments and foreign currency transactions Net unrealized 105,943,255 appreciation (depreciation ) on investments NET ASSETS, for $ 451,493,095 16,656,078 shares outstanding NET ASSET $27.11 VALUE and redemption price per share ($451,493,09 5 (divided by) 16,656,078 shares) Maximum $27.95 offering price per share (100/97.00 of $27.11) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 2,496,407 Dividends Interest (including income on 1,422,833 securities loaned of $51,754) TOTAL INCOME 3,919,240 EXPENSES Management fee $ 2,155,590 Transfer agent 2,446,113 Fees Redemption fees (259,949 ) Accounting and security lending fees 355,832 Non-interested trustees' compensation 2,299 Custodian fees and expenses 69,923 Registration fees 81,084 Audit 36,507 Legal 2,089 Interest 2,191 Reports to shareholders 2,844 Miscellaneous 542 Total expenses before reductions 4,895,065 Expense reductions (23,361 4,871,704 ) NET INVESTMENT INCOME (LOSS) (952,464 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (including 25,996,813 realized gain of $242,369 and $1,280,848 on sales of investments in affiliated issuers and precious metals, respectively) Foreign currency transactions (11,159 25,985,654 ) Change in net unrealized appreciation (depreciation) 105,571,674 on investment securities NET GAIN (LOSS) 131,557,328 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 130,604,864 OTHER INFORMATION $ 1,434,655 Sales charges paid to FDC Deferred sales charges withheld $ 40,619 by FDC Exchange fees withheld by FSC $ 190,665 Expense reductions $ 8,324 Directed brokerage arrangements Custodian interest credits 6,699 Transfer agent interest credits 8,338 $ 23,361
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ (952,464 $ (779,678 Net investment income (loss) ) ) Net realized gain (loss) 25,985,654 3,326,739 Change in net unrealized appreciation (depreciation) 105,571,674 (79,195,428 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 130,604,864 (76,648,367 ) Share transactions 656,288,557 526,647,371 Net proceeds from sales of shares Cost of shares redeemed (615,297,920 (520,560,579 ) ) Paid in capital portion of redemption fees 1,700,313 1,352,412 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 42,690,950 7,439,204 TOTAL INCREASE (DECREASE) IN NET ASSETS 173,295,814 (69,209,163 ) NET ASSETS Beginning of period 278,197,281 347,406,444 End of period (including accumulated net investment loss of $458,668 and $102,590, respectively) $ 451,493,095 $ 278,197,281 OTHER INFORMATION Shares Sold 28,496,378 24,289,524 Redeemed (26,927,012 (24,535,614 ) ) Net increase (decrease) 1,569,366 (246,090 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 18.44 $ 22.66 $ 14.15 $ 11.94 $ 13.08 value, beginning of period Income from Investment Operations Net (.06) (.05) (.11) (.05) (.06) investment income (loss) Net realized 8.62 (4.25) 8.44 2.16 (1.17) and unrealized gain (loss) Total from 8.56 (4.30) 8.33 2.11 (1.23) investment operations Redemption .11 .08 .18 .10 .09 fees added to paid in capital Net asset $ 27.11 $ 18.44 $ 22.66 $ 14.15 $ 11.94 value, end of period TOTAL 47.02% (18.62)% 60.14% 18.51% (8.72)% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 451,493 $ 278,197 $ 347,406 $ 168,033 $ 130,407 end of period (000 omitted) Ratio of 1.39% 1.41% 1.50% 1.59% 1.75% expenses to A average net assets Ratio of 1.39% 1.41% 1.49% 1.59% 1.75% expenses to E A average net assets after expense reductions Ratio of net (.27)% (.22)% (.51)% (.44)% (.47)% investment A income (loss) to average net assets Portfolio 56% 34% 39% 30% 40% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS ENERGY 20.92% 40.17% 157.94% ENERGY 17.30% 35.97% 150.20% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS ENERGY 20.92% 6.99% 9.94% ENERGY 17.30% 6.34% 9.60% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9651.26 10558.00 19860430 9670.75 10438.69 19860531 10119.20 10994.03 19860630 10148.44 11179.83 19860731 9514.77 10554.88 19860831 10772.36 11338.05 19860930 10655.38 10400.39 19861031 10938.09 11000.50 19861130 11162.31 11267.81 19861231 11240.30 10980.48 19870131 12429.65 12459.55 19870228 12673.37 12951.70 19870331 13726.23 13326.01 19870430 13336.28 13207.41 19870531 13804.22 13322.31 19870630 14281.91 13995.09 19870731 15022.81 14704.64 19870831 14935.08 15253.12 19870930 14613.37 14919.08 19871031 10752.86 11705.51 19871130 10304.42 10740.97 19871231 11038.00 11558.36 19880131 11449.05 12044.97 19880229 11860.09 12606.27 19880331 12702.23 12216.73 19880430 13183.45 12352.34 19880531 12702.23 12459.80 19880630 12842.58 13031.71 19880731 12922.79 12982.19 19880831 12431.54 12540.79 19880930 12291.18 13075.03 19881031 12401.46 13438.52 19881130 12431.54 13246.35 19881231 12797.70 13478.16 19890131 13764.73 14464.76 19890228 13548.69 14104.59 19890331 14330.54 14433.22 19890430 14814.05 15182.31 19890531 14988.94 15797.19 19890630 15297.57 15707.15 19890731 15935.40 17125.50 19890831 16285.17 17461.16 19890930 16542.36 17389.57 19891031 16429.20 16986.13 19891130 17046.45 17332.65 19891231 18278.37 17748.63 19900131 17462.28 16557.70 19900228 18006.34 16771.29 19900331 18016.81 17215.73 19900430 17409.97 16785.34 19900531 18466.70 18421.91 19900630 18031.48 18296.64 19900731 19259.63 18238.09 19900831 19605.75 16589.37 19900930 19549.92 15781.47 19901031 18545.07 15713.61 19901130 18344.10 16728.71 19901231 17457.25 17195.44 19910131 16326.51 17945.16 19910228 17849.54 19228.24 19910331 17607.24 19693.56 19910430 17803.39 19740.82 19910531 17907.24 20593.63 19910630 17109.45 19650.44 19910731 17988.05 20566.15 19910831 18334.86 21053.57 19910930 18149.89 20701.97 19911031 18693.23 20979.38 19911130 17305.98 20133.91 19911231 17463.39 22437.23 19920131 16528.90 22019.90 19920229 16552.26 22306.16 19920331 16073.33 21871.19 19920430 17171.36 22514.20 19920531 17989.05 22624.52 19920630 17098.88 22287.41 19920731 17555.63 23198.97 19920831 17871.84 22723.39 19920930 17977.24 22991.53 19921031 17204.28 23072.00 19921130 16806.09 23858.75 19921231 17046.28 24152.21 19930131 17689.08 24355.09 19930228 18855.66 24686.32 19930331 19819.87 25207.20 19930430 20201.12 24597.19 19930531 20808.59 25256.39 19930630 21082.54 25329.64 19930731 20927.70 25228.32 19930831 22583.33 26184.47 19930930 22452.31 25982.85 19931031 22130.71 26520.70 19931130 19450.73 26268.75 19931231 20311.41 26586.60 19940131 21399.30 27490.55 19940228 20682.28 26745.55 19940331 19680.92 25579.45 19940430 21184.29 25906.86 19940531 21408.46 26331.74 19940630 21296.37 25686.61 19940731 21620.18 26529.13 19940831 21259.01 27616.82 19940930 21097.11 26940.21 19941031 22292.69 27546.37 19941130 20922.75 26543.13 19941231 20395.18 26936.76 19950131 19906.82 27635.23 19950228 20690.76 28712.18 19950331 21821.68 29559.47 19950430 22492.33 30430.00 19950531 23072.69 31646.29 19950630 22402.05 32381.43 19950731 22930.82 33455.20 19950831 22763.16 33539.17 19950930 22776.06 34954.52 19951031 21795.89 34829.74 19951130 23046.90 36358.76 19951231 24756.28 37059.03 19960131 25138.77 38320.52 19960229 25020.06 38675.75 Let's say you invested $10,000 in Fidelity Select Energy Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $25,020 - a 150.20% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Royal Dutch Petroleum Co. 8.1 Shell Transport & Trading PLC 5.6 Kerr-McGee Corp. 5.6 Amerada Hess Corp. 5.6 Atlantic Richfield Co. 5.1 Phillips Petroleum Co. 4.2 Schlumberger Ltd. 4.0 Unocal Corp. 3.9 British Petroleum PLC ADR 3.9 Total SA sponsored ADR 3.5 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Oil & Gas Exploration 39.1% Crude Petroleum & Gas 31.8% Oil & Gas Services 6.7% Holding Companies 5.6% Drilling 3.3% All Others 13.5% * Row: 1, Col: 1, Value: 13.5 Row: 1, Col: 2, Value: 3.3 Row: 1, Col: 3, Value: 5.6 Row: 1, Col: 4, Value: 6.7 Row: 1, Col: 5, Value: 31.8 Row: 1, Col: 6, Value: 39.1 * INCLUDES SHORT-TERM INVESTMENTS ENERGY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Albert Ruback, Portfolio Manager of Fidelity Select Energy Portfolio Q. ALBERT, HOW HAS THE FUND PERFORMED? A. For the 12 months ended February 29, 1996, the fund had a total return of 20.92%. The S&P 500 Index posted a 34.70% return during the same period. Q. WHAT FACTORS AFFECTED STOCKS IN THE SECTOR? A. The main factor was a generally mediocre environment for commodity prices. Although they showed some strength during the past three months, oil and North American natural gas prices languished for most of the 12-month period. Sustained cold weather through much of the country has changed that recently. Since commodity prices are critical revenue drivers for oil companies, generally lower prices have put pressure on revenue and earnings growth, especially in the exploration and production business. On the marketing and refining front, refining margins were weak throughout 1995. Q. OVER THE PAST YEAR OR SO, YOU'VE FOCUSED ON COMPANIES WITH SIGNIFICANT CHEMICAL DIVISIONS. HOW HAVE THOSE INVESTMENTS FARED? A. For the most part, 1995 was a banner year for energy companies with chemical divisions. Prices went up through the second quarter of 1995, with chemicals contributing significantly to profitability. Business prospects and prices started to turn down in the third quarter of 1995, and profit margins began to fall from peak levels. The main problem was dampened demand due to a worldwide economic slowdown. In addition, China, which usually accounts for 5% to 10% of the market in styrene, abruptly stopped buying it, leading to excess supply. Q. AS CHEMICAL PRICES STARTED TO FALTER, DID YOU ALTER YOUR STRATEGY? A. Going into a period when chemical prices showed weakness, I didn't make any moves of note. That's because the key companies with chemical divisions - - such as Occidental Petroleum and Phillips Petroleum - are part of what I see as a diversified investment. That is, they have other merits besides strong chemical components to their businesses. Both companies, for example, were attractive to me because of the combination of the cost cutting they have pursued and their solid production growth. Q. WHICH STOCKS PERFORMED WELL FOR THE FUND? A. Chesapeake Energy was one of the strongest contributors. It has had a lot of exploration success in the past few months. Amerada Hess also was a winner for the fund. Its positive performance was driven by initial restructuring moves the company has made, as well as a management change. The company has put some of its marginally profitable properties and businesses up for sale, and has seen strong production growth in the North Sea. Q. WHICH INVESTMENTS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED? A. USX-Marathon Group was one. I bought this refining and marketing stock because it was cheap, the company was having some production success and its business usually is strong in the second and third quarters. Unfortunately, production growth was not as fast as the company anticipated. Arakis - another stock I've since sold off - had problems financing production in the Sudan. Q. THERE'S BEEN TALK IN THE NEWS ABOUT THE U.S. IMPOSING SANCTIONS TO PRESS NIGERIA FOR DEMOCRACY, AS WELL AS INDICATIONS THAT IRAQ MIGHT RESUME PRODUCTION IN THE NEAR FUTURE. WHAT SORT OF EFFECT WILL THESE SITUATIONS HAVE ON THE SECTOR? A. I always keep an eye on the possible industry ramifications of political changes, and it's important to note that foreign investments can involve greater risks than U.S. investments. Although the Nigerian situation may change, my research leads me to believe that although sanctions could occur, they probably will not include an oil embargo. Looking at Iraq, my feeling is that it will resume production at some point this year, possibly in the second half. My estimate is that overall production will then increase by about 750,000 barrels per day. I don't think OPEC - the Organization of Petroleum Exporting Countries -will be able to rein in production commensurate with this increase, so I anticipate prices will fall. Q. WHAT ELSE DO YOU SEE LOOKING OUT OVER THE NEXT FEW MONTHS? A. U.S. natural gas prices have been strong in the first quarter of 1996 and inventories have been drawn down, so it looks as if natural gas prices should be materially higher in 1996 than they were in 1995. The continued cold weather has drawn down inventories and kept commodity prices high, thus improving companies' business prospects. In addition, signs of economic strength would be helpful to companies with chemical divisions, as economic activity should spark demand. FUND FACTS START DATE: July 14, 1981 TRADING SYMBOL: FSENX SIZE: as of February 29, 1996, more than $119 million MANAGER: Albert Ruback, since December 1994; manager, Fidelity Select Industrial Equipment Portfolio, 1991-1994; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. ENERGY PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 94.2% SHARES VALUE (NOTE 1) CHEMICALS & PLASTICS - 0.5% PLASTICS & SYNTHETIC RESINS - 0.5% ARCO Chemical Co. 12,800 $ 656,000 COAL - 1.3% MAPCO, Inc. 30,000 1,635,000 CONSTRUCTION - 1.0% HEAVY CONSTRUCTION - 1.0% McDermott (J. Ray) SA (a) 75,000 1,331,250 ENERGY SERVICES - 10.0% DRILLING - 3.3% Transocean Drilling AS 95,000 2,103,639 Noble Drilling Corp. (a) 47,200 460,200 Reading & Bates Corp. (a) 48,400 925,650 Sonat Offshore Drilling, Inc. 17,300 752,550 4,242,039 OIL & GAS SERVICES - 6.7% Halliburton Co. 50,800 2,787,650 Schlumberger Ltd. 70,000 5,101,250 Tidewater, Inc. 16,000 546,000 8,434,900 TOTAL ENERGY SERVICES 12,676,939 GAS - 3.1% GAS DISTRIBUTION - 0.5% Aquila Gas Pipeline Corp. 57,900 651,375 GAS TRANSMISSION - 0.8% Enron Corp. 28,200 1,032,825 GAS TRANSMISSION & DISTRIBUTION - 1.8% Gas Natural SDG SA, Series E 4,700 790,821 Questar Corp. 45,000 1,417,500 2,208,321 TOTAL GAS 3,892,521 HOLDING COMPANIES - 5.6% Shell Transport & Trading PLC 90,000 7,065,000 INSURANCE - 0.1% PROPERTY-CASUALTY & REINSURANCE - 0.1% Highlands Insurance Group, Inc. (a) 6,120 124,695 OIL & GAS - 72.6% CRUDE PETROLEUM & GAS - 31.8% Anadarko Petroleum Corp. 15,000 817,500 Apache Corp. 19,015 494,390 Atlantic Richfield Co. 58,400 6,394,800 Bellwether Exploration Co. (a) 47,000 305,500 Burlington Resources, Inc. 68,500 2,491,688 Cairn Energy USA, Inc. (a) 40,000 435,000 Canada Occidental Petroleum Ltd. 20,000 651,293 Chesapeake Energy Corp. (a) 44,000 1,820,500 Coho Resources, Inc. (a) 47,000 252,625 Elan Energy, Inc. (a) 20,000 169,665 Flores & Rucks, Inc. (a) 76,400 1,107,800 Global Natural Resources, Inc. (a) 97,000 1,212,500 Norsk Hydro AS ADR 73,600 3,137,200 Nuevo Energy Corp. (a) 24,600 639,600 Occidental Petroleum Corp. 182,400 4,195,200 Paramount Resources Ltd. 29,200 319,626 SHARES VALUE (NOTE 1) Renaissance Energy Ltd. (a) 96,808 $ 2,454,904 Renaissance Energy Ltd. (a)(b) 10,300 261,192 Rio Alto Exploration Ltd. (a) 248,600 1,088,481 Santa Fe Energy Resources, Inc. (a) 302,100 2,794,425 Swift Energy Co. (a) 75,000 871,875 Total SA sponsored ADR 132,767 4,364,715 Triton Energy Corp. 12,600 625,275 Tullow Oil PLC (a) 705,300 826,247 Ulster Petroleums Ltd. (a) 158,800 556,237 Vintage Petroleum, Inc. 90,600 1,857,300 40,145,538 OIL & GAS EXPLORATION - 39.1% Amerada Hess Corp. 136,400 7,024,600 Amoco Corp. 15,000 1,042,500 British Petroleum PLC ADR 48,830 4,901,311 Chieftain International, Inc. (a) 110,000 1,786,040 Kerr-McGee Corp. 118,200 7,047,675 Louisiana Land & Exploration Co. 33,500 1,398,625 Phillips Petroleum Co. 151,600 5,306,000 Royal Dutch Petroleum Co. 74,700 10,289,925 Texaco, Inc. 25,000 1,993,750 USX-Marathon Group 160,000 2,960,000 Union Pacific Resources Group, Inc. 29,200 751,900 Unocal Corp. 164,247 4,927,410 49,429,736 OIL FIELD EQUIPMENT - 1.2% Camco International, Inc. 55,200 1,566,300 PETROLEUM REFINERS - 0.5% Giant Industries, Inc. 54,000 627,750 TOTAL OIL & GAS 91,769,324 TOTAL COMMON STOCKS (Cost $109,813,491) 119,150,729 REPURCHASE AGREEMENTS - 5.8% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 7,326,101 7,325,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $117,138,491) $ 126,475,729 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 $261,192 or 0.2% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $108,670,862 and $101,681,981, respectively (see Note 3 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 $60,047 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $7,065,000 and $7,290,000, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $3,833,000 and $2,730,500, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 62.7% United Kingdom 9.5 Netherlands 8.1 Canada 5.8 Norway 4.1 Netherlands Antilles 4.0 France 3.5 Panama 1.1 Others (individually less than 1%) 1.2 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $117,643,116. Net unrealized appreciation aggregated $8,832,613, of which $11,056,769 related to appreciated investment securities and $2,224,156 related to depreciated investment securities. The fund hereby designates approximately $2,385,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 77% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. ENERGY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 126,475,729 securities, at value (including repurchase agreements of $7,325,000) (cost $117,138,491 ) - See accompanyin g schedule Cash 888 Receivable for 1,094,127 investments sold Receivable for 503,695 fund shares sold Dividends 384,599 receivable Redemption 774 fees receivable Other 1,542 receivables TOTAL ASSETS 128,461,354 LIABILITIES Payable for $ 1,290,807 fund shares redeemed Accrued 66,670 management fee Other payables 138,360 and accrued expenses Collateral on 7,290,000 securities loaned, at value TOTAL 8,785,837 LIABILITIES NET ASSETS $ 119,675,517 Net Assets consist of: Paid in capital $ 102,454,278 Undistributed 486,372 net investment income Accumulated 7,397,813 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 9,337,054 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 119,675,517 6,309,548 shares outstanding NET ASSET $18.97 VALUE and redemption price per share ($119,675,51 7 (divided by) 6,309,548 shares) Maximum $19.56 offering price per share (100/97.00 of $18.97) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 2,507,485 Dividends Interest (including income on 502,595 securities loaned of $10,804) TOTAL INCOME 3,010,080 EXPENSES Management fee $ 691,768 Transfer agent 1,071,597 Fees Redemption fees (106,230 ) Accounting and security lending fees 113,915 Non-interested trustees' compensation 715 Custodian fees and expenses 15,351 Registration fees 25,496 Audit 25,191 Legal 691 Interest 4,730 Miscellaneous 1,404 Total expenses before reductions 1,844,628 Expense reductions (5,841 1,838,787 ) NET INVESTMENT INCOME 1,171,293 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 9,825,411 Foreign currency transactions 2,191 9,827,602 Change in net unrealized appreciation (depreciation) on: Investment securities 9,441,344 Assets and liabilities in (184 9,441,160 foreign currencies ) NET GAIN (LOSS) 19,268,762 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 20,440,055 OTHER INFORMATION $ 555,520 Sales charges paid to FDC Deferred sales charges withheld $ 29,054 by FDC Exchange fees withheld by FSC $ 94,680 Expense reductions $ 3,049 Directed brokerage arrangements Custodian interest credits 1,404 Transfer agent interest credits 1,388 $ 5,841
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 1,171,293 $ 441,180 Net investment income Net realized gain (loss) 9,827,602 3,967,653 Change in net unrealized appreciation (depreciation) 9,441,160 (6,553,635 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 20,440,055 (2,144,802 ) Distributions to shareholders (687,111 (468,393 From net investment income ) ) From net realized gain (2,283,890 (3,119,569 ) ) TOTAL DISTRIBUTIONS (2,971,001 (3,587,962 ) ) Share transactions 161,715,061 139,154,943 Net proceeds from sales of shares Reinvestment of distributions 2,918,567 3,509,410 Cost of shares redeemed (158,608,994 (186,610,132 ) ) Paid in capital portion of redemption fees 159,215 211,181 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 6,183,849 (43,734,598 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 23,652,903 (49,467,362 ) NET ASSETS Beginning of period 96,022,614 145,489,976 End of period (including undistributed net investment income of $486,372 and $0, respectively) $ 119,675,517 $ 96,022,614 OTHER INFORMATION Shares Sold 8,981,770 8,177,307 Issued in reinvestment of distributions 162,874 222,729 Redeemed (8,799,673 (11,129,608 ) ) Net increase (decrease) 344,971 (2,729,572 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 16.10 $ 16.73 $ 15.84 $ 14.70 $ 15.43 value, beginning of period Income from Investment Operations Net .18 .07 .06 .23 .17 investment income Net realized 3.13 (.11) 1.35 1.16 (.75) and unrealized gain (loss) Total from 3.31 (.04) 1.41 1.39 (.58) investment operations Less (.11) (.08) (.03) (.27) (.16) Distributions From net investment income From net (.36) (.54) (.57) - (.02) realized gain Total (.47) (.62) (.60) (.27) (.18) distributions Redemption .03 .03 .08 .02 .03 fees added to paid in capital Net asset $ 18.97 $ 16.10 $ 16.73 $ 15.84 $ 14.70 value, end of period TOTAL RETURN B, 20.92% .04% 9.69% 9.81% (3.55)% C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 119,676 $ 96,023 $ 145,490 $ 179,133 $ 77,334 end of period (000 omitted) Ratio of 1.63% 1.85% 1.67% 1.71% 1.78% expenses to A average net assets Ratio of 1.63% 1.85% 1.66% 1.71% 1.78% expenses to E A average net assets after expense reductions Ratio of net 1.04% .42% .37% 1.88% 1.16% investment A income to average net assets Portfolio 97% 106% 157% 72% 81% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS ENERGY SERVICE 39.15% 29.87% 94.92% ENERGY SERVICE 34.97% (INCL. 3% SALES CHARGE) 25.98% 89.07% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS ENERGY SERVICE 39.15% 5.37% 6.90% ENERGY SERVICE 34.97% 4.73% 6.58% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9624.64 10558.00 19860430 9495.45 10438.69 19860531 10044.51 10994.03 19860630 9861.49 11179.83 19860731 8451.17 10554.88 19860831 9290.90 11338.05 19860930 9140.18 10400.39 19861031 8817.20 11000.50 19861130 9118.65 11267.81 19861231 9215.54 10980.48 19870131 10249.06 12459.55 19870228 10679.69 12951.70 19870331 11691.68 13326.01 19870430 11691.68 13207.41 19870531 12596.00 13322.31 19870630 13834.07 13995.09 19870731 14738.40 14704.64 19870831 13618.76 15253.12 19870930 13177.36 14919.08 19871031 8472.70 11705.51 19871130 7546.84 10740.97 19871231 8128.19 11558.36 19880131 8451.17 12044.97 19880229 9194.01 12606.27 19880331 9732.30 12216.73 19880430 9926.08 12352.34 19880531 9247.84 12459.80 19880630 8720.31 13031.71 19880731 8580.36 12982.19 19880831 8741.84 12540.79 19880930 8365.04 13075.03 19881031 8085.13 13438.52 19881130 7740.62 13246.35 19881231 8095.89 13478.16 19890131 8591.12 14464.76 19890228 8688.01 14104.59 19890331 9237.07 14433.22 19890430 9678.47 15182.31 19890531 9850.72 15797.19 19890630 10173.70 15707.15 19890731 10744.28 17125.50 19890831 11250.28 17461.16 19890930 11088.79 17389.57 19891031 10539.73 16986.13 19891130 11444.06 17332.65 19891231 12908.21 17748.63 19900131 12079.25 16557.70 19900228 13220.42 16771.29 19900331 13855.60 17215.73 19900430 13123.53 16785.34 19900531 15330.52 18421.91 19900630 14544.62 18296.64 19900731 15911.88 18238.09 19900831 15631.96 16589.37 19900930 15330.52 15781.47 19901031 13403.44 15713.61 19901130 13607.99 16728.71 19901231 13134.75 17195.44 19910131 12541.63 17945.16 19910228 14558.22 19228.24 19910331 13425.91 19693.56 19910430 13490.61 19740.82 19910531 13846.48 20593.63 19910630 12034.79 19650.44 19910731 12940.64 20566.15 19910831 12800.45 21053.57 19910930 11625.01 20701.97 19911031 11797.55 20979.38 19911130 10384.86 20133.91 19911231 10050.56 22437.23 19920131 9910.37 22019.90 19920229 10115.26 22306.16 19920331 9392.75 21871.19 19920430 10169.18 22514.20 19920531 10977.97 22624.52 19920630 10341.73 22287.41 19920731 10773.08 23198.97 19920831 11323.06 22723.39 19920930 11668.14 22991.53 19921031 11064.24 23072.00 19921130 10837.78 23858.75 19921231 10395.64 24152.21 19930131 10805.43 24355.09 19930228 11873.03 24686.32 19930331 12811.23 25207.20 19930430 13501.83 24597.19 19930531 14127.81 25256.39 19930630 14052.26 25329.64 19930731 14246.53 25228.32 19930831 14743.00 26184.47 19930930 14311.29 25982.85 19931031 14106.23 26520.70 19931130 12616.82 26268.75 19931231 12574.21 26586.60 19940131 12693.35 27490.55 19940228 12628.36 26745.55 19940331 11686.11 25579.45 19940430 12297.11 25906.86 19940531 12844.89 26331.74 19940630 13236.16 25686.61 19940731 13482.10 26529.13 19940831 12945.50 27616.82 19940930 13437.38 26940.21 19941031 13973.99 27546.37 19941130 13247.34 26543.13 19941231 12645.56 26936.76 19950131 12725.02 27635.23 19950228 13587.73 28712.18 19950331 14336.93 29559.47 19950430 15210.99 30430.00 19950531 15608.30 31646.29 19950630 15074.78 32381.43 19950731 15823.97 33455.20 19950831 16459.66 33539.17 19950930 16505.06 34954.52 19951031 15074.78 34829.74 19951130 15926.14 36358.76 19951231 17814.31 37059.03 19960131 18202.09 38320.52 19960229 18907.14 38675.75 Let's say you invested $10,000 in Fidelity Select Energy Service Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $18,907 - an 89.07% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Schlumberger Ltd. 10.3 Halliburton Co. 6.8 Baker Hughes, Inc. 5.7 Western Atlas, Inc. 4.8 BJ Services Co. 4.4 Transocean Drilling AS 4.1 Weatherford Enterra, Inc. 3.2 Diamond Offshore Drilling, Inc. 3.1 McDermott (J. Ray) SA 2.5 Dresser Industries, Inc. 2.0 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Oil & Gas Services 39.6% Drilling 17.8% Oil & Gas Exploration 7.7% Surveying Services 4.8% Crude Petroleum & Gas 4.5% All Others 25.6% * Row: 1, Col: 1, Value: 25.6 Row: 1, Col: 2, Value: 4.5 Row: 1, Col: 3, Value: 4.8 Row: 1, Col: 4, Value: 7.7 Row: 1, Col: 5, Value: 17.8 Row: 1, Col: 6, Value: 39.6 * INCLUDES SHORT-TERM INVESTMENTS ENERGY SERVICE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Daniel Pickering, Portfolio Manager of Fidelity Select Energy Service Portfolio Q. DAN, HOW WOULD YOU DESCRIBE THE FUND'S RECENT PERFORMANCE? A. The fund returned 39.15% for the year ended February 29, 1996, which means it did well for an energy fund. Plus, it beat the S&P 500 Index, which returned 34.70% during the same period. Q. WHAT WAS GOING ON IN THE SECTOR? A. Business improved, as oil companies picked up their drilling activities outside the United States and demand increased for energy services. The biggest beneficiaries were deep water drillers, which typically drill in water that's anywhere from 400 to 6,000 feet deep; offshore drillers, which also drill in shallower water; and large, diversified energy service companies, which often get more than 50% of their revenues from international activity. Q. SO IS THIS WHERE YOU FOCUSED THE FUND? A. In fact, about 40% of the fund's investments was in large energy service companies - which are the core of the fund. They include companies such as Schlumberger, Halliburton, Baker Hughes, Western Atlas and Dresser Industries - five of the fund's top 10 holdings. All were solid performers, especially Halliburton, whose stock price shot up 29% during the last six months of the period thanks to a restructuring and improved earnings. The other focus - about 30% of the fund's investments - was on deep water drillers, whose stocks rose between 25% and 60% during the same time. Diamond Offshore, Transocean, Sonat Offshore, and Reading & Bates fell into this group. I took some profits in Sonat Offshore and Reading & Bates as prices rose, cutting the fund's stake in this segment to about 18% by the end of February. Q. WERE THERE ANY DISAPPOINTMENTS? A. Sure. I missed a good opportunity by not owning more "jack-up" stocks - off-shore drillers that work in up to 350 feet of water. Business there was much stronger than I had expected, and the stocks had a great run-up. In addition, it wasn't a good time to own stocks of companies in the sub-sea sector - like J Ray McDermott - that install underwater pipelines and well heads. Although our stake in the sector was small, it still hurt the fund when the stocks dropped on poor earnings. Q. WHERE DO COMPANIES LIKE BJ SERVICES AND WEATHERFORD ENTERRA FIT INTO YOUR STRATEGY? A. They're mid-size service suppliers, a group which is about 15% of the fund's investments. They often have a solid niche, plus their stocks are usually cheaper than the larger service companies'. BJ Services, for example, is the largest stand-alone provider of pressure pumping services; the other suppliers are part of large diversified companies like Halliburton and Schlumberger. So BJ is the supplier of choice when the customer is another energy service company. And Weatherford Enterra is the largest rental company in the business. Q. THE FUND'S ASSETS TRIPLED IN THE SIX MONTHS FROM SEPTEMBER TO FEBRUARY. WAS THAT A DRAG ON PERFORMANCE? A. Not really. I usually can find some good quality names I can invest in. When new money came in over that time, I put it to work in big oil companies like Exxon, British Petroleum, Royal Dutch or Mobil. Then I moved it back into service companies as I found opportunities. I also routinely keep the fund's cash position somewhere between 5% and 15%, just because this can be such a volatile sector. Q. CAN THE MOMENTUM CONTINUE FOR ENERGY SERVICE STOCKS? A. My expectations are that business will continue to improve. But I think it's going to be tougher to generate as high a level of returns as we've seen. I expect the stocks to grow but at a slower pace. Q. SO WHAT WILL YOUR STRATEGY BE? A. Right now, I plan to focus on a few areas. First, I'll be looking at companies that can benefit from increases in U.S. gas production. With gas inventories low, there's likely to be an increase in demand for gas-related services in 1996. Second, I plan to increase my emphasis in the sub-sea sector. Although the stocks in this sector haven't done well recently, I think that may change based on the fact that the forward indicator for this business - deep water drilling - has had a terrific run. Third, I'll keep my core investment in large, diversified energy service names since they're in the best position to benefit from a continued increase in international activity. If anything, I may add to some of the companies that offer new technologies to help reach pools of oil that were previously inaccessible. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FSESX SIZE: as of February 29, 1996, more than $273 million MANAGER: Daniel Pickering, since 1994; manager, Fidelity Select Natural Gas Portfolio, since February 1995; equity analyst, since 1994; joined Fidelity in 1994 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. ENERGY SERVICE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 86.0% SHARES VALUE (NOTE 1) BUILDING MATERIALS - 0.1% FABRICATED PIPE & FITTINGS - 0.1% Coflexip sponsored ADR 15,000 $ 264,375 COMPUTER SERVICES & SOFTWARE - 1.7% CAD/CAM/CAE - 1.7% Landmark Graphics Corp. (a) 207,100 4,659,750 CONSTRUCTION - 2.5% HEAVY CONSTRUCTION - 2.5% McDermott (J. Ray) SA 379,100 6,729,025 ELECTRONIC INSTRUMENTS - 0.3% LAB ANALYTICAL INSTRUMENTS - 0.3% Numar Corp. (a) 69,600 817,800 ENERGY SERVICES - 57.1% DRILLING - 17.8% Arethusa Offshore Ltd. 87,300 2,815,425 Atwood Oceanics, Inc. (a) 44,100 1,411,200 Cliffs Drilling Co. 3,000 46,125 Diamond Offshore Drilling, Inc. (a) 227,200 8,321,200 ENSCO International, Inc. (a) 164,300 3,963,738 Falcon Drilling, Inc. (a) 106,600 2,158,650 Global Marine, Inc. (a) 198,400 1,760,800 Helmerich & Payne, Inc. 21,000 703,500 Marine Drilling Companies, Inc. (a) 107,900 755,300 Nabors Industries, Inc. (a) 266,000 3,424,750 Noble Drilling Corp. (a) 176,050 1,716,488 Patterson Energy, Inc. 2,000 25,750 Reading & Bates Corp. (a) 190,200 3,637,575 Rowan Companies, Inc. (a) 110,000 1,196,250 Smedvig AS 61,000 1,322,220 Sonat Offshore Drilling, Inc. 88,400 3,845,400 Transocean Drilling AS (a) 500,000 11,071,779 Tucker Drilling Co., Inc. 20,000 187,500 48,363,650 OIL & GAS SERVICES - 39.3% BJ Services Co. (a) 428,788 11,845,269 Baker Hughes, Inc. 591,800 15,608,725 Dawson Geophysical Co. (a) 69,500 608,125 Dresser Industries, Inc. 193,500 5,442,188 Energy Ventures, Inc. (a) 136,900 3,542,288 Geophysique 10,000 544,537 Global Industries Ltd. (a) 12,200 222,650 Grant Geophysical, Inc. (a) 10,000 24,375 Halliburton Co. 335,000 18,383,125 Hornbeck Offshore Services, Inc. (a) 75,900 1,622,363 Input/Output, Inc. (a) 109,600 3,260,600 McDermott International, Inc. 155,800 2,999,150 Oceaneering International, Inc. (a) 2,000 24,250 Offshore Logistics, Inc. (a) 63,100 788,750 Pool Energy Services Co. (a) 51,000 478,125 Pride Petroleum Services, Inc. (a) 43,600 487,775 Schlumberger Ltd. 384,700 28,035,013 Smith International, Inc. (a) 16,800 342,300 Tidewater, Inc. 114,400 3,903,900 Weatherford Enterra, Inc. (a) 281,700 8,627,063 106,790,571 TOTAL ENERGY SERVICES 155,154,221 SHARES VALUE (NOTE 1) GAS - 3.5% GAS & OTHER SERVICES - 0.2% Enron Global Power & Pipelines 20,000 $ 520,000 GAS DISTRIBUTION - 0.3% Aquila Gas Pipeline Corp. 65,900 741,375 GAS TRANSMISSION - 2.5% Enron Corp. 115,000 4,211,875 Leviathan Gas Pipeline Partners LP (Unit) 20,000 595,000 Williams Companies, Inc. 45,000 2,137,500 6,944,375 GAS TRANSMISSION & DISTRIBUTION - 0.5% Tejas Gas Corp. (a) 30,000 1,432,500 TOTAL GAS 9,638,250 OIL & GAS - 15.2% CRUDE PETROLEUM & GAS - 4.1% Anadarko Petroleum Corp. 58,700 3,199,150 Burlington Resources, Inc. 60,000 2,182,500 Canada Occidental Petroleum Ltd. 20,000 651,293 NGC Corp. 93,200 1,060,150 Noble Affiliates, Inc. 30,000 918,750 Occidental Petroleum Corp. 57,500 1,322,500 Renaissance Energy Ltd. (a) 20,100 509,706 Unit Corp. (a) 170,400 809,400 Vintage Petroleum, Inc. 30,000 615,000 11,268,449 OIL & GAS EXPLORATION - 7.7% Abacan Resource Corp. (a) 25,000 73,438 Amerada Hess Corp. 10,600 545,900 British Petroleum PLC ADR 49,200 4,938,450 Exxon Corp. 33,000 2,623,500 Kerr-McGee Corp. 11,100 661,838 Louisiana Land & Exploration Co. 15,000 626,250 Mobil Corp. 24,700 2,707,738 Phillips Petroleum Co. 54,600 1,911,000 Royal Dutch Petroleum Co. 33,900 4,669,725 3-D Geophysical, Inc. 30,000 285,000 Union Pacific Resources Group, Inc. 38,800 999,100 Unocal Corp. 33,000 990,000 21,031,939 OIL FIELD EQUIPMENT - 2.5% Camco International, Inc. 98,700 2,800,613 Cooper Cameron Corp. 119,288 3,876,860 6,677,473 PETROLEUM REFINERS - 0.9% Coastal Corp. (The) 57,000 2,094,750 Giant Industries, Inc. 30,000 348,750 2,443,500 TOTAL OIL & GAS 41,421,361 SERVICES - 4.8% SURVEYING SERVICES - 4.8% Western Atlas, Inc. (a) 245,900 12,940,482 SHIPPING - 0.8% WATER TRANSPORTATION SERVICES - 0.8% Seacor Holdings, Inc. (a) 65,000 2,177,500 TOTAL COMMON STOCKS (Cost $207,164,104) 233,802,764 CONVERTIBLE PREFERRED STOCKS - 0.4% SHARES VALUE (NOTE 1) OIL & GAS - 0.4% CRUDE PETROLEUM & GAS - 0.4% Occidental Petroleum Corp. Indexed $1.00 (Cost $1,016,158) 16,300 $ 1,002,450 NONCONVERTIBLE BONDS - 0.3% PRINCIPAL AMOUNT ENERGY SERVICES - 0.3% OIL & GAS SERVICES - 0.3% Tuboscope Vetco International, Inc. gtd. 10 3/4%, 4/15/03 (Cost $900,000) $ 900,000 949,500 REPURCHASE AGREEMENTS - 13.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 36,147,431 36,142,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $245,222,262) $ 271,896,714 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $441,463,460 and $308,319,308, respectively (see Note 3 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 $376,373 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $9,685,000 and $2,979,627, respectively. The weighted average interest rate paid was 6.3% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 87.6% Norway 4.6 Panama 2.5 United Kingdom 1.8 Netherlands 1.7 Bermuda 1.0 Others (individually less than 1%) 0.8 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $246,163,977. Net unrealized appreciation aggregated $25,732,737, of which $29,039,725 related to appreciated investment securities and $3,306,988 related to depreciated investment securities. The fund hereby designates approximately $1,445,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 13% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. ENERGY SERVICE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 271,896,714 securities, at value (including repurchase agreements of $36,142,000) (cost $245,222,262 ) - See accompanyin g schedule Cash 673 Receivable for 875,000 investments sold Receivable for 6,834,219 fund shares sold Dividends 363,232 receivable Interest 36,281 receivable Redemption 1,478 fees receivable TOTAL ASSETS 280,007,597 LIABILITIES Payable for $ 3,627,315 investments purchased Payable for 2,259,252 fund shares redeemed Accrued 128,561 management fee Other payables 187,206 and accrued expenses TOTAL 6,202,334 LIABILITIES NET ASSETS $ 273,805,263 Net Assets consist of: Paid in capital $ 234,674,110 Undistributed 619,525 net investment income Accumulated 11,837,176 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 26,674,452 appreciation (depreciation ) on investments NET ASSETS, for $ 273,805,263 17,020,101 shares outstanding NET ASSET $16.09 VALUE and redemption price per share ($273,805,26 3 (divided by) 17,020,101 shares) Maximum $16.59 offering price per share (100/97.00 of $16.09) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 1,762,357 Dividends Special dividend from Arethusa Offshore Ltd. 231,300 Interest (including income on 1,496,739 securities loaned of $7,429) TOTAL INCOME 3,490,396 EXPENSES Management fee $ 983,400 Transfer agent 1,433,465 Fees Redemption fees (279,873 ) Accounting and security lending fees 161,182 Non-interested trustees' compensation 542 Custodian fees and expenses 29,539 Registration fees 176,387 Audit 22,086 Legal 558 Interest 26,518 Miscellaneous 1,450 Total expenses before reductions 2,555,254 Expense reductions (27,974 2,527,280 ) NET INVESTMENT INCOME 963,116 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 18,791,586 Foreign currency transactions 5,565 18,797,151 Change in net unrealized appreciation (depreciation) 27,955,663 on investment securities NET GAIN (LOSS) 46,752,814 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 47,715,930 OTHER INFORMATION $ 1,453,689 Sales charges paid to FDC Deferred sales charges withheld $ 6,886 by FDC Exchange fees withheld by FSC $ 225,555 Expense reductions $ 23,031 Directed brokerage arrangements Custodian interest credits 1,207 Transfer agent interest credits 3,736 $ 27,974
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 963,116 $ 114,673 Net investment income Net realized gain (loss) 18,797,151 274,562 Change in net unrealized appreciation (depreciation) 27,955,663 74,964 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 47,715,930 464,199 Distributions to shareholders (345,905 (50,886 From net investment income ) ) In excess of net investment income - (42,014 ) From net realized gain (4,150,860 (1,312,181 ) ) In excess of net realized gain - (498,798 ) TOTAL DISTRIBUTIONS (4,496,765 (1,903,879 ) ) Share transactions 762,157,835 244,302,548 Net proceeds from sales of shares Reinvestment of distributions 4,455,875 1,876,010 Cost of shares redeemed (600,660,872 (222,407,429 ) ) Paid in capital portion of redemption fees 838,814 606,169 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 166,791,652 24,377,298 TOTAL INCREASE (DECREASE) IN NET ASSETS 210,010,817 22,937,618 NET ASSETS Beginning of period 63,794,446 40,856,828 End of period (including undistributed net investment income of $619,525 and $66,450, respectively)$ 273,805,263 $ 63,794,446 OTHER INFORMATION 54,578,475 20,716,490 Shares Sold Issued in reinvestment of distributions 301,480 177,460 Redeemed (43,190,194 (19,068,782 ) ) Net increase (decrease) 11,689,761 1,825,168
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 11.97 $ 11.66 $ 11.01 $ 9.43 $ 12.51 value, beginning of period Income from Investment Operations Net .08 F .02 .03 .01 (.12) investment income (loss) Net realized 4.49 .67 .51 1.47 (3.11) and unrealized gain (loss) Total from 4.57 .69 .54 1.48 (3.23) investment operations Less (.04) (.01) (.05) - - Distributions From net investment income In excess of - (.01) - - - net investment income From net (.48) (.35) - - - realized gain In excess of - (.13) - - - net realized gain Total (.52) (.50) (.05) - - distributions Redemption .07 .12 .16 .10 .15 fees added to paid in capital Net asset $ 16.09 $ 11.97 $ 11.66 $ 11.01 $ 9.43 value, end of period TOTAL 39.15% 7.60% 6.36% 16.76% (24.62)% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 273,805 $ 63,794 $ 40,857 $ 85,234 $ 41,322 end of period (000 omitted) Ratio of 1.59% 1.81% 1.66% 1.76% 2.07% expenses to A average net assets Ratio of 1.58% 1.79% 1.65% 1.76% 2.07% expenses to E E E A average net assets after expense reductions Ratio of net .60% .19% .23% .13% (1.13)% investment A income (loss) to average net assets Portfolio 223% 209% 137% 236% 89% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND FROM ARETHUSA OFFSHORE LTD. WHICH AMOUNTED TO $.02 PER SHARE.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 LIFE OF FEBRUARY 29, 1996 YEAR FUND NATURAL GAS 27.10% 16.05% NATURAL GAS 23.29% 12.56% (INCL. 3% SALES CHARGE) S&P 500 34.70% 55.57% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, or since the fund started on 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 PAST 1 LIFE OF FEBRUARY 29, 1996 YEAR FUND NATURAL GAS 27.10% 5.34% NATURAL GAS 23.29% 4.22% (INCL. 3% SALES CHARGE) S&P 500 34.70% 16.69% 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 19930421 9700.00 10000.00 19930430 9515.70 9893.80 19930531 9670.90 10158.96 19930630 9952.20 10188.42 19930731 9913.40 10147.66 19930831 10767.00 10532.26 19930930 10582.70 10451.16 19931031 10010.40 10667.50 19931130 9156.80 10566.16 19931231 9209.91 10694.01 19940131 9672.37 11057.61 19940228 9327.98 10757.95 19940331 8993.44 10288.90 19940430 9692.05 10420.60 19940531 9613.33 10591.50 19940630 9662.53 10332.00 19940731 9603.49 10670.89 19940831 9288.63 11108.40 19940930 9229.59 10836.24 19941031 9554.30 11080.06 19941130 8717.93 10676.52 19941231 8580.06 10834.86 19950131 8313.78 11115.81 19950228 8856.20 11548.99 19950331 9378.89 11889.80 19950430 9536.79 12239.95 19950531 9902.07 12729.18 19950630 9665.13 13024.88 19950731 9665.13 13456.79 19950831 9951.43 13490.56 19950930 10237.73 14059.87 19951031 9793.47 14009.67 19951130 10632.63 14624.70 19951231 11187.09 14906.37 19960131 11236.63 15413.78 19960229 11256.45 15556.67 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 February 29, 1996, your investment would be valued at $11,256 - a 12.56% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $15,557 over the same period - a 55.57% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Anadarko Petroleum Corp. 7.3 Enron Corp. 5.8 Louisiana Land & Exploration Co. 3.5 Burlington Resources, Inc. 3.2 Panhandle Eastern Corp. 3.0 Global Natural Resources, Inc. 3.0 Chesapeake Energy Corp. 2.7 Coastal Corp. (The) 2.5 Pacific Enterprises 2.4 Pogo Producing Co. 2.4 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Crude Petroleum & Gas 47.4% Gas Transmission 13.7% Gas Distribution 13.2% Oil & Gas Exploration 10.7% Gas Transmission & Distribution 6.9% All Others 8.1% * Row: 1, Col: 1, Value: 8.1 Row: 1, Col: 2, Value: 6.9 Row: 1, Col: 3, Value: 10.7 Row: 1, Col: 4, Value: 13.2 Row: 1, Col: 5, Value: 13.7 Row: 1, Col: 6, Value: 47.4 * INCLUDES SHORT-TERM INVESTMENTS NATURAL GAS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Daniel Pickering, Portfolio Manager of Fidelity Select Natural Gas Portfolio Q. DAN, HOW DID THE FUND DO? A. The fund did well, but it was a tough market to beat. For the year ended February 29, 1996, the fund returned 27.10% compared to 34.70% for the S&P 500 Index. Q. WHAT HAPPENED TO GAS PRICES? A. They spiked, thanks to colder-than-normal weather this winter, especially in the Northeast; low inventories; and inadequate supply from the Gulf of Mexico. In addition, there were pipeline constraints that prevented gas in the West from coming east. That meant prices were especially high in the East, benefiting exploration and production (E&P) companies that supplied gas to this region. Lower interest rates were another big factor. Pipeline companies and, to some extent, local distribution companies (LDCs) tend to do well when the dividend yield on alternative investments such as bonds is coming down. Q. SO WHAT WAS YOUR STRATEGY? A. Basically to strike a balance between what I call quality names and smaller, faster growing companies. By quality names, I mean companies like Anadarko and Burlington Resources, both E&P operations, and Enron, a pipeline outfit. These are all solid companies, which usually will be somewhere among the fund's top 10 names. I use these stocks, which tend to be more liquid, to offset the smaller, faster growing names - companies like Louisiana Land & Exploration, Global Natural Resources, Chesapeake, and Pogo Producing. For these smaller companies, a good well can cause the stock price to double, and a bad well can cut it in half. As it turned out, about 60% of the fund's investments were in E&P companies, 15% in pipeline companies, and 25% in LDCs. Q. DID THE FUND HAVE ANY SUCCESS STORIES? A. Yes, we recently hit a home run with Chesapeake. From September through February, its stock price was up 150% - and it was as high as 7% of the fund's investments during the period. Chesapeake has carved out a profitable niche by using technology to tap reserves that other companies didn't think they could get at. In 1995, its production grew over 100%. Pogo was another stock that really helped the fund's performance. During the past six months, it rose 42% thanks to three big well discoveries in Thailand. I bought the stock when the company hit the first well, and they were fortunate enough to find two more fields. Q. WERE THERE ANY MAJOR DISAPPOINTMENTS? A. Well, we really didn't get hurt by a lot of stocks. The worst performer was probably TransTexas Gas, a mid-size E&P company, whose stock price fell 39% between August 31 and February 29. The company has a lot of reserves, but it's taken longer than expected to bring the assets to production. In addition, complications around some stock issuance have hurt its performance. Nevertheless, the fund continues to own TransTexas because I believe the value is still there. Although not nearly on the same scale, Burlington Resources was also a disappointment. When gas prices started to turn up, investors shifted out of the quality names into some of the faster growing companies. That hurt Burlington's stock, as did the fact that the company sells a large part of its production on the West coast where gas prices were softer. Again, I've kept the stock because I think there's potential once the price differences narrow between the two coasts. Q. WHAT'S AHEAD? A. I expect low inventories and growing demand to keep gas prices high for at least the first three quarters of 1996. But, as business has gotten better, stock prices have improved. So I think it will be harder to find stocks like Chesapeake that are both cheap and growing quickly. That means it could be tougher to make money in them. Q. WHERE WILL YOU BE LOOKING FOR OPPORTUNITIES? A. I'm not going to count on gas prices going up. Instead, I plan to keep my sector weightings steady and look for cheap stocks. In the E&P group, I'm going to focus on names with faster-than-average growth. On the pipeline side of the business, I'll be looking for companies that are either cutting costs or adding to their distribution network. I'm also going to start paying a little more attention to Canadian E&P companies. There's plenty of gas there, and by 1998 there should be new pipelines in place to bring it to the United States. I expect the stocks to begin to reflect these improved prospects. FUND FACTS START DATE: April 21, 1993 TRADING SYMBOL: FSNGX SIZE: as of February 29, 1996, more than $60 million MANAGER: Daniel Pickering, since February 1995; manager, Fidelity Select Energy Service Portfolio, since 1994; equity analyst, energy service and hotel industries, since 1994; joined Fidelity in 1994 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. NATURAL GAS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 94.7% SHARES VALUE (NOTE 1) COAL - 1.7% Eastern Enterprises Co. 29,400 $ 1,040,022 COMPUTER SERVICES & SOFTWARE - 0.3% CAD/CAM/CAE - 0.3% Landmark Graphics Corp. (a) 10,000 225,000 GAS - 33.7% GAS & OTHER SERVICES - 0.9% UGI Corp. 26,404 554,484 GAS DISTRIBUTION - 13.2% Aquila Gas Pipeline Corp. 121,300 1,364,625 Brooklyn Union Gas Co. (The) 25,000 653,125 Indiana Energy, Inc. 10,000 250,000 K N Energy, Inc. 21,400 655,375 MCN Corp. 32,000 804,000 National Fuel Gas Co. 10,000 321,250 NICOR, Inc. 20,000 537,500 Northwest Natural Gas Co. 11,000 363,000 Pacific Enterprises 57,100 1,527,425 Piedmont Natural Gas, Inc. 32,381 728,573 Public Service Co. of North Carolina, Inc. 10,556 174,174 WICOR, Inc. 2,500 82,500 Washington Gas Light Co. 37,000 804,750 8,266,297 GAS TRANSMISSION - 12.7% Enron Corp. 99,410 3,640,891 ONEOK, Inc. 24,700 537,225 Panhandle Eastern Corp. 66,550 1,904,994 Tejas Power Corp. (a) 61,000 518,500 Williams Companies, Inc. 27,800 1,320,500 7,922,110 GAS TRANSMISSION & DISTRIBUTION - 6.9% Bay State Gas Co. 10,000 283,750 Columbia Gas System, Inc. (The) (a) 9,695 424,156 Consolidated Natural Gas Co. 18,000 774,000 El Paso Natural Gas Co. 3,400 114,750 Equitable Resources, Inc. 15,000 429,375 Questar Corp. 29,740 936,810 South Jersey Industries, Inc. 5,000 109,375 Southern Union Co. 10,500 275,625 Tejas Gas Corp. (a) 15,670 748,243 Yankee Energy System, Inc. 10,000 236,250 4,332,334 TOTAL GAS 21,075,225 OIL & GAS - 59.0% CRUDE PETROLEUM & GAS - 45.8% American Exploration Co. (a) 12,000 132,000 Anadarko Petroleum Corp. 84,075 4,582,088 Apache Corp. 8,225 213,850 Barrett Resources Corp. (a) 34,100 818,400 Beau Canada Exploration Ltd. (a) 558,000 732,951 Belden & Blake Corp. (a) 20,000 350,000 Burlington Resources, Inc. 55,657 2,024,523 Canada Occidental Petroleum Ltd. 15,000 488,470 Chesapeake Energy Corp. (a) 41,300 1,708,788 Devon Energy Corp. 41,100 919,613 Elan Energy, Inc. (a) 67,700 574,315 Enron Oil & Gas Co. 29,900 747,500 Flores & Rucks, Inc. (a) 41,700 604,650 Fortune Petroleum Corp. (a) 20,000 50,000 Global Natural Resources, Inc. (a) 150,500 1,881,250 SHARES VALUE (NOTE 1) Morgan Hydrocarbons, Inc. (a) 70,000 $ 209,436 NGC Corp. 91,800 1,044,225 Newfield Exploration Co. (a) 37,450 1,095,413 Noble Affiliates, Inc. 37,950 1,162,219 Northstar Energy Corp. (a) 47,800 514,504 Northstar Energy Corp. (a)(b) 20,000 215,273 Pancanadian Petroleum Ltd. 4,000 150,327 Pinnacle Resources Ltd. (a) 22,900 292,444 Pogo Producing Co. 45,000 1,524,375 Renaissance Energy Ltd. (a) 28,100 712,573 Stone Energy Corp. (a) 40,000 605,000 Swift Energy Co. (a) 50,000 581,250 Texas Meridian Resources Corp. (a) 100,000 1,237,500 TransTexas Gas Corp. (a) 107,800 1,158,850 Triton Energy Corp. 1,900 94,288 Unit Corp. (a) 30,000 142,500 Vastar Resources, Inc. 20,900 660,963 Vintage Petroleum, Inc. 43,100 883,550 Wascana Energy, Inc. (a) 51,500 493,259 28,606,347 OIL & GAS EXPLORATION - 10.7% Abacan Resource Corp. (a) 200,000 587,500 Chieftain International, Inc. (a) 72,900 1,183,657 Louisiana Land & Exploration Co. 52,000 2,171,000 Newport Petroleum Corp. (a) 40,000 116,758 Petro-Canada 15,000 184,716 Petro-Canada 1st installment receipt (c) 90,900 580,417 Union Pacific Resources Group, Inc. 55,000 1,416,250 Unocal Corp. 229 6,870 Zydeco Energy, Inc. (a) 85,000 456,875 6,704,043 PETROLEUM REFINERS - 2.5% Coastal Corp. (The) 42,900 1,576,575 TOTAL OIL & GAS 36,886,965 TOTAL COMMON STOCKS (Cost $53,725,680) $ 59,227,212 CONVERTIBLE PREFERRED STOCKS - 2.6% GAS - 1.0% GAS TRANSMISSION - 1.0% Enron Corp. $1.3593 Automatic Common Exchange 25,000 621,875 OIL & GAS - 1.6% CRUDE PETROLEUM & GAS - 1.6% Occidental Petroleum Corp. Indexed $3.00 16,300 1,002,450 TOTAL PREFERRED STOCKS (Cost $1,559,908) $ 1,624,325 REPURCHASE AGREEMENTS - 2.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 1,664,250 1,664,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $56,949,588) $ 62,515,537 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 these securities amounted to $215,273 or 0.4% of net assets. 3. Purchased on an installment basis. Market value reflects only those payments made through February 29, 1996. The remaining installments aggregating CAD 772,650 are due September 23, 1996 and March 24, 1997. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $51,406,495 and $83,429,857, respectively (see Note 3 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 $87,403 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $1,782,000 and $1,395,000, respectively. The weighted average interest rate paid was 6.5% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 88.7% Canada 11.3 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $57,173,800. Net unrealized appreciation aggregated $5,341,737, of which $7,087,247 related to appreciated investment securities and $1,745,510 related to depreciated investment securities. The fund hereby designates approximately $20,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 100% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. NATURAL GAS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 62,515,537 securities, at value (including repurchase agreements of $1,664,000) (cost $56,949,588) - - See accompanyin g schedule Cash 199 Receivable for 1,454,447 investments sold Receivable for 119,310 fund shares sold Dividends 102,572 receivable Redemption 5,136 fees receivable Other 230 receivables TOTAL ASSETS 64,197,431 LIABILITIES Payable for $ 3,851,501 fund shares redeemed Accrued 35,390 management fee Other payables 82,458 and accrued expenses TOTAL 3,969,349 LIABILITIES NET ASSETS $ 60,228,082 Net Assets consist of: Paid in capital $ 54,375,745 Undistributed 56,526 net investment income Accumulated 229,852 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 5,565,959 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 60,228,082 5,303,396 shares outstanding NET ASSET $11.36 VALUE and redemption price per share ($60,228,082 (divided by) 5,303,396 shares) Maximum $11.71 offering price per share (100/97.00 of $11.36) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 1,194,244 Dividends Interest 305,039 TOTAL INCOME 1,499,283 EXPENSES Management fee $ 431,858 Transfer agent 672,210 Fees Redemption fees (92,094 ) Accounting fees and expenses 70,811 Non-interested trustees' compensation 492 Custodian fees and expenses 22,588 Registration fees 50,295 Audit 24,960 Legal 474 Interest 1,504 Miscellaneous 785 Total expenses before reductions 1,183,883 Expense reductions (5,451 1,178,432 ) NET INVESTMENT INCOME 320,851 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 9,256,308 Foreign currency transactions (52 9,256,256 ) Change in net unrealized appreciation (depreciation) on: Investment securities 7,236,477 Assets and liabilities in 10 7,236,487 foreign currencies NET GAIN (LOSS) 16,492,743 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 16,813,594 OTHER INFORMATION $ 268,316 Sales charges paid to FDC Deferred sales charges withheld $ 7,860 by FDC Exchange fees withheld by FSC $ 56,678 Expense reductions $ 4,505 Directed brokerage arrangements Transfer agent interest credits 946 $ 5,451
