(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GOVERNMENT INVESTMENT
FUND - CLASS A AND CLASS B
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 11 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 14 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 15 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 20 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 26 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR GOVERNMENT INVESTMENT FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. If Fidelity had not reimbursed certain class expenses
the past one year, past five years and life of fund total returns would
have been lower. Effective January 1, 1996, the maximum 4.75% sales charge
on Class A shares was reduced to 3.50%.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Government Investment - Class A -0.29% 7.62% 40.35% 86.56%
Advisor Government Investment - Class A -3.78% 3.86% 35.44% 80.03%
(incl. max. 3.50% sales charge)
Salomon Brothers Treasury/Agency Index -0.07% 8.26% 47.13% n/a
General U.S. Government Funds Average -0.60% 7.15% 40.18% n/a
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on January 7, 1987. 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. You can compare Class A's returns to those of
the Salomon Brothers Treasury/Agency Index, which is a
market-capitalization weighted index comprised of U.S. Treasury and
Government Agency securities. Issues included in the Index have fixed-rate
coupons and weighted average lives greater than one year. To measure how
Class A's performance stacked up against its peers, you can compare it to
the general U.S. government funds average, which reflects the performance
of 172 funds with similar objectives tracked by Lipper Analytical Services
over the past six months. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Class A 7.62% 7.01% 6.92%
Advisor Government Investment - Class A 3.86% 6.25% 6.51%
(incl. max. 3.50% sales charge)
Salomon Brothers Treasury/Agency Index 8.26% 8.03% n/a
General U.S. Government Funds Average 7.15% 6.97% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' actual (or cumulative)
return and show you what would have happened if Class A shares had
performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960524 160542 S00000000000001
FA Gov't Invest. Cl A Salomon Bros.T/A
00217 SB022
1987/01/31 9650.00 10000.00
1987/02/28 9682.54 10077.02
1987/03/31 9639.88 9962.08
1987/04/30 9296.26 9770.91
1987/05/31 9257.99 9724.70
1987/06/30 9382.53 9835.30
1987/07/31 9400.47 9807.25
1987/08/31 9347.47 9766.17
1987/09/30 9161.05 9582.12
1987/10/31 9453.29 9947.07
1987/11/30 9527.58 9994.47
1987/12/31 9611.53 10107.43
1988/01/31 9904.44 10450.67
1988/02/29 10015.19 10562.05
1988/03/31 9957.91 10456.59
1988/04/30 9899.02 10387.87
1988/05/31 9840.24 10339.28
1988/06/30 10037.88 10548.23
1988/07/31 10020.65 10480.69
1988/08/31 10015.32 10497.67
1988/09/30 10185.43 10721.23
1988/10/31 10336.05 10909.23
1988/11/30 10249.67 10789.95
1988/12/31 10243.19 10825.10
1989/01/31 10362.20 10970.46
1989/02/28 10330.08 10885.93
1989/03/31 10360.66 10950.31
1989/04/30 10528.75 11155.30
1989/05/31 10734.41 11438.90
1989/06/30 10974.18 11826.37
1989/07/31 11145.05 12072.44
1989/08/31 11030.98 11868.24
1989/09/30 11095.04 11922.74
1989/10/31 11304.52 12232.40
1989/11/30 11390.39 12347.74
1989/12/31 11446.76 12366.30
1990/01/31 11322.21 12196.07
1990/02/28 11359.51 12206.34
1990/03/31 11376.31 12218.58
1990/04/30 11274.11 12115.49
1990/05/31 11604.45 12440.95
1990/06/30 11771.60 12639.23
1990/07/31 11914.29 12807.09
1990/08/31 11838.11 12621.85
1990/09/30 11916.80 12754.96
1990/10/31 12036.52 12964.29
1990/11/30 12246.39 13242.36
1990/12/31 12404.34 13452.09
1991/01/31 12540.44 13594.68
1991/02/28 12644.86 13652.34
1991/03/31 12695.68 13726.99
1991/04/30 12801.17 13890.51
1991/05/31 12868.36 13939.09
1991/06/30 12861.05 13930.01
1991/07/31 12998.92 14105.77
1991/08/31 13200.53 14419.78
1991/09/30 13439.11 14731.81
1991/10/31 13559.17 14845.56
1991/11/30 13637.55 15000.00
1991/12/31 14072.82 15514.65
1992/01/31 13881.94 15274.51
1992/02/29 13945.78 15335.73
1992/03/31 13850.12 15243.31
1992/04/30 13931.28 15352.32
1992/05/31 14187.00 15619.32
1992/06/30 14383.39 15846.43
1992/07/31 14626.26 16239.43
1992/08/31 14752.17 16406.11
1992/09/30 14889.22 16632.83
1992/10/31 14709.70 16391.50
1992/11/30 14746.92 16361.48
1992/12/31 14985.28 16637.97
1993/01/31 15241.93 17011.22
1993/02/28 15527.96 17343.00
1993/03/31 15616.98 17389.60
1993/04/30 15734.64 17538.91
1993/05/31 15759.43 17512.44
1993/06/30 16069.64 17905.44
1993/07/31 16149.22 18015.64
1993/08/31 16412.53 18416.15
1993/09/30 16442.64 18497.51
1993/10/31 16552.92 18546.49
1993/11/30 16299.71 18342.68
1993/12/31 16387.49 18424.44
1994/01/31 16673.21 18677.62
1994/02/28 16287.07 18288.96
1994/03/31 15794.83 17863.18
1994/04/30 15637.25 17725.73
1994/05/31 15653.55 17708.74
1994/06/30 15600.24 17672.41
1994/07/31 15940.35 17980.88
1994/08/31 15931.05 17985.62
1994/09/30 15707.22 17733.63
1994/10/31 15680.66 17715.85
1994/11/30 15650.76 17676.75
1994/12/31 15756.70 17798.40
1995/01/31 16039.56 18147.17
1995/02/28 16390.06 18527.53
1995/03/31 16498.69 18637.73
1995/04/30 16694.08 18877.87
1995/05/31 17343.37 19652.03
1995/06/30 17465.10 19800.93
1995/07/31 17403.77 19732.21
1995/08/31 17601.54 19957.74
1995/09/30 17761.87 20137.85
1995/10/31 18019.28 20451.85
1995/11/30 18276.33 20782.84
1995/12/31 18538.07 21070.78
1996/01/31 18633.20 21204.28
1996/02/29 18251.23 20781.26
1996/03/31 18082.72 20598.39
1996/04/30 17966.58 20436.84
IMATRL PRASUN SHR__CHT 19960430 19960524 160544 R00000000000056
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Government Investment Fund - Class A on January 31, 1987, shortly
after the fund started, and paid the current maximum 3.50% sales charge. As
the chart shows, by April 30, 1996, the value of your investment would have
grown to $17,967- a 79.67% increase on your initial investment. For
comparison, look at how the Salomon Brothers Treasury/Agency Index did over
the same period. With dividends reinvested the same $10,000 investment
would have grown to $20,437 - a 104.37% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 3.02% 6.99% 5.01% 6.13% 7.03% 7.84%
Capital appreciation -3.31% 7.92% -10.28% 6.40% 1.46% 4.81%
return
Total return -0.29% 14.91% -5.27% 12.53% 8.49% 12.65%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any, and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.92(cents) 29.70(cents) 58.28(cents)
Annualized dividend rate 6.37% 6.17% 6.07%
30-day annualized yield 5.34% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $9.39 over the past month, or $9.66
over the past six months or $9.60 over the past year, you can compare the
class' income over these three periods. The 30-day annualized YIELD is a
standard formula for all funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis. The
offering share price used in the calculation of the yield includes the
effect of Class A's current maximum 3.50% sales charge.
ADVISOR GOVERNMENT INVESTMENT FUND - CLASS B
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. The initial offering of Class B shares took place on
June 30, 1994. Class B shares bear a 0.90% 12b-1/shareholder service fee
(1.00% prior to January 1, 1996). Returns prior to June 30, 1994 are those
of Class A, the original class of the fund, and reflect Class A's 0.25%
12b-1 fee. Had Class B's 12b-1 fee been reflected, returns prior to June
30, 1994 would have been lower. Class B's contingent deferred sales charges
included in the past six months, past one year, past five years and life of
fund total return figures are 4%, 4%, 1% and 0%, respectively. If Fidelity
had not reimbursed certain class expenses during the periods shown, the
total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Government Investment - Class -0.72% 6.86% 38.26% 83.79%
B
Advisor Government Investment - Class B -4.59% 2.86% 37.26% 83.79%
(incl. contingent deferred sales charge)
Salomon Brothers Treasury/Agency Index -0.07% 8.26% 47.13% n/a
General U.S. Government Funds Average -0.60% 7.15% 40.18% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on January 7, 1987. 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. You can compare Class B's returns to those of
the Salomon Brothers Treasury/ Agency Index, which is a
market-capitalization weighted index comprised of U.S. Treasury and
Government Agency securities. Issues included in the Index have fixed-rate
coupons and weighted average lives greater than one year. To measure how
Class B's performance stacked up against its peers, you can compare it to
the general U.S. government funds average, which reflects the performance
of 172 funds with similar objectives tracked by Lipper Analytical Services
over the past six months. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Class 6.86% 6.69% 6.75%
B
Advisor Government Investment - Class B 2.86% 6.54% 6.75%
(incl. contingent deferred sales charge)
Salomon Brothers Treasury/Agency Index 8.26% 8.03% n/a
General U.S. Government Funds Average 7.15% 6.97% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' actual (or cumulative)
return and show you what would have happened if Class B shares had
performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960524 160542 S00000000000001
FA Gov't Invest. Cl B Salomon Bros.T/A
00667 SB022
1987/01/31 10000.00 10000.00
1987/02/28 10033.72 10077.02
1987/03/31 9989.52 9962.08
1987/04/30 9633.43 9770.91
1987/05/31 9593.77 9724.70
1987/06/30 9722.83 9835.30
1987/07/31 9741.42 9807.25
1987/08/31 9686.50 9766.17
1987/09/30 9493.31 9582.12
1987/10/31 9796.16 9947.07
1987/11/30 9873.14 9994.47
1987/12/31 9960.14 10107.43
1988/01/31 10263.66 10450.67
1988/02/29 10378.44 10562.05
1988/03/31 10319.08 10456.59
1988/04/30 10258.05 10387.87
1988/05/31 10197.14 10339.28
1988/06/30 10401.94 10548.23
1988/07/31 10384.09 10480.69
1988/08/31 10378.57 10497.67
1988/09/30 10554.85 10721.23
1988/10/31 10710.93 10909.23
1988/11/30 10621.42 10789.95
1988/12/31 10614.71 10825.10
1989/01/31 10738.03 10970.46
1989/02/28 10704.75 10885.93
1989/03/31 10736.44 10950.31
1989/04/30 10910.62 11155.30
1989/05/31 11123.75 11438.90
1989/06/30 11372.20 11826.37
1989/07/31 11549.27 12072.44
1989/08/31 11431.07 11868.24
1989/09/30 11497.45 11922.74
1989/10/31 11714.53 12232.40
1989/11/30 11803.52 12347.74
1989/12/31 11861.92 12366.30
1990/01/31 11732.86 12196.07
1990/02/28 11771.51 12206.34
1990/03/31 11788.93 12218.58
1990/04/30 11683.02 12115.49
1990/05/31 12025.34 12440.95
1990/06/30 12198.55 12639.23
1990/07/31 12346.41 12807.09
1990/08/31 12267.47 12621.85
1990/09/30 12349.02 12754.96
1990/10/31 12473.08 12964.29
1990/11/30 12690.56 13242.36
1990/12/31 12854.24 13452.09
1991/01/31 12995.27 13594.68
1991/02/28 13103.48 13652.34
1991/03/31 13156.15 13726.99
1991/04/30 13265.46 13890.51
1991/05/31 13335.08 13939.09
1991/06/30 13327.52 13930.01
1991/07/31 13470.38 14105.77
1991/08/31 13679.30 14419.78
1991/09/30 13926.54 14731.81
1991/10/31 14050.95 14845.56
1991/11/30 14132.18 15000.00
1991/12/31 14583.23 15514.65
1992/01/31 14385.42 15274.51
1992/02/29 14451.59 15335.73
1992/03/31 14352.46 15243.31
1992/04/30 14436.56 15352.32
1992/05/31 14701.56 15619.32
1992/06/30 14905.07 15846.43
1992/07/31 15156.75 16239.43
1992/08/31 15287.22 16406.11
1992/09/30 15429.24 16632.83
1992/10/31 15243.21 16391.50
1992/11/30 15281.78 16361.48
1992/12/31 15528.79 16637.97
1993/01/31 15794.74 17011.22
1993/02/28 16091.15 17343.00
1993/03/31 16183.40 17389.60
1993/04/30 16305.32 17538.91
1993/05/31 16331.01 17512.44
1993/06/30 16652.47 17905.44
1993/07/31 16734.95 18015.64
1993/08/31 17007.80 18416.15
1993/09/30 17039.01 18497.51
1993/10/31 17153.29 18546.49
1993/11/30 16890.89 18342.68
1993/12/31 16981.85 18424.44
1994/01/31 17277.94 18677.62
1994/02/28 16877.79 18288.96
1994/03/31 16367.70 17863.18
1994/04/30 16204.40 17725.73
1994/05/31 16221.30 17708.74
1994/06/30 16166.05 17672.41
1994/07/31 16490.34 17980.88
1994/08/31 16483.89 17985.62
1994/09/30 16219.54 17733.63
1994/10/31 16181.58 17715.85
1994/11/30 16140.13 17676.75
1994/12/31 16238.51 17798.40
1995/01/31 16519.47 18147.17
1995/02/28 16873.65 18527.53
1995/03/31 16975.13 18637.73
1995/04/30 17165.40 18877.87
1995/05/31 17822.27 19652.03
1995/06/30 17936.30 19800.93
1995/07/31 17861.31 19732.21
1995/08/31 18052.93 19957.74
1995/09/30 18206.16 20137.85
1995/10/31 18477.30 20451.85
1995/11/30 18729.44 20782.84
1995/12/31 18986.81 21070.78
1996/01/31 19073.11 21204.28
1996/02/29 18672.37 20781.26
1996/03/31 18490.61 20598.39
1996/04/30 18343.56 20436.84
IMATRL PRASUN SHR__CHT 19960430 19960524 160544 R00000000000056
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Government Investment Fund - Class B on January 31, 1987, shortly
after the fund started. As the chart shows, by April 30, 1996, the value of
your investment would have grown to $18,341 - an 83.41% increase on your
initial investment. For comparison, look at how the Salomon Brothers
Treasury/Agency Index did over the same period. With dividends reinvested
the same $10,000 investment would have grown to $20,437 - a 104.37%
increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 2.69% 6.15% 4.72% 6.13% 7.03% 7.84%
Capital appreciation -3.41% 8.04% -10.38% 6.40% 1.46% 4.81%
return
Total return -0.72% 14.19% -5.66% 12.53% 8.49% 12.65%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any, and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIOD ENDED APRIL 30, 1996 PAST PAST PAST 1
MONTH 6 MONTHS YEAR
Dividends per share 4.48(cents) 26.52(cents) 51.41(cents)
Annualized dividend rate 5.80% 5.51% 5.36%
30-day annualized yield 4.95% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. The annualized dividend rate is
based on an average net asset value of $9.39 over the past month, $9.66
over the past six months, and $9.59 over the past year. The 30-day
annualized YIELD is a standard formula for all funds based on the yields of
the bonds in the fund, averaged over the past 30 days. This figure shows
you the yield characteristics of the fund's investments at the end of the
period. It also helps you compare funds from different companies on an
equal basis. The offering share price used in the calculation of the yield
excludes the effect of Class B's contingent deferred sales charge. If
Fidelity had not reimbursed certain class expenses during the periods
shown, the yield would have been 4.81%.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Robert Ives, Portfolio Manager of Fidelity Advisor
Government Investment Fund
Q. HOW DID THE FUND PERFORM, BOB?
A. Bonds have been hurt in 1996 by rising interest rates caused by signs of
strength in the economy. As of April 30, 1996, the fund's Class A and Class
B shares had a total return of -0.29% and -0.72%, respectively, for the
past six months and 7.62% and 6.86%, respectively, for the year. For the
same periods, the Salomon Brothers Treasury/Agency Index returned -0.07%
and 8.26%, respectively. The fund can also be compared to the Lipper
Analytical Services' general U.S. government funds average of -0.60% for
the past six months and 7.15% for one year.
Q. WHAT HAS HAPPENED IN THE BOND MARKET OVER THE PAST SIX MONTHS?
A. In the fourth quarter of 1995, there were clear signs of weakness in the
economy. This was beneficial to bonds because inflation - which erodes the
value of fixed-income investments - was not viewed as a threat. One of the
most notable changes in the bond market from six months ago, however, is
that inflation has become somewhat of a concern. Bond investors fear
inflation because it can erode the value of investments based on a fixed
stream of income. The surprisingly strong February employment report was
later confirmed by the release of an equally strong March report. Commodity
prices - which are often considered a precursor to an inflationary
environment - continued to rise in 1996 and the Employment Cost Index was
up a solid 3% for the past 12 months. The Employment Cost Index is
extremely important because wage pressures usually drive inflation.
Q. MORTGAGE-BACKED SECURITIES PERFORMED WELL RELATIVE TO OTHER TYPES OF
GOVERNMENT BONDS . . .
A. Rising interest rates and falling prices in the U.S. Treasury market
helped mortgage-backed securities during the period. For mortgage
investors, rising interest rates make homeowners less likely to prepay
mortgages which, in turn, would result in mortgage-backed bonds being
paid-off or called before maturity. When a bond is called, it can create
reinvestment risk - or the risk one might have to invest at lower rates.
Q. DOES THE FUND OWN A LOT OF "SEASONED" MORTGAGES?
A. Yes. The fund has a significant position in seasoned mortgages. These
are mortgages that were issued several years ago and have experienced a
period where homeowners could have refinanced. The homeowners who didn't
refinance remain in the mortgage pool. As a result, they are statistically
less likely to refinance in the future. During the period, the market began
to recognize the value of these securities and their prices rose.
Q. HAVE YOU RECENTLY PURCHASED ANY MORTGAGE SECURITIES?
A. Yes, I purchased 30-year Fannie Mae discount pass-throughs and 15-year
Fannie Mae discount pass-throughs, which trade at a price below par or face
value. At the time, these securities were undervalued and had little
prepayment risk.
Q. WHAT HAPPENED WITH THE FUND'S POSITION IN FEDERAL AGENCY SECURITIES?
A. Federal agency securities also performed relatively well. The fund was
overweighted in this sector relative to its benchmark index and, therefore,
it benefited from their performance. Also, on certain occasions, I was able
to take advantage of the buyer's market in agencies by selling a position
at an attractive price.
Q. HOW WOULD YOU DESCRIBE THE FUND'S AGENCY POSITIONS?
A. The funds' agency holdings are for the most part spread across different
federal agencies. During the period, I found that agencies backed by the
full faith and credit of the U.S. government were attractively priced, and
so I tended to add to these positions. Some of these securities include the
Agency for International Development and Government Trust Certificates.
Q. WERE THERE ANY PARTICULAR VALUES IN THE U.S. TREASURY MARKET?
A. Not really. For the most part, I tried to avoid Treasuries with the
longest maturities. In my opinion, the longest end of the maturity spectrum
was trading at somewhat expensive levels compared to shorter-term bonds.
Q. ASIDE FROM A DIFFICULT FIRST FOUR MONTHS OF 1996 FOR THE BOND MARKET,
WERE THERE ANY OTHER DISAPPOINTMENTS?
A. Yes. Agencies performed well relative to Treasuries. Given what I know
now, I would have had a greater weighting in other types of agency
securities to boost the fund's performance further during the period.
Q. BOB, WE UNDERSTAND THAT THERE WILL BE A CHANGE IN THE FUND'S INVESTMENT
POLICIES . . .
A. Yes, there will. As of June 24, the fund will limit its investments to
U.S. government securities and U.S. government-related securities, such as
futures, repurchase agreements for U.S. government securities and custodial
receipts. The fund currently can invest up to 35% in non-U.S. government
securities; however, it will not be affected by this change because only
U.S. government and related securities have been included in the portfolio
for some time now.
Q. WHAT'S YOUR OUTLOOK?
A. The direction of the bond market is dictated by the kind of economic
news it receives. In that regard, the economy looks stronger than many
investors expected just a few months ago. On the other hand, should the
Federal Reserve Board raise short-term interest rates, the cooling of the
economy that results may help bonds in the future.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks a high level of
current income by investing
primarily in obligations
issued or guaranteed by the
U.S. government or any of
its agencies or
instrumentalities
START DATE: January 7, 1987
SIZE: as of April 30, 1996,
more than $276 million
MANAGER: Robert Ives, since
1995; manager, Fidelity
Advisor Annuity Government
Investment Fund, since
1995; manager, Fidelity
Advisor World U.S.
Government Investment
Fund, since 1995; joined
Fidelity in 1991
(checkmark)
BOB IVES ON MANAGING THE
FUND DURING PERIODS OF
VOLATILITY:
"Although few investors
relish the uncertainty a
volatile bond market creates,
it really does not make it more
difficult to manage the fund.
As a fund manager, my job
is to outperform the market. I
do this by finding relative
value opportunities within the
market - such as if one
sector appears inexpensive
relative to another, or if one
maturity range on the yield
curve seems attractively
priced compared to other
areas.
"Generally, volatility in the
market creates opportunities.
That's because the historical
relationships between various
securities can temporarily
become out of line. When this
occurs, price anomalies can
develop, which can offer profit
potential for investors."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Less than 5% 0.2 0.5
5 - 5.99% 3.8 12.2
6 - 6.99% 13.4 7.9
7 - 7.99% 24.8 12.0
8 - 8.99% 35.6 36.1
9 - 9.99% 13.1 9.8
10 - 10.99% 0.5 0.6
11 - 11.99% 1.1 3.9
12% and over 6.5 11.6
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF APRIL 30, 1996
6 MONTHS AGO
Years 8.7 9.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF APRIL 30, 1996
6 MONTHS AGO
Years 4.8 4.9
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION
AS OF APRIL 30, 1996 AS OF OCTOBER 31, 1995
Mortgage-backed
securities 16.0%
U.S. government
and government
agency
obligations 83.0%
Short-term
investments 1.0%
Mortgage-backed
securities 10.6%
U.S. government
and government
agency
obligations 84.0%
Short-term
investments 5.4%
Row: 1, Col: 1, Value: 1.5
Row: 1, Col: 2, Value: 82.5
Row: 1, Col: 3, Value: 16.0
Row: 1, Col: 1, Value: 5.4
Row: 1, Col: 2, Value: 84.0
Row: 1, Col: 3, Value: 10.6
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 83.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 66.9%
8 1/2%, 5/15/97 $ 16,950,000 $ 17,418,837
8 3/4%, 10/15/97 8,390,000 8,719,056
7 3/8%, 11/15/97 20,480,000 20,895,949
9 1/4%, 8/15/98 16,475,000 17,558,726
8 7/8%, 11/15/98 1,957,000 2,079,626
8 7/8%, 2/15/99 830,000 885,892
9 1/8%, 5/15/99 261,000 281,389
7 3/4%, 12/31/99 26,530,000 27,732,074
7 7/8%, 8/15/01 8,550,000 9,087,026
11 5/8%, 11/15/04 320,000 421,850
11 3/4%, 2/15/10 1,302,000 1,721,283
12 3/4%, 11/15/10 10,233,000 14,439,684
13 7/8%, 5/15/11 100,000 150,562
9%, 11/15/18 7,090,000 8,599,957
8 7/8%, 2/15/19 42,148,000 50,544,725
12%, 8/15/23 1,520,000 2,148,900
182,685,536
U.S. GOVERNMENT AGENCY OBLIGATIONS - 16.1%
Farm Credit System Financial Assistance Corporation Series A,
9 3/8%, 7/21/03 800,000 912,128
Federal Agricultural Mortgage Corporation:
7.48%, 11/27/00 1,250,000 1,293,163
7.01%, 8/10/04 500,000 500,235
Federal Farm Credit Bank:
6.09%, 4/03/00 590,000 581,545
6.20%, 9/23/02 500,000 486,485
6.40%, 10/3/02 160,000 156,899
Federal Home Loan Bank:
8.85%, 6/21/00 750,000 811,058
6.37%, 6/30/03 230,000 223,936
7.36%, 7/1/04 700,000 715,533
7.38%, 8/05/04 1,580,000 1,617,272
7.46%, 9/09/04 920,000 949,182
8.09%, 12/28/04 290,000 311,161
7.59%, 3/10/05 290,000 302,052
Federal Home Loan Mortgage Corporation:
6.395%, 5/16/00 1,260,000 1,253,108
6.22%, 3/24/03 630,000 609,720
6.20%, 4/15/03 350,000 337,369
8%, 1/26/05 330,000 352,173
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal National Mortgage Association:
7%, 7/13/98 (a) $ 320,000 $ 333,350
8.35%, 11/10/99 830,000 878,895
6.32%, 8/03/00 2,930,000 2,904,831
5.45%, 10/10/03 530,000 487,351
7.40%, 7/1/04 190,000 195,225
Government Trust Certificates:
(assets of Trust guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-B 9 1/8%, 11/15/96 126,856 127,427
Class 1-C 9 1/4%, 11/15/01 478,000 513,023
Class 2-E 9.40%, 5/15/02 1,040,000 1,120,049
Class T-2 9 5/8%, 5/15/02 423,000 456,443
(assets of Trust guaranteed by U.S. Government through
Export-Import Bank):
Series 1992-A, 7.02%, 9/1/04 378,250 383,717
Series 1993-C, 5.20%, 10/15/04 219,111 206,718
Series 1993-D, 5.23%, 5/15/05 385,745 363,685
Series 1994-A, 7.12%, 4/15/06 203,831 206,283
Series 1994-B, 7 1/2%, 1/26/06 278,404 286,778
Series 1994-C, 6.61%, 9/15/99 182,956 183,923
Series 1994-F, 8.178%, 12/15/04 322,321 337,612
Series 1996-A, 6.55%, 6/15/04 830,000 824,439
Israel Export Trust Certificate (assets of Trust
guaranteed by U.S. Government through Export-Import
Bank) Series 1994-1, 6.88%, 1/26/03 436,471 439,528
Overseas Private Investment Corp. (U.S. Government
guaranteed participation certificate) Series 1994-195,
6.08%, 8/15/04 (b) 800,000 762,584
Private Export Funding Corp. secured:
Series SS, 5.80%, 2/1/04 290,000 277,884
Series VV, 6.24%, 5/15/02 310,000 302,473
5 3/4%, 4/30/98 670,000 663,640
8.35%, 1/31/01 2,800,000 2,990,148
6.90%, 1/31/03 60,000 60,271
5.65%, 3/15/03 1,200,500 1,168,267
8 3/4%, 6/30/03 650,000 715,254
6.86%, 4/30/04 192,000 193,055
State of Israel (guaranteed by U.S. Government through Agency
for International Development):
7 3/4%, 4/1/98 333,953 341,090
4 7/8%, 9/15/98 520,000 504,400
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S. Government through Agency
for International Development): - continued
7 1/8%, 8/15/99 $ 1,874,000 $ 1,910,024
5 3/4%, 3/15/00 892,000 868,864
8%, 11/15/01 2,140,000 2,266,624
6 1/4%, 8/15/02 1,569,000 1,530,258
6 1/8%, 3/15/03 630,000 606,966
7 5/8%, 8/15/04 480,000 498,797
5.89%, 8/15/05 390,000 361,605
8 1/2%, 4/1/06 1,070,000 1,151,555
Student Loan Marketing Association 8.14%, 10/15/03 300,000 318,752
Twelve Federal Land Banks 7.95%, 10/21/96 190,000 192,048
U.S. Housing & Urban Development:
8.24%, 8/1/02 4,000,000 4,275,000
8.27%, 8/1/03 415,000 445,384
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 44,067,239
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $229,908,158) 226,752,775
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 13.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.9%
6 1/2%, 5/1/08 472,430 460,619
8 1/2%, 8/1/09 to 10/1/25 1,616,602 1,673,049
9%, 10/1/08 to 10/1/20 1,983,128 2,086,411
9 1/2%, 2/1/08 to 7/1/21 1,478,339 1,589,406
10 1/2%, 1/1/16 to 12/1/20 1,146,798 1,259,004
12 1/2%, 2/1/10 to 6/1/19 800,969 923,048
7,991,537
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 10.5%
6%, 12/1/08 to 4/1/16 11,602,338 10,988,356
6.345%, 3/1/99 1,853,833 1,845,676
6 1/2%, 2/1/10 to 4/1/26 12,592,536 11,853,758
8 1/4%, 12/1/01 691,435 716,716
8 1/2%, 8/1/16 to 1/1/17 427,212 442,855
9%, 6/1/25 1,235,826 1,298,433
9 1/2%, 2/1/10 to 5/1/20 1,235,059 1,330,970
12 1/2%, 8/1/15 50,533 58,587
28,535,351
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.3%
11 1/2%, 3/15/10 to 1/15/13 $ 731,971 $ 825,406
13 1/2%, 7/15/11 74,751 89,163
914,569
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES (Cost $37,616,006) 37,441,457
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 2.3%
Federal Home Loan Mortgage Corporation sequential pay
Series 1353 Class A, 5 1/2%, 11/15/04 75,078 73,764
Federal National Mortgage Association:
Series 1994-M3 Class A, 7.71%, 4/1/06 361,514 371,094
planned amortization class:
Series 1992 Class 193-D, 5 3/4%, 12/25/01 2,600,000 2,561,000
Series 1993 Class 72-B, 5%, 1/25/02 936,969 927,009
Series 1993 Class 135-PC, 5 1/2%, 7/25/02 2,000,000 1,966,876
Series 1993-28 Class PD, 5 1/4%, 10/25/01 445,199 442,394
TOTAL U.S. GOVERNMENT AGENCY -
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $6,230,359) 6,342,137
REPURCHASE AGREEMENTS - 1.0%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 2,752,407 2,752,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $276,506,523) $ 273,288,369
LEGEND
1. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
2. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $276,509,659. Net unrealized depreciation aggregated
$3,221,290, of which $2,606,873 related to appreciated investment
securities and $5,828,163 related to depreciated investment securities.
At October 31,1995, the fund had a capital loss carryforward of
approximately $3,262,000, all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 273,288,369
agreements of $2,752,000) (cost $276,506,523) -
See accompanying schedule
Cash 1,263,615
Receivable for investments sold 164,650
Interest receivable 5,440,965
Other receivables 246
Prepaid expenses 2,853
Receivable from investment adviser for expense 3,539
reductions
TOTAL ASSETS 280,164,237
LIABILITIES
Payable for investments purchased $ 2,829,247
Distributions payable 158,305
Accrued management fee 103,372
Distribution fees payable 61,001
Other payables and accrued expenses 73,724
TOTAL LIABILITIES 3,225,649
NET ASSETS $ 276,938,588
Net Assets consist of:
Paid in capital $ 282,394,698
Undistributed net investment income 149,610
Accumulated undistributed net realized gain (loss) (2,387,566)
on investments
Net unrealized appreciation (depreciation) on (3,218,154)
investments
NET ASSETS $ 276,938,588
CALCULATION OF MAXIMUM OFFERING PRICE $9.35
CLASS A:
NET ASSET VALUE, and redemption price per share
($236,476,140 (divided by) 25,299,983 shares)
Maximum offering price per share (100/96.50 of $9.35) $9.69
CLASS B: $9.34
NET ASSET VALUE, and offering price per share
($14,869,081 (divided by) 1,591,231 shares) A
INSTITUTIONAL CLASS : $9.34
NET ASSET VALUE, offering price and redemption price
per share ($25,593,367 (divided by) 2,740,650 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 9,476,511
Interest
EXPENSES
Management fee $ 591,938
Transfer agent fees 242,901
Class A
Class B 15,914
Institutional Class 17,602
Distribution fees - Class A 287,790
Distribution fees - Class B 64,286
Accounting fees and expenses 53,012
Non-interested trustees' compensation 503
Custodian fees and expenses 4,602
Registration fees 21,110
Class A
Class B 6,480
Institutional Class 26,986
Audit 24,229
Legal 1,405
Miscellaneous 3,839
Total expenses before reductions 1,362,597
Expense reductions (36,707) 1,325,890
NET INVESTMENT INCOME 8,150,621
REALIZED AND UNREALIZED GAIN (LOSS) 880,879
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (11,131,943)
investment securities
NET GAIN (LOSS) (10,251,064)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (2,100,443)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 8,150,621 $ 10,696,532
Net investment income
Net realized gain (loss) 880,879 1,340,696
Change in net unrealized appreciation (depreciation) (11,131,943) 12,015,016
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (2,100,443) 24,052,244
FROM OPERATIONS
Distributions to shareholders (7,080,926) (9,989,930)
From net investment income
Class A
Class B (379,624) (347,897)
Institutional Class (675,123) (207,322)
TOTAL DISTRIBUTIONS (8,135,673) (10,545,149)
Share transactions - net increase (decrease) 52,200,036 104,952,275
TOTAL INCREASE (DECREASE) IN NET ASSETS 41,963,920 118,459,370
NET ASSETS
Beginning of period 234,974,668 116,515,298
End of period (including undistributed net investment $ 276,938,588 $ 234,974,668
income of $149,610 and $134,662, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590 $ 9.150
beginning of period
Income from
Investment
Operations
Net investment .300 G .594 .515 .567 .666 .700
income
Net realized and (.323) .701 (1.031) .601 .125 .419
unrealized gain
(loss)
Total from investment (.023) 1.295 (.516) 1.168 .791 1.119
operations
Less Distributions
From net investment (.297) (.585) (.504) (.558) (.651) (.679)
income
From net realized - - (.160) (.200) - -
gain
Total distributions (.297) (.585) (.664) (.758) (.651) (.679)
Net asset value, end $ 9.350 $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590
of period
TOTAL RETURN B, C (0.29)% 14.91% (5.27) 12.53% 8.49% 12.65%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 236,476 $ 208,620 $ 114,453 $ 69,876 $ 23,281 $ 13,058
period (000 omitted)
Ratio of expenses to 1.00% A .89% .74% .68% 1.10% 1.10%
average net assets E E E E E
Ratio of expenses to .99% A .89% .74% .68% 1.10% 1.10%
average net assets , F
after expense
reductions
Ratio of net investment 6.21% A 6.34% 6.18% 6.11% 6.98% 7.47%
income to average
net assets
Portfolio turnover rate 136% A 261% 313% 333% 315% 54%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING AGREEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS YEARS ENDED
ENDED OCTOBER 31,
APRIL 30, 1996
(UNAUDITED) 1995 1994 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.670 $ 8.950 $ 9.100
Income from Investment Operations
Net investment income .263 F .542 .144
Net realized and unrealized gain (loss) (.328) .693 (.137)
Total from investment operations (.065) 1.235 .007
Less Distributions
From net investment income (.265) (.515) (.157)
Net asset value, end of period $ 9.340 $ 9.670 $ 8.950
TOTAL RETURN B, C (0.72)% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 14,869 $ 11,766 $ 2,062
Ratio of expenses to average net assets 1.69% A, 1.65% 1.70%
E E
Ratio of expenses to average net assets 1.69% A 1.65% 1.70% A,
after expense reductions E
Ratio of net investment income to average 5.51% A 5.58% 5.22% A
net assets
Portfolio turnover rate 136% A 261% 313%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D FOR THE PERIOD JUNE 30,1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31,1994.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1996
(UNAUDITED) 1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.670 $ 9.560
Income from Investment Operations
Net investment income .306 G .197
Net realized and unrealized gain (loss) (.322) .107
Total from investment operations (.016) .304
Less Distributions
From net investment income (.314) (.194)
Net asset value, end of period $ 9.340 $ 9.670
TOTAL RETURN B, C (0.23)% 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 25,593 $ 14,588
Ratio of expenses to average net assets .75% A, .80% A,
E E
Ratio of expenses to average net assets after expense .74% A, .80% A
reductions F
Ratio of net investment income to average net assets 6.45% A 6.43% A
Portfolio turnover rate 136% A 261%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FOR THE PERIOD JULY 3,1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31,1995.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
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 5 OF
NOTES TO FINANCIAL STATEMENTS).
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Government Investment Fund (the fund) is a fund of
Fidelity Advisor Series II (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust.
The fund offers Class A, Class B, and Institutional Class shares, each of
which has equal rights as to assets and voting privileges. Each class has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the fund are allocated on a pro rata basis to each class based
on the relative net assets of each class to the total net assets of the
fund. Each class of shares differs in its respective distribution, transfer
agent, registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which quotations are not readily
available through the pricing service are valued at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. FMR bears all organizational expenses except for
registering and qualifying each class and shares of each class for
distribution under federal and state securities law. These expenses are
borne by each class and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income dividends are declared separately for each class, while capital gain
distributions are declared at the fund level and allocated to each class on
a pro rata basis based on the number of shares held by each class on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, market discount and losses deferred due
to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $234,502,932 and $172,771,696, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. 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 annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan), Class B shares (Class B Plan),
and Institutional Class shares (collectively referred to as "the Plans").
Under the Class A Plan and Class B Plan, the fund pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution and
service fee. For the period November 1, 1995 to December 31, 1995, this fee
was based on annual rates of .25% and 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
average net assets of the Class A and Class B shares, respectively.
Effective January 1, 1996, the Board of Trustees approved a revised Class B
distribution plan, under which the fee is based on an annual rate of .90%
(of which .65% represents a distribution fee and .25% represents a
shareholder service fee) of the average net assets of the Class B shares.
For the period, the fund paid FDC $287,790 and $64,286 under the Class A
Plan and Class B Plan, respectively, of which $287,790 and $17,273 were
paid to securities dealers, banks and other financial institutions for the
distribution of Class A and Class B shares, respectively, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A, Class B,
and Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. For the period November 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the period, FDC received sales charges of $436,099 on sales of
Class A shares of the fund, of which $363,478 was paid to securities
dealers, banks, and other financial institutions. FDC also receives the
proceeds of a contingent deferred sales charge
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
levied on Class B share redemptions occurring within five years of
purchase. The charge is based on declining rates which range from 4% to 1%
of the lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested dividends
and capital gains. For the period, FDC received contingent deferred sales
charges of $15,192 on Class B share redemptions from the fund. When Class B
shares are sold, FDC pays commissions from its own resources to dealers
through which the sales are made.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Class B and Institutional Class shares. The Transfer Agents receive account
fees and asset-based fees that vary according to the account size and type
of account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.21%, .23%,and .17% of average net assets for Class A, Class B, and
Institutional Class, respectively.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates of average net assets for each class.
(I) CLASS A. For the period, this expense limitation was 1.00% of average
net assets.
(II) CLASS B. Effective January 1, 1996, the expense limitation changed
from an annual rate of 1.75% to 1.65% of average net assets and the
reimbursement reduced expenses by $5,926.
(III) INSTITUTIONAL CLASS. For the period, this expense limitation was .75%
of average net assets and the reimbursement reduced expenses by $20,834.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the class' expenses. During the period, the fund's
custodian fees were reduced by $2,782 under the custodian arrangement, and
Class A and Institutional Class expenses were reduced by $603 and $6,562,
respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
CLASS A
Shares sold 10,732,627 17,166,450 $ 103,646,887 $159,682,098
Reinvestment of distributions 655,004 936,679 6,310,004 8,742,840
Shares redeemed (7,650,804) (9,315,536) (73,276,179) (86,931,676)
Net increase (decrease) 3,736,827 8,787,593 $ 36,680,712 $ 81,493,262
CLASS B
Shares sold 831,331 1,185,499 $ 8,052,390 $ 11,060,085
Reinvestment of distributions 29,557 26,606 284,424 250,266
Shares redeemed (486,408) (225,713) (4,712,039) (2,134,205)
Net increase (decrease) 374,480 986,392 $ 3,624,775 $ 9,176,146
INSTITUTIONAL CLASS
Shares sold 1,472,287 1,632,166 $ 14,225,846 $ 15,464,154
Reinvestment of distributions 53,842 19,194 517,613 184,114
Shares redeemed (294,167) (142,672) (2,848,910) (1,365,401)
Net increase (decrease) 1,231,962 1,508,688 $ 11,894,549 $ 14,282,867
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
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 AGENTS
State Street Bank and Trust Company
Boston, MA - Class A
Fidelity Investments Institutional
Operations Company
Boston, MA - Class B
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GOVERNMENT INVESTMENT
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 16 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 22 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR GOVERNMENT INVESTMENT FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. The initial offering of Institutional Class shares
took place on July 3, 1995. Institutional Class shares are sold to eligible
investors without a sales load or 12b-1 fee. Returns prior to July 3, 1995
are those of Class A, the original class of the fund, and reflect Class A's
0.25% 12b-1 fee. If Fidelity had not reimbursed certain class expenses
during the periods shown, the total returns and dividends would have been
lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Government Investment - -0.23% 7.79% 40.56% 86.85%
Institutional Class
Salomon Brothers Treasury/Agency Index -0.07% 8.26% 47.13% n/a
General U.S. Government Funds Average -0.60% 7.15% 40.18% n/a
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five years, or
since the fund started on January 7, 1987. 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. You can compare Institutional Class' returns to
those of the Salomon Brothers Treasury/Agency Index, which is a
market-capitalization weighted index comprised of U.S. Treasury and
government agency securities. Issues included in the Index have fixed-rate
coupons and weighted average lives greater than one year. To measure how
Institutional Class' performance stacked up against its peers, you can
compare it to the general U.S. government funds average, which reflects the
performance of 172 funds with similar objectives tracked by Lipper
Analytical Services over the past six months. These benchmarks include
reinvested dividends and capital gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - 7.79% 7.05% 6.94%
Institutional Class
Salomon Brothers Treasury/Agency Index 8.26% 8.03% n/a
General U.S. Government Funds Average 7.15% 6.97% n/a
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' actual (or
cumulative) return and show you what would have happened if Institutional
Class shares had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960524 160542 S00000000000001
FA Gov't Invest. Cl I Salomon Bros.T/A
00697 SB022
1987/01/31 10000.00 10000.00
1987/02/28 10033.72 10077.02
1987/03/31 9989.52 9962.08
1987/04/30 9633.43 9770.91
1987/05/31 9593.77 9724.70
1987/06/30 9722.83 9835.30
1987/07/31 9741.42 9807.25
1987/08/31 9686.50 9766.17
1987/09/30 9493.31 9582.12
1987/10/31 9796.16 9947.07
1987/11/30 9873.14 9994.47
1987/12/31 9960.14 10107.43
1988/01/31 10263.66 10450.67
1988/02/29 10378.44 10562.05
1988/03/31 10319.08 10456.59
1988/04/30 10258.05 10387.87
1988/05/31 10197.14 10339.28
1988/06/30 10401.94 10548.23
1988/07/31 10384.09 10480.69
1988/08/31 10378.57 10497.67
1988/09/30 10554.85 10721.23
1988/10/31 10710.93 10909.23
1988/11/30 10621.42 10789.95
1988/12/31 10614.71 10825.10
1989/01/31 10738.03 10970.46
1989/02/28 10704.75 10885.93
1989/03/31 10736.44 10950.31
1989/04/30 10910.62 11155.30
1989/05/31 11123.75 11438.90
1989/06/30 11372.20 11826.37
1989/07/31 11549.27 12072.44
1989/08/31 11431.07 11868.24
1989/09/30 11497.45 11922.74
1989/10/31 11714.53 12232.40
1989/11/30 11803.52 12347.74
1989/12/31 11861.92 12366.30
1990/01/31 11732.86 12196.07
1990/02/28 11771.51 12206.34
1990/03/31 11788.93 12218.58
1990/04/30 11683.02 12115.49
1990/05/31 12025.34 12440.95
1990/06/30 12198.55 12639.23
1990/07/31 12346.41 12807.09
1990/08/31 12267.47 12621.85
1990/09/30 12349.02 12754.96
1990/10/31 12473.08 12964.29
1990/11/30 12690.56 13242.36
1990/12/31 12854.24 13452.09
1991/01/31 12995.27 13594.68
1991/02/28 13103.48 13652.34
1991/03/31 13156.15 13726.99
1991/04/30 13265.46 13890.51
1991/05/31 13335.08 13939.09
1991/06/30 13327.52 13930.01
1991/07/31 13470.38 14105.77
1991/08/31 13679.30 14419.78
1991/09/30 13926.54 14731.81
1991/10/31 14050.95 14845.56
1991/11/30 14132.18 15000.00
1991/12/31 14583.23 15514.65
1992/01/31 14385.42 15274.51
1992/02/29 14451.59 15335.73
1992/03/31 14352.46 15243.31
1992/04/30 14436.56 15352.32
1992/05/31 14701.56 15619.32
1992/06/30 14905.07 15846.43
1992/07/31 15156.75 16239.43
1992/08/31 15287.22 16406.11
1992/09/30 15429.24 16632.83
1992/10/31 15243.21 16391.50
1992/11/30 15281.78 16361.48
1992/12/31 15528.79 16637.97
1993/01/31 15794.74 17011.22
1993/02/28 16091.15 17343.00
1993/03/31 16183.40 17389.60
1993/04/30 16305.32 17538.91
1993/05/31 16331.01 17512.44
1993/06/30 16652.47 17905.44
1993/07/31 16734.95 18015.64
1993/08/31 17007.80 18416.15
1993/09/30 17039.01 18497.51
1993/10/31 17153.29 18546.49
1993/11/30 16890.89 18342.68
1993/12/31 16981.85 18424.44
1994/01/31 17277.94 18677.62
1994/02/28 16877.79 18288.96
1994/03/31 16367.70 17863.18
1994/04/30 16204.40 17725.73
1994/05/31 16221.30 17708.74
1994/06/30 16166.05 17672.41
1994/07/31 16518.50 17980.88
1994/08/31 16508.86 17985.62
1994/09/30 16276.91 17733.63
1994/10/31 16249.39 17715.85
1994/11/30 16218.41 17676.75
1994/12/31 16328.19 17798.40
1995/01/31 16621.31 18147.17
1995/02/28 16984.52 18527.53
1995/03/31 17097.09 18637.73
1995/04/30 17299.57 18877.87
1995/05/31 17972.41 19652.03
1995/06/30 18098.55 19800.93
1995/07/31 18036.39 19732.21
1995/08/31 18245.36 19957.74
1995/09/30 18417.60 20137.85
1995/10/31 18691.49 20451.85
1995/11/30 18963.41 20782.84
1995/12/31 19221.60 21070.78
1996/01/31 19326.05 21204.28
1996/02/29 18935.02 20781.26
1996/03/31 18766.56 20598.39
1996/04/30 18649.30 20436.84
IMATRL PRASUN SHR__CHT 19960430 19960524 160544 R00000000000056
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Government Investment Fund - Institutional Class on January 31,
1987, shortly after the fund started. As the chart shows, by April 30,
1996, the value of your investment would have grown to $18,646 - an 86.46%
increase on your initial investment. For comparison, look at how the
Salomon Brothers Treasury/Agency Index did over the same period. With
dividends reinvested the same $10,000 investment would have grown to
$20,437 - a 104.37% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 3.18% 7.09% 5.01% 6.13% 7.03% 7.84%
Capital appreciation -3.41% 7.92% -10.28% 6.40% 1.46% 4.81%
return
Total return -0.23% 15.01% -5.27% 12.53% 8.49% 12.65%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.10(cents) 31.36(cents) 60.75(cents)
Annualized dividend rate 6.62% 6.52% 6.35%
30-day annualized yield 5.70% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $9.38 over the past month, $9.65
over the past six months, and $9.59 over the past year, you can compare the
class' income over these three periods. The 30-day annualized YIELD is a
standard formula for all funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis. If
Fidelity had not reimbursed certain class expenses during the periods
shown, the yield would have been 4.89%.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Robert Ives, Portfolio Manager of Fidelity Advisor
Government Investment Fund
Q. HOW DID THE FUND PERFORM, BOB?
A. Bonds have been hurt in 1996 by rising interest rates caused by signs of
strength in the economy. As of April 30, 1996, the fund's Institutional
Class shares had a total return of -0.23% for the past six months and 7.79%
for the year. For the same periods, the Salomon Brothers Treasury/Agency
Index returned -0.07% and 8.26%, respectively. The fund can also be
compared to the Lipper Analytical Services' general U.S. government funds
average of -0.60% for the past six months and 7.15% for one year.
Q. WHAT HAS HAPPENED IN THE BOND MARKET OVER THE PAST SIX MONTHS?
A. In the fourth quarter of 1995, there were clear signs of weakness in the
economy. This was beneficial to bonds because inflation - which erodes the
value of fixed-income investments - was not viewed as a threat. One of the
most notable changes in the bond market from six months ago, however, is
that inflation has become somewhat of a concern. Bond investors fear
inflation because it can erode the value of investments based on a fixed
stream of income. The surprisingly strong February employment report was
later confirmed by the release of an equally strong March report. Commodity
prices - which are often considered a precursor to an inflationary
environment - continued to rise in 1996 and the Employment Cost Index was
up a solid 3% for the past 12 months. The Employment Cost Index is
extremely important because wage pressures usually drive inflation.
Q. MORTGAGE-BACKED SECURITIES PERFORMED WELL RELATIVE TO OTHER TYPES OF
GOVERNMENT BONDS . . .
A. Rising interest rates and falling prices in the U.S. Treasury market
helped mortgage-backed securities during the period. For mortgage
investors, rising interest rates make homeowners less likely to prepay
mortgages which, in turn, would result in mortgage-backed bonds being
paid-off or called before maturity. When a bond is called, it can create
reinvestment risk - or the risk one might have to invest at lower rates.
Q. DOES THE FUND OWN A LOT OF "SEASONED" MORTGAGES?
A. Yes. The fund has a significant position in seasoned mortgages. These
are mortgages that were issued several years ago and have experienced a
period where homeowners could have refinanced. The homeowners who didn't
refinance remain in the mortgage pool. As a result, they are statistically
less likely to refinance in the future. During the period, the market began
to recognize the value of these securities and their prices rose.
Q. HAVE YOU RECENTLY PURCHASED ANY MORTGAGE SECURITIES?
A. Yes, I purchased 30-year Fannie Mae discount pass-throughs and 15-year
Fannie Mae discount pass-throughs, which trade at a price below par or face
value. At the time, these securities were undervalued and had little
prepayment risk.
Q. WHAT HAPPENED WITH THE FUND'S POSITION IN FEDERAL AGENCY SECURITIES?
A. Federal agency securities also performed relatively well. The fund was
overweighted in this sector relative to its benchmark index and, therefore,
it benefited from their performance. Also, on certain occasions, I was able
to take advantage of the buyer's market in agencies by selling a position
at an attractive price.
Q. HOW WOULD YOU DESCRIBE THE FUND'S AGENCY POSITIONS?
A. The fund's agency holdings are for the most part spread across different
federal agencies. During the period, I found that agencies backed by the
full faith and credit of the U.S. government were attractively priced, and
so I tended to add to these positions. Some of these securities include the
Agency for
International Development and Government Trust Certificates.
Q. WERE THERE ANY PARTICULAR VALUES IN THE U.S. TREASURY MARKET?
A. Not really. For the most part, I tried to avoid Treasuries with the
longest maturities. In my opinion, the longest end of the maturity spectrum
was trading at somewhat expensive levels compared to shorter-term bonds.
Q. ASIDE FROM A DIFFICULT FIRST FOUR MONTHS OF 1996 FOR THE BOND MARKET,
WERE THERE ANY OTHER DISAPPOINTMENTS?
A. Yes. Agencies performed well relative to Treasuries. Given what I know
now, I would have had a greater weighting in other types of agency
securities to boost the fund's performance further during the period.
Q. BOB, WE UNDERSTAND THAT THERE WILL BE A CHANGE IN THE FUND'S INVESTMENT
POLICIES . . .
A. Yes, there will. As of June 24, the fund will limit its investments to
U.S. government securities and U.S. government-related securities, such as
futures, repurchase agreements for U.S. government securities and custodial
receipts. The fund currently can invest up to 35% in non-U.S. government
securities; however, it will not be affected by this change because only
U.S. government and related securities have been included in the portfolio
for some time now.
Q. WHAT'S YOUR OUTLOOK?
A. The direction of the bond market is dictated by the kind of economic
news it receives. In that regard, the economy looks stronger than many
investors expected just a few months ago. On the other hand, should the
Federal Reserve Board raise short-term interest rates, the cooling of the
economy that results may help bonds in the future.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks a high level of
current income by investing
primarily in obligations
issued or guaranteed by the
U.S. government or any of
its agencies or
instrumentalities
START DATE: January 7, 1987
SIZE: as of April 30, 1996,
more than $276 million
MANAGER: Robert Ives, since
1995; manager, Fidelity
Advisor Annuity Government
Investment Fund, since
1995; manager, Fidelity
Advisor World U.S.
Government Investment
Fund, since 1995; joined
Fidelity in 1991
(checkmark)
BOB IVES ON MANAGING THE
FUND DURING PERIODS OF
VOLATILITY:
"Although few investors
relish the uncertainty a
volatile bond market creates,
it really does not make it more
difficult to manage the fund.
As a fund manager, my job
is to outperform the market. I
do this by finding relative
value opportunities within the
market - such as if one
sector appears inexpensive
relative to another, or if one
maturity range on the yield
curve seems attractively
priced compared to other
areas.
"Generally, volatility in the
market creates opportunities.
That's because the historical
relationships between various
securities can temporarily
become out of line. When this
occurs, price anomalies can
develop, which can offer profit
potential for investors."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Less than 5% 0.2 0.5
5 - 5.99% 3.8 12.2
6 - 6.99% 13.4 7.9
7 - 7.99% 24.8 12.0
8 - 8.99% 35.6 36.1
9 - 9.99% 13.1 9.8
10 - 10.99% 0.5 0.6
11 - 11.99% 1.1 3.9
12% and over 6.5 11.6
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF APRIL 30, 1996
6 MONTHS AGO
Years 8.7 9.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF APRIL 30, 1996
6 MONTHS AGO
Years 4.8 4.9
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION
AS OF APRIL 30, 1996 AS OF OCTOBER 31, 1995
Mortgage-backed
securities 16.0%
U.S. government
and government
agency
obligations 83.0%
Short-term
investments 1.0%
Mortgage-backed
securities 10.6%
U.S. government
and government
agency
obligations 84.0%
Short-term
investments 5.4%
Row: 1, Col: 1, Value: 1.5
Row: 1, Col: 2, Value: 82.5
Row: 1, Col: 3, Value: 16.0
Row: 1, Col: 1, Value: 5.4
Row: 1, Col: 2, Value: 84.0
Row: 1, Col: 3, Value: 10.6
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 83.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 66.9%
8 1/2%, 5/15/97 $ 16,950,000 $ 17,418,837
8 3/4%, 10/15/97 8,390,000 8,719,056
7 3/8%, 11/15/97 20,480,000 20,895,949
9 1/4%, 8/15/98 16,475,000 17,558,726
8 7/8%, 11/15/98 1,957,000 2,079,626
8 7/8%, 2/15/99 830,000 885,892
9 1/8%, 5/15/99 261,000 281,389
7 3/4%, 12/31/99 26,530,000 27,732,074
7 7/8%, 8/15/01 8,550,000 9,087,026
11 5/8%, 11/15/04 320,000 421,850
11 3/4%, 2/15/10 1,302,000 1,721,283
12 3/4%, 11/15/10 10,233,000 14,439,684
13 7/8%, 5/15/11 100,000 150,562
9%, 11/15/18 7,090,000 8,599,957
8 7/8%, 2/15/19 42,148,000 50,544,725
12%, 8/15/23 1,520,000 2,148,900
182,685,536
U.S. GOVERNMENT AGENCY OBLIGATIONS - 16.1%
Farm Credit System Financial Assistance Corporation Series A,
9 3/8%, 7/21/03 800,000 912,128
Federal Agricultural Mortgage Corporation:
7.48%, 11/27/00 1,250,000 1,293,163
7.01%, 8/10/04 500,000 500,235
Federal Farm Credit Bank:
6.09%, 4/03/00 590,000 581,545
6.20%, 9/23/02 500,000 486,485
6.40%, 10/3/02 160,000 156,899
Federal Home Loan Bank:
8.85%, 6/21/00 750,000 811,058
6.37%, 6/30/03 230,000 223,936
7.36%, 7/1/04 700,000 715,533
7.38%, 8/05/04 1,580,000 1,617,272
7.46%, 9/09/04 920,000 949,182
8.09%, 12/28/04 290,000 311,161
7.59%, 3/10/05 290,000 302,052
Federal Home Loan Mortgage Corporation:
6.395%, 5/16/00 1,260,000 1,253,108
6.22%, 3/24/03 630,000 609,720
6.20%, 4/15/03 350,000 337,369
8%, 1/26/05 330,000 352,173
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal National Mortgage Association:
7%, 7/13/98 (a) $ 320,000 $ 333,350
8.35%, 11/10/99 830,000 878,895
6.32%, 8/03/00 2,930,000 2,904,831
5.45%, 10/10/03 530,000 487,351
7.40%, 7/1/04 190,000 195,225
Government Trust Certificates:
(assets of Trust guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-B 9 1/8%, 11/15/96 126,856 127,427
Class 1-C 9 1/4%, 11/15/01 478,000 513,023
Class 2-E 9.40%, 5/15/02 1,040,000 1,120,049
Class T-2 9 5/8%, 5/15/02 423,000 456,443
(assets of Trust guaranteed by U.S. Government through
Export-Import Bank):
Series 1992-A, 7.02%, 9/1/04 378,250 383,717
Series 1993-C, 5.20%, 10/15/04 219,111 206,718
Series 1993-D, 5.23%, 5/15/05 385,745 363,685
Series 1994-A, 7.12%, 4/15/06 203,831 206,283
Series 1994-B, 7 1/2%, 1/26/06 278,404 286,778
Series 1994-C, 6.61%, 9/15/99 182,956 183,923
Series 1994-F, 8.178%, 12/15/04 322,321 337,612
Series 1996-A, 6.55%, 6/15/04 830,000 824,439
Israel Export Trust Certificate (assets of Trust
guaranteed by U.S. Government through Export-Import
Bank) Series 1994-1, 6.88%, 1/26/03 436,471 439,528
Overseas Private Investment Corp. (U.S. Government
guaranteed participation certificate) Series 1994-195,
6.08%, 8/15/04 (b) 800,000 762,584
Private Export Funding Corp. secured:
Series SS, 5.80%, 2/1/04 290,000 277,884
Series VV, 6.24%, 5/15/02 310,000 302,473
5 3/4%, 4/30/98 670,000 663,640
8.35%, 1/31/01 2,800,000 2,990,148
6.90%, 1/31/03 60,000 60,271
5.65%, 3/15/03 1,200,500 1,168,267
8 3/4%, 6/30/03 650,000 715,254
6.86%, 4/30/04 192,000 193,055
State of Israel (guaranteed by U.S. Government through Agency
for International Development):
7 3/4%, 4/1/98 333,953 341,090
4 7/8%, 9/15/98 520,000 504,400
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S. Government through Agency
for International Development): - continued
7 1/8%, 8/15/99 $ 1,874,000 $ 1,910,024
5 3/4%, 3/15/00 892,000 868,864
8%, 11/15/01 2,140,000 2,266,624
6 1/4%, 8/15/02 1,569,000 1,530,258
6 1/8%, 3/15/03 630,000 606,966
7 5/8%, 8/15/04 480,000 498,797
5.89%, 8/15/05 390,000 361,605
8 1/2%, 4/1/06 1,070,000 1,151,555
Student Loan Marketing Association 8.14%, 10/15/03 300,000 318,752
Twelve Federal Land Banks 7.95%, 10/21/96 190,000 192,048
U.S. Housing & Urban Development:
8.24%, 8/1/02 4,000,000 4,275,000
8.27%, 8/1/03 415,000 445,384
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 44,067,239
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $229,908,158) 226,752,775
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 13.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.9%
6 1/2%, 5/1/08 472,430 460,619
8 1/2%, 8/1/09 to 10/1/25 1,616,602 1,673,049
9%, 10/1/08 to 10/1/20 1,983,128 2,086,411
9 1/2%, 2/1/08 to 7/1/21 1,478,339 1,589,406
10 1/2%, 1/1/16 to 12/1/20 1,146,798 1,259,004
12 1/2%, 2/1/10 to 6/1/19 800,969 923,048
7,991,537
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 10.5%
6%, 12/1/08 to 4/1/16 11,602,338 10,988,356
6.345%, 3/1/99 1,853,833 1,845,676
6 1/2%, 2/1/10 to 4/1/26 12,592,536 11,853,758
8 1/4%, 12/1/01 691,435 716,716
8 1/2%, 8/1/16 to 1/1/17 427,212 442,855
9%, 6/1/25 1,235,826 1,298,433
9 1/2%, 2/1/10 to 5/1/20 1,235,059 1,330,970
12 1/2%, 8/1/15 50,533 58,587
28,535,351
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.3%
11 1/2%, 3/15/10 to 1/15/13 $ 731,971 $ 825,406
13 1/2%, 7/15/11 74,751 89,163
914,569
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES (Cost $37,616,006) 37,441,457
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 2.3%
Federal Home Loan Mortgage Corporation sequential pay
Series 1353 Class A, 5 1/2%, 11/15/04 75,078 73,764
Federal National Mortgage Association:
Series 1994-M3 Class A, 7.71%, 4/1/06 361,514 371,094
planned amortization class:
Series 1992 Class 193-D, 5 3/4%, 12/25/01 2,600,000 2,561,000
Series 1993 Class 72-B, 5%, 1/25/02 936,969 927,009
Series 1993 Class 135-PC, 5 1/2%, 7/25/02 2,000,000 1,966,876
Series 1993-28 Class PD, 5 1/4%, 10/25/01 445,199 442,394
TOTAL U.S. GOVERNMENT AGENCY -
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $6,230,359) 6,342,137
REPURCHASE AGREEMENTS - 1.0%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 2,752,407 2,752,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $276,506,523) $ 273,288,369
LEGEND
1. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
2. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $276,509,659. Net unrealized depreciation aggregated
$3,221,290, of which $2,606,873 related to appreciated investment
securities and $5,828,163 related to depreciated investment securities.
At October 31,1995, the fund had a capital loss carryforward of
approximately $3,262,000, all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 273,288,369
agreements of $2,752,000) (cost $276,506,523) -
See accompanying schedule
Cash 1,263,615
Receivable for investments sold 164,650
Interest receivable 5,440,965
Other receivables 246
Prepaid expenses 2,853
Receivable from investment adviser for expense 3,539
reductions
TOTAL ASSETS 280,164,237
LIABILITIES
Payable for investments purchased $ 2,829,247
Distributions payable 158,305
Accrued management fee 103,372
Distribution fees payable 61,001
Other payables and accrued expenses 73,724
TOTAL LIABILITIES 3,225,649
NET ASSETS $ 276,938,588
Net Assets consist of:
Paid in capital $ 282,394,698
Undistributed net investment income 149,610
Accumulated undistributed net realized gain (loss) (2,387,566)
on investments
Net unrealized appreciation (depreciation) on (3,218,154)
investments
NET ASSETS $ 276,938,588
CALCULATION OF MAXIMUM OFFERING PRICE $9.35
CLASS A:
NET ASSET VALUE, and redemption price per share
($236,476,140 (divided by) 25,299,983 shares)
Maximum offering price per share (100/96.50 of $9.35) $9.69
CLASS B: $9.34
NET ASSET VALUE, and offering price per share
($14,869,081 (divided by) 1,591,231 shares) A
INSTITUTIONAL CLASS : $9.34
NET ASSET VALUE, offering price and redemption price
per share ($25,593,367 (divided by) 2,740,650 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 9,476,511
Interest
EXPENSES
Management fee $ 591,938
Transfer agent fees 242,901
Class A
Class B 15,914
Institutional Class 17,602
Distribution fees - Class A 287,790
Distribution fees - Class B 64,286
Accounting fees and expenses 53,012
Non-interested trustees' compensation 503
Custodian fees and expenses 4,602
Registration fees 21,110
Class A
Class B 6,480
Institutional Class 26,986
Audit 24,229
Legal 1,405
Miscellaneous 3,839
Total expenses before reductions 1,362,597
Expense reductions (36,707) 1,325,890
NET INVESTMENT INCOME 8,150,621
REALIZED AND UNREALIZED GAIN (LOSS) 880,879
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (11,131,943)
investment securities
NET GAIN (LOSS) (10,251,064)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (2,100,443)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 8,150,621 $ 10,696,532
Net investment income
Net realized gain (loss) 880,879 1,340,696
Change in net unrealized appreciation (depreciation) (11,131,943) 12,015,016
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (2,100,443) 24,052,244
FROM OPERATIONS
Distributions to shareholders (7,080,926) (9,989,930)
From net investment income
Class A
Class B (379,624) (347,897)
Institutional Class (675,123) (207,322)
TOTAL DISTRIBUTIONS (8,135,673) (10,545,149)
Share transactions - net increase (decrease) 52,200,036 104,952,275
TOTAL INCREASE (DECREASE) IN NET ASSETS 41,963,920 118,459,370
NET ASSETS
Beginning of period 234,974,668 116,515,298
End of period (including undistributed net investment $ 276,938,588 $ 234,974,668
income of $149,610 and $134,662, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590 $ 9.150
beginning of period
Income from
Investment
Operations
Net investment .300 G .594 .515 .567 .666 .700
income
Net realized and (.323) .701 (1.031) .601 .125 .419
unrealized gain
(loss)
Total from investment (.023) 1.295 (.516) 1.168 .791 1.119
operations
Less Distributions
From net investment (.297) (.585) (.504) (.558) (.651) (.679)
income
From net realized - - (.160) (.200) - -
gain
Total distributions (.297) (.585) (.664) (.758) (.651) (.679)
Net asset value, end $ 9.350 $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590
of period
TOTAL RETURN B, C (0.29)% 14.91% (5.27) 12.53% 8.49% 12.65%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 236,476 $ 208,620 $ 114,453 $ 69,876 $ 23,281 $ 13,058
period (000 omitted)
Ratio of expenses to 1.00% A .89% .74% .68% 1.10% 1.10%
average net assets E E E E E
Ratio of expenses to .99% A .89% .74% .68% 1.10% 1.10%
average net assets , F
after expense
reductions
Ratio of net investment 6.21% A 6.34% 6.18% 6.11% 6.98% 7.47%
income to average
net assets
Portfolio turnover rate 136% A 261% 313% 333% 315% 54%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING AGREEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS YEARS ENDED
ENDED OCTOBER 31,
APRIL 30, 1996
(UNAUDITED) 1995 1994 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.670 $ 8.950 $ 9.100
Income from Investment Operations
Net investment income .263 F .542 .144
Net realized and unrealized gain (loss) (.328) .693 (.137)
Total from investment operations (.065) 1.235 .007
Less Distributions
From net investment income (.265) (.515) (.157)
Net asset value, end of period $ 9.340 $ 9.670 $ 8.950
TOTAL RETURN B, C (0.72)% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 14,869 $ 11,766 $ 2,062
Ratio of expenses to average net assets 1.69% A, 1.65% 1.70%
E E
Ratio of expenses to average net assets 1.69% A 1.65% 1.70% A,
after expense reductions E
Ratio of net investment income to average 5.51% A 5.58% 5.22% A
net assets
Portfolio turnover rate 136% A 261% 313%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D FOR THE PERIOD JUNE 30,1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31,1994.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1996
(UNAUDITED) 1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.670 $ 9.560
Income from Investment Operations
Net investment income .306 G .197
Net realized and unrealized gain (loss) (.322) .107
Total from investment operations (.016) .304
Less Distributions
From net investment income (.314) (.194)
Net asset value, end of period $ 9.340 $ 9.670
TOTAL RETURN B, C (0.23)% 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 25,593 $ 14,588
Ratio of expenses to average net assets .75% A, .80% A,
E E
Ratio of expenses to average net assets after expense .74% A, .80% A
reductions F
Ratio of net investment income to average net assets 6.45% A 6.43% A
Portfolio turnover rate 136% A 261%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FOR THE PERIOD JULY 3,1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31,1995.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
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 5 OF
NOTES TO FINANCIAL STATEMENTS).
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Government Investment Fund (the fund) is a fund of
Fidelity Advisor Series II (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust.
The fund offers Class A, Class B, and Institutional Class shares, each of
which has equal rights as to assets and voting privileges. Each class has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the fund are allocated on a pro rata basis to each class based
on the relative net assets of each class to the total net assets of the
fund. Each class of shares differs in its respective distribution, transfer
agent, registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which quotations are not readily
available through the pricing service are valued at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. FMR bears all organizational expenses except for
registering and qualifying each class and shares of each class for
distribution under federal and state securities law. These expenses are
borne by each class and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income dividends are declared separately for each class, while capital gain
distributions are declared at the fund level and allocated to each class on
a pro rata basis based on the number of shares held by each class on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, market discount and losses deferred due
to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $234,502,932 and $172,771,696, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. 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 annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan), Class B shares (Class B Plan),
and Institutional Class shares (collectively referred to as "the Plans").
Under the Class A Plan and Class B Plan, the fund pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution and
service fee. For the period November 1, 1995 to December 31, 1995, this fee
was based on annual rates of .25% and 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
average net assets of the Class A and Class B shares, respectively.
Effective January 1, 1996, the Board of Trustees approved a revised Class B
distribution plan, under which the fee is based on an annual rate of .90%
(of which .65% represents a distribution fee and .25% represents a
shareholder service fee) of the average net assets of the Class B shares.
For the period, the fund paid FDC $287,790 and $64,286 under the Class A
Plan and Class B Plan, respectively, of which $287,790 and $17,273 were
paid to securities dealers, banks and other financial institutions for the
distribution of Class A and Class B shares, respectively, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A, Class B,
and Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. For the period November 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the period, FDC received sales charges of $436,099 on sales of
Class A shares of the fund, of which $363,478 was paid to securities
dealers, banks, and other financial institutions. FDC also receives the
proceeds of a contingent deferred sales charge
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
levied on Class B share redemptions occurring within five years of
purchase. The charge is based on declining rates which range from 4% to 1%
of the lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested dividends
and capital gains. For the period, FDC received contingent deferred sales
charges of $15,192 on Class B share redemptions from the fund. When Class B
shares are sold, FDC pays commissions from its own resources to dealers
through which the sales are made.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Class B and Institutional Class shares. The Transfer Agents receive account
fees and asset-based fees that vary according to the account size and type
of account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.21%, .23%,and .17% of average net assets for Class A, Class B, and
Institutional Class, respectively.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the funds' accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates of average net assets for each class.
(I) CLASS A. For the period, this expense limitation was 1.00% of average
net assets.
(II) CLASS B. Effective January 1, 1996, the expense limitation changed
from an annual rate of 1.75% to 1.65% of average net assets and the
reimbursement reduced expenses by $5,926.
(III) INSTITUTIONAL CLASS. For the period, this expense limitation was .75%
of average net assets and the reimbursement reduced expenses by $20,834.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the class' expenses. During the period, the fund's
custodian fees were reduced by $2,782 under the custodian arrangement, and
Class A and Institutional Class expenses were reduced by $603 and $6,562,
respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
CLASS A
Shares sold 10,732,627 17,166,450 $ 103,646,887 $159,682,098
Reinvestment of distributions 655,004 936,679 6,310,004 8,742,840
Shares redeemed (7,650,804) (9,315,536) (73,276,179) (86,931,676)
Net increase (decrease) 3,736,827 8,787,593 $ 36,680,712 $ 81,493,262
CLASS B
Shares sold 831,331 1,185,499 $ 8,052,390 $ 11,060,085
Reinvestment of distributions 29,557 26,606 284,424 250,266
Shares redeemed (486,408) (225,713) (4,712,039) (2,134,205)
Net increase (decrease) 374,480 986,392 $ 3,624,775 $ 9,176,146
INSTITUTIONAL CLASS
Shares sold 1,472,287 1,632,166 $ 14,225,846 $ 15,464,154
Reinvestment of distributions 53,842 19,194 517,613 184,114
Shares redeemed (294,167) (142,672) (2,848,910) (1,365,401)
Net increase (decrease) 1,231,962 1,508,688 $ 11,894,549 $ 14,282,867
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
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 AGENTS
Fidelity Investments Institutional
Operations Company
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal
Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GROWTH OPPORTUNITIES
FUND - CLASS A
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 21 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 26 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term. You also can help to manage some of the risks of investing
through diversification. A stock fund is already diversified because it
invests in many issues. You can diversify even further by placing some of
your money in several different types of stock funds or in other investment
categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR GROWTH OPPORTUNITIES FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). Effective January 1, 1996, the
maximum 4.75% sales charge on Class A shares was reduced to 3.50%.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Growth Opportunities - Class A 8.04% 24.21% 120.43% 393.94%
Advisor Growth Opportunities - Class A 4.26% 19.86% 112.71% 376.65%
(incl. max. 3.50% sales charge)
S&P 500(registered trademark) 13.76% 30.21% 100.72% 250.05%
Growth Funds Average 13.12% 29.81% 95.92% n/a
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on November 18, 1987. 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. You can compare Class A's returns to the
performance of the Standard & Poor's 500 Index - a common proxy for the
U.S. Stock market. To measure how Class A's performance stacked up against
its peers, you can compare it to the growth funds average, which reflects
the performance of 641 growth funds with similar objectives tracked by
Lipper Analytical Services over the past six months. Both benchmarks
include reinvested dividends and capital gains, if any, and exclude the
effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Class A 24.21% 17.13% 20.79%
Advisor Growth Opportunities - Class A 19.86% 16.29% 20.28%
(incl. max. 3.50% sales charge)
S&P 500 30.21% 14.95% 15.97%
Growth Funds Average 29.81% 14.10% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class A's actual (or cumulative) return
and show you what would have happened if Class A shares had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960523 161342 S00000000000001
FA Growth Opp -CL A SP Standard & Poor 500
00168 SP001
1987/11/18 9650.00 10000.00
1987/11/30 9090.30 9489.05
1987/12/31 10383.40 10211.16
1988/01/31 10827.30 10641.05
1988/02/29 12052.85 11136.92
1988/03/31 12274.80 10792.79
1988/04/30 12641.50 10912.59
1988/05/31 12525.70 11007.53
1988/06/30 13635.45 11512.78
1988/07/31 13606.50 11469.03
1988/08/31 13143.30 11079.08
1988/09/30 13674.05 11551.05
1988/10/31 13770.55 11872.17
1988/11/30 13326.65 11702.40
1988/12/31 13838.72 11907.19
1989/01/31 15024.31 12778.80
1989/02/28 14738.14 12460.61
1989/03/31 14881.22 12750.94
1989/04/30 15841.96 13412.71
1989/05/31 16904.91 13955.93
1989/06/30 16179.24 13876.38
1989/07/31 17088.88 15129.41
1989/08/31 17722.56 15425.95
1989/09/30 17548.81 15362.70
1989/10/31 16894.69 15006.29
1989/11/30 17007.11 15312.42
1989/12/31 17179.70 15679.92
1990/01/31 15942.32 14627.79
1990/02/28 16329.00 14816.49
1990/03/31 16748.82 15209.13
1990/04/30 16196.42 14828.90
1990/05/31 18129.83 16274.72
1990/06/30 18229.26 16164.05
1990/07/31 17566.38 16112.33
1990/08/31 15632.97 14655.77
1990/09/30 14417.69 13942.04
1990/10/31 14351.40 13882.08
1990/11/30 15876.03 14778.87
1990/12/31 16896.77 15191.20
1991/01/31 18919.46 15853.53
1991/02/28 20618.08 16987.06
1991/03/31 21188.01 17398.15
1991/04/30 21623.84 17439.90
1991/05/31 22808.40 18193.31
1991/06/30 21199.19 17360.05
1991/07/31 22685.48 18169.03
1991/08/31 23568.31 18599.64
1991/09/30 23031.91 18289.03
1991/10/31 22998.38 18534.10
1991/11/30 21635.02 17787.17
1991/12/31 24108.45 19822.03
1992/01/31 24803.54 19453.34
1992/02/29 25925.43 19706.23
1992/03/31 25059.62 19321.96
1992/04/30 25742.51 19890.02
1992/05/31 26108.35 19987.49
1992/06/30 25510.82 19689.67
1992/07/31 26388.82 20494.98
1992/08/31 25657.15 20074.83
1992/09/30 25730.32 20311.72
1992/10/31 25779.10 20382.81
1992/11/30 27022.93 21077.86
1992/12/31 27731.00 21337.12
1993/01/31 28576.46 21516.35
1993/02/28 28654.50 21808.97
1993/03/31 29721.08 22269.14
1993/04/30 29773.11 21730.23
1993/05/31 30605.56 22312.60
1993/06/30 30722.62 22377.30
1993/07/31 30930.74 22287.80
1993/08/31 31880.25 23132.50
1993/09/30 31997.31 22954.38
1993/10/31 33024.87 23429.54
1993/11/30 32868.78 23206.96
1993/12/31 33879.89 23487.76
1994/01/31 35754.61 24286.35
1994/02/28 35215.12 23628.19
1994/03/31 33718.04 22598.00
1994/04/30 34608.20 22887.25
1994/05/31 34797.02 23262.60
1994/06/30 33852.91 22692.67
1994/07/31 34810.51 23436.99
1994/08/31 36280.61 24397.90
1994/09/30 35188.15 23800.16
1994/10/31 35902.97 24335.66
1994/11/30 34756.56 23449.35
1994/12/31 34847.81 23797.11
1995/01/31 35119.17 24414.17
1995/02/28 36190.31 25365.59
1995/03/31 37118.63 26114.13
1995/04/30 38375.44 26883.19
1995/05/31 39975.01 27957.71
1995/06/30 41331.79 28607.17
1995/07/31 42702.85 29555.78
1995/08/31 43002.77 29629.96
1995/09/30 43816.84 30880.35
1995/10/31 44116.76 30770.11
1995/11/30 45187.90 32120.91
1995/12/31 46360.67 32739.56
1996/01/31 47093.30 33854.02
1996/02/29 46961.43 34167.84
1996/03/31 46888.16 34496.88
1996/04/30 47664.75 35005.36
IMATRL PRASUN SHR__CHT 19960430 19960523 161346 R00000000000105
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Growth Opportunities Fund - Class A on November 18, 1987, when the
fund started, and paid the current maximum 3.50% sales charge. As the chart
shows, by April 30, 1996, the value of your investment would have grown to
$47,665 - a 376.65% increase on your initial investment. For comparison,
look at how the S&P 500 did over the same period. With dividends
reinvested, the same $10,000 investment would have grown to $35,005 - a
250.05% increase.
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. In turn,
the share price and return of a
fund that invests in stocks will
vary. That means if you sell
your shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with George A. Vanderheiden, Portfolio Manager of Fidelity
Advisor Growth Opportunities Fund
Q. HOW DID THE FUND PERFORM, GEORGE?
A. For the six months ended April 30, 1996, Fidelity Advisor Growth
Opportunities - Class A returned 8.04%, while the Standard & Poor's 500
Index was up 13.76%. For the same period, the growth funds average was
13.12%, according to Lipper Analytical Services. During the 12 months
ending April 30, 1996, the fund returned 24.21%. The S&P 500 Index and the
Lipper growth funds average were up 30.21% and 29.81%, respectively.
Q. WHY DID THE FUND UNDERPERFORM THE S&P 500 AND THE LIPPER AVERAGE?
A. The fund took a 13.5% position in U.S. Treasury bonds at the end of the
period because I felt that bonds would do better than stocks. In fact, the
reverse has happened and that has hurt the performance of the fund over the
past six months.
Q. WHAT WAS YOUR RATIONALE FOR BONDS?
A. Over the long term, stocks have fairly consistently appreciated faster
than bonds. Bonds pay a fixed rate of return, whereas stocks' performance
is a function of corporate earnings and dividend growth, which,
historically, grow faster than the yield on Treasury Bonds.
So why own bonds at all? There are times when corporate earnings decline
due to a weak economy. When this happens, bonds typically outperform
stocks. In a Salomon Brothers study that looked at the period from 1960 to
1995, it was shown that when economic growth was below the median and
inflation was low, bonds outperformed stocks 76% of the time.
Q. SO, THEN, WHAT'S YOUR OUTLOOK FOR THE ECONOMY AND CORPORATE PROFITS?
A. I don't expect the economy to enter a recession in the foreseeable
future, but I do expect it to remain sluggish. The consumer is spent out
and leveraged to the max with debt. As pressures continue to build for the
government to downsize, fiscal policy has become a drag on the economy.
Additionally, the two engines of growth for the economy in the past year -
exports and capital spending - are slowing rapidly. The latest surveys show
capital spending only growing 1.5% this year, while export growth is only
up 9% in the latest month, down from a gain of 20% last year. Corporate
profit margins peaked in the second quarter of 1995, after reaching the
highest level in nearly 30 years. In addition, more excess capacity has
been built into the system since last year and this will put further
pressure on margins. In summary, I expect a slow growing economy and a
modest decline in earnings.
Q. MANY GROWTH AREAS OF THE STOCK MARKET SEEM PICKED OVER. WHERE DO YOU SEE
OPPORTUNITIES LONGER TERM?
A. Telecommunications. The price of cellular service continues to drop
thanks to semiconductor technology and, in some parts of the world,
wireless telephone service is cheaper than land line. Penetration levels in
the United States (about 13%) are far below the 25% levels in the
Scandinavian countries. The number of cellular users worldwide could grow
several fold beyond the current 80 million users over the coming years.
Another sector is technology - both the companies that develop it and the
companies that benefit from it. We are in the early stages of becoming a
society where the basic economic resource is knowledge rather than land,
labor or capital. Carnegie and Rockefeller built great companies based on
natural resources 100 years ago. Today, great software and semiconductor
companies are being built on a foundation of knowledge. Not only will
companies that develop useful technologies prosper, but companies that find
ways of applying this technology better than anyone else will also benefit.
I have seen first hand how Fannie Mae - one of the largest positions in the
fund - has used technology to drive down costs and increase efficiency. It
has the unique distinction of currently being the company with the highest
sales per employee, highest assets per employee and highest profits per
employee on the New York Stock Exchange.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. My disappointments have been a combination of being underweighted in
some seemingly expensive stocks that have performed well (such as health
care, drugs and blue chip growth stocks like Coke and Gillette) and being
overweighted in some sectors that appeared cheap, but did not perform well
(such as autos, retailers, railroads).
Q. WITH YOUR EXPECTATION OF A SLOW-GROWING ECONOMY AND LOWER EARNINGS,
WHERE DOES THAT LEAVE THE STOCK MARKET FOR THE REMAINDER OF 1996?
A. The stock market is clearly ahead of itself on a short-term basis and
has been driven by the tremendous inflows into mutual funds over the past
year. Normally, the stock market would react to a slowing and/or decline in
corporate earnings by at least a 10% to 15% correction, if not something
worse. I suspect this will be postponed to a time when we least expect it.
Besides earnings, the other critical determinant to the market is
inflation, and the outlook here remains positive. Low inflation means low
interest rates and thus the high price-to-earnings ratios which contribute
to the high valuation of the market. While we are currently witnessing a
slight rise in food and energy inflation, these increases will only serve
to bring on higher supplies which, in turn, will drive prices down again.
By far, the major part of inflation - unit labor costs and industrial
prices - remains subdued.
In conclusion, while the outlook isn't as rosy as it was a few years ago,
there will always be opportunities for appreciation in individual sectors
and stocks. If the road to successful investing was always a sunny walk in
the park, everyone would be a successful investor. There will be stormy
periods and those who are prepared to take advantage of them may be
rewarded in the long-term. This strategy has made successful long-term
investors out of Growth Opportunities shareholders in the past and may do
so in the future.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide capital growth
by investing primarily in
common stocks and
securities convertible into
common stocks
START DATE: November 18, 1987
SIZE: as of April 30, 1996,
more than $12.7 billion
MANAGER: George
Vanderheiden, since 1987;
also manages Destiny I and
Destiny II funds; joined
Fidelity in 1971
(checkmark)
GEORGE VANDERHEIDEN ON THE
STOCK MARKET ADVANCE:
"Many market forecasters
have been warning that the
market is richly valued and
this has been reinforced by
the media, which has carried
bears on the cover of just
about every business
magazine warning of the
coming market fall. They cite
historically low dividend
yields, higher
price-to-earnings and
price-to-cash-flow multiples
than the 1987 peak, a hot IPO
market, rising interest rates
over the past few months and
a `can't lose' attitude toward
investing by the public. Yet
the market continues its
relentless advance upward,
crushing anyone in its path
who dares to defy it. Why
have so many `experts' been
so wrong? The numbers in
the first four months of this
year give a clue.
"The supply of stock
increased by $43 billion due to
IPOs and the sale of stock by
existing public companies.
This, however, was offset by a
similar amount of stock retired
through completed cash
acquisitions and stock
repurchase programs. So, as
much stock went out the back
door as came in the front
door. What drove the market in
the first four months of the
year was the $73 billion of
net inflows into domestic
equity mutual funds. This four
month total exceeds the net
inflows of $61 billion during
the entire three-year period
1985-1987 when the S&P
500 doubled due to heavy
inflows into mutual funds."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 5.9 4.8
Federal National Mortgage Association 4.9 5.4
General Motors Corp. 4.0 3.5
Compaq Computer Corp. 3.1 3.9
Fleet Financial Group, Inc. 2.9 1.8
Royal Dutch Petroleum Corp. 2.5 0.0
Vodafone Group PLC sponsored ADR 2.3 2.3
Columbia/HCA Healthcare Corp. 2.0 1.2
Federal Home Loan Mortgage Corp. 1.9 1.0
du Pont (E.I) de Nemours & Co. 1.7 0.0
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 15.1 16.2
Technology 9.1 15.2
Durables 8.2 8.2
Energy 7.7 4.2
Nondurables 6.9 6.0
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Row: 1, Col: 1, Value: 10.8
Row: 1, Col: 2, Value: 13.5
Row: 1, Col: 3, Value: 25.0
Row: 1, Col: 4, Value: 50.7
Row: 1, Col: 1, Value: 12.5
Row: 1, Col: 2, Value: 13.5
Row: 1, Col: 3, Value: 24.0
Row: 1, Col: 4, Value: 50.0
Stocks 75.7%
Bonds 13.5%
Short-term
investments 10.8%
FOREIGN
INVESTMENTS 9.7%
Stocks 74.0%
Bonds 13.5%
Short-term
investments 12.5%
FOREIGN
INVESTMENTS 7.8%
*
**
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 75.7%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.6%
AEROSPACE & DEFENSE - 0.2%
Boeing Co. 346,300 $ 28,440
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. 1,076,700 54,508
TOTAL AEROSPACE & DEFENSE 82,948
BASIC INDUSTRIES - 5.3%
CHEMICALS & PLASTICS - 3.0%
Air Products & Chemicals, Inc. 310,300 17,725
Betz Laboratories, Inc. 171,900 7,671
Dow Chemical Co. 69,700 6,195
du Pont (E.I.) de Nemours & Co. 2,673,600 214,891
Raychem Corp. 1,122,500 87,415
Rohm & Haas Co. 108,600 7,208
Union Carbide Corp. 940,600 42,797
383,902
IRON & STEEL - 0.0%
Bethlehem Steel Corp. (a) 59,900 816
METALS & MINING - 0.7%
Aluminum Co. of America 219,700 13,704
Broken Hill Proprietary Co. Ltd. (The) 831,100 12,817
RTZ Corp. PLC 546,800 8,621
Reynolds Metals Co. 900,573 48,406
83,548
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. (a) 2,882,900 45,766
PAPER & FOREST PRODUCTS - 1.2%
Boise Cascade Corp. 364,000 16,926
Champion International Corp. 1,115,000 53,799
Georgia-Pacific Corp. 100,700 7,829
International Paper Co. 954,100 38,045
Temple-Inland, Inc. 441,100 21,393
Willamette Industries, Inc. 257,700 15,849
153,841
TOTAL BASIC INDUSTRIES 667,873
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 1.5%
BUILDING MATERIALS - 0.4%
Armstrong World Industries, Inc. 394,200 $ 22,469
Carbo Ceramics, Inc. 6,300 135
Masco Corp. 333,400 9,086
Tecumseh Products Co. Class A 346,700 19,589
51,279
CONSTRUCTION - 0.8%
Beazer Homes USA, Inc. (a)(b) 707,800 11,326
Centex Corp. 933,300 25,199
DR Horton, Inc. 692,000 6,920
Daito Trust Construction 250,400 3,691
Kaufman & Broad Home Corp. 1,916,900 27,076
Ryland Group, Inc. 745,500 12,301
Sekisui House Ltd. 489,000 6,045
Toll Brothers, Inc. (a) 114,900 1,867
U.S. Home Corp. 560,100 13,932
108,357
ENGINEERING - 0.3%
Fluor Corp. 505,700 33,439
TOTAL CONSTRUCTION & REAL ESTATE 193,075
DURABLES - 8.2%
AUTOS, TIRES, & ACCESSORIES - 7.4%
Chrysler Corp. 1,646,100 103,294
Cummins Engine Co., Inc. 735,200 34,371
Dana Corp. 799,900 26,597
Discount Auto Parts, Inc. (a) 351,800 10,334
Federal-Mogul Corp. 1,198,000 22,762
Ford Motor Co. 253,800 9,105
General Motors Corp. 9,320,339 505,628
Gentex Corp. (a) 208,300 8,228
Goodyear Tire & Rubber Co. 222,800 11,613
Magna International, Inc. Class A 2,716,100 125,231
Scania AB (a):
Class A 197,200 5,458
Class B 197,200 5,443
Superior Industries International, Inc. 1,104,800 30,244
Volvo AB Class B 1,558,800 35,685
933,993
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - CONTINUED
CONSUMER ELECTRONICS - 0.5%
Matsushita Electric Industrial Co. Ltd. 1,181,000 $ 20,777
Newell Co. 259,800 7,404
Whirlpool Corp. 677,800 40,753
68,934
HOME FURNISHINGS - 0.1%
Haverty Furniture Companies, Inc. (b) 556,400 7,790
TEXTILES & APPAREL - 0.2%
Burlington Industries, Inc. (a) 1,979,900 23,016
TOTAL DURABLES 1,033,733
ENERGY - 7.7%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 1,077,500 22,628
OIL & GAS - 7.5%
Amerada Hess Corp. 545,300 30,879
Amoco Corp. 129,000 9,417
Anadarko Petroleum Corp. 79,000 4,602
Apache Corp. 207,800 6,026
Atlantic Richfield Co. 872,400 102,725
British Petroleum PLC ADR 1,373,664 150,073
Burlington Resources, Inc. 1,137,500 42,372
Canada Occidental Petroleum Ltd. 754,500 26,035
Elf Aquitaine SA sponsored ADR 287,447 10,815
Enron Oil & Gas Co. 108,200 2,867
Kerr-McGee Corp. 206,900 13,216
Louisiana Land & Exploration Co. 1,590,800 86,102
Noble Affiliates, Inc. 237,000 8,325
Occidental Petroleum Corp. 1,009,600 25,997
Royal Dutch Petroleum Co. 2,200,700 315,250
Santa Fe Energy Resources, Inc. (a) 666,700 8,000
Seagull Energy Corp. (a) 262,600 6,401
Sun Co., Inc. 1,027,300 31,846
Tosco Corp. 713,100 38,151
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Total SA:
Class B 101,200 $ 6,862
sponsored ADR 312,919 10,717
Union Pacific Resources Group, Inc. 443,000 12,183
948,861
TOTAL ENERGY 971,489
FINANCE - 15.1%
BANKS - 3.3%
AmSouth Bancorporation 778,800 29,886
Fleet Financial Group, Inc. 8,685,710 373,486
State Street Boston Corp. 326,100 16,264
419,636
FEDERAL SPONSORED CREDIT - 6.9%
Federal Home Loan Mortgage Corp. 2,956,200 246,473
Federal National Mortgage Association 20,326,720 622,506
868,979
INSURANCE - 3.6%
AFLAC, Inc. 480,050 14,882
Allmerica Financial Corp. 679,600 17,670
Allstate Corp. 3,427,482 133,243
American International Group, Inc. 1,212,350 110,778
CIGNA Corp. 82,000 9,297
Chubb Corp. (The) 28,800 2,725
Equitable of Iowa Companies 490,700 17,297
General Re Corp. 571,700 81,682
Providian Corp. 820,400 37,841
Torchmark Corp. 579,000 24,897
Travelers/Aetna Property Casualty Corp. Class A 90,400 2,497
452,809
SAVINGS & LOANS - 0.3%
Ahmanson (H.F.) & Co. 20,900 496
Golden West Financial Corp. 662,340 34,856
35,352
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
SECURITIES INDUSTRY - 1.0%
Nomura Securities Co. Ltd. 2,812,000 $ 60,971
United Asset Management Corp. 1,514,100 70,784
131,755
TOTAL FINANCE 1,908,531
HEALTH - 2.7%
DRUGS & PHARMACEUTICALS - 0.4%
Pharmacia & Upjohn, Inc. 962,800 36,828
Schering-Plough Corp. 288,700 16,564
53,392
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Baxter International, Inc. 395,300 17,492
Biomet, Inc. (a) 1,002,300 14,784
CardioThoracic Systems, Inc. 30,700 725
Heartport, Inc. 9,400 336
33,337
MEDICAL FACILITIES MANAGEMENT - 2.1%
American Medical Response (a) 335,400 12,410
Columbia/HCA Healthcare Corp. 4,712,442 250,348
262,758
TOTAL HEALTH 349,487
HOLDING COMPANIES - 0.2%
U.S. Industries, Inc. (a) 990,800 20,807
INDUSTRIAL MACHINERY & EQUIPMENT - 2.6%
ELECTRICAL EQUIPMENT - 0.9%
Antec Corp. (a) 98,500 1,476
Cherry Corp. (a)(b):
Class A 537,300 4,970
Class B 368,300 3,499
Emerson Electric Co. 120,500 10,077
General Electric Co. 389,000 30,148
Loral Space & Communications Ltd. 576,100 8,281
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
ELECTRICAL EQUIPMENT - CONTINUED
Oak Industries, Inc. (a) 90,500 $ 2,444
Omron Corp. 277,000 6,217
Scientific-Atlanta, Inc. 1,107,000 20,480
Sensormatic Electronics Corp. 1,565,400 31,895
119,487
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
Caterpillar, Inc. 1,004,700 64,301
Deere & Co. 1,928,800 74,982
Dover Corp. 78,900 4,063
Kennametal, Inc. 212,400 8,045
151,391
POLLUTION CONTROL - 0.5%
Browning-Ferris Industries, Inc. 1,866,800 60,204
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 331,082
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.1%
Comcast Corp.:
Class A 50,000 875
Class A special 697,900 12,213
People's Choice TV Corp. (a) 56,400 811
13,899
ENTERTAINMENT - 0.6%
Cedar Fair LP (depositary unit) 681,000 24,346
Royal Caribbean Cruises Ltd. 1,914,400 53,842
78,188
LEISURE DURABLES & TOYS - 0.7%
Brunswick Corp. 519,100 11,420
Fleetwood Enterprises, Inc. 2,195,600 57,635
Outboard Marine Corp. 544,500 10,754
79,809
LODGING & GAMING - 0.7%
Circus Circus Enterprises, Inc. (a) 2,079,700 76,429
Mirage Resorts, Inc. (a) 244,500 12,806
89,235
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.2%
Dow Jones & Co., Inc. 172,300 $ 6,440
Knight-Ridder, Inc. 183,800 13,302
Times Mirror Co. Class A 194,300 8,282
28,024
RESTAURANTS - 0.3%
Applebee's International, Inc. 219,700 5,822
Bertucci's, Inc. (a)(b) 666,100 4,663
Brinker International, Inc. (a) 445,500 7,796
Darden Restaurants, Inc. 538,200 7,400
McDonald's Corp. 270,500 12,950
38,631
TOTAL MEDIA & LEISURE 327,786
NONDURABLES - 6.9%
FOODS - 0.1%
General Mills, Inc. 303,400 16,838
Tyson Foods, Inc. 49,700 1,233
18,071
TOBACCO - 6.8%
American Brands, Inc. 28,900 1,203
Philip Morris Companies, Inc. 8,334,900 751,182
RJR Nabisco Holdings Corp. depositary shares representing
1/10 pfd., Series C 3,336,660 99,683
UST, Inc. 266,300 8,522
860,590
TOTAL NONDURABLES 878,661
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 211,300 6,477
Santa Fe Pacific Gold Corp. 813,272 12,097
18,574
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 6.6%
APPAREL STORES - 0.4%
Limited, Inc. (The) 431,638 $ 8,956
Melville Corp. 384,300 14,940
TJX Companies, Inc. 1,096,400 32,344
56,240
GENERAL MERCHANDISE STORES - 2.4%
Aoyama Trading Co. Ord. 486,000 15,206
Dillard Department Stores, Inc. Class A 520,300 20,877
Federated Department Stores, Inc. (a) 2,981,313 99,501
Wal-Mart Stores, Inc. 6,590,200 157,341
Woolworth Corp. (a) 540,600 10,339
303,264
GROCERY STORES - 0.0%
Safeway, Inc. (a) 89,700 3,027
RETAIL & WHOLESALE, MISCELLANEOUS - 3.8%
Circuit City Stores, Inc. (b) 5,171,300 164,187
Good Guys, Inc. (a)(b) 1,212,100 11,060
Home Depot, Inc. (The) 2,536,000 120,143
Lowe's Companies, Inc. 1,591,000 51,509
Officemax, Inc. (a) 1,195,450 31,381
Office Depot, Inc. (a) 915,600 20,487
PETsMART, Inc. 201,100 8,924
Rex Stores Corp. (a)(b) 567,500 8,867
Tandy Corp. 832,900 43,207
Toys "R" Us, Inc. (a) 672,700 18,752
478,517
TOTAL RETAIL & WHOLESALE 841,048
SERVICES - 0.1%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 153,100 7,157
TECHNOLOGY - 9.1%
COMMUNICATIONS EQUIPMENT - 0.1%
General Instrument Corp. (a) 275,100 9,010
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.9%
Adobe Systems, Inc. 59,300 $ 2,550
Automatic Data Processing, Inc. 770,200 29,941
I2 Technologies, Inc. 4,300 175
MicroAge, Inc. (a) 375,000 4,219
Microsoft Corp. (a) 190,800 21,608
Oracle Systems Corp. (a) 577,350 19,486
Policy Management Systems Corp. (a) 769,200 36,152
Sykes Enterprises, Inc. 4,700 85
114,216
COMPUTERS & OFFICE EQUIPMENT - 6.0%
Canon, Inc. 1,527,000 30,205
Compaq Computer Corp. (a) 8,328,400 388,312
Dell Computer Corp. (a) 184,600 8,469
Digital Equipment Corp. (a) 394,300 23,559
Gateway 2000, Inc. (a) 181,200 6,319
Hewlett-Packard Co. 436,600 46,225
International Business Machines Corp. 1,779,800 191,329
SCI Systems, Inc. (a) 1,001,900 42,956
Tech Data Corp. (a) 1,319,600 25,732
763,106
ELECTRONIC INSTRUMENTS - 0.0%
Quad Systems Corp. (a)(b) 300,100 2,401
ELECTRONICS - 2.1%
Intel Corp. 1,901,400 128,820
Methode Electronics, Inc. Class A 645,800 10,817
Molex, Inc. 189,900 5,697
Nitto Denko Corp. 1,092,000 17,550
Solectron Corp. (a) 2,261,200 100,623
263,507
TOTAL TECHNOLOGY 1,152,240
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 177,700 5,287
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - CONTINUED
RAILROADS - 1.1%
Burlington Northern Santa Fe Corp. 517,200 $ 45,255
CSX Corp. 1,792,100 91,845
Southern Pacific Rail Corp. (a) 144,193 3,605
140,705
SHIPPING - 0.1%
Overseas Shipholding Group, Inc. 85,600 1,723
Stolt Nielsen SA Class B sponsored ADR 118,900 2,467
Stolt Tankers & Terms Holdings S.A. 107,700 2,194
Storli AS Class B (non-vtg.) 39,300 664
7,048
TRUCKING & FREIGHT - 0.1%
Caliber System, Inc. 148,100 5,943
Consolidated Freightways, Inc. 250,100 6,533
12,476
TOTAL TRANSPORTATION 165,516
UTILITIES - 5.1%
CELLULAR - 2.7%
AirTouch Communications, Inc. (a) 1,590,700 49,709
Vodafone Group PLC sponsored ADR 7,272,900 291,825
341,534
ELECTRIC UTILITY - 0.0%
Southern Co. 26,700 587
TELEPHONE SERVICES - 2.4%
American Portable Telecom, Inc. 40,200 603
Ameritech Corp. 957,800 55,912
Bell Atlantic Corp. 601,400 39,091
BellSouth Corp. 1,451,200 58,048
NYNEX Corp. 1,126,000 55,315
SBC Communications, Inc. 1,794,000 89,700
298,669
TOTAL UTILITIES 640,790
TOTAL COMMON STOCKS
(Cost $7,774,149) 9,590,797
U.S. TREASURY OBLIGATIONS - 18.2%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
8 1/8%, 8/15/19 $ 1,370,000 $ 1,529,262
7 5/8%, 11/15/22 125,000 133,046
6 1/4%, 8/15/23 50,000 45,094
U.S. Treasury Bill, yield at date of purchase
5.04% to 5.07%, 6/13/96 to 6/20/96 600,000 596,052
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,344,895) 2,303,454
REPURCHASE AGREEMENTS - 6.1%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 772,093 771,979