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 320,851 $ 233,355 Net investment income Net realized gain (loss) 9,256,256 (8,500,543 ) Change in net unrealized appreciation (depreciation) 7,236,487 3,240,598 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 16,813,594 (5,026,590 ) Distributions to shareholders from net investment income (323,738 (174,881 ) ) Share transactions 96,403,538 105,674,129 Net proceeds from sales of shares Reinvestment of distributions 314,856 162,769 Cost of shares redeemed (132,986,230 (83,945,454 ) ) Paid in capital portion of redemption fees 112,239 130,955 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (36,155,597 22,022,399 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (19,665,741 16,820,928 ) NET ASSETS Beginning of period 79,893,823 63,072,895 End of period (including undistributed net investment income of $56,526 and $58,168, respectively) $ 60,228,082 $ 79,893,823 OTHER INFORMATION Shares Sold 9,263,323 11,247,429 Issued in reinvestment of distributions 30,032 18,602 Redeemed (12,883,616 (9,026,223 ) ) Net increase (decrease) (3,590,261 2,239,808 )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS YEAR ENDED YEAR ENDED APRIL 21, 1993 FEBRUARY 29, FEBRUARY 28, (COMMENCEMENT OF OPERATIONS) TO FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 Net asset $ 8.98 $ 9.48 $ 10.00 value, beginning of period Income from Investment Operations Net .05 .03 .02 investment income Net realized 2.36 (.53) (.46) and unrealized gain (loss) Total from 2.41 (.50) (.44) investment operations Less (.05) (.02) - Distributions From net investment income From net - - (.07) realized gain In excess of - - (.06) net realized gain Total (.05) (.02) (.13) distributions Redemption .02 .02 .05 fees added to paid in capital Net asset $ 11.36 $ 8.98 $ 9.48 value, end of period TOTAL 27.10% (5.06)% (3.84)% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 60,228 $ 79,894 $ 63,073 end of period (000 omitted) Ratio of 1.68% 1.70% 1.94% A expenses to average net assets Ratio of 1.67% 1.66% 1.93% A, expenses to E E E average net assets after expense reductions Ratio of net .46% .30% .17% A investment income to average net assets Portfolio 79% 177% 44% A turnover rate A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). 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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS PRECIOUS METALS AND MINERALS 37.74% 103.24% 133.52% PRECIOUS METALS AND MINERALS 33.61% 97.15% 126.52% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS PRECIOUS METALS AND MINERALS 37.74% 15.24% 8.85% PRECIOUS METALS AND MINERALS 33.61% 14.54% 8.52% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9104.22 10558.00 19860430 8629.46 10438.69 19860531 7754.41 10994.03 19860630 7912.67 11179.83 19860731 7809.63 10554.88 19860831 9298.07 11338.05 19860930 10513.32 10400.39 19861031 9590.11 11000.50 19861130 10579.27 11267.81 19861231 10503.90 10980.48 19870131 11766.26 12459.55 19870228 12595.26 12951.70 19870331 16193.91 13326.01 19870430 17314.96 13207.41 19870531 15769.99 13322.31 19870630 15543.89 13995.09 19870731 18709.20 14704.64 19870831 18219.33 15253.12 19870930 18784.56 14919.08 19871031 13603.26 11705.51 19871130 15317.80 10740.97 19871231 14443.72 11558.36 19880131 11906.05 12044.97 19880229 11925.13 12606.27 19880331 12917.31 12216.73 19880430 12488.00 12352.34 19880531 12554.78 12459.80 19880630 12096.86 13031.71 19880731 12173.18 12982.19 19880831 11448.13 12540.79 19880930 10675.38 13075.03 19881031 11066.52 13438.52 19881130 11476.75 13246.35 19881231 10997.46 13478.16 19890131 11454.86 14464.76 19890228 11822.77 14104.59 19890331 11822.77 14433.22 19890430 11285.82 15182.31 19890531 10748.88 15797.19 19890630 11594.07 15707.15 19890731 11912.26 17125.50 19890831 12150.91 17461.16 19890930 12578.47 17389.57 19891031 12568.53 16986.13 19891130 14169.43 17332.65 19891231 14534.53 17748.63 19900131 15692.06 16557.70 19900228 14343.29 16771.29 19900331 13719.23 17215.73 19900430 12310.06 16785.34 19900531 13014.64 18421.91 19900630 12068.49 18296.64 19900731 12803.27 18238.09 19900831 12934.12 16589.37 19900930 12642.22 15781.47 19901031 11222.99 15713.61 19901130 11021.68 16728.71 19901231 11471.59 17195.44 19910131 10226.45 17945.16 19910228 11145.00 19228.24 19910331 10930.67 19693.56 19910430 10900.05 19740.82 19910531 11512.42 20593.63 19910630 12267.66 19650.44 19910731 12267.66 20566.15 19910831 10981.70 21053.57 19910930 11206.23 20701.97 19911031 11961.48 20979.38 19911130 12339.11 20133.91 19911231 11647.97 22437.23 19920131 11895.14 22019.90 19920229 11277.21 22306.16 19920331 10834.36 21871.19 19920430 10195.84 22514.20 19920531 10865.26 22624.52 19920630 10926.56 22287.41 19920731 11071.01 23198.97 19920831 10575.75 22723.39 19920930 10142.41 22991.53 19921031 9492.38 23072.00 19921130 8935.22 23858.75 19921231 9101.02 24152.21 19930131 9321.46 24355.09 19930228 10350.18 24686.32 19930331 11756.80 25207.20 19930430 13656.79 24597.19 19930531 15462.29 25256.39 19930630 15714.23 25329.64 19930731 17761.17 25228.32 19930831 15976.65 26184.47 19930930 14717.00 25982.85 19931031 16805.93 26520.70 19931130 16774.44 26268.75 19931231 19259.96 26586.60 19940131 18463.22 27490.55 19940228 17655.85 26745.55 19940331 17475.25 25579.45 19940430 17475.96 25906.86 19940531 17507.85 26331.74 19940630 17858.64 25686.61 19940731 18538.97 26529.13 19940831 19857.11 27616.82 19940930 21377.22 26940.21 19941031 20548.07 27546.37 19941130 18347.63 26543.13 19941231 19040.21 26936.76 19950131 15723.25 27635.23 19950228 16444.79 28712.18 19950331 18114.04 29559.47 19950430 18264.81 30430.00 19950531 18038.66 31646.29 19950630 18254.05 32381.43 19950731 19007.90 33455.20 19950831 19266.36 33539.17 19950930 19320.21 34954.52 19951031 16907.88 34829.74 19951130 18092.50 36358.76 19951231 18404.40 37059.03 19960131 22262.52 38320.52 19960229 22651.57 38675.75 Let's say you invested $10,000 in Fidelity Select Precious Metals and Minerals Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $22,652 - a 126.52% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Barrick Gold Corp. 8.4 Newmont Mining Corp. 7.6 Vaal Reefs Exploration & Mining Co. Ltd. ADR 5.0 Western Deep Levels Ltd. ADR 4.6 De Beers Consolidated Mines Ltd. ADR 4.1 Agnico Eagle Mines Ltd. 3.1 Driefontein Consolidated Ltd. ADR 3.1 Gold Fields South Africa Ltd. sponsored ADR 3.0 Bre-X Minerals Ltd. 3.0 Western Areas Gold Mining Ltd. Ord. 2.6 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Gold Ores (South Africa) 27.9% Gold Ores (Canada) 24.8% Gold Ores (U.S.) 9.5% Miscellaneous Nonmetal Minerals 4.1% Gold Ores (Australia) 3.9% All Others 29.8% * Row: 1, Col: 1, Value: 29.8 Row: 1, Col: 2, Value: 3.9 Row: 1, Col: 3, Value: 4.1 Row: 1, Col: 4, Value: 9.5 Row: 1, Col: 5, Value: 24.8 Row: 1, Col: 6, Value: 27.9 * 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 PERFORM, MALCOLM? A. For the 12 months ended February 29, 1996, the fund returned 37.74%. The fund's total return outpaced the S&P 500 Index, which returned 34.70% for the same period. Q. DID GOLD'S PRICE BREAKING THROUGH THE $400 BARRIER PLAY A PART IN THE FUND'S PERFORMANCE? A. Sure. Gold reached a 12-month high of $414.70 late in the fund's reporting period and closed on February 29 at $399.50. Prior to this price surge, supply and demand dynamics had been positive, but the price of gold had remained flat for most of 1995. In 1995, demand increased by 8.5% compared to 1994, fueled in part by increased consumer demand in China, India and other parts of Asia. Supply, on the other hand, fell slightly as mine production eased 1% in 1995 versus production in 1994. Q. WHAT'S HAPPENED WITH SOME OF THE OTHER COMMODITIES? A. Silver's price remained within a $4.50 to $6.00 range. While excess inventories are being consumed by the market, silver's price has been controlled by how much of it is produced as a by-product of copper, lead, zinc and gold. Platinum has traded in a narrow range of $10 above or below $410, mainly because of selling by Russia and some of the other former Soviet republics. Additionally, palladium and rhodium have remained in excess supply as additional industrial uses are sought for these elements. Q. SO HOW HAVE THE FUND'S GOLD STOCKS PERFORMED? A. Gold stocks are generally driven by gold price changes or fundamental improvements in their reserves. Breaking the market down further, South African and Australian stocks significantly underperformed their North American counterparts as a result of political risks, labor strife and local demand. Additionally, South African and Australian gold stocks have historically had a high beta - meaning they have risen higher or fallen lower than other gold stocks relative to any change in the price of this precious metal. Therefore, it was not surprising that their performance significantly improved early in 1996 when gold prices rose after being flat for most of 1995. The improvement in the price of gold also helped companies with good fundamentals, including such South African firms as Western Deep Levels, Western Areas Gold Mining and Gold Fields South Africa, as well as Australian gold producer Poseidon Gold. Q. WHICH NORTH AMERICAN COMPANIES DID YOU TARGET DURING THE PERIOD? A. Barrick Gold and Newmont Mining were the cornerstones of the fund's North American investments. Both companies had solid production rates and good reserves during the period. In general, North American mining companies lent some stability to the fund's performance, given their outperformance of South African and Australian gold stocks. Q. WHAT'S YOUR STRATEGY GOING FORWARD? A. Basically, I look for companies that are developing a major new ore body - - precious metal deposits - or have achieved sustained increases in production. That said, I currently see opportunities in Indonesia, central Africa, Peru and Russia. Of course, one has to factor in certain additional risks such as changes in the political climate of these respective regions. Q. WHAT'S YOUR OUTLOOK? A. South African gold, platinum and diamond companies could potentially perform well given that labor strife has lessened and costs are more under control. Shareholders, however, should not overlook the fact that the value of gold and other precious metals is affected by a variety of unpredictable factors including the perceived rate of inflation and foreign buying. FUND FACTS START DATE: July 14, 1981 TRADING SYMBOL: FDPMX SIZE: as of February 29, 1996, more than $467 million MANAGER: Malcolm MacNaught, since 1981; manager, Fidelity Select American Gold Portfolio, 1985-1995; Fidelity Advisor Global Resources Fund, since 1988; joined Fidelity in 1968 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. PRECIOUS METALS AND MINERALS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 88.7% SHARES VALUE (NOTE 1) AUSTRALIA - 6.3% METALS & MINING - 0.6% METAL MINING SERVICES - 0.6% Acacia Resources Ltd. (a) 1,258,500 $ 2,829,564 PRECIOUS METALS - 5.7% GOLD & SILVER ORES - 1.8% North Flindes 524,060 3,326,432 Plutonic Resources Ltd. 900,000 5,058,821 8,385,253 GOLD ORES - 3.9% Aurora Gold Ltd. (a) 500,000 898,581 Great Central Mines NL sponsored ADR (a) 100,000 818,750 Great Central Mines NL (a) 1,730,000 4,815,784 Newcrest Mining Ltd. 350,000 1,678,244 Poseidon Gold Ltd. 3,404,800 9,035,258 Ranger Minerals NL (a) 100,000 308,959 Wiluna Mines Ltd. (a) 767,900 704,702 18,260,278 TOTAL PRECIOUS METALS 26,645,531 TOTAL AUSTRALIA 29,475,095 CANADA - 28.9% HOLDING COMPANIES - 0.2% Bolivar Goldfields Ltd. (a) 725,200 756,767 METALS & MINING - 3.7% COPPER ORES - 0.2% Arequipa Resources Ltd. (a) 100,000 893,932 METAL MINING - 0.3% Dayton Mining Corp. (a) 255,000 1,372,368 METAL MINING SERVICES - 3.2% Bre-X Minerals Ltd. (a) 120,000 13,956,289 Eldorado Ltd. (a) 200,000 1,149,341 15,105,630 TOTAL METALS & MINING 17,371,930 PRECIOUS METALS - 25.0% GOLD & SILVER ORES - 0.2% Greenstone Resources Ltd. (a) 200,000 875,689 GOLD ORES - 24.8% Agnico Eagle Mines Ltd. 851,100 14,362,526 Barrick Gold Corp. 1,301,000 39,399,788 Cambior, Inc. 102,700 1,405,207 Echo Bay Mines Ltd. 681,700 9,451,819 Euro-Nevada Mining Corp. 300,000 11,383,953 Franco Nevada Mining Corp. 127,000 7,715,365 Golden Star Resources Ltd. (a) 7,700 47,059 Kinross Gold Corp. (a) 1,000,000 9,304,192 Orvana Minerals Corp. (a) 700,000 4,341,956 Placer Dome, Inc. 272,200 7,721,951 Prime Resources Group, Inc. (a) 506,156 4,894,054 TVI Pacific, Inc. (a) 799,300 1,475,703 TVX Gold, Inc. (a) 505,300 4,977,962 116,481,535 TOTAL PRECIOUS METALS 117,357,224 TOTAL CANADA 135,485,921 SHARES VALUE (NOTE 1) GHANA - 1.8% PRECIOUS METALS - 1.8% GOLD ORES - 1.8% Ashanti Goldfields Ltd. GDR 376,100 $ 8,556,275 SOUTH AFRICA - 35.9% HOLDING COMPANIES - 0.8% Gencor Ltd. (Reg.) 983,900 3,656,299 METALS & MINING - 7.2% MISCELLANEOUS NONMETAL MINERALS - 4.1% De Beers Consolidated Mines Ltd. ADR 603,900 19,249,313 MISCELLANEOUS METAL ORES - 3.1% Anglo American Platinum Ltd. (a) 434,400 2,746,529 Impala Platinum Holdings Ltd.: ADR 200,000 3,525,000 Ord. 138,200 2,496,516 Rustenberg Platinum Holding Ltd. ADR 316,928 5,942,400 14,710,445 TOTAL METALS & MINING 33,959,758 PRECIOUS METALS - 27.9% GOLD ORES - 27.9% Anglo American Corp. of South Africa Ltd. ADR 63,000 4,126,500 Buffelsfontein Gold Mining Co. Ltd.: ADR 100,000 512,500 Ord. 500,000 2,451,613 Driefontein Consolidated Ltd.: ADR 939,400 14,325,850 Ord. 150,000 2,264,516 Free State Consolidated Gold Mines Ltd. ADR 924,100 8,894,463 Gold Fields South Africa Ltd. sponsored ADR 431,200 14,229,600 Kloof Gold Mining Co. Ltd.: Ord. 157,000 2,106,839 sponsored ADR 828,000 11,281,500 Randfontein Estates Gold Mining Co. Ltd. ADR 800,700 6,906,038 Unisel Gold Mines Ltd. 36,400 143,252 Vaal Reefs Exploration & Mining Co. Ltd.: ADR 2,377,500 23,626,406 (Reg.) 14,000 1,372,903 Western Areas Gold Mining Ltd. Ord. 720,000 12,170,323 Western Deep Levels Ltd.: ADR 435,000 21,750,000 Ord. 50,000 2,458,065 Winkelhaak Mines Ltd. ADR 200,000 1,975,000 130,595,368 TOTAL SOUTH AFRICA 168,211,425 UNITED KINGDOM - 0.6% HOLDING COMPANIES - 0.6% Lonrho Ltd. Ord. 1,000,000 2,978,476 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) UNITED STATES OF AMERICA - 15.2% CLOSED END INVESTMENT COMPANY - 1.5% REGIONALIZED INVESTMENT COMPANIES - 1.5% ASA Ltd. (a) 150,000 $ 7,050,000 METALS & MINING - 2.7% MISCELLANEOUS METAL ORES - 2.7% Stillwater Mining Co. (a) 216,200 4,756,400 Stillwater Mining Co. (a)(b) 366,600 8,065,200 12,821,600 PRECIOUS METALS - 9.5% GOLD ORES - 9.5% Firstmiss Gold, Inc. (a) 137,000 3,699,000 Newmont Mining Corp. 628,195 35,728,591 Santa Fe Pacific Gold Corp. 320,000 5,000,000 44,427,591 SECURITIES INDUSTRY - 1.5% INVESTMENT MANAGERS - 1.5% Pioneer Group, Inc. 246,500 7,148,500 TOTAL UNITED STATES OF AMERICA 71,447,691 TOTAL COMMON STOCKS (Cost $335,162,826) 416,154,883 BULLION - 3.0% TROY OUNCES Gold Bullion (a) (Cost $14,220,000) 35,005 13,984,462 REPURCHASE AGREEMENTS - 8.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 39,025,864 39,020,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $388,402,826) $ 469,159,345 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 $8,065,200 or 1.7% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $187,945,622 and $219,578,782, respectively (see Note 3 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 $179,259 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $4,971,000 and $3,307,417, respectively. The weighted average interest rate paid was 6.6% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: South Africa 35.9% Canada 28.9 United States (including gold bullion) 26.5 Australia 6.3 Ghana 1.8 United Kingdom 0.6 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $390,319,062. Net unrealized appreciation aggregated $78,840,283, of which $93,520,966 related to appreciated investment securities and $14,680,683 related to depreciated investment securities. At February 29, 1996, the fund had a capital loss carryforward of approximately $16,253,000 of which $5,571,000, and $10,682,000 will expire on February 29, 2000 and February 28, 2001, respectively. A total of 41% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. PRECIOUS METALS AND MINERALS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 469,159,345 securities, at value (including repurchase agreements of $39,020,000) (cost $388,402,826 ) - See accompanyin g schedule Cash 843 Receivable for 1,362,608 investments sold Receivable for 7,394,926 fund shares sold Dividends 1,226,243 receivable Redemption 4,170 fees receivable TOTAL ASSETS 479,148,135 LIABILITIES Payable for $ 2,249,370 investments purchased Payable for 9,125,872 fund shares redeemed Accrued 247,825 management fee Other payables 329,183 and accrued expenses TOTAL 11,952,250 LIABILITIES NET ASSETS $ 467,195,885 Net Assets consist of: Paid in capital $ 403,728,978 Undistributed 846,595 net investment income Accumulated (18,135,773 undistributed ) net realized gain (loss) on investments and foreign currency transactions Net unrealized 80,756,085 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 467,195,885 22,286,239 shares outstanding NET ASSET $20.96 VALUE and redemption price per share ($467,195,88 5 (divided by) 22,286,239 shares) Maximum $21.61 offering price per share (100/97.00 of $20.96) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 5,921,207 Dividends Interest (including income on 1,359,959 securities loaned of $5,031) TOTAL INCOME 7,281,166 EXPENSES Management fee $ 2,345,736 Transfer agent 3,093,937 Fees Redemption fees (338,171 ) Accounting and security lending fees 384,066 Non-interested trustees' compensation 2,750 Custodian fees and expenses 101,368 Registration fees 165,721 Audit 46,315 Legal 2,580 Interest 7,250 Reports to shareholders 4,204 Miscellaneous 724 Total expenses before reductions 5,816,480 Expense reductions (12,778 5,803,702 ) NET INVESTMENT INCOME 1,477,464 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (including realized loss of $123,664 on sale of investments in precious metals) 29,499,362 Foreign currency transactions 10,409 29,509,771 Change in net unrealized appreciation (depreciation) on: Investment securities 86,599,170 Assets and liabilities in (416 86,598,754 foreign currencies ) NET GAIN (LOSS) 116,108,525 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 117,585,989 OTHER INFORMATION $ 1,543,064 Sales charges paid to FDC Deferred sales charges withheld $ 52,879 by FDC Exchange fees withheld by FSC $ 251,108 Expense reductions $ 3,473 Directed brokerage arrangements Custodian interest credits 584 Transfer agent interest credits 8,721 $ 12,778
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 1,477,464 $ 4,315,352 Net investment income Net realized gain (loss) 29,509,771 25,267,179 Change in net unrealized appreciation (depreciation) 86,598,754 (77,536,148 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 117,585,989 (47,953,617 ) Distributions to shareholders (1,115,809 (4,315,352 From net investment income ) ) In excess of net investment income - (1,235,277 ) TOTAL DISTRIBUTIONS (1,115,809 (5,550,629 ) ) Share transactions 820,033,799 934,524,938 Net proceeds from sales of shares Reinvestment of distributions 1,089,810 5,435,430 Cost of shares redeemed (837,693,561 (934,775,405 ) ) Paid in capital portion of redemption fees 3,091,710 3,310,757 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (13,478,242 8,495,720 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 102,991,938 (45,008,526 ) NET ASSETS Beginning of period 364,203,947 409,212,473 End of period (including under (over) distribution of net investment income of $846,595 and $(912,704), $ 467,195,885 $ 364,203,947 respectively) OTHER INFORMATION Shares Sold 44,966,074 53,173,413 Issued in reinvestment of distributions 63,583 324,762 Redeemed (46,598,892 (54,266,578 ) ) Net increase (decrease) (1,569,235 (768,403 ) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 15.27 $ 16.62 $ 9.86 $ 9.90 $ 10.68 value, beginning of period Income from Investment Operations Net .07 .17 .21 .09 .10 investment income Net realized 5.54 (1.42) 6.48 (.05) (.91) and unrealized gain (loss) Total from 5.61 (1.25) 6.69 .04 (.81) investment operations Less (.06) (.18) (.19) (.17) (.10) Distributions From net investment income In excess of - (.05) (.02) - - net investment income Total (.06) (.23) (.21) (.17) (.10) distributions Redemption .14 .13 .28 .09 .13 fees added to paid in capital Net asset $ 20.96 $ 15.27 $ 16.62 $ 9.86 $ 9.90 value, end of period TOTAL 37.74% (6.86)% 70.58% 1.51% (6.46)% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 467,196 $ 364,204 $ 409,212 $ 137,922 $ 130,002 end of period (000 omitted) Ratio of 1.52% 1.46% 1.55% 1.73% 1.81% expenses to A average net assets Ratio of net .39% .99% 1.38% 1.12% .92% investment A income to average net assets Portfolio 53% 43% 73% 36% 44% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
UTILITIES GROWTH 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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS UTILITIES GROWTH 25.82% 78.17% 208.11% UTILITIES GROWTH 22.04% 72.83% 198.87% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS UTILITIES GROWTH 25.82% 12.25% 11.91% UTILITIES GROWTH 22.04% 11.56% 11.57% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10024.12 10558.00 19860430 9826.49 10438.69 19860531 10233.62 10994.03 19860630 10826.53 11179.83 19860731 11310.09 10554.88 19860831 12058.76 11338.05 19860930 10725.57 10400.39 19861031 11226.01 11000.50 19861130 11326.10 11267.81 19861231 10933.75 10980.48 19870131 11818.54 12459.55 19870228 11402.17 12951.70 19870331 11173.97 13326.01 19870430 10533.40 13207.41 19870531 10365.25 13322.31 19870630 10733.58 13995.09 19870731 10585.44 14704.64 19870831 10917.74 15253.12 19870930 10829.66 14919.08 19871031 10177.08 11705.51 19871130 9836.78 10740.97 19871231 9921.73 11558.36 19880131 10779.16 12044.97 19880229 10694.69 12606.27 19880331 10390.57 12216.73 19880430 10420.14 12352.34 19880531 10745.37 12459.80 19880630 11028.37 13031.71 19880731 10993.37 12982.19 19880831 10975.98 12540.79 19880930 11358.36 13075.03 19881031 11597.35 13438.52 19881130 11575.62 13246.35 19881231 11554.48 13478.16 19890131 12098.74 14464.76 19890228 12022.90 14104.59 19890331 12228.12 14433.22 19890430 12857.14 15182.31 19890531 13468.33 15797.19 19890630 13808.52 15707.15 19890731 14564.71 17125.50 19890831 14628.87 17461.16 19890930 14839.69 17389.57 19891031 14770.94 16986.13 19891130 15256.74 17332.65 19891231 16063.34 17748.63 19900131 15270.49 16557.70 19900228 15242.99 16771.29 19900331 15160.50 17215.73 19900430 14528.05 16785.34 19900531 15284.24 18421.91 19900630 15465.36 18296.64 19900731 15592.31 18238.09 19900831 14736.52 16589.37 19900930 14774.14 15781.47 19901031 15531.19 15713.61 19901130 15940.27 16728.71 19901231 16152.42 17195.44 19910131 16081.20 17945.16 19910228 16774.40 19228.24 19910331 16964.31 19693.56 19910430 16888.35 19740.82 19910531 16893.09 20593.63 19910630 16688.18 19650.44 19910731 17231.28 20566.15 19910831 17626.27 21053.57 19910930 18169.38 20701.97 19911031 18421.18 20979.38 19911130 18633.48 20133.91 19911231 19548.95 22437.23 19920131 18947.21 22019.90 19920229 18808.35 22306.16 19920331 18612.91 21871.19 19920430 19122.08 22514.20 19920531 19492.38 22624.52 19920630 19717.87 22287.41 19920731 20766.30 23198.97 19920831 20755.65 22723.39 19920930 20867.41 22991.53 19921031 20862.09 23072.00 19921130 21005.79 23858.75 19921231 21619.64 24152.21 19930131 21987.40 24355.09 19930228 23118.53 24686.32 19930331 23742.60 25207.20 19930430 23612.84 24597.19 19930531 23663.49 25256.39 19930630 24569.51 25329.64 19930731 24850.88 25228.32 19930831 25931.36 26184.47 19930930 25931.36 25982.85 19931031 25666.86 26520.70 19931130 24411.94 26268.75 19931231 24331.76 26586.60 19940131 24830.31 27490.55 19940228 23703.72 26745.55 19940331 22849.07 25579.45 19940430 23506.34 25906.86 19940531 23037.01 26331.74 19940630 22964.29 25686.61 19940731 23625.33 26529.13 19940831 23532.78 27616.82 19940930 22931.24 26940.21 19941031 23222.09 27546.37 19941130 22382.58 26543.13 19941231 22528.61 26936.76 19950131 23448.01 27635.23 19950228 23754.47 28712.18 19950331 23849.82 29559.47 19950430 24681.16 30430.00 19950531 25063.08 31646.29 19950630 25308.59 32381.43 19950731 25990.58 33455.20 19950831 26652.11 33539.17 19950930 27920.61 34954.52 19951031 28193.41 34829.74 19951130 28814.02 36358.76 19951231 30276.08 37059.03 19960131 30595.58 38320.52 19960229 29887.13 38675.75 Let's say you invested $10,000 in Fidelity Select Utilities Growth Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $29,887 - a 198.87% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Ameritech Corp. 5.6 SBC Communications, Inc. 5.5 BellSouth Corp. 5.5 NYNEX Corp. 5.4 Bell Atlantic Corp. 4.9 GTE Corp. 4.8 AirTouch Communications, Inc. 4.7 AT&T Corp. 4.2 Pacific Telesis Group 3.8 U.S. West, Inc. 3.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Telephone Services 53.2% Electric Power 8.6% Gas Transmission & Distribution 7.1% Electric & Other Services 6.5% Gas Transmission 5.3% All Others 19.3% * Row: 1, Col: 1, Value: 19.3 Row: 1, Col: 2, Value: 5.3 Row: 1, Col: 3, Value: 6.5 Row: 1, Col: 4, Value: 7.1 Row: 1, Col: 5, Value: 8.6 Row: 1, Col: 6, Value: 53.2 * INCLUDES SHORT-TERM INVESTMENTS UTILITIES GROWTH PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Muresianu, Portfolio Manager of Fidelity Select Utilities Growth Portfolio Q. JOHN, HOW HAS THE FUND PERFORMED? A. For the 12 months ended February 29, 1996, the fund had a total return of 25.82%. The S&P 500 Index returned 34.70% during the same period. Q. WHAT FACTORS HELPED THE FUND'S PERFORMANCE? A. I focused the fund's investments on telephone and gas stocks, holding a lighter position in electric utilities. The telephone and gas stocks, as groups, did better than electrics. Telephone stocks, specifically - including regional Bell operating companies (RBOCs) such as BellSouth and U.S. West - did quite well in anticipation of the new telecommunications legislation that became law in February. Individual stock selection also helped. In the gas group, Williams Companies rebounded from the cheap levels it had hit after acquiring Transco last year. And DQE, in the electric utility group, benefited from solid management that used significant free cash flow to reduce debt and make investments in non-regulated businesses. Q. WHAT HAS THE INVESTMENT ENVIRONMENT BEEN LIKE FOR THE UTILITIES SECTOR? A. One of the keys to the overall investment environment has been a soft economy that allowed the Federal Reserve Board to lower rates. Lower rates boosted bond prices, which have, in turn, helped support stock prices. Electric utilities are historically the highest-yielding utility stocks, usually moving more in tandem with bonds than gas or telephone stocks do, so they have done well in response to the bond rally. Gas stocks have done especially well of late because of the positive influence of the bond market and the benefit of higher gas prices. The stock prices have risen because of higher demand due to this winter's exceptionally cold weather across much of the country. Overall, gas stocks have done better than electrics because of these factors. Telephone stocks have done the best, not only because of the influence of bonds, but also because investors were attracted by the growth opportunities implied in what was the imminent passage of the telecommunications bill. So all three sectors have done well, but telephone and gas have done better than electrics. Q. LET'S TAKE A LOOK AT THE TELECOMMUNICATIONS LAW . . . A. The new law essentially allows long distance carriers, cable operators and the RBOCs to enter each others' business and compete. One key is that the RBOCs will be able to get into long distance inexpensively, which has the potential to help earnings growth. The Federal Communications Commission is going to interpret the legislation and come out with specific rules. While we don't know exactly the timing or the details, it looks now that the RBOCs should benefit. The strength in the RBOCs' performance was due to the anticipation of earnings growth that could result from the factors I just cited. Q. WHAT WERE SOME OF THE STOCKS THAT DIDN'T DO AS WELL AS YOU WOULD HAVE LIKED? A. ENSERCH was one in the gas group. It had disappointing production results from two key offshore wells, which investors had anticipated would drive future earnings and cash flow. In the telephone group, Pacific Telesis embarked on an aggressive capital spending campaign on PCS - personal communications services - an alternative lower-priced cellular equivalent. This activity raised concern about how well the company would be able to sustain its dividend. On the electric side, Northeast Utilities had nuclear plant operating problems, as well as antagonistic relations with regulators in New Hampshire. Q. WHAT'S YOUR OUTLOOK OVER THE NEXT SIX MONTHS? A. A lot will depend on the economy and interest rates. If the economy accelerates, interest rates are likely to rise and utility stocks likely will not do well. If the economy continues to slow, interest rates are likely to fall, helping utility stocks. If there is no perceptible change in economic growth and interest rates, the stocks should be unaffected by these issues. I intend to continue to concentrate mostly on telephone utility stocks, because their growth prospects appear to be the best in this sector. FUND FACTS START DATE: December 10, 1981 TRADING SYMBOL: FSUTX SIZE: as of February 29, 1996, more than $266 million MANAGER: John Muresianu, since 1992; manager, Fidelity Utilities Fund, since 1992; Fidelity Select Natural Gas Portfolio, 1993-1994; analyst, natural gas pipelines, life insurance, service companies, Canadian stocks, foreign currencies, 1989-1992; pension fund manager, 1987-1989; joined Fidelity in 1986 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. UTILITIES GROWTH PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 96.2% SHARES VALUE (NOTE 1) CELLULAR - 5.2% CELLULAR & COMMUNICATION SERVICES - 5.2% AirTouch Communications, Inc. (a) 398,300 $ 12,347,300 Vodafone Group PLC sponsored ADR 37,700 1,333,631 13,680,931 COAL - 0.4% MAPCO, Inc. 17,700 964,650 COMMUNICATIONS EQUIPMENT - 0.0% TELEPHONE EQUIPMENT - 0.0% DSC Communications Corp. (a) 1,400 42,700 ELECTRIC UTILITY - 14.5% ELECTRIC & OTHER SERVICES - 5.9% Consolidated Edison Co. of New York, Inc. 13,700 446,963 DPL, Inc. 60,000 1,432,500 Enova Corp. 35,300 816,313 Hidroelectrica de Cantabrico SA 12,450 428,306 IES Industries, Inc. 12,100 350,900 Illinova Corp. 62,000 1,767,000 LG&E Energy Corp. 5,300 227,900 Montana Power Co. 38,700 846,563 NIPSCO Industries, Inc. 61,600 2,325,400 New York State Electric & Gas Corp. 7,200 170,100 PECO Energy Co. 32,100 906,825 PacifiCorp 54,900 1,139,175 Public Service Co. of New Mexico (a) 70,600 1,253,150 Rochester Gas & Electric Corp. 11,200 252,000 Sierra Pacific Resources 6,700 162,475 Utilicorp United, Inc. 4,515 133,193 Veba AG Ord. 56,200 2,637,531 WPL Holdings, Inc. 1,200 37,200 15,333,494 ELECTRIC POWER - 8.6% AES Corp. (a) 152,749 3,742,351 American Electric Power Co., Inc. 37,500 1,607,813 Boston Edison Co. 27,400 756,925 Central & South West Corp. 22,500 624,375 Central Louisiana Electric Co., Inc. 41,806 1,102,633 CESC Ltd. GDR (b) 36,100 126,350 CESC Ltd. GDR (warrants) (a)(b) 18,000 180 DQE, Inc. 58,550 1,712,588 DTE Energy Co. 7,900 281,438 Dominion Resources, Inc. 10,600 418,700 Eastern Utilities Associates 82,444 1,793,157 Eletrobras PN Class B 1,400,000 389,639 Entergy Corp. 113,300 3,214,888 General Public Utilities Corp. 7,800 260,325 Great Bay Power (a) 1,929 16,397 Kansas City Power & Light Co. 10,600 268,975 Korea Electric Power Corp. sponsored ADR 24,700 598,975 New England Electric System 9,400 363,075 Northeast Utilities 12,600 280,350 Nova Scotia Power, Inc. 27,700 245,092 Ohio Edison Co. 24,700 586,625 Pinnacle West Capital Corp. 87,200 2,474,300 Portland General Corp. 24,900 762,563 TECO Energy, Inc. 8,900 222,500 Texas Utilities Co. 5,500 222,063 United Illuminating Co. 14,800 566,100 22,638,377 TOTAL ELECTRIC UTILITY 37,971,871 SHARES VALUE (NOTE 1) GAS - 17.8% GAS & OTHER SERVICES - 1.0% MDU Resources Group, Inc. 58,800 $ 1,205,400 UGI Corp. 48,951 1,027,971 Western Resources, Inc. 8,200 262,400 2,495,771 GAS DISTRIBUTION - 4.4% Energen Corp. 39,400 930,825 MCN Corp. 173,300 4,354,163 NUI Corp. 20,400 377,400 National Fuel Gas Co. 8,800 282,700 New Jersey Resources Corp. 9,800 285,425 NICOR, Inc. 19,700 529,438 Northwest Natural Gas Co. 3,500 115,500 Pacific Enterprises 147,300 3,940,275 Peoples Energy Corp. 11,200 344,400 WICOR, Inc. 12,900 425,700 11,585,826 GAS TRANSMISSION - 5.3% Enron Corp. 105,800 3,874,925 ONEOK, Inc. 31,000 674,250 Sonat, Inc. 88,100 2,951,350 Tejas Power Corp. (a) 43,300 368,050 Williams Companies, Inc. 126,923 6,028,843 13,897,418 GAS TRANSMISSION & DISTRIBUTION - 7.1% Bay State Gas Co. 15,600 442,650 Columbia Gas System, Inc. (The) 77,500 3,390,625 Consolidated Natural Gas Co. 19,000 817,000 El Paso Natural Gas Co. 22,700 766,125 ENSERCH Corp. 388,100 5,870,013 Equitable Resources, Inc. 21,150 605,419 Noram Energy Corp. 31,200 280,800 Questar Corp. 116,100 3,657,150 Tejas Gas Corp. (a) 6,330 302,258 Westcoat Energy, Inc. 122,200 1,939,541 Yankee Energy System, Inc. 19,400 458,325 18,529,906 TOTAL GAS 46,508,921 HOLDING COMPANIES - 0.6% CINergy Corp. 51,606 1,541,729 INDEPENDENT POWER - 0.0% STEAM SUPPLY - 0.0% Bonneville Pacific Corp. (a) 11,300 - OIL & GAS - 2.4% CRUDE PETROLEUM & GAS - 0.1% Nuevo Energy Corp. (a) 1,000 26,000 Occidental Petroleum Corp. 14,100 324,300 350,300 PETROLEUM REFINERS - 2.3% Coastal Corp. (The) 159,900 5,876,325 TOTAL OIL & GAS 6,226,625 POLLUTION CONTROL - 2.1% REFUSE SYSTEMS - 2.1% WMX Technologies, Inc. 195,200 5,563,200 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TELEPHONE SERVICES - 53.2% AT&T Corp. 174,200 $ 11,083,475 ALLTEL Corp. 8,200 272,650 Ameritech Corp. 253,800 14,625,225 BCE, Inc. 162 5,645 Bell Atlantic Corp. 192,600 12,735,675 BellSouth Corp. 361,400 14,410,825 Cincinnati Bell, Inc. 11,600 379,900 Frontier Corp. 800 24,000 GTE Corp. 293,000 12,562,375 Nippon Telegraph & Telephone Corp. Ord. 114 866,385 NYNEX Corp. 272,700 14,044,050 Pacific Telesis Group 350,500 9,901,625 SBC Communications, Inc. 262,800 14,421,150 Telebras sponsored ADR 103,000 5,407,500 Telecom Argentina Class B sponsored ADR 42,000 1,816,500 Telefonica de Argentina SA sponsored ADR 72,000 1,881,000 Telefonica de Espana SA Ord. 449,000 7,370,155 Telefonos de Mexico SA sponsored ADR 91,000 2,775,500 Telephone & Data Systems, Inc. 9,379 432,606 U.S. West, Inc. 293,259 9,604,232 U.S. West, Inc. (Media Group) 220,359 4,599,994 139,220,467 TOTAL COMMON STOCKS (Cost $224,766,992) 251,721,094 PREFERRED STOCKS - 1.3% CONVERTIBLE PREFERRED STOCKS - 0.7% ELECTRIC UTILITY - 0.7% COMBINATION UTILITIES - 0.7% Citizens Utilities Trust $2.50 37,800 1,856,925 NONCONVERTIBLE PREFERRED STOCKS - 0.6% ELECTRIC UTILITY - 0.6% ELECTRIC & OTHER SERVICES - 0.6% Long Island Lighting Co. $1.984 63,800 1,539,175 TOTAL PREFERRED STOCKS (Cost $3,485,000) 3,396,100 REPURCHASE AGREEMENTS - 2.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 6,497,976 6,497,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $234,748,992) $ 261,614,194 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 $126,530 or 0.0% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $161,955,726 and $171,709,809, respectively (see Note 3 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 $107,160 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $1,246,000 and $854,833, respectively. The weighted average interest rate paid was 6.1% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 89.4% Spain 3.0 Brazil 2.2 Argentina 1.4 Mexico 1.1 Germany 1.0 Others (individually less than 1%) 1.9 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $234,990,541. Net unrealized appreciation aggregated $26,623,653, of which $30,824,993 related to appreciated investment securities and $4,201,340 related to depreciated investment securities. The fund hereby designates approximately $7,862,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 100% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. UTILITIES GROWTH PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 261,614,194 securities, at value (including repurchase agreements of $6,497,000) (cost $234,748,992 ) - See accompanyin g schedule Cash 366 Receivable for 7,728,303 investments sold Receivable for 1,110,205 fund shares sold Dividends 625,881 receivable Redemption 828 fees receivable Other 21,047 receivables TOTAL ASSETS 271,100,824 LIABILITIES Payable for $ 86,500 investments purchased Payable for 3,886,787 fund shares redeemed Accrued 151,767 management fee Other payables 208,190 and accrued expenses TOTAL 4,333,244 LIABILITIES NET ASSETS $ 266,767,580 Net Assets consist of: Paid in capital $ 215,314,084 Undistributed 2,165,391 net investment income Accumulated 22,422,838 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 26,865,267 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 266,767,580 6,198,971 shares outstanding NET ASSET $43.03 VALUE and redemption price per share ($266,767,58 0 (divided by) 6,198,971 shares) Maximum $44.36 offering price per share (100/97.00 of $43.03) STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996 INVESTMENT INCOME $ 10,288,689 Dividends Interest (including income on 644,780 securities loaned of $554) TOTAL INCOME 10,933,469 EXPENSES Management fee $ 1,615,924 Transfer agent 1,807,073 Fees Redemption fees (163,962 ) Accounting and security lending fees 264,748 Non-interested trustees' compensation 1,634 Custodian fees and expenses 20,273 Registration fees 83,678 Audit 28,572 Legal 1,475 Interest 873 Miscellaneous 5,183 Total expenses before reductions 3,665,471 Expense reductions (30,548 3,634,923 ) NET INVESTMENT INCOME 7,298,546 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 23,321,683 Foreign currency transactions (485 23,321,198 ) Change in net unrealized appreciation (depreciation) on: Investment securities 27,286,421 Assets and liabilities in 65 27,286,486 foreign currencies NET GAIN (LOSS) 50,607,684 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 57,906,230 OTHER INFORMATION $ 682,903 Sales charges paid to FDC Deferred sales charges withheld $ 21,405 by FDC Exchange fees withheld by FSC $ 122,813 Expense reductions $ 24,893 Directed brokerage arrangements Custodian interest credits 1,512 Transfer agent interest credits 4,143 $ 30,548
STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995
Operations $ 7,298,546 $ 7,276,449 Net investment income Net realized gain (loss) 23,321,198 (691,652 ) Change in net unrealized appreciation (depreciation) 27,286,486 (7,619,880 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 57,906,230 (1,035,083 ) Distributions to shareholders (5,508,527 (6,365,877 From net investment income ) ) From net realized gain - (4,277,985 ) TOTAL DISTRIBUTIONS (5,508,527 (10,643,862 ) ) Share transactions 283,936,618 155,428,275 Net proceeds from sales of shares Reinvestment of distributions 5,265,104 10,195,372 Cost of shares redeemed (312,698,789 (167,054,799 ) ) Paid in capital portion of redemption fees 231,738 223,028 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (23,265,329 (1,208,124 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS 29,132,374 (12,887,069 ) NET ASSETS Beginning of period 237,635,206 250,522,275 End of period (including undistributed net investment income of $2,165,391 and $1,881,976, respectively) $ 266,767,580 $ 237,635,206 OTHER INFORMATION Shares Sold 6,910,440 4,450,667 Issued in reinvestment of distributions 124,287 303,279 Redeemed (7,649,316 (4,783,040 ) ) Net increase (decrease) (614,589 (29,094 ) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 34.88 $ 36.61 $ 41.49 $ 37.18 $ 35.57 value, beginning of period Income from Investment Operations Net 1.10 1.13 1.33 1.19 1.66 investment income Net realized 7.86 (1.17) (.16) 6.14 2.82 and unrealized gain (loss) Total from 8.96 (.04) 1.17 7.33 4.48 investment operations Less (.84) (1.05) (1.13) (1.33) (1.69) Distributions From net investment income From net - (.67) (4.94) (1.70) (1.19) realized gain Total (.84) (1.72) (6.07) (3.03) (2.88) distributions Redemption .03 .03 .02 .01 .01 fees added to paid in capital Net asset $ 43.03 $ 34.88 $ 36.61 $ 41.49 $ 37.18 value, end of period TOTAL 25.82% .21% 2.53% 20.90% 13.23% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 266,768 $ 237,635 $ 250,522 $ 290,718 $ 206,872 end of period (000 omitted) Ratio of 1.39% 1.43% 1.36% 1.42% A 1.51% expenses to average net assets Ratio of 1.38% 1.42% 1.35% 1.42% A 1.51% expenses to E E E average net assets after expense reductions Ratio of net 2.76% 3.24% 3.11% 3.71% A 4.58% investment income to average net assets Portfolio 65% 24% 61% 34% A 45% turnover rate
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past one, five and 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS BROKERAGE AND INVESTMENT 29.85% MANAGEMENT 164.39% 106.70% BROKERAGE AND INVESTMENT 25.95% MANAGEMENT (INCL. 3% SALES CHARGE) 156.46% 100.49% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS BROKERAGE AND INVESTMENT 29.85% 21.46% 7.53% MANAGEMENT BROKERAGE AND INVESTMENT 25.95% 20.73% 7.20% MANAGEMENT (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9956.23 10558.00 19860430 9868.38 10438.69 19860531 9970.87 10994.03 19860630 9963.55 11179.83 19860731 9058.53 10554.88 19860831 9866.02 11338.05 19860930 8713.52 10400.39 19861031 9667.82 11000.50 19861130 9190.67 11267.81 19861231 8897.04 10980.48 19870131 10563.39 12459.55 19870228 10805.64 12951.70 19870331 10761.60 13326.01 19870430 9587.07 13207.41 19870531 9161.30 13322.31 19870630 9146.62 13995.09 19870731 9168.64 14704.64 19870831 9462.28 15253.12 19870930 9139.28 14919.08 19871031 5777.20 11705.51 19871130 5344.09 10740.97 19871231 5618.50 11558.36 19880131 6021.07 12044.97 19880229 6309.87 12606.27 19880331 6143.59 12216.73 19880430 6248.61 12352.34 19880531 6012.32 12459.80 19880630 6651.23 13031.71 19880731 6598.65 12982.19 19880831 6554.84 12540.79 19880930 6721.34 13075.03 19881031 6747.63 13438.52 19881130 6598.65 13246.35 19881231 6660.65 13478.16 19890131 7528.66 14464.76 19890228 7351.52 14104.59 19890331 7360.38 14433.22 19890430 7431.23 15182.31 19890531 7918.38 15797.19 19890630 7695.75 15707.15 19890731 8622.09 17125.50 19890831 8835.87 17461.16 19890930 8559.74 17389.57 19891031 7864.99 16986.13 19891130 7784.83 17332.65 19891231 7597.08 17748.63 19900131 7263.24 16557.70 19900228 7506.86 16771.29 19900331 7714.38 17215.73 19900430 7191.06 16785.34 19900531 7876.78 18421.91 19900630 7867.54 18296.64 19900731 7587.52 18238.09 19900831 6557.79 16589.37 19900930 5997.76 15781.47 19901031 5627.41 15713.61 19901130 5997.76 16728.71 19901231 6368.10 17195.44 19910131 6898.01 17945.16 19910228 7583.25 19228.24 19910331 8359.85 19693.56 19910430 8478.62 19740.82 19910531 8926.30 20593.63 19910630 8331.94 19650.44 19910731 8972.16 20566.15 19910831 9173.37 21053.57 19910930 9648.96 20701.97 19911031 10289.17 20979.38 19911130 9722.12 20133.91 19911231 11606.19 22437.23 19920131 11770.81 22019.90 19920229 11697.65 22306.16 19920331 11386.68 21871.19 19920430 10499.53 22514.20 19920531 10472.09 22624.52 19920630 10225.15 22287.41 19920731 10801.34 23198.97 19920831 10490.38 22723.39 19920930 10417.21 22991.53 19921031 10883.66 23072.00 19921130 11862.27 23858.75 19921231 12200.67 24152.21 19930131 12923.20 24355.09 19930228 13005.51 24686.32 19930331 14048.15 25207.20 19930430 14002.40 24597.19 19930531 14460.00 25256.39 19930630 15146.39 25329.64 19930731 15649.74 25228.32 19930831 16885.25 26184.47 19930930 17196.41 25982.85 19931031 16638.15 26520.70 19931130 16180.55 26268.75 19931231 18218.67 26586.60 19940131 18606.94 27490.55 19940228 17671.11 26745.55 19940331 15689.96 25579.45 19940430 15560.54 25906.86 19940531 15938.85 26331.74 19940630 16546.14 25686.61 19940731 16157.87 26529.13 19940831 16277.34 27616.82 19940930 15660.09 26940.21 19941031 15650.14 27546.37 19941130 14564.98 26543.13 19941231 15072.71 26936.76 19950131 14883.56 27635.23 19950228 15441.07 28712.18 19950331 15600.36 29559.47 19950430 16072.99 30430.00 19950531 16976.78 31646.29 19950630 17931.91 32381.43 19950731 18794.62 33455.20 19950831 18620.02 33539.17 19950930 19749.75 34954.52 19951031 18650.83 34829.74 19951130 19102.72 36358.76 19951231 18629.01 37059.03 19960131 19843.47 38320.52 19960229 20049.49 38675.75 Let's say you invested $10,000 in Fidelity Select Brokerage and Investment Management Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $20,049 - a 100.49% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Dean Witter Discover & Co. 4.9 Bear Stearns Companies, Inc. 4.9 Lehman Brothers Holdings, Inc. 4.2 Travelers, Inc. (The) 4.2 Advest Group, Inc. (The) 4.1 Legg Mason, Inc. 4.0 Raymond James Financial, Inc. 3.9 Jefferies Group, Inc. 3.8 Merrill Lynch & Co., Inc. 3.8 Peregrine Investments Holdings Ltd. 3.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Security & Commodity Brokers 57.9% Security Brokers & Dealers 9.3% Financial Services 7.0% Investment Managers 5.2% Property-Casualty & Reinsurance 4.2% All Others 16.4% * Row: 1, Col: 1, Value: 16.4 Row: 1, Col: 2, Value: 4.2 Row: 1, Col: 3, Value: 5.2 Row: 1, Col: 4, Value: 7.0 Row: 1, Col: 5, Value: 9.300000000000001 Row: 1, Col: 6, Value: 57.9 * INCLUDES SHORT-TERM INVESTMENTS BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Louis Salemy, Portfolio Manager of Fidelity Select Brokerage and Investment Management Portfolio Note to shareholders: On December 28, 1995, Louis Salemy replaced Jeff Feinberg as portfolio manager of the fund. Q. HOW DID THE FUND PERFORM, LOUIS? A. For the 12-month period ended February, 29, 1996, the fund returned 29.85%. For the same period, the S&P 500 Index returned 34.70%. Q. WHY DID THE FUND UNDERPERFORM THE MARKET? A. Brokerage stocks are influenced by investors' outlook for the financial markets and current interest rate trends. For the last month of the period, many of the fund's top holdings - such as Dean Witter Discover and The Travelers - were down or unchanged in a very volatile February. During the last two months of the period, we saw rising interest rates. Higher interest rates, of course, can have a corrosive effect on corporate profits and thus hurt stock price performance. Additionally, incremental changes in interest rates can have a great effect on the performance of brokerage stocks because higher interest rates reduce underwriting activity, a major source of brokerage income. Q. WHAT'S BEEN THE STORY WITH BROKERAGE STOCKS FOR THE MAJORITY OF THE YEAR THEN? A. Nineteen ninety-five was a tremendous year for most brokerage firms, and certainly for the major wire houses like Merrill Lynch. Securities firms took in $6.58 billion in disclosed underwriting fees in 1995, which was more than an 18% gain from 1994. With falling interest rates and thriving financial markets, companies sought to raise capital and the number of common stock offerings grew throughout the year. Most notably, initial public offerings of technology companies became a major part of the underwriting business. Lower interest rates also were important for bond financings, as bond deals made up about a third of underwriting fees. Q. WHAT OTHER FACTORS WERE KEY TO THE PERFORMANCE OF BROKERAGE STOCKS? A. Trading volume is very important to all securities firms, but especially to the discount and deep-discount brokers - like Quick & Reilly - whose revenues depend more on the number of trades they execute than anything else. With such a strong market, trading volume naturally rises. In fact, the Nasdaq Stock Market attained a record average daily volume of 400 million shares. Q. HOW DOES THE SEC'S LIMIT ON THE AMOUNT OF OUTSTANDING EQUITY THE FUND MAY HOLD IN ANY ONE SECURITIES FIRM AFFECT THE WAY YOU MANAGE IT? A. The SEC limits individual holdings to 5% for each company. Therefore, the fund has to own almost every company within its objective in order to be close to being fully invested. Q. WHAT HAVE YOU TRIED TO DO SINCE TAKING OVER THE FUND? A. In general, I try to own companies that have the potential to grow earnings and that are trading at reasonable prices. This becomes more difficult, however, as the valuations of a lot of these firms become very high. Q. WHAT'S YOUR OUTLOOK? A. As I stated above, low interest rates and strong financial markets are very important to the performance of brokerage stocks. Given the strong gains in the markets last year, I am maintaining a cautious stance on the brokerage area until a clear direction emerges in the markets. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FSLBX SIZE: as of February 29, 1996, more than $38 million MANAGER: Louis Salemy, since December 1995; manager, Fidelity Select Financial Services Portfolio, since 1994; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 87.4% SHARES VALUE (NOTE 1) CLOSED END INVESTMENT COMPANY - 1.0% REGISTERED INVESTMENT COMPANIES - 1.0% Liberty Financial Companies, Inc. 12,000 $ 378,000 CREDIT & OTHER FINANCE - 8.4% FINANCIAL SERVICES - 7.0% Dean Witter Discover & Co. 35,000 1,881,245 Investors Financial Services Corp. (a) 6,297 140,108 Investors Financial Services Corp. Class A (a) 1,210 26,923 Perpetual PLC 20,000 666,137 2,714,413 MANAGEMENT & INVESTMENT OFFICES - 1.4% Trimark Financial Corp. 16,600 545,116 TOTAL CREDIT & OTHER FINANCE 3,259,529 INSURANCE - 4.2% PROPERTY-CASUALTY & REINSURANCE - 4.2% Travelers, Inc. (The) 24,000 1,605,000 SECURITIES INDUSTRY - 73.8% INVESTMENT ADVICE - 1.4% Mutual Fund Co. Ltd. (For. Reg.) 27,600 525,506 INVESTMENT MANAGERS - 5.2% Eaton Vance Corp. 22,500 759,375 Franklin Resources, Inc. 8,900 512,863 Price (T. Rowe) Associates, Inc. 14,000 752,500 2,024,738 SECURITY & COMMODITY BROKERS - 57.9% Advest Group, Inc. (The) (a) 169,100 1,585,313 Alex. Brown, Inc. 28,500 1,417,875 BHC Financial, Inc. 22,000 385,000 Bear Stearns Companies, Inc. 77,460 1,878,405 Edwards (A.G.), Inc. 52,000 1,261,000 Fahnestock Viner Holdings, Inc. Class A 77,600 814,026 First Marathon, Inc. Class A (non-vtg.) 33,100 341,181 Jefferies Group, Inc. 25,900 1,476,300 Legg Mason, Inc. 51,700 1,557,463 McDonald & Co. Investments, Inc. 34,200 662,625 Merrill Lynch & Co., Inc. 25,500 1,469,438 Morgan Keegan, Inc. 91,950 1,126,388 Morgan Stanley Group, Inc. 30,000 1,406,250 Peregrine Investments Holdings Ltd. 843,000 1,439,255 Piper Jaffray, Inc. 32,600 464,550 Quick & Reilly Group, Inc. (The) 54,375 1,427,344 Raymond James Financial, Inc. 67,900 1,502,288 Schwab (Charles) Corp. 10,400 265,200 Southwest Securities Group, Inc. 60,000 667,500 Waterhouse Investor Services, Inc. 48,500 1,194,313 22,341,714 SECURITY BROKERS & DEALERS - 9.3% Inter-Regional Financial Group, Inc. 36,250 792,969 Lehman Brothers Holdings, Inc. 65,200 1,613,700 PaineWebber Group, Inc. 59,700 1,186,538 3,593,207 TOTAL SECURITIES INDUSTRY 28,485,165 TOTAL COMMON STOCKS (Cost $30,212,507) 33,727,694 REPURCHASE AGREEMENTS - 12.6% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 4,842,728 $ 4,842,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $35,054,507) $ 38,569,694 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $50,733,421 and $50,431,903, respectively (see Note 3 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 $18,355 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $3,294,000 and $2,502,800, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 88.8% Canada 4.4 Hong Kong 3.7 United Kingdom 1.7 Thailand 1.4 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $35,241,254. Net unrealized appreciation aggregated $3,328,440, of which $3,966,749 related to appreciated investment securities and $638,309 related to depreciated investment securities. The fund hereby designates approximately $319,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 19% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 38,569,694 securities, at value (including repurchase agreements of $4,842,000) (cost $35,054,507) - - See accompanyin g schedule Cash 417 Receivable for 294,019 fund shares sold Dividends 33,103 receivable Redemption 96 fees receivable Other 238 receivables TOTAL ASSETS 38,897,567 LIABILITIES Payable for $ 454,180 fund shares redeemed Accrued 17,854 management fee Other payables 43,861 and accrued expenses TOTAL 515,895 LIABILITIES NET ASSETS $ 38,381,672 Net Assets consist of: Paid in capital $ 32,804,785 Undistributed 115,192 net investment income Accumulated 1,946,508 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 3,515,187 appreciation (depreciation ) on investments NET ASSETS, for $ 38,381,672 2,076,265 shares outstanding NET ASSET $18.49 VALUE and redemption price per share ($38,381,672 (divided by) 2,076,265 shares) Maximum $19.06 offering price per share (100/97.00 of $18.49) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 554,887 INCOME Dividends Interest 148,908 TOTAL 703,795 INCOME EXPENSES Management $ 204,478 fee Transfer agent 340,997 Fees Redemption (43,162 fees ) Accounting 47,818 fees and expenses Non-interested 236 trustees' compensatio n Custodian fees 22,200 and expenses Registration 33,446 fees Audit 17,208 Legal 247 Interest 2,146 Miscellaneous 375 Total 625,989 expenses before reductions Expense (88,914 537,075 reductions ) NET 166,720 INVESTMENT INCOME REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 5,391,467 securities Foreign (584 5,390,883 currency ) transactions Change in net unrealized appreciation (depreciation ) on: Investment 2,887,657 securities Assets and (7 2,887,650 liabilities in ) foreign currencies NET GAIN (LOSS) 8,278,533 NET INCREASE $ 8,445,253 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 222,268 INFORMATION Sales charges paid to FDC Deferred $ 5,017 sales charges withheld by FDC Exchange $ 30,630 fees withheld by FSC Expense $ 6,301 reductions Directed brokerage arrangement s Custodian 2,398 interest credits Transfer 241 agent interest credits FMR 79,974 reimburseme nt $ 88,914 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 166,720 $ (59,459 Net ) investment income (loss) Net realized 5,390,883 144,552 gain (loss) Change in 2,887,650 (6,407,629 net ) unrealized appreciation (depreciation ) NET INCREASE 8,445,253 (6,322,536 (DECREASE) ) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (62,341 - shareholders ) From net investment income From net (1,755,263 - realized gain ) In excess of (564,639 - net realized ) gain TOTAL (2,382,243 - DISTRIBUTION ) S Share 73,164,616 41,178,684 transactions Net proceeds from sales of shares Reinvestmen 2,335,190 - t of distributions Cost of (70,682,177 (67,399,063 shares ) ) redeemed Paid in 155,181 78,929 capital portion of redemption fees NET INCREASE 4,972,810 (26,141,450 (DECREASE) ) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 11,035,820 (32,463,986 INCREASE ) (DECREASE) IN NET ASSETS NET ASSETS Beginning of 27,345,852 59,809,838 period End of period $ 38,381,672 $ 27,345,852 (including undistribute d net investment income of $115,192 and $0, respectivel y) OTHER INFORMATION Shares Sold 4,209,639 2,575,103 Issued in 138,315 - reinvestment of distributions Redeemed (4,034,436 (4,181,828 ) ) Net increase 313,518 (1,606,725 (decrease) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 15.51 $ 17.75 $ 14.22 $ 11.48 $ 9.28 value, beginning of period Income from Investment Operations Net .09 (.03) (.02) - .02 investment income (loss) Net realized 4.29 (2.25) 4.95 2.65 1.96 and unrealized gain (loss) Total from 4.38 (2.28) 4.93 2.65 1.98 investment operations Less (.04) - (.01) - (.01) Distributions From net investment income From net (1.09) - (1.47) - - realized gain In excess of (.35) - - - - net realized gain Total (1.48) - (1.48) - (.01) distributions Redemption .08 .04 .08 .09 .23 fees added to paid in capital Net asset $ 18.49 $ 15.51 $ 17.75 $ 14.22 $ 11.48 value, end of period TOTAL 29.85% (12.62)% 35.87% 23.87% 23.84% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 38,382 $ 27,346 $ 59,810 $ 24,687 $ 17,915 end of period (000 omitted) Ratio of 1.64% 2.54% 1.79% 2.21% 2.17% expenses to F F A average net assets Ratio of 1.61% 2.54% 1.77% 2.21% 2.17% expenses to E E A average net assets after expense reductions Ratio of net .50% (.20)% (.14)% .02% .16% investment A income (loss) to average net assets Portfolio 166% 139% 295% 111% 254% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS FINANCIAL SERVICES 39.05% 234.37% 237.77% FINANCIAL SERVICES 34.88% (INCL. 3% SALES CHARGE) 224.34% 227.64% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS FINANCIAL SERVICES 39.05% 27.30% 12.94% FINANCIAL SERVICES 34.88% 26.53% (INCL. 3% SALES CHARGE) 12.60% S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10328.40 10558.00 19860430 10233.10 10438.69 19860531 10653.02 10994.03 19860630 10965.74 11179.83 19860731 10181.19 10554.88 19860831 10825.26 11338.05 19860930 9667.14 10400.39 19861031 9881.83 11000.50 19861130 9785.07 11267.81 19861231 9543.16 10980.48 19870131 10214.45 12459.55 19870228 10891.79 12951.70 19870331 10477.52 13326.01 19870430 9818.33 13207.41 19870531 9748.78 13322.31 19870630 10108.62 13995.09 19870731 10226.55 14704.64 19870831 10819.21 15253.12 19870930 10435.19 14919.08 19871031 8073.59 11705.51 19871130 7580.71 10740.97 19871231 7964.80 11558.36 19880131 8564.51 12044.97 19880229 8849.78 12606.27 19880331 8697.42 12216.73 19880430 8545.06 12352.34 19880531 8629.35 12459.80 19880630 9160.98 13031.71 19880731 9099.39 12982.19 19880831 9073.46 12540.79 19880930 9449.49 13075.03 19881031 9475.42 13438.52 19881130 9083.18 13246.35 19881231 8921.72 13478.16 19890131 9378.99 14464.76 19890228 9358.96 14104.59 19890331 10043.20 14433.22 19890430 10226.77 15182.31 19890531 10867.61 15797.19 19890630 10791.89 15707.15 19890731 11655.64 17125.50 19890831 11985.01 17461.16 19890930 12233.72 17389.57 19891031 11067.48 16986.13 19891130 10916.24 17332.65 19891231 10647.40 17748.63 19900131 9748.53 16557.70 19900228 10101.29 16771.29 19900331 9945.26 17215.73 19900430 9592.49 16785.34 19900531 10437.10 18421.91 19900630 10145.39 18296.64 19900731 9494.13 18238.09 19900831 8357.82 16589.37 19900930 7112.96 15781.47 19901031 6492.23 15713.61 19901130 7408.07 16728.71 19901231 8056.90 17195.44 19910131 8789.03 17945.16 19910228 9798.74 19228.24 19910331 10267.17 19693.56 19910430 10600.27 19740.82 19910531 11412.21 20593.63 19910630 10485.77 19650.44 19910731 11315.05 20566.15 19910831 12064.53 21053.57 19910930 11991.66 20701.97 19911031 12255.37 20979.38 19911130 11346.28 20133.91 19911231 13022.24 22437.23 19920131 13670.90 22019.90 19920229 14652.65 22306.16 19920331 14323.06 21871.19 19920430 14873.54 22514.20 19920531 15511.68 22624.52 19920630 15868.60 22287.41 19920731 16322.40 23198.97 19920831 15386.22 22723.39 19920930 15865.03 22991.53 19921031 16493.91 23072.00 19921130 17733.82 23858.75 19921231 18598.37 24152.21 19930131 19771.48 24355.09 19930228 20297.10 24686.32 19930331 21359.75 25207.20 19930430 20337.20 24597.19 19930531 20344.91 25256.39 19930630 21104.42 25329.64 19930731 21671.17 25228.32 19930831 22345.86 26184.47 19930930 22862.48 25982.85 19931031 22249.48 26520.70 19931130 21258.64 26268.75 19931231 21863.20 26586.60 19940131 23347.38 27490.55 19940228 22499.91 26745.55 19940331 21472.39 25579.45 19940430 22287.78 25906.86 19940531 23239.12 26331.74 19940630 22690.44 25686.61 19940731 23482.48 26529.13 19940831 24305.50 27616.82 19940930 22473.63 26940.21 19941031 22354.16 27546.37 19941130 20938.22 26543.13 19941231 21065.74 26936.76 19950131 22155.18 27635.23 19950228 23562.17 28712.18 19950331 23977.43 29559.47 19950430 24729.78 30430.00 19950531 26102.57 31646.29 19950630 26224.70 32381.43 19950731 27104.07 33455.20 19950831 28159.31 33539.17 19950930 29766.60 34954.52 19951031 29004.48 34829.74 19951130 30958.63 36358.76 19951231 31038.31 37059.03 19960131 32489.49 38320.52 19960229 32763.77 38675.75 Let's say you invested $10,000 in Fidelity Select Financial Services Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $32,764 - a 227.64% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS American Express Co. 5.9 Fleet Financial Group, Inc. 5.6 Banc One Corp. 5.5 Beneficial Corp. 5.4 Household International, Inc. 5.4 Federal National Mortgage Association 5.3 Allstate Corp. 5.3 Citicorp 5.1 Bank of New York Co., Inc. 5.0 Federal Home Loan Mortgage Corporation 3.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 National Commercial Banks 32.1% Property-Casualty & Reinsurance 16.5% Federal & Federally Sponsored Credit Agencies 11.4% Personal Credit Institutions 10.7% Financial Services 6.9% All Others 22.4% * Row: 1, Col: 1, Value: 22.4 Row: 1, Col: 2, Value: 6.9 Row: 1, Col: 3, Value: 10.7 Row: 1, Col: 4, Value: 11.4 Row: 1, Col: 5, Value: 16.5 Row: 1, Col: 6, Value: 32.1 * INCLUDES SHORT-TERM INVESTMENTS FINANCIAL SERVICES PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Louis Salemy, Portfolio Manager of Fidelity Select Financial Services Portfolio Q. HOW DID THE FUND PERFORM, LOUIS? A. For the 12-month period ended February 29, 1996, the fund had a total return of 39.05%. For the same period, the S&P 500 Index returned 34.70%. Q. WHAT CONTRIBUTED TO THE PERFORMANCE OF FINANCIAL STOCKS AND THE FUND? A. Financial services stocks outperformed the overall market on the heels of roaring stock and bond markets in 1995. With interest rates coming down and the market's resounding response, investors regarded financial services as the place to be. Q. HOW DID MONEY-CENTER BANKS HELP THE FUND? A. The fund's position in money-center banks became very important during the period as these stocks outperformed regional banks. Money-center banks - - such as Citicorp - are historically more sensitive to changes in interest rates because lower rates tend to spur activity in areas money centers specialize in, such as foreign exchange trading and bond trading. Therefore, as interest rates have trended downward, the money-center banks have done well. Additionally, at the beginning of 1995, money-center bank stocks were inexpensive relative to regionals so, following the strong performance of financial stocks in 1995, they had a better rebound than regionals. Q. LAST YEAR WAS A BANNER YEAR FOR MERGERS AND CONSOLIDATION IN THE BANKING INDUSTRY. HOW DO THESE CHANGES AFFECT THE WAY YOU EVALUATE THE MARKET? A. Nineteen ninety-five was a record in terms of the dollar value of bank deals done in one year. As a portfolio manager, it is my task to sort through these situations and figure out which mergers make sense and which don't. Q. WHAT ELSE HAS BEEN THE STORY WITH MANY OF THE FINANCIAL SERVICE COMPANIES YOU OWN? A. It takes more than just lower interest rates to make some of these companies catch the eye of Wall Street. Many of the fund's largest holdings have controlled costs effectively and sought to grow earnings through consolidation and balance-sheet restructuring. Q. SEVERAL OF YOUR TOP HOLDINGS ARE DEPENDENT ON CREDIT CARD BUSINESSES. DOES THE RAPID RISE IN CONSUMER DEBT CONCERN YOU? A. Rising consumer debt often brings a rise in delinquent accounts. However, I believe the fund owns companies that have the ability to adapt to the idiosyncrasies of the credit card market and manage through credit cycles. For example, American Express, the fund's top holding at the end of the period, has been able to achieve earnings growth with conservative financial management. Q. WHAT HAPPENED IN THE INSURANCE AREA DURING THE PERIOD? A. I basically looked for companies that had generated consistent returns and that were trading at inexpensive levels. Allstate, for example, met this criteria. Q. WERE THERE ANY DISAPPOINTMENTS? A. Not really. Financial stocks performed beyond investors' expectations. Q. WHAT'S YOUR OUTLOOK? A. It's important for investors to recognize that 1995 was a phenomenal year for this sector, as well as the market in general, and it may be difficult for financial stocks to duplicate that performance in 1996. Additionally, should the fundamentals of many of these companies weaken, their high valuations could make for a difficult backdrop in the financial services area. That said, I will continue to try to uncover companies that have the potential to grow earnings in 1996 relative to 1995. FUND FACTS START DATE: December 10, 1981 TRADING SYMBOL: FIDSX SIZE: as of February 29, 1996, more than $270 million MANAGER: Louis Salemy, since 1994; manager, Fidelity Select Brokerage and Investment Management Portfolio, since December 1995; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FINANCIAL SERVICES PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 87.6% SHARES VALUE (NOTE 1) BANKS - 33.5% NATIONAL COMMERCIAL BANKS - 32.1% Banc One Corp. 417,340 $ 14,867,738 Bank of New York Co., Inc. 260,734 13,525,576 Citicorp 175,000 13,650,000 Comerica, Inc. 84,445 3,282,799 First Bank System, Inc. 167,400 9,646,425 First Interstate Bancorp 25,000 4,084,375 First Union Corp. 1 61 Fleet Financial Group, Inc. 369,367 15,190,218 Mercantile Bancorporation, Inc. 22,050 992,250 Morgan (J.P.) & Co., Inc. 81,500 6,672,813 Republic New York Corp. 3,000 179,625 Zions Bancorporation 58,000 4,277,500 86,369,380 STATE BANKS FEDERAL RESERVE - 1.4% Chemical Banking Corp. 48,200 3,452,325 Fifth Third Bancorp 6,600 338,250 3,790,575 TOTAL BANKS 90,159,955 COMPUTER SERVICES & SOFTWARE - 1.0% DATA PROCESSING - 1.0% First Data Corp. 39,647 2,745,555 CREDIT & OTHER FINANCE - 17.6% FINANCIAL SERVICES - 6.9% American Express Co. 348,000 16,008,000 Equitable Companies, Inc. 100,000 2,525,000 18,533,000 PERSONAL CREDIT INSTITUTIONS - 10.7% Beneficial Corp. 278,300 14,471,600 Household International, Inc. 215,000 14,458,750 28,930,350 TOTAL CREDIT & OTHER FINANCE 47,463,350 FEDERAL SPONSORED CREDIT - 11.4% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 11.4% Federal Home Loan Mortgage Corporation 122,400 10,098,000 Federal National Mortgage Association 452,400 14,307,150 Student Loan Marketing Association 76,000 6,279,500 30,684,650 INSURANCE - 22.8% INSURANCE BROKERS & SERVICES - 3.7% Alexander & Alexander Services, Inc. 250,000 4,656,250 ITT Hartford Group, Inc. 100,000 5,150,000 9,806,250 LIFE INSURANCE - 2.6% Providian Corp. 96,800 4,477,000 Torchmark Corp. 55,000 2,550,625 Transport Holdings, Inc. Class A (a) 248 10,974 7,038,599 PROPERTY-CASUALTY & REINSURANCE - 16.5% Allstate Corp. 332,900 14,273,088 American International Group, Inc. 75,000 7,246,875 Chubb Corp. (The) 103,100 10,013,588 SHARES VALUE (NOTE 1) General Re Corp. 50,000 $ 7,193,750 NAC Re Corp. 75,000 2,521,875 Travelers, Inc. (The) 48,033 3,212,207 44,461,383 TOTAL INSURANCE 61,306,232 SAVINGS & LOANS - 1.3% SAVINGS BANKS & SAVINGS & LOANS - 0.6% Standard Federal Bancorporation, Inc. 39,300 1,626,035 SAVINGS BANKS, FEDERAL CHARTER - 0.7% Ahmanson (H.F.) & Co. 82,900 1,885,975 TOTAL SAVINGS & LOANS 3,512,010 TOTAL COMMON STOCKS (Cost $194,484,917) 235,871,752 REPURCHASE AGREEMENTS - 12.4% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 33,428,023 33,423,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $227,907,917) $ 269,294,752 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $276,862,931 and $213,334,538, respectively (see Note 3 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 $115,231 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $13,651,000 and $7,626,000, respectively. The weighted average interest rate paid was 6.3% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $228,650,023. Net unrealized appreciation aggregated $40,644,729, of which $42,074,627 related to appreciated investment securities and $1,429,898 related to depreciated investment securities. The fund hereby designates approximately $3,544,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 90% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. FINANCIAL SERVICES PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 269,294,752 securities, at value (including repurchase agreements of $33,423,000) (cost $227,907,917 ) - See accompanyin g schedule Cash 739 Receivable for 1,902,874 fund shares sold Dividends 560,978 receivable Redemption 600 fees receivable Other 4,825 receivables TOTAL ASSETS 271,764,768 LIABILITIES Payable for $ 1,001,455 fund shares redeemed Accrued 134,536 management fee Other payables 162,394 and accrued expenses TOTAL 1,298,385 LIABILITIES NET ASSETS $ 270,466,383 Net Assets consist of: Paid in capital $ 217,102,061 Undistributed 1,976,083 net investment income Accumulated 10,001,404 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 41,386,835 appreciation (depreciation ) on investments NET ASSETS, for $ 270,466,383 4,116,814 shares outstanding NET ASSET $65.70 VALUE and redemption price per share ($270,466,38 3 (divided by) 4,116,814 shares) Maximum $67.73 offering price per share (100/97.00 of $65.70) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 4,695,879 INCOME Dividends Interest 1,561,334 (including income on securities loaned of $2,383) TOTAL 6,257,213 INCOME EXPENSES Management $ 1,203,738 fee Transfer agent 1,404,050 Fees Redemption (155,333 fees ) Accounting and 197,289 security lending fees Non-interested 980 trustees' compensatio n Custodian fees 15,123 and expenses Registration 97,601 fees Audit 21,756 Legal 800 Interest 2,660 Miscellaneous 1,634 Total 2,790,298 expenses before reductions Expense (21,665 2,768,633 reductions ) NET 3,488,580 INVESTMENT INCOME REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 13,966,600 securities Foreign (52 13,966,548 currency ) transactions Change in net 35,177,894 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 49,144,442 NET INCREASE $ 52,633,022 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 1,419,292 INFORMATION Sales charges paid to FDC Deferred $ 10,479 sales charges withheld by FDC Exchange $ 114,300 fees withheld by FSC Expense $ 19,386 reductions Directed brokerage arrangement s Custodian 526 interest credits Transfer 1,753 agent interest credits $ 21,665 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 3,488,580 $ 1,646,581 Net investment income Net realized 13,966,548 9,348,163 gain (loss) Change in 35,177,894 (5,791,837 net ) unrealized appreciation (depreciation ) NET INCREASE 52,633,022 5,202,907 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (1,512,445 (1,391,905 shareholders ) ) From net investment income From net (3,719,914 (6,998,318 realized gain ) ) TOTAL (5,232,359 (8,390,223 DISTRIBUTION ) ) S Share 434,251,303 137,344,321 transactions Net proceeds from sales of shares Reinvestmen 5,143,919 8,148,541 t of distributions Cost of (369,962,899 (105,579,333 shares ) ) redeemed Paid in 544,495 167,317 capital portion of redemption fees NET INCREASE 69,976,818 40,080,846 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 117,377,481 36,893,530 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 153,088,902 116,195,372 period End of period $ 270,466,383 $ 153,088,902 (including undistribute d net investment income of $1,976,083 and $304,699, respectivel y) OTHER INFORMATION Shares Sold 7,271,619 2,833,201 Issued in 83,493 192,390 reinvestment of distributions Redeemed (6,412,630 (2,118,831 ) ) Net increase 942,482 906,760 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 48.23 $ 51.24 $ 53.29 $ 42.42 $ 30.55 value, beginning of period Income from Investment Operations Net 1.03 .76 .29 .33 .54 investment income Net realized 17.56 .87 5.02 14.30 11.35 and unrealized gain (loss) Total from 18.59 1.63 5.31 14.63 11.89 investment operations Less (.37) (.79) (.20) (.51) (.35) Distributions From net investment income From net (.91) (3.93) (7.32) (3.38) - realized gain Total (1.28) (4.72) (7.52) (3.89) (.35) distributions Redemption .16 .08 .16 .13 .33 fees added to paid in capital Net asset $ 65.70 $ 48.23 $ 51.24 $ 53.29 $ 42.42 value, end of period TOTAL 39.05% 4.72% 10.85% 36.46% 40.31% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 270,466 $ 153,089 $ 116,195 $ 214,612 $ 91,700 end of period (000 omitted) Ratio of 1.42% 1.56% 1.64% 1.54% 1.85% expenses to A average net assets Ratio of 1.41% 1.54% 1.63% 1.54% 1.85% expenses to E E E A average net assets after expense reductions Ratio of net 1.78% 1.52% .53% .86% 1.49% investment A income to average net assets Portfolio 125% 107% 93% 100% 164% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS HOME FINANCE 43.24% 338.28% 439.46% HOME FINANCE (INCL. 3% SALES CHARGE) 38.94% 325.13% 423.28% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS HOME FINANCE 43.24% 34.39% 18.36% HOME FINANCE (INCL. 3% SALES CHARGE) 38.94% 33.57% 18.00% S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9905.91 10558.00 19860430 9795.60 10438.69 19860531 9905.91 10994.03 19860630 10714.86 11179.83 19860731 10052.99 10554.88 19860831 10163.31 11338.05 19860930 8949.89 10400.39 19861031 9280.82 11000.50 19861130 9449.96 11267.81 19861231 9472.02 10980.48 19870131 10935.48 12459.55 19870228 11965.05 12951.70 19870331 11251.71 13326.01 19870430 10619.26 13207.41 19870531 10251.55 13322.31 19870630 10442.76 13995.09 19870731 10405.99 14704.64 19870831 11347.31 15253.12 19870930 10619.26 14919.08 19871031 8552.77 11705.51 19871130 7854.13 10740.97 19871231 8719.34 11558.36 19880131 9770.92 12044.97 19880229 9497.07 12606.27 19880331 9234.17 12216.73 19880430 9387.53 12352.34 19880531 9376.58 12459.80 19880630 9968.09 13031.71 19880731 10143.35 12982.19 19880831 9891.41 12540.79 19880930 10395.29 13075.03 19881031 10691.05 13438.52 19881130 10154.31 13246.35 19881231 10332.06 13478.16 19890131 11198.62 14464.76 19890228 11443.04 14104.59 19890331 11498.58 14433.22 19890430 12087.40 15182.31 19890531 12609.56 15797.19 19890630 12863.37 15707.15 19890731 13311.57 17125.50 19890831 14129.54 17461.16 19890930 14656.17 17389.57 19891031 12829.75 16986.13 19891130 12415.17 17332.65 19891231 11295.67 17748.63 19900131 10359.24 16557.70 19900228 10745.51 16771.29 19900331 10768.92 17215.73 19900430 10511.41 16785.34 19900531 11506.36 18421.91 19900630 11389.31 18296.64 19900731 10406.06 18238.09 19900831 9352.58 16589.37 19900930 8544.91 15781.47 19901031 7901.11 15713.61 19901130 8755.60 16728.71 19901231 9591.94 17195.44 19910131 10509.43 17945.16 19910228 11939.28 19228.24 19910331 12487.39 19693.56 19910430 12916.35 19740.82 19910531 13452.54 20593.63 19910630 12701.87 19650.44 19910731 14060.23 20566.15 19910831 14596.42 21053.57 19910930 14477.27 20701.97 19911031 14227.05 20979.38 19911130 13571.70 20133.91 19911231 15788.87 22437.23 19920131 17344.84 22019.90 19920229 18478.65 22306.16 19920331 18165.04 21871.19 19920430 18551.02 22514.20 19920531 20384.41 22624.52 19920630 20409.94 22287.41 19920731 21413.51 23198.97 19920831 20252.76 22723.39 19920930 20579.22 22991.53 19921031 20966.14 23072.00 19921130 23118.37 23858.75 19921231 24923.16 24152.21 19930131 26711.26 24355.09 19930228 27164.41 24686.32 19930331 28131.94 25207.20 19930430 26608.19 24597.19 19930531 26152.82 25256.39 19930630 26805.10 25329.64 19930731 28528.11 25228.32 19930831 30029.59 26184.47 19930930 31949.51 25982.85 19931031 32195.66 26520.70 19931130 30755.72 26268.75 19931231 31725.93 26586.60 19940131 33114.92 27490.55 19940228 32491.82 26745.55 19940331 31881.71 25579.45 19940430 33114.35 25906.86 19940531 35156.77 26331.74 19940630 35742.26 25686.61 19940731 36531.99 26529.13 19940831 37716.59 27616.82 19940930 36423.06 26940.21 19941031 34244.49 27546.37 19941130 32474.39 26543.13 19941231 32576.53 26936.76 19950131 34012.16 27635.23 19950228 36532.15 28712.18 19950331 36471.06 29559.47 19950430 38380.14 30430.00 19950531 40655.76 31646.29 19950630 41083.39 32381.43 19950731 42732.84 33455.20 19950831 46673.18 33539.17 19950930 47650.63 34954.52 19951031 46780.09 34829.74 19951130 49361.16 36358.76 19951231 50002.17 37059.03 19960131 51369.30 38320.52 19960229 52327.85 38675.75 Let's say you invested $10,000 in Fidelity Select Home Finance Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $52,328 - a 423.28% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Standard Federal Bancorp. Inc. 4.0 Charter One Financial Corp. 3.9 Bank of New York Co., Inc. 3.5 Astoria Financial Corp. 3.2 Federal National Mortgage Association 3.2 NationsBank Corp. 2.8 BankAmerica Corp. 2.7 First Chicago NBD Corp. 2.5 North Side Savings Bank 2.3 Greenpoint Financial Corp. 2.3 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 National Commercial Banks 29.9% Savings Banks & Savings & Loans 24.3% Savings Banks, Federal Charter 11.0% Federal & Federally Sponsored Credit Agencies 5.3% Financial Services 3.7% All Others 25.8% * Row: 1, Col: 1, Value: 25.8 Row: 1, Col: 2, Value: 3.7 Row: 1, Col: 3, Value: 5.3 Row: 1, Col: 4, Value: 11.0 Row: 1, Col: 5, Value: 24.3 Row: 1, Col: 6, Value: 29.9 * INCLUDES SHORT-TERM INVESTMENTS HOME FINANCE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW David Ellison, Portfolio Manager of Fidelity Select Home Finance Portfolio Q. DAVE, HOW HAS THE FUND PERFORMED? A. It has done very well. For the 12 months ended February 29, 1996, the fund had a total return of 43.24%. That topped the S&P 500 Index, which returned 34.70% during the same 12-month period. Q. WHAT HELPED THE FUND'S PERFORMANCE? A. In late 1994 and early 1995, stocks underperformed because investors were concerned about rising interest rates and deteriorating credit quality. Those fears seemed to abate, causing a reassessment of company prospects. The solid performance of these stocks began as interest rate and credit fears were less material than expected, and continued as the industry exceeded expectations with respect to both short- and long-term earnings. Q. HOW HAVE YOU STRUCTURED THE FUND? A. The fund has changed noticeably since the summer of 1995. At that time, I started to buy regional banks. I've typically run the fund looking for the cheapest stocks. The savings and loans historically have been attractive because they were cheaper than alternatives. Starting last year, the thrifts became equally, if not more, expensive than the regional banks, as many were perceived to be takeover targets. So I continued my method of buying the cheapest stocks within the financial arena, but changing its mix of investments to add more regional banks, large commercial banks - including Bank of New York, NationsBank and BankAmerica - and specialty mortgage finance companies. Historically, a large part of the fund also included thrifts that were converting from mutual ownership to publicly owned companies, because they were generally cheaper. That hasn't been the case lately. New conversions have been as, if not more, expensive than some of the regional banks, so I haven't added many new conversions to the fund. Q. WHAT HAS THE INVESTING ENVIRONMENT BEEN LIKE FOR HOME FINANCE STOCKS? A. The sectors that have done well during the period have been the regional banks, the money centers and some of the mortgage insurers. Positive performers included Standard Federal Bancorp. and Charter One Financial. Regional banks' good performance was driven by the fact that earnings have grown more than anticipated because credit didn't deteriorate as much as expected. Companies that posted good performance were helped further by, among other things, stock buy-backs and dividend increases. The performance of the thrifts has been flat, to some extent because their valuations were inflated. Q. WHAT DO YOU LOOK FOR WHEN PICKING STOCKS? A. I gravitate toward the cheapest group, looking for companies that try to develop shareholder value - through acquisitions, buying back stock, cutting costs or growing non-bank businesses - however short- or long-term that might be. Further, I'd rather buy a stock after it becomes apparent that the company is moving in the right direction. If a stock is at $10 going to $20, I'd rather buy it at $12 after I know management is doing something right, rather than buying it at $10 without any inkling of what's going to happen. I'd rather "jump into a moving car" than get into a car that isn't moving and not know when it's going to get going. I prefer to know what's going on, being fairly certain that it's a matter of time before the market recognizes the value inherent in the stock, rather than hoping it will. Q. WHAT HAS THE MERGER AND ACQUISITION PICTURE BEEN LIKE IN THE SECTOR OVER THE PAST SIX MONTHS? A. There have been a lot of big bank mergers, with even more activity than usual. But that's typical in most industries now. That's not a big part of this fund's performance, though; I don't play that game. I don't buy a company figuring it is for sale. Usually that's when the stock is selling at an expensive price. Has the fund benefited from the activity? Yes, it has owned some stocks that went up because the company was bought out or was on the way to being so. There may be 25 deals a year and 1,000 companies. I don't want to spend my time on 25 companies when I should be looking at all of the opportunities. Q. WHAT DO YOU SEE LOOKING OUT OVER THE NEXT SIX MONTHS? A. I see a continuation of earnings at or above expectations. The credit concerns that are out there don't appear to be getting any worse. I think there will be a continuation of consolidation, stock buy-backs and dividend increases. Interest rate changes might have a psychological impact on stock prices, but if the yield curve steepens - increasing the difference between short-and long-term rates - that will help increase banks' spreads between their assets and liabilities. All in all, though, interest rate stability would provide the best backdrop for the stocks in the fund. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FSVLX SIZE: as of February 29, 1996, more than $617 million MANAGER: David Ellison, since 1985; manager, Fidelity Select Financial Services Portfolio, 1985-1987; Fidelity Select Brokerage and Investment Portfolio, 1987-1990; joined Fidelity in 1985 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. HOME FINANCE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 89.5% SHARES VALUE (NOTE 1) BANKS - 32.9% NATIONAL COMMERCIAL BANKS - 29.9% Ambanc Holding, Inc. (a) 179,800 $ 1,775,518 Banc One Corp. 109,000 3,883,125 Bank of Boston Corp. 175,000 8,509,375 Bank of New York Co., Inc. 410,000 21,268,750 Bank of New York Co., Inc. (warrants) (a) 45,000 1,890,000 BankAmerica Corp. 232,000 16,530,000 Banknorth Group, Inc. 100,000 3,400,000 Chase Manhattan Corp. 105,000 7,822,500 Citicorp 155,490 12,128,220 CoreStates Financial Corp. 110,000 4,730,000 First Interstate Bancorp. 30,000 4,901,250 First Union Corp. 223,115 13,498,458 Fleet Financial Group, Inc. 212,000 8,718,500 KeyCorp. 239,000 8,992,375 Meridian Bancorp., Inc. 100,000 5,150,000 NationsBank Corp. 233,652 17,231,835 PNC Financial Corp. 180,000 5,512,500 Peoples Heritage Financial Group, Inc. 251,100 5,367,263 Republic New York Corp. 175,000 10,478,125 Union Bank of San Francisco 194,000 10,088,000 Wells Fargo & Co. 50,000 12,331,250 184,207,044 STATE BANKS FEDERAL RESERVE - 3.0% Barnett Banks, Inc. 65,000 4,062,500 Chemical Banking Corp. 197,000 14,110,125 18,172,625 TOTAL BANKS 202,379,669 COMPUTER SERVICES & SOFTWARE - 0.1% CAD/CAM/CAE - 0.1% Ultradata Corp. 46,900 398,650 CREDIT & OTHER FINANCE - 6.5% BANK HOLDING COMPANY OFFICES - 2.3% Greenpoint Financial Corp. 536,690 14,222,285 FINANCIAL SERVICES - 3.7% American Express Co. 90,000 4,140,000 Fidelity Federal Bank FSB Class A (a) 200,000 1,850,000 First Chicago NBD Corp. 349,000 15,137,875 RCSB Financial, Inc. 60,000 1,410,000 22,537,875 LOAN BROKERS - 0.1% Imperial Thrift & Loan Association (a) 65,000 873,438 MORTGAGE BANKERS - 0.4% Imperial Credit Industries (a) 11,000 279,125 Imperial Credit Mortgage Holdings, Inc. 36,900 553,500 North American Mortgage Co. 85,800 1,769,625 Resource Bancshares Mortgage Group, Inc. (a) 10,000 155,000 2,757,250 TOTAL CREDIT & OTHER FINANCE 40,390,848 FEDERAL SPONSORED CREDIT - 5.3% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 5.3% Federal Home Loan Mortgage Corp. 96,000 7,920,000 Federal National Mortgage Association 619,600 19,594,850 Student Loan Marketing Association 60,000 4,957,500 32,472,350 SHARES VALUE (NOTE 1) INSURANCE - 2.0% INSURANCE BROKERS & SERVICES - 0.6% Fidelity National Financial, Inc. 163,100 $ 2,752,313 Stewart Information Services Corp. 45,600 940,500 3,692,813 LIFE INSURANCE - 0.2% Equitable Iowa Companies 30,100 1,162,613 PROPERTY-CASUALTY & REINSURANCE - 1.2% Allmerica Financial Corp. 61,400 1,657,800 First American Financial Corp. 105,000 2,966,250 PMI Group, Inc. 62,000 2,836,500 7,460,550 TOTAL INSURANCE 12,315,976 LODGING & GAMING - 0.2% HOTELS, MOTELS, & TOURIST COURTS - 0.2% Prime Hospitality Corp. 50,000 568,750 Red Lion Hotels, Inc. 26,800 502,500 1,071,250 REAL ESTATE INVESTMENT TRUSTS - 2.0% Capstead Mortgage Corp. 398,035 9,105,051 Redwood Trust, Inc. 50,668 1,064,028 Thornburg Mortgage Asset Corp. 135,000 2,008,125 12,177,204 SAVINGS & LOANS - 37.3% SAVINGS BANKS & SAVINGS & LOANS - 24.3% Astoria Financial Corp. 400,000 19,750,000 Bank West Financial Corp. 85,000 881,875 Bankers Corp. 140,000 2,362,500 Bay View Capital, Inc. 76,500 2,390,625 Cameron Financial Corp. (b) 212,200 3,023,850 Charter One Financial Corp. 706,000 24,180,500 Collective Bancorp., Inc. 531,290 14,145,596 Commercial Federal Corp. 41,600 1,565,200 First Colorado Bancorp., Inc. 85,000 988,125 First Federal Savings & Loan Association 84,400 1,666,900 First Financial Corp. of Wisconsin 158,800 3,295,100 FirstFed Financial Corp. (a) 408,900 5,826,825 Glendale Federal Bank FSB (a) 427,600 6,681,250 Golden West Financial Corp. 220,800 11,178,000 Great Western Financial Corp. 286,273 6,548,495 New York Bancorp., Inc. 48,100 1,052,188 North Side Savings Bank (b) 452,292 14,247,198 Sandwich Co-operative Bank 25,000 506,250 Standard Federal Bancorp., Inc. 590,000 24,411,250 Warren Bancorp., Inc. 63,300 696,300 Webster Financial Corp. 92,700 2,769,413 Wells Financial Corp. (a)(b) 172,300 1,830,688 149,998,128 SAVINGS BANKS, NO FEDERAL CHARTER - 2.3% Avondale Financial Corp. (a)(b) 320,400 4,645,800 BankUnited Financial Corp. Class A 40,000 320,000 Farmers & Mechanics Bank (a)(b) 87,000 1,783,500 First Mutual Bancorp., Inc. 222,500 2,864,688 Pacific Crest Cap, Inc. 50,000 400,000 Queens County Bancorp., Inc. 10,000 412,500 Springfield Institution for Savings (a) 101,800 1,832,400 Walden Bancorp., Inc. 84,600 1,670,850 13,929,738 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) SAVINGS & LOANS - CONTINUED SAVINGS BANKS, FEDERAL CHARTER - 10.7% Affiliated Community Bancorp., Inc. 131,700 $ 2,321,213 Ahmanson (H.F.) & Co. 330,000 7,507,500 American National Bancorp., Inc. 130,200 1,285,725 California Federal Bancorp., Inc. 65,000 983,125 Carver Federal Savings Bank (a)(b) 222,000 1,887,000 CenFed Financial Corp. 97,250 2,406,938 Dime Bancorp., Inc. (a) 245,000 2,756,250 First Defiance Financial Corp. 285,000 2,992,500 Frankfort First Bancorp., Inc. 86,800 1,280,300 Haven Bancorp., Inc. 91,500 2,276,063 Leader Financial Corp. 93,000 3,580,500 Long Island Bancorp., Inc. 331,280 9,068,790 Mississippi View Holding Co. (b) 85,000 977,500 Primary Bank 85,785 1,029,420 Roosevelt Financial Group, Inc. 41,000 768,750 SFS Bancorp., Inc. (a) 32,500 410,313 SGV Bancorp., Inc. (a)(b) 256,200 2,401,875 Standard Financial, Inc. 185,500 2,736,125 Teche Holding Co. 80,000 1,080,000 Washington Federal, Inc. 408,430 8,730,191 Washington Mutual, Inc. 321,900 9,657,000 66,137,078 TOTAL SAVINGS & LOANS 230,064,944 SECURITIES INDUSTRY - 3.0% SECURITY & COMMODITY BROKERS - 2.6% Merrill Lynch & Co., Inc. 105,000 6,050,625 Morgan Stanley Group, Inc. 114,100 5,348,438 Salomon, Inc. 80,000 3,050,000 Schwab (Charles) Corp. 55,000 1,402,500 15,851,563 SERVICES ALLIED WITH EXCHANGES - 0.4% Duff & Phelps Credit Rating Co. 160,100 2,461,538 TOTAL SECURITIES INDUSTRY 18,313,101 SERVICES - 0.2% LEGAL SERVICES - 0.2% Lawyers Title Corp. 84,200 1,557,700 TOTAL COMMON STOCKS (Cost $463,207,375) 551,141,692 CONVERTIBLE BONDS - 0.3% PRINCIPAL AMOUNT SAVINGS & LOANS - 0.3% SAVINGS BANKS, FEDERAL CHARTER - 0.3% Fort Bend Holding Corp. 8%, 12/1/05 (Cost $1,600,000) $1,600,000 1,620,000 REPURCHASE AGREEMENTS - 10.2% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 62,972,462 $ 62,963,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $527,770,375) $ 615,724,692 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. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Avondale Financial Corp. $ 1,476,563 $ - $ - $ 4,645,800 Cameron Financial Corp. 694,517 19,337 29,806 3,023,850 Carver Federal Savings Bank 849,318 - - 1,887,000 CenFed Financial Corp. - 1,964,010 51,165 - Farmers & Mechanics Bank 365,750 241,400 - 1,783,500 Haven Bancorp., Inc. - 114,378 - - Mississippi View Holding Co. 301,875 - 6,800 977,500 Monterey Bay Bancorp., Inc. 586,875 976,361 - - North Side Savings Bank 410,413 - 469,614 14,247,198 SGV Bancorp., Inc. 1,106,437 - - 2,401,875 Wells Financial Corp. 853,438 689,033 - 1,830,688 Totals $ 6,645,186 $ 4,004,519 $ 557,385 $ 30,797,411 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $561,851,789 and $268,893,983, respectively (see Note 3 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 $139,402 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $7,920,000 and $3,381,417, respectively. The weighted average interest rate paid was 6.3% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $528,082,953. Net unrealized appreciation aggregated $87,641,739, of which $90,233,071 related to appreciated investment securities and $2,591,332 related to depreciated investment securities. The fund hereby designates approximately $12,866,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 47% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. HOME FINANCE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 615,724,692 securities, at value (including repurchase agreements of $62,963,000) (cost $527,770,375 ) - See accompanyin g schedule Cash 464,252 Receivable for 320,544 investments sold Receivable for 3,235,077 fund shares sold Dividends 964,572 receivable Interest 30,222 receivable Redemption 571 fees receivable Other 1,823 receivables TOTAL ASSETS 620,741,753 LIABILITIES Payable for $ 962,159 investments purchased Payable for 2,111,580 fund shares redeemed Accrued 307,626 management fee Other payables 324,948 and accrued expenses TOTAL 3,706,313 LIABILITIES NET ASSETS $ 617,035,440 Net Assets consist of: Paid in capital $ 500,330,509 Undistributed 3,690,897 net investment income Accumulated 25,059,717 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 87,954,317 appreciation (depreciation ) on investments NET ASSETS, for $ 617,035,440 18,532,081 shares outstanding NET ASSET $33.30 VALUE and redemption price per share ($617,035,44 0 (divided by) 18,532,081 shares) Maximum $34.33 offering price per share (100/97.00 of $33.30) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 8,399,331 INCOME Dividends (including $557,385 received from affiliated issuers) Interest 3,813,133 TOTAL 12,212,464 INCOME EXPENSES Management $ 2,401,434 fee Transfer agent 2,506,209 Fees Redemption (285,416 fees ) Accounting 382,635 fees and expenses Non-interested 1,805 trustees' compensatio n Custodian fees 14,285 and expenses Registration 226,990 fees Audit 29,049 Legal 1,391 Interest 7,076 Miscellaneous 4,769 Total 5,290,227 expenses before reductions Expense (110,167 5,180,060 reductions ) NET 7,032,404 INVESTMENT INCOME REALIZED AND 39,131,196 UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment securities (including realized gain (loss) of $1,680,255 on sales of investment in affiliated issuers Change in net 72,785,221 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 111,916,417 NET INCREASE $ 118,948,821 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 4,216,342 INFORMATION Sales charges paid to FDC Deferred $ 1,985 sales charges withheld by FDC Exchange $ 219,750 fees withheld by FSC Expense $ 20,672 reductions Directed brokerage arrangement s Custodian 81,726 interest credits Transfer 7,769 agent interest credits $ 110,167 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 7,032,404 $ 1,608,322 Net investment income Net realized 39,131,196 20,398,138 gain (loss) Change in 72,785,221 (3,449,716 net ) unrealized appreciation (depreciation ) NET INCREASE 118,948,821 18,556,744 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (3,332,255 (641,452 shareholders ) ) From net investment income From net (12,803,251 (19,377,299 realized gain ) ) TOTAL (16,135,506 (20,018,751 DISTRIBUTION ) ) S Share 936,625,637 425,502,908 transactions Net proceeds from sales of shares Reinvestmen 15,962,916 19,534,918 t of distributions Cost of (669,013,084 (369,762,089 shares ) ) redeemed Paid in 722,441 547,208 capital portion of redemption fees NET INCREASE 284,297,910 75,822,945 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 387,111,225 74,360,938 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 229,924,215 155,563,277 period End of period $ 617,035,440 $ 229,924,215 (including undistribute d net investment income of $3,690,897 and $963,664, respectivel y) OTHER INFORMATION Shares Sold 31,755,939 16,880,752 Issued in 501,513 895,378 reinvestment of distributions Redeemed (23,337,483 (14,378,596 ) ) Net increase 8,919,969 3,397,534 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 23.92 $ 25.03 $ 22.18 $ 15.38 $ 10.84 value, beginning of period Income from Investment Operations Net .53 .20 .03 .09 .05 investment income Net realized 9.72 2.34 4.15 6.80 4.40 and unrealized gain (loss) Total from 10.25 2.54 4.18 6.89 4.45 investment operations Less (.19) (.12) (.01) (.01) (.14) Distributions From net investment income From net (.73) (3.60) (1.40) (.28) - realized gain Total (.92) (3.72) (1.41) (.29) (.14) distributions Redemption .05 .07 .08 .20 .23 fees added to paid in capital Net asset $ 33.30 $ 23.92 $ 25.03 $ 22.18 $ 15.38 value, end of period TOTAL 43.24% 12.43% 19.61% 46.43% 43.62% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 617,035 $ 229,924 $ 155,563 $ 337,903 $ 49,405 end of period (000 omitted) Ratio of 1.35% 1.47% 1.58% 1.55% 2.08% expenses to A average net assets Ratio of 1.32% 1.45% 1.58% 1.55% 2.08% expenses to E E A average net assets after expense reductions Ratio of net 1.80% .80% .11% .61% .40% investment A income to average net assets Portfolio 81% 124% 95% 61% 134% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past five and 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS INSURANCE 29.51% 115.09% 196.66% INSURANCE 25.63% 108.64% 187.76% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS INSURANCE 29.51% 16.55% 11.49% INSURANCE 25.63% 15.85% (INCL. 3% SALES CHARGE) 11.15% S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10159.17 10558.00 19860430 9847.59 10438.69 19860531 10396.96 10994.03 19860630 10347.76 11179.83 19860731 9995.18 10554.88 19860831 10905.33 11338.05 19860930 9486.81 10400.39 19861031 9388.42 11000.50 19861130 9076.84 11267.81 19861231 8994.84 10980.48 19870131 9626.20 12459.55 19870228 10642.94 12951.70 19870331 10101.78 13326.01 19870430 9265.43 13207.41 19870531 9142.43 13322.31 19870630 9437.62 13995.09 19870731 9527.81 14704.64 19870831 10216.57 15253.12 19870930 10216.57 14919.08 19871031 8297.89 11705.51 19871130 7715.72 10740.97 19871231 7901.16 11558.36 19880131 8508.94 12044.97 19880229 8500.62 12606.27 19880331 8300.80 12216.73 19880430 8242.52 12352.34 19880531 8467.32 12459.80 19880630 8850.30 13031.71 19880731 8891.93 12982.19 19880831 8983.51 12540.79 19880930 9291.57 13075.03 19881031 9249.94 13438.52 19881130 9050.12 13246.35 19881231 9276.09 13478.16 19890131 9981.24 14464.76 19890228 10048.39 14104.59 19890331 10283.44 14433.22 19890430 10619.23 15182.31 19890531 10677.99 15797.19 19890630 10912.94 15707.15 19890731 11829.36 17125.50 19890831 12190.88 17461.16 19890930 12359.03 17389.57 19891031 12762.59 16986.13 19891130 13107.30 17332.65 19891231 12785.34 17748.63 19900131 11700.11 16557.70 19900228 12030.76 16771.29 19900331 11971.41 17215.73 19900430 11555.98 16785.34 19900531 12615.77 18421.91 19900630 12649.68 18296.64 19900731 12463.16 18238.09 19900831 11165.97 16589.37 19900930 10199.44 15781.47 19901031 9792.48 15713.61 19901130 11089.67 16728.71 19901231 11530.54 17195.44 19910131 12149.46 17945.16 19910228 13378.82 19228.24 19910331 14260.57 19693.56 19910430 14184.26 19740.82 19910531 14540.35 20593.63 19910630 13636.47 19650.44 19910731 14142.80 20566.15 19910831 14056.98 21053.57 19910930 14194.29 20701.97 19911031 14623.38 20979.38 19911130 14494.65 20133.91 19911231 15759.99 22437.23 19920131 15742.76 22019.90 19920229 16164.75 22306.16 19920331 15932.23 21871.19 19920430 15527.46 22514.20 19920531 15734.15 22624.52 19920630 16063.32 22287.41 19920731 16973.45 23198.97 19920831 16476.16 22723.39 19920930 17348.76 22991.53 19921031 18090.00 23072.00 19921130 18709.26 23858.75 19921231 19306.17 24152.21 19930131 20113.36 24355.09 19930228 20493.22 24686.32 19930331 21575.81 25207.20 19930430 21062.41 24597.19 19930531 20519.91 25256.39 19930630 20738.81 25329.64 19930731 21462.15 25228.32 19930831 22556.67 26184.47 19930930 22632.81 25982.85 19931031 21976.10 26520.70 19931130 20634.12 26268.75 19931231 20884.73 26586.60 19940131 21166.25 27490.55 19940228 20238.27 26745.55 19940331 19289.44 25579.45 19940430 19497.98 25906.86 19940531 20394.67 26331.74 19940630 20279.98 25686.61 19940731 20655.34 26529.13 19940831 21218.39 27616.82 19940930 21072.41 26940.21 19941031 20811.74 27546.37 19941130 19758.64 26543.13 19941231 20811.74 26936.76 19950131 21562.47 27635.23 19950228 22219.35 28712.18 19950331 22573.86 29559.47 19950430 22782.41 30430.00 19950531 23283.81 31646.29 19950630 24015.02 32381.43 19950731 24735.79 33455.20 19950831 25456.55 33539.17 19950930 26720.50 34954.52 19951031 25916.17 34829.74 19951130 27462.16 36358.76 19951231 28056.23 37059.03 19960131 28873.20 38320.52 19960229 28776.45 38675.75 Let's say you invested $10,000 in Fidelity Select Insurance Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $28,776 - a 187.76% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS General Re Corp. 5.9 CIGNA Corp. 5.5 Aetna Life & Casualty Co. 4.1 Chubb Corp. (The) 3.7 MBIA, Inc. 3.7 Allstate Corp. 3.5 Equitable of Iowa Companies 3.3 American International Group, Inc. 3.0 Triad Guaranty, Inc. 2.9 Marsh & McLennan Companies, Inc. 2.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 17.0 Row: 1, Col: 2, Value: 6.7 Row: 1, Col: 3, Value: 6.7 Row: 1, Col: 4, Value: 13.0 Row: 1, Col: 5, Value: 14.6 Row: 1, Col: 6, Value: 42.0 Property-Casualty & Reinsurance 42.0% Multi-Line Insurance 14.6% Life Insurance 13.0% Insurance Brokers & Services 6.7% Insurance Carriers 6.7% All Others 17.0% * * INCLUDES SHORT-TERM INVESTMENTS INSURANCE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Michael Tempero, Portfolio Manager of Fidelity Select Insurance Portfolio Q. MIKE, HOW DID THE FUND DO? A. Insurance stocks had a good run, thanks to falling interest rates. But their earnings growth wasn't quite as strong as some other sectors. The results reflected that, with the fund returning 29.51% for the 12 months ended February 29, 1996, compared to the S&P 500 Index's 34.70% return. Q. WHAT WAS YOUR STRATEGY? A. I tend to take the worm's eye view, not the bird's eye view. That means I try to add value one stock at a time, looking at prospects for both the individual company and the business it's in. My focus has been on cheap stocks with either strong earnings growth or the potential for improved earnings through restructuring. A good example is CIGNA, a multi-line insurer that's seen a dramatic improvement in earnings power as a result of a major restructuring effort. During the last half of the period, CIGNA's stock price rose 22%, making it one of the fund's best performers. Aetna, another multi-line company that's one of the fund's largest investments, has also been through a restructuring that's redirecting capital to higher-return businesses. Q. DID YOU MAKE ANY MAJOR CHANGES AS A RESULT OF THIS APPROACH? A. I cut back on Federal Home Loan Mortgage, which was the fund's biggest investment six months ago. I did that for a couple reasons. First, the stock went up over 30% between September and February and got closer to reaching the price it was worth. So it made sense to take some profits, and reallocate the money to stocks with more growth potential. Second, I had added investments in several mortgage insurers, so I felt the fund had an adequate stake in the mortgage business. By the end of February, there were three new names in the fund's top 10 list: CIGNA; MBIA, a municipal bond insurer; and Chubb, a property and casualty company. MBIA's stock price rose as interest rates came down and more municipalities began issuing bonds. And Chubb's stock price went up, though not as much, thanks to its solid reputation and steady improvements in its operations. Q. WHICH STOCKS HAVE DONE WELL RECENTLY? A. Triad Guaranty, Allstate, American International Group (AIG) and CIGNA are some examples within the fund. Triad Guaranty, the only mortgage insurer in the fund's top 10 holdings, was up 33% in the six-month period through February. As home purchases increased, companies that buy home mortgages demanded more coverage. When this happened, Triad had the capacity to do more business - something many of its competitors lacked. Allstate, a property and casualty company that offers both auto and home insurance, returned 26% in the same period. Its business benefited from safer driver conditions, as well as fewer natural disasters in the past year. Finally, AIG is one of the largest and best companies in the property and casualty business. Its long string of earnings growth continued as interest rates eased off, sending the stock up 25% in the six months between September and February. Q. WHAT HAPPENED WITH YOUR LARGEST INVESTMENT, GENERAL RE? A. General Re is the largest reinsurer in the business and a very high-quality company. On the positive side, the company has been buying back stock and the price has been cheap. So I think it has been a good value. On the negative side, the stock didn't do much during the period and that was a disappointment. Investors' fears that the growth in the reinsurance business was slowing down hurt even the best companies in the sector. The fund still has a large stake because of my belief that the large players can still grow business. Q. IN THE PAST SIX MONTHS, THE FUND'S ASSETS HAVE MORE THAN DOUBLED. DID THAT AFFECT YOUR STRATEGY? A. Not really. To maintain liquidity, I shifted toward larger companies that are somewhat easier to buy or sell than smaller names. And I tried to keep the fund's cash position as low to the ground as I could so it wouldn't hurt performance. Q. DO YOU THINK INSURANCE STOCKS CAN KEEP CLIMBING? A. Anything's possible. I'd say as goes the economy, so will go interest rates and the insurance sector. Having said that, I'd be hard pressed to say where the economy is headed. My job is to look at where individual stocks are going. Right now, I'm finding good opportunities in solid companies that are in out-of-favor segments like municipal bond insurance and reinsurance. In addition, mortgage insurance continues to look attractive as demand increases for the product. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FSPCX SIZE: as of February 29, 1996, more than $38 million MANAGER: Michael Tempero, since February 1995; equity analyst, insurance industry; analyst, domestic oil and gas exploration and production, conglomerates and household products, 1993-1995; joined Fidelity in 1993. (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. INSURANCE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.4% SHARES VALUE (NOTE 1) COMPUTER SERVICES & SOFTWARE - 2.2% PREPACKAGED COMPUTER SOFTWARE - 2.2% Hogan Systems, Inc. (a) 30,000 $ 367,500 Policy Management Systems Corp. (a) 10,000 511,250 878,750 CREDIT & OTHER FINANCE - 7.3% FINANCIAL SERVICES - 4.4% Equitable Companies, Inc. 35,000 883,750 Transamerica Corp. 11,000 829,125 1,712,875 MORTGAGE BANKERS - 2.9% Triad Guaranty, Inc. (a) 36,400 1,132,950 TOTAL CREDIT & OTHER FINANCE 2,845,825 FEDERAL SPONSORED CREDIT - 2.1% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 2.1% Federal Home Loan Mortgage Corp. 10,000 825,000 HOLDING COMPANIES - 0.1% Partner Re Holdings 1,000 30,375 INSURANCE - 83.7% ACCIDENT & HEALTH INSURANCE - 0.0% Provident Companies, Inc. 100 3,388 INSURANCE BROKERS & SERVICES - 6.7% Alexander & Alexander Services, Inc. 25,000 465,625 Frontier Insurance Group, Inc. 3,000 92,250 ITT Hartford Group, Inc. 15,000 772,500 Marsh & McLennan Companies, Inc. 11,000 1,068,375 Mutual Risk Management Ltd. 5,000 224,375 2,623,125 INSURANCE CARRIERS - 6.7% AFLAC, Inc. 2,000 92,750 John Alden Financial Corp. 10,000 190,000 MBIA, Inc. 19,000 1,444,000 MGIC Investment Corp. 14,800 862,100 2,588,850 LIFE INSURANCE - 13.0% American General Corp. 10,000 363,750 Aon Corp. 10,000 520,000 Conseco, Inc. 10,000 677,500 Delphi Financial Group, Inc. Class A 1,000 24,875 Equitable of Iowa Companies 33,000 1,274,625 Jefferson Pilot Corp. 8,000 445,000 Providian Corp. 12,000 555,000 Security-Connecticut Corp. 1,000 27,375 Torchmark Corp. 17,000 788,375 UNUM Corp. 3,000 176,625 United Wisconsin Services, Inc. 10,000 206,250 5,059,375 MULTI-LINE INSURANCE - 14.6% Aetna Life & Casualty Co. 21,200 1,603,250 American Financial Group, Inc. 20,000 637,500 CIGNA Corp. 18,000 2,133,000 CNA Financial Corp. (a) 5,000 581,250 Masthead Insurance Underwriting PLC 25,000 39,432 Syndicate Capital Trust PLC 5,700 8,816 US Facilities Corp. 40,000 710,000 5,713,248 SHARES VALUE (NOTE 1) PROPERTY-CASUALTY & REINSURANCE - 42.0% Allstate Corp. 31,500 $ 1,350,562 ACE Ltd. 13,000 607,750 Allied Group, Inc. 5,000 213,750 Allmerica Financial Corp. 4,000 108,000 American International Group, Inc. 12,000 1,159,500 American Reinsurance Corp. 5,000 191,875 AVEMCO Corp. 2,000 30,500 Berkley (W.R.) Corp. 7,000 316,750 Capital RE Corp. 18,000 621,000 Chubb Corp. (The) 15,000 1,456,875 Cincinnati Financial Corp. 6,200 404,550 Enhance Financial Services Group Corp. 15,000 365,625 Executive Risk, Inc. 15,000 457,500 Exel Ltd. 5,000 348,750 Gainsco, Inc. 15,000 163,125 General Re Corp. 16,000 2,302,000 Gryphon Holdings, Inc. (a) 50,000 937,500 Guaranty National Corp. 15,000 202,500 Mercury General Corp. 4,100 179,375 NAC Re Corp. 20,000 672,500 NY Magic, Inc. 10,000 207,500 National Re Corp. 7,300 228,125 Ohio Casualty Corp. 9,100 338,975 PMI Group, Inc. 20,000 915,000 Pxre Corp. 10,000 247,500 Philadelphia Consolidated Holding Corp. (a) 8,600 174,150 Reinsurance Group of America, Inc. (a) 10,000 395,000 SAFECO Corp. 10,000 362,500 Transatlantic Holdings, Inc. 8,000 562,000 Travelers, Inc. (The) 8,000 535,000 Trenwick Group, Inc. 3,000 154,500 Unionamerica Holdings PLC sponsored ADR (a) 12,000 210,000 16,420,237 SURETY INSURANCE - 0.7% Orion Capital Corp. 5,800 274,050 TOTAL INSURANCE 32,682,273 TOTAL COMMON STOCKS (Cost $33,975,561) 37,262,223 REPURCHASE AGREEMENTS - 4.6% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 1,807,272 1,807,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $35,782,561) $ 39,069,223 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $45,462,070 and $32,977,994, respectively (see Note 3 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 $28,422 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $2,042,000 and $1,179,071, respectively The weighted average interest rate paid was 6.5% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $35,802,016. Net unrealized appreciation aggregated $3,267,207, of which $3,620,326 related to appreciated investment securities and $353,119 related to depreciated investment securities. The fund hereby designates approximately $227,000 as a capital gain dividend for the purpose of the dividend paid deduction. 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 has a capital loss carryover of approximately $12,000 available to offset future realized capital gains in Insurance Portfolio, to the extent provided by regulations. A total of 32% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. INSURANCE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 39,069,223 securities, at value (including repurchase agreements of $1,807,000) (cost $35,782,561) - - See accompanyin g schedule Cash 736 Receivable for 1,740,570 investments sold Receivable for 120,990 fund shares sold Dividends 38,212 receivable Redemption 157 fees receivable Other 23 receivables TOTAL ASSETS 40,969,911 LIABILITIES Payable for $ 1,239,635 investments purchased Payable for 679,806 fund shares redeemed Accrued 20,459 management fee Other payables 36,312 and accrued expenses TOTAL 1,976,212 LIABILITIES NET ASSETS $ 38,993,699 Net Assets consist of: Paid in capital $ 34,642,575 Undistributed 55,083 net investment income Accumulated 1,009,379 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 3,286,662 appreciation (depreciation ) on investments NET ASSETS, for $ 38,993,699 1,456,543 shares outstanding NET ASSET $26.77 VALUE and redemption price per share ($38,993,699 (divided by) 1,456,543 shares) Maximum $27.60 offering price per share (100/97.00 of $26.77) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 333,655 INCOME Dividends Interest 87,695 TOTAL 421,350 INCOME EXPENSES Management $ 129,061 fee Transfer agent 159,562 Fees Redemption (20,398 fees ) Accounting 47,689 fees and expenses Non-interested 100 trustees' compensatio n Custodian fees 14,387 and expenses Registration 20,274 fees Audit 16,464 Legal 88 Interest 2,987 Miscellaneous 910 Total 371,124 expenses before reductions Expense (4,575 366,549 reductions ) NET 54,801 INVESTMENT INCOME REALIZED AND 2,892,996 UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment securities Change in net 1,911,651 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 4,804,647 NET INCREASE $ 4,859,448 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 300,141 INFORMATION Sales charges paid to FDC Deferred $ 6,193 sales charges withheld by FDC Exchange $ 14,858 fees withheld by FSC Expense $ 3,994 reductions Directed brokerage arrangement s Custodian 301 interest credits Transfer 280 agent interest credits $ 4,575 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 54,801 $ 25,733 Net investment income Net realized 2,892,996 (1,038,394) gain (loss) Change in 1,911,651 1,757,862 net unrealized appreciation (depreciation ) NET INCREASE 4,859,448 745,201 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (62,008) - shareholders From net investment income From net (753,776) - realized gain TOTAL (815,784) - DISTRIBUTION S Share 47,521,158 33,064,318 transactions Net proceeds from sales of shares Reinvestmen 802,788 - t of distributions Cost of (35,249,916) (30,429,283) shares redeemed Paid in 37,695 39,347 capital portion of redemption fees NET INCREASE 13,111,725 2,674,382 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 17,155,389 3,419,583 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 21,838,310 18,418,727 period End of period $ 38,993,699 $ 21,838,310 (including undistribute d net investment income of $55,083 and $25,733, respectivel y) OTHER INFORMATION Shares Sold 1,872,126 1,639,929 Issued in 31,329 - reinvestment of distributions Redeemed (1,471,921) (1,564,065) Net increase 431,534 75,864 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 21.31 $ 19.41 $ 21.58 $ 18.03 $ 16.73 value, beginning of period Income from Investment Operations Net .06 .05 - (.04) .04 investment income (loss) Net realized 6.15 1.78 (.24) 5.12 1.48 and unrealized gain (loss) Total from 6.21 1.83 (.24) 5.08 1.52 investment operations Less (.07) - (.01) - (.26) Distributions From net investment income In excess of - - - (.03) - net investment income From net (.72) - (1.96) (1.71) - realized gain Total (.79) - (1.97) (1.74) (.26) distributions Redemption .04 .07 .04 .21 .04 fees added to paid in capital Net asset $ 26.77 $ 21.31 $ 19.41 $ 21.58 $ 18.03 value, end of period TOTAL 29.51% 9.79% (1.24)% 31.98% 9.47% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 38,994 $ 21,838 $ 18,419 $ 26,367 $ 2,573 end of period (000 omitted) Ratio of 1.77% 2.36% 1.93% 2.49% A 2.47% F expenses to , F average net assets Ratio of 1.74% 2.34% 1.93% 2.49% A 2.47% expenses to E E average net assets after expense reductions Ratio of net .26% .25% (.02)% (.26)% .22% investment A income (loss) to average net assets Portfolio 164% 265% 101% 81% A 112% turnover rate
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND REGIONAL BANKS 40.94% 269.79% 347.30% REGIONAL BANKS 36.71% (INCL. 3% SALES CHARGE) 258.70% 333.88% S&P 500 34.70% 101.14% 247.69% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND REGIONAL BANKS 40.94% 29.89% 16.74% REGIONAL BANKS 36.71% 29.11% 16.38% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 13.74% 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 19860630 9700.00 10000.00 19860731 9040.40 9488.77 19860831 9379.90 10192.84 19860930 8361.40 9349.89 19861031 8574.80 9889.38 19861130 8545.70 10129.69 19861231 8283.80 9871.39 19870131 8894.90 11201.06 19870228 9486.60 11643.50 19870331 9506.00 11980.00 19870430 8933.70 11873.38 19870531 8982.20 11976.68 19870630 9302.30 12581.50 19870731 9302.30 13219.38 19870831 9729.10 13712.46 19870930 9476.90 13412.16 19871031 7924.90 10523.18 19871130 7672.70 9656.07 19871231 8031.30 10390.90 19880131 8599.97 10828.35 19880229 8819.46 11332.96 19880331 9019.00 10982.77 19880430 8919.23 11104.68 19880531 9078.86 11201.29 19880630 9717.37 11715.43 19880731 9767.25 11670.91 19880831 9637.56 11274.10 19880930 10006.70 11754.37 19881031 10126.42 12081.14 19881130 9877.00 11908.38 19881231 10095.78 12116.78 19890131 10736.78 13003.73 19890228 10897.03 12679.94 19890331 11794.44 12975.38 19890430 12104.25 13648.80 19890531 13033.71 14201.58 19890630 12816.91 14120.63 19890731 13957.63 15395.72 19890831 14302.00 15697.48 19890930 14420.37 15633.12 19891031 13085.95 15270.43 19891130 13064.43 15581.95 19891231 12785.92 15955.91 19900131 11633.93 14885.27 19900228 12112.98 15077.29 19900331 11816.42 15476.84 19900430 11143.48 15089.92 19900531 11919.08 16561.19 19900630 11451.44 16448.57 19900731 10755.68 16395.93 19900831 9751.97 14913.74 19900930 8565.77 14187.44 19901031 8314.84 14126.44 19901130 9421.20 15039.00 19901231 10143.16 15458.59 19910131 10816.28 16132.59 19910228 11733.11 17286.07 19910331 12394.62 17704.39 19910430 13230.21 17746.88 19910531 14089.02 18513.55 19910630 13253.42 17665.63 19910731 14355.94 18488.84 19910831 15388.83 18927.03 19910930 15087.09 18610.95 19911031 15713.78 18860.33 19911130 14994.24 18100.26 19911231 16816.65 20170.93 19920131 17868.45 19795.75 19920229 19311.63 20053.10 19920331 19042.56 19662.06 19920430 20155.52 20240.13 19920531 21011.64 20339.30 19920630 21221.29 20036.25 19920731 21245.91 20855.73 19920831 20113.45 20428.19 19920930 21048.96 20669.24 19921031 21947.54 20741.58 19921130 23744.70 21448.87 19921231 24976.49 21712.69 19930131 26017.18 21895.08 19930228 26826.61 22192.85 19930331 27970.08 22661.12 19930430 26530.16 22112.72 19930531 26270.83 22705.34 19930630 27736.08 22771.19 19930731 27813.88 22680.10 19930831 28202.89 23539.68 19930930 29175.40 23358.43 19931031 27606.41 23841.94 19931130 26737.63 23615.45 19931231 27767.00 23901.19 19940131 29386.34 24713.83 19940228 28560.79 24044.09 19940331 28084.51 22995.77 19940430 29572.73 23290.11 19940531 31050.56 23672.07 19940630 30279.52 23092.10 19940731 31082.69 23849.53 19940831 31885.86 24827.36 19940930 29990.38 24219.09 19941031 29861.87 24764.01 19941130 27934.26 23862.11 19941231 27827.58 24215.98 19950131 29229.22 24843.91 19950228 30784.69 25812.07 19950331 31041.09 26573.79 19950430 31810.28 27356.38 19950531 33895.64 28449.82 19950630 34322.96 29110.71 19950731 35656.23 30076.02 19950831 36989.49 30151.51 19950930 38664.61 31423.90 19951031 38476.59 31311.72 19951130 40681.60 32686.31 19951231 40841.91 33315.84 19960131 42177.19 34449.91 19960229 43387.85 34769.27 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 February 29, 1996, your investment would have grown to $43,388 - a 333.88% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $34,769 over the same period - a 247.69% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Fleet Financial Group, Inc. 6.7 BankAmerica Corp. 5.2 Bank of New York Co., Inc. 5.1 Chemical Banking Corp. 4.8 American Express Co. 4.6 Household International, Inc. 4.3 First Bank System, Inc. 4.0 Boatmen's Bancshares, Inc. 3.7 Chase Manhattan Corp. 3.5 Citicorp 3.4 TOP REGIONS AS OF FEBRUARY 29, 1996 Northeast 25.3% Midwest 20.3% West 15.7% Mid-Atlantic 6.4% Southeast 4.1% All Others 28.2% * Row: 1, Col: 1, Value: 28.2 Row: 1, Col: 2, Value: 4.1 Row: 1, Col: 3, Value: 6.4 Row: 1, Col: 4, Value: 15.7 Row: 1, Col: 5, Value: 20.3 Row: 1, Col: 6, Value: 25.3 * INCLUDES SHORT-TERM INVESTMENTS REGIONAL BANKS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Remy Trafelet, Portfolio Manager of Fidelity Select Regional Banks Portfolio Note to shareholders: On January 3, 1996, Remy Trafelet replaced Louis Salemy as manager of the fund. Q. HOW DID THE FUND PERFORM, REMY? A. For the 12 months ended February 29, 1996, the fund had a total return of 40.94%. For the same period, the S&P 500 Index returned 34.70%. Q. WHAT WAS THE MAJOR FACTOR IN THE FUND'S PERFORMANCE? A. Most bank stocks began the period at very inexpensive levels relative to the S&P 500. Since then - despite slowing loan growth and the deteriorating credit quality of borrowers - consolidation, expense cuts and share buy-back programs have been driving the double-digit growth of the industry. Q. WHY DOES A REGIONAL BANK PORTFOLIO HOLD MONEY-CENTER BANKS? A. The fund is allowed to hold a sizable portion of its assets in money-center banks for diversification purposes. That said, I should point out that the distinctions between the two groups is rapidly fading. Today, regional banks like Bank of Boston and BankAmerica have comparable domestic and international operations to many money-center banks like Chemical or Citicorp. Q. MERGERS AND ACQUISITIONS IN THE BANKING MARKET WERE CERTAINLY A MAJOR PART OF THE FINANCIAL HEADLINES IN 1995. WAS LAST YEAR'S FLURRY OF M&A ACTIVITY A SIGNAL OF THINGS TO COME? A. It certainly appears likely that consolidation will continue in banking. The past year saw a record in terms of the dollar value of deals. For example, the $10 billion proposed merger of Chemical and Chase is the largest in banking history. On the other hand, the actual number of deals was in line with a 10-year consolidation trend in the industry. As revenues have slowed, many banks have sought to grow earnings through consolidation and balance-sheet restructuring. Q. IN ADDITION TO COST CUTTING AND RESTRUCTURING, WHAT ELSE HAVE BANKS HAD TO DO TO GROW THEIR BUSINESSES? A. Many of the successful banks have developed stable-growth businesses. These include fee-based businesses like mutual funds, check processing, order ticket processing and security clearing. Northern Trust, First Tennessee National and First Bank System are some of the banks that run these types of businesses. Q. IS THE RAPID RISE IN CONSUMER CREDIT CARD DEBT A BIG CONCERN? A. I think consumer debt is going to get worse before it gets better. Although one can never know for sure, some banks with credit card operations may face some problems with delinquent accounts down the road. Q. WHAT'S YOUR OUTLOOK? A. I believe there are still banks out there capable of generating earnings-per-share growth of 10% to 15% a year. This kind of growth, however, can only be achieved by continued stock buy-backs and expense cutting measures. FUND FACTS START DATE: June 30, 1986 TRADING SYMBOL: FSRBX SIZE: as of February 29, 1996, more than $315 million MANAGER: Remy Trafelet, since January 1996; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. REGIONAL BANKS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 92.3% SHARES VALUE (NOTE 1) BANKS - 81.1% MID-ATLANTIC - 6.4% Crestar Financial Corp. 162,283 $ 9,493,556 HUBCO, Inc. 75,030 1,514,668 PNC Financial Corp. 50,000 1,531,250 Wachovia Corp. 172,600 8,025,900 20,565,374 MIDWEST - 20.3% Boatmen's Bancshares, Inc. 299,100 11,739,675 Comerica, Inc. 257,300 10,002,538 Fifth Third Bancorp 163,200 8,364,000 First Bank System, Inc. 221,100 12,740,888 First Chicago NBD Corp. 165,000 7,156,875 Mercantile Bancorporation, Inc. 60,500 2,722,500 National City Corp. 222,209 7,721,763 Northern Trust Corp. 45,000 2,373,750 Norwest Corp. 50,000 1,825,000 River Forest Bancorp 10,000 290,000 64,936,989 NORTHEAST - 25.3% Banc One Corp. 119,900 4,271,438 Bank of Boston Corp. 65,000 3,160,625 Bank of New York Co., Inc. 315,324 16,357,433 Chase Manhattan Corp. 150,000 11,175,000 CoreStates Financial Corp. 202,700 8,716,100 Fleet Financial Group, Inc. 518,367 21,317,839 Long Island Bancorp., Inc. 55,600 1,522,050 Morgan (J.P.) & Co., Inc. 57,500 4,707,813 Star Banc Corp. 100,000 6,300,000 U.S. Bancorp 100,000 3,087,500 80,615,798 SOUTHEAST - 4.1% BanPonce Corp. 178,501 7,854,044 First Tennessee National Corp. 170,000 5,355,000 13,209,044 WEST - 15.7% BankAmerica Corp. 231,800 16,515,750 California Federal Bancorp., Inc. 87,300 1,320,413 First Interstate Bancorp 55,000 8,985,625 First Security Corp. 60,000 1,612,500 Glendale Federal Bank FSB (a) 128,000 2,000,000 Sterling Financial Corp. 48,000 624,000 Union Bank of San Francisco 110,000 5,720,000 Wells Fargo & Co. 40,000 9,865,000 Zions Bancorporation 48,700 3,591,625 50,234,913 MONEY CENTER - 8.3% Chemical Banking Corp. 215,000 15,399,375 Citicorp 140,000 10,920,000 26,319,375 MULTI-REGIONAL - 1.0% NationsBank Corp. 40,900 3,016,375 TOTAL BANKS 258,897,868 SHARES VALUE (NOTE 1) CREDIT & OTHER FINANCE - 11.2% FINANCIAL SERVICES - 4.6% American Express Co. 317,000 $ 14,582,000 PERSONAL CREDIT INSTITUTIONS - 6.6% Beneficial Corp. 140,500 7,306,000 Household International, Inc. 203,700 13,698,825 21,004,825 TOTAL CREDIT & OTHER FINANCE 35,586,825 TOTAL COMMON STOCKS (Cost $244,835,447) 294,484,693 REPURCHASE AGREEMENTS - 7.7% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 24,722,715 24,719,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $269,554,447) $ 319,203,693 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $299,073,500 and $195,570,404, respectively (see Note 3 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 $101,949 for the period (see Note 4 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $269,930,151. Net unrealized appreciation aggregated $49,273,542, of which $50,327,025 related to appreciated investment securities and $1,053,483 related to depreciated investment securities. The fund hereby designates approximately $7,686,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 88% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. REGIONAL BANKS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 319,203,693 securities, at value (including repurchase agreements of $24,719,000) (cost $269,554,447 ) - See accompanyin g schedule Cash 543 Receivable for 604,425 investments sold Receivable for 2,187,309 fund shares sold Dividends 714,589 receivable Redemption 334 fees receivable Other 3,107 receivables TOTAL ASSETS 322,714,000 LIABILITIES Payable for $ 6,390,922 investments purchased Payable for 788,197 fund shares redeemed Accrued 156,583 management fee Other payables 200,700 and accrued expenses TOTAL 7,536,402 LIABILITIES NET ASSETS $ 315,177,598 Net Assets consist of: Paid in capital $ 250,099,147 Undistributed 2,409,873 net investment income Accumulated 13,019,332 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 49,649,246 appreciation (depreciation ) on investments NET ASSETS, for $ 315,177,598 12,930,654 shares outstanding NET ASSET $24.37 VALUE and redemption price per share ($315,177,59 8 (divided by) 12,930,654 shares) Maximum $25.12 offering price per share (100/97.00 of $24.37) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 6,230,263 INCOME Dividends Interest 2,558,894 TOTAL 8,789,157 INCOME EXPENSES Management $ 1,410,233 fee Transfer agent 1,646,867 Fees Redemption (138,919 fees ) Accounting 231,139 fees and expenses Non-interested 1,181 trustees' compensatio n Custodian fees 14,374 and expenses Registration 58,297 fees Audit 24,682 Legal 980 Miscellaneous 2,938 Total 3,251,772 expenses before reductions Expense (28,145 3,223,627 reductions ) NET 5,565,530 INVESTMENT INCOME REALIZED AND 22,328,052 UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment securities Change in net 44,057,165 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 66,385,217 NET INCREASE $ 71,950,747 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 2,017,787 INFORMATION Sales charges paid to FDC Deferred $ 3,130 sales charges withheld by FDC Exchange $ 98,505 fees withheld by FSC Expense $ 18,291 reductions Directed brokerage arrangement s Custodian 988 interest credits Transfer 8,866 agent interest credits $ 28,145 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 5,565,530 $ 2,858,182 Net investment income Net realized 22,328,052 6,429,187 gain (loss) Change in 44,057,165 (2,016,821 net ) unrealized appreciation (depreciation ) NET INCREASE 71,950,747 7,270,548 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (3,155,657 (1,863,695 shareholders ) ) From net investment income From net (9,088,286 (6,217,044 realized gain ) ) TOTAL (12,243,943 (8,080,739 DISTRIBUTION ) ) S Share 388,478,435 301,180,682 transactions Net proceeds from sales of shares Reinvestmen 11,963,979 7,855,119 t of distributions Cost of (309,887,067 (241,446,435 shares ) ) redeemed Paid in 312,663 394,744 capital portion of redemption fees NET INCREASE 90,868,010 67,984,110 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 150,574,814 67,173,919 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 164,602,784 97,428,865 period End of period $ 315,177,598 $ 164,602,784 (including undistribute d net investment income of $2,409,873 and $1,047,856 , respectivel y) OTHER INFORMATION Shares Sold 17,599,773 16,228,773 Issued in 512,815 468,963 reinvestment of distributions Redeemed (14,323,517 (12,971,096 ) ) Net increase 3,789,071 3,726,640 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 18.01 $ 17.99 $ 20.88 $ 16.48 $ 11.40 value, beginning of period Income from Investment Operations Net .52 .37 .19 .16 .25 investment income Net realized 6.78 .87 .93 5.09 5.37 and unrealized gain (loss) Total from 7.30 1.24 1.12 5.25 5.62 investment operations Less (.25) (.29) (.15) (.11) (.15) Distributions From net investment income From net (.72) (.98) (3.92) (.81) (.53) realized gain Total (.97) (1.27) (4.07) (.92) (.68) distributions Redemption .03 .05 .06 .07 .14 fees added to paid in capital Net asset $ 24.37 $ 18.01 $ 17.99 $ 20.88 $ 16.48 value, end of period TOTAL 40.94% 7.79% 6.46% 33.10% 52.34% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 315,178 $ 164,603 $ 97,429 $ 315,520 $ 156,570 end of period (000 omitted) Ratio of 1.41% 1.58% 1.62% 1.49% 1.77% expenses to A average net assets Ratio of 1.40% 1.56% 1.60% 1.49% 1.77% expenses to E E E A average net assets after expense reductions Ratio of net 2.42% 1.99% .88% 1.06% 1.80% investment A income to average net assets Portfolio 103% 106% 74% 63% 89% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past one, five and 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS BIOTECHNOLOGY 44.97% 81.01% 364.12% BIOTECHNOLOGY 40.62% (INCL. 3% SALES CHARGE) 75.58% 350.20% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS BIOTECHNOLOGY 44.97% 12.60% 16.59% BIOTECHNOLOGY 40.62% 11.92% 16.24% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 11352.79 10558.00 19860430 11524.39 10438.69 19860531 12093.39 10994.03 19860630 12770.76 11179.83 19860731 11045.72 10554.88 19860831 11479.24 11338.05 19860930 9510.34 10400.39 19861031 10214.80 11000.50 19861130 9989.01 11267.81 19861231 9347.77 10980.48 19870131 10594.13 12459.55 19870228 12770.76 12951.70 19870331 12716.57 13326.01 19870430 12554.00 13207.41 19870531 12499.81 13322.31 19870630 12409.50 13995.09 19870731 12427.56 14704.64 19870831 12933.33 15253.12 19870930 12743.67 14919.08 19871031 8823.93 11705.51 19871130 7965.92 10740.97 19871231 9032.66 11558.36 19880131 9488.95 12044.97 19880229 9842.80 12606.27 19880331 9777.62 12216.73 19880430 9600.69 12352.34 19880531 9414.45 12459.80 19880630 9731.06 13031.71 19880731 9721.75 12982.19 19880831 9451.70 12540.79 19880930 9647.25 13075.03 19881031 9544.82 13438.52 19881130 9097.84 13246.35 19881231 9405.14 13478.16 19890131 10056.98 14464.76 19890228 9982.48 14104.59 19890331 10718.13 14433.22 19890430 11081.30 15182.31 19890531 11584.15 15797.19 19890630 11286.17 15707.15 19890731 12329.11 17125.50 19890831 12794.71 17461.16 19890930 13334.81 17389.57 19891031 13381.37 16986.13 19891130 13800.41 17332.65 19891231 13537.05 17748.63 19900131 12524.14 16557.70 19900228 13707.45 16771.29 19900331 14284.90 17215.73 19900430 14464.76 16785.34 19900531 16500.06 18421.91 19900630 17652.31 18296.64 19900731 17700.17 18238.09 19900831 17154.52 16589.37 19900930 16771.60 15781.47 19901031 16915.20 15713.61 19901130 18963.78 16728.71 19901231 19540.42 17195.44 19910131 21784.53 17945.16 19910228 24871.41 19228.24 19910331 27438.91 19693.56 19910430 26243.35 19740.82 19910531 27909.29 20593.63 19910630 26427.48 19650.44 19910731 28806.57 20566.15 19910831 30825.19 21053.57 19910930 32421.55 20701.97 19911031 35614.27 20979.38 19911130 33235.18 20133.91 19911231 38894.26 22437.23 19920131 38114.67 22019.90 19920229 35188.52 22306.16 19920331 32518.68 21871.19 19920430 29485.74 22514.20 19920531 31600.25 22624.52 19920630 31045.61 22287.41 19920731 32668.53 23198.97 19920831 30625.29 22723.39 19920930 30520.20 22991.53 19921031 32014.69 23072.00 19921130 35167.12 23858.75 19921231 34871.34 24152.21 19930131 33079.29 24355.09 19930228 27739.96 24686.32 19930331 28157.29 25207.20 19930430 28881.47 24597.19 19930531 30747.17 25256.39 19930630 30931.28 25329.64 19930731 29912.52 25228.32 19930831 31041.75 26184.47 19930930 32318.28 25982.85 19931031 34724.05 26520.70 19931130 34454.01 26268.75 19931231 35116.83 26586.60 19940131 36319.71 27490.55 19940228 33889.40 26745.55 19940331 30464.86 25579.45 19940430 29912.52 25906.86 19940531 29409.27 26331.74 19940630 28243.21 25686.61 19940731 28316.85 26529.13 19940831 30968.11 27616.82 19940930 30869.91 26940.21 19941031 29814.32 27546.37 19941130 29261.98 26543.13 19941231 28734.18 26936.76 19950131 30022.98 27635.23 19950228 31054.03 28712.18 19950331 31557.27 29559.47 19950430 32539.22 30430.00 19950531 32833.80 31646.29 19950630 34024.41 32381.43 19950731 35546.43 33455.20 19950831 36970.25 33539.17 19950930 38627.28 34954.52 19951031 38320.42 34829.74 19951130 39596.95 36358.76 19951231 42842.72 37059.03 19960131 45376.63 38320.52 19960229 45019.91 38675.75 Let's say you invested $10,000 in Fidelity Select Biotechnology Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $45,020 - a 350.20% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Amgen, Inc. 9.7 Biogen, Inc. 6.9 Genentech, Inc. special 6.2 Merck & Co., Inc. 4.6 Schering-Plough Corp. 3.2 Pharmacia & Upjohn, Inc. 3.0 SmithKline Beecham PLC ADR 2.8 Roche Holdings Ltd. participation certificates 2.5 Protein Design Labs, Inc. 2.0 Genetics Institute, Inc. depositary shares 1.8 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 22.9 Row: 1, Col: 2, Value: 1.6 Row: 1, Col: 3, Value: 1.9 Row: 1, Col: 4, Value: 6.9 Row: 1, Col: 5, Value: 25.3 Row: 1, Col: 6, Value: 41.4 Biotechnology 41.4% Drugs 25.3% Pharmaceutical Preparations 6.9% Hosptials 1.9% Medical Supplies & Appliances 1.6% All Others 22.9% * * INCLUDES SHORT-TERM INVESTMENTS BIOTECHNOLOGY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Karen Firestone, Portfolio Manager of Fidelity Select Biotechnology Portfolio Q. HOW DID THE FUND PERFORM, KAREN? A. Very well. For the 12 months ended February 29, 1996, the fund returned 44.97%. The S&P 500 Index returned 34.70% for the same time period. Q. HOW DO YOU ACCOUNT FOR THE FUND'S STRONG SHOWING? A. The relative performance of the biotechnology sector was very strong, especially during the past six months. The negative sentiments that plagued biotech stocks for nearly three years began to dissipate in early 1995. That was partly the result of some tangible successes in the discovery of new drugs - the lifeblood of the biotech industry. I think that the recent successes with new drugs were heralded by the market as the coming of age of this industry. While biotechnology has always been - and continues to be - - an inherently risky business, the market was enamored of recent successes in this industry and rewarded them accordingly. Q. DID THIS KIND OF MARKET BACKDROP CAUSE YOU TO CHANGE YOUR INVESTMENT STRATEGY? A. No. I continue to focus on the largest names in the industry. Though they're still risky, they do provide some stability. Large biotech companies such as Amgen and Biogen have been the top holdings in the fund for some time now. I have faith in them because of their strong managements and product development cycles. Biogen performed especially well during the period when its drug for multiple sclerosis met with approval at the Food & Drug Administration's Advisory Committee meeting. The fund also continues to hold relatively large positions in other solid performers, such as Roche Holdings, Protein Design Labs and Genetics Institute. Q. HOW LONG CAN THE BIG BIOTECH STOCKS SUSTAIN THEIR GROWTH RATES? A. Despite the fact they're among the largest biotechnology companies in the world, companies such as Biogen, Amgen and Genentech aren't that large compared to many of the major drug companies. They look huge in an industry where many companies have no sales at all. In other words, there's still plenty of room for them to grow. Q. WHAT PARTICULAR CHALLENGES DID YOU FACE DURING THE PAST SIX MONTHS? A. There's no question that this was a very strong period for biotech stocks. Many of the top names - the stocks that I like to own - performed very well. In this kind of investing environment, the challenge is in knowing when to sell. It can be tricky. I have to try to determine whether a stock that's appreciated significantly has any upside potential left in it. Naturally, in this kind of market the goal is to maximize returns while limiting what you give back when market sentiment inevitably changes. Q. WHERE ELSE DID YOU FIND OPPORTUNITIES? A. Genomics is an interesting segment of the biotechnology sector. Genomics is the discovery and categorization of genes as they relate to diseases. This technology has really captured the public's attention and the fund's holdings in Genome Therapeutics, Sequana Therapeutics and Human Genome Sciences represent exposure to this emerging area. Q. DRUG COMPANIES SEEM TO MAKE UP A LARGE PORTION OF THE FUND . . . A. That's right. Many of the large drug companies, such as Merck and Schering-Plough, have large biotechnology divisions. It's nearly impossible for a fund this size to focus only on companies that are exclusively biotech - there are just not enough good ones out there. Rather than go lower in quality, I prefer to diversify into drug and pharmaceutical companies. I also think this strategy helps to limit the downside in a changing market environment. Q. ANY DISAPPOINTMENTS DURING THE PAST SIX MONTHS? A. As I said, this was an extremely good time for biotech stocks. Many of the fund's holdings performed very well during the period. However, I do wish the fund had held larger positions in Genzyme and Chiron, two companies that did exceptionally well during the period. Q. WHAT'S AHEAD FOR THE FUND? A. I don't expect my strategy to change much. My goal is to pick the best stocks in the biotechnology sector that I think will outperform the market and other biotech companies. I also intend to watch out for stocks that have risen so much and so fast that their upside potential could be limited. FUND FACTS START DATE: December 16, 1985 TRADING SYMBOL: FBIOX SIZE: as of February 29, 1996, more than $1.0 billion MANAGER: Karen Firestone, since 1992; manager, Fidelity Select Health Care Portfolio since February 1995; manager, Fidelity Select Air Transportation Portfolio, 1987-1992; Fidelity Select Leisure Portfolio, 1989-1992; joined Fidelity in 1983 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. BIOTECHNOLOGY PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 84.9% SHARES VALUE (NOTE 1) AGRICULTURE - 0.1% CROPS - 0.1% DEKALB Genetics Corp. Class B 23,700 $ 1,570,125 CELLULAR - 0.1% CELLULAR & COMMUNICATION SERVICES - 0.1% Millicom International Cellular SA (a) 26,942 1,020,428 CHEMICALS & PLASTICS - 0.7% CHEMICALS - 0.7% Hoechst AG Ord. 25,000 7,836,555 DRUG STORES - 1.3% Eckerd Corp. (a) 25,800 1,157,775 Revco (D.S.), Inc. (a) 425,000 11,793,750 Rite Aid Corp. 50,000 1,575,000 14,526,525 DRUGS & PHARMACEUTICALS - 74.4% BIOTECHNOLOGY - 41.4% Alkermes, Inc. (a) 388,200 3,833,475 Amgen, Inc. (a) 1,816,100 108,511,975 Athena Neurosciences, Inc. (a) 499,200 6,988,800 Bio-Rad Laboratories, Inc. Class A (a) 36,000 1,390,500 Biochem Pharmaceuticals, Inc. (a) 74,000 3,415,551 Biogen, Inc. (a) 1,174,600 76,789,475 Cambridge Neuroscience, Inc. (a) 255,700 2,429,150 Cell Genesys, Inc. (a) 336,600 2,903,175 Chiron Corp. (a) 160,800 17,868,900 COR Therapeutics, Inc. (a)(c) 1,025,500 10,703,656 Creative Biomolecules, Inc. (a) 58,100 515,638 Cytogen Corp. (a) 178 1,424 Depotech Corp. (a) 1,000 20,000 Dynagen, Inc. (warrants) (a) 40,000 90,000 Genentech, Inc. special (a) 1,273,800 69,581,325 Genetics Institute, Inc. (a): depositary shares 294,180 20,077,785 (warrants) 40,000 980,000 Genome Therapeutics Corp. (a) 550,000 7,356,250 Genzyme Corp. (a) 200,200 13,813,800 Genzyme Corp.-Tissue Repair (a) 9,539 171,702 Gilead Sciences, Inc. (a) 183,700 6,521,350 Human Genome Sciences, Inc. (a) 113,800 4,736,925 Idexx Laboratories (a) 80,000 3,840,000 Immulogic Pharmaceutical Corp. (a) 80,500 1,589,875 Insite Vision, Inc. (a)(c) 520,000 3,575,000 Interneuron Pharmaceuticals, Inc. (a) 387,400 11,331,450 Magainin Pharmaceuticals, Inc. (a) 106,700 1,373,763 NABI, Inc. (a) 187,990 2,208,883 Neurex Corp. (a) 200,000 3,125,000 Neurogen (a) 62,400 1,989,000 North American Vaccine, Inc. (a) 143,300 2,113,675 Pharmacia & Upjohn, Inc. 814,800 34,119,750 Protein Design Labs, Inc. (a)(c) 812,900 22,049,913 Quidel Corp. (a) 95,500 513,313 Sequana Therapeutics, Inc. (a) 216,800 4,986,400 Somatix Therapy Corp. (a) 689,600 3,879,000 Sugen, Inc. (a) 323,900 4,615,575 Vical, Inc. (a) 198,900 3,431,025 463,442,478 COMMERCIAL LABORATORY RESEARCH - 0.7% Cryomedical Sciences, Inc. (a) 393,000 724,594 INCYTE Pharmaceuticals, Inc. (a) 187,600 6,003,200 SHARES VALUE (NOTE 1) Medarex, Inc. (a) 175,000 $ 1,137,500 Medarex, Inc. (warrants) (a) 175,000 207,813 8,073,107 DRUGS - 25.3% Allergan, Inc. 325,600 12,128,600 ALZA Corp. Class A (a) 100,000 3,325,000 Ares Serono Class B (Bearer) 12,300 9,683,992 Astra AB: Class A Free shares 80,000 3,664,709 Class B Free shares 165,000 7,534,080 Barr Laboratories, Inc. (a) 50,000 1,843,750 Bristol-Myers Squibb Co. 100,000 8,512,500 Dura Pharmaceuticals, Inc. (a) 130,000 5,492,500 Elan Corp. PLC (a): ADR 106,075 6,152,350 (warrants) 14,339 338,759 Glaxo Holdings PLC 47,000 649,920 Glaxo PLC sponsored ADR 100,000 2,737,500 IVAX Corp. 105,300 3,014,215 Lilly (Eli) & Co. 260,000 15,730,000 Lynx Therapeutics, Inc. (a) 193,995 - Matrix Pharmaceutical, Inc. (a) 253,800 5,393,250 Merck & Co., Inc. 780,000 51,675,000 Mylan Laboratories, Inc. 60,100 1,171,950 Novo Industri A/S ADR 16,000 548,000 Novo-Nordisk AS Class B 15,500 2,110,974 Pfizer, Inc. 165,600 10,908,900 Roche Holdings Ltd. participation certificates 3,650 28,311,764 Sandoz AG (Reg.) 2,500 2,342,807 Schering-Plough Corp. 640,900 35,970,513 Schering-Plough Corp. Unit (b) 6,300 1,196,370 Sequus Pharmaceuticals, Inc. (a) 684,400 11,292,600 SmithKline Beecham PLC ADR 567,900 31,092,525 Takeda Chemical Industries Ltd. 361,000 5,795,754 Watson Pharmaceuticals, Inc. (a) 218,894 9,412,442 Yamanouchi Pharmaceutical Co. Ltd. 233,000 5,201,634 283,232,358 IN VITRO, IN VIVO DIAGNOSTIC SUBSTANCES - 0.1% Igen, Inc. (a) 173,900 978,188 Serologicals Corp. (a) 15,000 301,875 1,280,063 PHARMACEUTICAL PREPARATIONS - 6.9% Advanced Therapeutic Systems Ltd. (a) 14,339 444,509 Alpharma, Inc. Class A 116,700 2,990,438 Arris Pharmaceutical Corp. (a)(c) 523,500 7,263,563 CIBA-GEIGY AG (Reg.) 7,400 6,595,980 Cocensys, Inc. (a) 206,000 1,364,750 Copley Pharmaceutical, Inc. (a) 301,600 5,692,700 Guilford Pharmaceuticals, Inc. (a)(c) 388,700 9,425,975 Immunex Corp. (a) 734,700 11,755,200 Inhale Therapeutic Systems (a)(c) 673,500 8,418,750 La Jolla Pharmaceutical Co. (a) 387,300 2,783,719 Ligand Pharmaceuticals, Inc. Class B (a) 957,065 11,604,413 Neurobiological Technologies, Inc. (a) 57,900 246,075 Nexstar Pharmaceuticals, Inc. (a) 125,000 3,140,625 Noven Pharmaceuticals, Inc. (a) 50,000 818,750 Procept, Inc. (a) 17,300 45,413 T Cell Sciences, Inc. (a) 394,100 1,157,669 Theratech, Inc. (a) 130,000 2,860,000 76,608,529 TOTAL DRUGS & PHARMACEUTICALS 832,636,535 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRICAL EQUIPMENT - 0.0% TV & RADIO COMMUNICATION EQUIPMENT - 0.0% ASN (warrants)(a) 5,000 $ - HOME FURNISHINGS - 0.3% FURNITURE - 0.3% Kinetic Concepts, Inc. 210,500 2,868,063 HOUSEHOLD PRODUCTS - 1.1% SOAPS & DETERGENTS - 1.1% Procter & Gamble Co. 150,000 12,300,000 MEDICAL EQUIPMENT & SUPPLIES - 3.1% MEDICAL SUPPLIES & APPLIANCES - 1.6% Abbott Laboratories 100,000 4,175,000 Boston Scientific Corp. (a) 129,005 6,192,240 Cygnus, Inc. 100,000 2,212,500 Exogen, Inc. (a) 213,500 4,323,375 Hemasure, Inc. (a) 51,000 637,500 17,540,615 MEDICAL TECHNOLOGY - 1.5% Conceptus, Inc. (a) 55,000 1,086,250 Haemonetics Corp. (a) 180,700 3,071,900 Pall Corp. 300,000 8,175,000 St. Jude Medical, Inc. (a) 97,400 3,676,850 Sonus Pharmaceuticals, Inc. (a) 50,000 737,500 16,747,500 OPHTHALMIC GOODS - 0.0% Bausch & Lomb, Inc. 16,000 622,000 TOTAL MEDICAL EQUIPMENT & SUPPLIES 34,910,115 MEDICAL FACILITIES MANAGEMENT - 3.8% HEALTH SERVICES - 0.1% Healthwise America, Inc. (a) 22,950 952,425 HOSPITALS - 1.9% Columbia/HCA Healthcare Corp. 363,700 19,912,567 Vencor, Inc. (a) 24,300 908,213 20,820,780 HOSPITALS, GENERAL MEDICAL - 0.2% Medpartners/Mullikin, Inc. 60,000 1,800,000 HMOS & OUTPATIENT CARE - 1.1% Health Systems International, Inc. (a) 350,000 12,775,000 MEDICAL SERVICES - 0.3% Foundation Health Corp. (a) 80,000 3,120,000 NURSING CARE & NURSING HOMES - 0.1% ARV Assisted Living, Inc. (a) 43,000 752,500 SKILLED NURSING CARE FACILITIES - 0.1% TheraTx, Inc. (a) 149,500 1,756,625 TOTAL MEDICAL FACILITIES MANAGEMENT 41,977,330 TOTAL COMMON STOCKS (Cost $774,947,303) 949,645,676 REPURCHASE AGREEMENTS - 15.1% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 169,204,424 $ 169,179,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $944,126,303) $ 1,118,824,676 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 $1,196,370 or 0.1% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Arris Pharmaceutical Corp. $ - $ - $ - $ 7,263,563 COR Therapeutics, Inc. 485,155 260,213 - 10,703,656 Guilford Pharmaceutical Corp. 635,000 - - 9,425,975 Inhale Therapeutic Systems 1,865,813 - - 8,418,750 Insite Vision, Inc. 468,125 2,372,913 - 3,575,000 Protein Design Labs, Inc. 1,313,749 - - 22,049,913 SciGenics, Inc. - 692,994 - - Totals $ 4,767,842 $ 3,326,120 $ - $ 61,436,857 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $734,155,417 and $323,552,102, respectively (see Note 3 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 $163,549 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $6,363,675 and $6,914,600, respectively (see Note 6 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 88.8% Switzerland 4.2 United Kingdom 3.1 Sweden 1.0 Japan 1.0 Others (individually less than 1%) 1.9 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $945,501,891. Net unrealized appreciation aggregated $173,322,785, of which $187,952,260 related to appreciated investment securities and $14,629,475 related to depreciated investment securities. The fund hereby designates approximately $905,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 100% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. BIOTECHNOLOGY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 1,118,824,676 securities, at value (including repurchase agreements of $169,179,000 ) (cost $944,126,303 ) - See accompanyin g schedule Cash 303,640 Receivable for 3,346,434 investments sold Receivable for 5,595,082 fund shares sold Dividends 182,722 receivable Redemption 4,053 fees receivable Other 1,326,394 receivables TOTAL ASSETS 1,129,583,001 LIABILITIES Payable for $ 2,376,779 investments purchased Payable for 22,108,164 fund shares redeemed Accrued 585,404 management fee Other payables 734,257 and accrued expenses Collateral on 6,914,600 securities loaned, at value TOTAL 32,719,204 LIABILITIES NET ASSETS $ 1,096,863,797 Net Assets consist of: Paid in capital $ 902,318,214 Undistributed 729,404 net investment income Accumulated 19,117,806 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 174,698,373 appreciation (depreciation ) on investments NET ASSETS, for $ 1,096,863,797 29,970,929 shares outstanding NET ASSET $36.60 VALUE and redemption price per share ($1,096,863, 797 (divided by) 29,970,929 shares) Maximum $37.73 offering price per share (100/97.00 of $36.60) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 2,600,332 INCOME Dividends Interest 8,100,147 (including income on securities loaned of $192,625) TOTAL 10,700,479 INCOME EXPENSES Management $ 3,676,822 fee Transfer agent 4,809,982 Fees Redemption (234,230 fees ) Accounting and 538,798 security lending fees Non-interested 3,143 trustees' compensatio n Custodian fees 53,215 and expenses Registration 220,812 fees Audit 40,776 Legal 7,598 Miscellaneous 10,307 Total 9,127,223 expenses before reductions Expense (545,247 8,581,976 reductions ) NET 2,118,503 INVESTMENT INCOME REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 60,840,794 securities (including realized loss of $1,149,706 on sales of investments in affiliated issuers) Foreign 3,491 60,844,285 currency transactions Change in net 158,651,823 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 219,496,108 NET INCREASE $ 221,614,611 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 3,591,690 INFORMATION Sales charges paid to FDC Deferred $ 28,707 sales charges withheld by FDC Exchange $ 160,733 fees withheld by FSC Expense $ 22,133 reductions Directed brokerage arrangement s Custodian 5,727 interest credits Transfer 13,625 agent interest credits FMR 503,762 reimburseme nt $ 545,247 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 2,118,503 $ (1,097,554) Net investment income (loss) Net realized 60,844,285 (28,000,457) gain (loss) Change in 158,651,823 (10,252,135) net unrealized appreciation (depreciation ) NET INCREASE 221,614,611 (39,350,146) (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (1,392,589) - shareholders from net investment income Share 886,867,937 208,388,703 transactions Net proceeds from sales of shares Reinvestmen 1,358,134 - t of distributions Cost of (460,786,384) (202,202,871) shares redeemed Paid in 1,005,318 214,866 capital portion of redemption fees NET INCREASE 428,445,005 6,400,698 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 648,667,027 (32,949,448) INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 448,196,770 481,146,218 period End of period $ 1,096,863,797 $ 448,196,770 (including undistribute d net investment income of $729,404 and $0, respectivel y) OTHER INFORMATION Shares Sold 26,953,463 8,583,014 Issued in 41,419 - reinvestment of distributions Redeemed (14,737,686) (8,294,600) Net increase 12,257,196 288,414 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 25.30 $ 27.61 $ 22.60 $ 27.61 $ 26.78 value, beginning of period Income from Investment Operations Net .11 (.06) (.18) (.08) (.11) investment income (loss) Net realized 11.21 (2.26) 5.15 (1.09) 3.36 and unrealized gain (loss) Total from 11.32 (2.32) 4.97 (1.17) 3.25 investment operations Less (.07) - - - - Distributions From net investment income In excess of - - - - (.02) net investment income From net - - - (3.89) (2.52) realized gain Total (.07) - - (3.89) (2.54) distributions Redemption .05 .01 .04 .05 .12 fees added to paid in capital Net asset $ 36.60 $ 25.30 $ 27.61 $ 22.60 $ 27.61 value, end of period TOTAL 44.97% (8.37)% 22.17% (5.92)% 12.36% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 1,096,864 $ 448,197 $ 481,146 $ 507,993 $ 679,877 end of period (000 omitted) Ratio of 1.44% 1.59% 1.62% 1.50% 1.50% expenses to F A average net assets Ratio of 1.43% 1.59% 1.61% 1.50% 1.50% expenses to E E A average net assets after expense reductions Ratio of net .35% (.27)% (.69)% (.37)% (.34)% investment A income (loss) to average net assets Portfolio 67% 77% 51% 79% 160% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS HEALTH CARE 39.68% 129.56% 514.35% HEALTH CARE 35.49% 122.67% 495.92% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS HEALTH CARE 39.68% 18.08% 19.91% HEALTH CARE 35.49% 17.36% 19.54% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10996.21 10558.00 19860430 11128.81 10438.69 19860531 11818.35 10994.03 19860630 12610.66 11179.83 19860731 11708.92 10554.88 19860831 12140.97 11338.05 19860930 10483.10 10400.39 19861031 11397.44 11000.50 19861130 11229.98 11267.81 19861231 10978.79 10980.48 19870131 12616.56 12459.55 19870228 14488.78 12951.70 19870331 14401.70 13326.01 19870430 14060.08 13207.41 19870531 14197.40 13322.31 19870630 14535.67 13995.09 19870731 15091.65 14704.64 19870831 15537.09 15253.12 19870930 15245.71 14919.08 19871031 11223.28 11705.51 19871130 10134.78 10740.97 19871231 10908.68 11558.36 19880131 11719.41 12044.97 19880229 12071.30 12606.27 19880331 11771.16 12216.73 19880430 11588.31 12352.34 19880531 11557.26 12459.80 19880630 11860.86 13031.71 19880731 11843.61 12982.19 19880831 11522.76 12540.79 19880930 11909.16 13075.03 19881031 12057.50 13438.52 19881130 11705.61 13246.35 19881231 11871.78 13478.16 19890131 12710.07 14464.76 19890228 12466.58 14104.59 19890331 13124.00 14433.22 19890430 13840.55 15182.31 19890531 14271.87 15797.19 19890630 13950.17 15707.15 19890731 15678.14 17125.50 19890831 16057.45 17461.16 19890930 16173.35 17389.57 19891031 16053.94 16986.13 19891130 16745.83 17332.65 19891231 16915.92 17748.63 19900131 15945.33 16557.70 19900228 15778.24 16771.29 19900331 16407.52 17215.73 19900430 16407.52 16785.34 19900531 18665.11 18421.91 19900630 19301.07 18296.64 19900731 19567.55 18238.09 19900831 18690.40 16589.37 19900930 18127.83 15781.47 19901031 18542.35 15713.61 19901130 20515.02 16728.71 19901231 21029.26 17195.44 19910131 23105.19 17945.16 19910228 25959.11 19228.24 19910331 28273.20 19693.56 19910430 27781.01 19740.82 19910531 29289.33 20593.63 19910630 27968.61 19650.44 19910731 30443.41 20566.15 19910831 31964.73 21053.57 19910930 32608.85 20701.97 19911031 34757.35 20979.38 19911130 32858.88 20133.91 19911231 38629.18 22437.23 19920131 37361.76 22019.90 19920229 35730.30 22306.16 19920331 33550.53 21871.19 19920430 31649.41 22514.20 19920531 32301.09 22624.52 19920630 31056.08 22287.41 19920731 32924.30 23198.97 19920831 32036.29 22723.39 19920930 29818.69 22991.53 19921031 30735.81 23072.00 19921130 32419.63 23858.75 19921231 31894.47 24152.21 19930131 30181.54 24355.09 19930228 26960.81 24686.32 19930331 27704.45 25207.20 19930430 27694.19 24597.19 19930531 28801.96 25256.39 19930630 28699.38 25329.64 19930731 27765.99 25228.32 19930831 28755.80 26184.47 19930930 29653.30 25982.85 19931031 31858.57 26520.70 19931130 31750.87 26268.75 19931231 32665.25 26586.60 19940131 33312.19 27490.55 19940228 32506.08 26745.55 19940331 30385.56 25579.45 19940430 31604.56 25906.86 19940531 33389.52 26331.74 19940630 32859.69 25686.61 19940731 33518.12 26529.13 19940831 37916.21 27616.82 19940930 38188.84 26940.21 19941031 38718.67 27546.37 19941130 39557.14 26543.13 19941231 39674.76 26936.76 19950131 41776.18 27635.23 19950228 42661.58 28712.18 19950331 43821.56 29559.47 19950430 44432.37 30430.00 19950531 44860.47 31646.29 19950630 47130.53 32381.43 19950731 49828.70 33455.20 19950831 50251.16 33539.17 19950930 53067.62 34954.52 19951031 53197.17 34829.74 19951130 55439.07 36358.76 19951231 57871.55 37059.03 19960131 59941.57 38320.52 19960229 59591.62 38675.75 Let's say you invested $10,000 in Fidelity Select Health Care Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $59,592 - a 495.92% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Schering-Plough Corp. 6.5 Bristol-Myers Squibb Co. 5.3 SmithKline Beecham PLC ADR 5.0 Merck & Co., Inc. 4.9 Pharmacia & Upjohn, Inc. 4.2 American Home Products Corp. 3.6 Allergan, Inc. 3.3 Johnson & Johnson 3.2 Pfizer, Inc. 2.8 Amgen, Inc. 2.7 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Drugs 40.5% Biotechnology 12.4% Medical Supplies & Appliances 9.9% Medical Technology 6.6% Hospitals 3.6% All Others 27.0% * Row: 1, Col: 1, Value: 27.0 Row: 1, Col: 2, Value: 3.6 Row: 1, Col: 3, Value: 6.6 Row: 1, Col: 4, Value: 9.9 Row: 1, Col: 5, Value: 12.4 Row: 1, Col: 6, Value: 40.5 * INCLUDES SHORT-TERM INVESTMENTS HEALTH CARE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Karen Firestone, Portfolio Manager of Fidelity Select Health Care Portfolio Q. HOW DID THE FUND PERFORM, KAREN? A. The fund did well. For the 12 months ended February 29, 1996, the fund returned 39.68%, while the S&P 500 Index returned 34.70%. Q. WHAT FACTORS HELPED THE FUND OUTPERFORM? A. During the past 12 months, the entire health care sector outperformed the market for a number of reasons. First, concerns about health care regulation and reform that had profoundly affected the market in 1993 began to dissipate in 1994 and were a non-issue throughout 1995 and early 1996. Secondly, sales of drugs and medical devices grew at a much faster rate in 1995 than the market had anticipated. Finally, the weakness of the U.S. dollar helped these companies to generate 45%-50% of their revenues overseas. In short, the relative performance of health care to the general economy was exceptional. Q. WHY WERE DRUG SALES SO STRONG DURING THE PAST SIX MONTHS? A. The top names in the industry have been able to increase earnings consistently and grow rapidly. What's helped is that there's been an explosion in the use of prescription drugs in the United States, a phenomenon that has been largely driven by managed care. It's cheaper and easier for patients to be treated with drugs than to be admitted to the hospital. New drugs such as Merck's Fosamax and Cozaar, Bristol-Myers Squibb's Taxol and Schering-Plough's Claritin all sold very well during the period. Companies that can adapt to changes in the health care industry - such as managed care and consolidation - have performed best. On average, drug stocks went up by 50% during 1995 on strong sales both domestically and internationally. Q. MANY OF THE STOCKS YOU MENTIONED HAVE BEEN IN THE FUND'S TOP 10 HOLDINGS FOR SOME TIME. WHAT CAN YOU TELL US ABOUT SOME OF THE NEW ONES? A. The newly merged Pharmacia & Upjohn is new to the fund's top 10. With strong sales and new products, each company was performing well on its own. The announcement of the merger, however, caused them to go up even more. I think that the combined company should be able to cut costs, be more efficient and maintain higher profit margins than either one was independently. I started buying SmithKline Beecham because it plans to introduce more drugs over the next five years than any other major pharmaceutical company. I saw this U.K.