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $10,891,023) $ 12,666,230
LEGEND
1. Non-income producing
2. Affiliated company (see Note 7 of Notes to Financial Statements).
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $10,892,760,000. Net unrealized appreciation aggregated
$1,773,470,000, of which $1,908,394,000 related to appreciated investment
securities and $134,924,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 12,666,230
agreements of $771,979) (cost $10,891,023) -
See accompanying schedule
Cash 6,293
Receivable for investments sold 32,046
Receivable for fund shares sold 38,884
Dividends receivable 11,868
Interest receivable 27,908
Other receivables 305
TOTAL ASSETS 12,783,534
LIABILITIES
Payable for investments purchased $ 33,479
Payable for fund shares redeemed 17,961
Accrued management fee 6,313
Distribution fees payable 5,111
Other payables and accrued expenses 2,790
TOTAL LIABILITIES 65,654
NET ASSETS $ 12,717,880
Net Assets consist of:
Paid in capital $ 10,459,006
Undistributed net investment income 60,753
Accumulated undistributed net realized gain (loss) on 422,917
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 1,775,204
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 12,717,880
CALCULATION OF MAXIMUM OFFERING PRICE $32.53
CLASS A:
NET ASSET VALUE, and redemption price per share
($12,496,622 (divided by) 384,112 shares)
Maximum offering price per share (100/96.50 of $32.53) $33.71
INSTITUTIONAL CLASS: $32.51
NET ASSET VALUE, offering price and redemption price
per share ($221,258 (divided by) 6,806 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 81,339
Dividends (including $239 received from affiliated issues)
Interest 96,985
TOTAL INCOME 178,324
EXPENSES
Management fee $ 34,597
Basic fee
Performance adjustment 2,811
Transfer agent fees 10,274
Class A
Institutional Class 117
Distribution fees - Class A 30,591
Accounting fees and expenses 402
Non-interested trustees' compensation 19
Custodian fees and expenses 144
Registration fees - Class A 1,016
Registration fees - Institutional Class 66
Audit 55
Legal 59
Miscellaneous 188
Total expenses before reductions 80,339
Expense reductions (564) 79,775
NET INVESTMENT INCOME 98,549
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized loss of $760 426,465
on sales of investments in affiliated issuers)
Foreign currency transactions (13) 426,452
Change in net unrealized appreciation (depreciation) on:
Investment securities 323,854
Assets and liabilities in foreign currencies 12 323,866
NET GAIN (LOSS) 750,318
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 848,867
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 98,549 $ 106,015
Net investment income
Net realized gain (loss) 426,452 143,773
Change in net unrealized appreciation (depreciation) 323,866 1,249,076
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 848,867 1,498,864
FROM OPERATIONS
Distributions to shareholders (133,926) (49,032)
From net investment income
Class A
Institutional Class (2,275) -
From net realized gain (130,654) (210,650)
Class A
Institutional Class (1,491) -
TOTAL DISTRIBUTIONS (268,346) (259,682)
Share transactions - net increase (decrease) 2,374,415 3,925,094
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,954,936 5,164,276
NET ASSETS
Beginning of period 9,762,944 4,598,668
End of period (including undistributed net investment $ 12,717,880 $ 9,762,944
income of $60,753 and $98,405, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value, $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58 $ 12.99
beginning of period
Income from Investment
Operations
Net investment income .27 G .39 .22 .08 .14 .06
Net realized and 2.18 5.31 1.92 5.56 2.04 7.70
unrealized gain
(loss)
Total from investment 2.45 5.70 2.14 5.64 2.18 7.76
operations
Less Distributions
From net investment (.41) (.27) (.07) (.13) (.09) (.17)
income
From net realized gain (.40) (1.16) (.84) (1.26) (1.53) -
Total distributions (.81) (1.43) (.91) (1.39) (1.62) (.17)
Net asset value, end $ 32.53 $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58
of period
TOTAL RETURN B, C 8.04% 22.88% 8.71% 28.11% 12.09% 60.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,497 $ 9,691 $ 4,599 $ 2,055 $ 581 $ 213
(in millions)
Ratio of expenses to 1.44% A 1.59% 1.63% 1.65% 1.60% 1.73%
average net assets
Ratio of expenses to 1.43% 1.58% 1.62% 1.64% 1.60% 1.73%
average net assets A, E E E E
after expense
reductions
Ratio of net investment 1.75% A 1.56% 1.12% .43% .80% .47%
income to average
net assets
Portfolio turnover rate 42% A 39% 43% 69% 94% 142%
Average commission $ .0380
rate F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1996
(UNAUDITED) 1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 30.97 $ 29.04
Income from Investment Operations
Net investment income .37 G .12
Net realized and unrealized gain (loss) 2.18 1.81
Total from investment operations 2.55 1.93
Less Distributions
From net investment income (.61) -
From net realized gain (.40) -
Total distributions (1.01) -
Net asset value, end of period $ 32.51 $ 30.97
TOTAL RETURN B, C 8.38% 6.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 221 $ 72
Ratio of expenses to average net assets .89% .82% A
A
Ratio of expenses to average net assets after expense .87% .81% A
reductions E A
Ratio of net investment income to average net assets 2.32% 2.33% A
A
Portfolio turnover rate 42% 39% A
A
Average commission rate F $ .0380
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
SHARES) TO OCTOBER 31, 1995.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Growth Opportunities Fund(the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A and Institutional Class shares, each of which has
equal rights as to assets and voting privileges. Each class has exclusive
voting rights with respect to its distribution plan. The fund commenced
sale of Institutional class shares on July 3, 1995. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. 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 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 under 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M
of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the 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.
EXPENSES. Most expenses of each trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR), bears all
organizational expenses except for registering and qualifying each class
and shares of each class for distribution under federal and state
securities law. These expenses are borne by each class and amortized over
one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends are declared separately for each class,
while
capital gain distributions are declared at the fund level and allocated to
each class on a pro rata basis based on the number of shares held by each
class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for litigation
proceeds, foreign currency transactions, market discount, partnerships,
non-taxable dividends and losses deferred due to wash sales. The fund also
utilized earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). 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.
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 fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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.
Purchases and sales of securities, other than short-term securities,
aggregated $4,093,605,000 and $2,049,707,000, respectively, of which U.S.
government and government agency obligations aggregated $537,407,000 and
$200,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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%. The
basic fee is subject to a performance adjustment (up to a maximum of .20%)
based on the investment performance of the lowest performing class as
compared to the appropriate index over a specified period of time. The
fund's performance adjustment is measured differently for each class of
shares. For the period, the management fee was equivalent to an annualized
rate of .67% of average net assets after the performance adjustment.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan) and Institutional Class shares
(collectively referred to as "the Plans"). Under the Class A Plan, the fund
pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. For the period November 1, 1995, to December
31, 1995, this fee was based on an annual rate of .65% of the average net
assets of Class A. Effective January 1, 1996, the Board of Trustees
approved a revised Class A distribution plan, under which the fee is based
on an annual rate of .50% of the average net assets of the Class A shares.
For the period, the fund paid FDC $30,591,000 under the Class A Plan, of
which $9,034,000 was paid to securities dealers, banks and other financial
institutions for the distribution of Class A shares, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A and
Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. For the period May 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the period, FDC received sales charges of $35,402,000 on sales of
Class A shares of the fund, of which $29,816,000 was paid to securities
dealers, banks, and other financial institutions.
TRANSFER AGENT FEES. State Street Bank and Trust Company (SSB) is the
transfer, dividend disbursing and shareholder servicing agent for the fund.
SSB has an arrangement for certain transfer, dividend disbursing and
shareholder servicing to be performed by Fidelity Investments Institutional
Operations Company (FIIOC), an affiliate of FMR. The fund pays account fees
and asset-based fees that vary according to account size and type of
account. For the period, the transfer agent fees were equivalent to an
annualized rate of .19% and .15% of average net assets for Class A and
Institutional Class, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company (FSC) maintains the fund's
accounting records. The fee is based on the level of average net assets for
the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,099,000 for the period.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$367,000 under this arrangement.
In addition, the fund has entered into an arrangement with its transfer
agent whereby interest earned on uninvested cash balances was used to
offset a portion of the class' expenses. During the period, Class A and
Institutional Class expenses were reduced by $191,000 and $6,000,
respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
AMOUNTS IN THOUSANDS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED APRIL 30, OCTOBER 31, APRIL
30, OCTOBER 31,
1996 1995 A 1996 1995 A
SHARES DOLLARS
CLASS A
Shares sold 92,942 165,240 $ 2,955,921 $ 4,558,117
Reinvestment of distributions 7,909 9,931 246,837 241,029
Shares redeemed (30,490) (34,176) (970,063) (944,299)
Net increase (decrease) 70,361 140,995 $ 2,232,695 $ 3,854,847
INSTITUTIONAL CLASS
Shares sold 5,227 2,367 $ 165,786 $ 71,587
Reinvestment of distributions 76 - 2,370 -
Shares redeemed (820) (44) (26,436) (1,340)
Net increase (decrease) 4,483 2,323 $ 141,720 $ 70,247
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
7. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS
PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Beazer Homes USA, Inc. $ - $ 163 $ - $ 11,326
Bertucci's, Inc. - - - 4,663
Cherry Corp. Class A - - - 4,970
Cherry Corp. Class B - - - 3,499
Circuit City Stores, Inc. 12,620 8,499 155 164,187
Good Guys, Inc. 3,274 - - 11,060
Haverty Furniture Companies, Inc. - - 84 7,790
Kaufman & Broad Home Corp. - - - -
Quad Systems Corp. - - - 2,401
Rex Stores Corp. - - - 8,867
TOTALS $ 15,894 $ 8,662 $ 239 $ 218,763
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
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
George A. Vanderheiden, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
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
State Street Bank and Trust Company
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GROWTH OPPORTUNITIES
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 21 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 26 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term. You also can help to manage some of the risks of investing
through diversification. A stock fund is already diversified because it
invests in many issues. You can diversify even further by placing some of
your money in several different types of stock funds or in other investment
categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR GROWTH OPPORTUNITIES FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). The initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares are
sold to eligible investors without a sales load or 12b-1 fee. Returns prior
to July 3, 1995 are those of Class A, the original class of the fund, and
reflect Class A's prior 0.65% 12b-1 fee.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Growth Opportunities - 8.38% 24.92% 121.69% 396.75%
Institutional Class
S&P 500(registered trademark) 13.76% 30.21% 100.72% 250.05%
Growth Funds Average 13.12% 29.81% 95.92% n/a
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years, or since the fund started on November 18, 1987. 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. You can compare Institutional
Class' returns to the performance of the Standard & Poor's 500 Index - a
common proxy for the U.S. stock market. To measure how Institutional Class'
performance stacked up against its peers, you can compare it to the growth
funds average, which reflects the performance of 641 growth funds with
similar objectives tracked by Lipper Analytical Services over the past six
months. Both benchmarks include reinvested dividends and capital gains, if
any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - 24.92% 17.26% 20.87%
Institutional Class
S&P 500 30.21% 14.95% 15.97%
Growth Funds Average 29.81% 14.10% n/a
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' actual (or
cumulative) return and show you what would have happened if Institutional
Class shares had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960523 161132 S00000000000001
FA Growth Opp -CL I SP Standard & Poor 500
00688 SP001
1987/11/18 10000.00 10000.00
1987/11/30 9420.00 9489.05
1987/12/31 10760.00 10211.16
1988/01/31 11220.00 10641.05
1988/02/29 12490.00 11136.92
1988/03/31 12720.00 10792.79
1988/04/30 13100.00 10912.59
1988/05/31 12980.00 11007.53
1988/06/30 14130.00 11512.78
1988/07/31 14100.00 11469.03
1988/08/31 13620.00 11079.08
1988/09/30 14170.00 11551.05
1988/10/31 14270.00 11872.17
1988/11/30 13810.00 11702.40
1988/12/31 14340.64 11907.19
1989/01/31 15569.24 12778.80
1989/02/28 15272.68 12460.61
1989/03/31 15420.96 12750.94
1989/04/30 16416.54 13412.71
1989/05/31 17518.04 13955.93
1989/06/30 16766.06 13876.38
1989/07/31 17708.68 15129.41
1989/08/31 18365.34 15425.95
1989/09/30 18185.29 15362.70
1989/10/31 17507.45 15006.29
1989/11/30 17623.95 15312.42
1989/12/31 17802.80 15679.92
1990/01/31 16520.54 14627.79
1990/02/28 16921.24 14816.49
1990/03/31 17356.29 15209.13
1990/04/30 16783.86 14828.90
1990/05/31 18787.39 16274.72
1990/06/30 18890.43 16164.05
1990/07/31 18203.50 16112.33
1990/08/31 16199.97 14655.77
1990/09/30 14940.61 13942.04
1990/10/31 14871.92 13882.08
1990/11/30 16451.84 14778.87
1990/12/31 17509.61 15191.20
1991/01/31 19605.66 15853.53
1991/02/28 21365.89 16987.06
1991/03/31 21956.49 17398.15
1991/04/30 22408.13 17439.90
1991/05/31 23635.65 18193.31
1991/06/30 21968.07 17360.05
1991/07/31 23508.27 18169.03
1991/08/31 24423.12 18599.64
1991/09/30 23867.26 18289.03
1991/10/31 23832.52 18534.10
1991/11/30 22419.71 17787.17
1991/12/31 24982.85 19822.03
1992/01/31 25703.15 19453.34
1992/02/29 26865.73 19706.23
1992/03/31 25968.52 19321.96
1992/04/30 26676.18 19890.02
1992/05/31 27055.28 19987.49
1992/06/30 26436.08 19689.67
1992/07/31 27345.93 20494.98
1992/08/31 26587.72 20074.83
1992/09/30 26663.54 20311.72
1992/10/31 26714.09 20382.81
1992/11/30 28003.04 21077.86
1992/12/31 28736.79 21337.12
1993/01/31 29612.91 21516.35
1993/02/28 29693.79 21808.97
1993/03/31 30799.05 22269.14
1993/04/30 30852.96 21730.23
1993/05/31 31715.61 22312.60
1993/06/30 31836.92 22377.30
1993/07/31 32052.58 22287.80
1993/08/31 33036.53 23132.50
1993/09/30 33157.84 22954.38
1993/10/31 34222.66 23429.54
1993/11/30 34060.92 23206.96
1993/12/31 35108.69 23487.76
1994/01/31 37051.41 24286.35
1994/02/28 36492.36 23628.19
1994/03/31 34940.98 22598.00
1994/04/30 35863.42 22887.25
1994/05/31 36059.09 23262.60
1994/06/30 35080.74 22692.67
1994/07/31 36073.06 23436.99
1994/08/31 37596.49 24397.90
1994/09/30 36464.40 23800.16
1994/10/31 37205.15 24335.66
1994/11/30 36017.16 23449.35
1994/12/31 36111.72 23797.11
1995/01/31 36392.92 24414.17
1995/02/28 37502.91 25365.59
1995/03/31 38464.90 26114.13
1995/04/30 39767.29 26883.19
1995/05/31 41424.88 27957.71
1995/06/30 42830.87 28607.17
1995/07/31 44296.06 29555.78
1995/08/31 44621.66 29629.96
1995/09/30 45494.85 30880.35
1995/10/31 45835.25 30770.11
1995/11/30 46989.64 32120.91
1995/12/31 48239.16 32739.56
1996/01/31 49018.44 33854.02
1996/02/29 48896.20 34167.84
1996/03/31 48835.08 34496.88
1996/04/30 49675.48 35005.36
IMATRL PRASUN SHR__CHT 19960430 19960523 161136 R00000000000105
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Growth Opportunities Fund - Institutional Class on November 18,
1987, when the fund started. As the chart shows, by April 30, 1996, the
value of your investment would have grown to $49,675 - a 396.75% increase
on your initial investment. For comparison, look at how the S&P 500 did
over the same period. With dividends reinvested, the same $10,000
investment would have grown to $35,005 - a 250.05% increase.
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. In turn,
the share price and return of a
fund that invests in stocks will
vary. That means if you sell
your shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with George A. Vanderheiden, Portfolio Manager of Fidelity
Advisor Growth Opportunities Fund
Q. HOW DID THE FUND PERFORM, GEORGE?
A. For the six months ended April 30, 1996, Fidelity Advisor Growth
Opportunities - Institutional Class returned 8.38%, while the Standard &
Poor's 500 Index was up 13.76%. For the same period, the growth funds
average was 13.12%, according to Lipper Analytical Services. During the 12
months ending April 30, 1996, the fund returned 24.92%. The S&P 500 index
and the Lipper growth funds average were up 30.21% and 29.81%,
respectively.
Q. WHY DID THE FUND UNDERPERFORM THE S&P 500 AND THE LIPPER AVERAGE?
A. The fund took a 13.5% position in U.S. Treasury bonds at the end of the
period because I felt that bonds would do better than stocks. In fact, the
reverse has happened and that has hurt the performance of the fund over the
past six months.
Q. WHAT WAS YOUR RATIONALE FOR BONDS?
A. Over the long term, stocks have fairly consistently appreciated faster
than bonds. Bonds pay a fixed rate of return, whereas stocks' performance
is a function of corporate earnings and dividend growth, which,
historically, grow faster than the yield on Treasury Bonds.
So why own bonds at all? There are times when corporate earnings decline
due to a weak economy. When this happens, bonds typically outperform
stocks. In a Salomon Brothers study that looked at the period from 1960 to
1995, it was shown that when economic growth was below the median and
inflation was low, bonds outperformed stocks 76% of the time.
Q. SO, THEN, WHAT'S YOUR OUTLOOK FOR THE ECONOMY AND CORPORATE PROFITS?
A. I don't expect the economy to enter a recession in the foreseeable
future, but I do expect it to remain sluggish. The consumer is spent out
and leveraged to the max with debt. As pressures continue to build for the
government to downsize, fiscal policy has become a drag on the economy.
Additionally, the two engines of growth for the economy in the past year -
exports and capital spending - are slowing rapidly. The latest surveys show
capital spending only growing 1.5% this year, while export growth is only
up 9% in the latest month, down from a gain of 20% last year. Corporate
profit margins peaked in the second quarter of 1995, after reaching the
highest level in nearly 30 years. In addition, more excess capacity has
been built into the system since last year and this will put further
pressure on margins. In summary, I expect a slow growing economy and a
modest decline in earnings.
Q. MANY GROWTH AREAS OF THE STOCK MARKET SEEM PICKED OVER. WHERE DO YOU SEE
OPPORTUNITIES LONGER TERM?
A. Telecommunications. The price of cellular service continues to drop
thanks to semiconductor technology and, in some parts of the world,
wireless telephone service is cheaper than land line. Penetration levels in
the United States (about 13%) are far below the 25% levels in the
Scandinavian countries. The number of cellular users worldwide could grow
several fold beyond the current 80 million users over the coming years.
Another sector is technology - both the companies that develop it and the
companies that benefit from it. We are in the early stages of becoming a
society where the basic economic resource is knowledge rather than land,
labor or capital. Carnegie and Rockefeller built great companies based on
natural resources 100 years ago. Today, great software and semiconductor
companies are being built on a foundation of knowledge. Not only will
companies that develop useful technologies prosper, but companies that find
ways of applying this technology better than anyone else will also benefit.
I have seen first hand how Fannie Mae - one of the largest positions in the
fund - has used technology to drive down costs and increase efficiency. It
has the unique distinction of currently being the company with the highest
sales per employee, highest assets per employee and highest profits per
employee on the New York Stock Exchange.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. My disappointments have been a combination of being underweighted in
some seemingly expensive stocks that have performed well (such as health
care, drugs and blue chip growth stocks like Coke and Gillette) and being
overweighted in some sectors that appeared cheap, but did not perform well
(such as autos, retailers, railroads).
Q. WITH YOUR EXPECTATION OF A SLOW-GROWING ECONOMY AND LOWER EARNINGS,
WHERE DOES THAT LEAVE THE STOCK MARKET FOR THE REMAINDER OF 1996?
A. The stock market is clearly ahead of itself on a short-term basis and
has been driven by the tremendous inflows into mutual funds over the past
year. Normally, the stock market would react to a slowing and/or decline in
corporate earnings by at least a 10% to 15% correction, if not something
worse. I suspect this will be postponed to a time when we least expect it.
Besides earnings, the other critical determinant to the market is
inflation, and the outlook here remains positive. Low inflation means low
interest rates and thus the high price-to-earnings ratios which contribute
to the high valuation of the market. While we are currently witnessing a
slight rise in food and energy inflation, these increases will only serve
to bring on higher supplies which, in turn, will drive prices down again.
By far, the major part of inflation - unit labor costs and industrial
prices - remains subdued.
In conclusion, while the outlook isn't as rosy as it was a few years ago,
there will always be opportunities for appreciation in individual sectors
and stocks. If the road to successful investing was always a sunny walk in
the park, everyone would be a successful investor. There will be stormy
periods and those who are prepared to take advantage of them may be
rewarded in the long-term. This strategy has made successful long-term
investors out of Growth Opportunities shareholders in the past and may do
so in the future.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide capital growth
by investing primarily in
common stocks and
securities convertible into
common stocks
START DATE: November 18, 1987
SIZE: as of April 30, 1996,
more than $12.7 billion
MANAGER: George
Vanderheiden, since 1987;
also manages Destiny I and
Destiny II funds; joined
Fidelity in 1971
(checkmark)
GEORGE VANDERHEIDEN ON THE
STOCK MARKET ADVANCE:
"Many market forecasters
have been warning that the
market is richly valued and
this has been reinforced by
the media, which has carried
bears on the cover of just
about every business
magazine warning of the
coming market fall. They cite
historically low dividend
yields, higher
price-to-earnings and
price-to-cash-flow multiples
than the 1987 peak, a hot IPO
market, rising interest rates
over the past few months and
a `can't lose' attitude toward
investing by the public. Yet
the market continues its
relentless advance upward,
crushing anyone in its path
who dares to defy it. Why
have so many `experts' been
so wrong? The numbers in
the first four months of this
year give a clue.
"The supply of stock
increased by $43 billion due to
IPOs and the sale of stock by
existing public companies.
This, however, was offset by a
similar amount of stock retired
through completed cash
acquisitions and stock
repurchase programs. So, as
much stock went out the back
door as came in the front
door. What drove the market in
the first four months of the
year was the $73 billion of
net inflows into domestic
equity mutual funds. This four
month total exceeds the net
inflows of $61 billion during
the entire three-year period
1985-1987 when the S&P
500 doubled due to heavy
inflows into mutual funds."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 5.9 4.8
Federal National Mortgage Association 4.9 5.4
General Motors Corp. 4.0 3.5
Compaq Computer Corp. 3.1 3.9
Fleet Financial Group, Inc. 2.9 1.8
Royal Dutch Petroleum Corp. 2.5 0.0
Vodafone Group PLC sponsored ADR 2.3 2.3
Columbia/HCA Healthcare Corp. 2.0 1.2
Federal Home Loan Mortgage Corp. 1.9 1.0
du Pont (E.I) de Nemours & Co. 1.7 0.0
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 15.1 16.2
Technology 9.1 15.2
Durables 8.2 8.2
Energy 7.7 4.2
Nondurables 6.9 6.0
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Row: 1, Col: 1, Value: 10.8
Row: 1, Col: 2, Value: 13.5
Row: 1, Col: 3, Value: 25.0
Row: 1, Col: 4, Value: 50.7
Row: 1, Col: 1, Value: 12.5
Row: 1, Col: 2, Value: 13.5
Row: 1, Col: 3, Value: 24.0
Row: 1, Col: 4, Value: 50.0
Stocks 75.7%
Bonds 13.5%
Short-term
investments 10.8%
FOREIGN
INVESTMENTS 9.7%
Stocks 74.0%
Bonds 13.5%
Short-term
investments 12.5%
FOREIGN
INVESTMENTS 7.8%
*
**
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 75.7%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.6%
AEROSPACE & DEFENSE - 0.2%
Boeing Co. 346,300 $ 28,440
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. 1,076,700 54,508
TOTAL AEROSPACE & DEFENSE 82,948
BASIC INDUSTRIES - 5.3%
CHEMICALS & PLASTICS - 3.0%
Air Products & Chemicals, Inc. 310,300 17,725
Betz Laboratories, Inc. 171,900 7,671
Dow Chemical Co. 69,700 6,195
du Pont (E.I.) de Nemours & Co. 2,673,600 214,891
Raychem Corp. 1,122,500 87,415
Rohm & Haas Co. 108,600 7,208
Union Carbide Corp. 940,600 42,797
383,902
IRON & STEEL - 0.0%
Bethlehem Steel Corp. (a) 59,900 816
METALS & MINING - 0.7%
Aluminum Co. of America 219,700 13,704
Broken Hill Proprietary Co. Ltd. (The) 831,100 12,817
RTZ Corp. PLC 546,800 8,621
Reynolds Metals Co. 900,573 48,406
83,548
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. (a) 2,882,900 45,766
PAPER & FOREST PRODUCTS - 1.2%
Boise Cascade Corp. 364,000 16,926
Champion International Corp. 1,115,000 53,799
Georgia-Pacific Corp. 100,700 7,829
International Paper Co. 954,100 38,045
Temple-Inland, Inc. 441,100 21,393
Willamette Industries, Inc. 257,700 15,849
153,841
TOTAL BASIC INDUSTRIES 667,873
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 1.5%
BUILDING MATERIALS - 0.4%
Armstrong World Industries, Inc. 394,200 $ 22,469
Carbo Ceramics, Inc. 6,300 135
Masco Corp. 333,400 9,086
Tecumseh Products Co. Class A 346,700 19,589
51,279
CONSTRUCTION - 0.8%
Beazer Homes USA, Inc. (a)(b) 707,800 11,326
Centex Corp. 933,300 25,199
DR Horton, Inc. 692,000 6,920
Daito Trust Construction 250,400 3,691
Kaufman & Broad Home Corp. 1,916,900 27,076
Ryland Group, Inc. 745,500 12,301
Sekisui House Ltd. 489,000 6,045
Toll Brothers, Inc. (a) 114,900 1,867
U.S. Home Corp. 560,100 13,932
108,357
ENGINEERING - 0.3%
Fluor Corp. 505,700 33,439
TOTAL CONSTRUCTION & REAL ESTATE 193,075
DURABLES - 8.2%
AUTOS, TIRES, & ACCESSORIES - 7.4%
Chrysler Corp. 1,646,100 103,294
Cummins Engine Co., Inc. 735,200 34,371
Dana Corp. 799,900 26,597
Discount Auto Parts, Inc. (a) 351,800 10,334
Federal-Mogul Corp. 1,198,000 22,762
Ford Motor Co. 253,800 9,105
General Motors Corp. 9,320,339 505,628
Gentex Corp. (a) 208,300 8,228
Goodyear Tire & Rubber Co. 222,800 11,613
Magna International, Inc. Class A 2,716,100 125,231
Scania AB (a):
Class A 197,200 5,458
Class B 197,200 5,443
Superior Industries International, Inc. 1,104,800 30,244
Volvo AB Class B 1,558,800 35,685
933,993
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - CONTINUED
CONSUMER ELECTRONICS - 0.5%
Matsushita Electric Industrial Co. Ltd. 1,181,000 $ 20,777
Newell Co. 259,800 7,404
Whirlpool Corp. 677,800 40,753
68,934
HOME FURNISHINGS - 0.1%
Haverty Furniture Companies, Inc. (b) 556,400 7,790
TEXTILES & APPAREL - 0.2%
Burlington Industries, Inc. (a) 1,979,900 23,016
TOTAL DURABLES 1,033,733
ENERGY - 7.7%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 1,077,500 22,628
OIL & GAS - 7.5%
Amerada Hess Corp. 545,300 30,879
Amoco Corp. 129,000 9,417
Anadarko Petroleum Corp. 79,000 4,602
Apache Corp. 207,800 6,026
Atlantic Richfield Co. 872,400 102,725
British Petroleum PLC ADR 1,373,664 150,073
Burlington Resources, Inc. 1,137,500 42,372
Canada Occidental Petroleum Ltd. 754,500 26,035
Elf Aquitaine SA sponsored ADR 287,447 10,815
Enron Oil & Gas Co. 108,200 2,867
Kerr-McGee Corp. 206,900 13,216
Louisiana Land & Exploration Co. 1,590,800 86,102
Noble Affiliates, Inc. 237,000 8,325
Occidental Petroleum Corp. 1,009,600 25,997
Royal Dutch Petroleum Co. 2,200,700 315,250
Santa Fe Energy Resources, Inc. (a) 666,700 8,000
Seagull Energy Corp. (a) 262,600 6,401
Sun Co., Inc. 1,027,300 31,846
Tosco Corp. 713,100 38,151
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Total SA:
Class B 101,200 $ 6,862
sponsored ADR 312,919 10,717
Union Pacific Resources Group, Inc. 443,000 12,183
948,861
TOTAL ENERGY 971,489
FINANCE - 15.1%
BANKS - 3.3%
AmSouth Bancorporation 778,800 29,886
Fleet Financial Group, Inc. 8,685,710 373,486
State Street Boston Corp. 326,100 16,264
419,636
FEDERAL SPONSORED CREDIT - 6.9%
Federal Home Loan Mortgage Corp. 2,956,200 246,473
Federal National Mortgage Association 20,326,720 622,506
868,979
INSURANCE - 3.6%
AFLAC, Inc. 480,050 14,882
Allmerica Financial Corp. 679,600 17,670
Allstate Corp. 3,427,482 133,243
American International Group, Inc. 1,212,350 110,778
CIGNA Corp. 82,000 9,297
Chubb Corp. (The) 28,800 2,725
Equitable of Iowa Companies 490,700 17,297
General Re Corp. 571,700 81,682
Providian Corp. 820,400 37,841
Torchmark Corp. 579,000 24,897
Travelers/Aetna Property Casualty Corp. Class A 90,400 2,497
452,809
SAVINGS & LOANS - 0.3%
Ahmanson (H.F.) & Co. 20,900 496
Golden West Financial Corp. 662,340 34,856
35,352
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
SECURITIES INDUSTRY - 1.0%
Nomura Securities Co. Ltd. 2,812,000 $ 60,971
United Asset Management Corp. 1,514,100 70,784
131,755
TOTAL FINANCE 1,908,531
HEALTH - 2.7%
DRUGS & PHARMACEUTICALS - 0.4%
Pharmacia & Upjohn, Inc. 962,800 36,828
Schering-Plough Corp. 288,700 16,564
53,392
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Baxter International, Inc. 395,300 17,492
Biomet, Inc. (a) 1,002,300 14,784
CardioThoracic Systems, Inc. 30,700 725
Heartport, Inc. 9,400 336
33,337
MEDICAL FACILITIES MANAGEMENT - 2.1%
American Medical Response (a) 335,400 12,410
Columbia/HCA Healthcare Corp. 4,712,442 250,348
262,758
TOTAL HEALTH 349,487
HOLDING COMPANIES - 0.2%
U.S. Industries, Inc. (a) 990,800 20,807
INDUSTRIAL MACHINERY & EQUIPMENT - 2.6%
ELECTRICAL EQUIPMENT - 0.9%
Antec Corp. (a) 98,500 1,476
Cherry Corp. (a)(b):
Class A 537,300 4,970
Class B 368,300 3,499
Emerson Electric Co. 120,500 10,077
General Electric Co. 389,000 30,148
Loral Space & Communications Ltd. 576,100 8,281
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
ELECTRICAL EQUIPMENT - CONTINUED
Oak Industries, Inc. (a) 90,500 $ 2,444
Omron Corp. 277,000 6,217
Scientific-Atlanta, Inc. 1,107,000 20,480
Sensormatic Electronics Corp. 1,565,400 31,895
119,487
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
Caterpillar, Inc. 1,004,700 64,301
Deere & Co. 1,928,800 74,982
Dover Corp. 78,900 4,063
Kennametal, Inc. 212,400 8,045
151,391
POLLUTION CONTROL - 0.5%
Browning-Ferris Industries, Inc. 1,866,800 60,204
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 331,082
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.1%
Comcast Corp.:
Class A 50,000 875
Class A special 697,900 12,213
People's Choice TV Corp. (a) 56,400 811
13,899
ENTERTAINMENT - 0.6%
Cedar Fair LP (depositary unit) 681,000 24,346
Royal Caribbean Cruises Ltd. 1,914,400 53,842
78,188
LEISURE DURABLES & TOYS - 0.7%
Brunswick Corp. 519,100 11,420
Fleetwood Enterprises, Inc. 2,195,600 57,635
Outboard Marine Corp. 544,500 10,754
79,809
LODGING & GAMING - 0.7%
Circus Circus Enterprises, Inc. (a) 2,079,700 76,429
Mirage Resorts, Inc. (a) 244,500 12,806
89,235
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.2%
Dow Jones & Co., Inc. 172,300 $ 6,440
Knight-Ridder, Inc. 183,800 13,302
Times Mirror Co. Class A 194,300 8,282
28,024
RESTAURANTS - 0.3%
Applebee's International, Inc. 219,700 5,822
Bertucci's, Inc. (a)(b) 666,100 4,663
Brinker International, Inc. (a) 445,500 7,796
Darden Restaurants, Inc. 538,200 7,400
McDonald's Corp. 270,500 12,950
38,631
TOTAL MEDIA & LEISURE 327,786
NONDURABLES - 6.9%
FOODS - 0.1%
General Mills, Inc. 303,400 16,838
Tyson Foods, Inc. 49,700 1,233
18,071
TOBACCO - 6.8%
American Brands, Inc. 28,900 1,203
Philip Morris Companies, Inc. 8,334,900 751,182
RJR Nabisco Holdings Corp. depositary shares representing
1/10 pfd., Series C 3,336,660 99,683
UST, Inc. 266,300 8,522
860,590
TOTAL NONDURABLES 878,661
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 211,300 6,477
Santa Fe Pacific Gold Corp. 813,272 12,097
18,574
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 6.6%
APPAREL STORES - 0.4%
Limited, Inc. (The) 431,638 $ 8,956
Melville Corp. 384,300 14,940
TJX Companies, Inc. 1,096,400 32,344
56,240
GENERAL MERCHANDISE STORES - 2.4%
Aoyama Trading Co. Ord. 486,000 15,206
Dillard Department Stores, Inc. Class A 520,300 20,877
Federated Department Stores, Inc. (a) 2,981,313 99,501
Wal-Mart Stores, Inc. 6,590,200 157,341
Woolworth Corp. (a) 540,600 10,339
303,264
GROCERY STORES - 0.0%
Safeway, Inc. (a) 89,700 3,027
RETAIL & WHOLESALE, MISCELLANEOUS - 3.8%
Circuit City Stores, Inc. (b) 5,171,300 164,187
Good Guys, Inc. (a)(b) 1,212,100 11,060
Home Depot, Inc. (The) 2,536,000 120,143
Lowe's Companies, Inc. 1,591,000 51,509
Officemax, Inc. (a) 1,195,450 31,381
Office Depot, Inc. (a) 915,600 20,487
PETsMART, Inc. 201,100 8,924
Rex Stores Corp. (a)(b) 567,500 8,867
Tandy Corp. 832,900 43,207
Toys "R" Us, Inc. (a) 672,700 18,752
478,517
TOTAL RETAIL & WHOLESALE 841,048
SERVICES - 0.1%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 153,100 7,157
TECHNOLOGY - 9.1%
COMMUNICATIONS EQUIPMENT - 0.1%
General Instrument Corp. (a) 275,100 9,010
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.9%
Adobe Systems, Inc. 59,300 $ 2,550
Automatic Data Processing, Inc. 770,200 29,941
I2 Technologies, Inc. 4,300 175
MicroAge, Inc. (a) 375,000 4,219
Microsoft Corp. (a) 190,800 21,608
Oracle Systems Corp. (a) 577,350 19,486
Policy Management Systems Corp. (a) 769,200 36,152
Sykes Enterprises, Inc. 4,700 85
114,216
COMPUTERS & OFFICE EQUIPMENT - 6.0%
Canon, Inc. 1,527,000 30,205
Compaq Computer Corp. (a) 8,328,400 388,312
Dell Computer Corp. (a) 184,600 8,469
Digital Equipment Corp. (a) 394,300 23,559
Gateway 2000, Inc. (a) 181,200 6,319
Hewlett-Packard Co. 436,600 46,225
International Business Machines Corp. 1,779,800 191,329
SCI Systems, Inc. (a) 1,001,900 42,956
Tech Data Corp. (a) 1,319,600 25,732
763,106
ELECTRONIC INSTRUMENTS - 0.0%
Quad Systems Corp. (a)(b) 300,100 2,401
ELECTRONICS - 2.1%
Intel Corp. 1,901,400 128,820
Methode Electronics, Inc. Class A 645,800 10,817
Molex, Inc. 189,900 5,697
Nitto Denko Corp. 1,092,000 17,550
Solectron Corp. (a) 2,261,200 100,623
263,507
TOTAL TECHNOLOGY 1,152,240
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 177,700 5,287
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - CONTINUED
RAILROADS - 1.1%
Burlington Northern Santa Fe Corp. 517,200 $ 45,255
CSX Corp. 1,792,100 91,845
Southern Pacific Rail Corp. (a) 144,193 3,605
140,705
SHIPPING - 0.1%
Overseas Shipholding Group, Inc. 85,600 1,723
Stolt Nielsen SA Class B sponsored ADR 118,900 2,467
Stolt Tankers & Terms Holdings S.A. 107,700 2,194
Storli AS Class B (non-vtg.) 39,300 664
7,048
TRUCKING & FREIGHT - 0.1%
Caliber System, Inc. 148,100 5,943
Consolidated Freightways, Inc. 250,100 6,533
12,476
TOTAL TRANSPORTATION 165,516
UTILITIES - 5.1%
CELLULAR - 2.7%
AirTouch Communications, Inc. (a) 1,590,700 49,709
Vodafone Group PLC sponsored ADR 7,272,900 291,825
341,534
ELECTRIC UTILITY - 0.0%
Southern Co. 26,700 587
TELEPHONE SERVICES - 2.4%
American Portable Telecom, Inc. 40,200 603
Ameritech Corp. 957,800 55,912
Bell Atlantic Corp. 601,400 39,091
BellSouth Corp. 1,451,200 58,048
NYNEX Corp. 1,126,000 55,315
SBC Communications, Inc. 1,794,000 89,700
298,669
TOTAL UTILITIES 640,790
TOTAL COMMON STOCKS
(Cost $7,774,149) 9,590,797
U.S. TREASURY OBLIGATIONS - 18.2%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
8 1/8%, 8/15/19 $ 1,370,000 $ 1,529,262
7 5/8%, 11/15/22 125,000 133,046
6 1/4%, 8/15/23 50,000 45,094
U.S. Treasury Bill, yield at date of purchase
5.04% to 5.07%, 6/13/96 to 6/20/96 600,000 596,052
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,344,895) 2,303,454
REPURCHASE AGREEMENTS - 6.1%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 772,093 771,979
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $10,891,023) $ 12,666,230
LEGEND
1. Non-income producing
2. Affiliated company (see Note 7 of Notes to Financial Statements).
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $10,892,760,000. Net unrealized appreciation aggregated
$1,773,470,000, of which $1,908,394,000 related to appreciated investment
securities and $134,924,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 12,666,230
agreements of $771,979) (cost $10,891,023) -
See accompanying schedule
Cash 6,293
Receivable for investments sold 32,046
Receivable for fund shares sold 38,884
Dividends receivable 11,868
Interest receivable 27,908
Other receivables 305
TOTAL ASSETS 12,783,534
LIABILITIES
Payable for investments purchased $ 33,479
Payable for fund shares redeemed 17,961
Accrued management fee 6,313
Distribution fees payable 5,111
Other payables and accrued expenses 2,790
TOTAL LIABILITIES 65,654
NET ASSETS $ 12,717,880
Net Assets consist of:
Paid in capital $ 10,459,006
Undistributed net investment income 60,753
Accumulated undistributed net realized gain (loss) on 422,917
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 1,775,204
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 12,717,880
CALCULATION OF MAXIMUM OFFERING PRICE $32.53
CLASS A:
NET ASSET VALUE, and redemption price per share
($12,496,622 (divided by) 384,112 shares)
Maximum offering price per share (100/96.50 of $32.53) $33.71
INSTITUTIONAL CLASS: $32.51
NET ASSET VALUE, offering price and redemption price
per share ($221,258 (divided by) 6,806 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 81,339
Dividends (including $239 received from affiliated issues)
Interest 96,985
TOTAL INCOME 178,324
EXPENSES
Management fee $ 34,597
Basic fee
Performance adjustment 2,811
Transfer agent fees 10,274
Class A
Institutional Class 117
Distribution fees - Class A 30,591
Accounting fees and expenses 402
Non-interested trustees' compensation 19
Custodian fees and expenses 144
Registration fees - Class A 1,016
Registration fees - Institutional Class 66
Audit 55
Legal 59
Miscellaneous 188
Total expenses before reductions 80,339
Expense reductions (564) 79,775
NET INVESTMENT INCOME 98,549
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized loss of $760 426,465
on sales of investments in affiliated issuers)
Foreign currency transactions (13) 426,452
Change in net unrealized appreciation (depreciation) on:
Investment securities 323,854
Assets and liabilities in foreign currencies 12 323,866
NET GAIN (LOSS) 750,318
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 848,867
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 98,549 $ 106,015
Net investment income
Net realized gain (loss) 426,452 143,773
Change in net unrealized appreciation (depreciation) 323,866 1,249,076
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 848,867 1,498,864
FROM OPERATIONS
Distributions to shareholders (133,926) (49,032)
From net investment income
Class A
Institutional Class (2,275) -
From net realized gain (130,654) (210,650)
Class A
Institutional Class (1,491) -
TOTAL DISTRIBUTIONS (268,346) (259,682)
Share transactions - net increase (decrease) 2,374,415 3,925,094
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,954,936 5,164,276
NET ASSETS
Beginning of period 9,762,944 4,598,668
End of period (including undistributed net investment $ 12,717,880 $ 9,762,944
income of $60,753 and $98,405, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value, $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58 $ 12.99
beginning of period
Income from Investment
Operations
Net investment income .27 G .39 .22 .08 .14 .06
Net realized and 2.18 5.31 1.92 5.56 2.04 7.70
unrealized gain
(loss)
Total from investment 2.45 5.70 2.14 5.64 2.18 7.76
operations
Less Distributions
From net investment (.41) (.27) (.07) (.13) (.09) (.17)
income
From net realized gain (.40) (1.16) (.84) (1.26) (1.53) -
Total distributions (.81) (1.43) (.91) (1.39) (1.62) (.17)
Net asset value, end $ 32.53 $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58
of period
TOTAL RETURN B, C 8.04% 22.88% 8.71% 28.11% 12.09% 60.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,497 $ 9,691 $ 4,599 $ 2,055 $ 581 $ 213
(in millions)
Ratio of expenses to 1.44% A 1.59% 1.63% 1.65% 1.60% 1.73%
average net assets
Ratio of expenses to 1.43% 1.58% 1.62% 1.64% 1.60% 1.73%
average net assets A, E E E E
after expense
reductions
Ratio of net investment 1.75% A 1.56% 1.12% .43% .80% .47%
income to average
net assets
Portfolio turnover rate 42% A 39% 43% 69% 94% 142%
Average commission $ .0380
rate F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1996
(UNAUDITED) 1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 30.97 $ 29.04
Income from Investment Operations
Net investment income .37 G .12
Net realized and unrealized gain (loss) 2.18 1.81
Total from investment operations 2.55 1.93
Less Distributions
From net investment income (.61) -
From net realized gain (.40) -
Total distributions (1.01) -
Net asset value, end of period $ 32.51 $ 30.97
TOTAL RETURN B, C 8.38% 6.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 221 $ 72
Ratio of expenses to average net assets .89% .82% A
A
Ratio of expenses to average net assets after expense .87% .81% A
reductions E A
Ratio of net investment income to average net assets 2.32% 2.33% A
A
Portfolio turnover rate 42% 39% A
A
Average commission rate F $ .0380
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
SHARES) TO OCTOBER 31, 1995.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Growth Opportunities Fund(the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A and Institutional Class shares, each of which has
equal rights as to assets and voting privileges. Each class has exclusive
voting rights with respect to its distribution plan. The fund commenced
sale of Institutional class shares on July 3, 1995. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. 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 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 under 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M
of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the 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.
EXPENSES. Most expenses of each trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR), bears all
organizational expenses except for registering and qualifying each class
and shares of each class for distribution under federal and state
securities law. These expenses are borne by each class and amortized over
one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends are declared separately for each class,
while
capital gain distributions are declared at the fund level and allocated to
each class on a pro rata basis based on the number of shares held by each
class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for litigation
proceeds, foreign currency transactions, market discount, partnerships,
non-taxable dividends and losses deferred due to wash sales. The fund also
utilized earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). 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.
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 fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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.
Purchases and sales of securities, other than short-term securities,
aggregated $4,093,605,000 and $2,049,707,000, respectively, of which U.S.
government and government agency obligations aggregated $537,407,000 and
$200,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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%. The
basic fee is subject to a performance adjustment (up to a maximum of .20%)
based on the investment performance of the lowest performing class as
compared to the appropriate index over a specified period of time. The
fund's performance adjustment is measured differently for each class of
shares. For the period, the management fee was equivalent to an annualized
rate of .67% of average net assets after the performance adjustment.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan) and Institutional Class shares
(collectively referred to as "the Plans"). Under the Class A Plan, the fund
pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. For the period November 1, 1995, to December
31, 1995, this fee was based on an annual rate of .65% of the average net
assets of Class A. Effective January 1, 1996, the Board of Trustees
approved a revised Class A distribution plan, under which the fee is based
on an annual rate of .50% of the average net assets of the Class A shares.
For the period, the fund paid FDC $30,591,000 under the Class A Plan, of
which $9,034,000 was paid to securities dealers, banks and other financial
institutions for the distribution of Class A shares, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A and
Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. For the period May 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the period, FDC received sales charges of $35,402,000 on sales of
Class A shares of the fund, of which $29,816,000 was paid to securities
dealers, banks, and other financial institutions.
TRANSFER AGENT FEES. State Street Bank and Trust Company (SSB) is the
transfer, dividend disbursing and shareholder servicing agent for the fund.
SSB has an arrangement for certain transfer, dividend disbursing and
shareholder servicing to be performed by Fidelity Investments Institutional
Operations Company (FIIOC), an affiliate of FMR. The fund pays account fees
and asset-based fees that vary according to account size and type of
account. For the period, the transfer agent fees were equivalent to an
annualized rate of .19% and .15% of average net assets for Class A and
Institutional Class, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company (FSC) maintains the fund's
accounting records. The fee is based on the level of average net assets for
the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,099,000 for the period.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$367,000 under this arrangement.