-based company as undervalued relative to its U.S. counterparts which have benefitted from the surging U.S. stock market. Q. WHERE ELSE DID YOU FIND OPPORTUNITIES DURING THE PERIOD? A. The fund didn't own health maintenance organizations (HMOs) in 1995, but I've begun to buy them again. Enrollment growth is more difficult now than it was in the early years of HMOs. But the companies that can run their businesses efficiently should be able to meet their targeted earnings and continue to grow. In many states, HMOs are still in the very early stages of development. It's a rapidly changing and volatile field. Since they didn't have a good 1995, HMOs with strong managements, such as United Healthcare, have the potential to perform better in 1996. Q. ANY INVESTMENT DECISIONS THAT WERE DISAPPOINTING DURING THE PAST SIX MONTHS? A. Yes. I wish the fund had owned more Rhone Polenc, a French drug company that the fund did own but, in hindsight, I sold too soon. I also wish I'd held on to Chiron and Genzyme, two biotechnology stocks that performed well. Again, I'd owned both but sold them when I thought they were fully valued, which turned out to be too early. Q. WHAT'S YOUR OUTLOOK GOING FORWARD? A. I'll continue to pick the best stocks in the health care sector that I think will outperform the market in general and health care specifically. Because of the very strong performance of health care in 1995, it could be a bit more difficult to outperform the market in 1996. I still believe, however, that there continue to be some good values. FUND FACTS START DATE: July 14, 1981 TRADING SYMBOL: FSPHX SIZE: as of February 29, 1996, more than $1.5 billion MANAGER: Karen Firestone, since February 1995; manager Fidelity Select Biotechnology Portfolio since 1992; manager, Fidelity Select Air Transportation portfolio, 1987-1992; manager, Fidelity Select Leisure Portfolio, 1989-1992; joined Fidelity in 1983 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. HEALTH CARE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 84.9% SHARES VALUE (NOTE 1) CHEMICALS & PLASTICS - 0.7% CHEMICALS - 0.7% Hoechst AG Ord. 34,000 $ 10,657,710 COMPUTER SERVICES & SOFTWARE - 0.1% CAD/CAM/CAE - 0.1% Healthdyne Information Enterprises, Inc. 258,200 968,250 DEFENSE ELECTRONICS - 0.0% Maxwell Laboratories, Inc. (a) 91,500 732,000 DRUG STORES - 0.9% Eckerd Corp. (a) 74,000 3,320,750 Revco (D.S.), Inc. (a) 300,060 8,326,665 Rite Aid Corp. 50,000 1,575,000 13,222,415 DRUGS & PHARMACEUTICALS - 55.0% BIOTECHNOLOGY - 12.4% Amgen, Inc. (a) 690,000 41,227,500 Athena Neurosciences, Inc. (a) 100,000 1,400,000 Biochem Pharmaceuticals, Inc. (a) 31,200 1,440,070 Biogen, Inc. (a) 249,700 16,324,138 Cambridge Neuroscience, Inc. (a) 45,900 436,050 COR Therapeutics, Inc. (a) 387,100 4,040,356 Cytogen Corp. (a) 255 2,040 Depotech Corp. (a) 2,000 40,000 Elf Sanofi SA 250,000 17,319,873 Genentech, Inc. special (a) 457,400 24,985,475 Genetics Institute, Inc. depositary shares (a) 90,000 6,142,500 Gilead Sciences, Inc. (a) 146,700 5,207,850 Human Genome Sciences, Inc. (a) 100,000 4,162,500 Magainin Pharmaceuticals, Inc. (a) 70,000 901,250 NABI, Inc. (a) 51,800 608,650 Pharmacia & Upjohn, Inc. 1,543,600 64,638,250 Sequana Therapeutics, Inc. (a) 100,000 2,300,000 191,176,502 COMMERCIAL LABORATORY RESEARCH - 0.2% INCYTE Pharmaceuticals, Inc. (a) 100,000 3,200,000 DRUGS - 40.5% Allergan, Inc. 1,371,500 51,088,375 ALZA Corp. Class A (a) 200,000 6,650,000 American Home Products Corp. 562,400 55,396,400 Astra AB Class A Free shares 270,000 12,368,392 Bristol-Myers Squibb Co. 961,100 81,813,638 Dura Pharmaceuticals, Inc. (a) 100,000 4,225,000 Elan Corp. PLC ADR (a) 166,350 9,648,300 Glaxo PLC sponsored ADR 195,000 5,338,125 IVAX Corp. 200,000 5,725,000 Lilly (Eli) & Co. 553,106 33,462,913 Merck & Co., Inc. 1,150,000 76,187,500 Pfizer, Inc. 663,600 43,714,650 Roche Holdings Ltd. participation certificates 2,000 15,513,295 Sandoz AG (Reg.) 17,200 16,118,514 Schering-Plough Corp. 1,788,400 100,373,950 SmithKline Beecham PLC ADR 1,400,000 76,650,000 Takeda Chemical Industries Ltd. 361,000 5,795,754 Warner-Lambert Co. 75,900 7,504,613 Watson Pharmaceuticals, Inc. (a) 230,000 9,890,000 Yamanouchi Pharmaceutical Co. Ltd. 233,000 5,201,634 622,666,053 SHARES VALUE (NOTE 1) IN VITRO, IN VIVO DIAGNOSTIC SUBSTANCE - 0.1% Igen, Inc. (a) 174,000 $ 978,750 PHARMACEUTICAL PREPARATIONS - 1.8% Advanced Therapeutic Systems Ltd. (a) 27,111 840,441 Arris Pharmaceutical Corp. (a) 250,000 3,468,750 CIBA-GEIGY AG (Reg.) 15,300 13,637,635 Copley Pharmaceutical, Inc. (a) 236,400 4,462,050 ICN Pharmaceuticals, Inc. 100,000 2,300,000 Inhale Therapeutic Systems (a) 39,000 487,500 Ligand Pharmaceuticals, Inc. Class B (a) 232,800 2,822,700 28,019,076 TOTAL DRUGS & PHARMACEUTICALS 846,040,381 HOME FURNISHINGS - 0.1% FURNITURE - 0.1% Kinetic Concepts, Inc. 114,500 1,560,063 HOUSEHOLD PRODUCTS - 0.8% SOAPS & DETERGENTS - 0.8% Procter & Gamble Co. 150,000 12,300,000 MEDICAL EQUIPMENT & SUPPLIES - 18.4% DRUG DISTRIBUTORS - WHOLESALE - 1.7% Bergen Brunswig Corp. Class A 749,590 18,083,859 Cardinal Health, Inc. 147,666 8,896,877 26,980,736 MEDICAL, DENTAL, HOSPITAL EQUIPMENT - WHOLESALE - 0.2% Sterile Concepts Holdings 215,200 3,658,400 MEDICAL SUPPLIES & APPLIANCES - 9.9% Abbott Laboratories 260,000 10,855,000 Baxter International, Inc. 323,000 14,777,250 Becton, Dickinson & Co. 435,300 35,694,600 Boston Scientific Corp. (a) 808,668 38,816,064 Healthdyne, Inc. (a) 258,200 2,388,350 Johnson & Johnson 529,600 49,517,600 152,048,864 MEDICAL TECHNOLOGY - 5.9% Advanced Medical, Inc. (a) 196,460 503,429 Advanced Technology Laboratories, Inc. (a) 100 2,975 Beckman Instruments, Inc. 354,000 12,832,500 Gish Biomedical, Inc. (a) 141,700 921,050 Guidant Corp. 46,930 2,223,309 Haemonetics Corp. (a) 200,000 3,400,000 Medtronic, Inc. 50,000 2,868,750 Nellcor, Inc. (a) 91,400 6,123,800 St. Jude Medical, Inc. (a) 1,046,900 39,520,475 Sonus Pharmaceuticals, Inc. (a) 100,000 1,475,000 Spacelabs Medical, Inc. (a)(c) 574,300 15,362,525 Vital Signs, Inc. 179,300 5,289,350 90,523,163 OPHTHALMIC GOODS - 0.1% Bausch & Lomb, Inc. 21,700 843,588 X-RAY ELECTRO-MEDICAL APPARATUS - 0.6% Healthdyne Technologies, Inc. (a) 168,013 1,848,143 Protocol Systems, Inc. (a)(c) 541,900 7,857,550 9,705,693 TOTAL MEDICAL EQUIPMENT & SUPPLIES 283,760,444 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) MEDICAL FACILITIES MANAGEMENT - 8.7% HOME HEALTH CARE AGENCIES - 0.1% Sterling House Corp. (a) 105,000 $ 1,968,750 HOSPITALS - 3.6% Columbia/HCA Healthcare Corp. 649,005 35,533,024 Tenet Healthcare Corp. 400,000 8,950,000 Vencor, Inc. (a) 288,000 10,764,000 55,247,024 HMOS & OUTPATIENT CARE - 3.3% Health Systems International, Inc. (a) 396,900 14,486,850 Healthsource, Inc. (a) 100,000 3,787,500 Pacificare Health Systems, Inc. Class B (a) 76,800 7,219,200 Sierra Health Services, Inc. (a) 100,000 3,475,000 United HealthCare Corp. 242,800 15,842,700 U.S. Healthcare, Inc. 134,200 6,542,250 51,353,500 MEDICAL SERVICES - 0.9% Foundation Health Corp. (a) 200,000 7,800,000 Lincare Holdings, Inc. (a) 150,000 4,696,875 National Surgery Centers, Inc. 2,000 55,500 Syncor International Corp. (a) 107,500 685,313 13,237,688 MISCELLANEOUS HEALTH & ALLIED SERVICES - 0.1% Sterling Healthcare Group, Inc. (a) 100,000 1,362,500 NURSING CARE & NURSING HOMES - 0.5% ARV Assisted Living, Inc. (a) 109,000 1,907,500 Arbor Health Care Co. (a) 112,000 3,052,000 Genesis Health Ventures, Inc. (a) 50,000 2,181,250 7,140,750 SKILLED NURSING CARE FACILITIES - 0.2% Multicare Companies, Inc. (a) 51,700 1,460,525 TheraTx, Inc. (a) 205,600 2,415,800 3,876,325 TOTAL MEDICAL FACILITIES MANAGEMENT 134,186,537 SERVICES - 0.2% BUILDING MAINTENANCE - 0.0% Health Care Services Group, Inc. (a) 577 5,986 PERSONNEL SUPPLY SERVICES - 0.2% Coastal Physician Group, Inc. (a) 237,900 3,092,700 TOTAL SERVICES 3,098,686 TOTAL COMMON STOCKS (Cost $980,713,256) 1,306,526,486 CONVERTIBLE PREFERRED STOCKS - 0.6% MEDICAL EQUIPMENT & SUPPLIES - 0.6% MEDICAL TECHNOLOGY - 0.6% U.S. Surgical Corp. $2.20 (b) (Cost $7,710,166) 332,800 9,859,200 NONCONVERTIBLE BONDS - 0.1% PRINCIPAL AMOUNT MEDICAL EQUIPMENT & SUPPLIES - 0.1% MEDICAL TECHNOLOGY - 0.1% Advanced Medical, Inc. 15%, 7/15/99 (Cost $1,542,097) $ 2,090,000 2,090,000 REPURCHASE AGREEMENTS - 14.4% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 220,816,179 $ 220,783,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $1,210,748,519) $ 1,539,258,686 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 $9,859,200 or 0.6% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Protocol Systems, Inc. $ 844,400 $ - $ - $ 7,857,550 Spacelabs Medical, Inc. - - - 15,362,525 Totals $ 844,400 $ - $ - $ 23,220,075 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $674,981,721 and $515,084,328, respectively (see Note 3 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 $290,110 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $7,160,550 and $7,480,400, respectively (see Note 6 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 87.6% United Kingdom 5.3 Switzerland 3.0 France 1.1 Others (individually less than 1%) 3.0 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $1,212,211,798. Net unrealized appreciation aggregated $327,046,888, of which $336,198,893 related to appreciated investment securities and $9,152,005 related to depreciated investment securities. The fund hereby designates approximately $22,385,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 30% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. HEALTH CARE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 1,539,258,686 securities, at value (including repurchase agreements of $220,783,000 ) (cost $1,210,748,5 19) - See accompanyin g schedule Cash 297 Receivable for 2,344,227 investments sold Receivable for 5,033,537 fund shares sold Dividends 1,462,661 receivable Interest 39,188 receivable Redemption 898 fees receivable Other 882,624 receivables TOTAL ASSETS 1,549,022,118 LIABILITIES Payable for $ 6,738,564 investments purchased Payable for 7,204,263 fund shares redeemed Accrued 790,974 management fee Other payables 897,991 and accrued expenses Collateral on 7,480,400 securities loaned, at value TOTAL 23,112,192 LIABILITIES NET ASSETS $ 1,525,909,926 Net Assets consist of: Paid in capital $ 1,129,933,963 Undistributed 4,463,587 net investment income Accumulated 63,002,209 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 328,510,167 appreciation (depreciation ) on investments NET ASSETS, for $ 1,525,909,926 15,188,037 shares outstanding NET ASSET $100.47 VALUE and redemption price per share ($1,525,909, 926 (divided by) 15,188,037 shares) Maximum $103.58 offering price per share (100/97.00 of $100.47) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 14,996,287 INCOME Dividends Interest 11,437,726 (including income on securities loaned of $153,587) TOTAL 26,434,013 INCOME EXPENSES Management $ 6,868,340 fee Transfer agent 7,038,341 Fees Redemption (400,476 fees ) Accounting and 750,785 security lending fees Non-interested 5,654 trustees' compensatio n Custodian fees 68,010 and expenses Registration 229,720 fees Audit 77,383 Legal 8,652 Miscellaneous 10,984 Total 14,657,393 expenses before reductions Expense (85,289 14,572,104 reductions ) NET 11,861,909 INVESTMENT INCOME REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 127,573,541 securities Foreign (9,841 127,563,700 currency ) transactions Change in net 221,015,172 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 348,578,872 NET INCREASE $ 360,440,781 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 5,991,249 INFORMATION Sales charges paid to FDC Deferred $ 54,291 sales charges withheld by FDC Exchange $ 283,343 fees withheld by FSC Expense $ 54,152 reductions Directed brokerage arrangement s Custodian 12,200 interest credits Transfer 18,937 agent interest credits $ 85,289 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 11,861,909 $ 6,943,717 Net investment income Net realized 127,563,700 79,587,152 gain (loss) Change in 221,015,172 91,979,090 net unrealized appreciation (depreciation ) NET INCREASE 360,440,781 178,509,959 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (7,988,345) (5,882,332) shareholders From net investment income From net (66,667,821) (56,259,930) realized gain TOTAL (74,656,166) (62,142,262) DISTRIBUTION S Share 1,031,303,280 608,744,670 transactions Net proceeds from sales of shares Reinvestmen 73,110,795 60,781,787 t of distributions Cost of (808,071,923) (366,138,010) shares redeemed Paid in 642,187 495,264 capital portion of redemption fees NET INCREASE 296,984,339 303,883,711 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 582,768,954 420,251,408 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 943,140,972 522,889,564 period End of period $ 1,525,909,926 $ 943,140,972 (including undistribute d net investment income of $4,463,587 and $2,008,371 , respectivel y) OTHER INFORMATION Shares Sold 11,376,458 8,512,762 Issued in 771,121 871,512 reinvestment of distributions Redeemed (9,348,659) (5,254,899) Net increase 2,798,920 4,129,375 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 76.13 $ 63.31 $ 52.57 $ 70.42 $ 69.99 value, beginning of period Income from Investment Operations Net .95 .75 .15 .13 (.02) investment income (loss) Net realized 28.85 18.38 10.61 (9.34) 9.47 and unrealized gain (loss) Total from 29.80 19.13 10.76 (9.21) 9.45 investment operations Less (.59) (.62) (.07) (.16) (.34) Distributions From net investment income From net (4.92) (5.74) - (8.51) (8.81) realized gain Total (5.51) (6.36) (.07) (8.67) (9.15) distributions Redemption .05 .05 .05 .03 .13 fees added to paid in capital Net asset $ 100.47 $ 76.13 $ 63.31 $ 52.57 $ 70.42 value, end of period TOTAL 39.68% 31.24% 20.57% (14.81)% 13.92% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 1,525,910 $ 943,141 $ 522,890 $ 536,367 $ 838,814 end of period (000 omitted) Ratio of 1.31% 1.39% 1.59% 1.46% 1.44% expenses to A average net assets Ratio of 1.30% 1.36% 1.55% 1.46% 1.44% expenses to E E E A average net assets after expense reductions Ratio of net 1.06% 1.08% .26% .24% (.02)% investment A income (loss) to average net assets Portfolio 54% 151% 213% 112% 154% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND MEDICAL DELIVERY 34.15% 125.14% 325.14% MEDICAL DELIVERY (INCL. 3% SALES CHARGE) 30.12% 118.38% 312.39% S&P 500 34.70% 101.14% 247.69% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, 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 FEBRUARY 29, 1996 YEAR YEARS FUND MEDICAL DELIVERY 34.15% 17.62% 16.13% MEDICAL DELIVERY (INCL. 3% SALES CHARGE) 30.12% 16.91% 15.77% S&P 500 34.70% 14.99% 13.74% 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 19860630 9700.00 10000.00 19860731 9011.30 9488.77 19860831 9108.30 10192.84 19860930 8380.80 9349.89 19861031 9040.40 9889.38 19861130 8506.90 10129.69 19861231 7944.30 9871.39 19870131 8342.00 11201.06 19870228 8953.10 11643.50 19870331 9379.90 11980.00 19870430 8409.90 11873.38 19870531 8671.80 11976.68 19870630 9263.50 12581.50 19870731 9661.20 13219.38 19870831 9438.10 13712.46 19870930 9292.60 13412.16 19871031 6644.50 10523.18 19871130 6246.80 9656.07 19871231 6984.28 10390.90 19880131 7025.49 10828.35 19880229 7386.04 11332.96 19880331 7581.76 10982.77 19880430 7643.57 11104.68 19880531 7519.95 11201.29 19880630 7756.88 11715.43 19880731 7674.47 11670.91 19880831 7458.14 11274.10 19880930 7880.50 11754.37 19881031 8086.52 12081.14 19881130 7828.99 11908.38 19881231 8086.52 12116.78 19890131 8684.00 13003.73 19890228 9003.34 12679.94 19890331 9497.80 12975.38 19890430 10146.79 13648.80 19890531 10672.15 14201.58 19890630 10548.08 14120.63 19890731 11745.32 15395.72 19890831 12292.34 15697.48 19890930 12632.93 15633.12 19891031 12209.77 15270.43 19891130 12777.42 15581.95 19891231 12778.17 15955.91 19900131 10896.85 14885.27 19900228 11171.65 15077.29 19900331 11689.54 15476.84 19900430 11805.80 15089.92 19900531 13475.74 16561.19 19900630 14120.46 16448.57 19900731 14173.30 16395.93 19900831 13042.40 14913.74 19900930 12175.72 14187.44 19901031 12027.75 14126.44 19901130 13697.69 15039.00 19901231 14856.14 15458.59 19910131 17250.54 16132.59 19910228 18317.13 17286.07 19910331 21038.04 17704.39 19910430 20406.79 17746.88 19910531 22093.75 18513.55 19910630 20232.46 17665.63 19910731 22262.51 18488.84 19910831 22523.35 18927.03 19910930 22727.49 18610.95 19911031 23226.50 18860.33 19911130 22580.06 18100.26 19911231 26417.94 20170.93 19920131 26441.16 19795.75 19920229 25419.73 20053.10 19920331 23736.68 19662.06 19920430 22796.50 20240.13 19920531 22564.36 20339.30 19920630 21376.17 20036.25 19920731 22592.60 20855.73 19920831 22567.26 20428.19 19920930 19918.99 20669.24 19921031 20907.34 20741.58 19921130 22960.06 21448.87 19921231 22934.72 21712.69 19930131 21768.98 21895.08 19930228 18322.43 22192.85 19930331 18727.91 22661.12 19930430 18499.83 22112.72 19930531 19070.03 22705.34 19930630 19260.09 22771.19 19930731 19741.60 22680.10 19930831 19678.24 23539.68 19930930 21300.14 23358.43 19931031 22301.16 23841.94 19931130 22668.62 23615.45 19931231 24201.83 23901.19 19940131 25557.64 24713.83 19940228 25697.02 24044.09 19940331 24417.24 22995.77 19940430 25202.85 23290.11 19940531 26051.81 23672.07 19940630 24442.58 23092.10 19940731 25532.30 23849.53 19940831 28117.20 24827.36 19940930 29118.22 24219.09 19941031 30068.56 24764.01 19941130 28776.10 23862.11 19941231 29003.49 24215.98 19950131 30276.62 24843.91 19950228 30740.78 25812.07 19950331 32690.26 26573.79 19950430 31627.82 27356.38 19950531 30590.41 28449.82 19950630 31082.52 29110.71 19950731 34221.36 30076.02 19950831 34380.96 30151.51 19950930 35099.17 31423.90 19951031 34500.66 31311.72 19951130 37386.80 32686.31 19951231 38337.63 33315.84 19960131 40399.56 34449.91 19960229 41238.55 34769.27 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 February 29, 1996, your investment would have grown to $41,239 - a 312.39% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $34,769 over the same period - a 247.69% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Columbia/HCA Healthcare Corp. 8.1 HEALTHSOUTH Rehabilitation Corp. 7.6 Tenet Healthcare Corp. 6.5 United HealthCare Corp. 5.2 Oxford Health Plans, Inc. 5.1 Health Management Associates, Inc. Class A 4.4 Universal Health Services, Inc. Class B 4.1 Health Systems International, Inc. 3.4 Foundation Health Corp. 3.4 Baxter International, Inc. 3.0 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Hospitals 32.9% HMOs & Outpatient Care 22.3% Drug Distributors - Wholesale 6.5% Medical Supplies & Appliances 5.3% Medical Services 3.9% All Others 29.1% * Row: 1, Col: 1, Value: 29.1 Row: 1, Col: 2, Value: 3.9 Row: 1, Col: 3, Value: 5.3 Row: 1, Col: 4, Value: 6.5 Row: 1, Col: 5, Value: 22.3 Row: 1, Col: 6, Value: 32.9 * INCLUDES SHORT-TERM INVESTMENTS MEDICAL DELIVERY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Stephen Binder, Portfolio Manager of Fidelity Select Medical Delivery Portfolio Q. HOW DID THE FUND PERFORM, STEVE? A. For the 12 months ended February 29, 1996, the fund had a total return of 34.15%. For the same period, the S&P 500 Index returned 34.70%. Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE? A. The performance of the medical delivery market has been driven by the returns of publicly-traded hospitals and health maintenance organizations (HMOs). Over the past year, hospital stocks outperformed HMOs by a fairly substantial margin. Q. WHY WERE HOSPITAL COMPANIES FAVORED IN THE PAST YEAR? A. Basically, the revenues of publicly traded hospitals rose as the utilization of services exceeded expectations which, in turn, led to many earnings surprises. Additionally, hospitals benefited from the tremendous amount of consolidation underway in the industry. Specifically, hospital mergers allowed companies to boost market share, cut costs and offer a wider range of services. Q. WHICH HOSPITAL COMPANIES DID YOU FAVOR? A. Columbia HCA really epitomized what I was just saying about how a hospital company can do well by cutting costs and raising market share. Similarly, Tenet Healthcare was successful after rebuilding a reputable network of hospitals. Health Management Associates also used the same strategy with its non-urban chain of hospitals. By dominating smaller markets, it was able to retain good physicians and their patients. Q. WHAT HAPPENED IN THE HMO AREA? A. In 1995, HMOs' profit margins were squeezed as they cut prices to boost membership growth. Meanwhile, costs rose more than expected in reaction to the failure of the Clinton administration's health care reform proposals. I was encouraged, however, by the fact that many HMOs reacted to these pressures by redoubling their efforts to control costs. In general, Wall Street's theme in 1995 was to favor the providers (the hospitals) over the payers (the HMOs). Q. WERE ANY HMOS ABLE TO RISE ABOVE THE PACK? A. Although success stories in the managed-care arena were scarce, Oxford Health Plans continued to grow at a torrid pace. Investors bid up their stock price as health care consumers in the New York metropolitan area were attracted to Oxford's popular point-of-service plan. U.S. Healthcare also rebounded after it appeared its costly drive to gain market share was beginning to pay off. United HealthCare's stock price also revived strongly after it acquired Metra Health, an indemnity insurance company affiliated with The Travelers and Metlife. Q. DID YOU MAKE ANY MAJOR CHANGES TO THE PORTFOLIO DURING THE PERIOD? A. I established some positions in California-based HMOs. The stocks of these HMOs had been beaten down by particularly acute pricing pressures. It appears, however, that this situation may have stabilized. Q. WERE THERE ANY MORE SPECIFIC DISAPPOINTMENTS? A. The stocks of one subsector of the market, home oxygen therapy, got clobbered when Congress considered slashing Medicare reimbursements for this area by 20% to 40%. When the market realized these cuts were not imminent, the stocks of these companies recovered from their lows. In addition, a similar situation gripped the nursing home industry for a while. However, nursing home company stocks have also rebounded. Q. WHAT ARE SOME OF THE RISKS INVESTORS SHOULD KEEP IN MIND? A. I think a major risk with any area of the health care industry is that about 40% of the industry's revenues is based on government reimbursements. Given the current budget-slashing rhetoric in Washington, lower reimbursement levels are a distinct possibility. Additionally, the rise of managed care presents the risk that a particular area of health care could experience a dramatic reduction in utilization. Q. WHAT'S YOUR OUTLOOK? A. Obviously, America is aging and the ongoing question in this sector is who will pay for health care and through what channel will that money be spent. Managed care (HMOs) is clearly emerging as the preferred channel for private employers and the government. HMOs, which are hospitals' increasingly important customers, will demand lower prices for their customers and cut utilization of services, thereby pressing providers to become more efficient. Thus, both industries will compete to achieve an equilibrium. FUND FACTS START DATE: June 30, 1986 TRADING SYMBOL: FSHCX SIZE: as of February 29, 1996, more than $295 million MANAGER: Stephen Binder, since December 1994; joined Fidelity in 1989 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. MEDICAL DELIVERY PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 91.6% SHARES VALUE (NOTE 1) DRUG STORES - 0.2% Vitalink Pharmacy Services, Inc. (a) 40,000 $ 760,000 DRUGS & PHARMACEUTICALS - 1.7% DRUGS - 1.5% Lilly (Eli) & Co. 73,900 4,470,946 IN VITRO, IN VIVO DIAGNOSTIC SUBSTANCE - 0.2% Serologicals Corp. (a) 23,600 474,950 TOTAL DRUGS & PHARMACEUTICALS 4,945,896 ELECTRICAL EQUIPMENT - 0.2% TV & RADIO COMMUNICATION EQUIPMENT - 0.2% Lifeline Systems, Inc. (a) 42,800 524,300 INSURANCE - 0.3% INSURANCE BROKERS & SERVICES - 0.3% HealthCare COMPARE Corp. (a) 16,200 789,750 MEDICAL EQUIPMENT & SUPPLIES - 16.3% DRUG DISTRIBUTORS - WHOLESALE - 6.5% AmeriSource Health Corp. Class A (a) 105,000 3,045,000 Bergen Brunswig Corp. Class A 303,465 7,321,093 Cardinal Health, Inc. 46,800 2,819,700 McKesson Corp. 113,100 5,909,475 19,095,268 MEDICAL SUPPLIES & APPLIANCES - 5.3% Aequitron Medical, Inc. (a) 85,000 584,375 Baxter International, Inc. 192,200 8,793,150 Becton, Dickinson & Co. 43,000 3,526,000 Boston Scientific Corp. (a) 58,000 2,784,000 15,687,525 MEDICAL TECHNOLOGY - 3.7% Medtronic, Inc. 42,000 2,409,750 St. Jude Medical, Inc. (a) 227,250 8,578,688 10,988,438 OPHTHALMIC GOODS - 0.3% Cooper Companies, Inc. (a) 120,200 886,475 X-RAY ELECTRO-MEDICAL APPARATUS - 0.5% Healthdyne Technologies, Inc. (a) 55,000 605,000 Protocol Systems, Inc. (a) 58,700 851,150 1,456,150 TOTAL MEDICAL EQUIPMENT & SUPPLIES 48,113,856 MEDICAL FACILITIES MANAGEMENT - 71.2% HOME HEALTH CARE AGENCIES - 1.6% Apria Healthcare Group, Inc. (a) 50,000 1,562,500 Vivra, Inc. (a) 110,000 3,245,000 4,807,500 HOSPITALS - 32.9% Columbia/HCA Healthcare Corp. 437,982 23,979,515 Community Health Systems, Inc. (a) 75,800 3,174,125 HEALTHSOUTH Rehabilitation Corp. (a) 646,300 22,620,500 Health Management Associates, Inc. Class A (a) 412,768 12,950,596 Tenet Healthcare Corp. (a) 854,600 19,121,675 Universal Health Services, Inc. Class B (a) 239,000 12,218,875 Vencor, Inc. (a) 82,919 3,099,098 97,164,384 SHARES VALUE (NOTE 1) HOSPITALS, GENERAL MEDICAL - 1.4% OrNda Healthcorp (a) 167,000 $ 4,279,375 HMOS & OUTPATIENT CARE - 22.3% Health Systems International, Inc. (a) 273,000 9,964,500 Healthsource, Inc. (a) 40,000 1,515,000 Oxford Health Plans, Inc. (a) 184,100 15,153,731 Pacificare Health Systems, Inc. Class B (a) 32,100 3,017,400 Physicians Health Services, Inc. Class A (a) 52,500 1,686,563 RightCHOICE Managed Care, Inc. Class A (a) 42,800 695,500 Safeguard Health Enterprises, Inc. (a) 75,000 956,250 Sierra Health Services, Inc. (a) 233,100 8,100,225 United HealthCare Corp. 236,800 15,451,200 U.S. Healthcare, Inc. 174,100 8,487,375 Wellcare Management Group, Inc. (a) 40,000 990,000 66,017,744 MEDICAL SERVICES - 3.9% Foundation Health Corp. (a) 255,100 9,948,900 Lincare Holdings, Inc. (a) 44,000 1,377,750 National Surgery Centers, Inc. 1,000 27,750 11,354,400 MISCELLANEOUS HEALTH & ALLIED SERVICES - 1.5% Renal Treatment Centers, Inc. (a) 71,700 3,145,838 Sterling Healthcare Group, Inc. (a) 105,000 1,430,625 4,576,463 NURSING CARE & NURSING HOMES - 3.1% Arbor Health Care Co. (a) 39,300 1,070,925 Genesis Health Ventures, Inc. (a) 21,400 933,575 Health Care & Retirement Corp. (a) 44,000 1,787,500 Integrated Health Services, Inc. 50,300 1,112,888 Manor Care, Inc. 75,000 2,878,125 NovaCare, Inc. 200,000 1,425,000 9,208,013 PSYCHIATRIC HOSPITALS - 0.7% Community Psychiatric Centers 51,300 474,525 Horizon Mental Health Management Inc. (a) 83,900 1,583,613 Magellan Health Services, Inc. (a) 2,500 59,688 2,117,826 SKILLED NURSING CARE FACILITIES - 3.6% Living Centers of America, Inc. (a) 56,000 2,268,000 Multicare Companies, Inc. (a) 135,100 3,816,575 TheraTx, Inc. (a) 389,300 4,574,275 10,658,850 SPECIALTY HOSPITAL EXCEPT PSYCHIATRIC - 0.2% Pediatrix Medical Group (a) 15,500 592,875 TOTAL MEDICAL FACILITIES MANAGEMENT 210,777,430 REAL ESTATE INVESTMENT TRUSTS - 1.7% Capstone Capital Corp. 244,400 5,101,850 TOTAL COMMON STOCKS (Cost $224,766,138) $271,013,082 REPURCHASE AGREEMENTS - 8.4% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 24,841,732 24,838,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $249,604,138) $ 295,851,082 LEGEND 1. Non-income producing OTHER INFORMATION A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Capstone Capital Corp. $ - $ 1,378,800 $ - $ - Purchases and sales of securities, other than short-term securities, aggregated $239,984,742 and $282,044,237, respectively (see Note 3 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 $101,216 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $866,250 and $945,000, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $1,760,000 and $945,700, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $249,886,935. Net unrealized appreciation aggregated $45,964,147, of which $48,449,971 related to appreciated investment securities and $2,485,824 related to depreciated investment securities. The fund hereby designates approximately $15,560,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 19% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. MEDICAL DELIVERY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 295,851,082 securities, at value (including repurchase agreements of $24,838,000) (cost $249,604,138 ) - See accompanyin g schedule Cash 945 Receivable for 1,023,665 investments sold Receivable for 1,862,243 fund shares sold Dividends 94,570 receivable Redemption 332 fees receivable Other 396,364 receivables TOTAL ASSETS 299,229,201 LIABILITIES Payable for $ 104,110 investments purchased Payable for 2,367,369 fund shares redeemed Accrued 149,744 management fee Other payables 174,179 and accrued expenses Collateral on 945,000 securities loaned, at value TOTAL 3,740,402 LIABILITIES NET ASSETS $ 295,488,799 Net Assets consist of: Paid in capital $ 221,889,748 Accumulated 27,352,107 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 46,246,944 appreciation (depreciation ) on investments NET ASSETS, for $ 295,488,799 10,190,754 shares outstanding NET ASSET $29.00 VALUE and redemption price per share ($295,488,79 9 (divided by) 10,190,754 shares) Maximum $29.90 offering price per share (100/97.00 of $29.00) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 1,434,491 INCOME Dividends Interest 1,505,840 (including income on securities loaned of $140,180) TOTAL 2,940,331 INCOME EXPENSES Management $ 1,208,374 fee Transfer agent 1,924,982 Fees Redemption (223,169 fees ) Accounting and 200,881 security lending fees Non-interested 1,349 trustees' compensatio n Custodian fees 16,792 and expenses Registration 76,575 fees Audit 39,684 Legal 2,754 Interest 1,624 Miscellaneous 3,010 Total 3,252,856 expenses before reductions Expense (55,713 3,197,143 reductions ) NET (256,812 INVESTMENT ) INCOME (LOSS) REALIZED AND 39,973,448 UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment securities (including realized loss of $177,843 on sales of investment in affiliated issuers) Change in net 14,596,764 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 54,570,212 NET INCREASE $ 54,313,400 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 1,501,132 INFORMATION Sales charges paid to FDC Deferred $ 6,879 sales charges withheld by FDC Exchange $ 173,625 fees withheld by FSC Expense $ 20,048 reductions Directed brokerage arrangement s Custodian 29,318 interest credits Transfer 6,347 agent interest credits $ 55,713 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (256,812 $ 620,837 Net ) investment income (loss) Net realized 39,973,448 25,519,856 gain (loss) Change in 14,596,764 5,905,629 net unrealized appreciation (depreciation ) NET INCREASE 54,313,400 32,046,322 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to - (620,837 shareholders ) From net investment income From net (13,085,061 (9,893,316 realized gain ) ) TOTAL (13,085,061 (10,514,153 DISTRIBUTION ) ) S Share 327,500,676 408,339,151 transactions Net proceeds from sales of shares Reinvestmen 12,820,140 10,314,005 t of distributions Cost of (385,938,068 (329,680,344 shares ) ) redeemed Paid in 307,864 512,240 capital portion of redemption fees NET INCREASE (45,309,388 89,485,052 (DECREASE) ) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL (4,081,049 111,017,221 INCREASE ) (DECREASE) IN NET ASSETS NET ASSETS Beginning of 299,569,848 188,552,627 period End of period $ 295,488,799 $ 299,569,848 OTHER INFORMATION Shares Sold 12,483,087 18,773,290 Issued in 484,557 506,086 reinvestment of distributions Redeemed (15,700,950 (15,651,245 ) ) Net increase (2,733,306 3,628,131 (decrease) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 23.18 $ 20.28 $ 14.46 $ 19.64 $ 18.75 value, beginning of period Income from Investment Operations Net (.03) .06 (.10) (.13) (.15) investment income (loss) Net realized 7.72 3.74 5.84 (3.56) 2.16 and unrealized gain (loss) Total from 7.69 3.80 5.74 (3.69) 2.01 investment operations Less - (.06) - - - Distributions From net investment income From net (1.91) (.89) - (1.55) (1.24) realized gain Total (1.91) (.95) - (1.55) (1.24) distributions Redemption .04 .05 .08 .06 .12 fees added to paid in capital Net asset $ 29.00 $ 23.18 $ 20.28 $ 14.46 $ 19.64 value, end of period TOTAL 34.15% 19.63% 40.25% (19.63)% 11.71% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 295,489 $ 299,570 $ 188,553 $ 71,809 $ 129,361 end of period (000 omitted) Ratio of 1.65% 1.48% 1.82% 1.77% 1.69% expenses to A average net assets Ratio of 1.62% 1.45% 1.79% 1.77% 1.69% expenses to E E E A average net assets after expense reductions Ratio of net (.13)% .29% (.57)% (.89)% (.71)% investment A income (loss) to average net assets Portfolio 132% 123% 164% 155% 181% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS COMPUTERS 52.79% 217.33% 350.86% COMPUTERS 48.21% 207.81% 337.34% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS COMPUTERS 52.79% 25.98% 16.25% COMPUTERS 48.21% 25.22% 15.90% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9700.00 10558.00 19860430 10670.80 10438.69 19860531 11088.01 10994.03 19860630 10349.88 11179.83 19860731 8744.21 10554.88 19860831 9597.70 11338.05 19860930 8856.94 10400.39 19861031 9726.53 11000.50 19861130 9790.94 11267.81 19861231 9831.20 10980.48 19870131 11787.78 12459.55 19870228 12963.34 12951.70 19870331 13051.91 13326.01 19870430 13365.93 13207.41 19870531 13309.56 13322.31 19870630 13035.80 13995.09 19870731 13253.20 14704.64 19870831 14163.05 15253.12 19870930 14283.83 14919.08 19871031 9243.42 11705.51 19871130 7995.40 10740.97 19871231 9206.92 11558.36 19880131 8725.40 12044.97 19880229 9514.09 12606.27 19880331 9364.66 12216.73 19880430 9846.17 12352.34 19880531 9555.60 12459.80 19880630 10460.52 13031.71 19880731 9671.83 12982.19 19880831 8750.31 12540.79 19880930 8982.76 13075.03 19881031 8260.49 13438.52 19881130 8210.68 13246.35 19881231 8742.01 13478.16 19890131 9256.73 14464.76 19890228 9090.69 14104.59 19890331 8658.99 14433.22 19890430 9630.32 15182.31 19890531 10485.43 15797.19 19890630 9240.13 15707.15 19890731 9406.17 17125.50 19890831 9547.30 17461.16 19890930 9771.45 17389.57 19891031 9447.68 16986.13 19891130 9240.13 17332.65 19891231 9339.75 17748.63 19900131 9256.73 16557.70 19900228 10095.23 16771.29 19900331 10817.51 17215.73 19900430 10526.94 16785.34 19900531 11896.77 18421.91 19900630 12112.62 18296.64 19900731 11249.21 18238.09 19900831 9464.28 16589.37 19900930 8841.63 15781.47 19901031 9173.71 15713.61 19901130 10684.67 16728.71 19901231 11058.89 17195.44 19910131 12943.93 17945.16 19910228 13781.73 19228.24 19910331 14870.86 19693.56 19910430 13907.40 19740.82 19910531 14611.14 20593.63 19910630 12621.60 19650.44 19910731 13889.80 20566.15 19910831 14752.52 21053.57 19910930 13976.07 20701.97 19911031 13700.00 20979.38 19911130 12759.63 20133.91 19911231 14459.19 22437.23 19920131 15968.95 22019.90 19920229 17064.61 22306.16 19920331 15718.76 21871.19 19920430 15209.76 22514.20 19920531 15399.56 22624.52 19920630 13915.68 22287.41 19920731 14597.23 23198.97 19920831 13760.39 22723.39 19920930 14441.94 22991.53 19921031 15580.73 23072.00 19921130 16546.97 23858.75 19921231 17634.00 24152.21 19930131 18660.64 24355.09 19930228 17383.81 24686.32 19930331 17728.90 25207.20 19930430 17225.38 24597.19 19930531 19243.57 25256.39 19930630 18473.47 25329.64 19930731 19243.57 25228.32 19930831 20385.43 26184.47 19930930 20960.79 25982.85 19931031 20960.79 26520.70 19931130 21854.81 26268.75 19931231 22724.57 26586.60 19940131 24189.77 27490.55 19940228 25216.34 26745.55 19940331 24955.03 25579.45 19940430 24796.38 25906.86 19940531 24777.71 26331.74 19940630 22743.23 25686.61 19940731 23461.84 26529.13 19940831 26270.91 27616.82 19940930 26084.26 26940.21 19941031 27064.17 27546.37 19941130 27222.82 26543.13 19941231 27372.14 26936.76 19950131 26532.22 27635.23 19950228 28622.69 28712.18 19950331 30825.16 29559.47 19950430 33274.31 30430.00 19950531 34919.12 31646.29 19950630 38738.10 32381.43 19950731 43606.36 33455.20 19950831 44580.01 33539.17 19950930 47132.30 34954.52 19951031 45421.32 34829.74 19951130 44324.78 36358.76 19951231 41559.22 37059.03 19960131 41292.75 38320.52 19960229 43733.64 38675.75 Let's say you invested $10,000 in Fidelity Select Computers Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $43,734 - a 337.34% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Seagate Technology 8.4 Compaq Computer Corp. 8.3 Digital Equipment Corp. 7.6 International Business Machines Corp. 5.8 Dell Computer Corp. 4.8 Gateway 2000, Inc. 3.2 Teradyne, Inc. 2.0 Sumitomo Sitix Corp. 1.9 Hutchinson Technology, Inc. 1.8 Cisco Systems, Inc. 1.8 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Mini & Micro Computers 20.7% Computer Storage Devices 10.8% Computers & Office Equipment 7.9% Prepackage Computer Software 6.8% Electronic Computers 6.4% All Others 47.4% * Row: 1, Col: 1, Value: 47.4 Row: 1, Col: 2, Value: 6.4 Row: 1, Col: 3, Value: 6.8 Row: 1, Col: 4, Value: 7.9 Row: 1, Col: 5, Value: 10.8 Row: 1, Col: 6, Value: 20.7 * 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 OVER THE PAST 12 MONTHS? A. The fund had a total return of 52.79% during the 12 months ended February 29, 1996. By comparison, the S&P 500 Index rose 34.70% during the same time frame. Interestingly, the period can be split almost evenly into two distinct halves. During the first half, the fund well outperformed the index. During the second half, the fund lagged the index substantially. Q. WHAT HAPPENED RECENTLY TO ALTER THE UPWARD COURSE OF THE FUND'S RETURNS? A. Essentially, we experienced a fundamental change within the semiconductor, or computer microchip, industry. During the past three years or so, semiconductor demand was such that manufacturers couldn't make nearly enough to fill demand. As a result, the manufacturers were able to maintain strong prices for their products. That fueled strong earnings growth and powerful stock performance not only for semiconductor companies, but also for end-users such as computer and cellular phone manufacturers. However, as semiconductor companies continued to build new plants, the supply of chips finally caught up with demand. Semiconductor pricing fell under pressure, earnings expectations were reduced and the stock prices dropped substantially. Q. HOW DID THAT AFFECT COMPUTER MANUFACTURERS? A. Because of the relative shortage of semiconductors in recent years, computer makers were constrained in their manufacturing. In other words, they could have produced and sold far more computers had they had the components to do so. However, with the increase in chip availability, computer manufacturers quickly began to overbuild, resulting in excess inventories, which put pressure on profit margins. The other element that depressed computer stock prices recently was the relatively weak worldwide economy. The slowdown in economic growth in the U.S. and overseas definitely put a crimp in the demand for personal computers. Q. DID THESE CHANGES IN THE INVESTMENT LANDSCAPE CAUSE YOU TO RESTRUCTURE THE FUND? A. They did. I greatly reduced the fund's exposure to semiconductor manufacturers. Nevertheless, to the extent that the fund continued to hold some of these stocks, overall performance suffered. At the same time, I increased the fund's investment in computer companies, which I believed were in a better position to weather the oversupply of semiconductors. In fact, the fund's large stakes in some of the bigger computer companies and companies that make computer-related equipment recently helped offset some of the weaker performance of the semiconductor stocks. Q. CAN YOU GIVE US A FEW EXAMPLES? A. Sure. Seagate Technology continued to perform well right through the slump. The company has been the largest manufacturer of disk drives in the world, and recently acquired one of its largest competitors. Traditionally, investors have viewed the stock as very volatile - prone to wide swings in either direction. But because the company has sustained consistent earnings growth, investors have rewarded the stock with a higher valuation - or stock price relative to earnings. In addition, IBM and Digital Equipment were excellent performers during the period. Both of these companies had cut costs and restructured, which helped their bottom lines. However, as the cost cutting in both companies wound down, a lot of investors thought that's where the story ended. Surprising to many, both companies turned in exceedingly strong earnings figures in the fourth quarter of 1995. Note to Shareholders: As of March 26, 1996, Jason Weiner became manager of the portfolio. Q. JASON, LET'S DISCUSS YOUR OUTLOOK. WHAT DO YOU SEE ON THE HORIZON? A. It's important to maintain perspective in a couple of areas. First, despite the recent dip, the fund is up more than 50% over the past 12 months. Second, the earnings prospects for many companies in the computer industry aren't as bright as they were a year ago. Therefore, it's not likely we'll see a 50-plus percent rise in the fund over the next 12 months. That said, there continue to be selected companies that are experiencing very strong growth relative to the broad market. I believe that the oversupply of semiconductors - and corresponding growth in PC inventories - could lead to a price war among PC manufacturers, which could have the effect of strengthening PC sales. One thing appears certain. It'll be more of a stock picker's market going forward. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FDCPX SIZE: as of February 29, 1996, more than $527 million MANAGER: Harry Lange, since 1992; manager, Fidelity Select Technology Portfolio since 1993; Fidelity Select Electronics Portfolio, 1994-1995; research director, Fidelity Investments Far East, 1988-1992; manager, Fidelity Select Capital Goods and Fidelity Select Automation and Machinery Portfolios, 1988; joined Fidelity in 1987 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. COMPUTERS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 82.9% SHARES VALUE (NOTE 1) BROADCASTING - 0.7% CABLE TV OPERATORS - 0.7% CAI Wireless Systems, Inc. (a) 170,000 $ 1,508,744 Heartland Wireless Communications, Inc.(a) 50,000 1,262,500 Wireless One, Inc. (a) 50,300 741,925 3,513,169 COMMUNICATIONS EQUIPMENT - 4.6% DATACOMMUNICATIONS EQUIPMENT - 2.8% Cisco Systems, Inc. (a) 197,600 9,386,000 General DataComm Industries, Inc. (a) 100,000 1,212,500 Jabil Circuit, Inc. (a) 514,000 3,983,500 14,582,000 TELEPHONE EQUIPMENT - 1.6% DSC Communications Corp. (a) 7,400 225,700 Global Village Communication (a) 23,500 384,813 Natural Microsystems (a) 84,000 2,236,500 Network Equipment Technologies (a) 61,700 1,835,575 Newbridge Networks Corp. (a) 13,900 679,363 Target Technologies, Inc. (a) 145,000 1,178,125 U.S. Robotics Corp. (a) 16,064 1,991,936 8,532,012 TELEPHONE INTERCONNECT SYSTEMS - 0.2% General Instrument Corp. (a) 50,000 1,362,500 TOTAL COMMUNICATIONS EQUIPMENT 24,476,512 COMPUTER SERVICES & SOFTWARE - 10.3% CAD/CAM/CAE - 0.7% Ascend Communications, Inc. (a) 62,000 2,805,500 Brooktrout Technology (a) 25,650 628,425 Cylink Corp. 2,000 47,000 3,480,925 COMPUTER & SOFTWARE STORES - 1.6% Inacom Corp. (a) 236,300 4,282,938 MicroAge, Inc. (a) 412,800 4,024,800 8,307,738 COMPUTER RELATED SERVICES - 0.4% Inso Corp. (a) 41,600 2,048,800 COMPUTER SERVICES - 0.7% CompuCom Systems, Inc. (a) 138,000 1,017,750 Visioneer, Inc. (a) 163,800 2,784,600 3,802,350 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.2% Softdesk, Inc. (a) 83,900 1,258,500 PREPACKAGED COMPUTER SOFTWARE - 6.7% Broderbund Software, Inc. (a) 20,000 905,000 CBT Group PLC sponsored ADR (a) 21,000 1,186,500 Electronics for Imaging, Inc. 107,600 4,922,700 Fuji Soft, Inc. 13,000 366,789 GT Interactive Software, Inc. 99,900 1,286,213 Globalink, Inc. (a) 174,300 1,176,525 Insignia Solutions PLC sponsored ADR (a)(c) 217,400 1,250,050 Microsoft Corp. (a) 20,000 1,973,750 National Instrument Corp. (a) 51,000 962,625 Oracle Systems Corp. (a) 30,000 1,560,000 STB Systems, Inc. (a) 2,800 28,875 Smith Micro Software, Inc. (a) 46,400 382,800 Softkey International, Inc. (a) 278,900 6,724,105 Spectrum Holobyte, Inc. (a) 300,000 2,437,500 SHARES VALUE (NOTE 1) Symantec Corp. (a) 506,100 $ 6,452,775 Systems & Computer Technology Corp. (a) 106,400 1,915,200 Wonderware Corp. (a) 100,000 1,900,000 35,431,407 TOTAL COMPUTER SERVICES & SOFTWARE 54,329,720 COMPUTERS & OFFICE EQUIPMENT - 50.3% COMPUTER EQUIPMENT - 0.5% GVC Corp. GDR (a)(b) 323,060 2,422,950 COMPUTER EQUIPMENT - WHOLESALE - 1.0% Tech Data Corp. (a) 358,900 5,428,363 COMPUTER PERIPHERALS - 1.7% In Focus Systems, Inc. (a) 50,000 1,875,000 SCI Systems, Inc. (a) 190,000 7,041,875 8,916,875 COMPUTER RENTAL & LEASING - 1.7% Comdisco, Inc. 445,800 9,138,900 COMPUTER STORAGE DEVICES - 10.8% ADAPTEC, Inc. (a) 51,800 2,904,038 Hutchinson Technology, Inc. (a) 222,100 9,439,250 Read Rite Corp. (a) 10,300 193,125 Seagate Technology (a) 684,200 44,644,050 57,180,463 COMPUTERS & OFFICE EQUIPMENT - 7.9% Canon, Inc. 15,000 275,020 Canon, Inc. ADR 20,000 1,850,000 Diebold, Inc. 52,500 2,060,625 Hewlett-Packard Co. 70,000 7,052,500 International Business Machines Corp. 250,000 30,656,250 41,894,395 ELECTRONIC COMPUTERS - 4.4% ADI Corp. GDR (a)(b) 57,000 954,750 Bay Networks, Inc. (a) 135,000 5,484,375 Gateway 2000, Inc. (a) 570,800 16,838,600 Ross Technology, Inc. (a) 21,000 267,750 23,545,475 GRAPHICS WORKSTATIONS - 1.3% Silicon Graphics, Inc. (a) 58,000 1,450,000 Sun Microsystems, Inc. (a) 100,000 5,250,000 6,700,000 MAGNETIC & OPTICAL RECORDING MEDIA - 0.3% Boca Research, Inc. (a) 73,000 1,478,250 MINI & MICRO COMPUTERS - 20.7% Compaq Computer Corp. (a) 871,900 44,139,938 Dell Computer Corp. (a) 731,900 25,159,063 Digital Equipment Corp. (a) 556,400 40,060,800 109,359,801 TOTAL COMPUTERS & OFFICE EQUIPMENT 266,065,472 ELECTRICAL EQUIPMENT - 2.2% CURRENT-CARRYING WIRING DEVICE - 0.2% Adflex Solutions 69,400 1,093,050 MISCELLANEOUS ELECTRICAL MACHINERY EQUIPMENT AND SUPPLIES - 1.2% Energy Conversion Devices, Inc. (a) 300,000 6,262,500 RELAYS & INDUSTRIAL CONTROLS - 0.7% C.P. Clare Corp. (a)(c) 210,000 3,832,500 TV & RADIO COMMUNICATION EQUIPMENT - 0.1% Leitch Technology (a) 20,000 620,279 TOTAL ELECTRICAL EQUIPMENT 11,808,329 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRONIC INSTRUMENTS - 5.4% ELECTRONIC EQUIPMENT - 5.2% Cohu, Inc. 100,000 $ 3,112,500 Fluke Corp. 99,800 3,605,275 LTX Corp. (a) 990,000 9,033,750 Mosaid Technologies, Inc. (a) 64,900 1,355,685 Teradyne, Inc. (a) 516,547 10,524,645 27,631,855 SEMICONDUCTOR CAPITAL EQUIPMENT - 0.2% Electro Scientific Industries, Inc. (a) 49,500 1,064,250 TOTAL ELECTRONIC INSTRUMENTS 28,696,105 ELECTRONICS - 6.1% ELECTRONIC CAPACITORS - 0.1% AVX Corp. 32,000 784,000 ELECTRONIC COMPUTERS & ACCESSORIES - 0.1% Benchmarq Microelectronics, Inc. (a) 42,700 288,225 ELECTRONIC PARTS - WHOLESALE - 0.1% Pioneer Standard Electronics, Inc. 7,425 103,950 Sterling Electronics Corp. (a) 34,440 542,430 646,380 ELECTRONICS & ELECTRONIC COMPONENTS - 1.0% Photronics, Inc. (a) 65,000 1,430,000 Sanmina Corp. (a) 10,000 535,000 Smartflex Systems, Inc. (a) 132,000 1,749,000 Solectron Corp. (a) 30,800 1,493,800 5,207,800 SEMICONDUCTORS - 4.8% Act Manufacturing, Inc. (a) 13,000 162,500 Austria Mikro Systeme International 12,000 1,749,288 Electroglas, Inc. (a) 41,200 782,800 Geotek Industries, Inc. (a) 80,000 770,000 International Rectifier Corp. (a) 8,000 164,000 Linear Technology Corp. 70,000 3,255,000 Logic Devices, Inc. (a) 30,000 187,500 MEMC Electronic Materials, Inc. (a) 50,000 1,700,000 Micro Linear Corp. (a) 118,300 1,116,456 Mylex Corp. (a) 43,000 1,032,000 S-3, Inc. (a) 144,800 2,470,650 Samsung Electronics Co. Ltd.: GDR (vtg.) (a) 1,761 159,371 GDS (b) 41,509 2,199,977 GDS (vtg.) (b) 2,759 249,690 GDS (non-vtg.) (Reg.) 45,000 2,385,000 Siliconix, Inc. (a) 600 22,350 Supertex, Inc. (a) 20,000 255,000 Uniphase Corp. (a) 14,300 557,700 Xilinx, Inc. (a) 150,000 5,793,750 25,013,032 TOTAL ELECTRONICS 31,939,437 INDUSTRIAL MACHINERY & EQUIPMENT - 1.4% GENERAL INDUSTRIAL MACHINERY - 0.2% Robotic Vision Systems, Inc. (a) 50,000 775,000 SPECIAL INDUSTRIAL MACHINERY - 1.2% Fuji Machine Manufacturing Co. Ltd. Ord. 90,000 2,641,904 Tylan General, Inc. (a) 175,000 2,012,500 Veeco Instruments, Inc. (a) 110,800 1,662,000 6,316,404 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 7,091,404 SHARES VALUE (NOTE 1) METALS & MINING - 1.9% METAL ORES - 1.9% Sumitomo Sitix Corp. 500,000 $ 10,212,322 SERVICES - 0.0% ELECTRICAL REPAIR SHOPS - 0.0% Cerplex Group, Inc. (a) 20,000 125,000 TOTAL COMMON STOCKS (Cost $372,381,808) 438,257,470 NONCONVERTIBLE PREFERRED STOCKS - 0.1% COMPUTER SERVICES & SOFTWARE - 0.1% PREPACKAGED COMPUTER SOFTWARE - 0.1% SAP AG (Cost $122,656) 2,000 313,327 CONVERTIBLE BONDS - 2.5% PRINCIPAL AMOUNT COMPUTERS & OFFICE EQUIPMENT - 2.1% ELECTRONIC COMPUTERS - 2.0% Acer, Inc. 4%, 6/10/01 $ 3,890,000 10,503,000 OFFICE EQUIPMENT - WHOLESALE - 0.1% Kinpo Electronics, Inc. euro 3%, 7/21/01 950,000 745,750 TOTAL COMPUTERS & OFFICE EQUIPMENT 11,248,750 ELECTRONICS - 0.4% SEMICONDUCTORS - 0.4% United Microelectronics Corp. : 1 1/4%, 6/8/04 (b) 1,070,000 1,118,150 euro 1 1/4%, 6/8/04 1,063,000 1,110,835 2,228,985 TOTAL CONVERTIBLE BONDS (Cost $13,333,126) 13,477,735 REPURCHASE AGREEMENTS - 14.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 76,631,514 76,620,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $462,457,590) $ 528,668,532 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 $6,945,517 or 1.3% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE C.P. Clare Corp. $ - $ - $ - $ 3,832,500 Insignia Solutions PLC sponsored ADR - - - 1,250,050 Totals $ - $ - $ - $ 5,082,550 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $639,486,773 and $550,315,523, respectively (see Note 3 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 $88,690 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $7,708,750 and $8,265,400, respectively (see Note 6 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $463,524,007. Net unrealized appreciation aggregated $65,144,525, of which $90,211,253 related to appreciated investment securities and $25,066,728 related to depreciated investment securities. The fund hereby designates approximately $33,599,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 1% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. COMPUTERS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 528,668,532 securities, at value (including repurchase agreements of $76,620,000) (cost $462,457,590 ) - See accompanyin g schedule Cash 314 Receivable for 2,145,262 investments sold Receivable for 9,992,931 fund shares sold Dividends 112,022 receivable Interest 122,028 receivable Redemption 3,437 fees receivable Other 47,838 receivables TOTAL ASSETS 541,092,364 LIABILITIES Payable for $ 2,001,186 investments purchased Payable for 2,763,753 fund shares redeemed Accrued 256,438 management fee Other payables 468,744 and accrued expenses Collateral on 8,265,400 securities loaned, at value TOTAL 13,755,521 LIABILITIES NET ASSETS $ 527,336,843 Net Assets consist of: Paid in capital $ 422,069,550 Accumulated 39,056,375 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 66,210,918 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 527,336,843 12,851,491 shares outstanding NET ASSET $41.03 VALUE and redemption price per share ($527,336,84 3 (divided by) 12,851,491 shares) Maximum $42.30 offering price per share (100/97.00 of $41.03) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 755,004 INCOME Dividends Interest 3,161,111 (including income on securities loaned of $62,996) TOTAL 3,916,115 INCOME EXPENSES Management $ 2,922,505 fee Transfer agent 3,291,858 Fees Redemption (339,329 fees ) Accounting and 465,210 security lending fees Non-interested 1,920 trustees' compensatio n Custodian fees 45,861 and expenses Registration 244,959 fees Audit 32,990 Legal 2,174 Miscellaneous 4,872 Total 6,673,020 expenses before reductions Expense (87,073 6,585,947 reductions ) NET (2,669,832 INVESTMENT ) INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 102,860,989 securities Foreign (350 102,860,639 currency ) transactions Change in net unrealized appreciation (depreciation ) on: Investment 47,678,675 securities Assets and (52 47,678,623 liabilities in ) foreign currencies NET GAIN (LOSS) 150,539,262 NET INCREASE $ 147,869,430 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 7,703,101 INFORMATION Sales charges paid to FDC Deferred $ 10,256 sales charges withheld by FDC Exchange $ 241,845 fees withheld by FSC Expense $ 79,391 reductions Directed brokerage arrangement s Custodian 2,147 interest credits Transfer 5,535 agent interest credits $ 87,073 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (2,669,832 $ (1,469,757 Net ) ) investment income (loss) Net realized 102,860,639 3,564,127 gain (loss) Change in 47,678,623 2,952,740 net unrealized appreciation (depreciation ) NET INCREASE 147,869,430 5,047,110 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (63,147,066 - shareholders ) from net realized gains Share 837,037,606 529,347,764 transactions Net proceeds from sales of shares Reinvestmen 62,103,715 - t of distributions Cost of (672,703,503 (441,147,769 shares ) ) redeemed Paid in 1,162,861 1,332,121 capital portion of redemption fees NET INCREASE 227,600,679 89,532,116 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 312,323,043 94,579,226 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 215,013,800 120,434,574 period End of period $ 527,336,843 $ 215,013,800 (including accumulate d net investment loss of $0 and $21,983, respectivel y) OTHER INFORMATION Shares Sold 20,220,825 18,730,329 Issued in 1,547,662 - reinvestment of distributions Redeemed (15,928,239 (16,175,513 ) ) Net increase 5,840,248 2,554,816 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 30.67 $ 27.02 $ 20.15 $ 17.63 $ 16.60 value, beginning of period Income from Investment Operations Net (.23) (.31) (.21) G (.15) (.03) F investment income (loss) Net realized 16.10 3.68 8.66 2.44 1.18 and unrealized gain (loss) Total from 15.87 3.37 8.45 2.29 1.15 investment operations Less - - - - (.27) Distributions In excess of net investment income From net (5.61) - (1.80) - (.22) realized gain Total (5.61) - (1.80) - (.49) distributions Redemption .10 .28 .22 .23 .37 fees added to paid in capital Net asset $ 41.03 $ 30.67 $ 27.02 $ 20.15 $ 17.63 value, end of period TOTAL 52.79% 13.51% 45.06% 14.29% 9.36% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 527,337 $ 215,014 $ 120,435 $ 47,596 $ 32,810 end of period (000 omitted) Ratio of 1.40% 1.71% 1.90% 1.81% 2.17% expenses to A average net assets Ratio of 1.38% 1.69% 1.89% 1.81% 2.17% expenses to E E E A average net assets after expense reductions Ratio of net (.56)% (1.12)% (.91)% (.98)% (.18)% investment A income (loss) to average net assets Portfolio 129% 189% 145% 254% 568% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.22 PER SHARE RELATING TO A NONRECURRING INITIATIVE TO INVEST IN DIVIDEND INCOME PRODUCING SECURITIES WHICH WAS IN EFFECT FOR A PORTION OF 1992. G INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.07 PER SHARE.