In addition, the fund has entered into an arrangement with its transfer
agent whereby interest earned on uninvested cash balances was used to
offset a portion of the class' expenses. During the period, Class A and
Institutional Class expenses were reduced by $191,000 and $6,000,
respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
AMOUNTS IN THOUSANDS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED APRIL 30, OCTOBER 31, APRIL
30, OCTOBER 31,
1996 1995 A 1996 1995 A
SHARES DOLLARS
CLASS A
Shares sold 92,942 165,240 $ 2,955,921 $ 4,558,117
Reinvestment of distributions 7,909 9,931 246,837 241,029
Shares redeemed (30,490) (34,176) (970,063) (944,299)
Net increase (decrease) 70,361 140,995 $ 2,232,695 $ 3,854,847
INSTITUTIONAL CLASS
Shares sold 5,227 2,367 $ 165,786 $ 71,587
Reinvestment of distributions 76 - 2,370 -
Shares redeemed (820) (44) (26,436) (1,340)
Net increase (decrease) 4,483 2,323 $ 141,720 $ 70,247
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
7. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS
PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Beazer Homes USA, Inc. $ - $ 163 $ - $ 11,326
Bertucci's, Inc. - - - 4,663
Cherry Corp. Class A - - - 4,970
Cherry Corp. Class B - - - 3,499
Circuit City Stores, Inc. 12,620 8,499 155 164,187
Good Guys, Inc. 3,274 - - 11,060
Haverty Furniture Companies, Inc. - - 84 7,790
Kaufman & Broad Home Corp. - - - -
Quad Systems Corp. - - - 2,401
Rex Stores Corp. - - - 8,867
TOTALS $ 15,894 $ 8,662 $ 239 $ 218,763
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
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
George A. Vanderheiden, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
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 Investments Institutional Operations Company
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal
Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
HIGH YIELD
FUND - CLASS A AND CLASS B
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 11 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 14 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 15 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 34 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 40 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR HIGH YIELD FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in a share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. If Fidelity had not reimbursed certain class expenses
during the periods shown, the past 5 years and life of fund total returns
would have been lower. Effective January 1, 1996, the maximum 4.75% sales
charge on Class A shares was reduced to 3.50%.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor High Yield - Class A 6.37% 14.65% 111.86% 234.29%
Advisor High Yield - Class A 2.65% 10.64% 104.45% 222.59%
(incl. max. 3.50% sales charge)
Merrill Lynch High Yield Master Index 4.14% 12.16% 90.50% 165.28%
High Current Yield Funds Average 5.89% 13.01% 86.98% n/a
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on January 5, 1987. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare Class A's returns to those of
the Merrill Lynch High Yield Master Index, which is a market-capitalization
weighted index which includes all domestic and yankee high-yield bonds.
Issues included in the Index have maturities of at least one year and have
a credit rating of less than BBB-/Baa3, but are not in default. To measure
how Class A's performance stacked up against its peers, you can compare it
to the high current yield funds average, which reflects the performance of
144 high current yield funds with similar objectives tracked by Lipper
Analytical Services over the past six months. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Class A 14.65% 16.20% 13.82%
Advisor High Yield - Class A 10.64% 15.38% 13.38%
(incl. max. 3.50% sales charge)
Merrill Lynch High Yield Master Index 12.16% 13.76% 11.03%
High Current Yield Funds Average 13.01% 13.27% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' actual (or cumulative)
return and show you what would have happened if Class A shares had
performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960520 132155 S00000000000001
FA High Yield -CL A ML High Yield Master
00165 ML002
1987/01/05 9650.00 10000.00
1987/01/31 10102.16 10277.03
1987/02/28 10293.42 10446.69
1987/03/31 10397.70 10562.20
1987/04/30 10179.59 10331.87
1987/05/31 10070.25 10285.31
1987/06/30 10230.59 10427.49
1987/07/31 10265.66 10484.22
1987/08/31 10367.43 10589.28
1987/09/30 9990.63 10345.64
1987/10/31 9571.87 10069.22
1987/11/30 9920.81 10323.86
1987/12/31 10098.49 10460.95
1988/01/31 10627.36 10747.21
1988/02/29 10968.14 11038.83
1988/03/31 10896.97 11020.57
1988/04/30 10865.87 11052.40
1988/05/31 10901.10 11110.09
1988/06/30 11332.60 11322.51
1988/07/31 11496.10 11442.15
1988/08/31 11439.94 11479.75
1988/09/30 11561.06 11595.46
1988/10/31 11691.53 11776.12
1988/11/30 11725.93 11820.24
1988/12/31 11839.96 11870.25
1989/01/31 12160.55 12048.27
1989/02/28 12245.54 12129.23
1989/03/31 12126.07 12118.44
1989/04/30 11991.69 12154.21
1989/05/31 12294.66 12377.96
1989/06/30 12733.56 12553.33
1989/07/31 12803.09 12612.78
1989/08/31 12932.58 12675.08
1989/09/30 12553.05 12554.41
1989/10/31 12081.73 12355.84
1989/11/30 12116.96 12383.52
1989/12/31 12270.37 12372.33
1990/01/31 12092.35 12130.52
1990/02/28 12028.16 11953.86
1990/03/31 12240.04 12115.45
1990/04/30 12387.20 12177.01
1990/05/31 12803.24 12396.96
1990/06/30 13168.67 12637.14
1990/07/31 13475.04 12904.19
1990/08/31 13144.25 12410.20
1990/09/30 12811.94 11870.46
1990/10/31 12513.70 11568.39
1990/11/30 12904.40 11666.38
1990/12/31 13166.24 11834.49
1991/01/31 13469.15 12001.78
1991/02/28 14242.10 12892.59
1991/03/31 14776.39 13446.92
1991/04/30 15226.34 13925.78
1991/05/31 15388.53 13993.78
1991/06/30 15801.67 14275.29
1991/07/31 16372.50 14617.34
1991/08/31 16585.02 14924.57
1991/09/30 16808.97 15114.66
1991/10/31 17478.34 15563.80
1991/11/30 17680.12 15743.57
1991/12/31 17767.12 15926.47
1992/01/31 18581.55 16483.32
1992/02/29 19350.74 16892.68
1992/03/31 19899.26 17128.38
1992/04/30 20080.35 17253.05
1992/05/31 20299.43 17528.25
1992/06/30 20605.85 17746.03
1992/07/31 20977.38 18105.59
1992/08/31 21365.26 18345.29
1992/09/30 21594.08 18554.32
1992/10/31 21316.66 18319.98
1992/11/30 21549.59 18579.43
1992/12/31 21869.47 18818.66
1993/01/31 22454.03 19282.04
1993/02/28 22945.87 19647.03
1993/03/31 23478.29 19987.65
1993/04/30 23612.02 20131.12
1993/05/31 23933.15 20402.11
1993/06/30 24517.18 20785.41
1993/07/31 24839.08 21008.83
1993/08/31 25032.53 21209.10
1993/09/30 25080.22 21313.75
1993/10/31 25679.64 21715.25
1993/11/30 25865.71 21834.01
1993/12/31 26341.66 22052.34
1994/01/31 27098.52 22535.61
1994/02/28 26987.25 22373.55
1994/03/31 26164.52 21644.46
1994/04/30 25873.05 21391.53
1994/05/31 26033.67 21315.31
1994/06/30 25985.64 21393.77
1994/07/31 26086.21 21544.16
1994/08/31 26272.86 21693.80
1994/09/30 26406.39 21685.59
1994/10/31 26358.11 21740.70
1994/11/30 25936.49 21555.76
1994/12/31 25948.17 21795.53
1995/01/31 26171.29 22103.51
1995/02/28 27013.86 22793.16
1995/03/31 27257.02 23110.37
1995/04/30 28136.65 23651.47
1995/05/31 28767.03 24390.39
1995/06/30 28706.32 24576.69
1995/07/31 29413.27 24857.65
1995/08/31 29579.94 25008.52
1995/09/30 29935.90 25294.64
1995/10/31 30326.32 25473.94
1995/11/30 30490.73 25722.60
1995/12/31 30948.63 26135.50
1996/01/31 31676.83 26548.26
1996/02/29 32104.03 26588.24
1996/03/31 31884.70 26516.03
1996/04/30 32259.22 26528.04
IMATRL PRASUN SHR__CHT 19960430 19960520 132200 R00000000000115
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor High Yield Fund - Class A on January 5, 1987, when the fund
started, and paid the current maximum 3.50% sales charge. As the chart
shows, by April 30, 1996, the value of your investment would have grown to
$32,259 - a 222.59% increase on your initial investment. For comparison,
look at how the Merrill Lynch High Yield Master Index did over the same
period. With dividends reinvested, the same $10,000 investment would have
grown to $26,528 - a 165.28% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 5.11% 8.90% 7.15% 9.66% 12.57% 15.50%
Capital appreciation 1.26% 6.15% -4.51% 10.81% 9.39% 24.17%
return
Total return 6.37% 15.05% 2.64% 20.47% 21.96% 39.67%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any, and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 8.10(cents) 59.32(cents) 104.30(cents)
Annualized dividend rate 8.21% 9.91% 8.78%
30-day annualized yield 8.16% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $12.00 over the past month, $12.01
over the past six months and $11.88 over the past year, you can compare the
class' income over these three periods. The 30-day annualized YIELD is a
standard formula for all bond funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis. The
offering share price used in the calculation of the yield includes the
effect of Class A's current maximum 3.50% sales charge.
ADVISOR HIGH YIELD FUND - CLASS B
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. The initial offering of Class B shares took place on
June 30, 1994. Class B shares bear a 0.90% 12b-1/shareholder service fee
(1.00% prior to January 1, 1996). Returns prior to June 30, 1994 are those
of Class A, the original class of the fund, and reflect Class A's 0.25%
12b-1 fee. Had Class B's 12b-1 fee been reflected, returns prior to June
30, 1994 would have been lower. Class B's contingent deferred sales charges
included in the past six months, past one year, past five years and life of
fund total return figures are 4%, 4%, 1% and 0%, respectively. If Fidelity
had not reimbursed certain class expenses during the periods shown, the
past 5 years and life of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor High Yield - Class B 5.94% 13.78% 108.22% 228.54%
Advisor High Yield - Class B 1.94% 9.78% 107.22% 228.54%
(incl. contingent deferred sales charge)
Merrill Lynch High Yield Master Index 4.14% 12.16% 90.50% 165.28%
High Current Yield Funds Average 5.89% 13.01% 86.98% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on January 5, 1987. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare Class B's returns to those of
the Merrill Lynch High Yield Master Index, which is a market-capitalization
weighted index which includes all domestic and yankee high-yield bonds.
Issues included in the Index have maturities of at least one year and have
a credit rating of less than BBB-/Baa3, but are not in default. To measure
how Class B's performance stacked up against its peers, you can compare it
to the high current yield funds average, which reflects the performance of
144 high current yield funds with similar objectives tracked by Lipper
Analytical Services over the past six months. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Class B 13.78% 15.80% 13.60%
Advisor High Yield - Class B 9.78% 15.69% 13.60%
(incl. contingent deferred sales charge)
Merrill Lynch High Yield Master Index 12.16% 13.76% 11.03%
High Current Yield Funds Average 13.01% 13.27% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' actual (or cumulative)
return and show you what would have happened if Class B shares had
performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960520 132355 S00000000000001
FA High Yield -CL B ML High Yield Master
00665 ML002
1987/01/05 10000.00 10000.00
1987/01/31 10468.56 10277.03
1987/02/28 10666.76 10446.69
1987/03/31 10774.82 10562.20
1987/04/30 10548.80 10331.87
1987/05/31 10435.49 10285.31
1987/06/30 10601.65 10427.49
1987/07/31 10637.99 10484.22
1987/08/31 10743.45 10589.28
1987/09/30 10352.98 10345.64
1987/10/31 9919.03 10069.22
1987/11/30 10280.63 10323.86
1987/12/31 10464.76 10460.95
1988/01/31 11012.81 10747.21
1988/02/29 11365.95 11038.83
1988/03/31 11292.19 11020.57
1988/04/30 11259.97 11052.40
1988/05/31 11296.47 11110.09
1988/06/30 11743.63 11322.51
1988/07/31 11913.05 11442.15
1988/08/31 11854.86 11479.75
1988/09/30 11980.37 11595.46
1988/10/31 12115.57 11776.12
1988/11/30 12151.22 11820.24
1988/12/31 12269.39 11870.25
1989/01/31 12601.60 12048.27
1989/02/28 12689.68 12129.23
1989/03/31 12565.88 12118.44
1989/04/30 12426.63 12154.21
1989/05/31 12740.58 12377.96
1989/06/30 13195.40 12553.33
1989/07/31 13267.45 12612.78
1989/08/31 13401.63 12675.08
1989/09/30 13008.34 12554.41
1989/10/31 12519.92 12355.84
1989/11/30 12556.43 12383.52
1989/12/31 12715.41 12372.33
1990/01/31 12530.93 12130.52
1990/02/28 12464.41 11953.86
1990/03/31 12683.98 12115.45
1990/04/30 12836.48 12177.01
1990/05/31 13267.60 12396.96
1990/06/30 13646.29 12637.14
1990/07/31 13963.77 12904.19
1990/08/31 13620.98 12410.20
1990/09/30 13276.62 11870.46
1990/10/31 12967.56 11568.39
1990/11/30 13372.44 11666.38
1990/12/31 13643.77 11834.49
1991/01/31 13957.67 12001.78
1991/02/28 14758.65 12892.59
1991/03/31 15312.32 13446.92
1991/04/30 15778.59 13925.78
1991/05/31 15946.66 13993.78
1991/06/30 16374.79 14275.29
1991/07/31 16966.32 14617.34
1991/08/31 17186.55 14924.57
1991/09/30 17418.62 15114.66
1991/10/31 18112.27 15563.80
1991/11/30 18321.37 15743.57
1991/12/31 18411.52 15926.47
1992/01/31 19255.50 16483.32
1992/02/29 20052.58 16892.68
1992/03/31 20621.00 17128.38
1992/04/30 20808.65 17253.05
1992/05/31 21035.68 17528.25
1992/06/30 21353.21 17746.03
1992/07/31 21738.22 18105.59
1992/08/31 22140.17 18345.29
1992/09/30 22377.29 18554.32
1992/10/31 22089.81 18319.98
1992/11/30 22331.18 18579.43
1992/12/31 22662.66 18818.66
1993/01/31 23268.42 19282.04
1993/02/28 23778.11 19647.03
1993/03/31 24329.84 19987.65
1993/04/30 24468.42 20131.12
1993/05/31 24801.19 20402.11
1993/06/30 25406.40 20785.41
1993/07/31 25739.98 21008.83
1993/08/31 25940.44 21209.10
1993/09/30 25989.86 21313.75
1993/10/31 26611.03 21715.25
1993/11/30 26803.84 21834.01
1993/12/31 27297.05 22052.34
1994/01/31 28081.37 22535.61
1994/02/28 27966.06 22373.55
1994/03/31 27113.49 21644.46
1994/04/30 26811.45 21391.53
1994/05/31 26977.90 21315.31
1994/06/30 26928.12 21393.77
1994/07/31 26987.14 21544.16
1994/08/31 27156.01 21693.80
1994/09/30 27272.89 21685.59
1994/10/31 27179.90 21740.70
1994/11/30 26751.12 21555.76
1994/12/31 26720.51 21795.53
1995/01/31 26933.41 22103.51
1995/02/28 27784.05 22793.16
1995/03/31 28017.11 23110.37
1995/04/30 28879.48 23651.47
1995/05/31 29533.68 24390.39
1995/06/30 29452.20 24576.69
1995/07/31 30134.50 24857.65
1995/08/31 30313.85 25008.52
1995/09/30 30635.81 25294.64
1995/10/31 31018.59 25473.94
1995/11/30 31143.39 25722.60
1995/12/31 31620.24 26135.50
1996/01/31 32319.59 26548.26
1996/02/29 32736.83 26588.24
1996/03/31 32493.75 26516.03
1996/04/30 32859.76 26528.04
IMATRL PRASUN SHR__CHT 19960430 19960520 132400 R00000000000115
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor High Yield Fund - Class B on January 5, 1987, when the fund
started. As the chart shows, by April 30, 1996, the value of your
investment would have grown to $32,854 - a 228.54% increase on your initial
investment. For comparison, look at how the Merrill Lynch High Yield Master
Index did over the same period. With dividends reinvested, the same $10,000
investment would have grown to $26,528 - a 165.28% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 4.76% 8.05% 6.73% 9.66% 12.57% 15.50%
Capital appreciation 1.18% 6.07% -4.59% 10.81% 9.39% 24.17%
return
Total return 5.94% 14.12% 2.14% 20.47% 21.96% 39.67%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any, and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 7.48(cents) 55.19(cents) 95.92(cents)
Annualized dividend rate 7.60% 9.23% 8.09%
30-day annualized yield 7.85% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $11.97 over the past month, $11.99
over the past six months, and $11.85 over the past year, you can compare
the class' income over these three periods. The 30-day annualized YIELD is
a standard formula for all bond funds based on the yields of the bonds in
the fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis. The
offering share price used in the calculation of the yield excludes the
effect of Class B's contingent deferred sales charge.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Margaret Eagle, Portfolio Manager of Fidelity Advisor
High Yield Fund
Q. HOW DID THE FUND DO, MARGARET?
A. The fund performed well, both on an absolute and relative basis. For the
six month period ended April 30, 1996, Fidelity Advisor High Yield Fund
Class A and Class B shares had total returns of 6.37% and 5.94%,
respectively. For the 12-month period ended April 30, 1996, the fund's
Class A and Class B shares returned 14.65% and 13.78%. For the same six-
and 12-month periods, the high current yield funds average returned 5.89%
and 13.01%, respectively, as tracked by Lipper Analytical Services. The
Merrill Lynch High Yield Master Index returned 4.14% and 12.16%, for the
six- and 12-month periods ended April 30, 1996.
Q. WHAT HAS BEEN RESPONSIBLE FOR THE STRONG PERFORMANCE OF THE HIGH-YIELD
MARKET OVER THE PAST SIX MONTHS?
A. A lot has happened over the past six months and the market was really
quite different at the end of the period than it was six months earlier. In
the fourth quarter of 1995, interest rates continued to decline due to
concerns about a softening economy, and conditions favored more defensive
types of high-yield holdings - those that aren't as dependent on a strong
economy for earnings gains. In the beginning of 1996, the market started to
improve from a technical standpoint. By that I mean that strong supply and
demand factors helped boost the high-yield market's performance early this
year. The economy wasn't sufficiently weak to cause major credit concerns
and the default rate - a measure of how many companies were unable to meet
the principal and interest payments on their debt - remained moderate. As a
result, there was relatively strong demand for high-yield bonds, which
easily absorbed the supply of new issues that came to the market. When
interest rates began to rise toward the end of the period, lower quality
bonds and cyclical companies outperformed the more interest-rate sensitive
segments of the market. What's more, during the period there were some
relatively positive credit events and a high level of merger and
acquisition activity, both of which benefited certain parts of the
high-yield market. In the first four months of 1996, the high-yield market
significantly outperformed other fixed-income investments.
Q. WHAT HELPED THE FUND BEAT THE HIGH CURRENT YIELD FUNDS AVERAGE?
A. Several of the fund's largest holdings performed very well during the
period. The fund's holdings in satellite broadcaster Echostar
Communications Corp. appreciated as the company successfully launched its
first satellite late last year and rapidly added new subscribers. Echostar
is one of just three companies that have an orbital slot - an address in
the sky. When MCI purchased another orbital slot, this helped to reaffirm
the value of Echostar's assets. Another of the fund's top performers over
the past six months was long-time holding Revlon. The success of its new
products helped to boost sales and growth. Another positive was that the
company issued stock through an initial public offering (IPO) early this
year. The success of the IPO highlighted the value of the Revlon brand name
and the impressive turnaround of the company.
Q. WHICH OF THE FUND'S OTHER HOLDINGS POSTED STRONG PERFORMANCE?
A. GPA, one of the world's largest aircraft leasing companies, did quite
well. GPA did a major refinancing in the first quarter of 1996, which
essentially put to rest its liquidity concerns, meaning its ability to meet
its debt service payments. Most of the fund's GPA bank debt holdings were
retired and now are no longer in the fund. However, the fund still owns
some short-maturity subordinated bonds that weren't redeemed in the
refinancing. Those bonds enjoyed healthy appreciation during the
refinancing process. Other strong performers were subordinated bonds issued
by Thrifty Payless, which I added in the fourth quarter of 1995. These
bonds, which I bought at a discount to their par value - or below their
face value - carried with them
the requirement that if the company were to do an IPO, the debt would be
retired at par plus accrued interest. The company successfully did an IPO
in April and purchased our holdings in Thrifty Payless.
Q. DESPITE THE FUND'S POSITIVE PERFORMANCE, THERE MUST HAVE BEEN SOME
DISAPPOINTMENTS . . .
A. Transamerica Refinery proved to be disappointing. The company announced
that there would be construction delays and cost overruns for the
construction of its new refinery.
Q. THROUGHOUT THE PERIOD, YOU HAD AN EMPHASIS ON THE HIGHER-QUALITY TIERS
OF THE MARKET. DO YOU ANTICIPATE THAT YOU'LL CONTINUE TO DO SO OVER THE
NEXT SIX MONTHS OR SO?
A. As I have over the past year, I'll most likely keep a good portion of
the fund in the relatively higher-quality bonds within the high-yield
sector. Over the long-term, I believe these bonds offer the best
risk/reward payoff. However, they could be more sensitive to rising
interest rates. Therefore, I am also, as always, looking for opportunities
where strong credit improvements - even with lower-quality bonds - can
provide capital appreciation.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
FUND FACTS
GOAL: seeks a combination
of a high level of income and
potential for capital gains by
investing in a diversified
portfolio consisting primarily
of high-yielding, fixed-income
and zero coupon securities,
such as bonds, debentures
and notes, convertible
securities and preferred
stocks.
START DATE: January 5, 1987
SIZE: as of April 30, 1996,
more than $1.7 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
MARGARET EAGLE'S OUTLOOK FOR
THE HIGH-YIELD MARKET:
"Several things will shape the
high-yield market's
performance during the
months to come. One
important factor is the
direction of interest rates. While
high-yield bonds tend to
outperform high-grade
corporate and Treasury bonds
when interest rates rise, an
increase in rates generally
causes price deterioration for
all bond prices.
"From an economic
standpoint, I think conditions
provide a favorable backdrop
for the market. While we've
seen some earnings trouble
with paper and steel
companies, media
companies, supermarkets
and other sectors are actually
posting better earnings.
"Investor demand for
high-yield issues has been
quite strong. Barring any
major uptick in interest rates or
negative credit developments,
I think we could continue to
see a relatively strong
demand."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF APRIL 30, 1996
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
PanAmSat Corp. 3.6 3.7
Echostar Communications Corp. 2.9 1.5
Cablevision System Corp. 2.8 0.8
Diamond Cable Communications PLC 2.5 1.2
Revlon Worldwide Corp. 2.2 3.6
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 27.0 18.6
Basic Industries 11.6 8.9
Utilities 10.8 8.7
Retail & Wholesale 5.8 8.8
Nondurables 5.1 8.1
QUALITY DIVERSIFICATION AS OF APRIL 30, 1996
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Aaa, Aa, A 0.0 0.0
Baa 0.0 0.0
Ba 10.2 6.2
B 48.7 49.1
Caa, Ca, C 6.8 11.0
Nonrated 13.3 11.0
TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT APRIL 30, 1996 AND OCTOBER 31, 1995, ACCOUNT
FOR 10.5% AND 11.0%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Nonconvertible
bonds 75.8%
Convertible bonds,
preferred stocks 13.0%
Common stocks 2.1%
Short-term
investments 6.6%
Other 2.5%
FOREIGN
INVESTMENTS 8.4%
Nonconvertible
bonds 72.8%
Convertible bonds,
preferred stocks 9.3%
Common stocks 1.8%
Short-term
investments 11.7%
Other 4.4%
FOREIGN
INVESTMENTS 11.2%
Row: 1, Col: 1, Value: 2.5
Row: 1, Col: 2, Value: 6.6
Row: 1, Col: 3, Value: 2.1
Row: 1, Col: 4, Value: 13.0
Row: 1, Col: 5, Value: 35.8
Row: 1, Col: 6, Value: 40.0
Row: 1, Col: 1, Value: 4.4
Row: 1, Col: 2, Value: 11.7
Row: 1, Col: 3, Value: 1.8
Row: 1, Col: 4, Value: 9.300000000000001
Row: 1, Col: 5, Value: 32.8
Row: 1, Col: 6, Value: 40.0
*
**
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 76.6%
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
CONVERTIBLE BONDS - 0.8%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
Exide Corp. 2.90%, 12/15/05 (f) B2 $ 13,640 $ 8,252
MEDIA & LEISURE - 0.0%
LODGING & GAMING - 0.0%
Bally Entertainment Corp. 10%, 12/15/06 B3 750 756
UTILITIES - 0.3%
TELEPHONE SERVICES - 0.3%
Winstar Communications, Inc.
0%, 10/15/05 (f)(g) - 7,280 5,023
TOTAL CONVERTIBLE BONDS 14,031
NONCONVERTIBLE BONDS - 75.8%
AEROSPACE & DEFENSE - 1.3%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 7,920 8,643
BE Aerospace, Inc. 9 7/8%, 2/1/06 (f) B2 930 918
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 2,290 2,519
Wyman-Gordon Co. 10 3/4%, 3/15/03 B1 9,460 10,028
22,108
BASIC INDUSTRIES - 10.6%
CHEMICALS & PLASTICS - 2.8%
Acetex Corp. yankee 9 3/4%, 10/1/03 B1 21,800 21,909
American Pacific Corp. 11%, 2/21/02 (f) - 394 374
Foamex JPS Automotive LP
Series B,14%, 7/1/04 Caa 15,350 10,131
Foamex LP/Foamex Capital Corp.
11 1/4%, 10/1/02 B1 500 498
Foamex LP 11 7/8%, 10/1/04 B3 890 881
NL Industries, Inc. 11 3/4%, 10/15/03 B1 1,260 1,304
Pioneer Americas Acquisition Corp.
13 3/8%, 4/1/05 B2 10,000 10,700
Viridian, Inc. yankee 10 1/2%, 3/31/14 B1 970 1,065
46,862
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 1.3%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 $ 20,350 $ 21,876
PACKAGING & CONTAINERS - 1.5%
Crown Packaging Holdings Ltd., Series B,
0%, 11/1/03 (a)(g) Caa 2,010 859
Gaylord Container 0%, 5/15/05 (g) Caa 23,760 24,592
25,451
PAPER & FOREST PRODUCTS - 5.0%
Rapp International Finance Co. BV yankee
13 1/4%, 12/15/05 Ba3 17,990 18,035
Riverwood International 10 7/8%, 4/1/08 B3 25,260 25,260
SD Warren Co., Series B, 12%, 12/15/04 B1 9,300 9,625
Stone Container Corp. 11 1/2%, 10/1/04 B1 9,470 9,423
Tjiwi Kimia International Finance Co.
13 1/4%, 8/1/01 Ba3 7,530 8,245
Williamhouse Regency Deleware, Inc.
13%, 11/15/05 (f) B3 13,020 14,778
85,366
TOTAL BASIC INDUSTRIES 179,555
CONSTRUCTION & REAL ESTATE - 1.1%
CONSTRUCTION - 1.0%
Greystone Homes, Inc. 10 3/4%, 3/1/04 B2 15,450 15,064
UDC Homes, Inc.:
Series A, 12 1/2%, 5/1/00 - 1,696 1,594
Series B, 12 1/2%, 5/1/00 - 314 295
16,953
REAL ESTATE - 0.1%
Littlefield Co. 10%, 9/30/97 (b)(e) - 3,300 2,513
TOTAL CONSTRUCTION & REAL ESTATE 19,466
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - 1.1%
AUTOS, TIRES, & ACCESSORIES - 0.9%
Harvard Industries, Inc.
12%, 7/15/04 B3 $ 1,570 $ 1,617
11 1/8%, 8/1/05 B3 8,480 8,522
Venture Holdings Trust 9 3/4%, 4/1/04 B3 6,150 5,212
15,351
TEXTILES & APPAREL - 0.2%
CMI Industries, Inc. 9 1/2%, 10/1/03 B1 1,790 1,486
Forstmann Textiles, Inc. 14 3/4%, 4/15/99 Ca 720 144
Hat Brands, Inc. (b):
Series B, 12 5/8%, 9/15/02 - 710 533
Series D, 12 5/8%, 9/15/02 - 820 615
2,778
TOTAL DURABLES 18,129
ENERGY - 3.5%
ENERGY SERVICES - 0.6%
Empire Gas Corp. 7%, 7/15/04 (h) Caa 11,480 10,102
OIL & GAS - 2.9%
Chesapeake Energy Corp.
10 1/2%, 6/1/02 B1 5,960 6,295
9 1/8%, 4/15/06 Ba3 5,600 5,530
Flores & Rucks, Inc. 13 1/2%, 12/1/04 B3 13,900 15,916
KCS Energy, Inc. 11%, 1/15/03 (f) B1 9,620 10,293
Nuevo Energy Co. 9 1/2%, 4/15/06 B2 2,500 2,500
United Meridian Corp. 10 3/8%, 10/15/05 B2 7,400 7,678
Wainoco Oil Corp. 12%, 8/1/02 B1 790 774
48,986
TOTAL ENERGY 59,088
FINANCE - 3.1%
ASSET-BACKED SECURITIES - 0.6%
Airplanes 10 7/8%, 3/15/19 Ba2 9,390 9,813
CREDIT & OTHER FINANCE - 0.4%
HMC Acquisition Properties, Inc.
9%, 12/15/07 (f) Ba3 8,030 7,428
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 1.5%
American Financial Corp.
9 3/4%, 4/20/04 Ba3 $ 12,660 $ 13,388
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 11,860 11,979
25,367
SAVINGS & LOANS - 0.6%
First Nationwide Holdings, Inc.:
12 1/4%, 5/15/01 Ba2 6,850 7,535
9 1/8%, 1/15/03 (f) Ba3 2,060 1,988
9,523
SECURITIES INDUSTRY - 0.0%
ECM Corp. extendible 14%, 6/1/02 (f) - 147 162
TOTAL FINANCE 52,293
HEALTH - 1.7%
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Dade International, Inc. 11 1/8%, 5/1/06 (f) - 11,000 11,000
MEDICAL FACILITIES MANAGEMENT - 1.1%
Tenet Healthcare Corp. 8 5/8%, 12/1/03 Ba1 18,040 18,401
TOTAL HEALTH 29,401
INDUSTRIAL MACHINERY & EQUIPMENT - 3.7%
ELECTRICAL EQUIPMENT - 0.5%
Panamsat LP/Panamsat Capital Corp. secured
9 3/4%, 8/1/00 Ba3 2,400 2,520
Panamsat LP 0%, 8/1/03 (g) B3 6,520 5,542
8,062
INDUSTRIAL MACHINERY & EQUIPMENT - 2.3%
Calmar, Inc., Series B, 11 1/2%, 8/15/05 B3 15,050 14,824
Howmet Corp. 10%, 12/1/03 (f) B3 5,410 5,681
MVE, Inc. 12 1/2%, 2/15/02 B3 8,240 8,487
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 $ 7,050 $ 7,297
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 565 565
10 3/4%, 11/1/03 Caa 1,938 1,938
38,792
POLLUTION CONTROL - 0.9%
Allied Waste Industries, Inc. 10 3/4%, 2/1/04 B3 6,300 6,804
Envirosource, Inc. 9 3/4%, 6/15/03 B3 10,500 9,529
16,333
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 63,187
MEDIA & LEISURE - 18.4%
BROADCASTING - 12.9%
Allbritton Communications Co.
11 1/2%, 8/15/04 B3 4,690 4,854
American Telecasting, Inc. (g):
0%, 6/15/04 (a) Caa 8,500 6,237
0%, 8/15/05 - 3,920 2,548
Bell Cablemedia PLC yankee
0%, 9/15/05 (g) B2 28,370 18,441
Cablevision System Corp. 9 1/4%, 11/1/05 B2 16,800 16,380
Chancellor Broadcasting 12 1/2%, 10/1/04 B3 4,345 4,758
Citicasters, Inc. 9 3/4%, 2/15/04 B- 8,125 8,287
Continental Cablevision, Inc.:
8.30%, 5/15/06 BB+ 11,250 11,419
11%, 6/1/07 B1 6,830 7,701
9%, 9/1/08 Ba2 6,475 6,880
9 1/2%, 8/1/13 Ba2 5,840 6,380
Cooke Media Group, Inc. 11 5/8%, 4/1/99 - 4,575 4,346
CS Wireless Systems, Inc.
0%, 3/1/06 Unit (f)(g) - 3,580 7,464
Diamond Cable Communications PLC
0%, 9/30/04 (g) B3 32,800 23,862
Diamond Cable Communications PLC yankee
0%, 12/15/05 (g) B3 30,120 18,223
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
International Cabletel, Inc. (g):
Series A, 0%, 4/15/05 - $ 6,480 $ 4,228
0%, 2/1/06 (f) B3 41,450 24,248
Peoples Choice TV Corp. Unit
0%, 6/1/04 (g) Caa 19,590 12,048
Robin Media Group, Inc. 11 1/8%, 4/1/97 - 12,800 12,800
SCI Television, Inc. secured 11%, 6/30/05 B2 4,390 4,609
Telemundo Group, Inc. 7%, 2/15/06 (h) B1 1,570 1,385
Viacom, Inc. 8%, 7/7/06 B1 9,350 8,684
Videotron Holdings PLC yankee
0%, 7/1/04 (g) B3 2,790 2,065
217,847
ENTERTAINMENT - 0.6%
AMF Group, Inc. 10 7/8%, 3/15/06 (f) B2 8,600 8,503
Cobb Theatres LLC/ Cobb Financial Corp.
10 5/8%, 3/1/03 (f) B2 1,250 1,281
9,784
LODGING & GAMING - 4.0%
Casino America, Inc. 11 1/2%, 11/15/96 B1 590 627
Casino Magic Financial Corp. 11 1/2%, 10/15/01 B1 8,280 8,446
Grand Casinos, Inc. 10 1/8%, 12/1/03 Ba3 15,430 16,124
Horseshoe Gaming LLC
12 3/4%, 9/30/00 (f) B1 4,750 5,154
Mohegan Tribal Gaming Authority
13 1/2%, 11/15/02 (f) - 15,470 19,183
President Riverboat Casinos 13%, 9/15/01 B1 8,470 7,115
Trump Atlantic City Associates/ Trump
Atlantic City Funding, Inc. 11 1/4%, 5/1/06 B1 11,050 11,229
67,878
RESTAURANTS - 0.9%
SC International Services, Inc. 13%, 10/1/05 B3 13,600 14,620
TOTAL MEDIA & LEISURE 310,129
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 5.0%
AGRICULTURE - 0.2%
Doane Products Co. 10 5/8%, 3/1/06 B3 $ 2,710 $ 2,744
FOODS - 0.9%
Fresh Del Monte Produce NV, Series B,
10%, 5/1/03 Caa 14,900 14,080
Specialty Foods Corp., Series B
11 1/8%, 10/1/02 B3 2,090 1,965
16,045
HOUSEHOLD PRODUCTS - 3.9%
McAndrews & Forbes Group, Inc.
12 1/4%, 7/1/96 - 10,850 10,877
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 16,820 17,219
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 45,517 36,983
65,079
TOTAL NONDURABLES 83,868
RETAIL & WHOLESALE - 5.8%
APPAREL STORES - 0.3%
Apparel Retailers, Inc. 0%, 8/15/05 (g) Caa 490 353
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(f) - 2,201 99
Mothers Work, Inc. 12 5/8%, 8/1/05 B3 4,770 5,068
5,520
GENERAL MERCHANDISE STORES - 1.5%
K Mart Corp.:
12 1/2%, 3/01/05 Ba2 7,940 8,595
8.71%, 4/7/97 Ba2 6,360 6,105
8.70%, 8/1/97 Ba2 2,500 2,400
7.76%, 7/2/02 Ba2 1,000 835
7.77%, 7/2/02 Ba2 2,000 1,670
Series A, 9.55%, 6/30/98 Ba2 6,175 5,835
25,440
GROCERY STORES - 2.9%
Brunos, Inc. 10 1/2%, 8/1/05 B3 9,790 9,692
Food 4 Less Holdings, Inc. 0%, 7/15/05 (g) Caa 12,120 5,090
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 B3 $ 780 $ 788
12 5/8%, 6/15/02 B3 530 543
Ralph's Grocery Co. 11%, 6/15/05 B3 20,830 19,476
Star Markets, Inc. 13%, 11/1/04 B3 12,860 13,374
48,963
RETAIL & WHOLESALE, MISCELLANEOUS - 1.1%
Alliance Entertainment Corp., Series B,
11 1/4%, 7/15/05 B3 15,320 14,822
Wickes Lumber Co. 11 5/8%, 12/15/03 B3 4,230 3,046
17,868
TOTAL RETAIL & WHOLESALE 97,791
SERVICES - 3.9%
ADVERTISING - 0.6%
Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 10,400 10,582
LEASING & RENTAL - 1.8%
GPA:
9 3/4%, 6/10/96 (f) Caa 2,250 2,261
9 3/4%, 7/22/96 Caa 500 502
8.28%, 2/13/97 (f) - 1,400 1,409
8.58%, 2/21/97 - 250 252
8.48%, 2/21/97 (f) B1 2,250 2,264
9.12%, 2/24/99 - 750 752
9%, 8/16/99 - 3,250 3,258
GPA Delaware, Inc. 8 1/2%, 3/3/97 - 6,800 6,843
GPA Holland 8.94%, 2/16/99 - 4,500 4,500
GPA Leasing USA I, Inc.
9 1/8%, 9/02/96 B3 3,365 3,390
GPA Leasing USA Sub. I, Inc.
9 1/8%, 12/02/96 Ba3 2,734 2,758
Scotsman Holdings, Inc. pay-in-kind
11%, 3/1/04 - 2,737 2,488
30,677
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
PRINTING - 1.5%
Big Flower Press:
10 3/4%, 8/1/03 B2 $ 2,140 $ 2,119
10 3/4%, 8/1/03 Class A B3 2,361 2,337
10 3/4%, 8/1/03 Class B B2 689 682
Herff Jones, Inc., Series B, 11%, 8/15/05 B2 3,600 3,816
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 16,300 15,322
24,276
TOTAL SERVICES 65,535
TECHNOLOGY - 5.3%
COMMUNICATIONS EQUIPMENT - 3.8%
Echostar Communications Corp.
0%, 6/1/04 (g) B2 55,068 40,888
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (f)(g) Caa 19,450 12,108
Hyperion Telecommunication, Inc.
0%, 4/15/03 Unit (f)(g) - 20,100 10,753
63,749
COMPUTERS & OFFICE EQUIPMENT - 1.5%
Exide Electronics Group, Inc.
11 1/2%, 3/15/06 Unit (f) B 5,600 5,824
Unisys Corp.:
10 5/8%, 10/01/99 B1 4,010 3,990
12%, 4/15/03 (f) B1 14,910 14,947
24,761
TOTAL TECHNOLOGY 88,510
TRANSPORTATION - 1.8%
AIR TRANSPORTATION - 1.8%
Trans World Airlines, Inc. 12%, 11/3/98 (a) - 510 494
US Air, Inc.:
9 5/8%, 2/1/01 B3 7,720 7,122
10%, 7/1/03 B3 21,190 19,548
9 5/8%, 9/1/03 B1 3,140 3,022
TOTAL TRANSPORTATION 30,186
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 9.5%
CELLULAR - 5.1%
Arch Communications Group, Inc.
0%, 3/15/08 (g) B3 $ 6,810 $ 3,780
Comcast Cellular Corp.:
0%, 3/5/00 B2 22,370 15,995
Series B, 0%, 3/5/00 B2 14,970 10,704
Comunicaciones Celulares SA Unit
0%, 11/15/03 (f)(g) B3 1,930 1,158
Fonorola, Inc. 12 1/2%, 8/15/02 B2 7,180 7,683
Intercel, Inc. 0%, 2/1/06 Unit (g) B2 26,690 16,881
Mobilmedia Communications, Inc.
0%, 12/1/03 (g) B3 2,490 1,911
Mobilemedia Corp. 9 3/8%, 11/1/07 B3 7,000 6,667
Pagemart Nationwide, Inc. 0%, 2/1/05
exchangeable (g) - 10,120 6,578
Paging Network, Inc. 10 1/8%, 8/1/07 B2 9,790 10,071
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B2 280 267
Vanguard Cellular Systems, Inc.
9 3/8%, 4/15/06 B1 4,550 4,533
86,228
ELECTRIC UTILITY - 0.6%
El Paso Electric Co.:
Series A, 7 1/4%, 2/1/99 1st Mtg Ba3 1,507 1,486
Series B, 7 3/4%, 5/1/01 1st Mtg Ba3 1,674 1,634
Series C, 8 1/4%, 2/1/03 1st Mtg Ba3 1,950 1,892
Series D, 8.90%, 2/1/06 1st Mtg Ba3 5,282 5,216
10,228
TELEPHONE SERVICES - 3.8%
American Communications Services, Inc.
0%, 4/1/06 (f)(g) - 14,010 7,215
Brooks Fiber Properties, Inc.
10 7/8%, 3/1/06 (f) - 12,640 6,952
Call-Net Enterprises, Inc. yankee
0%, 12/1/04 (g) B2 10,990 8,133
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
GST Telecommunications, Inc.
0%, 12/15/05 Unit (f)(g) - $ 11 $ 602
Intelcom Group USA, Inc.
0%, 9/15/05 (g) - 12,180 7,369
Intermedia Communications Florida, Inc.
Series B, 13 1/2%, 6/1/05 B3 2,500 2,856
MFS Communications, Inc.
0%, 1/15/06 (g) B1 4,380 2,721
Nextlink Communications LLC
12 1/2%, 4/15/06 (f) - 19,440 19,634
Winstar Communications, Inc.
0%, 10/15/05 (g) - 14,560 8,154
63,636
TOTAL UTILITIES 160,092
TOTAL NONCONVERTIBLE BONDS 1,279,338
TOTAL CORPORATE BONDS
(Cost $1,258,807) 1,293,369
COMMERCIAL MORTGAGE SECURITIES - 2.4%
Bardell Associates Note Trust
12 1/2%, 11/1/08 (e) - 1,889 1,919
CBA Mortgage Corp. commercial
Series 1993-C1 Class E,
7.1541%, 12/25/03 (f)(i) Ba2 3,000 2,388
DLJ Mortgage Acceptance Corp.
commercial Series 1994-MF11 Class B-2,
8.10%, 6/18/04 (f) Ba2 2,660 2,120
Merrill Lynch Mortgage Investments, Inc.
commercial 8.06%, 6/25/22 (f)(i) Ba2 4,370 3,738
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
Resolution Trust Corp. commercial Series:
1994-N2 Class 5-A, 10 5/8%, 12/15/04 (f)(h) B2 $ 3,400 $ 3,427
1994-C2 Class G, 8%, 4/25/25 B 4,118 3,383
1994-C1 Class E, 8%, 6/25/26 BB 9,655 8,319
1995-C2 Class F, 7%, 5/25/27 B1 2,170 1,768
sequential pay Series 1994-C1 Class F,
8%, 6/25/26 B 2,448 2,018
SKW Real Estate LP commercial Series II Class E,
11%, 4/15/05 (f) B 5,960 5,975
SML, Inc. commercial Series 1994-C1 Class C,
9.20%, 9/18/99 (e) - 2,950 1,963
Structured Asset Securities Corp. commercial
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (f) BB 4,000 2,923
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $38,809) 39,941
COMMON STOCKS - 2.1%
SHARES
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.4%
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 47
Foamex-JPS Automotive LP/Foamex JPS Capital Corp.
(warrants) (a) 15,350 77
Nu-West Industries, Inc. Class A (rights) (a)(e) 36,540 5,481
Trivest 1992 Special Fund LP 3.0 (d) 584
6,189
PACKAGING & CONTAINERS - 0.0%
Crown Packaging Holdings Ltd. (warrants) (a) 2,010 16
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(f) 31,251 258
TOTAL BASIC INDUSTRIES 6,463
CONSTRUCTION & REAL ESTATE - 0.4%
CONSTRUCTION - 0.4%
Capital Pacific Holdings, Inc. (warrants) (a)(f) 24,095 18
NVR, Inc. (a) 368,706 3,733
NVR, Inc. (warrants) (a) 30,857 42
Walter Industries, Inc. (a) 173,498 2,364
TOTAL CONSTRUCTION & REAL ESTATE 6,157
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
Polyvision Corp. (a) 6,442 $ 13
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(e) 7,229 36
HM/Hat Brands Trust Class I Units (a)(e) 410,000 410
446
TOTAL DURABLES 459
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 900 90
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
MVE, Inc. (warrants) (a) 13,060 170
XRC Corp. 84,961 8
TOTAL HEALTH 178
HOLDING COMPANIES - 0.1%
SDW Holdings Corp.:
(warrants) (a) 190,970 573
Series B (warrants) (a) 18,280 244
TOTAL HOLDING COMPANIES 817
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Telex Communications Group
(warrants) (a)(e) 160 11
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Terex Corp. (rights) (a)(e) 8,130 1
Thermadyne Holdings Corp. (a) 14,085 338
339
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 350
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.4%
BROADCASTING - 0.3%
American Telecasting, Inc. 44,600 $ 680
Commodore Media, Inc. (warrants) (a) 4,700 611
PanAmSat Corp. (a) 100,800 3,352
4,643
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I (warrants) (a)(f) 1,460 37
LODGING & GAMING - 0.1%
Bally's Grand, Inc. (warrants) (a) 1,443 19
Sun International Hotels Ltd. Ord. (a) 16,530 707
726
TOTAL MEDIA & LEISURE 5,406
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 8
Lamonts Apparel, Inc. (warrants) (a) 66,214 -
8
DRUG STORES - 0.0%
Thrifty Payless Holdings, Inc. Class C (a) 92,150 415
GENERAL MERCHANDISE STORES - 0.0%
Federated Department Stores, Inc. (a) 8,383 280
GROCERY STORES - 0.0%
FF Holdings Corp. (a)(e) 2,600 5
Grand Union Capital Corp. Class B 452 -
5
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Finlay Enterprises, Inc. (a) 2,533 37
TOTAL RETAIL & WHOLESALE 745
SERVICES - 0.0%
LEASING & RENTAL - 0.0%
Scotsman Holdings, Inc. (a) 18,059 236
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - 0.5%
COMMUNICATIONS EQUIPMENT - 0.5%
Echostar Communications Corp. Class A (a) 243,937 $ 8,172
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Wang Laboratories, Inc. (a) 7,866 186
ELECTRONIC INSTRUMENTS - 0.0%
Berg Electronics Holdings Corp. (a)(f) 6,248 157
TOTAL TECHNOLOGY 8,515
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 5,520 -
Trans World Airlines, Inc. 3,269 58
TOTAL TRANSPORTATION 58
UTILITIES - 0.3%
CELLULAR - 0.0%
Cellular Communications International, Inc. (a) 20,000 730
Nextel Communications, Inc. (warrants) (a) 5,880 -
730
ELECTRIC UTILITY - 0.3%
El Paso Electric Co. (a) 866,017 4,601
GAS - 0.0%
UGI Corp. (warrants) (a) 34,867 5
TELEPHONE SERVICES - 0.0%
Intermedia Communications Florida, Inc. (warrants) (a) 2,500 88
TOTAL UTILITIES 5,424
TOTAL COMMON STOCKS
(Cost $25,683) 34,898
PREFERRED STOCKS - 12.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.2%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Prime Retail, Inc., Series B, 2 1/8% 160,000 $ 2,760
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp. exchangeable
pay-in-kind $3.52 (a) 33,480 862
TOTAL CONVERTIBLE PREFERRED STOCKS 3,622
NONCONVERTIBLE PREFERRED STOCKS - 12.0%
BASIC INDUSTRIES - 0.6%
CHEMICALS & PLASTICS - 0.2%
Nu-West Industries, Inc. Class A $11 (a) 20,000 3,200
PAPER & FOREST PRODUCTS - 0.4%
SD Warren Co. 14% exchangeable pay-in-kind 190,970 5,729
TOTAL BASIC INDUSTRIES 8,929
ENERGY - 0.4%
OIL & GAS - 0.4%
Gulf Canada Resources Ltd., Series 1, adj. rate 2,082,085 6,650
Gulf Canada Resources Ltd. (e) 33,881 97
TOTAL ENERGY 6,747
FINANCE - 1.7%
SAVINGS & LOANS - 1.7%
First Nationwide Bank 11 1/2% 77,826 8,561
Greater New York Savings Bank, Series B,12% 669,994 20,602
TOTAL FINANCE 29,163
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
HOLDING COMPANIES - 0.3%
SDW Holdings Corp. (a) 182,800 $ 5,484
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% (a)(e) 584 405
MEDIA & LEISURE - 8.2%
BROADCASTING - 7.2%
Cablevision System Corp., Series G exchangeable
pay-in-kind (f) 165,378 16,703
Cablevision System Corp. $11.125 pay-in-kind (f) 151,119 14,772
Chancellor Radio Broadcasting Co. (exchangeable)
pay-in-kind (f) 160,700 15,829
PanAmSat Corp. pay-in-kind 12 3/4% 50,037 58,168
Time Warner, Inc., Series K (exchangeable) 16,860 16,881
122,353
PUBLISHING - 1.0%
K-III Communications Corp., Series B, $11.625 pay-in-kind (a) 37,004
3,756
K-III Communications Corp., Series C, exchangeable (a)(f) 130,400 12,258
16,014
TOTAL MEDIA & LEISURE 138,367
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Revlon Group, Inc., Series B, exchangeable $14.875 22,933 2,293
UTILITIES - 0.7%
ELECTRIC UTILITY - 0.4%
El Paso Electric Co., Series A, pay-in-kind (a) 70,400 7,181
TELEPHONE SERVICES - 0.3%
Intelecom Group USA, Inc. 4,170 4,243
TOTAL UTILITIES 11,424
TOTAL NONCONVERTIBLE PREFERRED STOCKS 202,812
TOTAL PREFERRED STOCKS
(Cost $197,215) 206,434
PURCHASED BANK DEBT - 0.1%
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $1,423) $ 1,860,000 $ 1,730
REPURCHASE AGREEMENTS - 6.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 112,681 112,664
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,634,601) $ 1,689,036
LEGEND
1. Non-income producing
2. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
3. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
4. Represents number of units held.
5. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Ampex Corp. 8% 2/16/95 $ 307
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 10
Bardell Associates
Note Trust 12 1/2%,
11/1/08 4/19/94 $ 1,920
FF Holdings Corp. 10/2/92
to 1/14/94 $ 10
Gulf Canada
Resources Ltd. 10/15/93 $ 85
HM/Hat Brands Trust
Class I Units 2/22/94 $ 410
Hat Brands, Inc. 9/2/92
(warrants) to 2/23/94 $ -
Littlefield Co. 10%,
12/31/95 2/28/94 $ 3,300
Nu-West Industries, Inc.