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past one, five, and 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS DEFENSE AND AEROSPACE 47.40% 137.00% 120.23% DEFENSE AND AEROSPACE (INCL. 3% SALES CHARGE) 42.98% 129.89% 113.63% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS DEFENSE AND AEROSPACE 47.40% 18.84% 8.22% DEFENSE AND AEROSPACE (INCL. 3% SALES CHARGE) 42.98% 18.12% 7.89% S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 10253.36 10558.00 19860430 10331.48 10438.69 19860531 10585.37 10994.03 19860630 10806.71 11179.83 19860731 10134.72 10554.88 19860831 10656.31 11338.05 19860930 9798.00 10400.39 19861031 9930.04 11000.50 19861130 10246.96 11267.81 19861231 9764.98 10980.48 19870131 10616.70 12459.55 19870228 11290.14 12951.70 19870331 11078.87 13326.01 19870430 10596.89 13207.41 19870531 10451.64 13322.31 19870630 10352.60 13995.09 19870731 10629.90 14704.64 19870831 10517.66 15253.12 19870930 10306.38 14919.08 19871031 7678.62 11705.51 19871130 7282.47 10740.97 19871231 7499.64 11558.36 19880131 7982.16 12044.97 19880229 8457.78 12606.27 19880331 8437.10 12216.73 19880430 8381.96 12352.34 19880531 8064.88 12459.80 19880630 8395.74 13031.71 19880731 8230.31 12982.19 19880831 8030.41 12540.79 19880930 8271.67 13075.03 19881031 8257.88 13438.52 19881130 7892.55 13246.35 19881231 7823.62 13478.16 19890131 8133.81 14464.76 19890228 8099.34 14104.59 19890331 8264.77 14433.22 19890430 8561.18 15182.31 19890531 8712.82 15797.19 19890630 8609.43 15707.15 19890731 9167.76 17125.50 19890831 9402.13 17461.16 19890930 9229.80 17389.57 19891031 8705.93 16986.13 19891130 8375.06 17332.65 19891231 8512.92 17748.63 19900131 8030.41 16557.70 19900228 8057.98 16771.29 19900331 8554.28 17215.73 19900430 8202.74 16785.34 19900531 8809.33 18421.91 19900630 8815.66 18296.64 19900731 8461.92 18238.09 19900831 7719.77 16589.37 19900930 7470.08 15781.47 19901031 7372.97 15713.61 19901130 7768.32 16728.71 19901231 8122.69 17195.44 19910131 8839.61 17945.16 19910228 9013.61 19228.24 19910331 9709.64 19693.56 19910430 9549.56 19740.82 19910531 9995.02 20593.63 19910630 9492.14 19650.44 19910731 9904.53 20566.15 19910831 9799.69 21053.57 19910930 9569.02 20701.97 19911031 10030.35 20979.38 19911130 9576.01 20133.91 19911231 10309.94 22437.23 19920131 10274.99 22019.90 19920229 10435.76 22306.16 19920331 10226.06 21871.19 19920430 10044.33 22514.20 19920531 9541.06 22624.52 19920630 9093.72 22287.41 19920731 9443.21 23198.97 19920831 9261.47 22723.39 19920930 9394.28 22991.53 19921031 9471.17 23072.00 19921130 9799.69 23858.75 19921231 10309.94 24152.21 19930131 10617.49 24355.09 19930228 10540.60 24686.32 19930331 11099.79 25207.20 19930430 11134.74 24597.19 19930531 11477.24 25256.39 19930630 11959.53 25329.64 19930731 12448.82 25228.32 19930831 12427.85 26184.47 19930930 12749.38 25982.85 19931031 13259.63 26520.70 19931130 12868.21 26268.75 19931231 13285.17 26586.60 19940131 13917.79 27490.55 19940228 13917.79 26745.55 19940331 13357.88 25579.45 19940430 13430.38 25906.86 19940531 13474.66 26331.74 19940630 13135.21 25686.61 19940731 13327.07 26529.13 19940831 13924.80 27616.82 19940930 13223.76 26940.21 19941031 13548.45 27546.37 19941130 13017.14 26543.13 19941231 13518.93 26936.76 19950131 13511.55 27635.23 19950228 14493.01 28712.18 19950331 15112.87 29559.47 19950430 15946.73 30430.00 19950531 16928.19 31646.29 19950630 17555.43 32381.43 19950731 18522.12 33455.20 19950831 18514.74 33539.17 19950930 19031.29 34954.52 19951031 18337.64 34829.74 19951130 19658.54 36358.76 19951231 19921.01 37059.03 19960131 20277.45 38320.52 19960229 21362.61 38675.75 Let's say you invested $10,000 in Fidelity Select Defense and Aerospace Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $21,363 - a 113.63% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS United Technologies Corp. 4.2 McDonnell Douglas Corp. 4.0 Flir Systems, Inc. 2.5 Bombardier, Inc. Class B 2.4 Boeing Co. 2.2 Tracor, Inc. 2.1 Lockheed Martin Corp. 2.1 Esterline Corp. 2.0 General Dynamics Corp. 2.0 Raytheon Co. 2.0 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Aerospace & Defense 30.2% Defense Electronics 16.0% Electronics 13.0% Conglomerates 10.3% Electrical Equipment 3.7% All Others 26.8% * Row: 1, Col: 1, Value: 26.8 Row: 1, Col: 2, Value: 3.7 Row: 1, Col: 3, Value: 10.3 Row: 1, Col: 4, Value: 13.0 Row: 1, Col: 5, Value: 16.0 Row: 1, Col: 6, Value: 30.2 * INCLUDES SHORT-TERM INVESTMENTS DEFENSE AND AEROSPACE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Bill Rubin, Portfolio Manager of Fidelity Select Defense and Aerospace Portfolio Q. BILL, HOW DID THE FUND PERFORM? A. The fund had an excellent year. For the 12 months ended February 29, 1996, the fund had a total return of 47.40%. That beat the S&P 500 Index, which had a return of 34.70% over the same 12-month period. Q. WHAT FACTORS HELPED THE FUND POST SUCH A STRONG RETURN? A. Two industries - defense and commercial aircraft - made up the bulk of the investments in the fund, and both had strong performances. Defense contractors posted stronger-than-expected earnings driven by continued operating margin increases. They used their ample cash flow to make acquisitions and buy back their stock, helping to boost earnings per share. Also, new orders for commercial aircraft increased significantly. Boeing, for example, received orders in the year ended December 31, 1995, for 364 planes worth $31 billion, up from 1994's orders for 120 planes worth $8 billion. This kind of activity helped Boeing, as well as most of its suppliers, outperform the S&P 500. Q. WHY DID DEFENSE CONTRACTORS DO SO WELL? A. First, they were helped by the benefits of industry consolidation that has been driven by years of declining defense budgets and little prospect for increased defense spending. In addition, investors were surprised throughout the year by the increased profits and improving fundamentals of the industry. Order backlogs have stopped declining as much, and the defense budget is expected to rise modestly. The real key here, however, is that the government is pumping money into existing defense production programs. In contrast, when funds are allocated to develop new research and development programs, it tends to be more risky for contractors and involves increased spending for research and development and capital equipment, hurting their profitability. Because an increasing percentage of the defense budget now calls for expenditures within existing programs, defense contractors can continue to implement what I call a "harvest" strategy. They don't have to invest much - since the infrastructure is there - and can reap the rewards of previous investments and continued cost reductions, helping their profit margins and cash flow. McDonnell Douglas, Northrop Grumman, General Dynamics, Raytheon and Lockheed Martin were among the fund's holdings that benefited from this trend during the period. Q. WHAT'S BEEN BEHIND THE UPSWING IN THE COMMERCIAL AEROSPACE STOCKS? A. The first step for such an upturn in business is that the economy has to be relatively strong, or improving, which leads to greater air traffic growth. That leads to greater profitability for the airlines. They then usually proceed with orders for more planes. Overseas airlines - especially those in Asia - need the new planes to keep up with passenger growth. On the domestic side, demand comes for new planes to replace older models that cost the airlines too much to operate. New noise regulations that are due to take effect by 1999 also are a factor. Western countries are requiring planes to be made quieter through "hush kits," or to be replaced. Additionally, many airlines are opting to buy new planes that can provide better operating efficiency and greater passenger comfort and service. Boeing was an especially strong performer for the fund from this sector, as were United Technologies, Sundstrand, Precision Castparts and Rohr. Q. WHICH STOCKS DIDN'T TURN OUT THE WAY YOU WOULD HAVE LIKED? A. Two stocks come to mind. The stock price of Safety Components dropped because the defense portion of its business lost out on a defense ammunition contract they had been expected to win, and due to delays completing new strategic relationships, as well as negative market sentiment. The second stock, Watkins-Johnson, performed poorly because investors lowered the valuation that they were willing to pay for the stock, the same thing that happened to many of its peers in the semiconductor equipment industry. Q. BILL, WHAT'S YOUR OUTLOOK? A. In general, the outlook for both commercial aerospace and defense contractors is positive, for the same reasons that drove the stocks higher in 1995. If I have one concern, it's valuations. Both sectors are presently near historically high valuations. I would not be surprised if stocks in the two sectors took a short breather, allowing earnings and cash flow to catch up with stock prices. But, given the improving fundamentals of the companies and the industries, I'm still optimistic about prospects in these sectors over the next 12 to 18 months. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS START DATE: May 8, 1984 TRADING SYMBOL: FSDAX SIZE: as of February 29, 1996, more than $26 million MANAGER: Bill Rubin, since 1994; equity analyst, defense electronics, aerospace, and electronic connectors industries, since 1994; joined Fidelity in 1994 (checkmark) DEFENSE AND AEROSPACE PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 93.2% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 30.2% AIRCRAFT - 9.2% Boeing Co. 7,100 $ 575,978 Lockheed Martin Corp. 7,250 552,813 McDonnell Douglas Corp. 11,900 1,050,175 Northrop Grumman Corp. 3,800 234,650 2,413,616 AIRCRAFT & PARTS - 4.0% Precision Castparts Corp. 7,200 282,600 Rohr Industries, Inc. (a) 10,400 187,200 Sundstrand Corp. 4,400 331,650 Wyman-Gordon Co. (a) 13,100 232,525 1,033,975 AIRCRAFT ENGINES & PARTS - 1.5% UNC, Inc. (a) 55,000 405,625 AIRCRAFT EQUIPMENT - 4.4% Aviall, Inc. 67,000 485,750 BE Aerospace, Inc. (a) 5,000 64,375 Moog, Inc. Class A 25,000 434,375 Transtechnology Corp. 11,200 154,000 1,138,500 GUIDED MISSILES & SPACE VEHICLES - 1.3% Rockwell International Corp. 5,900 336,300 MISSILES & SPACE VEHICLES - 4.7% Orbital Sciences Corp. (a) 35,500 508,094 Special Devices, Inc. (a) 18,600 330,150 Thiokol Corp. 9,500 389,500 1,227,744 ORDNANCE - 1.5% Alliant Techsystems, Inc. (a) 7,600 380,000 TRAINING EQUIPMENT & SIMULATORS - 3.6% BVR Technologies Ltd. (a) 20,800 195,000 C A E Industries Ltd. 53,100 421,398 Flightsafety International, Inc. 6,300 336,263 952,661 TOTAL AEROSPACE & DEFENSE 7,888,421 AIR TRANSPORTATION - 1.5% AIR TRANSPORT, MAJOR NATIONAL - 0.3% KLM Royal Dutch Airlines 2,458 81,729 AIR TRANSPORTATION, REGIONAL - 1.2% Atlantic Southeast Airlines, Inc. 11,400 299,250 TOTAL AIR TRANSPORTATION 380,979 AUTOS, TIRES, & ACCESSORIES - 5.0% AUTO & TRUCK PARTS - 3.8% Safety Components International, Inc. (a) 31,500 444,938 Sparton Corp. (a) 20,200 78,275 Standard Products Co. 7,000 145,250 TRW, Inc. 3,800 329,175 997,638 AUTO PARTS - RETAIL - 0.7% Discount Auto Parts, Inc. (a) 7,000 176,750 MOTOR VEHICLE SUPPLIES & NEW PARTS - 0.5% Hahn Automotive Warehouse, Inc. 15,000 123,750 TOTAL AUTOS, TIRES, & ACCESSORIES 1,298,138 SHARES VALUE (NOTE 1) BROADCASTING - 0.2% TELEVISION BROADCASTING - 0.2% U.S. Satellite Broadcasting Co., Inc. Class A (a) 2,000 $ 65,000 CHEMICALS & PLASTICS - 0.8% CHEMICALS - 0.8% Goodrich (B.F.) Company 2,900 220,763 COMMUNICATIONS EQUIPMENT - 0.2% TELEPHONE EQUIPMENT - 0.2% Tadiran Ltd. 2,000 49,250 COMPUTER SERVICES & SOFTWARE - 1.8% CAD/CAM/CAE - 0.4% Dynamics Research Corp. (a) 15,000 106,875 COMPUTER SERVICES - 0.9% Verity, Inc. (a) 5,000 237,500 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.5% CACI International, Inc. Class A (a) 11,500 115,000 TOTAL COMPUTER SERVICES & SOFTWARE 459,375 COMPUTERS & OFFICE EQUIPMENT - 0.4% COMPUTER PERIPHERALS - 0.3% Miltope Group, Inc. (a) 34,900 82,888 GRAPHICS WORKSTATIONS - 0.1% Scitex Ltd. Ord. 2,200 36,575 TOTAL COMPUTERS & OFFICE EQUIPMENT 119,463 CONGLOMERATES - 10.3% Allied-Signal, Inc. 3,600 200,250 Coltec Industries, Inc. (a) 25,000 343,750 GenCorp, Inc. 10,000 130,000 Harris Corp. 6,700 445,550 Sequa Corp. Class A (a) 6,000 202,500 Textron, Inc. 3,400 267,750 United Technologies Corp. 10,100 1,085,750 2,675,550 DEFENSE ELECTRONICS - 16.0% EDO Corp. (a) 26,000 143,000 ESCO Electronics Corp. (trust receipt) (a) 21,000 259,875 Flir Systems, Inc. (a) 52,100 651,250 Geodynamics Corp. 12,500 139,063 Litton Industries, Inc. (a) 3,700 186,850 Loral Corp. 1,700 80,113 Nichols Research Corp. (a) 8,200 190,650 Raytheon Co. 10,500 526,313 Remec, Inc. (a) 22,000 211,750 Tracor, Inc. (a) 34,900 554,038 Trimble Navigation Ltd. (a) 16,300 332,113 Watkins-Johnson Co. 13,900 510,825 Whittaker Corp. (a) 15,400 377,300 4,163,140 ELECTRICAL EQUIPMENT - 3.7% CURRENT-CARRYING WIRING DEVICE - 1.3% Adflex Solutions (a) 22,300 351,225 TV & RADIO COMMUNICATION EQUIPMENT - 1.9% C-COR Electronics, Inc. (a) 8,000 134,000 Ortel Corp. (a) 16,600 190,900 Scientific-Atlanta, Inc. 4,000 67,000 TSX Corp. (a) 5,000 91,250 483,150 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRICAL EQUIPMENT - CONTINUED WIRING & LIGHTING - 0.5% Oak Industries, Inc. (a) 5,300 $ 126,538 TOTAL ELECTRICAL EQUIPMENT 960,913 ELECTRONICS - 13.0% CONNECTORS - 3.0% AMP, Inc. 10,000 426,250 Augat, Inc. 21,000 370,125 796,375 ELECTRONIC CAPACITORS - 2.5% AVX Corp. 17,500 428,750 Kemet Corp. (a) 9,200 216,200 644,950 ELECTRONIC PARTS - WHOLESALE - 1.9% Anicom, Inc. (a) 20,000 237,500 Zero Corp. 15,000 266,250 503,750 ELECTRONICS & ELECTRONIC COMPONENTS - 5.1% Alpine Group, Inc. 21,100 92,313 Esterline Corp. (a) 23,900 531,775 Molex, Inc. 8,875 295,094 Signal Technology Corp. (a) 9,900 70,538 Vishay Intertechnology, Inc. 12,500 329,688 1,319,408 SEMICONDUCTORS - 0.5% Semtech Corp. (a) 7,000 126,000 TOTAL ELECTRONICS 3,390,483 INDUSTRIAL MACHINERY & EQUIPMENT - 1.2% FLUID POWER CYLINDERS & ACTUATORS - 1.2% Power Control Technologies, Inc. (a) 35,000 306,250 METALS & MINING - 3.3% NONFERROUS ROLLING & DRAWING - 1.8% Oregon Metallurgical Corp. (a) 15,000 260,625 RMI Titanium Co. (a) 16,600 205,425 466,050 NONFERROUS WIRE - 0.7% Cable Design Technology Corp. 5,000 196,250 PRIME NONFERROUS SMELTING - 0.8% Tremont Corp. (a) 8,100 199,463 TOTAL METALS & MINING 861,763 RAILROADS - 2.4% RAILROAD EQUIPMENT - 2.4% Bombardier, Inc. Class B 42,400 634,291 SHIP BUILDING & REPAIR - 2.5% SHIP BUILDERS - 2.5% Avondale Industries, Inc. (a) 7,000 111,125 General Dynamics Corp. 8,900 530,663 641,788 TELEPHONE SERVICES - 0.7% Globalstar Telecommunications Ltd. (a) 3,500 189,875 TOTAL COMMON STOCKS (Cost $22,180,438) 24,305,442 REPURCHASE AGREEMENTS - 6.8% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 1,773,266 $ 1,773,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $23,953,438) $ 26,078,442 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $64,453,602 and $52,445,383, respectively (see Note 3 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 $36,879 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $4,697,000 and $1,821,478, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $24,083,922. Net unrealized appreciation aggregated $1,994,520, of which $2,751,788 related to appreciated investment securities and $757,268 related to depreciated investment securities. The fund hereby designates approximately $405,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 13% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. DEFENSE AND AEROSPACE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 26,078,442 securities, at value (including repurchase agreements of $1,773,000) (cost $23,953,438) - - See accompanyin g schedule Cash 779 Receivable for 1,744,466 investments sold Receivable for 930,249 fund shares sold Dividends 25,160 receivable Redemption 61 fees receivable Other 88 receivables TOTAL ASSETS 28,779,245 LIABILITIES Payable for $ 1,728,928 investments purchased Payable for 360,185 fund shares redeemed Accrued 12,118 management fee Other payables 29,799 and accrued expenses TOTAL 2,131,030 LIABILITIES NET ASSETS $ 26,648,215 Net Assets consist of: Paid in capital $ 20,344,168 Accumulated 4,179,043 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 2,125,004 appreciation (depreciation ) on investments NET ASSETS, for $ 26,648,215 988,216 shares outstanding NET ASSET $26.97 VALUE and redemption price per share ($26,648,215 (divided by) 988,216 shares) Maximum $27.80 offering price per share (100/97.00 of $26.97) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 245,034 INCOME Dividends Interest 88,321 TOTAL 333,355 INCOME EXPENSES Management $ 131,560 fee Transfer agent 195,299 Fees Redemption (34,320 fees ) Accounting 47,698 fees and expenses Non-interested 88 trustees' compensatio n Custodian fees 17,114 and expenses Registration 20,967 fees Audit 17,681 Legal 105 Interest 7,250 Miscellaneous 91 Total 403,533 expenses before reductions Expense (28,137 375,396 reductions ) NET (42,041 INVESTMENT ) INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 6,185,785 securities Foreign (1,127 6,184,658 currency ) transactions Change in net 1,844,428 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 8,029,086 NET INCREASE $ 7,987,045 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 256,417 INFORMATION Sales charges paid to FDC Deferred $ 4,056 sales charges withheld by FDC Exchange $ 28,245 fees withheld by FSC Expense $ 2,766 reductions Directed brokerage arrangement s Custodian 916 interest credits FMR 24,455 reimburseme nt $ 28,137 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (42,041 $ (16,833 Net ) ) investment income (loss) Net realized 6,184,658 (307,440 gain (loss) ) Change in 1,844,428 (46,619 net ) unrealized appreciation (depreciation ) NET INCREASE 7,987,045 (370,892 (DECREASE) ) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (1,652,319 (145,443 shareholders ) ) from net realized gains Share 82,853,410 13,049,647 transactions Net proceeds from sales of shares Reinvestmen 1,633,401 142,332 t of distributions Cost of (69,255,038 (18,865,024 shares ) ) redeemed Paid in 97,064 38,135 capital portion of redemption fees NET INCREASE 15,328,837 (5,634,910 (DECREASE) ) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 21,663,563 (6,151,245 INCREASE ) (DECREASE) IN NET ASSETS NET ASSETS Beginning of 4,984,652 11,135,897 period End of period $ 26,648,215 $ 4,984,652 OTHER INFORMATION Shares Sold 3,489,764 690,722 Issued in 65,863 7,812 reinvestment of distributions Redeemed (2,821,248 (1,026,621 ) ) Net increase 734,379 (328,087 (decrease) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 19.64 $ 19.14 $ 15.08 $ 14.37 $ 13.72 value, beginning of period Income from Investment Operations Net (.05) (.06) .07 (.02) (.01) investment income (loss) Net realized 9.09 .70 F 4.57 .69 .67 and unrealized gain (loss) Total from 9.04 .64 4.64 .67 .66 investment operations Less - - (.10) - (.04) Distributions From net investment income In excess of - - - - (.02) net investment income From net (1.82) (.27) (.62) - - realized gain Total (1.82) (.27) (.72) - (.06) distributions Redemption .11 .13 .14 .04 .05 fees added to paid in capital Net asset $ 26.97 $ 19.64 $ 19.14 $ 15.08 $ 14.37 value, end of period TOTAL 47.40% 4.13% 32.04% 4.94% 5.18% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 26,648 $ 4,985 $ 11,136 $ 1,463 $ 1,280 end of period (000 omitted) Ratio of 1.77% 2.49% 2.53% 2.48% A 2.46% expenses to G G G , G G average net assets Ratio of 1.75% 2.49% 2.53% 2.48% A 2.46% expenses to E average net assets after expense reductions Ratio of net (.20)% (.32)% .40% (.14)% (.10)% investment A income (loss) to average net assets Portfolio 267% 146% 324% 87% A 32% turnover rate
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). 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. G DURING THE PERIOD, FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES, OR EXPENSES WERE LIMITED IN ACCORDANCE WITH A STATE EXPENSE LIMITATION. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND DEVELOPING COMMUNICATIONS 21.84% 186.46% 218.26% DEVELOPING COMMUNICATIONS 18.19% 177.87% (INCL. 3% SALES CHARGE) 208.71% S&P 500 34.70% 101.14% 111.64% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years, 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 PAST 5 LIFE OF FEBRUARY 29, 1996 YEAR YEARS FUND DEVELOPING COMMUNICATIONS 21.84% 23.43% 22.62% DEVELOPING COMMUNICATIONS 18.19% 22.68% (INCL. 3% SALES CHARGE) 21.96% S&P 500 34.70% 14.99% 14.12% 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 19900629 9700.00 10000.00 19900731 8953.10 9980.27 19900831 7866.70 9078.05 19900930 6751.20 8635.95 19901031 7081.00 8598.82 19901130 8235.30 9154.30 19901231 8759.10 9409.71 19910131 10146.20 9819.97 19910228 10776.70 10522.10 19910331 11494.50 10776.73 19910430 11591.50 10802.60 19910531 11766.10 11269.27 19910630 10841.06 10753.14 19910731 11963.62 11254.23 19910831 12670.42 11520.96 19910930 12815.94 11328.56 19911031 13564.32 11480.36 19911130 12888.70 11017.70 19911231 14135.99 12278.13 19920131 14510.18 12049.75 19920229 14998.70 12206.40 19920331 14260.72 11968.38 19920430 14073.63 12320.25 19920531 14011.26 12380.62 19920630 13512.35 12196.14 19920731 14104.81 12694.97 19920831 13574.71 12434.72 19920930 14032.05 12581.45 19921031 14655.70 12625.48 19921130 15986.14 13056.01 19921231 16569.33 13216.60 19930131 17017.15 13327.62 19930228 17121.30 13508.88 19930331 17735.75 13793.92 19930430 17206.93 13460.10 19930531 18365.83 13820.83 19930630 19160.51 13860.91 19930731 19535.77 13805.47 19930831 21323.79 14328.70 19930930 21621.79 14218.37 19931031 22372.32 14512.69 19931130 20672.60 14374.82 19931231 21833.52 14548.75 19940131 22673.27 15043.41 19940228 22298.78 14635.73 19940331 20744.11 13997.61 19940430 21598.03 14176.78 19940531 20440.78 14409.28 19940630 18918.07 14056.26 19940731 20879.32 14517.30 19940831 22657.83 15112.51 19940930 22962.38 14742.25 19941031 25021.07 15073.95 19941130 24314.54 14524.96 19941231 25138.57 14740.37 19950131 24467.87 15122.58 19950228 25337.29 15711.91 19950331 25473.91 16175.57 19950430 26593.13 16651.94 19950531 27505.97 17317.52 19950630 30405.58 17719.80 19950731 33318.60 18307.39 19950831 33399.15 18353.34 19950930 34285.14 19127.86 19951031 30875.42 19059.57 19951130 31023.08 19896.28 19951231 29504.05 20279.49 19960131 28582.05 20969.80 19960229 30871.16 21164.19 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 February 29, 1996, your investment would have grown to $30,871 - a 208.71% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $21,164 over the same period - a 111.64% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Glenayre Technologies, Inc. 8.0 AirTouch Communications, Inc. 7.2 United States Cellular Corp. 4.1 Cisco Systems, Inc. 4.0 Vanguard Cellular Systems, Inc. Class A 3.5 Dynatech Corp. 3.0 U.S. Robotics Corp. 2.9 Palmer Wireless, Inc. 2.7 Arch Communications Group, Inc. 2.1 California Microwave Corp. 2.0 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 34.8 Row: 1, Col: 2, Value: 7.5 Row: 1, Col: 3, Value: 8.0 Row: 1, Col: 4, Value: 12.0 Row: 1, Col: 5, Value: 14.6 Row: 1, Col: 6, Value: 23.1 Cellular & Communication Services 23.1% TV & Radio Communication Equipment 14.6% Telephone Equipment 12.0% Datacommunications Equipment 8.0% Telephone Services 7.5% All Others 34.8% * * INCLUDES SHORT-TERM INVESTMENTS DEVELOPING COMMUNICATIONS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Paul Antico, Portfolio Manager of Fidelity Select Developing Communications Portfolio Q. PAUL, HOW DID THE FUND PERFORM? A. Not as well as I would have liked. For the 12 months ended February 29, 1996, the fund had a total return of 21.84%. By comparison, the S&P 500 Index posted a return of 34.70% during the same period. Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE? A. I've worked on two strategies with the fund. Half of my focus has been on what I call the "broadband revolution." That describes the equipment upgrade that's happening in telecommunications networks as people and companies look for more bandwidth to send data, to get on to the Internet or even for video conferencing. Stocks in this sector were hit hard in the fourth quarter of 1995. For the first time in a while, it seemed as if equipment customers such as telephone companies weren't purchasing as much as usual. That wasn't really the case; I believe it was just a change in spending patterns. Nevertheless, it raised fears about the group. The other area I've concentrated on has been cellular service providers. These stocks performed poorly in 1995, as investors were concerned about how the introduction of PCS - personal communication services, a competing mobile communications system - would affect cellular pricing and subscriber acquisition. At the beginning of 1996, the cellular operators rebounded somewhat as their subscriber accounts continued to grow. Q. WHAT EFFECT DID THE NEW TELECOMMUNICATIONS LAW HAVE ON THE SECTOR AND THE FUND? A. It helped focus investor attention on the sector. I don't expect any near-term effects though. In the latter part of 1995 and beginning of 1996, concern over the proposed legislation may have caused operators to spend money on more basic, core products rather than the high value-added next generation products provided by the companies I seek for the fund. Now that all the players know what the ground rules are, it is apparent that they'll purchase the kind of equipment that will help them gradually improve and adapt their networks and expand into new areas. Q. WHICH STOCKS POSTED POSITIVE PERFORMANCE FOR THE FUND OVER THE PAST SIX MONTHS? A. Glenayre was one. Paging growth worldwide has been very strong. In many places, it's a basic means of communication, with customers using paging code books because no telephones are available. Paging also is taking off in the U.S., because it is the cheapest, longest battery-life mobile service you can get. U.S. Robotics, the world's largest modem vendor, also performed well, having benefited from demand caused by the Internet and remote-access boom. Finally, Sanmina, which makes circuit boards for telecommunications equipment companies, prospered because it expanded and faced little competitive threat. Q. WHICH STOCKS DIDN'T TURN OUT AS WELL AS YOU WOULD HAVE LIKED? A. DSC, which had been one of the fund's largest investments, was one. The temporary slowdown in business - while investors were waiting to see the final shape the telecommunications law would take - hurt the company. In addition, an acquisition in Europe hasn't gone as well as expected for the company. AirTouch stock stalled as investors were slow to appreciate the value in the company. Also, Vanguard Cellular, a strong basic cellular operator, lagged over concerns about competition from PCS and declines in its average monthly revenues. Q. WHAT'S YOUR OUTLOOK? A. Overall, I'm cautiously optimistic. It remains difficult to find the right investment at the right price, and that's the key. Many of the equipment stocks are expensive or have some near-term negative issues. On the cellular side, I think the current operators will benefit when PCS comes out, as investors will be able to more clearly see the differences between the two different types of mobile telecommunications services. PCS has been delayed and until it is brought to market, investors are going to doubt the prospects of the cellular group. At the moment, my main focus is to balance the strong long-term investments like the cellular companies with the equipment companies that can provide the short-term boost. I've tended to look less at growth and more at value, as I'm trying to limit the portfolio's downside risk while maintaining a good potential for positive performance. But I think 1996 may be a more difficult year than 1995. FUND FACTS START DATE: June 29, 1990 TRADING SYMBOL: FSDCX SIZE: as of February 29, 1996, more than $333 million MANAGER: Paul Antico, since 1993; equity analyst, telecommunications equipment since 1992, restaurant industry 1992-1993, and wireless communications since 1993; joined Fidelity in 1991 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. DEVELOPING COMMUNICATIONS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 85.3% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 1.5% GUIDED MISSILES & SPACE VEHICLES - 1.5% Rockwell International Corp. 84,300 $ 4,805,100 BROADCASTING - 3.5% CABLE TV OPERATORS - 3.5% American Telecasting, Inc. (a) 131,100 2,146,763 CAI Wireless Systems, Inc. (a) 7,300 64,784 Cablevision Systems Corp. 33,000 1,918,125 Heartland Wireless Communications, Inc. (a) 81,600 2,060,400 Nynex CableComms Group PLC ADR Unit (a) 113,000 1,737,375 Videotron Holdings PLC sponsored ADR (a) 221,000 3,729,375 11,656,822 TELEVISION BROADCASTING - 0.0% U.S. Satellite Broadcasting Co., Inc. Class A (a) 2,000 65,000 TOTAL BROADCASTING 11,721,822 CELLULAR - 23.1% CELLULAR & COMMUNICATION SERVICES - 23.1% AirTouch Communications, Inc. (a) 763,525 23,669,275 Arch Communications Group, Inc. (a) 265,787 6,893,850 BCE Mobile Communications, Inc. (a) 39,500 1,297,114 Cellular Communications Puerto Rico, Inc. (a) 96,900 2,531,513 Millicom International Cellular SA (a) 23,400 886,275 Mobile Telecommunications Technologies, Inc. (a) 160,000 2,300,000 Nera AS sponsored ADR (a) 50,000 1,893,750 Nera AS 27,300 1,034,494 Paging Network, Inc. (a) 39,700 1,052,050 Palmer Wireless, Inc. (a) 434,600 9,017,950 Rural Cellular Corp. Class A (a) 26,500 278,250 United States Cellular Corp. (a) 374,800 13,492,800 Vanguard Cellular Systems, Inc. Class A (a) 527,850 11,612,700 75,960,021 COMMUNICATIONS EQUIPMENT - 21.4% DATACOMMUNICATIONS EQUIPMENT - 8.0% Broadband Technologies, Inc. 5,000 122,500 Cisco Systems, Inc. (a) 275,000 13,062,500 Digital Link Corp. 25,000 278,125 Dynatech Corp. (a) 401,750 10,043,750 Microcom, Inc. (a) 88,600 2,680,150 26,187,025 TELEPHONE EQUIPMENT - 12.0% ADC Telecommunications, Inc. 108,800 4,324,800 Brite Voice Systems, Inc. (a) 182,400 3,100,800 DSC Communications Corp. (a) 68,900 2,101,450 DSP Communications, Inc. (a) 64,300 3,086,400 Filtronic Comtek PLC 150,000 976,236 Inter-Tel, Inc. (a) 255,200 4,561,700 InterVoice, Inc. (a) 80,600 1,924,325 Network Equipment Technologies (a) 58,900 1,752,275 Newbridge Networks Corp. (a) 113,000 5,522,875 Pairgain Technologies, Inc. 7,000 414,750 U.S. Robotics Corp. 76,700 9,510,800 Westell Technologies, Inc. Class A (a) 60,500 2,359,500 39,635,911 SHARES VALUE (NOTE 1) TELEPHONE INTERCONNECT SYSTEMS - 1.4% P-COM, Inc. 286,700 $ 4,587,200 TOTAL COMMUNICATIONS EQUIPMENT 70,410,136 COMPUTER SERVICES & SOFTWARE - 4.2% CAD/CAM/CAE - 0.5% Brooktrout Technology, Inc. (a) 67,500 1,653,750 ECI Telecom Ltd. 6,500 165,750 1,819,500 COMPUTER SERVICES - 0.5% America Online, Inc. 35,000 1,719,375 DATA PROCESSING - 0.9% General Motors Corp. Class E 50,000 2,856,250 PREPACKAGED COMPUTER SOFTWARE - 2.3% Black Box Corp. (a) 121,300 2,092,425 Microsoft Corp. (a) 15,000 1,480,313 Netscape Communications Corp. (a) 30,000 1,530,000 Oracle Systems Corp. (a) 35,000 1,820,000 Vantive Corp. (a) 24,600 510,450 7,433,188 TOTAL COMPUTER SERVICES & SOFTWARE 13,828,313 COMPUTERS & OFFICE EQUIPMENT - 1.1% ELECTRONIC COMPUTERS - 1.1% Bay Networks, Inc. (a) 90,000 3,656,250 CONGLOMERATES - 0.4% Harris Corp. 22,000 1,463,000 DEFENSE ELECTRONICS - 1.1% Datum, Inc. (a) 53,300 533,000 Whittaker Corp. (a) 123,600 3,028,200 3,561,200 ELECTRICAL EQUIPMENT - 15.1% TV & RADIO COMMUNICATION EQUIPMENT - 14.6% Allen Group, Inc. (The) 207,100 3,857,238 California Amplifier, Inc. (a) 39,200 1,830,150 California Microwave Corp. (a) 350,600 6,573,750 Glenayre Technologies, Inc. 599,725 26,462,866 Leitch Technology Corp. (a) 100,100 3,104,499 Omnipoint Corp. (a) 32,000 864,000 Scientific-Atlanta, Inc. 297,900 4,989,825 Vertex Communications Corp. (a) 15,000 251,250 47,933,578 WIRING & LIGHTING - 0.5% Oak Industries, Inc. 74,500 1,778,688 TOTAL ELECTRICAL EQUIPMENT 49,712,266 ELECTRONICS - 4.7% ELECTRONIC PARTS - WHOLESALE - 2.4% Audiovox Corp. Class A (a) 326,900 1,716,225 Brightpoint, Inc. 173,900 3,043,250 Harmonic Lightwaves, Inc. (a) 210,000 3,045,000 Zero Corp. 19,500 346,125 8,150,600 ELECTRONICS & ELECTRONIC COMPONENTS - 2.1% Sanmina Corp. (a) 79,900 4,274,650 Solectron Corp. (a) 54,200 2,628,700 6,903,350 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRONICS - CONTINUED SEMICONDUCTORS - 0.2% Geotek Industries, Inc. (a) 60,000 $ 577,500 TOTAL ELECTRONICS 15,631,450 ENGINEERING - 0.0% ARCHITECTS & ENGINEERS - 0.0% DSP Group, Inc. (a) 10,000 95,000 IRON & STEEL - 1.2% STEEL PIPES & TUBES - 1.2% Mannesmann AG Ord. 11,000 3,920,312 RESTAURANTS - 0.5% Starbucks Corp. (a) 95,000 1,674,375 TELEPHONE SERVICES - 7.5% AT&T Corp. 40,000 2,545,000 Ameritech Corp. 75,100 4,327,638 DDI Corp. Ord. 150 1,098,656 MFS Communications, Inc. 10,000 605,000 NYNEX Corp. 50,000 2,575,000 SBC Communications, Inc. 30,000 1,646,250 Telecom Italia Mobile Spa (a) 675,000 1,238,513 Telefonica del Peru SA (CPT) Class B 390,000 825,668 Telephone & Data Systems, Inc. 68,000 3,136,500 Winstar Communications, Inc. (a) 90,000 1,507,500 WorldCom, Inc. (a) 132,800 5,229,000 24,734,725 TOTAL COMMON STOCKS (Cost $260,265,459) $ 281,173,970 REPURCHASE AGREEMENTS - 14.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 48,578,299 48,571,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $308,836,459) $ 329,744,970 LEGEND 1. Non-income producing OTHER INFORMATION A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE ARC International Corp. $ - $ 128,268 $ - $ - Datum, Inc. 1,066,951 1,431,575 - - Totals $ 1,066,951 $ 1,559,843 $ - $ - Purchases and sales of securities, other than short-term securities, aggregated $745,581,729 and $766,526,283, respectively (see Note 3 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 $200,227 for the period (see Note 4 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $7,540,000 and $6,838,500, respectively. The weighted average interest rate paid was 6.3% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $311,428,496. Net unrealized appreciation aggregated $18,316,474, of which $28,555,318 related to appreciated investment securities and $10,238,844 related to depreciated investment securities. The fund hereby designates approximately $17,067,000 as a capital gain dividend for the purpose of the dividend paid deduction. The fund intends to elect to defer to its fiscal year ending February 28, 1997 approximately $20,116,000 of losses recognized during the period November 1, 1995 to February 29, 1996. A total of 1% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. DEVELOPING COMMUNICATIONS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 329,744,970 securities, at value (including repurchase agreements of $48,571,000) (cost $308,836,459 ) - See accompanyin g schedule Cash 455 Receivable for 6,136,498 investments sold Receivable for 2,307,762 fund shares sold Dividends 33,777 receivable Redemption 784 fees receivable Other 20,333 receivables TOTAL ASSETS 338,244,579 LIABILITIES Payable for $ 3,564,436 investments purchased Payable for 1,038,086 fund shares redeemed Accrued 159,774 management fee Other payables 296,794 and accrued expenses TOTAL 5,059,090 LIABILITIES NET ASSETS $ 333,185,489 Net Assets consist of: Paid in capital $ 310,570,427 Accumulated 1,706,543 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 20,908,519 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 333,185,489 17,156,307 shares outstanding NET ASSET $19.42 VALUE and redemption price per share ($333,185,48 9 (divided by) 17,156,307 shares) Maximum $20.02 offering price per share (100/97.00 of $19.42) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 831,671 INCOME Dividends Interest 1,601,863 TOTAL 2,433,534 INCOME EXPENSES Management $ 2,034,963 fee Transfer agent 2,736,313 Fees Redemption (251,923 fees ) Accounting 333,332 fees and expenses Non-interested 1,942 trustees' compensatio n Custodian fees 45,694 and expenses Registration 147,961 fees Audit 38,849 Legal 2,108 Interest 2,400 Miscellaneous 3,568 Total 5,095,207 expenses before reductions Expense (64,413 5,030,794 reductions ) NET (2,597,260 INVESTMENT ) INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 52,234,057 securities (including realized loss of $587,085 on sales of investments in affiliated issuers) Foreign (21,347 52,212,710 currency ) transactions Change in net unrealized appreciation (depreciation ) on: Investment 9,525,005 securities Assets and 8 9,525,013 liabilities in foreign currencies NET GAIN (LOSS) 61,737,723 NET INCREASE $ 59,140,463 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 2,513,224 INFORMATION Sales charges paid to FDC Deferred $ 4,453 sales charges withheld by FDC Exchange $ 190,455 fees withheld by FSC Expense $ 28,221 reductions Directed brokerage arrangement s Custodian 31,041 interest credits Transfer 5,151 agent interest credits $ 64,413 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (2,597,260 $ (1,840,119 Net ) ) investment income (loss) Net realized 52,212,710 30,202,368 gain (loss) Change in 9,525,013 (4,667,340 net ) unrealized appreciation (depreciation ) NET INCREASE 59,140,463 23,694,909 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (64,709,372 (19,859,395 shareholders ) ) from net realized gains Share 436,869,315 296,420,644 transactions Net proceeds from sales of shares Reinvestmen 63,769,821 19,590,893 t of distributions Cost of (416,608,338 (287,865,261 shares ) ) redeemed Paid in 297,961 334,629 capital portion of redemption fees NET INCREASE 84,328,759 28,480,905 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 78,759,850 32,316,419 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 254,425,639 222,109,220 period End of period $ 333,185,489 $ 254,425,639 OTHER INFORMATION Shares Sold 19,756,179 15,233,264 Issued in 3,380,520 1,085,216 reinvestment of distributions Redeemed (18,449,215 (15,155,323 ) ) Net increase 4,687,484 1,163,157 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 20.40 $ 19.65 $ 16.44 $ 13.54 $ 11.95 value, beginning of period Income from Investment Operations Net (.17) (.16) (.16) (.07) (.08) F investment income (loss) Net realized 4.17 2.55 4.82 2.98 2.42 and unrealized gain (loss) Total from 4.00 2.39 4.66 2.91 2.34 investment operations Less (5.00) (1.67) (1.47) (.03) (.79) Distributions From net realized gain Redemption .02 .03 .02 .02 .04 fees added to paid in capital Net asset $ 19.42 $ 20.40 $ 19.65 $ 16.44 $ 13.54 value, end of period TOTAL 21.84% 13.63% 30.24% 21.66% 21.41% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 333,185 $ 254,426 $ 222,109 $ 83,383 $ 39,261 end of period (000 omitted) Ratio of 1.53% 1.58% 1.56% 1.88% 2.50% expenses to A average net assets Ratio of 1.51% 1.56% 1.56% 1.88% 2.50% expenses to E E A average net assets after expense reductions Ratio of net (.78)% (.83)% (.88)% (.59)% (.61)% investment A income (loss) to average net assets Portfolio 249% 266% 280% 77% 25% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). 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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS ELECTRONICS 72.75% 298.27% 253.79% ELECTRONICS 67.56% 286.32% 243.18% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS ELECTRONICS 72.75% 31.84% 13.47% ELECTRONICS 67.56% 31.04% 13.12% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9513.46 10558.00 19860430 10293.53 10438.69 19860531 9488.02 10994.03 19860630 8563.81 11179.83 19860731 7537.85 10554.88 19860831 8182.26 11338.05 19860930 7275.00 10400.39 19861031 7300.44 11000.50 19861130 7300.44 11267.81 19861231 7173.25 10980.48 19870131 8360.31 12459.55 19870228 9030.16 12951.70 19870331 8886.01 13326.01 19870430 9148.86 13207.41 19870531 8962.33 13322.31 19870630 8767.31 13995.09 19870731 9038.64 14704.64 19870831 9691.52 15253.12 19870930 9683.04 14919.08 19871031 6393.18 11705.51 19871130 5392.66 10740.97 19871231 6206.64 11558.36 19880131 5850.52 12044.97 19880229 6469.49 12606.27 19880331 6376.22 12216.73 19880430 6664.51 12352.34 19880531 6435.58 12459.80 19880630 7063.02 13031.71 19880731 6630.59 12982.19 19880831 5969.23 12540.79 19880930 6062.50 13075.03 19881031 5621.59 13438.52 19881130 5341.78 13246.35 19881231 5680.94 13478.16 19890131 5884.44 14464.76 19890228 5799.65 14104.59 19890331 5757.26 14433.22 19890430 6206.64 15182.31 19890531 6800.17 15797.19 19890630 6130.33 15707.15 19890731 6198.16 17125.50 19890831 6410.14 17461.16 19890930 6588.20 17389.57 19891031 6291.43 16986.13 19891130 6308.39 17332.65 19891231 6571.24 17748.63 19900131 6791.70 16557.70 19900228 7334.35 16771.29 19900331 7690.47 17215.73 19900430 7724.39 16785.34 19900531 8860.58 18421.91 19900630 8996.24 18296.64 19900731 8572.29 18238.09 19900831 7232.60 16589.37 19900930 6138.81 15781.47 19901031 5918.36 15713.61 19901130 6528.85 16728.71 19901231 6952.88 17195.44 19910131 7920.68 17945.16 19910228 8616.82 19228.24 19910331 9075.25 19693.56 19910430 9126.19 19740.82 19910531 9423.32 20593.63 19910630 8277.24 19650.44 19910731 8846.03 20566.15 19910831 9211.08 21053.57 19910930 8506.45 20701.97 19911031 8922.44 20979.38 19911130 8379.11 20133.91 19911231 9406.34 22437.23 19920131 10518.46 22019.90 19920229 11095.75 22306.16 19920331 10221.33 21871.19 19920430 10026.07 22514.20 19920531 10043.05 22624.52 19920630 9312.96 22287.41 19920731 9805.34 23198.97 19920831 9907.22 22723.39 19920930 10263.78 22991.53 19921031 11036.32 23072.00 19921130 11757.92 23858.75 19921231 11987.14 24152.21 19930131 12394.63 24355.09 19930228 12122.97 24686.32 19930331 12547.45 25207.20 19930430 12326.27 24597.19 19930531 13563.16 25256.39 19930630 13810.54 25329.64 19930731 14202.93 25228.32 19930831 15422.77 26184.47 19930930 15678.67 25982.85 19931031 15380.11 26520.70 19931130 15260.69 26268.75 19931231 15832.59 26586.60 19940131 16926.22 27490.55 19940228 17728.89 26745.55 19940331 17538.26 25579.45 19940430 17488.09 25906.86 19940531 17437.92 26331.74 19940630 16504.82 25686.61 19940731 16845.96 26529.13 19940831 18491.42 27616.82 19940930 17959.66 26940.21 19941031 18692.09 27546.37 19941130 18451.29 26543.13 19941231 18551.62 26936.76 19950131 18019.86 27635.23 19950228 19865.99 28712.18 19950331 21912.79 29559.47 19950430 24360.92 30430.00 19950531 26136.82 31646.29 19950630 29859.18 32381.43 19950731 34324.01 33455.20 19950831 34775.51 33539.17 19950930 35397.58 34954.52 19951031 34424.34 34829.74 19951130 33561.48 36358.76 19951231 31346.36 37059.03 19960131 32405.85 38320.52 19960229 34317.81 38675.75 Let's say you invested $10,000 in Fidelity Select Electronics Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $34,318 - a 243.18% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Analog Devices, Inc. 6.2 International Business Machines Corp. 5.0 U.S. Robotics Corp. 4.6 Compaq Computer Corp. 4.0 Maxim Integrated Products, Inc. 4.0 Adaptec, Inc. 3.5 Hewlett-Packard Co. 3.3 Cisco Systems, Inc. 3.2 Seagate Technology 2.9 Tencor Instruments 2.5 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Semiconductors 28.0% Computers & Office Equipment 8.2% Computer Storage Devices 6.9% Datacommunications Equipment 5.1% Telephone Equipment 5.0% All Others 46.8% * Row: 1, Col: 1, Value: 46.8 Row: 1, Col: 2, Value: 5.0 Row: 1, Col: 3, Value: 5.1 Row: 1, Col: 4, Value: 6.9 Row: 1, Col: 5, Value: 8.199999999999999 Row: 1, Col: 6, Value: 28.0 * INCLUDES SHORT-TERM INVESTMENTS ELECTRONICS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Marc Kaufman, Portfolio Manager of Fidelity Select Electronics Portfolio Q. HOW DID THE FUND PERFORM, MARC? A. The fund did extremely well. For the 12-month period ending February 29, 1996, it returned 72.75%, while the S&P 500 Index returned 34.70%. Q. WHAT WERE THE KEY CONTRIBUTORS TO THE FUND'S PERFORMANCE? A. There were really two fairly distinct stories comprising the fund's performance over the past year. From the beginning of the period early last year through mid-to-late summer, the top contributors were commodity semiconductor stocks that benefited from the tight supply-demand existing in the semiconductor market. These stocks included Micron Technology, a chip manufacturer, and Applied Materials and Silicon Valley Group, which are both equipment suppliers to the semiconductor industry. In the second half of the year, the commodity semiconductor environment was much more difficult as supply exceeded demand. So I moved the fund out of those commodity companies and more into suppliers of proprietary components, including Analog Devices and Maxim Integrated Products. Q. WHAT PROMPTED YOUR MOVE OUT OF THE COMMODITY SEMICONDUCTOR SUPPLIERS? A. The supply-demand environment was clearly loosening up at that time. The Japanese, Taiwanese and Koreans all were adding semiconductor production capacity aggressively, as were American companies. So it was clear to me that there was going to be excess capacity, which would entail price cuts and hurt the performance of the commodity manufacturers. As it turned out, this happened even sooner than I had anticipated. For example, the Philadelphia Semiconductor Index, which includes the stocks of 16 semiconductor companies, went down more than 30% between August 1995 and the end of the reporting period. Q. SO YOU SHIFTED OUT OF THE COMMODITY SUPPLIERS AND MOVED INTO THE SUPPLIERS OF PROPRIETARY COMPONENTS. WHAT WAS BEHIND THIS STRATEGY? A. Manufacturers of proprietary components - where they are the only company that is producing a specific part - have an advantage during times of looser supply-demand for commodity semiconductors. So even if there's excess supply in the semiconductor industry, if you're the only company making a specific product, you're not as affected by commodity pricing pressures. At the same time, I increased the fund's investments in the systems companies that I felt could benefit from the lower electronic component prices. Some examples include networking companies such as Cisco Systems, and more diversified computer manufacturers such as Hewlett-Packard and IBM. Q. THE FUND'S HOLDINGS INCLUDED MORE THAN 17% CASH AT THE END OF THE PERIOD. WHAT'S THE STORY THERE? A. My strategy is to keep the fund invested as much as possible in the stocks of electronics companies. The fund's cash holdings at the end of the period were just a temporary result of selling some positions that had appreciated greatly over the previous few months and whose valuations, I felt, were too high at that point. There were also some big inflows of investors' money into the fund toward the end of the period. I was in cash temporarily as I analyzed where to invest the proceeds of those stock sales and the inflows of new funds. Q. THERE NEVER SEEMS TO BE A DULL MOMENT IN YOUR SECTOR. WHAT'S YOUR OUTLOOK FOR THE NEXT SEVERAL MONTHS? A. I think it's going to be a very selective market going forward, based on the supply-demand environment for commodity semiconductors. With chip prices low, I'll continue to favor the proprietary manufacturers and the systems companies. Should there be a pick-up in demand due to the low prices of chips, I'll move the fund more into the commodity semiconductor suppliers. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FSELX SIZE: as of February 29, 1996, more than $1.1 billion MANAGER: Marc Kaufman, since March 1995; analyst, semiconductor industry, 1992-1995; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. ELECTRONICS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 80.2% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 1.7% AIRCRAFT - 1.4% McDonnell Douglas Corp. 180,000 $ 15,885,000 GUIDED MISSILES & SPACE VEHICLE - 0.3% Rockwell International Corp. 70,000 3,990,000 TOTAL AEROSPACE & DEFENSE 19,875,000 CELLULAR - 0.3% CELLULAR & COMMUNICATION SERVICES - 0.3% AirTouch Communications, Inc. (a) 100,000 3,100,000 COMMUNICATIONS EQUIPMENT - 10.3% DATACOMMUNICATIONS EQUIPMENT - 5.1% Cabletron Systems, Inc. (a) 197,800 14,859,725 Cisco Systems, Inc. (a) 769,600 36,556,000 3Com Corp. (a) 150,000 7,331,250 58,746,975 TELEPHONE EQUIPMENT - 5.0% ADC Telecommunications, Inc. 3,700 147,075 Octel Communications Corp. (a) 30,000 1,196,250 Pairgain Technologies, Inc. 47,900 2,838,075 U.S. Robotics Corp. 430,000 53,320,000 57,501,400 TELEPHONE INTERCONNECT SYSTEMS - 0.2% General Instrument Corp. (a) 80,000 2,180,000 TOTAL COMMUNICATIONS EQUIPMENT 118,428,375 COMPUTER SERVICES & SOFTWARE - 5.3% CAD/CAM/CAE - 2.1% Ascend Communications, Inc. (a) 230,700 10,439,175 Cylink Corp. 400 9,400 Parametric Technology Corp. (a) 5,000 371,875 Stratacom, Inc. (a) 255,000 10,200,000 Synopsys, Inc. (a) 100,000 3,275,000 24,295,450 COMPUTER & SOFTWARE STORES - 0.2% CompUSA, Inc. (a) 60,000 2,400,000 COMPUTER SERVICES - 0.2% America Online, Inc. (a) 21,800 1,070,925 Verity, Inc. (a) 20,000 950,000 2,020,925 DATA PROCESSING - 0.3% Ceridian Corp. (a) 87,400 3,758,200 PREPACKAGED COMPUTER SOFTWARE - 2.5% Adobe Systems, Inc. 50,000 1,675,000 Electronic Arts, Inc. 20,000 500,000 Electronics for Imaging, Inc. (a) 320,600 14,667,450 Intuit, Inc. 10,900 727,575 Netscape Communications Corp. (a) 30,000 1,530,000 Oracle Systems Corp. (a) 49,200 2,558,400 Phoenix Technologies Ltd. 40,000 535,000 Softkey International, Inc. (a) 147,200 3,548,900 Symantec Corp. (a) 200,000 2,550,000 28,292,325 TOTAL COMPUTER SERVICES & SOFTWARE 60,766,900 COMPUTERS & OFFICE EQUIPMENT - 25.7% COMPUTER PERIPHERALS - 0.5% EMC Corp. (a) 170,000 3,740,000 Fore Systems, Inc. (a) 25,000 1,650,000 5,390,000 SHARES VALUE (NOTE 1) COMPUTER STORAGE DEVICES - 6.9% Adaptec, Inc. (a) 710,890 $ 39,854,271 Hutchinson Technology, Inc. (a) 42,600 1,810,500 Read Rite Corp. (a) 71,300 1,336,875 Seagate Technology (a) 509,300 33,231,825 Trident Microsystems, Inc. (a) 195,000 3,315,000 79,548,471 COMPUTERS & OFFICE EQUIPMENT - 8.2% Hewlett-Packard Co. 374,100 37,690,575 International Business Machines Corp. 466,600 57,216,825 94,907,400 ELECTRONIC COMPUTERS - 2.6% Bay Networks, Inc. (a) 450,000 18,281,250 Gateway 2000, Inc. (a) 404,400 11,929,800 30,211,050 GRAPHICS WORKSTATIONS - 3.1% Intergraph Corp. (a) 500 9,250 Silicon Graphics, Inc. (a) 376,000 9,400,000 Sun Microsystems, Inc. (a) 508,000 26,670,000 36,079,250 MINI & MICRO COMPUTERS - 4.4% Compaq Computer Corp. (a) 917,700 46,458,563 Dell Computer Corp. (a) 57,000 1,959,375 Digital Equipment Corp. (a) 25,900 1,864,800 50,282,738 TOTAL COMPUTERS & OFFICE EQUIPMENT 296,418,909 CONGLOMERATES - 0.6% Harris Corp. 20,000 1,330,000 United Technologies Corp. 50,000 5,375,000 6,705,000 DEFENSE ELECTRONICS - 0.1% Litton Industries, Inc. (a) 29,700 1,499,850 ELECTRICAL EQUIPMENT - 0.7% TV & RADIO COMMUNICATION EQUIPMENT - 0.7% Allen Group, Inc. (The) 50,000 931,250 California Microwave Corp. (a) 23,500 440,625 Glenayre Technologies, Inc. 43,900 1,937,088 Scientific-Atlanta, Inc. 310,900 5,207,575 8,516,538 ELECTRONIC INSTRUMENTS - 2.0% ELECTRONIC EQUIPMENT - 0.8% Credence Systems Corp. (a) 480,500 9,129,500 SEMICONDUCTOR CAPITAL EQUIPMENT - 1.2% Novellus System, Inc. (a) 270,000 14,141,250 TOTAL ELECTRONIC INSTRUMENTS 23,270,750 ELECTRONICS - 30.1% CONNECTORS - 1.7% AMP, Inc. 471,600 20,101,950 ELECTRONIC CAPACITORS - 0.3% AVX Corp. 66,200 1,621,900 Kemet Corp. 83,600 1,964,600 3,586,500 ELECTRONIC PARTS - WHOLESALE - 0.5% Avnet, Inc. 88,800 4,428,900 Wyle Electronics 25,000 818,750 5,247,650 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRONICS - CONTINUED ELECTRONICS & ELECTRONIC COMPONENTS - 0.4% Cascade Communications Corp. (a) 30,000 $ 2,036,250 Hadco Corp. (a) 11,000 363,000 Microsemi Corp. (a) 118,400 1,021,200 Vishay Intertechnology, Inc. 50,000 1,318,750 4,739,200 SEMICONDUCTORS - 27.2% Actel Corp. (a)(c) 1,310,000 21,942,500 Altera Corp. (a) 153,420 10,010,655 Analog Devices, Inc. (a) 2,664,300 71,603,063 Atmel Corp. (a) 611,300 16,352,275 Burr-Brown Corp. (a) 165,800 3,771,950 C-Cube Microsystems, Inc. (a) 250,000 17,500,000 Cyrix Corp. (a) 808,800 18,703,500 International Rectifier Corp. (a) 578,700 11,863,350 Lattice Semiconductor Corp. (a) 384,500 12,640,438 Linear Technology Corp. 229,600 10,676,400 MEMC Electronic Materials, Inc. (a) 70,000 2,380,000 Maxim Integrated Products, Inc. (a) 1,275,800 46,247,750 Samsung Electronics Co. Ltd. GDS (vtg.) (b) 941 85,161 Sierra Semiconductor Corp. (a) 253,400 5,828,200 Siliconix, Inc. (a) 114,400 4,261,400 Tencor Instruments (a) 1,373,500 28,500,125 Unitrode Corp. (a)(c) 656,300 18,294,363 VLSI Technology, Inc. (a) 310,000 3,720,000 Xilinx, Inc. (a) 221,200 8,543,850 Zilog, Inc. (a) 21,500 733,688 313,658,668 TOTAL ELECTRONICS 347,333,968 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% SPECIAL INDUSTRIAL MACHINERY - 0.0% Ferrofluidics Corp. (a) 20,000 210,000 LEISURE DURABLES & TOYS - 0.1% TOYS & GAMES - 0.1% Hasbro, Inc. 50,000 1,725,000 MEDICAL EQUIPMENT & SUPPLIES - 3.2% MEDICAL SUPPLIES & APPLIANCES - 0.8% Baxter International, Inc. 38,800 1,775,100 Becton, Dickinson & Co. 40,000 3,280,000 Boston Scientific Corp. (a) 90,000 4,320,000 9,375,100 MEDICAL TECHNOLOGY - 2.4% Guidant Corp. 70,000 3,316,250 Medtronic, Inc. 185,000 10,614,371 St. Jude Medical, Inc. (a) 368,600 13,914,650 27,845,271 TOTAL MEDICAL EQUIPMENT & SUPPLIES 37,220,371 TOBACCO - 0.1% TOBACCO MANUFACTURERS - 0.1% Philip Morris Companies, Inc. 9,300 920,700 TOTAL COMMON STOCKS (Cost $842,573,101) 925,991,361 CONVERTIBLE BONDS - 2.6% PRINCIPAL VALUE (NOTE 1) AMOUNT COMPUTERS & OFFICE EQUIPMENT - 1.8% COMPUTERS - 0.0% Acer, Inc. euro 4%, 6/10/01 $ 110,000 $ 297,000 MAINFRAME COMPUTERS - 1.8% Unisys Corp. 8 1/4%, 8/1/00 23,000,000 20,815,000 TOTAL COMPUTERS & OFFICE EQUIPMENT 21,112,000 ELECTRONICS - 0.8% SEMICONDUCTORS - 0.8% United Microelectronics Corp.: euro 1 1/4%, 6/8/04 1,010,000 1,055,450 1 1/4%, 6/8/04 (b) 1,120,000 1,170,400 VLSI Technology, Inc. 8 1/4%, 10/1/05 6,800,000 6,256,000 8,481,850 TOTAL CONVERTIBLE BONDS (Cost $31,833,770) 29,593,850 REPURCHASE AGREEMENTS - 17.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 199,146,923 199,117,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $1,073,523,871) $ 1,154,702,211 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 $1,255,561 or 0.1% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Actel Corp. $ 6,967,704 $ 2,440,308 $ - $ 21,942,500 Burr-Brown Corp. 1,020,163 75,152,681 - - Integrated Silicon Solution - 730,000 - - Unitrode Corp. 1,979,289 1,684,574 - 18,294,363 Totals $ 9,967,156 $ 80,007,563 $ - $ 40,236,863 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $3,318,056,698 and $2,898,266,871, respectively (see Note 3 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 $395,989 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $17,441,470 and $17,863,600, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $8,528,000 and $7,079,000, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $1,092,697,903. Net unrealized appreciation aggregated $62,004,308, of which $88,909,911 related to appreciated investment securities and $26,905,603 related to depreciated investment securities. The fund hereby designates approximately $22,330,000 as a capital gain dividend for the purpose of the dividend paid deduction. The fund intends to elect to defer to its fiscal year ending February 28, 1997 approximately $62,667,000 of losses recognized during the period November 1, 1995 to February 29, 1996. A total of 1% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. ELECTRONICS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 1,154,702,211 securities, at value (including repurchase agreements of $199,117,000 ) (cost $1,073,523,8 71) - See accompanyin g schedule Cash 7,834,640 Receivable for 29,321,571 investments sold Receivable for 18,026,308 fund shares sold Dividends 174,088 receivable Interest 435,754 receivable Redemption 40,842 fees receivable Other 37,401 receivables TOTAL ASSETS 1,210,572,815 LIABILITIES Payable for $ 46,644,657 investments purchased Payable for 11,392,566 fund shares redeemed Accrued 531,057 management fee Other payables 779,141 and accrued expenses Collateral on 17,863,600 securities loaned, at value TOTAL 77,211,021 LIABILITIES NET ASSETS $ 1,133,361,794 Net Assets consist of: Paid in capital $ 945,205,454 Accumulated 106,978,000 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 81,178,340 appreciation (depreciation ) on investments NET ASSETS, for $ 1,133,361,794 40,224,535 shares outstanding NET ASSET $28.18 VALUE and redemption price per share ($1,133,361, 794 (divided by) 40,224,535 shares) Maximum $29.05 offering price per share (100/97.00 of $28.18) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 1,405,932 INCOME Dividends Interest 7,203,540 (including income on securities loaned of $183,930) TOTAL 8,609,472 INCOME EXPENSES Management $ 5,626,255 fee Transfer agent 5,209,355 Fees Redemption (787,118 fees ) Accounting and 663,326 security lending fees Non-interested 3,235 trustees' compensatio n Custodian fees 76,495 and expenses Registration 589,770 fees Audit 45,307 Legal 3,360 Interest 2,458 Miscellaneous 8,405 Total 11,440,848 expenses before reductions Expense (234,923 11,205,925 reductions ) NET (2,596,453 INVESTMENT ) INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain on: Investment 270,469,377 securities (including realized gain of $8,207,613 on sales of investments in affiliated issuers) Foreign 6,313 270,475,690 currency transactions Change in net 60,817,847 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 331,293,537 NET INCREASE $ 328,697,084 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 15,086,139 INFORMATION Sales charges paid to FDC Deferred $ 18,130 sales charges withheld by FDC Exchange $ 588,998 fees withheld by FSC Expense $ 217,371 reductions Directed brokerage arrangement s Custodian 4,417 interest credits Transfer 13,135 agent interest credits $ 234,923 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (2,596,453) $ (1,534,580) Net investment income (loss) Net realized 270,475,690 (9,362,352) gain (loss) Change in 60,817,847 8,764,347 net unrealized appreciation (depreciation ) NET INCREASE 328,697,084 (2,132,585) (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (151,485,297) - shareholders from net realized gains Share 2,894,540,424 612,603,897 transactions Net proceeds from sales of shares Reinvestmen 148,005,751 - t of distributions Cost of (2,308,922,665) (506,775,203) shares redeemed Paid in 6,093,960 1,742,948 capital portion of redemption fees NET INCREASE 739,717,470 107,571,642 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 916,929,257 105,439,057 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 216,432,537 110,993,480 period End of period $ 1,133,361,794 $ 216,432,537 OTHER INFORMATION Shares Sold 99,523,034 33,789,699 Issued in 6,026,277 - reinvestment of distributions Redeemed (76,257,043) (29,140,209) Net increase 29,292,268 4,649,490 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 19.80 $ 17.67 $ 14.28 $ 11.81 $ 10.75 value, beginning of period Income from Investment Operations Net (.08) (.18) (.09) (.05) (.12) investment income (loss) Net realized 13.51 2.11 F 6.09 2.33 1.00 and unrealized gain (loss) Total from 13.43 1.93 6.00 2.28 .88 investment operations Less (5.25) - (2.75) - - Distributions From net realized gain Redemption .20 .20 .14 .19 .18 fees added to paid in capital Net asset $ 28.18 $ 19.80 $ 17.67 $ 14.28 $ 11.81 value, end of period TOTAL 72.75% 12.05% 46.24% 20.91% 9.86% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 1,133,362 $ 216,433 $ 110,993 $ 48,027 $ 34,222 end of period (000 omitted) Ratio of 1.25% 1.72% 1.67% 1.69% 2.16% expenses to A average net assets Ratio of 1.22% E 1.71% 1.67% 1.69% 2.16% expenses to E A average net assets after expense reductions Ratio of net (.28)% (.98)% (.52)% (.50)% (1.07)% investment A income (loss) to average net assets Portfolio 366% 205% 163% 293% 299% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). 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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS SOFTWARE AND COMPUTER SERVICES 40.17% 219.64% 452.70% SOFTWARE AND COMPUTER SERVICES 35.97% 210.05% 436.12% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS SOFTWARE AND COMPUTER SERVICES 40.17% 26.16% 18.64% SOFTWARE AND COMPUTER SERVICES 35.97% 25.40% 18.28% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9763.92 10558.00 19860430 10674.79 10438.69 19860531 11106.26 10994.03 19860630 10826.61 11179.83 19860731 9252.55 10554.88 19860831 10019.60 11338.05 19860930 9252.55 10400.39 19861031 10115.49 11000.50 19861130 10339.21 11267.81 19861231 10107.50 10980.48 19870131 12256.84 12459.55 19870228 13407.41 12951.70 19870331 13631.14 13326.01 19870430 13862.85 13207.41 19870531 13926.77 13322.31 19870630 13439.37 13995.09 19870731 13399.42 14704.64 19870831 14342.26 15253.12 19870930 14494.07 14919.08 19871031 10658.81 11705.51 19871130 9644.07 10740.97 19871231 11061.72 11558.36 19880131 10742.06 12044.97 19880229 11625.32 12606.27 19880331 11726.26 12216.73 19880430 12079.57 12352.34 19880531 11751.50 12459.80 19880630 12676.81 13031.71 19880731 12045.92 12982.19 19880831 11213.13 12540.79 19880930 11936.56 13075.03 19881031 11305.67 13438.52 19881130 11137.43 13246.35 19881231 12062.74 13478.16 19890131 12962.82 14464.76 19890228 12382.40 14104.59 19890331 12079.57 14433.22 19890430 13248.83 15182.31 19890531 13728.31 15797.19 19890630 12368.70 15707.15 19890731 12003.63 17125.50 19890831 12551.23 17461.16 19890930 12803.30 17389.57 19891031 13072.75 16986.13 19891130 13455.19 17332.65 19891231 13516.21 17748.63 19900131 13035.71 16557.70 19900228 13373.84 16771.29 19900331 13907.73 17215.73 19900430 13863.23 16785.34 19900531 15607.26 18421.91 19900630 15972.08 18296.64 19900731 14512.80 18238.09 19900831 12484.03 16589.37 19900930 11051.44 15781.47 19901031 11273.89 15713.61 19901130 12724.28 16728.71 19901231 13631.88 17195.44 19910131 15633.96 17945.16 19910228 16772.91 19228.24 19910331 17725.01 19693.56 19910430 17591.54 19740.82 19910531 17911.87 20593.63 19910630 16599.06 19650.44 19910731 17618.73 20566.15 19910831 19050.19 21053.57 19910930 18422.70 20701.97 19911031 19344.33 20979.38 19911130 17226.55 20133.91 19911231 19881.40 22437.23 19920131 23072.62 22019.90 19920229 23765.92 22306.16 19920331 22624.01 21871.19 19920430 22053.06 22514.20 19920531 22399.71 22624.52 19920630 21186.43 22287.41 19920731 22685.18 23198.97 19920831 20992.72 22723.39 19920930 22511.86 22991.53 19921031 24326.67 23072.00 19921130 26447.36 23858.75 19921231 26946.94 24152.21 19930131 28333.54 24355.09 19930228 28160.21 24686.32 19930331 28761.75 25207.20 19930430 28277.72 24597.19 19930531 31467.02 25256.39 19930630 33090.46 25329.64 19930731 32088.76 25228.32 19930831 34253.34 26184.47 19930930 34944.17 25982.85 19931031 34863.57 26520.70 19931130 34000.04 26268.75 19931231 35766.90 26586.60 19940131 37013.22 27490.55 19940228 37506.56 26745.55 19940331 33481.97 25579.45 19940430 33655.19 25906.86 19940531 30287.04 26331.74 19940630 27629.36 25686.61 19940731 28984.51 26529.13 19940831 32129.00 27616.82 19940930 33589.41 26940.21 19941031 35655.03 27546.37 19941130 34839.31 26543.13 19941231 35905.01 26936.76 19950131 35312.95 27635.23 19950228 38246.93 28712.18 19950331 40430.96 29559.47 19950430 41694.02 30430.00 19950531 42825.51 31646.29 19950630 46614.68 32381.43 19950731 49430.24 33455.20 19950831 49772.32 33539.17 19950930 51824.79 34954.52 19951031 52443.16 34829.74 19951130 53929.88 36358.76 19951231 52516.18 37059.03 19960131 50502.03 38320.52 19960229 53612.12 38675.75 Let's say you invested $10,000 in Fidelity Select Software and Computer Services Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $53,612 - a 436.12% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Electronics for Imaging, Inc. 6.8 Oracle Systems Corp. 6.8 FileNet Corp. 3.9 SunGard Data Systems, Inc. 3.6 Parametric Technology Corp. 3.3 Peoplesoft, Inc. 3.2 HBO & Co. 2.9 Sybase, Inc. 2.8 Nintendo Co. Ltd. Ord 2.6 General Motors Corp. Class E 2.6 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Row: 1, Col: 1, Value: 44.5 Row: 1, Col: 2, Value: 4.1 Row: 1, Col: 3, Value: 4.9 Row: 1, Col: 4, Value: 5.8 Row: 1, Col: 5, Value: 7.5 Row: 1, Col: 6, Value: 33.2 Prepackaged Computer Software 33.2% Computer Services 7.5% CAD/CAM/CAE 5.8% Data Processing 4.9% Datacommunications Equipment 4.1% All Others 44.5% * * INCLUDES SHORT-TERM INVESTMENTS SOFTWARE AND COMPUTER SERVICES PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Hurley, Portfolio Manager of Fidelity Select Software and Computer Services Portfolio Q. HOW HAS THE FUND PERFORMED, JOHN? A. It did pretty well during the period, although the sector as a whole faced a significant amount of volatility. For the 12-month period ended February 29, 1996, the fund was up 40.17%, compared with the S&P 500 Index's return of 34.70% for the same period. Q. WHAT WERE THE KEYS TO THE FUND'S PERFORMANCE? A. It depends on what time period you're talking about. In roughly the first half of the period, the technology sector as a whole enjoyed a healthy rally and the fund's share price rose significantly. Microsoft, which posted large gains as a result of its dominant position in supplying operating systems for the PC market and in anticipation of its Windows 95 launch, was one of the fund's best performers. Semiconductor stocks, such as Micron, also were big winners for the fund. But in the second half of the period, I positioned the fund more defensively. Q. WHY DID YOU OPT FOR A MORE DEFENSIVE STRATEGY IN THE SECOND HALF AND HOW DID THAT STRATEGY CONTRIBUTE TO THE FUND'S PERFORMANCE? A. To answer the first part of your question, I felt that valuations for many of the fund's software, Internet-related and semiconductor stocks had reached unrealistic, and in some cases, ridiculously high levels. In other words, the prices that these stocks commanded could no longer be justified by their underlying company fundamentals. So, I pared back or sold some of these positions. I kept some of the proceeds from the sale of these stocks in cash and used the remainder to buy more defensive positions such as computer service stocks. For example, I purchased HBO and Company, which provides software to help automate hospitals, as well as such data processing companies as Automatic Data Processing. In response to the second part of your question, the fund's more defensive stance helped insulate it from the correction in technology stocks that occurred in late 1995 and early 1996. Q. OTHER THAN THE DATA PROCESSING COMPANIES, WHICH STOCKS DID WELL DURING THE PAST SIX MONTHS? A. Oracle Systems, a producer of relational database and applications software for the client-server market did quite well, despite posting weak first quarter results. PeopleSoft, which provides businesses with software packages to manage human resource and financial functions, was another good performer. Q. WERE THERE DISAPPOINTMENTS? A. FTP Software, a provider of Internet networking software, performed poorly in light of intense competitive pressure. I have eliminated the position from the fund. Another disappointment was Symantec. The company's main line of products - which includes the Norton anti-virus software - failed to enjoy an anticipated boost from the introduction of Windows 95. So far, U.S. corporations have been slow to adopt that new operating system and investors were disappointed when Windows 95 failed to live up to expectations. Q. WHY DID THE FUND HAVE VERY LITTLE EXPOSURE TO PERSONAL COMPUTING-RELATED STOCKS? A. In my opinion, we've seen some signs that personal computer demand has slowed and that a PC price war is beginning to break out. However, I purchased Seagate, a disk drive manufacturer. I liked it because I believed it could increase earnings as a result of the efficiencies it achieved from acquiring a major competitor and consolidating the two operations. Q. WHAT'S YOUR VIEW OF THE INDUSTRY AS YOU LOOK OUT SIX MONTHS OR SO? A. I'm feeling more optimistic than I was at the end of 1995. I take it as an extraordinarily healthy sign that the technology sector has gone through a correction. In my view, it's a positive that we've shaken out some of the high valuations. However, I believe that we could see some further consolidation in the technology sector, especially if second quarter earnings are lower than expected. But if that happens, I'll view it as an opportunity. The fund's relatively large cash position affords me the ability to buy good stocks at cheaper prices. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FSCSX SIZE: as of February 29, 1996, more than $337 million MANAGER: John Hurley, since 1994; analyst, PC software, database software and mainframe software industries, since 1994; joined Fidelity in 1993 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. SOFTWARE & COMPUTER SERVICES PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 78.2% SHARES VALUE (NOTE 1) COMMUNICATIONS EQUIPMENT - 4.1% DATACOMMUNICATIONS EQUIPMENT - 4.1% Cabletron Systems, Inc. 50,000 $ 3,756,250 Cisco Systems, Inc (a). 125,000 5,937,500 Network General Corp. 100,000 4,025,000 13,718,750 TELEPHONE EQUIPMENT - 0.0% Inter-Tel, Inc. (a) 100 1,788 TOTAL COMMUNICATIONS EQUIPMENT 13,720,538 COMPUTER SERVICES & SOFTWARE - 54.1% CAD/CAM/CAE - 5.8% Parametric Technology Corp. (a) 150,000 11,156,250 Ascend Communications, Inc. (a) 182,000 8,235,500 19,391,750 COMPUTER SERVICES - 7.5% Cerner Corp. (a) 30,000 705,000 Computer Sciences Corp. (a) 35,000 2,555,000 HBO & Co. 100,000 9,900,000 SunGard Data Systems, Inc. (a) 350,000 11,987,500 25,147,500 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.3% Epic Design Technology (a) 32,500 1,074,531 DATA PROCESSING - 4.9% Automatic Data Processing, Inc. 206,200 7,990,250 General Motors Corp. Class E 150,000 8,568,746 16,558,996 ELECTRONIC INFORMATION RETRIEVAL - 2.4% CUC International, Inc. 250,000 8,093,750 PREPACKAGED COMPUTER SOFTWARE - 33.2% Arbor Software Corp. (a) 200 8,600 BMC Software, Inc. (a) 130,000 7,247,500 Boole & Babbage, Inc. 152,250 3,463,688 Business Objects SA sponsored ADR (a) 19,900 1,487,525 Computron Software, Inc. (a) 500 3,938 Electronics for Imaging, Inc. (a) 501,000 22,920,750 General Magic, Inc. (a) 89,400 648,150 Intuit 50,000 3,337,500 Marcam Corp. (a) 72,500 933,438 Mercury Interactive Group Corp. (a) 224,400 3,646,500 Metrowerks, Inc. (a) 108,300 1,244,737 Microsoft Corp. (a) 30,000 2,960,625 Oracle Systems Corp. (a) 440,200 22,890,400 Peoplesoft, Inc. (a) 198,000 10,692,000 Policy Management Systems Corp. (a) 100,000 5,112,500 Remedy Corp. (a) 6,000 462,000 Sanctuary Woods Multimedia Corp. (a) 53,300 58,343 Sierra On-Line, Inc. (a) 112,700 4,296,688 Sterling Software, Inc. (a) 100,000 6,662,500 Sybase, Inc. (a) 300,000 9,412,500 Vantive Corp. (a) 56,000 1,162,000 VMark Software, Inc. (a) 366,000 3,019,500 111,671,382 TOTAL COMPUTER SERVICES & SOFTWARE 181,937,909 SHARES VALUE (NOTE 1) COMPUTERS & OFFICE EQUIPMENT - 11.1% COMPUTER PERIPHERALS - 1.5% Fore Systems, Inc. 75,000 $ 4,950,000 COMPUTER STORAGE DEVICES - 1.9% Seagate Technology (a) 100,500 6,557,625 ELECTRONIC COMPUTERS - 2.2% Bay Networks, Inc (a). 185,000 7,515,625 MINI & MICRO COMPUTERS - 1.6% Dell Computer Corp. (a) 150,000 5,156,250 Digital Equipment Corp. (a) 2,300 165,600 5,321,850 OFFICE AUTOMATION - 3.9% FileNet Corp. (a) 205,300 13,036,550 TOTAL COMPUTERS & OFFICE EQUIPMENT 37,381,650 ELECTRICAL EQUIPMENT - 0.9% TV & RADIO COMMUNICATION EQUIPMENT - 0.9% Glenayre Technologies, Inc. 66,100 2,916,663 ELECTRONICS - 0.1% ELECTRONIC PARTS - WHOLESALE - 0.1% ARC International Corp. (a) 133,500 308,719 GENERAL MERCHANDISE STORES - 2.0% DEPARTMENT STORES - 2.0% Sears, Roebuck & Co. 150,000 6,806,250 LEISURE DURABLES & TOYS - 2.6% TOYS & GAMES - 2.6% Nintendo Co. Ltd. Ord. 129,000 8,700,898 PHOTOGRAPHIC EQUIPMENT - 1.1% 3D Systems Corp. (a) 189,000 3,839,063 SERVICES - 1.7% CREDIT REPORTING AGENCIES - 1.7% PMT Services, Inc. (a) 304,000 5,624,000 TELEPHONE SERVICES - 0.5% Frontier Corp. 52,400 1,572,000 TOTAL COMMON STOCKS (Cost $219,268,409) 262,807,690 PREFERRED STOCKS - 1.2% PUBLISHING - 1.2% BOOK PUBLISHING & PRINTING - 1.2% Houghton Mifflin Co. $4.08 (stock appreciation income linked) (Cost $2,937,600) 43,200 3,974,400 CONVERTIBLE BONDS - 3.2% PRINCIPAL AMOUNT BROADCASTING - 3.2% CABLE TV OPERATORS - 3.2% Time Warner, Inc. liquid yield option 0%, 6/22/13 (Cost $10,741,814) $ 25,000,000 10,625,000 REPURCHASE AGREEMENTS - 17.4% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 58,609,806 $ 58,601,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $291,548,823) $ 336,008,090 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $498,450,719 and $533,726,759, respectively (see Note 3 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 $42,554 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $410,350 and $452,800, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $9,520,000 and $7,454,000, respectively. The weighted average interest rate paid was 6.2% (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $293,003,442. Net unrealized appreciation aggregated $43,004,648, of which $49,092,322 related to appreciated investment securities and $6,087,674 related to depreciated investment securities. The fund hereby designates approximately $16,984,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 2% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. SOFTWARE AND COMPUTER SERVICES PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 336,008,090 securities, at value (including repurchase agreements of $58,601,000) (cost $291,548,823 ) - See accompanyin g schedule Cash 919 Receivable for 11,430,303 investments sold Receivable for 1,896,651 fund shares sold Dividends 49,500 receivable Redemption 756 fees receivable Other 58,075 receivables TOTAL ASSETS 349,444,294 LIABILITIES Payable for $ 9,522,715 investments purchased Payable for 1,400,039 fund shares redeemed Accrued 167,068 management fee Other payables 268,375 and accrued expenses Collateral on 452,800 securities loaned, at value TOTAL 11,810,997 LIABILITIES NET ASSETS $ 337,633,297 Net Assets consist of: Paid in capital $ 267,026,862 Accumulated 26,147,168 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 44,459,267 appreciation (depreciation ) on investments NET ASSETS, for $ 337,633,297 9,327,220 shares outstanding NET ASSET $36.20 VALUE and redemption price per share ($337,633,29 7 (divided by) 9,327,220 shares) Maximum $37.32 offering price per share (100/97.00 of $36.20) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 519,307 INCOME Dividends Interest 2,356,508 (including income on securities loaned of $62,413) TOTAL 2,875,815 INCOME EXPENSES Management $ 1,899,182 fee Transfer agent 2,421,146 Fees Redemption (228,087 fees ) Accounting and 312,884 security lending fees Non-interested 1,650 trustees' compensatio n Custodian fees 22,494 and expenses Registration 95,907 fees Audit 34,287 Legal 2,054 Interest 5,127 Miscellaneous 3,826 Total 4,570,470 expenses before reductions Expense (16,985 4,553,485 reductions ) NET (1,677,670 INVESTMENT ) INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 78,787,592 securities Foreign (99 78,787,493 currency ) transactions Change in net 11,995,871 unrealized appreciation (depreciation ) on investment securities NET GAIN (LOSS) 90,783,364 NET INCREASE $ 89,105,694 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 3,293,250 INFORMATION Sales charges paid to FDC Deferred $ 6,803 sales charges withheld by FDC Exchange $ 157,478 fees withheld by FSC Expense $ 12,974 reductions Directed brokerage arrangement s Custodian 811 interest credits Transfer 3,200 agent interest credits $ 16,985 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (1,677,670 $ (1,835,964 Net ) ) investment income (loss) Net realized 78,787,493 (7,382,123 gain (loss) ) Change in 11,995,871 17,246,063 net unrealized appreciation (depreciation ) NET INCREASE 89,105,694 8,027,976 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (42,462,985 (2,015,425 shareholders ) ) from net realized gains Share 441,404,241 367,638,603 transactions Net proceeds from sales of shares Reinvestmen 41,961,776 1,989,953 t of distributions Cost of (429,413,822 (317,960,229 shares ) ) redeemed Paid in 593,307 730,383 capital portion of redemption fees NET INCREASE 54,545,502 52,398,710 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 101,188,211 58,411,261 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 236,445,086 178,033,825 period End of period $ 337,633,297 $ 236,445,086 OTHER INFORMATION Shares Sold 12,357,143 14,345,417 Issued in 1,146,186 80,950 reinvestment of distributions Redeemed (12,309,713 (12,454,413 ) ) Net increase 1,193,616 1,971,954 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 29.07 $ 28.89 $ 27.62 $ 21.63 $ 19.77 value, beginning of period Income from Investment Operations Net (.19) (.26) (.34) (.07) E (.28) investment income (loss) Net realized 11.85 .67 7.92 5.88 4.37 and unrealized gain (loss) Total from 11.66 .41 7.58 5.81 4.09 investment operations Less (4.60) (.33) (6.48) - (2.50) Distributions From net realized gain Redemption .07 .10 .17 .18 .27 fees added to paid in capital Net asset $ 36.20 $ 29.07 $ 28.89 $ 27.62 $ 21.63 value, end of period TOTAL 40.17% 1.97% 33.19% 27.69% 25.36% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 337,633 $ 236,445 $ 178,034 $ 151,212 $ 89,571 end of period (000 omitted) Ratio of 1.48% 1.52% 1.57% 1.64% 1.98% expenses to A average net assets Ratio of 1.47% 1.50% 1.57% 1.64% 1.98% expenses to F F A average net assets after expense reductions Ratio of net (.54)% (1.01)% (1.19) (.37)% (1.30)% investment % A income (loss) to average net assets Portfolio 183% 164% 376% 402% 348% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E INVESTMENT INCOME PER SHARE REFLECTS DIVIDENDS RECEIVED IN ARREARS WHICH AMOUNTED TO $.03 PER SHARE. F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS TECHNOLOGY 50.71% 208.36% 261.21% TECHNOLOGY 46.19% 250.37% (INCL. 3% SALES CHARGE) 199.11% S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS TECHNOLOGY 50.71% 25.26% 13.70% TECHNOLOGY 46.19% 24.50% 13.36% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9720.49 10558.00 19860430 10216.35 10438.69 19860531 9900.80 10994.03 19860630 9286.10 11179.83 19860731 8095.90 10554.88 19860831 8503.16 11338.05 19860930 7750.34 10400.39 19861031 8194.63 11000.50 19861130 8519.61 11267.81 19861231 8338.61 10980.48 19870131 9893.61 12459.55 19870228 11012.56 12951.70 19870331 10387.27 13326.01 19870430 10687.57 13207.41 19870531 10930.28 13322.31 19870630 10605.29 13995.09 19870731 10712.25 14704.64 19870831 11341.66 15253.12 19870930 11399.25 14919.08 19871031 7388.33 11705.51 19871130 6425.71 10740.97 19871231 7356.51 11558.36 19880131 6959.80 12044.97 19880229 7649.74 12606.27 19880331 7567.81 12216.73 19880430 7856.72 12352.34 19880531 7641.12 12459.80 19880630 8343.99 13031.71 19880731 7723.05 12982.19 19880831 7011.54 12540.79 19880930 7201.28 13075.03 19881031 6903.74 13438.52 19881130 6696.76 13246.35 19881231 7158.16 13478.16 19890131 7735.98 14464.76 19890228 7524.69 14104.59 19890331 7386.70 14433.22 19890430 7921.40 15182.31 19890531 8568.23 15797.19 19890630 7809.29 15707.15 19890731 7947.28 17125.50 19890831 8119.76 17461.16 19890930 8313.81 17389.57 19891031 8253.44 16986.13 19891130 8275.00 17332.65 19891231 8374.18 17748.63 19900131 8201.69 16557.70 19900228 8663.09 16771.29 19900331 9068.43 17215.73 19900430 8658.78 16785.34 19900531 9775.63 18421.91 19900630 9861.87 18296.64 19900731 9335.79 18238.09 19900831 8063.71 16589.37 19900930 7378.07 15781.47 19901031 7589.37 15713.61 19901130 8727.77 16728.71 19901231 9253.86 17195.44 19910131 10814.85 17945.16 19910228 11362.49 19228.24 19910331 12272.36 19693.56 19910430 11668.66 19740.82 19910531 12315.48 20593.63 19910630 11120.73 19650.44 19910731 12352.04 20566.15 19910831 12959.02 21053.57 19910930 13024.05 20701.97 19911031 13375.23 20979.38 19911130 12937.34 20133.91 19911231 14710.98 22437.23 19920131 15270.45 22019.90 19920229 15508.98 22306.16 19920331 14277.29 21871.19 19920430 14069.11 22514.20 19920531 14207.89 22624.52 19920630 13192.16 22287.41 19920731 13864.31 23198.97 19920831 13154.29 22723.39 19920930 13798.04 22991.53 19921031 14612.20 23072.00 19921130 15795.56 23858.75 19921231 15994.37 24152.21 19930131 16481.91 24355.09 19930228 16387.25 24686.32 19930331 16600.25 25207.20 19930430 16552.65 24597.19 19930531 18222.58 25256.39 19930630 19112.51 25329.64 19930731 18604.72 25228.32 19930831 19599.35 26184.47 19930930 19902.97 25982.85 19931031 19510.36 26520.70 19931130 19321.90 26268.75 19931231 20576.77 26586.60 19940131 21612.78 27490.55 19940228 22223.76 26745.55 19940331 21474.65 25579.45 19940430 21042.12 25906.86 19940531 21075.30 26331.74 19940630 19289.53 25686.61 19940731 20035.90 26529.13 19940831 22147.86 27616.82 19940930 22037.28 26940.21 19941031 22861.06 27546.37 19941130 22545.92 26543.13 19941231 22866.58 26936.76 19950131 21976.47 27635.23 19950228 23248.06 28712.18 19950331 24663.40 29559.47 19950430 26522.31 30430.00 19950531 27548.32 31646.29 19950630 30107.64 32381.43 19950731 33151.46 33455.20 19950831 34177.47 33539.17 19950930 35750.68 34954.52 19951031 35214.88 34829.74 19951130 35032.48 36358.76 19951231 32883.72 37059.03 19960131 33216.97 38320.52 19960229 35037.08 38675.75 Let's say you invested $10,000 in Fidelity Select Technology Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $35,037 - a 250.37% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Compaq Computer Corp. 7.1 Digital Equipment Corp. 6.2 Cisco Systems, Inc. 4.8 International Business Machines Corp. 4.8 Seagate Technology 4.6 Dell Computer Corp. 3.3 Symantec Corp. 2.1 Gateway 2000, Inc. 2.1 Bay Networks, Inc. 1.9 Oracle Systems Corp. 1.8 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Mini & Micro Computers 16.6% Prepackaged Computer Software 10.5% Computers & Office Equipment 8.1% Data Communications Equipment 6.7% Computer Storage Devices 5.5% All Others 52.6% * Row: 1, Col: 1, Value: 52.6 Row: 1, Col: 2, Value: 5.5 Row: 1, Col: 3, Value: 6.7 Row: 1, Col: 4, Value: 8.1 Row: 1, Col: 5, Value: 10.5 Row: 1, Col: 6, Value: 16.6 * INCLUDES SHORT-TERM INVESTMENTS TECHNOLOGY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Harry Lange, Portfolio Manager of Fidelity Select Technology Portfolio Q. HARRY, HOW DID THE FUND PERFORM? A. Better in the first half of the period than in the second. Nonetheless, the fund finished the 12 months ended February 29, 1996, with a total return of 50.71%. That topped the total return of the S&P 500 Index, which rose 34.70% during the same period. Q. HOW DID THE INVESTING ENVIRONMENT FOR TECHNOLOGY STOCKS CHANGE DURING THE PERIOD? A. At first, technology companies continued to produce strong earnings growth and their stocks continued to make strong gains. This was an extension of the previous couple of years, when demand exceeded supply for most every type of technology product. Companies simply couldn't make enough personal computers, cellular phones or semiconductors. However, a fundamental change occurred when supply, or capacity as we call it, finally caught up to demand in the semiconductor industry. That put immense pressure on the profit margins of semiconductor manufacturers, which had a negative effect on their stock prices. To a lesser extent, the build-up in computer chip capacity also hurt the earnings prospects for end-users such as PC and cellular phone manufacturers. In addition, weakening economies worldwide didn't help the situation; many technology companies derive a large portion of their sales from overseas. Q. DIDN'T SOME TECHNOLOGY STOCKS REBOUND NEAR THE END OF THE PERIOD? A. A great number did. I think many of the stocks had been oversold. By that I mean that their valuations - or prices relative to earnings - more than reflected the downward revisions that already had been made to their earnings forecasts. In the midst of a technology-stock slowdown, it's easy to forget that many of these companies still offer some of the strongest growth prospects in the market. Q. DESPITE THE BROAD CORRECTION IN THE SECTOR, DID ANY COMPANIES STAND OUT OVER THE PAST SEVERAL MONTHS? A. Interestingly, some of the best performers were the big computer companies whose best days many people believed were behind them. Specifically, both IBM and Digital Equipment have cut costs and restructured in recent years. That boosted earnings at both companies over the past year or two, but many investors felt that once the initial cost cutting was over, earnings would slow. That didn't happen. Both companies reported surprisingly strong earnings late in the period, which boosted their stocks. Q. HAVE YOU MADE ANY SIGNIFICANT CHANGES TO THE FUND DUE TO THE CHANGING BUSINESS PROSPECTS OF THE SECTOR? A. I have. Because of the weakening earnings prospects for the semiconductor industry, I lowered the fund's investment in chip companies and in companies that make equipment used to manufacture chips. Conversely, I increased the fund's investment in companies that manufacture computer networking equipment and computer service companies. The prospects of these companies are more dependent upon the already installed base of personal computers, and not as directly tied to the strength of PC prices. Q. WHAT HAS MADE NETWORKING COMPANIES ATTRACTIVE? A. Essentially, there has been no deterioration in their business prospects, unlike many other technology companies. Strong growth in the personal computer industry has resulted in continued strong demand for the equipment that ties computers together. Cisco Systems is an example of a networking company that has produced strong earnings growth in recent months, and boosted the fund's performance. Note to shareholders: As of March 26, 1996, Adam Hetnarski became manager of the portfolio. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS, ADAM? A. I think it's fair to say I'm not as optimistic as I would have been a year ago. Earnings expectations for many technology stocks have been downgraded recently. In addition, it's important to bear in mind just how much the fund has risen in recent years. Despite their bright prospects for excellent earnings growth over the long term, technology stocks - as we've seen in recent months - don't move up in a straight line. Going forward, I think a lot will depend on what happens to economic growth in the U.S. and around the world. Technology remains a huge component of overall capital spending in the U.S., and strengthening economic growth generally allows companies to spend more to upgrade existing systems or purchase new ones. I'll try to seek out those companies whose particular business allows them to continue to grow earnings in the face of a sluggish economy. FUND FACTS START DATE: July 14, 1981 TRADING SYMBOL: FSPTX SIZE: as of February 29, 1996, more than $483 million MANAGER: Harry Lange, since 1993; manager, Fidelity Select Computers Portfolio, since 1992; research director, Fidelity Investments Far East, 1988 -1992; manager, Fidelity Select Capital Goods Portfolio and Fidelity Select Automation and Machinery Portfolio, 1988; joined Fidelity in 1987 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. TECHNOLOGY PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 83.3% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.0% AIRCRAFT & PARTS - 0.0% Hong Kong Aircraft & Engineering Co. 50,000 $ 145,832 BROADCASTING - 1.4% CABLE TV OPERATORS - 1.1% CAI Wireless Systems, Inc. (a) 385,000 3,416,870 Heartland Wireless Communications, Inc. (a) 50,000 1,262,500 Wireless One, Inc. (a) 50,500 744,875 5,424,245 TELEVISION BROADCASTING - 0.3% Scandinavian Broadcasting Corp. (a) 60,000 1,260,000 TOTAL BROADCASTING 6,684,245 BUILDING MATERIALS - 0.4% AIRCONDITIONING EQUIPMENT - 0.4% ICC Technologies, Inc. 300,000 2,100,000 CELLULAR - 0.1% CELLULAR & COMMUNICATION SERVICES - 0.1% Advanced Information Services (For. Reg.) 7,500 139,825 Millicom International Cellular SA (a) 2,800 106,050 245,875 COMMUNICATIONS EQUIPMENT - 10.4% DATACOMMUNICATIONS EQUIPMENT - 6.7% Broadband Technologies, Inc. (a) 20,000 490,000 Cisco Systems, Inc. (a) 491,200 23,332,000 General DataComm Industries, Inc. (a) 115,000 1,394,375 Jabil Circuit, Inc. (a) 291,000 2,255,250 Network General Corp. (a) 127,500 5,131,875 32,603,500 TELEPHONE EQUIPMENT - 2.9% Brite Voice Systems, Inc. (a) 100,000 1,700,000 DSC Communications Corp. (a) 135,600 4,135,800 Global Village Communication (a) 22,700 371,713 Network Equipment Technologies (a) 158,050 4,701,988 Target Technologies, Inc. (a)(c) 269,700 2,191,313 Telechips Corp. (a)(c) 100,000 750,000 Telechips Corp. (warrants) (a) 100,000 375,000 Teledata Communications Ltd. 7,300 66,613 14,292,427 TELEPHONE INTERCONNECT SYSTEMS - 0.8% General Instrument Corp. (a) 150,000 4,087,500 TOTAL COMMUNICATIONS EQUIPMENT 50,983,427 COMPUTER SERVICES & SOFTWARE - 14.3% CAD/CAM/CAE - 1.1% Ascend Communications, Inc. (a) 93,000 4,208,250 Brooktrout Technology, Inc. (a) 26,850 657,825 Cylink Corp. 2,000 47,000 Healthdyne Information Enterprises, Inc. 25,000 93,750 Network Peripherals, Inc. (a) 14,300 204,669 4th Dimension Software Ltd. (a) 38,000 247,000 5,458,494 COMPUTER & SOFTWARE STORES - 1.4% Inacom Corp. (a) 231,000 4,186,875 MicroAge, Inc. (a) 238,000 2,320,500 Software Spectrum, Inc. (a) 8,000 150,000 6,657,375 SHARES VALUE (NOTE 1) COMPUTER SERVICES - 0.5% Advant Corp. 7,500 $ 163,125 CompuCom Systems, Inc. (a) 58,400 430,700 Visioneer, Inc. (a) 108,200 1,839,400 2,433,225 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.6% Softdesk, Inc. (a) 183,600 2,754,000 ELECTRONIC INFORMATION RETRIEVAL - 0.2% Data Broadcasting Corp. (a) 15,000 171,563 PsiNet, Inc. (a) 100,000 1,012,500 Quickresponse Services, Inc. (a) 1,500 36,750 1,220,813 PREPACKAGED COMPUTER SOFTWARE - 10.5% Acclaim Entertainment, Inc. (a) 20,000 251,250 Brock International, Inc. (a) 82,400 793,100 Broderbund Software, Inc. (a) 10,000 452,500 CBT Group PLC sponsored ADR (a) 19,000 1,073,500 EICON Technology Corp. (a) 21,000 162,823 Electronics for Imaging, Inc. (a) 97,600 4,465,200 Fourth Shift Corp. (a) 54,000 249,750 GT Interactive Software, Inc. 100,100 1,288,788 Globalink, Inc. (a) 162,600 1,097,550 Insignia Solutions PLC sponsored ADR (a) 150,000 862,500 MDL Information Systems, Inc. (a) 16,000 372,000 Media Logic, Inc. (a) 65,000 438,750 Microsoft Corp. (a) 52,100 5,141,619 National Instrument Corp. (a) 51,000 962,625 Novell, Inc. (a) 101,400 1,235,813 Oracle Systems Corp. (a) 165,700 8,616,400 STB Systems, Inc. (a) 2,200 22,688 Softkey International, Inc. (a) 160,200 3,862,322 Spectrum Holobyte, Inc. (a) 510,900 4,151,063 Symantec Corp. (a) 806,100 10,277,775 Systems & Computer Technology Corp.(a) 215,000 3,870,000 Wonderware Corp. (a) 89,000 1,691,000 51,339,016 TOTAL COMPUTER SERVICES & SOFTWARE 69,862,923 COMPUTERS & OFFICE EQUIPMENT - 36.7% COMPUTER EQUIPMENT - 0.1% GVC Corp. GDR (a)(b) 89,739 673,043 COMPUTER EQUIPMENT - WHOLESALE - 0.4% Tech Data Corp. (a) 133,700 2,022,213 COMPUTER PERIPHERALS - 1.7% General Scanning, Inc. 135,000 1,957,500 SCI Systems, Inc. (a) 172,900 6,408,106 8,365,606 COMPUTER RENTAL & LEASING - 0.2% Comdisco, Inc. 34,950 716,475 COMPUTER STORAGE DEVICES - 5.5% Hutchinson Technology, Inc. (a) 100,000 4,250,000 Read Rite Corp. (a) 1,200 22,500 Seagate Technology (a) 340,900 22,243,725 26,516,225 COMPUTERS & OFFICE EQUIPMENT - 7.9% Canon, Inc. ADR 10,000 925,000 Diebold, Inc. 37,500 1,471,875 Fujitsu Ltd. 50,000 512,991 Hewlett-Packard Co. 65,000 6,548,750 International Business Machines Corp. 190,000 23,298,750 OKI Electric Industry Co. Ltd. (a) 639,000 5,542,270 38,299,636 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) COMPUTERS & OFFICE EQUIPMENT - CONTINUED ELECTRONIC COMPUTERS - 4.2% ADI Corp. GDR (a)(b) 57,000 $ 954,750 Bay Networks, Inc. (a) 225,000 9,140,625 Gateway 2000, Inc. (a) 340,000 10,030,000 Ross Technology, Inc. (a) 16,000 204,000 TSL Holding, Inc. (a) 10,864 - Tricord Systems, Inc. (a) 40,500 156,938 20,486,313 GRAPHICS WORKSTATIONS - 0.1% Silicon Graphics, Inc. (a) 27,400 685,000 MINI & MICRO COMPUTERS - 16.6% Compaq Computer Corp. (a) 682,300 34,541,438 Dell Computer Corp. (a) 473,100 16,262,813 Digital Equipment Corp. (a) 419,300 30,189,600 80,993,851 TOTAL COMPUTERS & OFFICE EQUIPMENT 178,758,362 CONSUMER DURABLES - 0.4% MANUFACTURING INDUSTRIES - 0.4% NUR Advanced Technologies Ltd. (a) 125,000 609,375 Wireless Telecom Group, Inc. 100,000 1,487,500 2,096,875 CONSUMER ELECTRONICS - 1.1% APPLIANCES - 1.1% Sanyo Electric Co. Ltd. 868,000 5,211,381 DRUGS & PHARMACEUTICALS - 2.1% BIOTECHNOLOGY - 0.5% Amgen, Inc. (a) 20,000 1,195,000 Genentech, Inc. special (a) 20,000 1,092,500 2,287,500 DRUGS - 1.6% Pfizer, Inc. 40,000 2,635,000 Schering-Plough Corp. 60,000 3,367,500 Warner-Lambert Co. 20,000 1,977,500 Watson Pharmaceuticals, Inc. (a) 400 17,200 7,997,200 PHARMACEUTICAL PREPARATIONS - 0.0% Alpharma, Inc. Class A 5,000 128,125 TOTAL DRUGS & PHARMACEUTICALS 10,412,825 ELECTRICAL EQUIPMENT - 2.0% CURRENT-CARRYING WIRING DEVICE - 0.2% Adflex Solutions 64,000 1,008,000 ELECTRICAL EQUIPMENT - 0.7% IEC Electronics Corp. (a) 5,000 48,125 Shinko Electric Industries Co. Ltd. 84,000 3,367,501 3,415,626 MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT SUPPLIES - 0.9% Energy Conversion Devices Inc. (a) 200,000 4,175,000 MOTORS & GENERATORS - 0.1% Zoltek Cos. Inc. (a) 20,000 490,000 TV & RADIO COMMUNICATION EQUIPMENT - 0.1% Allen Group, Inc. (The) 2,400 44,700 Leitch Technology Corp. (a) 20,000 620,279 664,979 TOTAL ELECTRICAL EQUIPMENT 9,753,605 SHARES VALUE (NOTE 1) ELECTRONIC INSTRUMENTS - 1.7% ELECTRONIC EQUIPMENT - 1.3% Cohu, Inc. 50,000 $ 1,556,250 LTX Corp. (a) 50,000 456,250 Teradyne, Inc. (a) 210,000 4,278,750 6,291,250 SEMICONDUCTOR CAPITAL EQUIPMENT - 0.4% Electro Scientific Industries, Inc. (a) 32,300 694,450 KLA Instruments Corp. (a) 50,000 1,200,000 1,894,450 TOTAL ELECTRONIC INSTRUMENTS 8,185,700 ELECTRONICS - 5.8% CONNECTORS - 0.0% Thomas & Betts Corp. 2,000 144,000 ELECTRONIC COMPONENTS & ACCESSORIES - 0.1% Benchmarq Microelectronics, Inc. (a) 35,000 236,250 ELECTRONIC PARTS - WHOLESALE - 0.2% Pioneer Standard Electronics, Inc. 7,650 107,100 Sterling Electronics Corp. (a) 42,000 661,500 768,600 ELECTRONICS & ELECTRONIC COMPONENTS - 1.8% CTS Corp. 2,800 105,350 Hadco Corp. (a) 145,800 4,811,400 Hitachi Ltd. ADR 10,800 1,088,100 Rada Electronics Industries Ltd. (a) 100,000 350,000 Smartflex Systems, Inc. (a) 100,000 1,325,000 Toshiba Corp. 50,000 386,168 Vishay Intertechnology, Inc. 25,000 659,375 8,725,393 SEMICONDUCTORS - 3.7% Geotek Industries, Inc. (a) 99,000 952,875 Interpoint Corp. (a) 10,000 105,000 Linear Technology Corp. 90,000 4,185,000 MEMC Electronic Materials, Inc. (a) 20,000 680,000 Micro Linear Corp. (a) 90,300 852,206 Samsung Electronics Co. Ltd.: GDR (vtg) (a) 462 41,811 GDS (b) 90,139 4,777,367 GDS (vtg.) (b) 10,505 950,703 Sierra Semiconductor Corp. (a) 100,000 2,300,000 Uniphase Corp. (a) 17,000 663,000 Xilinx, Inc. (a) 70,000 2,703,750 18,211,712 TOTAL ELECTRONICS 28,085,955 INDUSTRIAL MACHINERY & EQUIPMENT - 0.9% GENERAL INDUSTRIAL MACHINERY - 0.2% Robotic Vision Systems, Inc. (a) 50,000 775,000 SPECIAL INDUSTRIAL MACHINERY - 0.7% Fuji Machine Manufacturing Co. Ltd. Ord. 90,000 2,641,904 Gasonics International Corp. (a) 15,000 158,438 Veeco Instruments, Inc. (a) 40,400 606,000 3,406,342 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,181,342 LEISURE DURABLES & TOYS - 0.4% MOTORCYCLES - 0.4% Harley Davidson, Inc. 50,000 1,793,750 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) MEDICAL EQUIPMENT & SUPPLIES - 1.0% MEDICAL SUPPLIES & APPLIANCES - 0.4% Healthdyne, Inc. (a) 25,000 $ 231,250 Johnson & Johnson 17,300 1,617,550 Medical Technology Systems, Inc. (a) 9,800 4,900 1,853,700 MEDICAL TECHNOLOGY - 0.6% Mallinckrodt Group, Inc. 11,900 467,075 Medtronic, Inc. 40,000 2,295,000 2,762,075 X-RAY ELECTRO-MEDICAL APPARATUS - 0.0% Healthdyne Technologies, Inc. (a) 16,267 178,937 TOTAL MEDICAL EQUIPMENT & SUPPLIES 4,794,712 MEDICAL FACILITIES MANAGEMENT - 0.3% HOME HEALTH CARE AGENCIES - 0.1% Apria Healthcare Group, Inc. (a) 12,325 385,156 HOSPITALS - 0.2% Health Management Associates, Inc. Class A (a) 29,362 921,233 PSYCHIATRIC HOSPITALS - 0.0% Magellan Health Services, Inc. (a) 5,000 119,375 TOTAL MEDICAL FACILITIES MANAGEMENT 1,425,764 METALS & MINING - 1.0% METAL ORES - 1.0% Sumitomo Sitix Corp. 250,000 5,106,161 PHOTOGRAPHIC EQUIPMENT - 0.5% Nikon Corp. 184,000 2,517,076 POLLUTION CONTROL - 0.7% HAZARDOUS WASTE MANAGEMENT - 0.7% Molten Metal Technology, Inc. (a) 100,000 3,600,000 RETAIL & WHOLESALE, MISCELLANEOUS - 0.9% MAIL ORDER - 0.9% Micro Warehouse, Inc. (a) 87,400 4,151,500 SERVICES - 0.4% BUSINESS SERVICES - 0.4% Zebra Technologies Corp. Class A (a) 70,000 2,152,500 ELECTRICAL REPAIR SHOPS - 0.0% Cerplex Group, Inc. (a) 10,000 62,500 TOTAL SERVICES 2,215,000 TELEPHONE SERVICES - 0.8% Japan Telecom Co. Ltd. (b) 6 113,428 MFS Communications, Inc. (a) 3,300 199,650 SBC Communications, Inc. 10,000 548,750 Tel-Save Holdings, Inc. (a) 6,800 119,000 Telebras PN (Pfd. Reg.) 48,000,000 2,506,042 U.S. Long Distance Corp. (a) 12,500 229,688 3,716,558 TOTAL COMMON STOCKS (Cost $330,163,986) 406,028,868 NONCONVERTIBLE PREFERRED STOCKS - 0.3% TELEPHONE SERVICES - 0.3% Stet (Societa Finanziaria Telefonica) Spa (Cost $970,657) 635,100 1,432,649 CONVERTIBLE BONDS - 1.5% PRINCIPAL VALUE AMOUNT (NOTE 1) COMPUTERS & OFFICE EQUIPMENT - 1.1% COMPUTERS & OFFICE EQUIPMENT - 0.2% Data General Corp. 7 3/4%, 6/1/01 $ 770,000 $ 812,350 ELECTRONIC COMPUTERS - 0.8% Acer, Inc. euro 4%, 6/10/01 1,410,000 3,807,000 OFFICE EQUIPMENT - WHOLESALE - 0.1% Kinpo Electronics, Inc. euro 3%, 7/21/01 860,000 675,100 TOTAL COMPUTERS & OFFICE EQUIPMENT 5,294,450 ELECTRONICS - 0.4% SEMICONDUCTORS - 0.4% United Microelectronics Corp.: 1 1/4%, 6/8/04 (b) 870,000 909,150 euro 1 1/4%, 6/8/04 905,000 945,725 1,854,875 TOTAL CONVERTIBLE BONDS (Cost $7,517,276) 7,149,325 REPURCHASE AGREEMENTS - 14.9% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 5.41%, dated 2/29/96 due 3/1/96 $ 72,978,965 72,968,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $411,619,919) $ 487,578,842 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 $8,378,441 or 1.7% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. Transactions during the period with companies that are or were affiliates are as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Target Technologies, Inc. $ 406,763 $ 142,500 $ - $ 2,191,313 Telechips Corp. - - - 750,000 Totals $ 406,763 $ 142,500 $ - $ 2,941,313 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $452,328,612 and $389,305,243, respectively (see Note 3 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 $56,567 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $3,304,532 and $3,502,200, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $6,151,000 and $4,922,889, respectively. The weighted average interest rate paid was 6.4% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 89.9% Japan 5.6 Free China 1.6 Korea 1.1 Others (individually less than 1%) 1.8 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $413,330,166. Net unrealized appreciation aggregated $74,248,676, of which $93,446,505 related to appreciated investment securities and $19,197,829 related to depreciated investment securities. The fund hereby designates approximately $28,980,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 2% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. TECHNOLOGY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 487,578,842 securities, at value (including repurchase agreements of $72,968,000) (cost $411,619,919 ) - See accompanyin g schedule Receivable for 4,598,280 investments sold Receivable for 2,870,551 fund shares sold Dividends 120,856 receivable Interest 74,935 receivable Redemption 3,099 fees receivable Other 186,766 receivables TOTAL ASSETS 495,433,329 LIABILITIES Payable to $ 798,062 custodian bank Payable for 4,546,060 investments purchased Payable for 2,894,059 fund shares redeemed Accrued 230,170 management fee Other payables 436,743 and accrued expenses Collateral on 3,502,200 securities loaned, at value TOTAL 12,407,294 LIABILITIES NET ASSETS $ 483,026,035 Net Assets consist of: Paid in capital $ 375,394,666 Accumulated 31,673,087 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 75,958,282 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 483,026,035 8,835,284 shares outstanding NET ASSET $54.67 VALUE and redemption price per share ($483,026,03 5 (divided by) 8,835,284 shares) Maximum $56.36 offering price per share (100/97.00 of $54.67) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 875,963 INCOME Dividends Interest 2,473,355 (including income on securities loaned of $151,472) TOTAL 3,349,318 INCOME EXPENSES Management $ 2,349,322 fee Transfer agent 2,658,884 Fees Redemption (227,795 fees ) Accounting and 390,528 security lending fees Non-interested 1,931 trustees' compensatio n Custodian fees 44,760 and expenses Registration 114,922 fees Audit 31,820 Legal 2,455 Interest 7,895 Miscellaneous 3,357 Total 5,378,079 expenses before reductions Expense (45,677 5,332,402 reductions ) NET (1,983,084 INVESTMENT ) INCOME (LOSS) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 81,894,122 securities (including realized loss of $21,250 on sales of investments in affiliated issuers) Foreign (613 81,893,509 currency ) transactions Change in net unrealized appreciation (depreciation ) on: Investment 45,608,079 securities Assets and (641 45,607,438 liabilities in ) foreign currencies NET GAIN (LOSS) 127,500,947 NET INCREASE $ 125,517,863 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 3,609,138 INFORMATION Sales charges paid to FDC Deferred $ 41,004 sales charges withheld by FDC Exchange $ 160,695 fees withheld by FSC Expense $ 39,857 reductions Directed brokerage arrangement s Custodian 1,865 interest credits Transfer 3,955 agent interest credits $ 45,677 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ (1,983,084 $ (2,016,455 Net ) ) investment income (loss) Net realized 81,893,509 11,157,808 gain (loss) Change in 45,607,438 (4,708,436 net ) unrealized appreciation (depreciation ) NET INCREASE 125,517,863 4,432,917 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (54,900,757 (7,172,823 shareholders ) ) from net realized gains Share 586,067,139 291,385,384 transactions Net proceeds from sales of shares Reinvestmen 53,878,429 6,939,366 t of distributions Cost of (458,176,007 (269,114,732 shares ) ) redeemed Paid in 878,697 815,900 capital portion of redemption fees NET INCREASE 182,648,258 30,025,918 (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 253,265,364 27,286,012 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 229,760,671 202,474,659 period End of period $ 483,026,035 $ 229,760,671 OTHER INFORMATION Shares Sold 10,597,931 7,232,669 Issued in 1,032,983 187,906 reinvestment of distributions Redeemed (8,259,673 (6,796,592 ) ) Net increase 3,371,241 623,983 (decrease)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 42.05 $ 41.83 $ 34.62 $ 32.44 $ 27.06 value, beginning of period Income from Investment Operations Net (.28) (.39) (.24) F .13 G (.26) investment income (loss) Net realized 20.83 1.95 11.04 4.68 5.56 and unrealized gain (loss) Total from 20.55 1.56 10.80 4.81 5.30 investment operations Less - - (.13) - - Distributions From net investment income In excess of - - - - (.16) net investment income From net (8.05) (1.50) (3.70) (2.75) - realized gain Total (8.05) (1.50) (3.83) (2.75) (.16) distributions Redemption .12 .16 .24 .12 .24 fees added to paid in capital Net asset $ 54.67 $ 42.05 $ 41.83 $ 34.62 $ 32.44 value, end of period TOTAL 50.71% 4.61% 35.62% 16.48% 20.57% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 483,026 $ 229,761 $ 202,475 $ 132,689 $ 105,954 end of period (000 omitted) Ratio of 1.40% 1.57% 1.55% 1.64% 1.72% expenses to A average net assets Ratio of 1.39% 1.56% 1.54% 1.64% 1.72% expenses to E E E A average net assets after expense reductions Ratio of net (.52)% (.98)% (.65)% .52% (.84)% investment A income (loss) to average net assets Portfolio 112% 102% 213% 259% 353% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). F INVESTMENT INCOME PER SHARE REFLECTS DIVIDENDS RECEIVED IN ARREARS WHICH AMOUNTED TO $.03 PER SHARE. G INVESTMENT INCOME PER SHARE REFLECTS DIVIDENDS RECEIVED IN ARREARS WHICH AMOUNTED TO $.10 PER SHARE.