Class A (rights) 2/17/94 $ 3,179
SML, Inc. commercial
Series 1994-C1 Class C,
9.20%, 9/18/99 8/11/94 $ 1,918
Telex Communications
Group (warrants) 4/15/92 $ 3
Terex Corp. (rights) 7/29/92 $ -
6. 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 $297,649,000 or 17.4% of net
assets.
7. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
8. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
9. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 10.2% BB 16.3%
B 48.7% B 45.1%
Caa 6.8% CCC 5.1%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 10.5%. FMR
has determined that unrated debt securities that are lower quality account
for 10.5% of the total value of investment in securities.
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $1,634,786,000. Net unrealized appreciation aggregated
$54,250,000, of which $79,070,000 related to appreciated investment
securities and $24,820,000 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $5,368,000 all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase agreements of $112,664) (cost $1,634,601) - $ 1,689,036
See accompanying schedule
Cash 16,028
Receivable for investments sold 4,742
Dividends receivable 482
Interest receivable 25,197
Prepaid expenses 5
TOTAL ASSETS 1,735,490
LIABILITIES
Payable for investments purchased $ 21,563
Distributions payable 2,717
Accrued management fee 812
Distribution fees payable 469
Other payables and accrued expenses 366
TOTAL LIABILITIES 25,927
NET ASSETS $ 1,709,563
Net Assets consist of:
Paid in capital $ 1,636,218
Undistributed net investment income 8,507
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 10,358
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 54,480
NET ASSETS $ 1,709,563
CALCULATION OF MAXIMUM OFFERING PRICE $12.06
CLASS A:
NET ASSET VALUE, and redemption price per share
($1,442,204 (divided by) 119,589 shares)
Maximum offering price per share (100/96.50 of $12.06) $12.50
CLASS B: $12.03
NET ASSET VALUE, offering price price per share
($253,496 (divided by) 21,068 shares) A
INSTITUTIONAL CLASS: $11.90
NET ASSET VALUE, offering price and redemption price
per share ($13,863 (divided by) 1,165 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 7,594
Dividends
Interest 72,804
TOTAL INCOME 80,398
EXPENSES
Management fee $ 4,564
Transfer agent fees 1,286
Class A
Class B 210
Institutional Class 5
Distribution fees 1,645
Class A
Class B 952
Accounting fees and expenses 325
Non-interested trustees' compensation 2
Custodian fees and expenses 23
Registration fees 79
Class A
Class B 24
Institutional Class 33
Audit 15
Legal 13
Reports to shareholders 24
Miscellaneous 6
Total expenses before reductions 9,206
Expense reductions (62) 9,144
NET INVESTMENT INCOME 71,254
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities 16,470
Change in net unrealized appreciation (depreciation) on
investment securities 4,978
NET GAIN (LOSS) 21,448
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 92,702
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED APRIL OCTOBER 31,
30,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 71,254 $ 79,576
Net investment income
Net realized gain (loss) 16,470 7,704
Change in net unrealized appreciation (depreciation) 4,978 54,261
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 92,702 141,541
FROM OPERATIONS
Distributions to shareholders (64,432) (70,801)
From net investment income
Class A
Class B (9,229) (5,023)
Institutional Class (338) (205)
TOTAL DISTRIBUTIONS (73,999) (76,029)
Share transactions - net increase (decrease) 334,508 594,258
TOTAL INCREASE (DECREASE) IN NET ASSETS 353,211 659,770
NET ASSETS
Beginning of period 1,356,352 696,582
End of period (including undistributed net investment income of $8,507 and $11,252, respectively) $ 1,709,563 $ 1,356,352
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1996.
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120 $ 8.150
beginning of period
Income from Investment
Operations
Net investment income .562 F .930 F .848 .980 1.146 1.115
Net realized and .181 .680 (.537) 1.153 .975 1.948
unrealized gain (loss)
Total from investment .743 1.610 .311 2.133 2.121 3.063
operations
Less Distributions (.593) (.920) (.851) (.963) (1.171) (1.093)
From net investment
income
From net realized gain - - (.250) (.230) - -
Total distributions (.593) (.920) (1.101) (1.193) (1.171) (1.093)
Net asset value, $ 12.060 $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120
end of period
TOTAL RETURN B, C 6.37% 15.05% 2.64 20.47 21.96% 39.67%
% %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,442,204 $ 1,200,495 $ 679,623 $ 485,559 $ 136,316 $ 38,681
(000 omitted)
Ratio of expenses to 1.12% A 1.15% 1.20 1.11 1.10% 1.10%
average net assets % % E E
Ratio of expenses to 1.11% A 1.15% 1.20 1.11 1.10% 1.10%
average net assets ,H % %
after expense
reductions
Ratio of net investment 9.47% A 8.32% 6.92 8.09 9.95% 12.20%
income to average % %
net assets
Portfolio turnover rate 119% A 112% 118 79 100% 103%
% %
</TABLE>
Average commission $ .0478
rate G
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
H FMR OR THE FUND HAS ENTERED INTO VARING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS YEARS ENDED OCTOBER
ENDED APRIL 30, 31,
1996
(UNAUDITED) 1995 1994 C
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.890 $ 11.210 $ 11.300
Income from Investment Operations
Net investment income .518 D .794 D .223
Net realized and unrealized gain (loss) .174 .721 (.118)
Total from investment operations .692 1.515 .105
Less Distributions
From net investment income (.552) (.835) (.195)
Net asset value, end of period $ 12.030 $ 11.890 $ 11.210
TOTAL RETURN B 5.94% 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 253,496 $ 155,730 $ 16,959
Ratio of expenses to average net assets 1.81% A 2.01% 2.20%
A
Ratio of net investment income to average net assets 8.77% A 7.46% 5.92%
A
Portfolio turnover rate 119% A 112% 118%
Average commission rate E $ .0478
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31, 1994.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1996
(UNAUDITED) 1995 D
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.760 $ 11.560
Income from Investment Operations
Net investment income .543 E .390 E
Net realized and unrealized gain (loss) .190 .193
Total from investment operations .733 .583
Less Distributions
From net investment income (.593) (.383)
Net asset value, end of period $ 11.900 $ 11.760
TOTAL RETURN B, C 6.37% 5.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 13,863 $ 126
Ratio of expenses to average net assets 1.10% A, .70%
G A
Ratio of expenses to average net assets after expense reductions 1.08% A, .70%
H A
Ratio of net investment income to average net assets 9.50% A 8.77%
A
Portfolio turnover rate 119% A 112%
Average commission rate F $ .0478
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor High Yield Fund (the fund) is a fund of Fidelity Advisor
Series II (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust.
The fund offers Class A, Class B, and Institutional Class shares, each of
which has equal rights as to assets and voting privileges. Each class has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the fund are allocated on a pro rata basis to each class based
on the relative net assets of each class to the total net assets of the
fund. Each class of shares differs in its respective distribution, transfer
agent, registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market (sales
prices if the principal market is an exchange) in which such securities are
normally traded. Equity securities for which 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
market quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed. These dividends are recorded as soon as the fund is
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. The fund may place a debt obligation on non-accrual status and
reduce related interest income by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest
has become doubtful based on consistently applied procedures, under the
general supervision of the Board of Trustees of the fund. A debt obligation
is removed from non-accrual status when the issuer resumes interest
payments or when collectibility of interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. FMR bears all organizational expenses except for
registering and qualifying each class and shares of each class for
distribution under federal and state securities law. These expenses are
borne by each class and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends are declared
separately for each class, while capital gain distributions are declared at
the fund level and allocated to each class on a pro rata basis based on the
number of shares held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for defaulted
bonds, market discount, partnerships, capital loss carryforwards and losses
deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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 fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $12,888,000 or
.75% of net assets.
2. OPERATING POLICIES - CONTINUED
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to invest in
loans and loan participations, trade claims or other receivables. These
investments may include standby financing commitments that obligate the
fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary. At the end of the period, these investments
amounted to $1,730,000 or .10% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,160,339,000 and $831,149,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of the fund. The group fee rate is the weighted
average of a series of rates and is based on the monthly average net assets
of all the mutual funds advised by FMR. The rates ranged from .1100% to
.3700% for the period. 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 .45%. For the period, the management
fee was equivalent to an annualized rate of .60% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan), Class B shares (Class B Plan),
and Institutional Class shares (collectively referred to as "the Plans").
Under the Class A Plan and Class B Plan, the fund pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution and
service fee. For the period November 1,1995, to December 31, 1995, this fee
was based on annual rates of .25% and 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
average net assets of the Class A and Class B shares, respectively.
Effective January 1, 1996, the Board of Trustees approved a revised Class B
distribution plan, under which the fee is based on an annual rate of .90%
(of which .65% represents a distribution fee and .25% represents a
shareholder service fee) of the average net assets of the Class B shares.
For the period, the fund paid FDC $1,645,000 and $952,000 under the Class A
Plan and Class B Plan, respectively, of which $1,645,000 and $257,000 were
paid to securities dealers, banks and other financial institutions for the
distribution of Class A and Class B shares, respectively, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
of the fund's Class A, Class B, and Institutional Class shares. The Plans
also authorize payments to third parties that assist in the sale of the
fund's shares or render shareholder support services.
SALES LOAD. For the period November 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the period, FDC received sales charges of $5,138,000 on sales of
Class A shares of the fund, of which $4,321,000 was paid to securities
dealers, banks, and other financial institutions. FDC also receives the
proceeds of a contingent deferred sales charge levied on Class B share
redemptions occurring within five years of purchase. The charge is based on
declining rates which range from 4% to 1% of the lesser of the cost of
shares at the initial date of purchase or the net asset value of the
redeemed shares, excluding any reinvested dividends and capital gains. For
the period, FDC received contingent deferred sales charges of $142,000 on
Class B share redemptions from the fund. When Class B shares are sold, FDC
pays commissions from its own resources to dealers through which the sales
are made.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Class B and Institutional Class shares. The Transfer Agents receive account
fees and asset-based fees that vary according to the account size and type
of account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.20%, .21%, and .13% of average net assets for Class A, Class B, and
Institutional Class, respectively.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates of average net assets for each class.
5. EXPENSE REDUCTIONS - CONTINUED
(I) CLASS A. For the period, this expense limitation was 1.35% of average
net assets.
(II) CLASS B. For the period, this expense limitation ranged from an annual
rate of 2.10% to 2.00% of average net assets.
(III) INSTITUTIONAL CLASS. For the period, this expense limitation was
1.10% of average net assets and the reimbursement reduced expenses by
$21,000.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$3,000 under this arrangement.
In addition, the fund has entered into an arrangement with its custodian
and transfer agent whereby interest earned on uninvested cash balances was
used to offset a portion of the class' expenses. During the period, the
fund's custodian fees were reduced by $20,000 under the custodian
arrangement and Class A, and Institutional Class expenses were reduced by
$17,000, and $1,000, respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
CLASS A
Shares sold 47,015,000 72,296,000 $ 565,087,000 $ 827,485,000
Reinvestment of distributions 3,998,000 4,457,000 47,897,000 51,022,000
Shares redeemed (32,231,000) (36,544,000) (387,608,000) (417,459,000)
Net increase (decrease) 18,782,000 40,209,000 $ 225,376,000 $ 461,048,000
CLASS B
Shares sold 10,417,000 12,362,000 $ 124,982,000 $ 142,070,000
Reinvestment of distributions 520,000 308,000 6,232,000 3,567,000
Shares redeemed (2,972,000) (1,079,000) (35,705,000) (12,397,000)
Net increase (decrease) 7,965,000 11,591,000 $ 95,509,000 $ 133,240,000
INSTITUTIONAL CLASS
Shares sold 2,272,000 1,185,000 $ 26,905,000 $ 13,858,000
Reinvestment of distributions 21,000 17,000 254,000 199,000
Shares redeemed (1,139,000) (1,191,000) (13,536,000) (14,087,000)
Net increase (decrease) 1,154,000 11,000 $ 13,623,000 $ (30,000)
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
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
Fred L. Henning, Jr., Vice President
Robert A. Lawrence, Vice President
Margaret L. Eagle, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
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
State Street Bank and Trust Company
Boston, MA - Class A
Fidelity Investments Institutional
Operations Company
Boston, MA - Class B
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(registered trademark)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
HIGH YIELD
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 30 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 36 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR HIGH YIELD FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. The initial offering of Institutional Class shares
took place on July 3, 1995. Institutional Class shares are sold to eligible
investors without a sales load or 12b-1 fee. Returns prior to July 3, 1995
are those of Class A, the original class of the fund, and reflect Class A's
0.25% 12b-1 fee. If Fidelity had not reimbursed certain class expenses, the
past six months, past one year, past five years and life of fund total
returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor High Yield - Institutional Class 6.37% 14.08% 110.80% 232.61%
Merrill Lynch High Yield Master Index 4.14% 12.16% 90.50% 165.28%
High Current Yield Funds Average 5.89% 13.01% 86.98% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years, or since the fund started on January 5, 1987. For example, if
you had invested $1,000 in a fund that had a 5% return over the past year,
the value of your investment would be $1,050. You can compare Institutional
Class' returns to those of the Merrill Lynch High Yield Master Index, which
is a market-capitalization weighted index which includes all domestic and
yankee high-yield bonds. Issues included in the Index have maturities of at
least one year and have a credit rating of less than BBB-/Baa3, but are not
in default. To measure how Institutional Class' performance stacked up
against its peers, you can compare it to the high current yield funds
average, which reflects the performance of 144 high current yield funds
with similar objectives tracked by Lipper Analytical Services over the past
six months. These benchmarks include reinvested dividends and capital
gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Institutional Class 14.08% 16.08% 13.75%
Merrill Lynch High Yield Master Index 12.16% 13.76% 11.03%
High Current Yield Funds Average 13.01% 13.27% n/a
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' actual (or
cumulative) return and show you what would have happened if Institutional
Class shares had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960520 132721 S00000000000001
FA High Yield -CL I ML High Yield Master
00644 ML002
1987/01/05 10000.00 10000.00
1987/01/31 10468.56 10277.03
1987/02/28 10666.76 10446.69
1987/03/31 10774.82 10562.20
1987/04/30 10548.80 10331.87
1987/05/31 10435.49 10285.31
1987/06/30 10601.65 10427.49
1987/07/31 10637.99 10484.22
1987/08/31 10743.45 10589.28
1987/09/30 10352.98 10345.64
1987/10/31 9919.03 10069.22
1987/11/30 10280.63 10323.86
1987/12/31 10464.76 10460.95
1988/01/31 11012.81 10747.21
1988/02/29 11365.95 11038.83
1988/03/31 11292.19 11020.57
1988/04/30 11259.97 11052.40
1988/05/31 11296.47 11110.09
1988/06/30 11743.63 11322.51
1988/07/31 11913.05 11442.15
1988/08/31 11854.86 11479.75
1988/09/30 11980.37 11595.46
1988/10/31 12115.57 11776.12
1988/11/30 12151.22 11820.24
1988/12/31 12269.39 11870.25
1989/01/31 12601.60 12048.27
1989/02/28 12689.68 12129.23
1989/03/31 12565.88 12118.44
1989/04/30 12426.63 12154.21
1989/05/31 12740.58 12377.96
1989/06/30 13195.40 12553.33
1989/07/31 13267.45 12612.78
1989/08/31 13401.63 12675.08
1989/09/30 13008.34 12554.41
1989/10/31 12519.92 12355.84
1989/11/30 12556.43 12383.52
1989/12/31 12715.41 12372.33
1990/01/31 12530.93 12130.52
1990/02/28 12464.41 11953.86
1990/03/31 12683.98 12115.45
1990/04/30 12836.48 12177.01
1990/05/31 13267.60 12396.96
1990/06/30 13646.29 12637.14
1990/07/31 13963.77 12904.19
1990/08/31 13620.98 12410.20
1990/09/30 13276.62 11870.46
1990/10/31 12967.56 11568.39
1990/11/30 13372.44 11666.38
1990/12/31 13643.77 11834.49
1991/01/31 13957.67 12001.78
1991/02/28 14758.65 12892.59
1991/03/31 15312.32 13446.92
1991/04/30 15778.59 13925.78
1991/05/31 15946.66 13993.78
1991/06/30 16374.79 14275.29
1991/07/31 16966.32 14617.34
1991/08/31 17186.55 14924.57
1991/09/30 17418.62 15114.66
1991/10/31 18112.27 15563.80
1991/11/30 18321.37 15743.57
1991/12/31 18411.52 15926.47
1992/01/31 19255.50 16483.32
1992/02/29 20052.58 16892.68
1992/03/31 20621.00 17128.38
1992/04/30 20808.65 17253.05
1992/05/31 21035.68 17528.25
1992/06/30 21353.21 17746.03
1992/07/31 21738.22 18105.59
1992/08/31 22140.17 18345.29
1992/09/30 22377.29 18554.32
1992/10/31 22089.81 18319.98
1992/11/30 22331.18 18579.43
1992/12/31 22662.66 18818.66
1993/01/31 23268.42 19282.04
1993/02/28 23778.11 19647.03
1993/03/31 24329.84 19987.65
1993/04/30 24468.42 20131.12
1993/05/31 24801.19 20402.11
1993/06/30 25406.40 20785.41
1993/07/31 25739.98 21008.83
1993/08/31 25940.44 21209.10
1993/09/30 25989.86 21313.75
1993/10/31 26611.03 21715.25
1993/11/30 26803.84 21834.01
1993/12/31 27297.05 22052.34
1994/01/31 28081.37 22535.61
1994/02/28 27966.06 22373.55
1994/03/31 27113.49 21644.46
1994/04/30 26811.45 21391.53
1994/05/31 26977.90 21315.31
1994/06/30 26928.12 21393.77
1994/07/31 27032.34 21544.16
1994/08/31 27225.76 21693.80
1994/09/30 27364.14 21685.59
1994/10/31 27314.11 21740.70
1994/11/30 26877.19 21555.76
1994/12/31 26889.29 21795.53
1995/01/31 27120.51 22103.51
1995/02/28 27993.64 22793.16
1995/03/31 28245.62 23110.37
1995/04/30 29157.15 23651.47
1995/05/31 29810.40 24390.39
1995/06/30 29747.48 24576.69
1995/07/31 30485.05 24857.65
1995/08/31 30665.92 25008.52
1995/09/30 31041.52 25294.64
1995/10/31 31275.97 25473.94
1995/11/30 31444.93 25722.60
1995/12/31 31921.56 26135.50
1996/01/31 32680.68 26548.26
1996/02/29 33102.72 26588.24
1996/03/31 32908.03 26516.03
1996/04/30 33268.10 26528.04
IMATRL PRASUN SHR__CHT 19960430 19960520 132726 R00000000000115
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor High Yield Fund - Institutional Class on January 5, 1987, when the
fund started. As the chart shows, by April 30, 1996, the value of your
investment would have grown to $33,261 - a 232.61% increase on your initial
investment. For comparison, look at how the Merrill Lynch High Yield Master
Index did over the same period. With dividends reinvested, the same $10,000
investment would have grown to $26,528 - a 165.28% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 5.18% 9.69% 7.15% 9.66% 12.57% 15.50%
Capital appreciation 1.19% 4.81% -4.51% 10.81% 9.39% 24.17%
return
Total return 6.37% 14.50% 2.64% 20.47% 21.96% 39.67%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 LIFE OF
MONTH MONTHS CLASS
Dividends per share 7.97(cents) 59.34(cents) 97.59(cents)
Annualized dividend rate 8.19% 10.03% 8.25%
30-day annualized yield 8.27% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $11.84 over the past month, $11.86
over the past six months, and $11.83 over the life of Class, you can
compare the class' income over these three periods. The 30-day annualized
YIELD is a standard formula for all funds based on the yields of the bonds
in the fund, averaged over the past 30 days. This figure shows you the
yield characteristics of the fund's investments at the end of the period.
It also helps you compare funds from different companies on an equal basis.
If the adviser had not reimbursed certain class expenses during the periods
shown, the yield would have been 6.15%.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Margaret Eagle, Portfolio Manager of Fidelity Advisor
High Yield Fund
Q. HOW DID THE FUND DO, MARGARET?
A. The fund performed well, both on an absolute and relative basis. For the
six- and 12-month periods ended April 30, 1996, Fidelity Advisor High Yield
Fund - Institutional Class had total returns of 6.37% and 14.08%,
respectively. Those returns beat the high current yield funds average
return of 5.89% and 13.01%, respectively, as tracked by Lipper Analytical
Services. The Merrill Lynch High Yield Master Index returned 4.14% and
12.16%, for the six- and 12-month periods ended April 30, 1996.
Q. WHAT HAS BEEN RESPONSIBLE FOR THE STRONG PERFORMANCE OF THE HIGH-YIELD
MARKET OVER THE PAST SIX MONTHS?
A. A lot has happened over the past six months and the market was really
quite different at the end of the period than it was six months earlier. In
the fourth quarter of 1995, interest rates continued to decline due to
concerns about a softening economy, and conditions favored more defensive
types of high-yield holdings - those that aren't as dependent on a strong
economy for earnings gains. In the beginning of 1996, the market started to
improve from a technical standpoint. By that I mean that strong supply and
demand factors helped boost the high-yield market's performance early this
year. The economy wasn't sufficiently weak to cause major credit concerns
and the default rate - a measure of how many companies were unable to meet
the principal and interest payments on their debt - remained moderate. As a
result, there was relatively strong demand for high-yield bonds, which
easily absorbed the supply of new issues that came to the market. When
interest rates began to rise toward the end of the period, lower quality
bonds and cyclical companies outperformed the more interest-rate sensitive
segments of the market. What's more, during the period there were some
relatively positive credit events and a high level of merger and
acquisition activity, both of which benefited certain parts of the
high-yield market. In the first four months of 1996, the high-yield market
significantly outperformed other fixed-income investments.
Q. WHAT HELPED THE FUND BEAT THE HIGH CURRENT YIELD FUNDS AVERAGE?
A. Several of the fund's largest holdings performed very well during the
period, which is what accounts for its above-average performance. The
fund's holdings in satellite broadcaster Echostar Communications Corp.
appreciated as the company successfully launched its first satellite late
last year and rapidly added new subscribers. Echostar is one of just three
companies that have an orbital slot - an address in the sky. When MCI
purchased another orbital slot, this helped to reaffirm the value of
Echostar's assets. Another of the fund's top performers over the past six
months was long-time holding Revlon. The success of its new products helped
to boost sales and growth. Another positive was that the company issued
stock through an initial public offering (IPO) early this year. The success
of the IPO highlighted the value of the Relvon brand name and the
impressive turnaround of the company.
Q. WHICH OF THE FUND'S OTHER HOLDINGS POSTED STRONG PERFORMANCE?
A. GPA, one of the world's largest aircraft leasing companies, did quite
well. GPA did a major refinancing in the first quarter of 1996, which
essentially put to rest its liquidity concerns, meaning its ability to meet
its debt service payments. Most of the fund's GPA bank debt holdings were
retired and now are no longer in the fund. However, the fund still owns
some short-maturity subordinated bonds that weren't redeemed in the
refinancing. Those bonds enjoyed healthy appreciation during the
refinancing process. Other strong performers were subordinated bonds issued
by Thrifty Payless, which I added in the fourth quarter of 1995. These
bonds, which I bought at a discount to their par value - or below their
face value - carried with them
the requirement that if the company were to do an IPO, the debt would be
retired at par plus accrued interest. The company successfully did an IPO
in April and purchased our holdings in Thrifty-Payless.
Q. DESPITE THE FUND'S POSITIVE PERFORMANCE, THERE MUST HAVE BEEN SOME
DISAPPOINTMENTS . . .
A. Transamerica Refinery proved to be disappointing. The company announced
that there would be construction delays and cost overruns for the
construction of its new refinery.
Q. THROUGHOUT THE PERIOD, YOU HAD AN EMPHASIS ON THE HIGHER-QUALITY TIERS
OF THE MARKET. DO YOU ANTICIPATE THAT YOU'LL CONTINUE TO DO SO OVER THE
NEXT SIX MONTHS OR SO?
A. As I have over the past year, I'll most likely keep a good portion of
the fund in the relatively higher-quality bonds within the high-yield
sector. Over the long-term, I believe these bonds offer the best
risk/reward payoff. However, they could be more sensitive to rising
interest rates. Therefore, I am also, as always, looking for opportunities
where strong credit improvements - even with lower-quality bonds - can
provide capital appreciation.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S
VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER
CONDITIONS.
FUND FACTS
GOAL: seeks a combination
of a high level of income and
potential for capital gains by
investing in a diversified
portfolio consisting primarily
of high-yielding, fixed-income
and zero coupon securities,
such as bonds, debentures
and notes, convertible
securities and preferred
stocks.
START DATE: January 5, 1987
SIZE: as of April 30, 1996,
more than $1.7 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
MARGARET EAGLE'S OUTLOOK FOR
THE HIGH-YIELD MARKET:
"Several things will shape the
high-yield market's
performance during the
months to come. One
important factor is the
direction of interest rates. While
high-yield bonds tend to
outperform high-grade
corporate and Treasury bonds
when interest rates rise, an
increase in rates generally
causes price deterioration for
all bond prices.
"From an economic
standpoint, I think conditions
provide a favorable backdrop
for the market. While we've
seen some earnings trouble
with paper and steel
companies, media
companies, supermarkets
and other sectors are actually
posting better earnings.
"Investor demand for
high-yield issues has been
quite strong. Barring any
major uptick in interest rates or
negative credit developments,
I think we could continue to
see a relatively strong
demand."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF APRIL 30, 1996
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
PanAmSat Corp. 3.6 3.7
Echostar Communications Corp. 2.9 1.5
Cablevision System Corp. 2.8 0.8
Diamond Cable Communications PLC 2.5 1.2
Revlon Worldwide Corp. 2.2 3.6
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 27.0 18.6
Basic Industries 11.6 8.9
Utilities 10.8 8.7
Retail & Wholesale 5.8 8.8
Nondurables 5.1 8.1
QUALITY DIVERSIFICATION AS OF APRIL 30, 1996
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Aaa, Aa, A 0.0 0.0
Baa 0.0 0.0
Ba 10.2 6.2
B 48.7 49.1
Caa, Ca, C 6.8 11.0
Nonrated 13.3 11.0
TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT APRIL 30, 1996 AND OCTOBER 31, 1995, ACCOUNT
FOR 10.5% AND 11.0%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Nonconvertible
bonds 75.8%
Convertible bonds,
preferred stocks 13.0%
Common stocks 2.1%
Short-term
investments 6.6%
Other 2.5%
FOREIGN
INVESTMENTS 8.4%
Nonconvertible
bonds 72.8%
Convertible bonds,
preferred stocks 9.3%
Common stocks 1.8%
Short-term
investments 11.7%
Other 4.4%
FOREIGN
INVESTMENTS 11.2%
Row: 1, Col: 1, Value: 2.5
Row: 1, Col: 2, Value: 6.6
Row: 1, Col: 3, Value: 2.1
Row: 1, Col: 4, Value: 13.0
Row: 1, Col: 5, Value: 35.8
Row: 1, Col: 6, Value: 40.0
Row: 1, Col: 1, Value: 4.4
Row: 1, Col: 2, Value: 11.7
Row: 1, Col: 3, Value: 1.8
Row: 1, Col: 4, Value: 9.300000000000001
Row: 1, Col: 5, Value: 32.8
Row: 1, Col: 6, Value: 40.0
*
**
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 76.6%
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
CONVERTIBLE BONDS - 0.8%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
Exide Corp. 2.90%, 12/15/05 (f) B2 $ 13,640 $ 8,252
MEDIA & LEISURE - 0.0%
LODGING & GAMING - 0.0%
Bally Entertainment Corp. 10%, 12/15/06 B3 750 756
UTILITIES - 0.3%
TELEPHONE SERVICES - 0.3%
Winstar Communications, Inc.
0%, 10/15/05 (f)(g) - 7,280 5,023
TOTAL CONVERTIBLE BONDS 14,031
NONCONVERTIBLE BONDS - 75.8%
AEROSPACE & DEFENSE - 1.3%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 7,920 8,643
BE Aerospace, Inc. 9 7/8%, 2/1/06 (f) B2 930 918
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 2,290 2,519
Wyman-Gordon Co. 10 3/4%, 3/15/03 B1 9,460 10,028
22,108
BASIC INDUSTRIES - 10.6%
CHEMICALS & PLASTICS - 2.8%
Acetex Corp. yankee 9 3/4%, 10/1/03 B1 21,800 21,909
American Pacific Corp. 11%, 2/21/02 (f) - 394 374
Foamex JPS Automotive LP
Series B,14%, 7/1/04 Caa 15,350 10,131
Foamex LP/Foamex Capital Corp.
11 1/4%, 10/1/02 B1 500 498
Foamex LP 11 7/8%, 10/1/04 B3 890 881
NL Industries, Inc. 11 3/4%, 10/15/03 B1 1,260 1,304
Pioneer Americas Acquisition Corp.
13 3/8%, 4/1/05 B2 10,000 10,700
Viridian, Inc. yankee 10 1/2%, 3/31/14 B1 970 1,065
46,862
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 1.3%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 $ 20,350 $ 21,876
PACKAGING & CONTAINERS - 1.5%
Crown Packaging Holdings Ltd., Series B,
0%, 11/1/03 (a)(g) Caa 2,010 859
Gaylord Container 0%, 5/15/05 (g) Caa 23,760 24,592
25,451
PAPER & FOREST PRODUCTS - 5.0%
Rapp International Finance Co. BV yankee
13 1/4%, 12/15/05 Ba3 17,990 18,035
Riverwood International 10 7/8%, 4/1/08 B3 25,260 25,260
SD Warren Co., Series B, 12%, 12/15/04 B1 9,300 9,625
Stone Container Corp. 11 1/2%, 10/1/04 B1 9,470 9,423
Tjiwi Kimia International Finance Co.
13 1/4%, 8/1/01 Ba3 7,530 8,245
Williamhouse Regency Deleware, Inc.
13%, 11/15/05 (f) B3 13,020 14,778
85,366
TOTAL BASIC INDUSTRIES 179,555
CONSTRUCTION & REAL ESTATE - 1.1%
CONSTRUCTION - 1.0%
Greystone Homes, Inc. 10 3/4%, 3/1/04 B2 15,450 15,064
UDC Homes, Inc.:
Series A, 12 1/2%, 5/1/00 - 1,696 1,594
Series B, 12 1/2%, 5/1/00 - 314 295
16,953
REAL ESTATE - 0.1%
Littlefield Co. 10%, 9/30/97 (b)(e) - 3,300 2,513
TOTAL CONSTRUCTION & REAL ESTATE 19,466
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - 1.1%
AUTOS, TIRES, & ACCESSORIES - 0.9%
Harvard Industries, Inc.
12%, 7/15/04 B3 $ 1,570 $ 1,617
11 1/8%, 8/1/05 B3 8,480 8,522
Venture Holdings Trust 9 3/4%, 4/1/04 B3 6,150 5,212
15,351
TEXTILES & APPAREL - 0.2%
CMI Industries, Inc. 9 1/2%, 10/1/03 B1 1,790 1,486
Forstmann Textiles, Inc. 14 3/4%, 4/15/99 Ca 720 144
Hat Brands, Inc. (b):
Series B, 12 5/8%, 9/15/02 - 710 533
Series D, 12 5/8%, 9/15/02 - 820 615
2,778
TOTAL DURABLES 18,129
ENERGY - 3.5%
ENERGY SERVICES - 0.6%
Empire Gas Corp. 7%, 7/15/04 (h) Caa 11,480 10,102
OIL & GAS - 2.9%
Chesapeake Energy Corp.
10 1/2%, 6/1/02 B1 5,960 6,295
9 1/8%, 4/15/06 Ba3 5,600 5,530
Flores & Rucks, Inc. 13 1/2%, 12/1/04 B3 13,900 15,916
KCS Energy, Inc. 11%, 1/15/03 (f) B1 9,620 10,293
Nuevo Energy Co. 9 1/2%, 4/15/06 B2 2,500 2,500
United Meridian Corp. 10 3/8%, 10/15/05 B2 7,400 7,678
Wainoco Oil Corp. 12%, 8/1/02 B1 790 774
48,986
TOTAL ENERGY 59,088
FINANCE - 3.1%
ASSET-BACKED SECURITIES - 0.6%
Airplanes 10 7/8%, 3/15/19 Ba2 9,390 9,813
CREDIT & OTHER FINANCE - 0.4%
HMC Acquisition Properties, Inc.
9%, 12/15/07 (f) Ba3 8,030 7,428
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 1.5%
American Financial Corp.
9 3/4%, 4/20/04 Ba3 $ 12,660 $ 13,388
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 11,860 11,979
25,367
SAVINGS & LOANS - 0.6%
First Nationwide Holdings, Inc.:
12 1/4%, 5/15/01 Ba2 6,850 7,535
9 1/8%, 1/15/03 (f) Ba3 2,060 1,988
9,523
SECURITIES INDUSTRY - 0.0%
ECM Corp. extendible 14%, 6/1/02 (f) - 147 162
TOTAL FINANCE 52,293
HEALTH - 1.7%
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Dade International, Inc. 11 1/8%, 5/1/06 (f) - 11,000 11,000
MEDICAL FACILITIES MANAGEMENT - 1.1%
Tenet Healthcare Corp. 8 5/8%, 12/1/03 Ba1 18,040 18,401
TOTAL HEALTH 29,401
INDUSTRIAL MACHINERY & EQUIPMENT - 3.7%
ELECTRICAL EQUIPMENT - 0.5%
Panamsat LP/Panamsat Capital Corp. secured
9 3/4%, 8/1/00 Ba3 2,400 2,520
Panamsat LP 0%, 8/1/03 (g) B3 6,520 5,542
8,062
INDUSTRIAL MACHINERY & EQUIPMENT - 2.3%
Calmar, Inc., Series B, 11 1/2%, 8/15/05 B3 15,050 14,824
Howmet Corp. 10%, 12/1/03 (f) B3 5,410 5,681
MVE, Inc. 12 1/2%, 2/15/02 B3 8,240 8,487
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 $ 7,050 $ 7,297
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 565 565
10 3/4%, 11/1/03 Caa 1,938 1,938
38,792
POLLUTION CONTROL - 0.9%
Allied Waste Industries, Inc. 10 3/4%, 2/1/04 B3 6,300 6,804
Envirosource, Inc. 9 3/4%, 6/15/03 B3 10,500 9,529
16,333
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 63,187
MEDIA & LEISURE - 18.4%
BROADCASTING - 12.9%
Allbritton Communications Co.
11 1/2%, 8/15/04 B3 4,690 4,854
American Telecasting, Inc. (g):
0%, 6/15/04 (a) Caa 8,500 6,237
0%, 8/15/05 - 3,920 2,548
Bell Cablemedia PLC yankee
0%, 9/15/05 (g) B2 28,370 18,441
Cablevision System Corp. 9 1/4%, 11/1/05 B2 16,800 16,380
Chancellor Broadcasting 12 1/2%, 10/1/04 B3 4,345 4,758
Citicasters, Inc. 9 3/4%, 2/15/04 B- 8,125 8,287
Continental Cablevision, Inc.:
8.30%, 5/15/06 BB+ 11,250 11,419
11%, 6/1/07 B1 6,830 7,701
9%, 9/1/08 Ba2 6,475 6,880
9 1/2%, 8/1/13 Ba2 5,840 6,380
Cooke Media Group, Inc. 11 5/8%, 4/1/99 - 4,575 4,346
CS Wireless Systems, Inc.
0%, 3/1/06 Unit (f)(g) - 3,580 7,464
Diamond Cable Communications PLC
0%, 9/30/04 (g) B3 32,800 23,862
Diamond Cable Communications PLC yankee
0%, 12/15/05 (g) B3 30,120 18,223
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
International Cabletel, Inc. (g):
Series A, 0%, 4/15/05 - $ 6,480 $ 4,228
0%, 2/1/06 (f) B3 41,450 24,248
Peoples Choice TV Corp. Unit
0%, 6/1/04 (g) Caa 19,590 12,048
Robin Media Group, Inc. 11 1/8%, 4/1/97 - 12,800 12,800
SCI Television, Inc. secured 11%, 6/30/05 B2 4,390 4,609
Telemundo Group, Inc. 7%, 2/15/06 (h) B1 1,570 1,385
Viacom, Inc. 8%, 7/7/06 B1 9,350 8,684
Videotron Holdings PLC yankee
0%, 7/1/04 (g) B3 2,790 2,065
217,847
ENTERTAINMENT - 0.6%
AMF Group, Inc. 10 7/8%, 3/15/06 (f) B2 8,600 8,503
Cobb Theatres LLC/ Cobb Financial Corp.
10 5/8%, 3/1/03 (f) B2 1,250 1,281
9,784
LODGING & GAMING - 4.0%
Casino America, Inc. 11 1/2%, 11/15/96 B1 590 627
Casino Magic Financial Corp. 11 1/2%, 10/15/01 B1 8,280 8,446
Grand Casinos, Inc. 10 1/8%, 12/1/03 Ba3 15,430 16,124
Horseshoe Gaming LLC
12 3/4%, 9/30/00 (f) B1 4,750 5,154
Mohegan Tribal Gaming Authority
13 1/2%, 11/15/02 (f) - 15,470 19,183
President Riverboat Casinos 13%, 9/15/01 B1 8,470 7,115
Trump Atlantic City Associates/ Trump
Atlantic City Funding, Inc. 11 1/4%, 5/1/06 B1 11,050 11,229
67,878
RESTAURANTS - 0.9%
SC International Services, Inc. 13%, 10/1/05 B3 13,600 14,620
TOTAL MEDIA & LEISURE 310,129
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 5.0%
AGRICULTURE - 0.2%
Doane Products Co. 10 5/8%, 3/1/06 B3 $ 2,710 $ 2,744
FOODS - 0.9%
Fresh Del Monte Produce NV, Series B,
10%, 5/1/03 Caa 14,900 14,080
Specialty Foods Corp., Series B
11 1/8%, 10/1/02 B3 2,090 1,965
16,045
HOUSEHOLD PRODUCTS - 3.9%
McAndrews & Forbes Group, Inc.
12 1/4%, 7/1/96 - 10,850 10,877
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 16,820 17,219
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 45,517 36,983
65,079
TOTAL NONDURABLES 83,868
RETAIL & WHOLESALE - 5.8%
APPAREL STORES - 0.3%
Apparel Retailers, Inc. 0%, 8/15/05 (g) Caa 490 353
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(f) - 2,201 99
Mothers Work, Inc. 12 5/8%, 8/1/05 B3 4,770 5,068
5,520
GENERAL MERCHANDISE STORES - 1.5%
K Mart Corp.:
12 1/2%, 3/01/05 Ba2 7,940 8,595
8.71%, 4/7/97 Ba2 6,360 6,105
8.70%, 8/1/97 Ba2 2,500 2,400
7.76%, 7/2/02 Ba2 1,000 835
7.77%, 7/2/02 Ba2 2,000 1,670
Series A, 9.55%, 6/30/98 Ba2 6,175 5,835
25,440
GROCERY STORES - 2.9%
Brunos, Inc. 10 1/2%, 8/1/05 B3 9,790 9,692
Food 4 Less Holdings, Inc. 0%, 7/15/05 (g) Caa 12,120 5,090
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 B3 $ 780 $ 788
12 5/8%, 6/15/02 B3 530 543
Ralph's Grocery Co. 11%, 6/15/05 B3 20,830 19,476
Star Markets, Inc. 13%, 11/1/04 B3 12,860 13,374
48,963
RETAIL & WHOLESALE, MISCELLANEOUS - 1.1%
Alliance Entertainment Corp., Series B,
11 1/4%, 7/15/05 B3 15,320 14,822
Wickes Lumber Co. 11 5/8%, 12/15/03 B3 4,230 3,046
17,868
TOTAL RETAIL & WHOLESALE 97,791
SERVICES - 3.9%
ADVERTISING - 0.6%
Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 10,400 10,582
LEASING & RENTAL - 1.8%
GPA:
9 3/4%, 6/10/96 (f) Caa 2,250 2,261
9 3/4%, 7/22/96 Caa 500 502
8.28%, 2/13/97 (f) - 1,400 1,409
8.58%, 2/21/97 - 250 252
8.48%, 2/21/97 (f) B1 2,250 2,264
9.12%, 2/24/99 - 750 752
9%, 8/16/99 - 3,250 3,258
GPA Delaware, Inc. 8 1/2%, 3/3/97 - 6,800 6,843
GPA Holland 8.94%, 2/16/99 - 4,500 4,500
GPA Leasing USA I, Inc.
9 1/8%, 9/02/96 B3 3,365 3,390
GPA Leasing USA Sub. I, Inc.
9 1/8%, 12/02/96 Ba3 2,734 2,758
Scotsman Holdings, Inc. pay-in-kind
11%, 3/1/04 - 2,737 2,488
30,677
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
PRINTING - 1.5%
Big Flower Press:
10 3/4%, 8/1/03 B2 $ 2,140 $ 2,119
10 3/4%, 8/1/03 Class A B3 2,361 2,337
10 3/4%, 8/1/03 Class B B2 689 682
Herff Jones, Inc., Series B, 11%, 8/15/05 B2 3,600 3,816
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 16,300 15,322
24,276
TOTAL SERVICES 65,535
TECHNOLOGY - 5.3%
COMMUNICATIONS EQUIPMENT - 3.8%
Echostar Communications Corp.
0%, 6/1/04 (g) B2 55,068 40,888
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (f)(g) Caa 19,450 12,108
Hyperion Telecommunication, Inc.
0%, 4/15/03 Unit (f)(g) - 20,100 10,753
63,749
COMPUTERS & OFFICE EQUIPMENT - 1.5%
Exide Electronics Group, Inc.
11 1/2%, 3/15/06 Unit (f) B 5,600 5,824
Unisys Corp.:
10 5/8%, 10/01/99 B1 4,010 3,990
12%, 4/15/03 (f) B1 14,910 14,947
24,761
TOTAL TECHNOLOGY 88,510
TRANSPORTATION - 1.8%
AIR TRANSPORTATION - 1.8%
Trans World Airlines, Inc. 12%, 11/3/98 (a) - 510 494
US Air, Inc.:
9 5/8%, 2/1/01 B3 7,720 7,122
10%, 7/1/03 B3 21,190 19,548
9 5/8%, 9/1/03 B1 3,140 3,022
TOTAL TRANSPORTATION 30,186
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 9.5%
CELLULAR - 5.1%
Arch Communications Group, Inc.
0%, 3/15/08 (g) B3 $ 6,810 $ 3,780
Comcast Cellular Corp.:
0%, 3/5/00 B2 22,370 15,995
Series B, 0%, 3/5/00 B2 14,970 10,704
Comunicaciones Celulares SA Unit
0%, 11/15/03 (f)(g) B3 1,930 1,158
Fonorola, Inc. 12 1/2%, 8/15/02 B2 7,180 7,683
Intercel, Inc. 0%, 2/1/06 Unit (g) B2 26,690 16,881
Mobilmedia Communications, Inc.
0%, 12/1/03 (g) B3 2,490 1,911
Mobilemedia Corp. 9 3/8%, 11/1/07 B3 7,000 6,667
Pagemart Nationwide, Inc. 0%, 2/1/05
exchangeable (g) - 10,120 6,578
Paging Network, Inc. 10 1/8%, 8/1/07 B2 9,790 10,071
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B2 280 267
Vanguard Cellular Systems, Inc.
9 3/8%, 4/15/06 B1 4,550 4,533
86,228
ELECTRIC UTILITY - 0.6%
El Paso Electric Co.:
Series A, 7 1/4%, 2/1/99 1st Mtg Ba3 1,507 1,486
Series B, 7 3/4%, 5/1/01 1st Mtg Ba3 1,674 1,634
Series C, 8 1/4%, 2/1/03 1st Mtg Ba3 1,950 1,892
Series D, 8.90%, 2/1/06 1st Mtg Ba3 5,282 5,216
10,228
TELEPHONE SERVICES - 3.8%
American Communications Services, Inc.
0%, 4/1/06 (f)(g) - 14,010 7,215
Brooks Fiber Properties, Inc.
10 7/8%, 3/1/06 (f) - 12,640 6,952
Call-Net Enterprises, Inc. yankee
0%, 12/1/04 (g) B2 10,990 8,133
CORPORATE BONDS - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
GST Telecommunications, Inc.
0%, 12/15/05 Unit (f)(g) - $ 11 $ 602
Intelcom Group USA, Inc.
0%, 9/15/05 (g) - 12,180 7,369
Intermedia Communications Florida, Inc.
Series B, 13 1/2%, 6/1/05 B3 2,500 2,856
MFS Communications, Inc.
0%, 1/15/06 (g) B1 4,380 2,721
Nextlink Communications LLC
12 1/2%, 4/15/06 (f) - 19,440 19,634
Winstar Communications, Inc.
0%, 10/15/05 (g) - 14,560 8,154
63,636
TOTAL UTILITIES 160,092
TOTAL NONCONVERTIBLE BONDS 1,279,338
TOTAL CORPORATE BONDS
(Cost $1,258,807) 1,293,369
COMMERCIAL MORTGAGE SECURITIES - 2.4%
Bardell Associates Note Trust
12 1/2%, 11/1/08 (e) - 1,889 1,919
CBA Mortgage Corp. commercial
Series 1993-C1 Class E,
7.1541%, 12/25/03 (f)(i) Ba2 3,000 2,388
DLJ Mortgage Acceptance Corp.
commercial Series 1994-MF11 Class B-2,
8.10%, 6/18/04 (f) Ba2 2,660 2,120
Merrill Lynch Mortgage Investments, Inc.
commercial 8.06%, 6/25/22 (f)(i) Ba2 4,370 3,738
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
Resolution Trust Corp. commercial Series:
1994-N2 Class 5-A, 10 5/8%, 12/15/04 (f)(h) B2 $ 3,400 $ 3,427
1994-C2 Class G, 8%, 4/25/25 B 4,118 3,383
1994-C1 Class E, 8%, 6/25/26 BB 9,655 8,319
1995-C2 Class F, 7%, 5/25/27 B1 2,170 1,768
sequential pay Series 1994-C1 Class F,
8%, 6/25/26 B 2,448 2,018
SKW Real Estate LP commercial Series II Class E,
11%, 4/15/05 (f) B 5,960 5,975
SML, Inc. commercial Series 1994-C1 Class C,
9.20%, 9/18/99 (e) - 2,950 1,963
Structured Asset Securities Corp. commercial
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (f) BB 4,000 2,923
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $38,809) 39,941
COMMON STOCKS - 2.1%
SHARES
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.4%
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 47
Foamex-JPS Automotive LP/Foamex JPS Capital Corp.
(warrants) (a) 15,350 77
Nu-West Industries, Inc. Class A (rights) (a)(e) 36,540 5,481
Trivest 1992 Special Fund LP 3.0 (d) 584
6,189
PACKAGING & CONTAINERS - 0.0%
Crown Packaging Holdings Ltd. (warrants) (a) 2,010 16
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(f) 31,251 258
TOTAL BASIC INDUSTRIES 6,463
CONSTRUCTION & REAL ESTATE - 0.4%
CONSTRUCTION - 0.4%
Capital Pacific Holdings, Inc. (warrants) (a)(f) 24,095 18
NVR, Inc. (a) 368,706 3,733
NVR, Inc. (warrants) (a) 30,857 42
Walter Industries, Inc. (a) 173,498 2,364
TOTAL CONSTRUCTION & REAL ESTATE 6,157
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
Polyvision Corp. (a) 6,442 $ 13
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(e) 7,229 36
HM/Hat Brands Trust Class I Units (a)(e) 410,000 410
446
TOTAL DURABLES 459
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 900 90
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
MVE, Inc. (warrants) (a) 13,060 170
XRC Corp. 84,961 8
TOTAL HEALTH 178
HOLDING COMPANIES - 0.1%
SDW Holdings Corp.:
(warrants) (a) 190,970 573
Series B (warrants) (a) 18,280 244
TOTAL HOLDING COMPANIES 817
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Telex Communications Group
(warrants) (a)(e) 160 11
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Terex Corp. (rights) (a)(e) 8,130 1
Thermadyne Holdings Corp. (a) 14,085 338
339
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 350
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.4%
BROADCASTING - 0.3%
American Telecasting, Inc. 44,600 $ 680
Commodore Media, Inc. (warrants) (a) 4,700 611
PanAmSat Corp. (a) 100,800 3,352
4,643
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I (warrants) (a)(f) 1,460 37
LODGING & GAMING - 0.1%
Bally's Grand, Inc. (warrants) (a) 1,443 19
Sun International Hotels Ltd. Ord. (a) 16,530 707
726
TOTAL MEDIA & LEISURE 5,406
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 8
Lamonts Apparel, Inc. (warrants) (a) 66,214 -
8
DRUG STORES - 0.0%
Thrifty Payless Holdings, Inc. Class C (a) 92,150 415
GENERAL MERCHANDISE STORES - 0.0%
Federated Department Stores, Inc. (a) 8,383 280
GROCERY STORES - 0.0%
FF Holdings Corp. (a)(e) 2,600 5
Grand Union Capital Corp. Class B 452 -
5
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Finlay Enterprises, Inc. (a) 2,533 37
TOTAL RETAIL & WHOLESALE 745
SERVICES - 0.0%
LEASING & RENTAL - 0.0%
Scotsman Holdings, Inc. (a) 18,059 236
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - 0.5%
COMMUNICATIONS EQUIPMENT - 0.5%
Echostar Communications Corp. Class A (a) 243,937 $ 8,172
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Wang Laboratories, Inc. (a) 7,866 186
ELECTRONIC INSTRUMENTS - 0.0%
Berg Electronics Holdings Corp. (a)(f) 6,248 157
TOTAL TECHNOLOGY 8,515
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 5,520 -
Trans World Airlines, Inc. 3,269 58
TOTAL TRANSPORTATION 58
UTILITIES - 0.3%
CELLULAR - 0.0%
Cellular Communications International, Inc. (a) 20,000 730
Nextel Communications, Inc. (warrants) (a) 5,880 -
730
ELECTRIC UTILITY - 0.3%
El Paso Electric Co. (a) 866,017 4,601
GAS - 0.0%
UGI Corp. (warrants) (a) 34,867 5
TELEPHONE SERVICES - 0.0%
Intermedia Communications Florida, Inc. (warrants) (a) 2,500 88
TOTAL UTILITIES 5,424
TOTAL COMMON STOCKS
(Cost $25,683) 34,898
PREFERRED STOCKS - 12.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.2%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Prime Retail, Inc., Series B, 2 1/8% 160,000 $ 2,760
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp. exchangeable
pay-in-kind $3.52 (a) 33,480 862
TOTAL CONVERTIBLE PREFERRED STOCKS 3,622
NONCONVERTIBLE PREFERRED STOCKS - 12.0%
BASIC INDUSTRIES - 0.6%
CHEMICALS & PLASTICS - 0.2%
Nu-West Industries, Inc. Class A $11 (a) 20,000 3,200
PAPER & FOREST PRODUCTS - 0.4%
SD Warren Co. 14% exchangeable pay-in-kind 190,970 5,729
TOTAL BASIC INDUSTRIES 8,929
ENERGY - 0.4%
OIL & GAS - 0.4%
Gulf Canada Resources Ltd., Series 1, adj. rate 2,082,085 6,650
Gulf Canada Resources Ltd. (e) 33,881 97
TOTAL ENERGY 6,747
FINANCE - 1.7%
SAVINGS & LOANS - 1.7%
First Nationwide Bank 11 1/2% 77,826 8,561
Greater New York Savings Bank, Series B,12% 669,994 20,602
TOTAL FINANCE 29,163
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
HOLDING COMPANIES - 0.3%
SDW Holdings Corp. (a) 182,800 $ 5,484
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% (a)(e) 584 405
MEDIA & LEISURE - 8.2%
BROADCASTING - 7.2%
Cablevision System Corp., Series G exchangeable
pay-in-kind (f) 165,378 16,703
Cablevision System Corp. $11.125 pay-in-kind (f) 151,119 14,772
Chancellor Radio Broadcasting Co. (exchangeable)
pay-in-kind (f) 160,700 15,829
PanAmSat Corp. pay-in-kind 12 3/4% 50,037 58,168
Time Warner, Inc., Series K (exchangeable) 16,860 16,881
122,353
PUBLISHING - 1.0%
K-III Communications Corp., Series B, $11.625 pay-in-kind (a) 37,004
3,756
K-III Communications Corp., Series C, exchangeable (a)(f) 130,400 12,258
16,014
TOTAL MEDIA & LEISURE 138,367
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Revlon Group, Inc., Series B, exchangeable $14.875 22,933 2,293
UTILITIES - 0.7%
ELECTRIC UTILITY - 0.4%
El Paso Electric Co., Series A, pay-in-kind (a) 70,400 7,181
TELEPHONE SERVICES - 0.3%
Intelecom Group USA, Inc. 4,170 4,243
TOTAL UTILITIES 11,424
TOTAL NONCONVERTIBLE PREFERRED STOCKS 202,812
TOTAL PREFERRED STOCKS
(Cost $197,215) 206,434
PURCHASED BANK DEBT - 0.1%
PRINCIPAL AMOUNT VALUE (NOTE 1)
(000S) (000S)
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $1,423) $ 1,860,000 $ 1,730
REPURCHASE AGREEMENTS - 6.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 112,681 112,664
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,634,601) $ 1,689,036
LEGEND
1. Non-income producing
2. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
3. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
4. Represents number of units held.
5. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Ampex Corp. 8% 2/16/95 $ 307
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 10
Bardell Associates
Note Trust 12 1/2%,
11/1/08 4/19/94 $ 1,920
FF Holdings Corp. 10/2/92
to 1/14/94 $ 10
Gulf Canada
Resources Ltd. 10/15/93 $ 85
HM/Hat Brands Trust
Class I Units 2/22/94 $ 410
Hat Brands, Inc. 9/2/92
(warrants) to 2/23/94 $ -
Littlefield Co. 10%,
12/31/95 2/28/94 $ 3,300
Nu-West Industries, Inc.
Class A (rights) 2/17/94 $ 3,179
SML, Inc. commercial
Series 1994-C1 Class C,
9.20%, 9/18/99 8/11/94 $ 1,918
Telex Communications
Group (warrants) 4/15/92 $ 3
Terex Corp. (rights) 7/29/92 $ -
6. 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 $297,649,000 or 17.4% of net
assets.
7. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
8. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
9. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 10.2% BB 16.3%
B 48.7% B 45.1%
Caa 6.8% CCC 5.1%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 10.5%. FMR
has determined that unrated debt securities that are lower quality account
for 10.5% of the total value of investment in securities.
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $1,634,786,000. Net unrealized appreciation aggregated
$54,250,000, of which $79,070,000 related to appreciated investment
securities and $24,820,000 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $5,368,000 all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 1,689,036
agreements of $112,664) (cost $1,634,601) -
See accompanying schedule
Cash 16,028
Receivable for investments sold 4,742
Dividends receivable 482
Interest receivable 25,197
Prepaid expenses 5
TOTAL ASSETS 1,735,490
LIABILITIES
Payable for investments purchased $ 21,563
Distributions payable 2,717
Accrued management fee 812
Distribution fees payable 469
Other payables and accrued expenses 366
TOTAL LIABILITIES 25,927
NET ASSETS $ 1,709,563
Net Assets consist of:
Paid in capital $ 1,636,218
Undistributed net investment income 8,507
Accumulated undistributed net realized gain (loss) on 10,358
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 54,480
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 1,709,563
CALCULATION OF MAXIMUM OFFERING PRICE $12.06
CLASS A:
NET ASSET VALUE, and redemption price per share
($1,442,204 (divided by) 119,589 shares)
Maximum offering price per share (100/96.50 of $12.06) $12.50
CLASS B: $12.03
NET ASSET VALUE, offering price price per share
($253,496 (divided by) 21,068 shares) A
INSTITUTIONAL CLASS: $11.90
NET ASSET VALUE, offering price and redemption price
per share ($13,863 (divided by) 1,165 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 7,594
Dividends
Interest 72,804
TOTAL INCOME 80,398
EXPENSES
Management fee $ 4,564
Transfer agent fees 1,286
Class A
Class B 210
Institutional Class 5
Distribution fees 1,645
Class A
Class B 952
Accounting fees and expenses 325
Non-interested trustees' compensation 2
Custodian fees and expenses 23
Registration fees 79
Class A
Class B 24
Institutional Class 33
Audit 15
Legal 13
Reports to shareholders 24
Miscellaneous 6
Total expenses before reductions 9,206
Expense reductions (62) 9,144
NET INVESTMENT INCOME 71,254
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
investment securities 16,470
Change in net unrealized appreciation (depreciation) on
investment securities 4,978
NET GAIN (LOSS) 21,448
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 92,702
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED APRIL OCTOBER 31,
30,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 71,254 $ 79,576
Net investment income
Net realized gain (loss) 16,470 7,704
Change in net unrealized appreciation (depreciation) 4,978 54,261
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 92,702 141,541
FROM OPERATIONS
Distributions to shareholders (64,432) (70,801)
From net investment income
Class A
Class B (9,229) (5,023)
Institutional Class (338) (205)
TOTAL DISTRIBUTIONS (73,999) (76,029)
Share transactions - net increase (decrease) 334,508 594,258
TOTAL INCREASE (DECREASE) IN NET ASSETS 353,211 659,770
NET ASSETS
Beginning of period 1,356,352 696,582
End of period (including undistributed net investment $ 1,709,563 $ 1,356,352
income of $8,507 and $11,252, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1996.
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120 $ 8.150
beginning of period
Income from Investment
Operations
Net investment income .562 F .930 F .848 .980 1.146 1.115
Net realized and .181 .680 (.537) 1.153 .975 1.948
unrealized gain (loss)
Total from investment .743 1.610 .311 2.133 2.121 3.063
operations
Less Distributions (.593) (.920) (.851) (.963) (1.171) (1.093)
From net investment
income
From net realized gain - - (.250) (.230) - -
Total distributions (.593) (.920) (1.101) (1.193) (1.171) (1.093)
Net asset value, $ 12.060 $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120
end of period
TOTAL RETURN B, C 6.37% 15.05% 2.64 20.47 21.96% 39.67%
% %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,442,204 $ 1,200,495 $ 679,623 $ 485,559 $ 136,316 $ 38,681
(000 omitted)
Ratio of expenses to 1.12% A 1.15% 1.20 1.11 1.10% 1.10%
average net assets % % E E
Ratio of expenses to 1.11% A 1.15% 1.20 1.11 1.10% 1.10%
average net assets ,H % %
after expense
reductions
Ratio of net investment 9.47% A 8.32% 6.92 8.09 9.95% 12.20%
income to average % %
net assets
Portfolio turnover rate 119% A 112% 118 79 100% 103%
% %
</TABLE>
Average commission $ .0478
rate G
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
H FMR OR THE FUND HAS ENTERED INTO VARING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS YEARS ENDED OCTOBER
ENDED APRIL 30, 31,
1996
(UNAUDITED) 1995 1994 C
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.890 $ 11.210 $ 11.300
Income from Investment Operations
Net investment income .518 D .794 D .223
Net realized and unrealized gain (loss) .174 .721 (.118)
Total from investment operations .692 1.515 .105
Less Distributions
From net investment income (.552) (.835) (.195)
Net asset value, end of period $ 12.030 $ 11.890 $ 11.210
TOTAL RETURN B 5.94% 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 253,496 $ 155,730 $ 16,959
Ratio of expenses to average net assets 1.81% A 2.01% 2.20%
A
Ratio of net investment income to average net assets 8.77% A 7.46% 5.92%
A
Portfolio turnover rate 119% A 112% 118%
Average commission rate E $ .0478
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31, 1994.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1996
(UNAUDITED) 1995 D
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.760 $ 11.560
Income from Investment Operations
Net investment income .543 E .390 E
Net realized and unrealized gain (loss) .190 .193
Total from investment operations .733 .583
Less Distributions
From net investment income (.593) (.383)
Net asset value, end of period $ 11.900 $ 11.760
TOTAL RETURN B, C 6.37% 5.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 13,863 $ 126
Ratio of expenses to average net assets 1.10% A, .70%
G A
Ratio of expenses to average net assets after expense reductions 1.08% A, .70%
H A
Ratio of net investment income to average net assets 9.50% A 8.77%
A
Portfolio turnover rate 119% A 112%
Average commission rate F $ .0478
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
H FMR OR THE FUND HAS ENTERED INTO VARING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor High Yield Fund (the fund) is a fund of Fidelity Advisor
Series II (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust.
The fund offers Class A, Class B, and Institutional Class shares, each of
which has equal rights as to assets and voting privileges. Each class has
exclusive voting rights with respect to its distribution plan. Investment
income, realized and unrealized capital gains and losses, and the common
expenses of the fund are allocated on a pro rata basis to each class based
on the relative net assets of each class to the total net assets of the
fund. Each class of shares differs in its respective distribution, transfer
agent, registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market (sales
prices if the principal market is an exchange) in which such securities are
normally traded. Equity securities for which 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
market quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities
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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed. These dividends are recorded as soon as the fund is
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. The fund may place a debt obligation on non-accrual status and
reduce related interest income by ceasing current accruals and writing off
interest receivables when the collection of all or a portion of interest
has become doubtful based on consistently applied procedures, under the
general supervision of the Board of Trustees of the fund. A debt obligation
is removed from non-accrual status when the issuer resumes interest
payments or when collectibility of interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. FMR bears all organizational expenses except for
registering and qualifying each class and shares of each class for
distribution under federal and state securities law. These expenses are
borne by each class and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends are declared
separately for each class, while capital gain distributions are declared at
the fund level and allocated to each class on a pro rata basis based on the
number of shares held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for defaulted
bonds, market discount, partnerships, capital loss carryforwards and losses
deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
temporary book and tax basis differences which will reverse in a subsequent
period. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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 fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $12,888,000 or
.75% of net assets.
2. OPERATING POLICIES - CONTINUED
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to invest in
loans and loan participations, trade claims or other receivables. These
investments may include standby financing commitments that obligate the
fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary. At the end of the period, these investments
amounted to $1,730,000 or .10% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,160,339,000 and $831,149,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of the fund. The group fee rate is the weighted
average of a series of rates and is based on the monthly average net assets
of all the mutual funds advised by FMR. The rates ranged from .1100% to
.3700% for the period. 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 .45%. For the period, the management
fee was equivalent to an annualized rate of .60% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan), Class B shares (Class B Plan),
and Institutional Class shares (collectively referred to as "the Plans").
Under the Class A Plan and Class B Plan, the fund pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution and
service fee. For the period November 1,1995, to December 31, 1995, this fee
was based on annual rates of .25% and 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
average net assets of the Class A and Class B shares, respectively.
Effective January 1, 1996, the Board of Trustees approved a revised Class B
distribution plan, under which the fee is based on an annual rate of .90%
(of which .65% represents a distribution fee and .25% represents a
shareholder service fee) of the average net assets of the Class B shares.
For the period, the fund paid FDC $1,645,000 and $952,000 under the Class A
Plan and Class B Plan, respectively, of which $1,645,000 and $257,000 were
paid to securities dealers, banks and other financial institutions for the
distribution of Class A and Class B shares, respectively, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
of the fund's Class A, Class B, and Institutional Class shares. The Plans
also authorize payments to third parties that assist in the sale of the
fund's shares or render shareholder support services.
SALES LOAD. For the period November 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the period, FDC received sales charges of $5,138,000 on sales of
Class A shares of the fund, of which $4,321,000 was paid to securities
dealers, banks, and other financial institutions. FDC also receives the
proceeds of a contingent deferred sales charge levied on Class B share
redemptions occurring within five years of purchase. The charge is based on
declining rates which range from 4% to 1% of the lesser of the cost of
shares at the initial date of purchase or the net asset value of the
redeemed shares, excluding any reinvested dividends and capital gains. For
the period, FDC received contingent deferred sales charges of $142,000 on
Class B share redemptions from the fund. When Class B shares are sold, FDC
pays commissions from its own resources to dealers through which the sales
are made.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Class B and Institutional Class shares. The Transfer Agents receive account
fees and asset-based fees that vary according to the account size and type
of account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.20%, .21%, and .13% of average net assets for Class A, Class B, and
Institutional Class, respectively.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates of average net assets for each class.
5. EXPENSE REDUCTIONS - CONTINUED
(I) CLASS A. For the period, this expense limitation was 1.35% of average
net assets.
(II) CLASS B. For the period, this expense limitation ranged from an annual
rate of 2.10% to 2.00% of average net assets.
(III) INSTITUTIONAL CLASS. For the period, this expense limitation was
1.10% of average net assets and the reimbursement reduced expenses by
$21,000.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$3,000 under this arrangement.
In addition, the fund has entered into an arrangement with its custodian
and transfer agent whereby interest earned on uninvested cash balances was
used to offset a portion of the class' expenses. During the period, the
fund's custodian fees were reduced by $20,000 under the custodian
arrangement and Class A, and Institutional Class expenses were reduced by
$17,000, and $1,000, respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
CLASS A
Shares sold 47,015,000 72,296,000 $ 565,087,000 $ 827,485,000
Reinvestment of distributions 3,998,000 4,457,000 47,897,000 51,022,000
Shares redeemed (32,231,000) (36,544,000) (387,608,000) (417,459,000)
Net increase (decrease) 18,782,000 40,209,000 $ 225,376,000 $ 461,048,000
CLASS B
Shares sold 10,417,000 12,362,000 $ 124,982,000 $ 142,070,000
Reinvestment of distributions 520,000 308,000 6,232,000 3,567,000
Shares redeemed (2,972,000) (1,079,000) (35,705,000) (12,397,000)
Net increase (decrease) 7,965,000 11,591,000 $ 95,509,000 $ 133,240,000
INSTITUTIONAL CLASS
Shares sold 2,272,000 1,185,000 $ 26,905,000 $ 13,858,000
Reinvestment of distributions 21,000 17,000 254,000 199,000
Shares redeemed (1,139,000) (1,191,000) (13,536,000) (14,087,000)
Net increase (decrease) 1,154,000 11,000 $ 13,623,000 $ (30,000)
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
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
Fred L. Henning, Jr., Vice President
Robert A. Lawrence, Vice President
Margaret L. Eagle, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
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 Investments Institutional
Operations Company
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal
Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
INCOME & GROWTH
FUND - CLASS A
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 33 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 38 Notes to the financial statements.
REPORT OF INDEPENDENT 45 The auditors' opinion.
ACCOUNTANTS
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term. You also can help to manage some of the risks of investing
through diversification. A stock fund is already diversified because it
invests in many issues. You can diversify even further by placing some of
your money in several different types of stock funds or in other investment
categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR INCOME & GROWTH FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). Effective January 1, 1996, the
maximum 4.75% sales charge on Class A shares was reduced to 3.50%.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Income & Growth - Class A 2.66% 7.58% 60.80% 169.35%
Advisor Income & Growth - Class A -0.93% 3.82% 55.17% 159.93%
(incl. max. 3.50% sales charge)
S&P 500(registered trademark) 13.76% 30.21% 100.72% 246.37%
Lehman Brothers Aggregate Bond Index 0.53% 8.64% 47.82% n/a
Balanced Funds Average 8.31% 20.09% 71.99% n/a
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on January 6, 1987. 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. For comparison, you can look at both the
performance of the Standard & Poor's 500 Index - a common proxy for the
U.S. stock market - and the performance of the Lehman Brothers Aggregate
Bond Index, which is comprised of fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities. Issues
included in the Index are rated investment-grade or above and have
maturities of at least one year. To measure how Class A's performance
stacked up against its peers, you can compare it to the balanced funds
average, which reflects the performance of 259 balanced funds with similar
objectives tracked by Lipper Analytical Services over the past six months.
These benchmarks include reinvested dividends and capital gains, if any,
and exclude the effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Income & Growth - Class A 7.58% 9.97% 11.21%
Advisor Income & Growth - Class A 3.82% 9.18% 10.79%
(incl. max. 3.50% sales charge)
S&P 500 30.21% 14.95% 14.25%
Lehman Brothers Aggregate Bond Index 8.64% 8.13% n/a
Balanced Funds Average 20.09% 11.40% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class A's actual (or cumulative) return
and show you what would have happened if Class A shares had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960528 171342 S00000000000001
FA Income & Growth S&P 500 Lehman
Bros. Aggregate
00219 SP001 LB001
1987/01/31 9650.00 10000.00
10000.00
1987/02/28 9937.64 10395.00
10069.35
1987/03/31 10327.01 10695.42
10023.96
1987/04/30 10075.13 10600.23
9749.09
1987/05/31 10047.14 10692.45
9710.95
1987/06/30 10289.54 11232.42
9844.60
1987/07/31 10786.66 11801.90
9837.04
1987/08/31 11011.78 12242.11
9784.40
1987/09/30 10824.51 11974.01
9576.04
1987/10/31 8916.52 9394.81
9917.10
1987/11/30 8755.95 8620.68
9996.53
1987/12/31 9138.73 9276.71
10132.70
1988/01/31 9675.17 9667.26
10488.89
1988/02/29 10077.50 10117.75
10613.40
1988/03/31 10106.24 9805.11
10513.79
1988/04/30 10280.99 9913.95
10457.05
1988/05/31 10319.82 10000.20
10386.76
1988/06/30 10747.86 10459.21
10637.35
1988/07/31 10708.53 10419.47
10581.56
1988/08/31 10669.19 10065.20
10609.30
1988/09/30 10866.75 10493.98
10849.49
1988/10/31 11026.11 10785.71
11053.74
1988/11/30 10916.55 10631.48
10919.46
1988/12/31 11047.36 10817.53
10931.76
1989/01/31 11481.98 11609.37
11089.05
1989/02/28 11522.41 11320.30
11008.67
1989/03/31 11716.32 11584.06
11056.26
1989/04/30 12187.02 12185.28
11287.63
1989/05/31 12586.09 12678.78
11584.24
1989/06/30 12759.59 12606.51
11936.96
1989/07/31 13339.10 13744.88
12190.70
1989/08/31 13546.06 14014.28
12010.09
1989/09/30 13567.21 13956.82
12071.55
1989/10/31 13358.00 13633.02
12369.11
1989/11/30 13629.97 13911.13
12487.00
1989/12/31 13764.67 14245.00
12520.41
1990/01/31 13098.83 13289.16
12371.63
1990/02/28 13133.27 13460.59
12411.35
1990/03/31 13317.09 13817.30
12420.49
1990/04/30 13142.78 13471.87
12306.70
1990/05/31 13630.84 14785.37
12671.08
1990/06/30 13688.67 14684.83
12874.39
1990/07/31 13653.39 14637.84
13052.48
1990/08/31 12818.43 13314.58
12878.17
1990/09/30 12522.57 12666.16
12984.71
1990/10/31 12403.42 12611.70
13149.57
1990/11/30 12963.42 13426.41
13432.62
1990/12/31 13359.59 13801.01
13641.92
1991/01/31 14049.35 14402.73
13810.56
1991/02/28 14872.22 15432.53
13928.45
1991/03/31 15249.96 15805.99
14024.27
1991/04/30 15543.23 15843.93
14176.20
1991/05/31 16190.86 16528.39
14259.10
1991/06/30 15859.02 15771.39
14251.85
1991/07/31 16537.29 16506.33
14449.49
1991/08/31 16956.58 16897.53
14762.17
1991/09/30 17081.42 16615.34
15061.31
1991/10/31 17579.06 16837.99
15229.00
1991/11/30 17168.51 16159.42
15368.64
1991/12/31 17966.17 18008.06
15825.06
1992/01/31 18084.37 17673.11
15609.77
1992/02/29 18465.23 17902.86
15711.27
1992/03/31 18399.68 17553.75
15622.70
1992/04/30 18545.39 18069.83
15735.54
1992/05/31 18916.30 18158.37
16032.47
1992/06/30 18744.30 17887.81
16253.11
1992/07/31 19291.68 18619.43
16584.71
1992/08/31 19291.68 18237.73
16752.72
1992/09/30 19451.28 18452.93
16951.30
1992/10/31 19384.02 18517.52
16726.56
1992/11/30 19505.09 19148.96
16730.34
1992/12/31 19618.98 19384.50
16996.38
1993/01/31 19989.15 19547.33
17322.30
1993/02/28 20416.27 19813.17
17625.53
1993/03/31 21186.84 20231.23
17698.98
1993/04/30 21789.72 19741.63
17822.22
1993/05/31 22205.99 20270.71
17844.92
1993/06/30 22063.01 20329.49
18168.32
1993/07/31 22294.50 20248.18
18271.08
1993/08/31 23104.68 21015.58
18591.33
1993/09/30 22888.67 20853.76
18642.40
1993/10/31 23194.82 21285.43
18712.06
1993/11/30 22888.67 21083.22
18552.88
1993/12/31 23475.11 21338.33
18653.43
1994/01/31 24127.62 22063.83
18905.28
1994/02/28 23702.73 21465.90
18576.83
1994/03/31 22756.10 20529.99
18118.83
1994/04/30 22572.58 20792.77
17974.15
1994/05/31 22664.34 21133.77
17971.63
1994/06/30 22234.21 20616.00
17931.91
1994/07/31 22664.16 21292.20
18288.10
1994/08/31 22940.55 22165.18
18310.80
1994/09/30 22787.25 21622.14
18041.29
1994/10/31 22571.84 22108.63
18025.22
1994/11/30 22264.11 21303.44
17985.19
1994/12/31 22279.50 21619.37
18109.38
1995/01/31 22217.44 22179.96
18467.77
1995/02/28 22605.31 23044.31
18906.86
1995/03/31 22980.89 23724.35
19022.85
1995/04/30 23231.20 24423.03
19288.57
1995/05/31 23684.87 25399.22
20034.99
1995/06/30 23969.22 25989.24
20181.88
1995/07/31 24331.91 26851.05
20136.80
1995/08/31 24394.99 26918.44
20379.83
1995/09/30 24630.67 28054.40
20578.09
1995/10/31 24344.27 27954.25
20845.71
1995/11/30 25028.45 29181.44
21158.08
1995/12/31 25412.44 29743.47
21455.00
1996/01/31 25638.91 30755.94
21597.48
1996/02/29 25218.33 31041.05
21222.06
1996/03/31 25025.39 31339.97
21074.55
1996/04/30 24992.80 31801.92
20956.03
IMATRL PRASUN SHR__CHT 19960430 19960528 171344 R00000000000009
$10,000 OVER LIFE OF FUND: Let's
say you invested $10,000 in Fidelity Advisor Income & Growth Fund - Class A
on January 31, 1987, shortly after the fund started, and paid the current
maximum 3.50% sales charge. As the chart shows, by April 30, 1996, the
value of your investment would have grown to $24,993 - a 149.93% increase
on your initial investment. For comparison, look at how both the S&P 500
and the Lehman Brothers Aggregate Bond Index did over the same period. With
dividends reinvested, the same $10,000 investment in the S&P 500 would have
grown to $31,802 - a 218.02% increase. If you had put $10,000 in the bond
index, it would have grown to $20,956 - a 109.56% increase.
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. In
turn, the share price and
return of a fund that invests in
stocks or bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
On March 26, 1996, Bettina Doulton became portfolio manager of the fund.
The following is an interview with Robert Haber, who managed the fund
during much of the period, followed by remarks from Bettina Doulton
regarding changes in the fund, her investment style and her outlook.
Q. BOB, HOW DID THE FUND PERFORM?
B.H. For the six months ended April 30, 1996, Class A had a total return of
2.66%. That lagged the 8.31% return posted by the balanced funds average
tracked by Lipper Analytical Services. For the 12 months ended April 30,
1996, Class A had a total return of 7.58%, while the balanced funds average
returned 20.09%.
Q. WHAT WERE THE REASONS FOR THE FUND'S SUBPAR PERFORMANCE?
B.H. There were a number of factors. First, the fund invested less in U.S.
equities, and instead was focused more on bond investments and foreign
stocks, both of which turned in weaker performances than the U.S. stock
market. Second, the fund's bond investments were, for the most part, in
long-duration Treasury bonds that performed poorly. Duration is a measure
of a bond's sensitivity to interest rates. The longer a bond's duration,
the more sensitive it is to changes in interest rates. When interest rates
go up as they did markedly over the past six months, bonds with longer
durations drop in value more than those with shorter durations. I had
invested in these long-duration Treasuries because it appeared to me that
the economy was weakening, and thought the situation was ripe for continued
interest rate decreases by the Federal Reserve Board. Unfortunately, during
the period statistics came out indicating the economy was strengthening. As
a result, the Fed made no reductions in short-term interest rates, but
yields rose - and prices fell - throughout the bond market in response to
investors' inflation fears. Finally, the fund's stock selection produced a
return that lagged the overall market, although some of the fund's energy,
industrial machinery and chemical stocks - including Caterpillar and duPont
- - posted strong results in response to signs of economic strength.
Q. BOB'S GIVEN US AN INDICATION OF WHAT THE BOND MARKET WAS LIKE DURING THE
PERIOD. TURNING TO YOU, BETTINA, CAN YOU TELL US WHAT THE STOCK INVESTING
ENVIRONMENT WAS LIKE DURING THE PAST SIX MONTHS?
B.D. One could almost divide the past six months into two distinct periods.
From the end of October through February, there was a consensus in the
market that the economy was slowing, inflation was under control and the
Federal Reserve Board would continue lowering interest rates to stimulate
growth, a strategy it had pursued through much of 1995. The strike at
General Motors, the government shutdown and bad weather that hindered sales
in the winter helped reinforce these perceptions. Amid doubts about
economic strength, investors favored big blue chip growth stocks because
these companies tend to have steady earnings growth regardless of the
economic environment. However, starting in March, we saw a dramatic shift,
with indications that the economy was in much better shape than expected.
The signs of an improving economy encouraged investors to look beyond the
larger-company stocks and, since then, stocks of smaller- and mid-sized
companies generally have led the market. Many of these companies benefit
from a stronger economy because it helps them post better earnings growth.
Q. WHAT CHANGES HAVE YOU MADE SINCE TAKING OVER THE FUND?
B.D. I reduced the fund's stake in bonds and redeployed those assets into
stocks. In addition, the composition of the bond component was changed;
most notably the duration was dramatically reduced. I replaced the
long-term Treasury bonds that were previously in the fund with more
corporate and mortgage-backed securities, aiming to increase the income
produced by the bond's holdings while, at the same time, reducing their
sensitivity to interest rates. On the stock side, I've reduced the fund's
foreign investments as well as some of the stocks of smaller-sized
companies. I intend to make yield a larger component of the fund's total
return, and thus invested more in the stocks of medium to larger companies
that tend to have larger dividends. I have added to the fund's energy
exposure with purchases of British Petroleum and Royal Dutch Petroleum,
supplementing existing holdings of oil service stocks.
Q. WHAT'S YOUR OUTLOOK?
B.D. Over the next six months, a number of issues will have an impact on
the investment climate. First, is the recent economic rebound sustainable?
Second, will corporate profit growth slow as the benefits of restructuring
moderate, foreign exchange becomes less favorable, and capital spending
slows? I'm increasingly aware that the backdrop for corporate profitability
improvement may be less conducive than over the prior five years. So I'm
searching for companies that offer low cost structures, solid franchises,
strong cash flows and high-return project development opportunities. The
bond market will have to contend with the prospects for economic growth and
inflation. My biggest concern is a pick-up in wage inflation as a result of
upcoming Big Three labor negotiations, tighter labor markets or political
posturing. An acceleration of wage inflation could cause increases in
interest rates and pressure corporate profit margins, since there would be
no offsetting pricing flexibility. Given the uncertainties for economic
growth and profitability, my industry weightings are well diversified and
reflect individual stock selection. Within the bond component, the fund
will maintain a neutral duration position, relative to the market index.
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.
FUND FACTS
GOAL: seeks both income
and growth of capital by
investing in a diversified
portfolio of equity and
fixed-income securities with
income, growth of income
and capital appreciation
potential
START DATE: January 6, 1987
SIZE: more than $3.2 billion
MANAGER: Bettina Doulton,
since March 1996; joined
Fidelity in 1986
(checkmark)
BETTINA DOULTON ON HER
INVESTMENT APPROACH:
"My investment approach is
really quite simple. I look for
companies whose stocks are
trading at attractive
valuations - prices relative to
earnings, cash flow or net asset
value - and that offer
improving fundamentals, or
business prospects. I take a
bottom-up approach, which
means that I begin by
evaluating the merits of
individual companies, rather
than looking first at sectors or
economic trends. I try to be
open-minded and flexible.
Finally, I believe that it's every
bit as important to avoid the
losers as it is to pick the
winners to generate
consistent performance
results for the fund's
shareholders."
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 2.8 0.8
Schlumberger Ltd. 1.6 0.0
Royal Dutch Petroleum Co. 1.6 0.0
General Electric Co. 1.5 0.0
du Pont (E.I.) de Nemours & Co. 1.5 0.0
TOP FIVE FIXED-INCOME SECURITIES AS OF APRIL 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, WITH MATURITIES OF MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE SECURITIES
6 MONTHS AGO
U.S. Treasury Obligations (various issues) 13.4 43.6
Federal National Mortgage Association 8.4 0.0
(various Issues)
Government National Mortgage Association 1.2 0.0
(various issues)
Federal Home Loan Mortgage Corporation 1.0 0.0
(various issues)
Inco Ltd. 5 3/4%, 7/1/04 0.8 0.3
</TABLE>
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Energy 11.3 3.8
Finance 11.2 1.9
Basic Industries 8.5 9.4
Nondurables 7.7 2.1
Industrial Machinery & Equipment 5.8 3.7
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Row: 1, Col: 1, Value: 1.1
Row: 1, Col: 2, Value: 4.0
Row: 1, Col: 3, Value: 5.3
Row: 1, Col: 4, Value: 31.8
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 37.7
Stocks 58.8%
Bonds 31.8%
Convertible
securities 5.3%
Short-term
investments 4.0%
Other
investments 0.1%
FOREIGN
INVESTMENTS 9.9%
Stocks and
equity futures 46.9%
Bonds 44.6%
Convertible
securities 8.4%
Short-term
investments -0.5%
Other
investments 0.6%
FOREIGN
INVESTMENTS 20.2%
Row: 1, Col: 1, Value: 1.6
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 8.4
Row: 1, Col: 4, Value: 44.6
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 25.9
*
**
INVESTMENTS APRIL 30, 1996
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 58.3%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.1%
AEROSPACE & DEFENSE - 0.6%
Lockheed Martin Corp. 120,300 $ 9,699
Rockwell International Corp. 161,900 9,471
19,170
DEFENSE ELECTRONICS - 0.5%
Litton Industries, Inc. (a) 341,300 15,486
Raytheon Co. 7,300 370
15,856
SHIP BUILDING & REPAIR - 0.0%
General Dynamics Corp. 20,500 1,294
TOTAL AEROSPACE & DEFENSE 36,320
BASIC INDUSTRIES - 7.3%
CHEMICALS & PLASTICS - 6.2%
Dow Chemical Co. 287,000 25,507
du Pont (E.I.) de Nemours & Co. 585,200 47,035
Great Lakes Chemical Corp. 329,900 22,516
IMC Fertilizer Group, Inc. 202,900 7,482
International Specialty Products, Inc. (a) 30,000 375
Minnesota Mining & Manufacturing Co. 377,700 24,834
Monsanto Co. 124,300 18,831
Praxair, Inc. 947,400 36,593
Rohm & Haas Co. 66,300 4,401
Sekisui Chemical Co. Ltd. 972,000 12,201
Union Carbide Corp. 1,600 73
199,848
IRON & STEEL - 0.1%
Allegheny Ludlum Industries, Inc. 100,000 1,975
METALS & MINING - 0.1%
Belden, Inc. 900 27
Falconbridge Ltd. 1st Installment Receipt (g) 45,500 454
Wolverine Tube, Inc. (a) 111,500 4,098
4,579
PACKAGING & CONTAINERS - 0.4%
Crown Cork & Seal Co., Inc. 259,400 12,224
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.5%
International Paper Co. 250,000 $ 9,969
Pentair, Inc. 231,700 6,314
Temple-Inland, Inc. 11,100 538
16,821
TOTAL BASIC INDUSTRIES 235,447
CONGLOMERATES - 2.0%
Allied-Signal, Inc. 275,100 15,990
Crane Co. 127,100 5,275
Harris Corp. 196,800 12,152
Mark IV Industries, Inc. 14,605 303
Tyco International Ltd. 17,600 680
United Technologies Corp. 269,000 29,725
64,125
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.2%
Ply-Gem Industries, Inc. 21,700 279
Sherwin-Williams Co. 107,740 5,037
5,316
CONSTRUCTION - 0.1%
Daiwa House Industry Co. Ltd. (warrants) (a) 11,950 3,585
Webb (Del E.) Corp. 89,600 1,602
5,187
ENGINEERING - 0.1%
EG & G, Inc. 93,100 2,048
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Felcor Suite Hotels, Inc. 59,000 1,718
National Golf Properties, Inc. 135,100 3,327
Sovran Self Storage, Inc. 19,900 510
5,555
TOTAL CONSTRUCTION & REAL ESTATE 18,106
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 4.7%
AUTOS, TIRES, & ACCESSORIES - 4.4%
Chrysler Corp. 153,700 $ 9,646
Eaton Corp. 102,400 6,195
Ford Motor Co. 952,600 34,175
General Motors Corp. 525,900 28,530
Genuine Parts Co. 232,500 10,288
Johnson Controls, Inc. 208,300 14,893
Michelin SA (Compagnie Generale des Etablissements)
Class B 348,000 17,232
Scania AB:
Class A (a) 55,000 1,522
Class B (a) 55,000 1,518
Snap-on Tools Corp. 322,800 15,494
139,493
CONSUMER ELECTRONICS - 0.3%
Whirlpool Corp. 170,900 10,275
TOTAL DURABLES 149,768
ENERGY - 8.7%
ENERGY SERVICES - 2.0%
Baker Hughes, Inc. 227,800 7,233
Nabors Industries, Inc. (a) 555,500 8,541
Schlumberger Ltd. 571,300 50,417
66,191
OIL & GAS - 6.7%
Amerada Hess Corp. 13,600 771
Atlantic Richfield Co. 91,800 10,809
British Petroleum PLC:
ADR 240,000 26,220
Ord. 4,800,000 43,374
Burlington Resources, Inc. 4,200 156
Coastal Corp. (The) 307,700 12,193
Exxon Corp. 416,800 35,428
Kerr-McGee Corp. 118,800 7,588
Mobil Corp. 98,600 11,339
Occidental Petroleum Corp. 114,400 2,946
Phillips Petroleum Co. 203,200 8,433
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Royal Dutch Petroleum Co. Ord. 29,400 $ 4,188
Royal Dutch Petroleum Co. 351,700 50,381
213,826
TOTAL ENERGY 280,017
FINANCE - 9.2%
BANKS - 2.9%
Bank of New York Co., Inc. 11,200 543
BankAmerica Corp. 306,300 23,203
Chase Manhattan Corp. 33,800 2,328
Citicorp 533,400 42,006
Comerica, Inc. 51,200 2,227
National City Corp. 59,400 2,190
NationsBank Corp. 250,100 19,945
92,442
CREDIT & OTHER FINANCE - 0.9%
American Express Co. 376,100 18,241
First Chicago NBD Corp. 215,400 8,885
27,126
FEDERAL SPONSORED CREDIT - 1.8%
Federal Home Loan Mortgage Corporation 337,000 28,097
Federal National Mortgage Association 990,000 30,319
58,416
INSURANCE - 3.6%
Aetna Life & Casualty Co. 259,200 18,468
Allstate Corp. 366,900 14,263
American Financial Group, Inc. 128,500 3,935
General Re Corp. 47,100 6,729
ITT Hartford Group, Inc. 270,500 13,221
Loews Corp. 350,000 26,688
MBIA, Inc. 86,600 6,181
Old Republic International Corp. 372,900 8,204
Travelers, Inc. (The) 130,200 8,007
UNUM Corp. 160,000 9,520
USLife Corp. 52,200 1,468
116,684
TOTAL FINANCE 294,668
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 2.4%
DRUGS & PHARMACEUTICALS - 2.1%
American Home Products Corp. 47,400 $ 5,001
Bristol-Myers Squibb Co. 158,170 13,009
Pharmacia & Upjohn, Inc. 227,100 8,687
Pfizer, Inc. 183,260 12,622
Sigma Aldrich Corp. 30,600 1,652
SmithKline Beecham PLC ADR 481,400 25,996
Warner-Lambert Co. 17,400 1,944
68,911
MEDICAL EQUIPMENT & SUPPLIES - 0.3%
Hillenbrand Industries, Inc. 265,700 10,097
TOTAL HEALTH 79,008
INDUSTRIAL MACHINERY & EQUIPMENT - 5.6%
ELECTRICAL EQUIPMENT - 2.8%
Emerson Electric Co. 166,100 13,890
General Electric Co. 615,400 47,693
Honeywell, Inc. 147,300 7,752
Omron Corp. 932,000 20,917
90,252
INDUSTRIAL MACHINERY & EQUIPMENT - 1.4%
Caterpillar, Inc. 173,900 11,130
Cooper Industries, Inc. 231,900 9,856
Goulds Pumps, Inc. 156,100 3,629
Harnischfeger Industries, Inc. 233,900 9,473
Stanley Works 25,100 1,575
Tenneco, Inc. 63,700 3,496
Timken Co. 134,119 5,314
44,473
POLLUTION CONTROL - 1.4%
Browning-Ferris Industries, Inc. 781,300 25,197
WMX Technologies, Inc. 599,800 20,843
46,040
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 180,765
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 1.0%
LEISURE DURABLES & TOYS - 0.4%
Brunswick Corp. 438,900 $ 9,656
Fleetwood Enterprises, Inc. 84,600 2,221
11,877
LODGING & GAMING - 0.5%
Bally Entertainment Corp. (a) 677,800 14,149
ITT Corp. (a) 29,700 1,808
15,957
PUBLISHING - 0.1%
Knight-Ridder, Inc. 53,400 3,864
TOTAL MEDIA & LEISURE 31,698
NONDURABLES - 6.2%
BEVERAGES - 0.5%
Anheuser-Busch Companies, Inc. 241,500 16,210
FOODS - 1.4%
ConAgra, Inc. 187,800 7,254
Dole Food, Inc. 382,400 15,296
General Mills, Inc. 330,000 18,315
Kellogg Co. 45,700 3,262
44,127
HOUSEHOLD PRODUCTS - 1.1%
Avon Products, Inc. 72,400 6,435
First Brands Corp. 107,800 2,857
Procter & Gamble Co. 172,700 14,593
Rubbermaid, Inc. 434,200 12,266
36,151
TOBACCO - 3.2%
Philip Morris Companies, Inc. 1,009,400 90,972
RJR Nabisco Holdings Corp. 383,600 11,460
102,432
TOTAL NONDURABLES 198,920
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 2.2%
APPAREL STORES - 0.3%
Melville Corp. 233,700 $ 9,085
Talbots, Inc. 15,400 443
9,528
GENERAL MERCHANDISE STORES - 1.1%
Ito-Yokado Co. Ltd. 15,000 881
Sears, Roebuck & Co. 206,900 10,319
Wal-Mart Stores, Inc. 1,032,900 24,660
35,860
GROCERY STORES - 0.5%
Vons Companies, Inc. (a) 486,400 15,565
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
Tandy Corp. 39,600 2,054
Toys "R" Us, Inc. (a) 189,500 5,282
Uny Co. Ltd. 124,000 2,394
9,730
TOTAL RETAIL & WHOLESALE 70,683
SERVICES - 1.0%
PRINTING - 0.3%
Donnelley (R.R.) & Sons Co. 252,900 9,104
SERVICES - 0.7%
ADT Ltd. (a) 506,100 8,604
Block (H & R), Inc. 151,500 5,321
National Service Industries, Inc. 234,800 8,688
22,613
TOTAL SERVICES 31,717
TECHNOLOGY - 2.4%
COMPUTER SERVICES & SOFTWARE - 0.3%
SunGard Data Systems, Inc. (a) 235,500 7,830
COMPUTERS & OFFICE EQUIPMENT - 0.7%
International Business Machines Corp. 89,600 9,632
Pitney Bowes, Inc. 281,000 13,699
23,331
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - 1.4%
AMP, Inc. 501,900 $ 22,459
Augat, Inc. 161,700 3,113
Nitto Denko Corp. 611,000 9,820
Thomas & Betts Corp. 232,300 9,147
44,539
PHOTOGRAPHIC EQUIPMENT - 0.0%
Polaroid Corp. 9,700 437
TOTAL TECHNOLOGY 76,137
TRANSPORTATION - 1.2%
RAILROADS - 0.6%
Burlington Northern Santa Fe Corp. 230,600 20,178
TRUCKING & FREIGHT - 0.6%
Airborne Freight Corp. 261,900 6,907
Caliber System, Inc. 136,000 5,457
Consolidated Freightways, Inc. 281,600 7,357
Roadway Express, Inc. 7,400 110
19,831
TOTAL TRANSPORTATION 40,009
UTILITIES - 2.7%
GAS - 0.1%
Aquila Gas Pipeline Corp. 123,500 1,714
TELEPHONE SERVICES - 2.6%
AT&T Corp. 34,600 2,119
Ameritech Corp. 321,600 18,773
Bell Atlantic Corp. 262,500 17,063
BellSouth Corp. 499,200 19,967
Lucent Technologies, Inc. (a) 53,000 1,862
NYNEX Corp. 256,500 12,601
SBC Communications, Inc. 247,600 12,380
84,765
TOTAL UTILITIES 86,479
TOTAL COMMON STOCKS
(Cost $1,821,808) 1,873,867
PREFERRED STOCKS - 3.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 2.7%
BASIC INDUSTRIES - 0.1%
METALS & MINING - 0.0%
Kaiser Aluminum Corp. $0.96 88,500 $ 1,095
Reynolds Metals Co. $3.31 1,000 48
1,143
PAPER & FOREST PRODUCTS - 0.1%
International Paper $2.625 (e) 6,200 287
International Paper Capital Trust $2.625 24,800 1,144
1,431
TOTAL BASIC INDUSTRIES 2,574
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. Indexed $3.00 584,300 37,833
Unocal Corp. $3.50 (e) 203,800 11,311
49,144
NONDURABLES - 1.1%
TOBACCO - 1.1%
RJR Nabisco Holdings Corp., Series C, depositary shares
representing 1/10 pfd 5,673,500 34,041
TOTAL CONVERTIBLE PREFERRED STOCKS 85,759
NONCONVERTIBLE PREFERRED STOCKS - 0.5%
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Harvard Industries, Inc. pay-in-kind 14.25% 103,125 2,816
FINANCE - 0.1%
SAVINGS & LOANS - 0.1%
First Nationwide Bank 11 1/2%, 18,500 2,035
Greater New York Savings Bank Series B, perpetual 12% 65,769 2,022
4,057
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.2%
Cablevision System Corp. $11.125
pay-in-kind (e) 18,965 $ 1,854
Time Warner, Inc., Series K
exchangeable 4,900 4,906
6,760
PUBLISHING - 0.1%
K-III Communications Corp., Series C exchangeable (e) 28,400 2,670
TOTAL MEDIA & LEISURE 9,430
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
Intelecom Group USA, Inc. 260 265
TOTAL NONCONVERTIBLE PREFERRED STOCKS 16,568
TOTAL PREFERRED STOCKS
(Cost $97,882) 102,327
CORPORATE BONDS - 8.6%
MOODY'S RATINGS (B) PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - 2.6%
AEROSPACE & DEFENSE - 0.1%
Orbital Sciences Corp. 6 3/4%, 3/1/03 (f) B3 $ 3,971 4,249
BASIC INDUSTRIES - 0.8%
METALS & MINING - 0.8%
Inco Ltd. 5 3/4%, 7/1/04 Baa2 20,960 26,987
ENERGY - 0.1%
OIL & GAS - 0.1%
Horsham Corp. exchangeable 3%, 1/29/21 Ba2 2,000 2,090
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.1%
Huntingdon International Holdings PLC
7 1/2%, 9/25/06 - $ 2,500 $ 1,800
INSURANCE - 0.0%
RLI Corp. 6%, 7/15/03 Baa3 330 338
TOTAL FINANCE 2,138
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT - 0.0%
NovaCare, Inc. 5 1/2%, 1/15/00 B1 1,000 893
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 A2 4,340 4,166
MEDIA & LEISURE - 0.1%
LEISURE DURABLES & TOYS - 0.1%
Hasbro Corp. 6%, 11/15/98 A3 1,400 1,763
PRECIOUS METALS - 0.3%
Pegasus Gold, Inc. 6 1/4%, 4/30/02 - 7,000 8,006
RETAIL & WHOLESALE - 0.2%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Price Co. 6 3/4%, 3/1/01 Baa1 7,530 7,699
TECHNOLOGY - 0.6%
COMMUNICATIONS EQUIPMENT - 0.2%
General Instrument Corp. 5%, 6/15/00 B1 4,200 5,880
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Acer, Inc. euro 4%, 6/10/01 - 3,470 8,987
Unisys Corp. 8 1/4%, 3/15/06 B3 3,277 3,605
12,592
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.0%
United Microelectronics Corp. euro
1 1/4%, 6/8/04 - $ 1,523 $ 1,889
TOTAL TECHNOLOGY 20,361
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Alaska Air Group, Inc. 6 1/2%, 6/15/05 Ba3 3,710 4,869
TRUCKING & FREIGHT - 0.0%
Airborne Freight Corp. 6 3/4%, 8/15/01 Ba1 1,690 1,690
TOTAL TRANSPORTATION 6,559
TOTAL CONVERTIBLE BONDS 84,911
NONCONVERTIBLE BONDS - 6.0%
AEROSPACE & DEFENSE - 0.1%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 2,217 2,420
BE Aerospace, Inc. 9 7/8%, 2/1/06 (e) B2 607 599
3,019
BASIC INDUSTRIES - 0.3%
CHEMICALS & PLASTICS - 0.2%
Atlantis Group, Inc. 11%, 2/15/03 B2 790 723
NL Industries, Inc.:
11 3/4%, 10/15/03 B1 670 693
0%, 10/15/05 (c) B2 5,670 4,338
5,754
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 2,460 2,644
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.0%
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B1 $ 380 $ 356
9 7/8%, 5/1/06 B3 750 662
Riverwood International 10 7/8%, 4/1/08 B3 770 770
1,788
TOTAL BASIC INDUSTRIES 10,186
CONGLOMERATES - 0.0%
Jordan Industries, Inc. 10 3/8%, 8/1/03 B3 330 302
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
Knoll, Inc. 10 7/8%, 3/15/06 (e) B3 952 976
TEXTILES & APPAREL - 0.0%
Dominion Textile USA, Inc. 9 1/4%, 4/1/06 Ba2 630 624
Reeves Industries, Inc. 11%, 7/15/02 B2 130 123
747
TOTAL DURABLES 1,723
ENERGY - 1.0%
ENERGY SERVICES - 0.4%
Petroliam Nasional BHD yankee (e):
6 7/8%, 7/1/03 A1 950 930
7 1/8%, 8/15/05 A1 11,100 10,990
11,920
OIL & GAS - 0.6%
Apache Corp. 7.70%, 3/15/26 Baa3 10,000 9,527
Coastal Corp. 10 1/4%, 10/15/04 Baa3 1,025 1,195
Nuevo Energy Co. 9 1/2%, 4/15/06 B2 210 210
Transtexas Gas Corp. 11 1/2%, 6/15/02 B2 550 553
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Union Texas Petroleum Holdings, Inc.:
6.52%, 12/5/02 Baa3 $ 4,000 $ 3,797
8 1/2%, 4/15/07 Baa3 2,000 2,117
Wainoco Oil Corp. 12%, 8/1/02 B1 2,490 2,440
19,839
TOTAL ENERGY 31,759
FINANCE - 1.8%
ASSET-BACKED SECURITIES - 0.2%
Airplanes 10 7/8%, 3/15/19 Ba2 1,040 1,087
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 1,714 1,706
Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 2,855 2,835
5,628
BANKS - 1.4%
Banponce Financial Corp. 6.88%, 6/16/00 Baa1 2,500 2,492
Banponce Corp.:
5 3/4%, 3/1/99 Baa1 880 857
6 3/4%, 12/15/05 Baa2 5,000 4,691
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 9,045 9,483
Export Import Bank of Korea 6 3/8%, 2/15/06 A1 2,100 1,951
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa1 720 682
Kansallis-Osake-Pankki NY Branch
10%, 5/1/02 A3 710 804
Korea Development Bank yankee
6 1/2%, 11/15/02 A1 2,000 1,921
Merita Bank Ltd. yankee 6 1/2%, 1/15/06 A3 12,000 11,167
Provident Bank 6 1/8%, 12/15/00 A3 3,420 3,301
Union Planters Corp. 6 3/4%, 11/1/05 Baa3 400 380
Wachovia Corp. 6.605%, 10/1/25 A1 7,550 7,306
45,035
CREDIT & OTHER FINANCE - 0.1%
HMC Acquisition Properties, Inc.