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 securities that have grown in value), but does not include certain fees paid by shareholders upon exchange or redemption. If Fidelity had not reimbursed certain expenses, the past 10 year total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS TELECOMMUNICATIONS 25.79% 145.52% 435.41% TELECOMMUNICATIONS 22.02% 138.16% 419.35% (INCL. 3% SALES CHARGE) S&P 500 34.70% 101.14% 286.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one, five, 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 FEBRUARY 29, 1996 YEAR YEARS YEARS TELECOMMUNICATIONS 25.79% 19.68% 18.27% TELECOMMUNICATIONS 22.02% 18.95% 17.91% (INCL. 3% SALES CHARGE) S&P 500 34.70% 14.99% 14.47% 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 10 YEARS 19860228 9700.00 10000.00 19860331 9901.92 10558.00 19860430 10281.52 10438.69 19860531 10539.97 10994.03 19860630 10588.43 11179.83 19860731 10071.52 10554.88 19860831 10758.03 11338.05 19860930 10095.75 10400.39 19861031 10612.66 11000.50 19861130 10798.42 11267.81 19861231 10644.96 10980.48 19870131 11985.68 12459.55 19870228 12995.25 12951.70 19870331 12833.72 13326.01 19870430 12639.88 13207.41 19870531 13124.48 13322.31 19870630 13625.23 13995.09 19870731 14053.29 14704.64 19870831 14715.57 15253.12 19870930 15014.40 14919.08 19871031 12373.36 11705.51 19871130 11525.31 10740.97 19871231 12264.50 11558.36 19880131 12837.07 12044.97 19880229 13218.78 12606.27 19880331 13276.86 12216.73 19880430 13708.36 12352.34 19880531 13882.62 12459.80 19880630 14604.55 13031.71 19880731 14397.10 12982.19 19880831 13866.02 12540.79 19880930 14720.72 13075.03 19881031 15019.45 13438.52 19881130 15152.22 13246.35 19881231 15669.41 13478.16 19890131 16941.04 14464.76 19890228 17007.97 14104.59 19890331 17702.34 14433.22 19890430 19040.89 15182.31 19890531 20446.37 15797.19 19890630 19946.87 15707.15 19890731 21461.18 17125.50 19890831 21974.36 17461.16 19890930 22782.00 17389.57 19891031 21974.36 16986.13 19891130 22529.61 17332.65 19891231 23642.28 17748.63 19900131 21078.35 16557.70 19900228 20999.86 16771.29 19900331 21488.23 17215.73 19900430 20223.70 16785.34 19900531 22351.60 18421.91 19900630 21906.83 18296.64 19900731 20903.93 18238.09 19900831 18470.81 16589.37 19900930 17276.05 15781.47 19901031 17877.79 15713.61 19901130 18898.13 16728.71 19901231 19765.76 17195.44 19910131 20468.19 17945.16 19910228 21152.83 19228.24 19910331 21748.56 19693.56 19910430 22210.92 19740.82 19910531 22442.10 20593.63 19910630 21508.49 19650.44 19910731 22726.62 20566.15 19910831 23402.38 21053.57 19910930 23704.69 20701.97 19911031 24638.29 20979.38 19911130 23695.80 20133.91 19911231 25863.84 22437.23 19920131 25899.78 22019.90 19920229 26223.19 22306.16 19920331 25297.88 21871.19 19920430 26250.14 22514.20 19920531 25944.70 22624.52 19920630 25342.15 22287.41 19920731 26702.02 23198.97 19920831 26386.82 22723.39 19920930 26900.14 22991.53 19921031 27170.32 23072.00 19921130 28584.22 23858.75 19921231 29825.69 24152.21 19930131 29733.94 24355.09 19930228 31366.97 24686.32 19930331 32651.38 25207.20 19930430 32720.26 24597.19 19930531 34037.35 25256.39 19930630 35504.97 25329.64 19930731 36539.82 25228.32 19930831 39296.30 26184.47 19930930 39860.77 25982.85 19931031 41008.52 26520.70 19931130 37649.94 26268.75 19931231 38688.58 26586.60 19940131 39471.83 27490.55 19940228 38235.11 26745.55 19940331 37039.62 25579.45 19940430 37700.74 25906.86 19940531 37479.34 26331.74 19940630 37447.71 25686.61 19940731 39524.62 26529.13 19940831 40673.78 27616.82 19940930 40199.36 26940.21 19941031 42118.13 27546.37 19941130 39883.08 26543.13 19941231 40359.59 26936.76 19950131 40919.54 27635.23 19950228 41285.66 28712.18 19950331 41802.54 29559.47 19950430 43101.78 30430.00 19950531 44278.28 31646.29 19950630 46411.38 32381.43 19950731 49358.13 33455.20 19950831 50820.51 33539.17 19950930 52491.81 34954.52 19951031 50292.74 34829.74 19951130 51403.27 36358.76 19951231 52328.67 37059.03 19960131 52699.06 38320.52 19960229 51935.14 38675.75 Let's say you invested $10,000 in Fidelity Select Telecommunications Portfolio on February 28, 1986, and paid a 3% sales charge. By February 29, 1996, your investment would have grown to $51,935 - a 419.35% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $38,676 over the same period - a 286.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF FEBRUARY 29, 1996 % OF FUND'S INVESTMENTS Cisco Systems, Inc. 5.0 Frontier Corp. 4.9 GTE Corp. 4.3 BellSouth Corp. 4.1 Ameritech Corp. 4.0 NYNEX Corp. 4.0 WorldCom, Inc. 3.2 LCI International, Inc. 3.0 AT&T Corp. 2.5 HBO & Co. 2.4 TOP INDUSTRIES AS OF FEBRUARY 29, 1996 Telephone Services 53.8% Data Communications Equipment 5.7% Cellular & Communication Services 4.1% Computer Services 3.0% Telephone Equipment 2.3% All Others 31.1% * Row: 1, Col: 1, Value: 31.1 Row: 1, Col: 2, Value: 2.3 Row: 1, Col: 3, Value: 3.0 Row: 1, Col: 4, Value: 4.1 Row: 1, Col: 5, Value: 5.7 Row: 1, Col: 6, Value: 53.8 * INCLUDES SHORT-TERM INVESTMENTS TELECOMMUNICATIONS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW David Felman, Portfolio Manager of Fidelity Select Telecommunications Portfolio Q. DAVID, HOW DID THE FUND PERFORM? A. Fidelity Select Telecommunications had a total return of 25.79% for the year that ended February 29, 1996. During the same period, the S&P 500 Index had a total return of 34.70%. Q. WHAT WERE SOME OF THE FACTORS THAT DROVE PERFORMANCE? A. The fund had a very strong first half, outperforming the broader market, but a lackluster second half. That's a reflection of the sector's volatility in a year dominated by the debate over the Telecommunications Act, which was signed into law in February. Across the sector, companies scrambled to carve out a competitive position for themselves in an uncertain future. The buzzword was packaging, as companies sought, through mergers and acquisitions, to set themselves up as one-stop providers of the four major communications services: entertainment, including cable and satellite television; local telephone; long-distance telephone; and cellular. As the perceived advantage shifted among subsectors, stock prices rose and fell. Before the measure passed, for example, many analysts believed that the regional Bell operating companies would be among the prime beneficiaries, and those stocks did very well. Once the Act passed, however, the perception shifted, and the Baby Bells and GTE seemed to lose some favor with investors. Together the Baby Bells totaled 18.4% of the fund's investments at the end of the period. Q. HOW DID THE LONG-DISTANCE PROVIDERS FARE? A. In general, the major long-distance carriers, including MCI and Sprint, were thought to be more vulnerable to competition in their established markets than the Baby Bells were in theirs, and that was a drag on performance all year. AT&T got a boost last fall when it spun off two divisions into separate companies. Eventually, though, analysts decided there was not as much value in the breakup as they had originally thought, and the stock slumped. AT&T was also hurt by the need to revise its earnings downward, the result of an aggressive but expensive acquisition strategy designed to help it enter new markets. The same broad trends influenced MCI and Sprint to a lesser extent, taking some of the shine off what might otherwise have been an outstanding year for both of them. Q. HOW DID CHANGES IN THE INDUSTRY AFFECT LONG-DISTANCE RESELLERS? A. Resellers purchase long-distance minutes in bulk mainly from AT&T, then resell them at a discount to end users. Lately, they've profited from the sense among industry analysts that, as new players enter the long-distance market, they'll need capacity, which they can get from resellers. They've also benefited from the growing popularity of the Internet, which has increased demand for long-distance minutes. Led by top 10 holdings Frontier and WorldCom, resellers were among the fund's leading performers all year. Together they totaled 8.1% of the fund's net investments. Q. WHAT ABOUT CELLULAR STOCKS? A. Equipment suppliers such as Ericsson - formerly the fund's largest holding - and Nokia were among the fund's top performers early in the period, only to fall off sharply later on. Both were hurt by a decline in cellular subscription growth in the United States, which led to a collapse in handset prices. The fund managed to reduce its position in Nokia in time to avoid losses, but held on to Ericsson in the belief that U.S. handset sales were not a major factor for the company. However, the fund suffered as Ericsson got caught in the sector-wide downdraft. By the end of the period, neither Nokia nor Ericsson stocks were held by the fund. Q. WHAT'S THE OUTLOOK? A. There's a lot of uncertainty in the telecommunications industry today, probably more than there was six months ago. No one knows for sure who's going to buy whom, who's going to build what or where prices are going to end up. On the other hand, there's a strong sense of growth and opportunity pervading the industry. To take just one example, demand for phone service continues to grow as consumers see the need for more than one phone line. As a result, the average residential consumer pays more for telephone services today than five years ago, even after accounting for inflation. So despite the short-term volatility, the underlying trends were positive at the end of the period. FUND FACTS START DATE: July 29, 1985 TRADING SYMBOL: FSTCX SIZE: As of February 29, 1996, more than $468 million MANAGER: David Felman, since 1994; manager, Fidelity Select Chemicals Portfolio, January 1995 - July 1995; analyst, specialty chemicals, construction and engineering industries; joined Fidelity in 1992 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. TELECOMMUNICATIONS PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 78.2% SHARES VALUE (NOTE 1) ADVERTISING - 0.4% ADVERTISING AGENCIES - 0.4% ADVO-Systems, Inc. 79,500 $ 1,739,064 APPLIANCE STORES - 0.4% ELECTRIC APPLIANCES - WHOLESALE - 0.4% Cellstar Corp. (a) 115,000 2,041,250 BROADCASTING - 2.1% CABLE TV OPERATORS - 2.0% Gaylord Entertainment Co. Class A 60,270 1,612,223 Viacom, Inc. (a): Class A 88,628 3,445,414 Class B (non-vtg.) 122,285 4,799,686 9,857,323 TELEVISION BROADCASTING - 0.1% Heritage Media Corp. Class A (a) 19,700 711,663 TOTAL BROADCASTING 10,568,986 CELLULAR - 3.8% CELLULAR & COMMUNICATION SERVICES - 3.8% AirTouch Communications, Inc. (a) 60,200 1,866,200 BCE Mobile Communications, Inc. (a) 30,000 985,150 Cellular Communications, Inc. Series A (a) 13,000 669,500 Century Telephone Enterprises, Inc. 180,887 6,082,325 Nextel Communications, Inc. Class A (a) 116,155 1,756,844 Rogers Cantel Mobile Communications, Inc. Class B (sub-vtg.) (a) 120,600 2,926,223 Rogers Communications, Inc. Class B (a) 149,900 1,504,087 Vanguard Cellular Systems, Inc. Class A (a) 9,300 204,600 Vodafone Group PLC sponsored ADR 74,000 2,617,750 18,612,679 COMMUNICATIONS EQUIPMENT - 7.8% DATACOMMUNICATIONS EQUIPMENT - 5.7% Cabletron Systems, Inc. (a) 49,500 3,718,688 Cisco Systems, Inc. (a) 512,200 24,329,500 28,048,188 TELEPHONE EQUIPMENT - 2.1% ADC Telecommunications, Inc. (a) 6,600 262,350 DSC Communications Corp. (a) 291,200 8,881,600 InterVoice, Inc. (a) 10,000 238,750 Newbridge Networks Corp. (a) 18,400 899,300 10,282,000 TOTAL COMMUNICATIONS EQUIPMENT 38,330,188 COMPUTER SERVICES & SOFTWARE - 7.7% CAD/CAM/CAE - 1.8% CSG Systems International, Inc. 12,000 264,000 ECI Telecom Ltd. 310,000 7,905,000 EIS International, Inc. (a) 55,500 912,281 9,081,281 COMPUTER SERVICES - 3.0% American Management Systems, Inc. 50,000 1,200,000 HBO & Co. 120,300 11,909,700 Saville Systems Ireland PLC sponsored ADR (a) 80,000 1,400,000 14,509,700 SHARES VALUE (NOTE 1) DATA PROCESSING - 2.1% Automatic Data Processing, Inc. 20,000 $ 775,000 Ceridian Corp. (a) 70,000 3,010,000 First Data Corp. 50,000 3,462,500 General Motors Corp. Class E 50,000 2,856,250 10,103,750 PREPACKAGED COMPUTER SOFTWARE - 0.8% Netscape Communications Corp. (a) 61,000 3,111,000 Sybase, Inc. (a) 30,000 941,250 4,052,250 TOTAL COMPUTER SERVICES & SOFTWARE 37,746,981 COMPUTERS & OFFICE EQUIPMENT - 1.7% COMPUTER PERIPHERALS - 0.2% Norand Corp. (a) 65,000 1,170,000 ELECTRONIC COMPUTERS - 1.5% Bay Networks, Inc. (a) 175,000 7,109,375 TOTAL COMPUTERS & OFFICE EQUIPMENT 8,279,375 ELECTRICAL EQUIPMENT - 1.9% ELECTRICAL MACHINERY - 0.7% Philips Electronics NV 85,800 3,549,975 TV & RADIO COMMUNICATION EQUIPMENT - 1.2% Glenayre Technologies, Inc. 100,500 4,434,563 Ortel Corp. (a) 115,000 1,322,500 5,757,063 TOTAL ELECTRICAL EQUIPMENT 9,307,038 ELECTRONIC INSTRUMENTS - 0.1% ELECTRONIC EQUIPMENT - 0.1% Teradyne, Inc. (a) 15,400 313,775 ELECTRONICS - 0.8% ELECTRONIC PARTS - WHOLESALE - 0.0% Marshall Industries (a) 4,800 154,200 SEMICONDUCTORS - 0.8% Motorola, Inc. 68,000 3,689,000 TOTAL ELECTRONICS 3,843,200 SERVICES - 0.1% PUBLIC RELATIONS SERVICES - 0.1% True North Communications 14,700 301,350 TELEPHONE SERVICES - 51.4% AT&T Corp. 195,000 12,406,875 Ameritech Corp. 343,500 19,794,188 Bell Atlantic Corp. 129,600 8,569,800 BellSouth Corp. 508,600 20,280,425 British Telecommunications PLC ADR 5,000 284,375 Cincinnati Bell, Inc. 254,100 8,321,775 Comsat Corp., Series 1 41,750 965,469 DDI Corp. Ord. 797 5,837,524 Frontier Corp. 797,600 23,928,000 GTE Corp. 487,773 20,913,267 Incomnet, Inc. (a) 119,000 658,219 Koninklijke Ptt Nederland NV 166,000 6,651,270 Koninklijke Ptt Nederland NV (a)(b) 44,200 1,771,001 LCI International, Inc. (a) 648,800 14,760,200 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TELEPHONE SERVICES - CONTINUED MFS Communications, Inc. (a) 138,684 $ 8,390,382 Nippon Telegraph & Telephone Corp. Ord. 144 1,094,381 NYNEX Corp. 382,700 19,709,050 Royal Ptt Nederland NV sponsored ADR 20,000 797,500 SBC Communications, Inc. 205,600 11,282,300 Southern New England Telecommunications Corp. 58,800 2,403,450 Sprint Corp. 225,600 9,700,800 Tel-Save Holdings, Inc. (a) 1,000 17,500 Telebras PN (Pfd. Reg.) 126,221,131 6,589,904 Telecom Argentina Stet France Telecom SA 53,500 230,154 Telecom Italia Spa 350,000 586,183 Telecom Italia Mobile Spa (a) 350,000 642,192 Tele Danmark AS: Class B 30,000 1,760,829 Class B ADR 217,700 6,422,150 Telefonica de Argentina SA Class B 191,000 493,002 Telefonica de Espana SA: sponsored ADR 20,000 982,500 Ord. 150,000 2,462,190 Telephone & Data Systems, Inc. 108,724 5,014,895 U.S. West, Inc. 321,700 10,535,675 U.S. West, Inc. (Media Group) 96,700 2,018,613 WorldCom, Inc. (a) 399,212 15,718,973 251,995,011 TOTAL COMMON STOCKS (Cost $349,263,149) 383,078,897 PREFERRED STOCKS - 2.8% CONVERTIBLE PREFERRED STOCKS - 1.8% CELLULAR - 0.3% CELLULAR & COMMUNICATION SERVICES - 0.3% Cellular Communications, Inc. $0.01 (a) 31,188 1,574,994 TELEPHONE SERVICES - 1.5% LCI International, Inc. exchangeable 10,000 596,250 MFS Communications, Inc., Series A, $2.68 depository shares representing 1/100 share (dividend enhanced conversion stock) 90,000 4,803,750 Philippine Long Distance Telephone GDR 34,000 1,921,000 7,321,000 TOTAL CONVERTIBLE PREFERRED STOCKS 8,895,994 NONCONVERTIBLE PREFERRED STOCKS - 1.0% TELEPHONE SERVICES - 1.0% Stet (Societa Finanziaria Telefonica) Spa 945,200 2,132,169 Telecom Italia Mobile Spa (a) 1,000,000 1,116,967 Telecom Italia Ord. 1,000,000 1,379,821 TOTAL NONCONVERTIBLE PREFERRED STOCKS 4,628,957 TOTAL PREFERRED STOCKS (Cost $10,603,662) 13,524,951 CONVERTIBLE BONDS - 0.2% PRINCIPAL VALUE AMOUNT (NOTE 1) COMMUNICATIONS EQUIPMENT - 0.2% TELEPHONE EQUIPMENT - 0.2% Ericsson (L.M.) Telephone Co. 4 1/4%, 6/30/00 (Cost $480,442) $ 345,700 $ 1,044,014 REPURCHASE AGREEMENTS - 18.8% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 5.41% dated 2/29/96 due 3/1/96 $ 92,159,847 92,146,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $452,493,253) $ 489,793,862 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 $1,771,001 or 0.4% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $351,894,042 and $340,420,852, respectively (see Note 3 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 $114,849 for the period (see Note 4 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $26,063,603 and $27,486,500, respectively (see Note 6 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $4,178,000 and $4,178,000, respectively. The weighted average interest rate paid was 6.4% (see Note 5 of Notes to Financial Statements). Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 86.6% Netherlands 2.6 Denmark 1.7 Israel 1.6 Japan 1.4 Brazil 1.3 Canada 1.3 Italy 1.2 Others (individually less than 1%) 2.3 TOTAL 100.0% INCOME TAX INFORMATION At February 29, 1996, the aggregate cost of investment securities for income tax purposes was $453,556,313. Net unrealized appreciation aggregated $36,237,549, of which $53,373,648 related to appreciated investment securities and $17,136,099 related to depreciated investment securities. The fund hereby designates approximately $4,493,000 as a capital gain dividend for the purpose of the dividend paid deduction. A total of 52% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders (unaudited). The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. TELECOMMUNICATIONS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 489,793,862 securities, at value (including repurchase agreements of $92,146,000) (cost $452,493,253 ) - See accompanyin g schedule Cash 688 Receivable for 9,619,675 investments sold Receivable for 1,648,284 fund shares sold Dividends 343,761 receivable Interest 15,304 receivable Redemption 2,207 fees receivable Other 17,219 receivables TOTAL ASSETS 501,441,000 LIABILITIES Payable for $ 2,419,463 investments purchased Payable for 2,520,755 fund shares redeemed Accrued 245,509 management fee Other payables 468,828 and accrued expenses Collateral on 27,486,500 securities loaned, at value TOTAL 33,141,055 LIABILITIES NET ASSETS $ 468,299,945 Net Assets consist of: Paid in capital $ 391,705,689 Undistributed 1,251,216 net investment income Accumulated 38,042,405 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 37,300,635 appreciation (depreciation ) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 468,299,945 10,435,711 shares outstanding NET ASSET $44.87 VALUE and redemption price per share ($468,299,94 5 (divided by) 10,435,711 shares) Maximum $46.26 offering price per share (100/97.00 of $44.87) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INVESTMENT $ 8,875,241 INCOME Dividends Interest 2,469,880 (including income on securities loaned of $158,246) TOTAL 11,345,121 INCOME EXPENSES Management $ 2,590,151 fee Transfer agent 3,296,708 Fees Redemption (135,917 fees ) Accounting and 429,757 security lending fees Non-interested 2,683 trustees' compensatio n Custodian fees 47,869 and expenses Registration 149,772 fees Audit 39,792 Legal 2,781 Interest 2,241 Miscellaneous 8,488 Total 6,434,325 expenses before reductions Expense (26,413 6,407,912 reductions ) NET 4,937,209 INVESTMENT INCOME REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment 57,175,205 securities Foreign (19,166 57,156,039 currency ) transactions Change in net unrealized appreciation (depreciation ) on: Investment 28,357,990 securities Assets and 26 28,358,016 liabilities in foreign currencies NET GAIN (LOSS) 85,514,055 NET INCREASE $ 90,451,264 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER $ 2,050,876 INFORMATION Sales charges paid to FDC Deferred $ 25,598 sales charges withheld by FDC Exchange $ 86,798 fees withheld by FSC Expense $ 19,795 reductions Directed brokerage arrangement s Custodian 530 interest credits Transfer 6,088 agent interest credits $ 26,413 STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 4,937,209 $ 2,874,925 Net investment income Net realized 57,156,039 13,108,456 gain (loss) Change in 28,358,016 10,501,018 net unrealized appreciation (depreciation ) NET INCREASE 90,451,264 26,484,399 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (3,666,827 (3,125,414 shareholders ) ) From net investment income From net (25,859,291 (12,275,476 realized gain ) ) TOTAL (29,526,118 (15,400,890 DISTRIBUTION ) ) S Share 183,961,070 199,692,240 transactions Net proceeds from sales of shares Reinvestmen 28,851,878 15,044,524 t of distributions Cost of (175,053,917 (227,502,551 shares ) ) redeemed Paid in 139,366 133,502 capital portion of redemption fees NET INCREASE 37,898,397 (12,632,285 (DECREASE) ) IN NET ASSETS RESULTING FROM SHARE TRANSACTIO NS TOTAL 98,823,543 (1,548,776 INCREASE ) (DECREASE) IN NET ASSETS NET ASSETS Beginning of 369,476,402 371,025,178 period End of period $ 468,299,945 $ 369,476,402 (including undistribute d net investment income of $1,251,216 and $0, respectivel y) OTHER INFORMATION Shares Sold 4,122,731 5,395,122 Issued in 677,781 417,307 reinvestment of distributions Redeemed (4,001,104 (6,175,717 ) ) Net increase 799,408 (363,288 (decrease) )
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA D 1996 1995 1994 1993 1992
Net asset $ 38.34 $ 37.10 $ 34.19 $ 29.22 $ 24.98 value, beginning of period Income from Investment Operations Net .51 .29 .25 .29 .36 investment income Net realized 9.15 2.54 7.00 5.29 4.13 and unrealized gain (loss) Total from 9.66 2.83 7.25 5.58 4.49 investment operations Less (.39) (.33) (.20) (.18) (.28) Distributions From net investment income From net (2.75) (1.27) (4.18) (.48) - realized gain Total (3.14) (1.60) (4.38) (.66) (.28) distributions Redemption .01 .01 .04 .05 .03 fees added to paid in capital Net asset $ 44.87 $ 38.34 $ 37.10 $ 34.19 $ 29.22 value, end of period TOTAL 25.79% 7.98% 21.90% 19.49% 18.19% RETURN B, C RATIOS AND SUPPLEMENT AL DATA Net assets, $ 468,300 $ 369,476 $ 371,025 $ 134,338 $ 78,533 end of period (000 omitted) Ratio of 1.52% 1.56% 1.54% 1.74% 1.90% expenses to A average net assets Ratio of 1.52% 1.55% 1.53% 1.74% 1.90% expenses to E E A average net assets after expense reductions Ratio of net 1.17% .77% .64% 1.16% 1.32% investment A income to average net assets Portfolio 89% 107% 241% 115% 20% turnover rate A
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
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 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS MONEY MARKET 5.56% 22.87% 74.42% MONEY MARKET (INCL. 3% SALES CHARGE) 2.40% 19.19% 69.18% All Taxable Money Market Funds Average 5.44% 22.45% 73.09% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years, or 10 years. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050 without including the effect of the 3% sales charge. To measure how the fund's performance stacked up against its peers, you can compare it to the all taxable money market funds average, which reflects the performance of 772 all taxable money market funds with similar objectives tracked by IBC/Donoghue's MONEY FUND REPORT(registered trademark) over the past year. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 FEBRUARY 29, 1996 YEAR YEARS YEARS MONEY MARKET 5.56% 4.21% 5.72% MONEY MARKET (INCL. 3% SALES CHARGE) 2.40% 3.57% 5.40% All Taxable Money Market Funds Average 5.44% 4.13% 5.63% 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: 5.85 Row: 1, Col: 2, Value: 5.49 Row: 1, Col: 3, Value: 2.88 Row: 2, Col: 1, Value: 5.970000000000001 Row: 2, Col: 2, Value: 5.51 Row: 2, Col: 3, Value: 2.89 Row: 3, Col: 1, Value: 5.41 Row: 3, Col: 2, Value: 5.25 Row: 3, Col: 3, Value: 2.84 Row: 4, Col: 1, Value: 5.19 Row: 4, Col: 2, Value: 5.26 Row: 4, Col: 3, Value: 2.86 Row: 5, Col: 1, Value: 5.31 Row: 5, Col: 2, Value: 4.78 Row: 5, Col: 3, Value: 2.76 6% - 4% - 2% - 0% Money Market All Taxable Money Market Funds Average MMDA 2/28/95 5/30/95 8/29/95 11/28/95 2/27/96 MONEY MARKET 5.85% 5.97% 5.41% 5.19% 5.31% All Taxable Money Market Funds Average 5.49% 5.51% 5.25% 5.26% 4.78% 3/1/95 5/31/95 8/30/95 11/29/95 2/28/96 MMDA 2.88% 2.89% 2.84% 2.86% 2.76% 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. You can compare these yields to the all taxable money market funds average and the bank money market deposit account average (MMDA). Figures for the all taxable money market funds average 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, WHAT KIND OF MARKET ENVIRONMENT HAVE YOU BEEN OPERATING IN FOR THE PAST YEAR? A. It's hard to talk about what happened last year without referring to an event that took place just before the period began. In early February 1995, the Federal Reserve raised the federal funds rate one-half percentage point to 6.00%. It was the seventh rate increase in 12 months. By raising interest rates, the Fed was seeking to slow down the growth rate in the economy and prevent any inflationary pressures from developing. During the early months of the current period, it became increasingly obvious that the Fed had achieved its goal. After expanding at an annual rate of more than 3% during the fourth quarter of 1994, growth slowed to 0.6% during the first quarter of 1995, and 0.5% during the second quarter. In July, fearful of having overshot its goal of a soft landing for the economy, the Fed made a tentative move in the opposite direction, lowering the federal funds rate one-quarter percentage point. Q. WHAT'S HAPPENED SINCE THEN? A. During the third quarter of 1995, the economy rebounded with a strength that surprised many market participants, expanding at an annual rate of 3.6%. Among the main drivers of growth during that period were housing, automobiles and other interest-rate-sensitive sectors of the economy. It didn't last, though. Growth slowed appreciably during the fourth quarter and the Fed responded with two more quarter-point rate cuts - the first in late December and the second on the last day of January 1996. Q. SO HOW WOULD YOU SUMMARIZE DEVELOPMENTS DURING THE FUND'S FISCAL YEAR? A. In retrospect, we can fairly say that economic growth decelerated dramatically during 1995 in response to numerous factors, most importantly the sharp increase in short-term interest rates during 1994. The Fed has targeted an annual real growth rate of around 2.25%. As long as the economy was expanding faster than that, the Fed, attempting to preempt inflation, tapped the brakes. Once it became clear that growth had fallen appreciably below the target rate, the Fed took its foot off the brakes and tapped the accelerator. Lately, the economy has been giving off mixed signals. It's hard to explain, for example, why unemployment has remained under 6% all year, despite aggressive corporate downsizing and an uninterrupted flow of layoffs. The one constant all year has been the relative absence of inflationary pressures. Q. HOW DID YOU POSITION THE FUND DURING THE PERIOD? A. When the period began, the fund's average maturity was 31 days. Once it became clear that the Fed was through raising rates and instead was preparing for an eventual rate cut, I began buying longer-term securities and moving the fund's average maturity out toward 60 days. After the rate cut in July, the economy seemed to pick up steam, and I let the fund's average maturity roll back down to around 35 days. When the economy turned sluggish again late in the year, I moved the fund back out, approaching 60 days again at the end of December. The fund ended the period at 48 days, only because by then the market had already discounted the impact of the next Fed rate cut and I saw little point in being overly aggressive. Q. HOW DID THE FUND PERFORM? A. Better than its peers. The fund's seven-day yield on February 29, 1996 was 5.21%, compared to 5.85% on February 28, 1995. The fund's one-year total return was 5.56%, compared to 5.44% for the all taxable money market funds average, according to IBC/Donoghue. Q. WHAT'S THE OUTLOOK? A. Despite conflicting signals on the strength of the economy, the possibility still exists for the Fed to lower rates again sometime during the next six months. After the last rate cut in January, there was speculation that the Fed had another rate cut planned for early spring. Those hopes all but died with the stronger than anticipated economic data released late in the period. Now it seems more likely the Fed will sit tight for awhile. My plan is to keep the fund's average maturity between 40 and 50 days, until such time as the economic outlook becomes clearer, then move the average maturity in the appropriate direction. FUND FACTS START DATE: August 30, 1985 TRADING SYMBOL: FSMMKT SIZE: as of February 29, 1996, more than $610 million MANAGER: John Todd, since 1991; manager Spartan Money Market Fund, since 1989, Daily Money Fund: Money Market and Fidelity Institutional Cash Portfolios: Money Market, since 1992; joined Fidelity in 1982 (checkmark) THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. MONEY MARKET PORTFOLIO INVESTMENTS FEBRUARY 29, 1996 Showing Percentage of Total Value of Investment in Securities CERTIFICATES OF DEPOSIT - 21.9% ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) DOMESTIC CERTIFICATES OF DEPOSIT - 1.7% FIRST TENNESSEE BANK, N.A. MEMPHIS 3/25/96 5.47% $ 10,000,000 $ 10,000,000 NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 11.1% BANQUE NATIONALE DE PARIS 8/29/96 5.11 2,000,000 2,000,000 CANADIAN IMPERIAL BANK OF COMMERCE 6/4/96 5.19 3,000,000 3,000,000 DEUTSCHE BANK, A.G. 7/29/96 5.18 20,000,000 20,000,000 SOCIETE GENERALE 4/4/96 5.47 9,000,000 9,000,000 9/3/96 5.13 6,000,000 6,000,000 SWISS BANK CORP. 3/7/96 5.70 17,000,000 17,000,000 7/29/96 5.20 5,000,000 5,000,000 WESTPAC BANKING CORP. 4/3/96 5.68 4,000,000 4,002,975 66,002,975 LONDON BRANCH, EURODOLLAR, DOMESTIC BANKS - 2.5% BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOC. 6/20/96 5.05 5,000,000 5,000,000 CHEMICAL BANKING CORP. 3/4/96 5.81 10,000,000 10,000,000 15,000,000 LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 6.6% ABBEY NATIONAL (UK), PLC 3/13/96 5.75 4,000,000 4,000,000 4/23/96 5.75 5,000,000 5,000,000 BANQUE NATIONALE DE PARIS 5/13/96 5.30 10,000,000 10,001,973 BAYERISCHE VEREINSBANK A.G. 5/7/96 5.30 5,000,000 5,000,995 DEUTSCHE BANK, A.G. 4/24/96 5.73 10,000,000 10,000,000 LANDESBANK HESSEN - THURINGEN 3/14/96 5.71 5,000,000 5,000,009 39,002,977 TOTAL CERTIFICATES OF DEPOSIT 130,005,952 COMMERCIAL PAPER - 50.3% ABN-AMRO BANK 8/26/96 5.10 3,000,000 2,926,278 ABN-AMRO NORTH AMERICA FINANCE, INC. 8/26/96 5.16 6,500,000 6,338,341 AMERICAN HOME FOOD PRODUCTS, INC. 4/19/96 5.24 5,575,000 5,535,541 AMERICAN TELEPHONE & TELEGRAPH CO. 3/13/96 5.75 5,000,000 4,990,617 3/18/96 5.71 5,000,000 4,986,919 ASSET SECURITIZATION COOPERATIVE CORPORATION 3/4/96 5.45 9,000,000 8,995,913 4/4/96 5.43 13,000,000 12,934,068 ASSOCIATES CORP. OF NORTH AMERICA 3/15/96 5.75 3,000,000 2,993,385 3/20/96 5.74 10,000,000 9,970,181 ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) BANK OF SCOTLAND TREASURY SERVICES 4/9/96 5.45% $ 10,400,000 $ 10,339,385 BEAR STEARNS COS., INC. 3/1/96 5.50 10,000,000 10,000,000 CHEMICAL BANKING CORP. 4/15/96 5.45 8,000,000 7,946,300 CHRYSLER FINANCIAL CORPORATION 3/27/96 5.38 1,000,000 996,143 4/10/96 5.33 4,000,000 3,976,533 CIT GROUP HOLDINGS, INC. 3/1/96 5.40 (a) 10,000,000 9,995,045 CORESTATES CAPITAL CORP. 3/5/96 5.29 (a) 15,000,000 15,000,000 DRESDNER U.S. FINANCE INC. 8/26/96 5.13 4,000,000 3,901,111 DU PONT (E.I.) DE NEMOURS & CO. 3/28/96 5.70 2,000,000 1,991,630 EIGER CAPITAL CORP. 3/18/96 5.28 10,000,000 9,975,208 FORD MOTOR CREDIT CORP. 3/27/96 5.76 20,000,000 19,918,678 4/4/96 5.77 5,000,000 4,973,414 GENERALE BANK 6/7/96 5.13 8,000,000 7,890,022 GENERAL ELECTRIC CAPITAL CORP. 3/28/96 5.80 7,000,000 6,970,390 3/29/96 5.80 5,000,000 4,978,067 4/24/96 5.76 10,000,000 9,916,000 4/29/96 5.73 5,000,000 4,954,357 GENERAL MOTORS ACCEPTANCE CORP. 5/20/96 5.24 3,000,000 2,965,533 5/22/96 5.24 2,000,000 1,976,448 6/12/96 5.15 3,000,000 2,956,568 GOLDMAN SACHS GROUP, L.P. (THE) 3/13/96 5.75 5,000,000 4,990,583 3/14/96 5.75 7,000,000 6,985,718 HOUSEHOLD FINANCE CORP. 5/29/96 5.22 4,000,000 3,949,072 MERRILL LYNCH & CO., INC. 3/8/96 5.75 15,000,000 14,983,696 MORGAN (J.P.) & CO. 9/5/96 5.11 5,000,000 4,869,967 MORGAN STANLEY GROUP, INC. 3/28/96 5.58 10,000,000 9,958,750 NATIONAL AUSTRALIA FUNDING, INC. 4/8/96 5.45 4,300,000 4,275,581 SEARS ROEBUCK ACCEPTANCE CORP. 4/25/96 5.25 15,000,000 14,880,833 SOCIETE GENERALE NORTH AMERICA, INC. 3/4/96 5.75 10,000,000 9,995,300 SOUTHERN COMPANY GROUP 5/13/96 5.16 20,000,000 19,793,167 WCP FUNDING, INC. 3/1/96 5.65 2,800,000 2,800,000 TOTAL COMMERCIAL PAPER 298,774,742 FEDERAL AGENCIES (A) - 6.6% ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) FEDERAL HOME LOAN BANK - AGENCY COUPONS - 2.2% 3/13/96 5.69% $ 4,000,000 $ 3,998,026 3/20/96 5.69 4,000,000 3,997,978 4/2/96 5.51 5,000,000 4,997,392 12,993,396 FEDERAL NATIONAL MORTGAGE ASSOC. - AGENCY COUPONS - 2.7% 3/20/96 5.69 11,000,000 10,993,157 4/17/96 5.45 5,000,000 4,996,590 15,989,747 STUDENT LOAN MARKETING ASSOC. - AGENCY COUPONS - 1.7% 4/16/96 5.60 10,000,000 10,000,000 TOTAL FEDERAL AGENCIES 38,983,143 U.S. TREASURY OBLIGATIONS - 2.5% U.S. TREASURY NOTES 9/30/96 4.92 15,000,000 15,115,474 BANK NOTES (A) - 5.0% BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOC. 3/1/96 5.44 3,000,000 2,999,115 BANK OF NEW YORK - DELAWARE 4/30/96 5.65 4,000,000 4,000,000 BAYERISCHE LANDESBANK GIROZENTALE 4/30/96 5.61 5,000,000 5,000,000 BOATMEN'S NATIONAL BANK OF ST. LOUIS 3/12/96 5.34 4,000,000 3,999,775 COMERICA BANK-DETROIT 3/1/96 5.83 5,000,000 4,998,130 4/27/96 5.55 5,000,000 4,998,340 PNC BANK, N.A. 3/20/96 5.31 4,000,000 3,998,442 TOTAL BANK NOTES 29,993,802 MASTER NOTES (A) - 1.4% J.P. MORGAN SECURITIES 3/18/96 5.31 3,000,000 3,000,000 3/20/96 5.31 5,000,000 5,000,000 TOTAL MASTER NOTES 8,000,000 MEDIUM-TERM NOTES (A) - 5.9% ABBEY NATIONAL TREASURY SERVICES (B) 3/9/96 5.69 8,000,000 8,000,000 BENEFICIAL CORP. 5/3/96 5.85 3,000,000 2,998,607 GENERAL ELECTRIC CAPITAL CORP. 3/1/96 5.53 5,000,000 4,999,897 GENERAL MOTORS ACCEPTANCE CORP. 4/28/96 5.55 2,000,000 2,006,301 5/1/96 5.43 5,000,000 5,000,000 GOLDMAN SACHS GROUP, L.P. (THE) (B) 3/1/96 5.91 4,000,000 4,000,000 NORWEST CORP. 3/10/96 5.83 8,000,000 8,000,000 TOTAL MEDIUM-TERM NOTES 35,004,805 SHORT-TERM NOTES (A) (B) - 4.0% ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) SMM TRUST COMPANY (1995-D) 4/27/96 5.55% $ 1,000,000 $ 1,000,000 SMM TRUST COMPANY (1995-I) 3/29/96 5.36 6,000,000 5,999,575 SMM TRUST COMPANY (1995-J) 3/15/96 5.33 14,000,000 14,000,000 SMM TRUST COMPANY (1995-N) 5/8/96 5.30 3,000,000 3,000,000 TOTAL SHORT-TERM NOTES 23,999,575 REPURCHASE AGREEMENTS - 2.4% MATURITY AMOUNT In a joint trading account (U.S. Treasury Obligations) dated 2/29/96 due 3/1/96: At 5.43% $ 14,059,120 14,057,000 TOTAL INVESTMENTS - 100% $ 593,934,493 TOTAL COST FOR INCOME TAX PURPOSES - $593,934,493 LEGEND 1. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the next interest rate reset date or, when applicable, the final maturity date. 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 $35,999,575 or 5.9% of net assets. INCOME TAX INFORMATION A total of 1.71% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. The fund will notify shareholders in January 1997 of the applicable percentage for use in preparing 1996 income tax returns. MONEY MARKET PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 ASSETS Investment in $ 593,934,493 securities, at value (including repurchase agreements of $14,057,000) - - See accompanyin g schedule Cash 492 Receivable for 54,221,208 fund shares sold Interest 3,238,639 receivable TOTAL ASSETS 651,394,832 LIABILITIES Payable for $ 13,869,967 investments purchased Payable for 26,439,364 fund shares redeemed Accrued 93,298 management fee Other payables 170,769 and accrued expenses TOTAL 40,573,398 LIABILITIES NET ASSETS $ 610,821,434 Net Assets consist of: Paid in capital $ 610,818,316 Accumulated 3,118 net realized gain (loss) on investments NET ASSETS, for $ 610,821,434 610,813,058 shares outstanding NET ASSET $1.00 VALUE, offering price and redemption price per share ($610,821,43 4 (divided by) 610,813,058 shares) Maximum $1.03 offering price per share (100/97 of $1.00) STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 INTEREST $ 39,079,007 INCOME EXPENSES Management $ 1,558,005 fee Transfer agent 1,661,958 fees Accounting 99,064 fees and expenses Non-interested 3,565 trustees' compensatio n Custodian fees 39,047 and expenses Registration 387,350 fees Audit 62,494 Legal 4,048 Reports to 8,943 shareholders Miscellaneous 1,309 TOTAL 3,825,783 EXPENSES NET INTEREST 35,253,224 INCOME NET REALIZED 33,656 GAIN (LOSS) ON INVESTMENTS NET INCREASE $ 35,286,880 IN NET ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION Sales charges $ 4,472,949 paid to FDC Deferred sales $ 76,760 charges withheld by FDC STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, 1996 1995 Operations $ 35,253,224 $ 28,489,953 Net interest income Net realized 33,656 34,131 gain (loss) NET INCREASE 35,286,880 28,524,084 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS Distributions to (35,253,224) (28,489,953) shareholders from net interest income Share 6,107,173,652 4,782,122,991 transactions at net asset value of $1.00 per share Proceeds from sales of shares Reinvestmen 32,687,547 26,192,515 t of distributions from net interest income Cost of (6,102,217,401) (4,753,862,525) shares redeemed NET INCREASE 37,643,798 54,452,981 (DECREASE) IN NET ASSETS AND SHARES RESULTING FROM SHARE TRANSACTIO NS TOTAL 37,677,454 54,487,112 INCREASE (DECREASE) IN NET ASSETS NET ASSETS Beginning of 573,143,980 518,656,868 period End of period $ 610,821,434 $ 573,143,980 SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. FINANCIAL HIGHLIGHTS
YEAR ENDED YEARS ENDED FEBRUARY 28, TEN MONTHS YEAR ENDED FEBRUARY 29, ENDED APRIL 30, FEBRUARY 28, SELECTED PER-SHARE DATA 1996 1995 1994 1993 1992
Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 value, beginning of period Income from .054 .042 .026 .026 .048 Investment Operations Net interest income Less (.054) (.042) (.026) (.026) (.048) Distributions From net interest income Net asset $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 value, end of period TOTAL RETURN B 5.56% 4.28 2.62 2.63% 4.93% % % RATIOS AND SUPPLEMENT AL DATA Net assets, $ 610,821 $ 573,144 $ 518,657 $ 431,133 $ 542,620 end of period (000 omitted) Ratio of .59% .65 .72 .56%A .64% expenses to % % average net assets Ratio of net 5.39% 4.19 2.59 3.09%A 4.84% interest % % income to average net assets
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 February 29, 1996 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 (collectively, with the money market fund, referred to as 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 financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the 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 of their purchase date 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. 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. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, each fund is not subject to income taxes to the extent that it distributes substantially 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. Investment income is recorded net of foreign taxes withheld 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. 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, which may result in distribution reclassifications, are primarily due to differing treatments for litigation proceeds, foreign currency transactions, passive foreign investment companies (PFIC), partnerships, non-taxable dividends, net operating losses, capital loss carryforwards, expiring capital loss carryforwards and losses deferred due to wash sales and excise tax regulations. Some of 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. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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. During the period, the long-term redemption fee and the first $7.50 of the short-term redemption fee were accounted for as a reduction of transfer agent expenses. This portion of the redemption fee was 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 was accounted for as an addition to paid in capital. Effective March 1, 1996, the entire long- and short-term redemption fees are accounted for as a direct addition to paid in capital. There is a $7.50 fee for shares exchanged into another Fidelity fund (see Note 4). This is in addition to the applicable redemption fees. 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 use forward foreign currency contracts to facilitate transactions in foreign securities and to manage each fund's currency exposure. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge a fund's investments against currency fluctuations. Also, a contract to buy or sell can offset a previous contract. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and any realized gain (loss) is recognized on the date of offset; otherwise, gain (loss) is recognized on settlement date. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the funds, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery of the underlying U.S. Treasury or Federal Agency Securities, the market value of which is required to be at least equal to the repurchase price. For term repurchase agreement transactions, the underlying securities are marked-to-market daily and maintained at a value at least equal to the repurchase price. FMR, the funds' investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. 3. 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 equity fund's schedule of investments. 4. 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 .2500% to .5200% for the period. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .30%. For the period, the management fee was equivalent to an annual rate of .61% 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 .1100% to .3700% for the period. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .03%. The income-based fee is added only when the fund's gross yield exceeds 5%. At that 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% of average net assets. For the period, the management fee was equivalent to an annual rate of .24% of the fund's average net assets. SUB-ADVISER FEE. 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. 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 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED SALES LOAD - CONTINUED 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 FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the funds' transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. 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" at the end of each fund's schedule of investments. 5. BANK BORROWINGS. Each fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The funds have 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. 6. 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. 7. EXPENSE REDUCTIONS. FMR voluntarily agreed to reimburse the funds' operating expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) above an annual rate of 2.50% of average net assets. In addition, FMR agreed to reimburse each fund's expenses 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. The lowest limitation applicable to the fund is 2.50% of the first $30 million of average net assets, 2% of the next $70 million and 1.50% of the excess. FMR retains the ability to be repaid by the fund for these expense reductions in the amount that expenses fall below the limit prior to the end of the fiscal year. In addition, FMR agreed to reimburse an additional portion of some of the funds' operating expenses. FMR has directed certain portfolio trades to brokers who paid a portion of the funds' expenses. In addition, each fund has entered into certain arrangements with its custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of each fund's expenses. For the period, the aggregate reductions under these arrangements are shown under the caption "Other Information" on each fund's Statement of Operations. 8. BENEFICIAL INTEREST. At the end of the period, certain shareholders were record owners of more than 25% of the total outstanding shares of the following funds: BENEFICIAL INTEREST NUMBER OF % FUND SHAREHOLDERS OWNERSHIP Automotive 1 38.3 Construction and Housing 1 61.9 Industrial Materials 1 41.3 9. LITIGATION. In December 1995, several individuals who purchased shares of Apple Computer, Inc. ("Apple") in September 1995 filed purported class action complaints against Select Technology Portfolio, Select Computers Portfolio, FMR, FMR Corp. and Harry Lange, the funds' portfolio manager at that time. The complaints allege that, in violation of a federal securities law, the funds' portfolio manager made misleading statements regarding Apple and the funds' holdings of Apple. The defendants deny the allegations in the complaints and intend to defend the lawsuits vigorously. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and the Shareholders of Fidelity Select Portfolios: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the thirty-six funds constituting Fidelity Select Portfolios at February 29, 1996, the results of each of their operations for the year then ended, the changes in each of their net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity Select Portfolios' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 29, 1996 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts April 19, 1996 DISTRIBUTIONS The Board of Trustees of Fidelity Select Portfolios voted to pay to shareholders of record at the opening of business on record date, the following distributions derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income for each of the following funds: AMOUNTS PER SHARE REINVESTMENT FUND RECORD & EX-DATE PAY DATE DIVIDENDS CAPITAL GAINS TOTAL PRICE Air Transportation 4/4/96 4/8/96 $ - $.27 $.27 $22.63 Automotive 4/4/96 4/8/96 .03 - .03 23.44 Biotechnology 4/12/96 4/15/96 .03 .74 .77 34.31 Brokerage and Investment Management 4/4/96 4/8/96 .02 .40 .42 19.13 Chemicals 4/4/96 4/8/96 - .26 .26 41.32 Computers 4/12/96 4/15/96 - .55 .55 37.76 Construction and Housing 4/12/96 4/15/96 - .78 .78 18.83 Defense and Aerospace 4/4/96 4/8/96 - .81 .81 27.10 Energy 4/4/96 4/8/96 .05 .82 .87 19.64 Energy Service 4/4/96 4/8/96 - .10 .10 17.59 Environmental Services 4/12/96 4/15/96 - .02 .02 12.97 Financial Services 4/4/96 4/8/96 .26 1.41 1.67 66.01 Food and Agriculture 4/4/96 4/8/96 .06 1.07 1.13 40.49 Health Care 4/4/96 4/8/96 .23 3.22 3.45 99.09 Home Finance 4/4/96 4/8/96 .11 .79 .90 33.68 Industrial Equipment 4/12/96 4/15/96 .01 .95 .96 24.15 Industrial Materials 4/12/96 4/15/96 .01 .41 .42 27.49 Insurance 4/12/96 4/15/96 .02 .38 .40 25.00 Leisure 4/4/96 4/8/96 - .99 .99 45.66 Medical Delivery 4/4/96 4/8/96 - 1.20 1.20 28.33 Multimedia 4/4/96 4/8/96 - .64 .64 26.23 Natural Gas 4/12/96 4/15/96 .01 .09 .10 12.17 Paper and Forest Products 4/12/96 4/15/96 .01 .92 .93 21.04 Precious Metals and Minerals 4/4/96 4/8/96 .05 - .05 20.51 Regional Banks 4/12/96 4/15/96 .09 .52 .61 23.64 Software and Computer Services 4/4/96 4/8/96 - 1.16 1.16 34.54 Technology 4/12/96 4/15/96 - .53 .53 49.21 Telecommunications 4/12/96 4/15/96 .10 3.17 3.27 40.59 Transportation 4/12/96 4/15/96 - .12 .12 22.06 Utilities Growth 4/4/96 4/8/96 .24 2.62 2.86 40.57 FEDERAL TAX STATUS Dividend and capital gain distributions will be taxable regardless of whether you take them in cash or in additional shares. You will be notified at a later date as to the tax treatment of these distributions and dividends. If you receive additional shares, the amount received should be treated as an additional purchase and added to your cost basis. The reinvestment price is the 10:00 A.M. price on each fund's ex-date. NOTE: IF YOUR ACCOUNT IS A FIDELITY PROTOTYPE RETIREMENT PLAN SUCH AS AN INDIVIDUAL RETIREMENT ACCOUNT (IRA), A KEOGH PLAN, A 403(B), OR A QUALIFIED PENSION OR PROFIT SHARING PLAN, THE ABOVE DATA IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT REPORTABLE FOR TAX PURPOSES IN 1996. INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS 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 Fred L. Henning, Jr., VICE PRESIDENT, MONEY MARKET FUND Arthur S. Loring, SECRETARY Kenneth A. Rathgeber, TREASURER Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS Thomas D. Maher, ASSISTANT VICE PRESIDENT, MONEY MARKET FUND John H. Costello, ASSISTANT TREASURER Leonard M. Rush, ASSISTANT TREASURER 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 BULK RATE U.S. Postage PAID Fidelity Investments (registered trademark) P.O. Box 193 Boston, MA 02101 -----END PRIVACY-ENHANCED MESSAGE-----