9%, 12/15/07 (e) Ba3 1,920 1,776
MCN Investment Corp. 6.03%, 2/1/01 Baa2 2,350 2,260
4,036
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 0.0%
American Life Holdings 11 1/4%, 9/15/04 B1 $ 996 $ 1,052
SAVINGS & LOANS - 0.1%
First Nationwide Parent Holding, Inc.
12 1/2%, 4/15/03 (e) B2 3,040 3,116
TOTAL FINANCE 58,867
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Magnetek, Inc. 10 3/4%, 11/15/98 B1 2,870 2,784
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Interlake Corp. 12 1/8%, 3/1/02 B3 550 528
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,312
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.2%
Diamond Cable Communications PLC yankee
0%, 12/15/05 (c) B3 120 73
International Cabletel, Inc.
0%, 2/1/06 (c)(e) B3 450 263
Peoples Choice TV Corp. Unit
0%, 6/1/04 (c) Caa 340 209
Time Warner, Inc. 6.85%, 1/15/26 Ba1 7,120 6,819
7,364
ENTERTAINMENT - 0.0%
AMF Group, Inc. 10 7/8%, 3/15/06 (e) B2 485 480
LODGING & GAMING - 0.2%
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 295 301
Circus Circus Enterprises, Inc. 6.45%, 2/1/06 Baa2 3,000 2,779
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Horseshoe Gaming LLC
12 3/4%, 9/30/00 (e) B1 $ 150 $ 163
Trump Atlantic City Associates/Trump Atlantic
City Funding, Inc. 11 1/4%, 5/1/06 B1 1,790 1,819
5,062
RESTAURANTS - 0.3%
Darden Restaurants, Inc. 6 3/8%, 2/1/06 A3 5,720 5,294
Wendy's International, Inc. 6.35%, 12/15/05 Baa1 5,000 4,676
9,970
TOTAL MEDIA & LEISURE 22,876
NONDURABLES - 0.4%
FOODS - 0.1%
Nabisco, Inc. 8%, 1/15/00 Baa2 900 925
Specialty Foods Corp., Series B,
11 1/4%, 8/15/03 Caa 2,455 2,025
2,950
HOUSEHOLD PRODUCTS - 0.3%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 3,905 3,998
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 5,910 4,802
8,800
TOTAL NONDURABLES 11,750
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.0%
Specialty Retailers, Inc. 10%, 8/15/00 B1 480 477
GENERAL MERCHANDISE STORES - 0.0%
Dayton Hudson Corp. 6.40%, 2/15/03 A3 425 403
Pantry, Inc., Series B, 12%, 11/15/00 B2 820 732
1,135
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.1%
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 B3 $ 110 $ 111
9 5/8%, 5/1/03 B2 1,710 1,637
Ralph's Grocery Co. 11%, 6/15/05 B3 850 795
2,543
TOTAL RETAIL & WHOLESALE 4,155
SERVICES - 0.3%
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 1,440 1,353
SERVICES - 0.2%
Loewen Group International, Inc.
7 1/2%, 4/15/01 (e) Ba1 7,000 6,901
TOTAL SERVICES 8,254
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (c)(e) Caa 440 274
Hyperion Telecommunication, Inc.
0%, 4/15/03 Unit (c)(e) - 3,880 2,076
2,350
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc. 5 3/4%, 2/15/01 Baa2 6,000 5,710
Unisys Corp. 12%, 4/15/03 (e) B1 2,840 2,847
8,557
TOTAL TECHNOLOGY 10,907
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Delta Air Lines, Inc. equipment
trust certificate 8.54%, 1/2/07 Baa2 798 829
United Airlines Pass Through Trust
7.27%, 1/30/13 Baa1 1,430 1,356
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - CONTINUED
AIR TRANSPORTATION - CONTINUED
US Air, Inc.:
9 5/8%, 2/1/01 B3 $ 748 $ 690
10%, 7/1/03 B3 1,710 1,577
ValuJet, Inc. 10 1/4%, 4/15/01 (e) B1 750 758
5,210
UTILITIES - 0.7%
CELLULAR - 0.4%
Intercel, Inc. 0%, 5/1/06 (c) B2 1,720 959
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba2 1,490 1,427
7 1/2%, 3/1/06 Ba2 10,000 9,520
11,906
ELECTRIC UTILITY - 0.0%
El Paso Electric Co., Series E,
9.40%, 5/1/11 Ba3 770 762
GAS - 0.2%
Columbia Gas System, Inc.
6.61%, 11/28/02 Baa3 6,000 5,840
TELEPHONE SERVICES - 0.1%
Brooks Fiber Properties, Inc.
10 7/8%, 3/1/06 (e) - 250 137
MFS Communications, Inc.
0%, 1/15/06 (c) B1 2,350 1,460
Shared Technologies Fairchild Corp.
0%, 3/1/06 (c)(e) Caa 790 585
2,182
TOTAL UTILITIES 20,690
TOTAL NONCONVERTIBLE BONDS 193,010
TOTAL CORPORATE BONDS
(Cost $284,377) 277,921
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 14.9%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 13.4%
5 7/8%, 7/31/97 Aaa $ 57,630 $ 57,649
7 3/8%, 11/15/97 Aaa 60,000 61,219
9%, 5/15/98 Aaa 19,000 20,051
7 3/4%, 12/31/99 Aaa 83,368 87,145
11 1/4%, 8/15/03 Aaa 10,275 12,922
12 3/4%, 11/15/10 Aaa 40,200 56,726
13 7/8%, 5/15/11 Aaa 38,340 57,725
8 7/8%, 2/15/19 Aaa 19,900 23,864
8 1/8%, 8/15/19 Aaa 49,000 54,696
431,997
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.5%
Federal Agricultural Mortgage Corporation
7.01%, 2/10/04 Aaa 1,720 1,721
Federal Home Loan Bank:
7.44%, 8/10/01 Aaa 2,000 2,069
7.36%, 7/1/04 Aaa 1,590 1,625
7.38%, 8/5/04 Aaa 3,790 3,879
7.70%, 9/20/04 Aaa 1,170 1,226
7.56%, 9/1/04 . Aaa 5,530 5,728
Federal National Mortgage Association
8.625%, 6/30/04 Aaa 4,000 4,412
Government Trust Certificates
(assets of Trust guaranteed by U.S.
Government through Export-Import Bank):
Series 1992-A 7.02%, 9/1/04 Aaa 1,411 1,431
Series 1994-B 7 1/2%, 1/26/06 Aaa 611 629
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C 9 1/4%, 11/15/01 Aaa 170 182
Class 2-E 9.40%, 5/15/02 Aaa 2,160 2,326
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by U.S.
Government through Export-Import Bank):
Series 1993-C 5.20%, 10/15/04 Aaa 482 455
Series 1993-D 5.23%, 5/15/05 Aaa 850 802
Series 1994-A 7.12%, 4/15/06 Aaa 736 744
Series 1996-A 6.55%, 6/15/04 Aaa 2,920 2,900
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Overseas Private Investment Corp. (U.S.
Government guaranteed participation
certificate) Series 1994-195
6.08%, 8/15/04 Aaa $ 1,840 $ 1,754
Private Export Funding Corp. secured:
Series SS 5.80%, 2/1/04 Aaa 2,790 2,673
Series VV 6.24%, 5/15/02 Aaa 530 517
State of Israel (guaranteed by U.S. government
through Agency for International Development):
7 3/4%, 11/15/99 Aaa 2,660 2,764
5 3/4%, 3/15/00 Aaa 1,022 995
8%, 11/15/01 Aaa 1,160 1,229
6 1/8%, 3/15/03 Aaa 3,443 3,317
7 5/8%, 8/15/04 Aaa 1,650 1,715
5.89%, 8/15/05 Aaa 640 593
U.S. Housing & Urban Development
8.24%, 8/1/04 participation certificate Aaa 2,200 2,374
48,060
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $490,943) 480,057
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 9.8%
Federal Home Loan Mortgage Corporation
5.50%, 8/1/00 to 4/1/26 Aaa 24,945 24,172
Federal National Mortgage Association
5.50%, 8/1/02 to 4/1/26 Aaa 90,819 85,846
6%, 4/1/00 to 4/1/26 Aaa 120,848 113,742
6.50%, 2/1/24 to 4/1/26 Aaa 56,210 52,715
Government National Mortgage Association
7%, 12/15/22 to 12/15/25 Aaa 14,697 14,156
8%, 11/15/21 to 3/15/26 Aaa 23,925 24,241
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES (Cost $321,220) 314,872
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY - 0.7%
Federal Home Loan Mortgage Corporation
Z Bond Series 1708 Class Y, 6%, 3/15/09 Aaa $ 9,747 $ 8,133
Federal National Mortgage Association
Z Bond Series 1993-10 Class Z,
6 1/2%, 2/25/08 Aaa 16,559 14,696
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $23,429) 22,829
COMMERCIAL MORTGAGE SECURITIES - 0.2%
Resolution Trust Corp. commercial:
Series 1994-C1 Class E,
8%, 6/25/26 BB 1,369 1,180
Series 1995-C2 Class A-1A,
6 1/4%, 5/25/27 Aaa 1,525 1,515
Structured Asset Securities Corp. commercial:
Series 1995-C1 Class E,
7 3/8%, 9/25/24 (e) BB 1,000 731
Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 1,365 1,355
Series 1996 Class A-1A,
5.711%, 2/25/28 AAA 722 714
Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,761 1,774
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $7,382) 7,269
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.2%
Mexico Value oil recovery rights (a) - 1 -
Nova Scotia Province CDA yankee
9 1/5%, 2/1/19 A3 4,000 4,726
Province of Chaco, Argentina
11 7/8%, 9/10/97 (d) - 400 432
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,208) 5,158
REPURCHASE AGREEMENTS - 4.0%
MATURITY AMOUNT VALUE (NOTE 1)
(000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 128,140 $ 128,121
PURCHASED OPTIONS - 0.1%
UNDERLYING FACE
EXPIRATION DATE/ AMOUNT AT VALUE
STRIKE PRICE (000S)
J. Aron and Co. OTC Put Option
on 3,536,354,000 Japanese Yen
(Cost $1,754) Sept. 96/100.18 $ 33,638 1,539
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,182,124) $ 3,213,960
SECURITIES SOLD SHORT
AMOUNTS IN THOUSANDS
NUMBER OF SHARES ISSUER VALUE
276 Orbital Sciences Corp. (Total proceeds $5,106) $ 3,726
THE VALUE OF SECURITIES SOLD SHORT AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.1%
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Province of Chaco,
Argentina
11 7/8%, 9/10/97 3/9/94 $ 419
5. 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 $49,724,000 or 1.5% of net
assets.
6. Security pledged to cover margin requirements on open short sale
transactions (see Note 2 of Notes to Financial Statements). At the period
end the value of securities pledged amounted to $4,249,000.
7. Purchased on an installment basis. Market value reflects only those
payments made through April 30, 1996. The remaining installments
aggregating CAD 79,454,000 are due July 31, 1996 and January 31, 1997.
8. Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 27.3% AAA, AA, A 24.9%
Baa 2.9% BBB 4.3%
Ba 1.2% BB 0.7%
B 2.0% B 1.9%
Caa 0.1% CCC 0.1%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 0.7%.
INCOME TAX INFORMATION
At April 30,1996, the aggregate cost of investment securities for income
tax purposes was $3,183,287,000. Net unrealized appreciation aggregated
$30,673,000, of which $90,342,000 related to appreciated investment
securities and $59,669,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1996
ASSETS
Investment in securities, at value (including repurchase $ 3,213,960
agreements of $128,121) (cost $3,182,124) -
See accompanying schedule
Securities sold short, at value (proceeds received (3,726) $ 3,210,234
$5,106)
Restricted cash on securities sold short 5,106
Cash 833
Receivable for investments sold 57,546
Receivable for fund shares sold 4,438
Dividends receivable 3,826
Interest receivable 19,786
Other receivables 12
Prepaid expenses 3
TOTAL ASSETS 3,301,784
LIABILITIES
Payable for investments purchased 43,040
Payable for fund shares redeemed 8,319
Accrued management fee 1,375
Distribution fees payable 1,362
Other payables and accrued expenses 708
TOTAL LIABILITIES 54,804
NET ASSETS $ 3,246,980
Net Assets consist of:
Paid in capital $ 3,148,896
Undistributed net investment income 9,037
Accumulated undistributed net realized gain (loss) on 55,685
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 33,362
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 3,246,980
CALCULATION OF MAXIMUM OFFERING PRICE $15.34
CLASS A:
NET ASSET VALUE, and redemption price per share
($3,240,025 (divided by) 211,205 shares)
Maximum offering price per share (100/96.50 of $15.34) $15.90
INSTITUTIONAL CLASS: $15.41
NET ASSET VALUE, offering price and redemption price
per share ($6,955 (divided by) 451.4 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1996
INVESTMENT INCOME $ 18,403
Dividends
Interest 59,537
TOTAL INCOME 77,940
EXPENSES
Management fee $ 8,697
Transfer agent fees 3,106
Class A
Institutional Class 2
Distribution fees - Class A 9,417
Accounting fees and expenses 396
Non-interested trustees' compensation 6
Custodian fees and expenses 257
Registration fees 27
Class A
Institutional Class 32
Audit 50
Legal 24
Miscellaneous 306
Total expenses before reductions 22,320
Expense reductions (337) 21,983
NET INVESTMENT INCOME 55,957
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 60,455
Foreign currency transactions (45)
Futures contracts 20,795
Short sales (22,039) 59,166
Change in net unrealized appreciation (depreciation) on:
Investment securities (34,437)
Assets and liabilities in foreign currencies (6,476)
Futures contracts 5,872
Short sales 13,020 (22,021)
NET GAIN (LOSS) 37,145
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 93,102
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1995
1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 55,957 $ 134,594
Net investment income
Net realized gain (loss) 59,166 37,982
Change in net unrealized appreciation (depreciation) (22,021) 90,476
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 93,102 263,052
FROM OPERATIONS
Distributions to shareholders (74,622) (112,646)
From net investment income
Class A
Institutional Class (56) (70)
From net realized gain (6,647) -
Class A
Institutional Class (2) -
TOTAL DISTRIBUTIONS (81,327) (112,716)
Share transactions - net increase (decrease) (206,929) 163,022
TOTAL INCREASE (DECREASE) IN NET ASSETS (195,154) 313,358
NET ASSETS
Beginning of period 3,442,134 3,128,776
End of period (including undistributed net investment $ 3,246,980 $ 3,442,134
income of $9,037 and $27,758, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1996 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13 $ 10.41
DATA
Net asset value,
beginning of period
Income from Investment
Operations
Net investment income .26 G .59 .38 .48 .50 .51
Net realized and .15 .54 (.79) 2.18 .85 3.74
unrealized gain
(loss)
Total from investment .41 1.13 (.41) 2.66 1.35 4.25
operations
Less Distributions
From net investment (.34) (.50) (.28) (.56) (.46) (.53)
income
In excess of net - - (.02) - - -
investment income
From net realized gain (.03) - (.49) (.60) (.61) -
Return of capital - - (.04) - - -
Total distributions (.37) (.50) (.83) (1.16) (1.07) (.53)
Net asset value, $ 15.34 $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13
end of period
TOTAL RETURN B, C 2.66% 7.85% (2.69) 19.66% 10.27% 41.73%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 3,240 $ 3,441 $ 3,129 $ 1,654 $ 398 $ 136
period (in millions)
Ratio of expenses to 1.32% A 1.47% 1.59% 1.52% 1.60% 1.71%
average net assets
Ratio of expenses to 1.31% A, 1.46% 1.58% 1.51% 1.60% 1.71%
average net assets E E E E
after expense
reductions
Ratio of net investment 3.32% A 3.99% 3.79% 3.24% 3.97% 4.19%
income to average net
assets
Portfolio turnover rate 318% A 297% 202% 200% 389% 220%
Average commission $ .0082
rate F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,
1996 1995 D
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.40 $ 15.23
Income from Investment Operations
Net investment income .26 H .25
Net realized and unrealized gain (loss) .16 .09
Total from investment operations .42 .34
Less Distributions
From net investment income (.38) (.17)
From net realized gain (.03) -
Total distributions (.41) (.17)
Net asset value, end of period $ 15.41 $ 15.40
TOTAL RETURN B, C 2.71% 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 6,955 $ 993
Ratio of expenses to average net assets 1.25% A, .92% A
E , E
Ratio of expenses to average net assets after expense 1.17% A, .91% A
reductions F , F
Ratio of net investment income to average net assets 3.46% A 4.54% A
Portfolio turnover rate 318% A 297%
Average commission rate G $ .0082
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Income & Growth Fund (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A and Institutional Class shares, each of which has
equal rights as to assets and voting privileges. Each class has exclusive
voting rights with respect to its distribution plan. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. 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 under
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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts and foreign currency options, 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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
investments in securities are included with the net realized and unrealized
gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. 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.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying each class
and shares of each class for distribution under federal and state
securities law. These expenses are borne by each class and amortized over
one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends are declared separately for each class,
while capital gain distributions are declared at the fund level and
allocated to each class on a pro rata basis based on the number of shares
held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, futures and options transactions,
foreign currency transactions, passive foreign investment companies (PFIC),
market discount, partnerships, non-taxable dividends and losses deferred
due to wash sales. The fund also utilized earnings and profits distributed
to shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include temporary book and tax basis
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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 fund, along with other affiliated
entities of 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
SHORT SALES AGAINST THE BOX. The fund may hedge its investments against
changes in value by engaging in short sales against the box. In a short
sale against the box, the fund sells a borrowed security, while at the same
time either owning an identical security or having the right to obtain such
a security. By selling short against the box the equity underlying one of
its convertible holdings, the fund would seek to offset the
2. OPERATING POLICIES - CONTINUED
SHORT SALES AGAINST THE BOX - CONTINUED
effect that a decline in the underlying equity might have on the value of
the convertible security. While the short sale is outstanding, the fund
will not dispose of the security hedged by the short sale.
The fund is required to establish a margin account with the broker lending
the security sold short. While the short sale is outstanding, the broker
retains the proceeds of the short sale and the fund instructs the custodian
to maintain in a separate account securities having a value at least equal
to the amount of the securities sold short.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the stock and bond markets and to
fluctuations in interest rates and currency values. Buying futures, writing
puts, and buying calls tend to increase the fund's exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. The underlying face amount at value is shown in the
schedule of investments under the caption "Purchased Options." This amount
reflects each contract's exposure to the underlying instrument at period
end. Losses may arise from changes in the value of the underlying
instruments, if there is an illiquid secondary market for the contracts, or
if the counterparties do not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
INDEXED SECURITIES. The fund may invest in indexed securities whose values
are linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other underlying instruments. The
fund uses these securities to increase or decrease its exposure to
different underlying instruments and to gain exposure to markets that might
be difficult to invest in through conventional securities. Indexed
securities may be more volatile than their underlying instruments, but any
loss is limited to the amount of the original investment.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $432,000 or 0.0%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $4,998,932,000 and $4,938,333,000, respectively, of which U.S.
government and government agency obligations aggregated $1,711,717,000 and
$2,252,824,000, respectively.
The market value of futures contracts opened and closed during the period
amounted to $941,754,000 and $1,229,129,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .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 .20%. For
the period, the management fee was equivalent to an annualized rate of .52%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan) and Institutional Class shares
(collectively referred to as "the Plans"). Under the Class A Plan, the fund
pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. For the period November 1, 1995 to December
31, 1995, this fee was based on an annual rate of .65% of the average net
assets of Class A. Effective January 1, 1996, the Board of Trustees
approved a revised Class A distribution plan, under which the fee is based
on an annual rate of .50% of the average net assets of the Class A shares.
For the period, the fund paid FDC $9,417,000 under the Class A Plan, of
which $8,546,000 was paid to securities dealers, banks and other financial
institutions for the distribution of Class A shares, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A and
Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. For the period May 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
period, FDC received sales charges of $2,392,000 on sales of Class A shares
of the fund, of which $1,998,000 was paid to securities dealers, banks, and
other financial institutions.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Institutional Class shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.18% and .12% of average net assets for Class A and Institutional Class,
respectively.
ACCOUNTING FEES. Fidelity Service Co., maintains the fund's accounting
records. The fee is based on the level of average net assets for the month
plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,045,000 for the period.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates of average net assets for Class A and Institutional
Class.
(I) CLASS A. Effective January 1, 1996 this expense limitation changed from
an annual rate of 1.90% to 1.75% of average net assets.
(II) INSTITUTIONAL CLASS. For the period, this expense limitation was 1.25%
of average net assets and the reimbursement reduced expenses by $23,000.
FMR directed certain portfolio trades to brokers who paid a portion of the
fund's expenses. For the period, the fund's expenses were reduced by
$281,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to
5. EXPENSE REDUCTIONS - CONTINUED
offset a portion of the class' expenses. During the period, the fund's
custodian fees were reduced by $6,000 under the custodian arrangement, and
Class A and Institutional Class expenses were reduced by $26,000 and
$1,000, respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED ENDED APRIL 30, OCTOBER
31, ENDED APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
AMOUNTS IN THOUSANDS
CLASS A
Shares sold 21,550 65,838 $ 335,712 $ 973,364
Reinvestment of distributions 4,895 7,001 75,974 103,985
Shares redeemed (40,098) (61,310) (624,635) (915,254)
Net increase (decrease) (13,653) 11,529 $ (212,949) $ 162,095
INSTITUTIONAL CLASS
Shares sold 416.6 473.6 $ 6,483 $ 7,256
Reinvestment of distributions 3.1 4.3 49 67
Shares redeemed (32.8) (413.4) (512) (6,396)
Net increase (decrease) 386.9 64.5 $ 6,020 $ 927
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Income & Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Income & Growth Fund,
including the schedule of portfolio investments, as of April 30, 1996, and
the related statement of operations for the six months then ended, the
statement of changes in net assets for the six months ended April 30, 1996
and for the year ended October 31, 1995 and the financial highlights for
the six months ended April 30, 1996 and each of the five years in the
period ended October 31, 1995 (Class A) and for the six months ended April
30, 1996 and for the period July 3, 1995 (commencement of sale of
Institutional Class) to October 31, 1995 (Institutional Class). These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Advisor Series II: Fidelity Advisor Income & Growth Fund as of
April 30, 1996, the results of its operations for the six months then
ended, changes in its net assets for the six months ended April 30, 1996
and for the year ended October 31, 1995 and the financial highlights for
the six months ended April 30, 1996 and each of the five years in the
period ended October 31, 1995 (Class A) and for the six months ended April
30, 1996 and for the period July 3, 1995 (commencement of sale of
Institutional Class) to October 31, 1995 (Institutional Class), in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 12, 1996
INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
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 S. Hayes, Vice President
Bettina E. Doulton, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
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 Distributions Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
State Street Bank and Trust Company
Boston, MA
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
INCOME & GROWTH
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 33 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 38 Notes to the financial statements.
REPORT OF INDEPENDENT 45 The auditors' opinion.
ACCOUNTANTS
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term. You also can help to manage some of the risks of investing
through diversification. A stock fund is already diversified because it
invests in many issues. You can diversify even further by placing some of
your money in several different types of stock funds or in other investment
categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR INCOME & GROWTH FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). Initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares are
sold to eligible investors without a sales load or 12b-1 fee. Returns prior
to July 3, 1995 are those of Class A, the original class of the fund, and
reflect Class A's prior 0.65% 12b-1 fee. If Fidelity had not reimbursed
certain class expenses, the past six months, one year, five year and life
of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Income & Growth - 2.71% 8.55% 62.24% 171.77%
Institutional Class
S&P 500(registered trademark) 13.76% 30.21% 100.72% 246.37%
Lehman Brothers Aggregate Bond Index 0.53% 8.64% 47.82% n/a
Balanced Funds Average 8.31% 20.09% 71.99% n/a
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years, or since the fund started on January 6, 1987. 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. For comparison, you can look at
both the performance of the Standard & Poor's 500 Index - a common proxy
for the U.S. stock market - and the performance of the Lehman Brothers
Aggregate Bond Index, which is comprised of fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities. Issues included in the Index are rated investment-grade or
above and have maturities of at least one year. To measure how
Institutional Class' performance stacked up against its peers, you can
compare it to the balanced funds average, which reflects the performance of
259 balanced funds with similar objectives tracked by Lipper Analytical
Services over the past six months. These benchmarks include reinvested
dividends and capital gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Income & Growth - 8.55% 10.16% 11.32%
Institutional Class
S&P 500 30.21% 14.95% 14.25%
Lehman Brothers Aggregate Bond Index 8.64% 8.13% n/a
Balanced Funds Average 20.09% 11.40% n/a
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' actual (or
cumulative) return and show you what would have happened if Institutional
Class shares had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960529 171342 S00000000000001
FA Income & Growth CL I S&P 500 Lehman
Bros. Aggregate
00642 SP001 LB001
1987/01/31 10000.00 10000.00
10000.00
1987/02/28 10298.08 10395.00
10069.35
1987/03/31 10701.56 10695.42
10023.96
1987/04/30 10440.55 10600.23
9749.09
1987/05/31 10411.55 10692.45
9710.95
1987/06/30 10662.73 11232.42
9844.60
1987/07/31 11177.89 11801.90
9837.04
1987/08/31 11411.17 12242.11
9784.40
1987/09/30 11217.11 11974.01
9576.04
1987/10/31 9239.92 9394.81
9917.10
1987/11/30 9073.53 8620.68
9996.53
1987/12/31 9470.18 9276.71
10132.70
1988/01/31 10026.08 9667.26
10488.89
1988/02/29 10443.01 10117.75
10613.40
1988/03/31 10472.79 9805.11
10513.79
1988/04/30 10653.88 9913.95
10457.05
1988/05/31 10694.12 10000.20
10386.76
1988/06/30 11137.68 10459.21
10637.35
1988/07/31 11096.92 10419.47
10581.56
1988/08/31 11056.16 10065.20
10609.30
1988/09/30 11260.88 10493.98
10849.49
1988/10/31 11426.03 10785.71
11053.74
1988/11/30 11312.49 10631.48
10919.46
1988/12/31 11448.04 10817.53
10931.76
1989/01/31 11898.42 11609.37
11089.05
1989/02/28 11940.32 11320.30
11008.67
1989/03/31 12141.27 11584.06
11056.26
1989/04/30 12629.04 12185.28
11287.63
1989/05/31 13042.58 12678.78
11584.24
1989/06/30 13222.37 12606.51
11936.96
1989/07/31 13822.90 13744.88
12190.70
1989/08/31 14037.37 14014.28
12010.09
1989/09/30 14059.28 13956.82
12071.55
1989/10/31 13842.49 13633.02
12369.11
1989/11/30 14124.32 13911.13
12487.00
1989/12/31 14263.91 14245.00
12520.41
1990/01/31 13573.91 13289.16
12371.63
1990/02/28 13609.60 13460.59
12411.35
1990/03/31 13800.09 13817.30
12420.49
1990/04/30 13619.46 13471.87
12306.70
1990/05/31 14125.23 14785.37
12671.08
1990/06/30 14185.15 14684.83
12874.39
1990/07/31 14148.59 14637.84
13052.48
1990/08/31 13283.34 13314.58
12878.17
1990/09/30 12976.75 12666.16
12984.71
1990/10/31 12853.28 12611.70
13149.57
1990/11/30 13433.59 13426.41
13432.62
1990/12/31 13844.13 13801.01
13641.92
1991/01/31 14558.91 14402.73
13810.56
1991/02/28 15411.63 15432.53
13928.45
1991/03/31 15803.07 15805.99
14024.27
1991/04/30 16106.97 15843.93
14176.20
1991/05/31 16778.10 16528.39
14259.10
1991/06/30 16434.22 15771.39
14251.85
1991/07/31 17137.09 16506.33
14449.49
1991/08/31 17571.58 16897.53
14762.17
1991/09/30 17700.96 16615.34
15061.31
1991/10/31 18216.64 16837.99
15229.00
1991/11/30 17791.20 16159.42
15368.64
1991/12/31 18617.79 18008.06
15825.06
1992/01/31 18740.28 17673.11
15609.77
1992/02/29 19134.96 17902.86
15711.27
1992/03/31 19067.03 17553.75
15622.70
1992/04/30 19218.02 18069.83
15735.54
1992/05/31 19602.38 18158.37
16032.47
1992/06/30 19424.15 17887.81
16253.11
1992/07/31 19991.38 18619.43
16584.71
1992/08/31 19991.38 18237.73
16752.72
1992/09/30 20156.77 18452.93
16951.30
1992/10/31 20087.07 18517.52
16726.56
1992/11/30 20212.52 19148.96
16730.34
1992/12/31 20330.55 19384.50
16996.38
1993/01/31 20714.15 19547.33
17322.30
1993/02/28 21156.76 19813.17
17625.53
1993/03/31 21955.27 20231.23
17698.98
1993/04/30 22580.02 19741.63
17822.22
1993/05/31 23011.39 20270.71
17844.92
1993/06/30 22863.23 20329.49
18168.32
1993/07/31 23103.10 20248.18
18271.08
1993/08/31 23942.67 21015.58
18591.33
1993/09/30 23718.82 20853.76
18642.40
1993/10/31 24036.08 21285.43
18712.06
1993/11/30 23718.82 21083.22
18552.88
1993/12/31 24326.54 21338.33
18653.43
1994/01/31 25002.72 22063.83
18905.28
1994/02/28 24562.42 21465.90
18576.83
1994/03/31 23581.45 20529.99
18118.83
1994/04/30 23391.28 20792.77
17974.15
1994/05/31 23486.37 21133.77
17971.63
1994/06/30 23040.64 20616.00
17931.91
1994/07/31 23486.17 21292.20
18288.10
1994/08/31 23772.59 22165.18
18310.80
1994/09/30 23613.73 21622.14
18041.29
1994/10/31 23390.51 22108.63
18025.22
1994/11/30 23071.62 21303.44
17985.19
1994/12/31 23087.56 21619.37
18109.38
1995/01/31 23023.25 22179.96
18467.77
1995/02/28 23425.19 23044.31
18906.86
1995/03/31 23814.40 23724.35
19022.85
1995/04/30 24073.78 24423.03
19288.57
1995/05/31 24543.91 25399.22
20034.99
1995/06/30 24838.57 25989.24
20181.88
1995/07/31 25214.41 26851.05
20136.80
1995/08/31 25296.12 26918.44
20379.83
1995/09/30 25556.68 28054.40
20578.09
1995/10/31 25441.04 27954.25
20845.71
1995/11/30 26134.89 29181.44
21158.08
1995/12/31 26550.54 29743.47
21455.00
1996/01/31 26769.14 30755.94
21597.48
1996/02/29 26348.77 31041.05
21222.06
1996/03/31 26148.42 31339.97
21074.55
1996/04/30 26131.46 31801.92
20956.03
IMAHDR PRASUN SHR__CHT 19960430 19960529 171342 S00000000000001
$10,000 OVER LIFE OF FUND: Let's
say you invested $10,000 in Fidelity Advisor Income & Growth Fund -
Institutional Class on January 31, 1987, shortly after the fund started. As
the chart shows, by April 30, 1996, the value of your investment would have
grown to $26,131 - a 161.31% increase on your initial investment. For
comparison, look at how both the S&P 500 and Lehman Brothers Aggregate Bond
Index did over the same period. With dividends reinvested, the same $10,000
investment in the S&P 500 would have grown to $31,802 - a 218.02% increase.
If you had put $10,000 in the bond index, it would have grown to $20,956 -
a 109.56% increase.
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. In
turn, the share price and
return of a fund that invests in
stocks or bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
On March 26, 1996, Bettina Doulton became portfolio manager of the fund.
The following is an interview with Robert Haber, who managed the fund
during much of the period, followed by remarks from Bettina Doulton
regarding changes in the fund, her investment style and her outlook.
Q. BOB, HOW DID THE FUND PERFORM?
B.H. For the six months ended April 30, 1996, Institutional Class had a
total return of 2.71%. That lagged the 8.31% return posted by the balanced
funds average tracked by Lipper Analytical Services. For the 12 months
ended April 30, 1996, Institutional Class had a total return of 8.55%,
while the balanced funds average returned 20.09%.
Q. WHAT WERE THE REASONS FOR THE FUND'S SUBPAR PERFORMANCE?
B.H. There were a number of factors. First, the fund invested less in U.S.
equities, and instead was focused more on bond investments and foreign
stocks, both of which turned in weaker performances than the U.S. stock
market. Second, the fund's bond investments were, for the most part, in
long-duration Treasury bonds that performed poorly. Duration is a measure
of a bond's sensitivity to interest rates. The longer a bond's duration,
the more sensitive it is to changes in interest rates. When interest rates
go up as they did markedly over the past six months, bonds with longer
durations drop in value more than those with shorter durations. I had
invested in these long-duration Treasuries because it appeared to me that
the economy was weakening, and thought the situation was ripe for continued
interest rate decreases by the Federal Reserve Board. Unfortunately, during
the period statistics came out indicating the economy was strengthening. As
a result, the Fed made no reductions in short-term interest rates, but
yields rose - and prices fell - throughout the bond market in response to
investors' inflation fears. Finally, the fund's stock selection produced a
return that lagged the overall market, although some of the fund's energy,
industrial machinery and chemical stocks - including Caterpillar and duPont
- - posted strong results in response to signs of economic strength.
Q. BOB'S GIVEN US AN INDICATION OF WHAT THE BOND MARKET WAS LIKE DURING THE
PERIOD. TURNING TO YOU, BETTINA, CAN YOU TELL US WHAT THE STOCK INVESTING
ENVIRONMENT WAS LIKE DURING THE PAST SIX MONTHS?
B.D. One could almost divide the past six months into two distinct periods.
From the end of October through February, there was a consensus in the
market that the economy was slowing, inflation was under control and the
Federal Reserve Board would continue lowering interest rates to stimulate
growth, a strategy it had pursued through much of 1995. The strike at
General Motors, the government shutdown and bad weather that hindered sales
in the winter helped reinforce these perceptions. Amid doubts about
economic strength, investors favored big blue chip growth stocks because
these companies tend to have steady earnings growth regardless of the
economic environment. However, starting in March, we saw a dramatic shift,
with indications that the economy was in much better shape than expected.
The signs of an improving economy encouraged investors to look beyond the
larger-company stocks and, since then, stocks of smaller- and mid-sized
companies generally have led the market. Many of these companies benefit
from a stronger economy because it helps them post better earnings growth.
Q. WHAT CHANGES HAVE YOU MADE SINCE TAKING OVER THE FUND?
B.D. I reduced the fund's stake in bonds and redeployed those assets into
stocks. In addition, the composition of the bond component was changed;
most notably the duration was dramatically reduced. I replaced the
long-term Treasury bonds that were previously in the fund with more
corporate and mortgage-backed securities, aiming to increase the income
produced by the bond's holdings while, at the same time, reducing their
sensitivity to interest rates. On the stock side, I've reduced the fund's
foreign investments as well as some of the stocks of smaller-sized
companies. I intend to make yield a larger component of the fund's total
return, and thus invested more in the stocks of medium to larger companies
that tend to have larger dividends. I have added to the fund's energy
exposure with purchases of British Petroleum and Royal Dutch Petroleum,
supplementing existing holdings of oil service stocks.
Q. WHAT'S YOUR OUTLOOK?
B.D. Over the next six months, a number of issues will have an impact on
the investment climate. First, is the recent economic rebound sustainable?
Second, will corporate profit growth slow as the benefits of restructuring
moderate, foreign exchange becomes less favorable, and capital spending
slows? I'm increasingly aware that the backdrop for corporate profitability
improvement may be less conducive than over the prior five years. So I'm
searching for companies that offer low cost structures, solid franchises,
strong cash flows and high-return project development opportunities. The
bond market will have to contend with the prospects for economic growth and
inflation. My biggest concern is a pick-up in wage inflation as a result of
upcoming Big Three labor negotiations, tighter labor markets or political
posturing. An acceleration of wage inflation could cause increases in
interest rates and pressure corporate profit margins, since there would be
no offsetting pricing flexibility. Given the uncertainties for economic
growth and profitability, my industry weightings are well diversified and
reflect individual stock selection. Within the bond component, the fund
will maintain a neutral duration position, relative to the market index.
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.
FUND FACTS
GOAL: seeks both income
and growth of capital by
investing in a diversified
portfolio of equity and
fixed-income securities with
income, growth of income
and capital appreciation
potential
START DATE: January 6, 1987
SIZE: more than $3.2 billion
MANAGER: Bettina Doulton,
since March 1996; joined
Fidelity in 1986
(checkmark)
BETTINA DOULTON ON HER
INVESTMENT APPROACH:
" My investment approach is
really quite simple. I look for
companies whose stocks are
trading at attractive
valuations - prices relative to
earnings, cash flow or net asset
value - and that offer
improving fundamentals, or
business prospects. I take a
bottom-up approach, which
means that I begin by
evaluating the merits of
individual companies, rather
than looking first at sectors or
economic trends. I try to be
open-minded and flexible.
Finally, I believe that it's every
bit as important to avoid the
losers as it is to pick the
winners to generate
consistent performance
results for the fund's
shareholders."
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 2.8 0.8
Schlumberger Ltd. 1.6 0.0
Royal Dutch Petroleum Co. 1.6 0.0
General Electric Co. 1.5 0.0
du Pont (E.I.) de Nemours & Co. 1.5 0.0
TOP FIVE FIXED-INCOME SECURITIES AS OF APRIL 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, WITH MATURITIES OF MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE SECURITIES
6 MONTHS AGO
U.S. Treasury Obligations (various issues) 13.4 43.6
Federal National Mortgage Association 8.4 0.0
(various Issues)
Government National Mortgage Association 1.2 0.0
(various issues)
Federal Home Loan Mortgage Corporation 1.0 0.0
(various issues)
Inco Ltd. 5 3/4%, 7/1/04 0.8 0.3
</TABLE>
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Energy 11.3 3.8
Finance 11.2 1.9
Basic Industries 8.5 9.4
Nondurables 7.7 2.1
Industrial Machinery & Equipment 5.8 3.7
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Row: 1, Col: 1, Value: 1.1
Row: 1, Col: 2, Value: 4.0
Row: 1, Col: 3, Value: 5.3
Row: 1, Col: 4, Value: 31.8
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 37.7
Stocks 58.8%
Bonds 31.8%
Convertible
securities 5.3%
Short-term
investments 4.0%
Other
investments 0.1%
FOREIGN
INVESTMENTS 9.9%
Stocks and
equity futures 46.9%
Bonds 44.6%
Convertible
securities 8.4%
Short-term
investments -0.5%
Other
investments 0.6%
FOREIGN
INVESTMENTS 20.2%
Row: 1, Col: 1, Value: 1.6
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 8.4
Row: 1, Col: 4, Value: 44.6
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 25.9
*
**
INVESTMENTS APRIL 30, 1996
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 58.3%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.1%
AEROSPACE & DEFENSE - 0.6%
Lockheed Martin Corp. 120,300 $ 9,699
Rockwell International Corp. 161,900 9,471
19,170
DEFENSE ELECTRONICS - 0.5%
Litton Industries, Inc. (a) 341,300 15,486
Raytheon Co. 7,300 370
15,856
SHIP BUILDING & REPAIR - 0.0%
General Dynamics Corp. 20,500 1,294
TOTAL AEROSPACE & DEFENSE 36,320
BASIC INDUSTRIES - 7.3%
CHEMICALS & PLASTICS - 6.2%
Dow Chemical Co. 287,000 25,507
du Pont (E.I.) de Nemours & Co. 585,200 47,035
Great Lakes Chemical Corp. 329,900 22,516
IMC Fertilizer Group, Inc. 202,900 7,482
International Specialty Products, Inc. (a) 30,000 375
Minnesota Mining & Manufacturing Co. 377,700 24,834
Monsanto Co. 124,300 18,831
Praxair, Inc. 947,400 36,593
Rohm & Haas Co. 66,300 4,401
Sekisui Chemical Co. Ltd. 972,000 12,201
Union Carbide Corp. 1,600 73
199,848
IRON & STEEL - 0.1%
Allegheny Ludlum Industries, Inc. 100,000 1,975
METALS & MINING - 0.1%
Belden, Inc. 900 27
Falconbridge Ltd. 1st Installment Receipt (g) 45,500 454
Wolverine Tube, Inc. (a) 111,500 4,098
4,579
PACKAGING & CONTAINERS - 0.4%
Crown Cork & Seal Co., Inc. 259,400 12,224
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.5%
International Paper Co. 250,000 $ 9,969
Pentair, Inc. 231,700 6,314
Temple-Inland, Inc. 11,100 538
16,821
TOTAL BASIC INDUSTRIES 235,447
CONGLOMERATES - 2.0%
Allied-Signal, Inc. 275,100 15,990
Crane Co. 127,100 5,275
Harris Corp. 196,800 12,152
Mark IV Industries, Inc. 14,605 303
Tyco International Ltd. 17,600 680
United Technologies Corp. 269,000 29,725
64,125
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.2%
Ply-Gem Industries, Inc. 21,700 279
Sherwin-Williams Co. 107,740 5,037
5,316
CONSTRUCTION - 0.1%
Daiwa House Industry Co. Ltd. (warrants) (a) 11,950 3,585
Webb (Del E.) Corp. 89,600 1,602
5,187
ENGINEERING - 0.1%
EG & G, Inc. 93,100 2,048
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Felcor Suite Hotels, Inc. 59,000 1,718
National Golf Properties, Inc. 135,100 3,327
Sovran Self Storage, Inc. 19,900 510
5,555
TOTAL CONSTRUCTION & REAL ESTATE 18,106
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 4.7%
AUTOS, TIRES, & ACCESSORIES - 4.4%
Chrysler Corp. 153,700 $ 9,646
Eaton Corp. 102,400 6,195
Ford Motor Co. 952,600 34,175
General Motors Corp. 525,900 28,530
Genuine Parts Co. 232,500 10,288
Johnson Controls, Inc. 208,300 14,893
Michelin SA (Compagnie Generale des Etablissements)
Class B 348,000 17,232
Scania AB:
Class A (a) 55,000 1,522
Class B (a) 55,000 1,518
Snap-on Tools Corp. 322,800 15,494
139,493
CONSUMER ELECTRONICS - 0.3%
Whirlpool Corp. 170,900 10,275
TOTAL DURABLES 149,768
ENERGY - 8.7%
ENERGY SERVICES - 2.0%
Baker Hughes, Inc. 227,800 7,233
Nabors Industries, Inc. (a) 555,500 8,541
Schlumberger Ltd. 571,300 50,417
66,191
OIL & GAS - 6.7%
Amerada Hess Corp. 13,600 771
Atlantic Richfield Co. 91,800 10,809
British Petroleum PLC:
ADR 240,000 26,220
Ord. 4,800,000 43,374
Burlington Resources, Inc. 4,200 156
Coastal Corp. (The) 307,700 12,193
Exxon Corp. 416,800 35,428
Kerr-McGee Corp. 118,800 7,588
Mobil Corp. 98,600 11,339
Occidental Petroleum Corp. 114,400 2,946
Phillips Petroleum Co. 203,200 8,433
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Royal Dutch Petroleum Co. Ord. 29,400 $ 4,188
Royal Dutch Petroleum Co. 351,700 50,381
213,826
TOTAL ENERGY 280,017
FINANCE - 9.2%
BANKS - 2.9%
Bank of New York Co., Inc. 11,200 543
BankAmerica Corp. 306,300 23,203
Chase Manhattan Corp. 33,800 2,328
Citicorp 533,400 42,006
Comerica, Inc. 51,200 2,227
National City Corp. 59,400 2,190
NationsBank Corp. 250,100 19,945
92,442
CREDIT & OTHER FINANCE - 0.9%
American Express Co. 376,100 18,241
First Chicago NBD Corp. 215,400 8,885
27,126
FEDERAL SPONSORED CREDIT - 1.8%
Federal Home Loan Mortgage Corporation 337,000 28,097
Federal National Mortgage Association 990,000 30,319
58,416
INSURANCE - 3.6%
Aetna Life & Casualty Co. 259,200 18,468
Allstate Corp. 366,900 14,263
American Financial Group, Inc. 128,500 3,935
General Re Corp. 47,100 6,729
ITT Hartford Group, Inc. 270,500 13,221
Loews Corp. 350,000 26,688
MBIA, Inc. 86,600 6,181
Old Republic International Corp. 372,900 8,204
Travelers, Inc. (The) 130,200 8,007
UNUM Corp. 160,000 9,520
USLife Corp. 52,200 1,468
116,684
TOTAL FINANCE 294,668
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 2.4%
DRUGS & PHARMACEUTICALS - 2.1%
American Home Products Corp. 47,400 $ 5,001
Bristol-Myers Squibb Co. 158,170 13,009
Pharmacia & Upjohn, Inc. 227,100 8,687
Pfizer, Inc. 183,260 12,622
Sigma Aldrich Corp. 30,600 1,652
SmithKline Beecham PLC ADR 481,400 25,996
Warner-Lambert Co. 17,400 1,944
68,911
MEDICAL EQUIPMENT & SUPPLIES - 0.3%
Hillenbrand Industries, Inc. 265,700 10,097
TOTAL HEALTH 79,008
INDUSTRIAL MACHINERY & EQUIPMENT - 5.6%
ELECTRICAL EQUIPMENT - 2.8%
Emerson Electric Co. 166,100 13,890
General Electric Co. 615,400 47,693
Honeywell, Inc. 147,300 7,752
Omron Corp. 932,000 20,917
90,252
INDUSTRIAL MACHINERY & EQUIPMENT - 1.4%
Caterpillar, Inc. 173,900 11,130
Cooper Industries, Inc. 231,900 9,856
Goulds Pumps, Inc. 156,100 3,629
Harnischfeger Industries, Inc. 233,900 9,473
Stanley Works 25,100 1,575
Tenneco, Inc. 63,700 3,496
Timken Co. 134,119 5,314
44,473
POLLUTION CONTROL - 1.4%
Browning-Ferris Industries, Inc. 781,300 25,197
WMX Technologies, Inc. 599,800 20,843
46,040
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 180,765
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 1.0%
LEISURE DURABLES & TOYS - 0.4%
Brunswick Corp. 438,900 $ 9,656
Fleetwood Enterprises, Inc. 84,600 2,221
11,877
LODGING & GAMING - 0.5%
Bally Entertainment Corp. (a) 677,800 14,149
ITT Corp. (a) 29,700 1,808
15,957
PUBLISHING - 0.1%
Knight-Ridder, Inc. 53,400 3,864
TOTAL MEDIA & LEISURE 31,698
NONDURABLES - 6.2%
BEVERAGES - 0.5%
Anheuser-Busch Companies, Inc. 241,500 16,210
FOODS - 1.4%
ConAgra, Inc. 187,800 7,254
Dole Food, Inc. 382,400 15,296
General Mills, Inc. 330,000 18,315
Kellogg Co. 45,700 3,262
44,127
HOUSEHOLD PRODUCTS - 1.1%
Avon Products, Inc. 72,400 6,435
First Brands Corp. 107,800 2,857
Procter & Gamble Co. 172,700 14,593
Rubbermaid, Inc. 434,200 12,266
36,151
TOBACCO - 3.2%
Philip Morris Companies, Inc. 1,009,400 90,972
RJR Nabisco Holdings Corp. 383,600 11,460
102,432
TOTAL NONDURABLES 198,920
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 2.2%
APPAREL STORES - 0.3%
Melville Corp. 233,700 $ 9,085
Talbots, Inc. 15,400 443
9,528
GENERAL MERCHANDISE STORES - 1.1%
Ito-Yokado Co. Ltd. 15,000 881
Sears, Roebuck & Co. 206,900 10,319
Wal-Mart Stores, Inc. 1,032,900 24,660
35,860
GROCERY STORES - 0.5%
Vons Companies, Inc. (a) 486,400 15,565
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
Tandy Corp. 39,600 2,054
Toys "R" Us, Inc. (a) 189,500 5,282
Uny Co. Ltd. 124,000 2,394
9,730
TOTAL RETAIL & WHOLESALE 70,683
SERVICES - 1.0%
PRINTING - 0.3%
Donnelley (R.R.) & Sons Co. 252,900 9,104
SERVICES - 0.7%
ADT Ltd. (a) 506,100 8,604
Block (H & R), Inc. 151,500 5,321
National Service Industries, Inc. 234,800 8,688
22,613
TOTAL SERVICES 31,717
TECHNOLOGY - 2.4%
COMPUTER SERVICES & SOFTWARE - 0.3%
SunGard Data Systems, Inc. (a) 235,500 7,830
COMPUTERS & OFFICE EQUIPMENT - 0.7%
International Business Machines Corp. 89,600 9,632
Pitney Bowes, Inc. 281,000 13,699
23,331
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - 1.4%
AMP, Inc. 501,900 $ 22,459
Augat, Inc. 161,700 3,113
Nitto Denko Corp. 611,000 9,820
Thomas & Betts Corp. 232,300 9,147
44,539
PHOTOGRAPHIC EQUIPMENT - 0.0%
Polaroid Corp. 9,700 437
TOTAL TECHNOLOGY 76,137
TRANSPORTATION - 1.2%
RAILROADS - 0.6%
Burlington Northern Santa Fe Corp. 230,600 20,178
TRUCKING & FREIGHT - 0.6%
Airborne Freight Corp. 261,900 6,907
Caliber System, Inc. 136,000 5,457
Consolidated Freightways, Inc. 281,600 7,357
Roadway Express, Inc. 7,400 110
19,831
TOTAL TRANSPORTATION 40,009
UTILITIES - 2.7%
GAS - 0.1%
Aquila Gas Pipeline Corp. 123,500 1,714
TELEPHONE SERVICES - 2.6%
AT&T Corp. 34,600 2,119
Ameritech Corp. 321,600 18,773
Bell Atlantic Corp. 262,500 17,063
BellSouth Corp. 499,200 19,967
Lucent Technologies, Inc. (a) 53,000 1,862
NYNEX Corp. 256,500 12,601
SBC Communications, Inc. 247,600 12,380
84,765
TOTAL UTILITIES 86,479
TOTAL COMMON STOCKS
(Cost $1,821,808) 1,873,867
PREFERRED STOCKS - 3.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 2.7%
BASIC INDUSTRIES - 0.1%
METALS & MINING - 0.0%
Kaiser Aluminum Corp. $0.96 88,500 $ 1,095
Reynolds Metals Co. $3.31 1,000 48
1,143
PAPER & FOREST PRODUCTS - 0.1%
International Paper $2.625 (e) 6,200 287
International Paper Capital Trust $2.625 24,800 1,144
1,431
TOTAL BASIC INDUSTRIES 2,574
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. Indexed $3.00 584,300 37,833
Unocal Corp. $3.50 (e) 203,800 11,311
49,144
NONDURABLES - 1.1%
TOBACCO - 1.1%
RJR Nabisco Holdings Corp., Series C, depositary shares
representing 1/10 pfd 5,673,500 34,041
TOTAL CONVERTIBLE PREFERRED STOCKS 85,759
NONCONVERTIBLE PREFERRED STOCKS - 0.5%
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Harvard Industries, Inc. pay-in-kind 14.25% 103,125 2,816
FINANCE - 0.1%
SAVINGS & LOANS - 0.1%
First Nationwide Bank 11 1/2%, 18,500 2,035
Greater New York Savings Bank Series B, perpetual 12% 65,769 2,022
4,057
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.2%
Cablevision System Corp. $11.125
pay-in-kind (e) 18,965 $ 1,854
Time Warner, Inc., Series K
exchangeable 4,900 4,906
6,760
PUBLISHING - 0.1%
K-III Communications Corp., Series C exchangeable (e) 28,400 2,670
TOTAL MEDIA & LEISURE 9,430
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
Intelecom Group USA, Inc. 260 265
TOTAL NONCONVERTIBLE PREFERRED STOCKS 16,568
TOTAL PREFERRED STOCKS
(Cost $97,882) 102,327
CORPORATE BONDS - 8.6%
MOODY'S RATINGS (B) PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - 2.6%
AEROSPACE & DEFENSE - 0.1%
Orbital Sciences Corp. 6 3/4%, 3/1/03 (f) B3 $ 3,971 4,249
BASIC INDUSTRIES - 0.8%
METALS & MINING - 0.8%
Inco Ltd. 5 3/4%, 7/1/04 Baa2 20,960 26,987
ENERGY - 0.1%
OIL & GAS - 0.1%
Horsham Corp. exchangeable 3%, 1/29/21 Ba2 2,000 2,090
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.1%
Huntingdon International Holdings PLC
7 1/2%, 9/25/06 - $ 2,500 $ 1,800
INSURANCE - 0.0%
RLI Corp. 6%, 7/15/03 Baa3 330 338
TOTAL FINANCE 2,138
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT - 0.0%
NovaCare, Inc. 5 1/2%, 1/15/00 B1 1,000 893
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 A2 4,340 4,166
MEDIA & LEISURE - 0.1%
LEISURE DURABLES & TOYS - 0.1%
Hasbro Corp. 6%, 11/15/98 A3 1,400 1,763
PRECIOUS METALS - 0.3%
Pegasus Gold, Inc. 6 1/4%, 4/30/02 - 7,000 8,006
RETAIL & WHOLESALE - 0.2%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Price Co. 6 3/4%, 3/1/01 Baa1 7,530 7,699
TECHNOLOGY - 0.6%
COMMUNICATIONS EQUIPMENT - 0.2%
General Instrument Corp. 5%, 6/15/00 B1 4,200 5,880
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Acer, Inc. euro 4%, 6/10/01 - 3,470 8,987
Unisys Corp. 8 1/4%, 3/15/06 B3 3,277 3,605
12,592
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.0%
United Microelectronics Corp. euro
1 1/4%, 6/8/04 - $ 1,523 $ 1,889
TOTAL TECHNOLOGY 20,361
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Alaska Air Group, Inc. 6 1/2%, 6/15/05 Ba3 3,710 4,869
TRUCKING & FREIGHT - 0.0%
Airborne Freight Corp. 6 3/4%, 8/15/01 Ba1 1,690 1,690
TOTAL TRANSPORTATION 6,559
TOTAL CONVERTIBLE BONDS 84,911
NONCONVERTIBLE BONDS - 6.0%
AEROSPACE & DEFENSE - 0.1%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 2,217 2,420
BE Aerospace, Inc. 9 7/8%, 2/1/06 (e) B2 607 599
3,019
BASIC INDUSTRIES - 0.3%
CHEMICALS & PLASTICS - 0.2%
Atlantis Group, Inc. 11%, 2/15/03 B2 790 723
NL Industries, Inc.:
11 3/4%, 10/15/03 B1 670 693
0%, 10/15/05 (c) B2 5,670 4,338
5,754
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 2,460 2,644
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.0%
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B1 $ 380 $ 356
9 7/8%, 5/1/06 B3 750 662
Riverwood International 10 7/8%, 4/1/08 B3 770 770
1,788
TOTAL BASIC INDUSTRIES 10,186
CONGLOMERATES - 0.0%
Jordan Industries, Inc. 10 3/8%, 8/1/03 B3 330 302
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
Knoll, Inc. 10 7/8%, 3/15/06 (e) B3 952 976
TEXTILES & APPAREL - 0.0%
Dominion Textile USA, Inc. 9 1/4%, 4/1/06 Ba2 630 624
Reeves Industries, Inc. 11%, 7/15/02 B2 130 123
747
TOTAL DURABLES 1,723
ENERGY - 1.0%
ENERGY SERVICES - 0.4%
Petroliam Nasional BHD yankee (e):
6 7/8%, 7/1/03 A1 950 930
7 1/8%, 8/15/05 A1 11,100 10,990
11,920
OIL & GAS - 0.6%
Apache Corp. 7.70%, 3/15/26 Baa3 10,000 9,527
Coastal Corp. 10 1/4%, 10/15/04 Baa3 1,025 1,195
Nuevo Energy Co. 9 1/2%, 4/15/06 B2 210 210
Transtexas Gas Corp. 11 1/2%, 6/15/02 B2 550 553
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Union Texas Petroleum Holdings, Inc.:
6.52%, 12/5/02 Baa3 $ 4,000 $ 3,797
8 1/2%, 4/15/07 Baa3 2,000 2,117
Wainoco Oil Corp. 12%, 8/1/02 B1 2,490 2,440
19,839
TOTAL ENERGY 31,759
FINANCE - 1.8%
ASSET-BACKED SECURITIES - 0.2%
Airplanes 10 7/8%, 3/15/19 Ba2 1,040 1,087
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 1,714 1,706
Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 2,855 2,835
5,628
BANKS - 1.4%
Banponce Financial Corp. 6.88%, 6/16/00 Baa1 2,500 2,492
Banponce Corp.:
5 3/4%, 3/1/99 Baa1 880 857
6 3/4%, 12/15/05 Baa2 5,000 4,691
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 9,045 9,483
Export Import Bank of Korea 6 3/8%, 2/15/06 A1 2,100 1,951
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa1 720 682
Kansallis-Osake-Pankki NY Branch
10%, 5/1/02 A3 710 804
Korea Development Bank yankee
6 1/2%, 11/15/02 A1 2,000 1,921
Merita Bank Ltd. yankee 6 1/2%, 1/15/06 A3 12,000 11,167
Provident Bank 6 1/8%, 12/15/00 A3 3,420 3,301
Union Planters Corp. 6 3/4%, 11/1/05 Baa3 400 380
Wachovia Corp. 6.605%, 10/1/25 A1 7,550 7,306
45,035
CREDIT & OTHER FINANCE - 0.1%
HMC Acquisition Properties, Inc.
9%, 12/15/07 (e) Ba3 1,920 1,776
MCN Investment Corp. 6.03%, 2/1/01 Baa2 2,350 2,260
4,036
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 0.0%
American Life Holdings 11 1/4%, 9/15/04 B1 $ 996 $ 1,052
SAVINGS & LOANS - 0.1%
First Nationwide Parent Holding, Inc.
12 1/2%, 4/15/03 (e) B2 3,040 3,116
TOTAL FINANCE 58,867
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Magnetek, Inc. 10 3/4%, 11/15/98 B1 2,870 2,784
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Interlake Corp. 12 1/8%, 3/1/02 B3 550 528
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,312
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.2%
Diamond Cable Communications PLC yankee
0%, 12/15/05 (c) B3 120 73
International Cabletel, Inc.
0%, 2/1/06 (c)(e) B3 450 263
Peoples Choice TV Corp. Unit
0%, 6/1/04 (c) Caa 340 209
Time Warner, Inc. 6.85%, 1/15/26 Ba1 7,120 6,819
7,364
ENTERTAINMENT - 0.0%
AMF Group, Inc. 10 7/8%, 3/15/06 (e) B2 485 480
LODGING & GAMING - 0.2%
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 295 301
Circus Circus Enterprises, Inc. 6.45%, 2/1/06 Baa2 3,000 2,779
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Horseshoe Gaming LLC
12 3/4%, 9/30/00 (e) B1 $ 150 $ 163
Trump Atlantic City Associates/Trump Atlantic
City Funding, Inc. 11 1/4%, 5/1/06 B1 1,790 1,819
5,062
RESTAURANTS - 0.3%
Darden Restaurants, Inc. 6 3/8%, 2/1/06 A3 5,720 5,294
Wendy's International, Inc. 6.35%, 12/15/05 Baa1 5,000 4,676
9,970
TOTAL MEDIA & LEISURE 22,876
NONDURABLES - 0.4%
FOODS - 0.1%
Nabisco, Inc. 8%, 1/15/00 Baa2 900 925
Specialty Foods Corp., Series B,
11 1/4%, 8/15/03 Caa 2,455 2,025
2,950
HOUSEHOLD PRODUCTS - 0.3%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 3,905 3,998
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 5,910 4,802
8,800
TOTAL NONDURABLES 11,750
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.0%
Specialty Retailers, Inc. 10%, 8/15/00 B1 480 477
GENERAL MERCHANDISE STORES - 0.0%
Dayton Hudson Corp. 6.40%, 2/15/03 A3 425 403
Pantry, Inc., Series B, 12%, 11/15/00 B2 820 732
1,135
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.1%
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 B3 $ 110 $ 111
9 5/8%, 5/1/03 B2 1,710 1,637
Ralph's Grocery Co. 11%, 6/15/05 B3 850 795
2,543
TOTAL RETAIL & WHOLESALE 4,155
SERVICES - 0.3%
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 1,440 1,353
SERVICES - 0.2%
Loewen Group International, Inc.
7 1/2%, 4/15/01 (e) Ba1 7,000 6,901
TOTAL SERVICES 8,254
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (c)(e) Caa 440 274
Hyperion Telecommunication, Inc.
0%, 4/15/03 Unit (c)(e) - 3,880 2,076
2,350
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc. 5 3/4%, 2/15/01 Baa2 6,000 5,710
Unisys Corp. 12%, 4/15/03 (e) B1 2,840 2,847
8,557
TOTAL TECHNOLOGY 10,907
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Delta Air Lines, Inc. equipment
trust certificate 8.54%, 1/2/07 Baa2 798 829
United Airlines Pass Through Trust
7.27%, 1/30/13 Baa1 1,430 1,356
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - CONTINUED
AIR TRANSPORTATION - CONTINUED
US Air, Inc.:
9 5/8%, 2/1/01 B3 $ 748 $ 690
10%, 7/1/03 B3 1,710 1,577
ValuJet, Inc. 10 1/4%, 4/15/01 (e) B1 750 758
5,210
UTILITIES - 0.7%
CELLULAR - 0.4%
Intercel, Inc. 0%, 5/1/06 (c) B2 1,720 959
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba2 1,490 1,427
7 1/2%, 3/1/06 Ba2 10,000 9,520
11,906
ELECTRIC UTILITY - 0.0%
El Paso Electric Co., Series E,
9.40%, 5/1/11 Ba3 770 762
GAS - 0.2%
Columbia Gas System, Inc.
6.61%, 11/28/02 Baa3 6,000 5,840
TELEPHONE SERVICES - 0.1%
Brooks Fiber Properties, Inc.
10 7/8%, 3/1/06 (e) - 250 137
MFS Communications, Inc.
0%, 1/15/06 (c) B1 2,350 1,460
Shared Technologies Fairchild Corp.
0%, 3/1/06 (c)(e) Caa 790 585
2,182
TOTAL UTILITIES 20,690
TOTAL NONCONVERTIBLE BONDS 193,010
TOTAL CORPORATE BONDS
(Cost $284,377) 277,921
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 14.9%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 13.4%
5 7/8%, 7/31/97 Aaa $ 57,630 $ 57,649
7 3/8%, 11/15/97 Aaa 60,000 61,219
9%, 5/15/98 Aaa 19,000 20,051
7 3/4%, 12/31/99 Aaa 83,368 87,145
11 1/4%, 8/15/03 Aaa 10,275 12,922
12 3/4%, 11/15/10 Aaa 40,200 56,726
13 7/8%, 5/15/11 Aaa 38,340 57,725
8 7/8%, 2/15/19 Aaa 19,900 23,864
8 1/8%, 8/15/19 Aaa 49,000 54,696
431,997
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.5%
Federal Agricultural Mortgage Corporation
7.01%, 2/10/04 Aaa 1,720 1,721
Federal Home Loan Bank:
7.44%, 8/10/01 Aaa 2,000 2,069
7.36%, 7/1/04 Aaa 1,590 1,625
7.38%, 8/5/04 Aaa 3,790 3,879
7.70%, 9/20/04 Aaa 1,170 1,226
7.56%, 9/1/04 . Aaa 5,530 5,728
Federal National Mortgage Association
8.625%, 6/30/04 Aaa 4,000 4,412
Government Trust Certificates
(assets of Trust guaranteed by U.S.
Government through Export-Import Bank):
Series 1992-A 7.02%, 9/1/04 Aaa 1,411 1,431
Series 1994-B 7 1/2%, 1/26/06 Aaa 611 629
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C 9 1/4%, 11/15/01 Aaa 170 182
Class 2-E 9.40%, 5/15/02 Aaa 2,160 2,326
Guaranteed Export Trust Certificates
(assets of Trust guaranteed by U.S.
Government through Export-Import Bank):
Series 1993-C 5.20%, 10/15/04 Aaa 482 455
Series 1993-D 5.23%, 5/15/05 Aaa 850 802
Series 1994-A 7.12%, 4/15/06 Aaa 736 744
Series 1996-A 6.55%, 6/15/04 Aaa 2,920 2,900
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Overseas Private Investment Corp. (U.S.
Government guaranteed participation
certificate) Series 1994-195
6.08%, 8/15/04 Aaa $ 1,840 $ 1,754
Private Export Funding Corp. secured:
Series SS 5.80%, 2/1/04 Aaa 2,790 2,673
Series VV 6.24%, 5/15/02 Aaa 530 517
State of Israel (guaranteed by U.S. government
through Agency for International Development):
7 3/4%, 11/15/99 Aaa 2,660 2,764
5 3/4%, 3/15/00 Aaa 1,022 995
8%, 11/15/01 Aaa 1,160 1,229
6 1/8%, 3/15/03 Aaa 3,443 3,317
7 5/8%, 8/15/04 Aaa 1,650 1,715
5.89%, 8/15/05 Aaa 640 593
U.S. Housing & Urban Development
8.24%, 8/1/04 participation certificate Aaa 2,200 2,374
48,060
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $490,943) 480,057
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 9.8%
Federal Home Loan Mortgage Corporation
5.50%, 8/1/00 to 4/1/26 Aaa 24,945 24,172
Federal National Mortgage Association
5.50%, 8/1/02 to 4/1/26 Aaa 90,819 85,846
6%, 4/1/00 to 4/1/26 Aaa 120,848 113,742
6.50%, 2/1/24 to 4/1/26 Aaa 56,210 52,715
Government National Mortgage Association
7%, 12/15/22 to 12/15/25 Aaa 14,697 14,156
8%, 11/15/21 to 3/15/26 Aaa 23,925 24,241
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES (Cost $321,220) 314,872
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY - 0.7%
Federal Home Loan Mortgage Corporation
Z Bond Series 1708 Class Y, 6%, 3/15/09 Aaa $ 9,747 $ 8,133
Federal National Mortgage Association
Z Bond Series 1993-10 Class Z,
6 1/2%, 2/25/08 Aaa 16,559 14,696
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $23,429) 22,829
COMMERCIAL MORTGAGE SECURITIES - 0.2%
Resolution Trust Corp. commercial:
Series 1994-C1 Class E,
8%, 6/25/26 BB 1,369 1,180
Series 1995-C2 Class A-1A,
6 1/4%, 5/25/27 Aaa 1,525 1,515
Structured Asset Securities Corp. commercial:
Series 1995-C1 Class E,
7 3/8%, 9/25/24 (e) BB 1,000 731
Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 1,365 1,355
Series 1996 Class A-1A,
5.711%, 2/25/28 AAA 722 714
Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,761 1,774
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $7,382) 7,269
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.2%
Mexico Value oil recovery rights (a) - 1 -
Nova Scotia Province CDA yankee
9 1/5%, 2/1/19 A3 4,000 4,726
Province of Chaco, Argentina
11 7/8%, 9/10/97 (d) - 400 432
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,208) 5,158
REPURCHASE AGREEMENTS - 4.0%
MATURITY AMOUNT VALUE (NOTE 1)
(000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 128,140 $ 128,121
PURCHASED OPTIONS - 0.1%
UNDERLYING FACE
EXPIRATION DATE/ AMOUNT AT VALUE
STRIKE PRICE (000S)
J. Aron and Co. OTC Put Option
on 3,536,354,000 Japanese Yen
(Cost $1,754) Sept. 96/100.18 $ 33,638 1,539
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,182,124) $ 3,213,960
SECURITIES SOLD SHORT
AMOUNTS IN THOUSANDS
NUMBER OF SHARES ISSUER VALUE
276 Orbital Sciences Corp. (Total proceeds $5,106) $ 3,726
THE VALUE OF SECURITIES SOLD SHORT AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.1%
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Province of Chaco,
Argentina
11 7/8%, 9/10/97 3/9/94 $ 419
5. 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 $49,724,000 or 1.5% of net
assets.
6. Security pledged to cover margin requirements on open short sale
transactions (see Note 2 of Notes to Financial Statements). At the period
end the value of securities pledged amounted to $4,249,000.
7. Purchased on an installment basis. Market value reflects only those
payments made through April 30, 1996. The remaining installments
aggregating CAD 79,454,000 are due July 31, 1996 and January 31, 1997.
8. Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 27.3% AAA, AA, A 24.9%
Baa 2.9% BBB 4.3%
Ba 1.2% BB 0.7%
B 2.0% B 1.9%
Caa 0.1% CCC 0.1%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 0.7%.
INCOME TAX INFORMATION
At April 30,1996, the aggregate cost of investment securities for income
tax purposes was $3,183,287,000. Net unrealized appreciation aggregated
$30,673,000, of which $90,342,000 related to appreciated investment
securities and $59,669,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1996
ASSETS
Investment in securities, at value (including repurchase $ 3,213,960
agreements of $128,121) (cost $3,182,124) -
See accompanying schedule
Securities sold short, at value (proceeds received (3,726) $ 3,210,234
$5,106)
Restricted cash on securities sold short 5,106
Cash 833
Receivable for investments sold 57,546
Receivable for fund shares sold 4,438
Dividends receivable 3,826
Interest receivable 19,786
Other receivables 12
Prepaid expenses 3
TOTAL ASSETS 3,301,784
LIABILITIES
Payable for investments purchased 43,040
Payable for fund shares redeemed 8,319
Accrued management fee 1,375
Distribution fees payable 1,362
Other payables and accrued expenses 708
TOTAL LIABILITIES 54,804
NET ASSETS $ 3,246,980
Net Assets consist of:
Paid in capital $ 3,148,896
Undistributed net investment income 9,037
Accumulated undistributed net realized gain (loss) on 55,685
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 33,362
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 3,246,980
CALCULATION OF MAXIMUM OFFERING PRICE $15.34
CLASS A:
NET ASSET VALUE, and redemption price per share
($3,240,025 (divided by) 211,205 shares)
Maximum offering price per share (100/96.50 of $15.34) $15.90
INSTITUTIONAL CLASS: $15.41
NET ASSET VALUE, offering price and redemption price
per share ($6,955 (divided by) 451.4 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1996
INVESTMENT INCOME $ 18,403
Dividends
Interest 59,537
TOTAL INCOME 77,940
EXPENSES
Management fee $ 8,697
Transfer agent fees 3,106
Class A
Institutional Class 2
Distribution fees - Class A 9,417
Accounting fees and expenses 396
Non-interested trustees' compensation 6
Custodian fees and expenses 257
Registration fees 27
Class A
Institutional Class 32
Audit 50
Legal 24
Miscellaneous 306
Total expenses before reductions 22,320
Expense reductions (337) 21,983
NET INVESTMENT INCOME 55,957
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 60,455
Foreign currency transactions (45)
Futures contracts 20,795
Short sales (22,039) 59,166
Change in net unrealized appreciation (depreciation) on:
Investment securities (34,437)
Assets and liabilities in foreign currencies (6,476)
Futures contracts 5,872
Short sales 13,020 (22,021)
NET GAIN (LOSS) 37,145
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 93,102
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1995
1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 55,957 $ 134,594
Net investment income
Net realized gain (loss) 59,166 37,982
Change in net unrealized appreciation (depreciation) (22,021) 90,476
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 93,102 263,052
FROM OPERATIONS
Distributions to shareholders (74,622) (112,646)
From net investment income
Class A
Institutional Class (56) (70)
From net realized gain (6,647) -
Class A
Institutional Class (2) -
TOTAL DISTRIBUTIONS (81,327) (112,716)
Share transactions - net increase (decrease) (206,929) 163,022
TOTAL INCREASE (DECREASE) IN NET ASSETS (195,154) 313,358
NET ASSETS
Beginning of period 3,442,134 3,128,776
End of period (including undistributed net investment $ 3,246,980 $ 3,442,134
income of $9,037 and $27,758, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1996 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13 $ 10.41
DATA
Net asset value,
beginning of period
Income from Investment
Operations
Net investment income .26 G .59 .38 .48 .50 .51
Net realized and .15 .54 (.79) 2.18 .85 3.74
unrealized gain
(loss)
Total from investment .41 1.13 (.41) 2.66 1.35 4.25
operations
Less Distributions
From net investment (.34) (.50) (.28) (.56) (.46) (.53)
income
In excess of net - - (.02) - - -
investment income
From net realized gain (.03) - (.49) (.60) (.61) -
Return of capital - - (.04) - - -
Total distributions (.37) (.50) (.83) (1.16) (1.07) (.53)
Net asset value, $ 15.34 $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13
end of period
TOTAL RETURN B, C 2.66% 7.85% (2.69) 19.66% 10.27% 41.73%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 3,240 $ 3,441 $ 3,129 $ 1,654 $ 398 $ 136
period (in millions)
Ratio of expenses to 1.32% A 1.47% 1.59% 1.52% 1.60% 1.71%
average net assets
Ratio of expenses to 1.31% A, 1.46% 1.58% 1.51% 1.60% 1.71%
average net assets E E E E
after expense
reductions
Ratio of net investment 3.32% A 3.99% 3.79% 3.24% 3.97% 4.19%
income to average net
assets
Portfolio turnover rate 318% A 297% 202% 200% 389% 220%
Average commission $ .0082
rate F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,
1996 1995 D
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.40 $ 15.23
Income from Investment Operations
Net investment income .26 H .25
Net realized and unrealized gain (loss) .16 .09
Total from investment operations .42 .34
Less Distributions
From net investment income (.38) (.17)
From net realized gain (.03) -
Total distributions (.41) (.17)
Net asset value, end of period $ 15.41 $ 15.40
TOTAL RETURN B, C 2.71% 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 6,955 $ 993
Ratio of expenses to average net assets 1.25% A, .92% A
E , E
Ratio of expenses to average net assets after expense 1.17% A, .91% A
reductions F , F
Ratio of net investment income to average net assets 3.46% A 4.54% A
Portfolio turnover rate 318% A 297%
Average commission rate G $ .0082
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Income & Growth Fund (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A and Institutional Class shares, each of which has
equal rights as to assets and voting privileges. Each class has exclusive
voting rights with respect to its distribution plan. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. 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 under
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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts and foreign currency options, 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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
investments in securities are included with the net realized and unrealized
gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. 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.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying each class
and shares of each class for distribution under federal and state
securities law. These expenses are borne by each class and amortized over
one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends are declared separately for each class,
while capital gain distributions are declared at the fund level and
allocated to each class on a pro rata basis based on the number of shares
held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, futures and options transactions,
foreign currency transactions, passive foreign investment companies (PFIC),
market discount, partnerships, non-taxable dividends and losses deferred
due to wash sales. The fund also utilized earnings and profits distributed
to shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include temporary book and tax basis
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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 fund, along with other affiliated
entities of 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
SHORT SALES AGAINST THE BOX. The fund may hedge its investments against
changes in value by engaging in short sales against the box. In a short
sale against the box, the fund sells a borrowed security, while at the same
time either owning an identical security or having the right to obtain such
a security. By selling short against the box the equity underlying one of
its convertible holdings, the fund would seek to offset the
2. OPERATING POLICIES - CONTINUED
SHORT SALES AGAINST THE BOX - CONTINUED
effect that a decline in the underlying equity might have on the value of
the convertible security. While the short sale is outstanding, the fund
will not dispose of the security hedged by the short sale.
The fund is required to establish a margin account with the broker lending
the security sold short. While the short sale is outstanding, the broker
retains the proceeds of the short sale and the fund instructs the custodian
to maintain in a separate account securities having a value at least equal
to the amount of the securities sold short.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the stock and bond markets and to
fluctuations in interest rates and currency values. Buying futures, writing
puts, and buying calls tend to increase the fund's exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. The underlying face amount at value is shown in the
schedule of investments under the caption "Purchased Options." This amount
reflects each contract's exposure to the underlying instrument at period
end. Losses may arise from changes in the value of the underlying
instruments, if there is an illiquid secondary market for the contracts, or
if the counterparties do not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
INDEXED SECURITIES. The fund may invest in indexed securities whose values
are linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other underlying instruments. The
fund uses these securities to increase or decrease its exposure to
different underlying instruments and to gain exposure to markets that might
be difficult to invest in through conventional securities. Indexed
securities may be more volatile than their underlying instruments, but any
loss is limited to the amount of the original investment.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $432,000 or 0.0%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $4,998,932,000 and $4,938,333,000, respectively, of which U.S.
government and government agency obligations aggregated $1,711,717,000 and
$2,252,824,000, respectively.
The market value of futures contracts opened and closed during the period
amounted to $941,754,000 and $1,229,129,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .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 .20%. For
the period, the management fee was equivalent to an annualized rate of .52%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan) and Institutional Class shares
(collectively referred to as "the Plans"). Under the Class A Plan, the fund
pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. For the period November 1, 1995 to December
31, 1995, this fee was based on an annual rate of .65% of the average net
assets of Class A. Effective January 1, 1996, the Board of Trustees
approved a revised Class A distribution plan, under which the fee is based
on an annual rate of .50% of the average net assets of the Class A shares.
For the period, the fund paid FDC $9,417,000 under the Class A Plan, of
which $8,546,000 was paid to securities dealers, banks and other financial
institutions for the distribution of Class A shares, and providing
shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A and
Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. For the period May 1, 1995 through December 31, 1995, FDC
received a front-end sales charge of up to 4.75% for selling Class A shares
of the fund. Effective January 1, 1996, the Board of Trustees approved a
revised Class A sales charge. Under the revised arrangement, FDC receives a
front-end sales charge of up to 3.50% for selling Class A shares of the
fund. For the
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
period, FDC received sales charges of $2,392,000 on sales of Class A shares
of the fund, of which $1,998,000 was paid to securities dealers, banks, and
other financial institutions.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Institutional Class shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.18% and .12% of average net assets for Class A and Institutional Class,
respectively.
ACCOUNTING FEES. Fidelity Service Co., maintains the fund's accounting
records. The fee is based on the level of average net assets for the month
plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,045,000 for the period.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates of average net assets for Class A and Institutional
Class.
(I) CLASS A. Effective January 1, 1996 this expense limitation changed from
an annual rate of 1.90% to 1.75% of average net assets.
(II) INSTITUTIONAL CLASS. For the period, this expense limitation was 1.25%
of average net assets and the reimbursement reduced expenses by $23,000.
FMR directed certain portfolio trades to brokers who paid a portion of the
fund's expenses. For the period, the fund's expenses were reduced by
$281,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to
5. EXPENSE REDUCTIONS - CONTINUED
offset a portion of the class' expenses. During the period, the fund's
custodian fees were reduced by $6,000 under the custodian arrangement, and
Class A and Institutional Class expenses were reduced by $26,000 and
$1,000, respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED ENDED APRIL 30, OCTOBER
31, ENDED APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
AMOUNTS IN THOUSANDS
CLASS A
Shares sold 21,550 65,838 $ 335,712 $ 973,364
Reinvestment of distributions 4,895 7,001 75,974 103,985
Shares redeemed (40,098) (61,310) (624,635) (915,254)
Net increase (decrease) (13,653) 11,529 $ (212,949) $ 162,095
INSTITUTIONAL CLASS
Shares sold 416.6 473.6 $ 6,483 $ 7,256
Reinvestment of distributions 3.1 4.3 49 67
Shares redeemed (32.8) (413.4) (512) (6,396)
Net increase (decrease) 386.9 64.5 $ 6,020 $ 927
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Income & Growth Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Income & Growth Fund,
including the schedule of portfolio investments, as of April 30, 1996, and
the related statement of operations for the six months then ended, the
statement of changes in net assets for the six months ended April 30, 1996
and for the year ended October 31, 1995 and the financial highlights for
the six months ended April 30, 1996 and each of the five years in the
period ended October 31, 1995 (Class A) and for the six months ended April
30, 1996 and for the period July 3, 1995 (commencement of sale of
Institutional Class) to October 31, 1995 (Institutional Class). These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of April 30, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Advisor Series II: Fidelity Advisor Income & Growth Fund as of
April 30, 1996, the results of its operations for the six months then
ended, changes in its net assets for the six months ended April 30, 1996
and for the year ended October 31, 1995 and the financial highlights for
the six months ended April 30, 1996 and each of the five years in the
period ended October 31, 1995 (Class A) and for the six months ended April
30, 1996 and for the period July 3, 1995 (commencement of sale of
Institutional Class) to October 31, 1995 (Institutional Class), in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 12, 1996
INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
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 S. Hayes, Vice President
Bettina E. Doulton, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
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 Investments Institutional Operations Company Boston, MA
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal
Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
SHORT FIXED-INCOME
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 22 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 27 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR SHORT FIXED-INCOME FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. The initial offering of Institutional Class shares
took place on July 3, 1995. Institutional Class shares are sold to eligible
investors without a sales load or 12b-1 fee. Returns prior to July 3, 1995
are those of Class A, the original class of the fund, and reflect Class A's
0.15% 12b-1 fee. If Fidelity had not reimbursed certain class expenses, the
past six months, past one year, past five years and the life of fund total
returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Short Fixed-Income - 1.84% 6.59% 36.71% 81.53%
Institutional Class
Lehman Brothers 1-3 Year 2.13% 6.92% 36.16% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds 1.86% 6.47% 34.06% n/a
Average
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years, or since the fund started on September 16, 1987. 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. You can compare Institutional
Class' returns to the performance of the Lehman Brothers 1-3 Year
Government/Corporate Bond Index, which is comprised of government and
corporate fixed-rate debt issues. Issues included in the Index have
maturities of one to three years. To measure how Institutional Class'
performance stacked up against its peers, you can compare it to the short
investment grade debt funds average, which reflects the performance of 98
funds with similar objectives tracked by Lipper Analytical Services over
the past six months. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - 6.59% 6.45% 7.15%
Institutional Class
Lehman Brothers 1-3 Year 6.92% 6.37% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds Average 6.47% 6.03% n/a
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' actual (or
cumulative) return and show you what would have hap-
pened if Institutional Class shares had performed at a constant rate each
year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960522 102225 S00000000000001
Fidelity Advisor LB 1-3 Year Govt./Corp.
00643 LB013
1987/09/30 10000.00 10000
1987/10/31 10151.77 10197.98
1987/11/30 10222.72 10266.04
1987/12/31 10284.41 10337.38
1988/01/31 10419.48 10493.14
1988/02/29 10522.74 10584.77
1988/03/31 10556.28 10608.33
1988/04/30 10569.16 10622.4
1988/05/31 10561.33 10618.15
1988/06/30 10668.31 10724.5
1988/07/31 10669.73 10732.03
1988/08/31 10714.06 10759.19
1988/09/30 10821.04 10883.86
1988/10/31 10918.88 10993.49
1988/11/30 10886.96 10967.31
1988/12/31 10920.55 10992.51
1989/01/31 11009.55 11080.86
1989/02/28 11029.00 11083.48
1989/03/31 11084.45 11128.31
1989/04/30 11204.77 11308.94
1989/05/31 11357.63 11469.62
1989/06/30 11542.47 11681.34
1989/07/31 11738.98 11855.43
1989/08/31 11655.20 11788.34
1989/09/30 11715.34 11857.72
1989/10/31 11889.81 12042.61
1989/11/30 11983.20 12150.27
1989/12/31 12046.15 12198.37
1990/01/31 12018.87 12211.13
1990/02/28 12067.46 12275.93
1990/03/31 12131.32 12314.87
1990/04/30 12142.39 12345.63
1990/05/31 12333.21 12536.4
1990/06/30 12428.63 12668.94
1990/07/31 12575.82 12822.41
1990/08/31 12555.70 12867.89
1990/09/30 12587.01 12964.43
1990/10/31 12554.88 13098.27
1990/11/30 12633.95 13226.22
1990/12/31 12753.15 13381
1991/01/31 12714.81 13502.08
1991/02/28 12846.72 13599.59
1991/03/31 13076.12 13698.42
1991/04/30 13266.46 13832.59
1991/05/31 13401.87 13918.98
1991/06/30 13467.38 13970.68
1991/07/31 13559.90 14093.39
1991/08/31 13787.52 14284.5
1991/09/30 13930.15 14438.3
1991/10/31 14085.65 14593.74
1991/11/30 14228.13 14741.32
1991/12/31 14458.40 14964.17
1992/01/31 14517.70 14948.79
1992/02/29 14615.57 14996.24
1992/03/31 14683.79 14992.96
1992/04/30 14779.04 15130.08
1992/05/31 14932.25 15271.77
1992/06/30 15069.49 15427.86
1992/07/31 15256.89 15608.82
1992/08/31 15386.45 15734.81
1992/09/30 15513.70 15883.7
1992/10/31 15415.25 15788.15
1992/11/30 15422.43 15765.9
1992/12/31 15558.09 15914.79
1993/01/31 15793.87 16084.62
1993/02/28 15986.02 16215.84
1993/03/31 16088.67 16268.53
1993/04/30 16170.09 16370.63
1993/05/31 16238.72 16333.32
1993/06/30 16401.78 16457.02
1993/07/31 16498.79 16494.65
1993/08/31 16660.66 16632.74
1993/09/30 16718.20 16686.41
1993/10/31 16822.29 16725.35
1993/11/30 16891.51 16730.26
1993/12/31 17035.18 16798
1994/01/31 17141.47 16905
1994/02/28 17001.59 16802.58
1994/03/31 16612.17 16716.19
1994/04/30 16524.59 16652.7
1994/05/31 16624.08 16675.28
1994/06/30 16493.25 16719.13
1994/07/31 16643.69 16871.3
1994/08/31 16778.81 16928.24
1994/09/30 16772.35 16890.61
1994/10/31 16785.15 16929.22
1994/11/30 16813.98 16858.21
1994/12/31 16461.24 16890.28
1995/01/31 16583.71 17122.29
1995/02/28 16789.20 17359.21
1995/03/31 16877.45 17457.7
1995/04/30 17014.86 17615.76
1995/05/31 17320.99 17920.74
1995/06/30 17402.55 18018.26
1995/07/31 17486.63 18090.25
1995/08/31 17593.46 18199.88
1995/09/30 17679.97 18289.87
1995/10/31 17808.84 18441.7
1995/11/30 17956.36 18600.41
1995/12/31 18091.61 18741.45
1996/01/31 18228.31 18901.8
1996/02/29 18168.62 18829.8
1996/03/31 18134.55 18816.06
1996/04/30 18136.50 18835.04
IMATRL PRASUN SHR__CHT 19960430 19960522 102229 R00000000000092
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Short Fixed-Income Fund - Institutional Class on September 30,
1987, shortly after the fund started. As the chart shows, by April 30,
1996, the value of your investment would have grown to $18,137 - an 81.37%
increase on your initial investment. For comparison, look at how the Lehman
Brothers 1-3 Year Government/Corporate Bond Index did over the same period.
With dividends reinvested, the same $10,000 investment would have grown to
$18,835 - an 88.35% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield of
a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 3.21% 6.21% A 5.82% A 7.72% 8.63% 9.59%
Capital appreciation -1.37% -0.11% -6.04% 1.41% 0.81% 2.60%
return
Total return 1.84% 6.10% -0.22% 9.13% 9.44% 12.19%
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 LIFE OF
MONTH MONTHS CLASS
Dividends per share 5.10(cents) 30.40(cents) 48.82(cents)
Annualized dividend rate 6.63% 6.44% 5.17%
30-day annualized yield 5.52% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $9.36 over the past month, $9.47
over the past six months, and $9.46 over the life of Class, you can compare
the class' income over these three periods. The 30-day annualized YIELD is
a standard formula for all funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis.
A DIVIDENDS PAID ARE BASED ON THE CLASS' INVESTMENT INCOME AND DO NOT
REFLECT CURRENCY RELATED LOSSES. AS A RESULT OF CURRENCY LOSSES,
INSTITUTIONAL CLASS DIVIDENDS PAID DURING 1995 OF APPROXIMATELY 4.8(CENTS)
PER SHARE WERE A NON-TAXABLE RETURN OF CAPITAL. CLASS A (THE ORIGINAL CLASS
OF THE FUND) DIVIDENDS PAID DURING 1994 OF APPROXIMATELY 8.0(CENTS) PER
SHARE WERE A NON-TAXABLE RETURN OF CAPITAL.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Charles Morrison, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. CHARLIE, HOW HAS THE FUND PERFORMED?
A. It has performed in line with the market and its competitors over the
past six months and one year. For the six months ended April 30, 1996,
Institutional Class had a total return of 1.84%, compared to 1.86% for the
short investment grade debt funds average tracked by Lipper Analytical
Services, and 2.13% for the Lehman Brothers 1-3 Year Government/Corporate
Bond Index. For the 12 months ended April 30, 1996, Institutional Class
returned 6.59%, compared to 6.47% for the short investment grade debt funds
average and 6.92% for the Lehman Brothers index.
Q. LET'S TAKE A LOOK AT THE INVESTING ENVIRONMENT OVER THE PAST SIX MONTHS.
WHAT WAS IT LIKE?
A. It's been an interesting six months. The market was quite strong through
January, as a weak economic outlook and stable inflation caused interest
rates to continue to decline. The weak economy led investors to believe
that the Federal Reserve Board would continue to lower interest rates, a
trend it has pursued since mid-1995. Beginning in February, that positive
backdrop for the market began to change. The outlook for the economy began
to improve as several economic statistics came in stronger than originally
expected. Most notably, the February employment report reflected some of
the strongest growth in monthly employment we have seen in many years. As a
result, interest rates started to rise. The back-up - or rise - in interest
rates from mid-February to the end of the period was quite dramatic, as
two-year Treasury yields moved from about 4.8% to about 6.1% over that
period.
Q. WHAT SORT OF MOVES DID YOU MAKE WITH THE FUND IN THIS TYPE OF
ENVIRONMENT?
A. I continued to maintain a defensive posture over the past six months, as
many of the sectors in the short end of the market continued to trade at
historically high valuations. Sectors such as mortgage-backed securities
and corporate bonds offered only a small yield advantage over Treasuries.
As a way of adding incremental return, I took advantage of opportunities to
trade out of some securities and into others that I felt provided stronger
fundamental and/or structural characteristics.
Q. CAN YOU GIVE US SOME EXAMPLES OF THE NEW KINDS OF BONDS YOU'VE INVESTED
IN?
A. One area of focus has been in selective longer maturity - four to five
years - BBB-rated corporates. Strong fundamentals (factors related to the
fiscal health of issuers) and technicals (the supply of and demand for
corporate issues), in addition to expectations of such positive events as
stronger-than-forecasted earnings, made certain corporate securities
attractive. RJR Nabisco, 360 Degrees Communications and the Loewen Group
were among the companies whose bonds I bought. Beyond that, my general
theme was to concentrate the fund in short-duration corporate bonds,
asset-backed securities and some commercial mortgage-backed securities.
Q. YOU'VE TALKED ABOUT ASSET-BACKED SECURITIES IN THE PAST, AND HAD 14.1%
OF THE FUND INVESTED IN THEM AS OF THE END OF THE PERIOD. HOW HAS THAT
MARKET WORKED OUT OVER THE PAST SIX MONTHS?
A. To remind shareholders, asset-backed securities are bonds issued by
financial institutions that are backed by loans or credit payments.
Traditionally, they have originated primarily from auto loans and credit
cards. During the first quarter of 1996, issuance in this market was at
historically high levels. With such a large supply, one would think prices
would be low and yields high to attract buyers. On the contrary, there was
such strong demand for short-duration, high-quality asset-backeds that
yields have remained relatively low. In spite of that, I have maintained
large exposure to the asset-backed market, but diversified into several
non-traditional funding sources, such as equipment loan trusts,
manufactured housing and third-party guarantor issuers where I felt yield
spreads offered more value.
Q. AND LET'S TOUCH ON COMMERCIAL MORTGAGE-BACKED SECURITIES . . .
A. I continued to own primarily high-quality securities over the past six
months. I did swap out of some of the highest dollar-priced issues in the
fund as the market was rallying in January in order to cushion the fund
from unexpected prepayment activity. My strategy has been to focus on
shorter-duration commercial mortgage-backed securities. As with most
mortgage-backeds, actual versus expected prepayment activity is an
important determinant of total return. By maintaining shorter-term exposure
to the commercial mortgage-backed market, the measurement and volatility of
cash flows often are more predictable than with longer-duration commercial
mortgage-backed securities. These shorter-maturity securities are more
appropriate for the fund, which aims at providing returns similar to what
one would expect from the short-term investment-grade bond market. This
strategy is in keeping with the fund's goal of high current income with
preservation of capital.
Q. WHAT'S YOUR OUTLOOK?
A. As I noted above, I consider the fund to be defensively positioned at
this time. I find this to be appropriate given the relative valuations that
exist in today's market. The fund's positioning allows for greater
flexibility in the event I wish to take a more aggressive stance at some
point in the future. Looking forward, I do not expect the overall
positioning of the fund to change dramatically, unless we see some
cheapening of those parts of the market that offer a yield advantage to
Treasuries, such as corporate bonds and mortgage-backed securities. With
that said, I will continue to scour the market for opportunities to sell
some securities and buy others that I think may provide stronger
fundamental and/or structural characteristics.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks to obtain a
high level of current income,
consistent with preservation
of capital, by investing
primarily in a broad range of
investment-grade,
fixed-income securities.
Where appropriate, the fund
will take advantage of
opportunities to realize
capital appreciation.
START DATE:
September 16, 1987
SIZE: as of April 30, 1996,
more than $498 million
MANAGER: Charles Morrison,
since February 1995; joined
Fidelity in 1987
(checkmark)
CHARLIE MORRISON ON CORPORATE
BONDS:
"The corporate market today
offers little yield advantage
relative to the Treasury
market. There are a number
of factors that justify this
relationship. For example, the
fundamentals (factors relating
to the fiscal health of issuers)
and technicals (the supply of
and demand for corporate
issues) of the corporate market
are in very sound shape.
Further, continued modest
economic growth has been
supportive of the market as
corporate America has taken
the opportunity to use its
improved cash flow to further
enhance its balance sheet.
Given this strong positioning,
I am comfortable maintaining
an overweighted exposure to
the corporate market."
(solid bullet) As of June 24, 1996, there
will be two changes to the
funds investment policies.
First, Fidelity will use two
additional agencies - Duff &
Phelps Credit Rating Co. and
Fitch Investor Services, as well
as Moody's Investors Service
and Standard & Poor's, which
the fund already uses - to
determine the credit quality of
the fund's bonds. In addition,
as of June 24, the fund will
reserve the right to invest up to
5% - down from 35% - in
non-investment grade
securities. Further, while the
fund currently cannot invest in
bonds with a rating lower than
"B," as of June 24, the fund will
reserve the right to include
bonds rated lower than "B" in
the 5% non-investment-grade
portion. The fund does not
intend to seek out the lower
quality, non-investment grade
bonds. Instead, this change
gives the fund additional
flexibility under unusual
circumstances.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF APRIL 30, 1996
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS
6 MONTHS AGO
Aaa 57.4 60.0
Aa 0.2 0.1
A 10.7 11.9
Baa 16.6 11.9
Ba 5.0 5.6
Not rated 7.6 10.5
TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES
OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY
FIDELITY.
AVERAGE YEARS TO MATURITY AS OF APRIL 30, 1996
6 MONTHS AGO
Years 2.2 2.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF APRIL 30, 1996
6 MONTHS AGO
Years 1.7 1.7
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Corporate bonds 41.9%
U.S. government
and government
agency
obligations 43.0%
Foreign government
obligations 0.3%
Short-term
investments 3.2%
Other investments 11.6%
FOREIGN INVESTMENTS 1.8%
Corporate bonds 33.0%
U.S. government
and government
agency
obligations 53.1%
Foreign government
obligations 0.2%
Short-term
investments 0.6%
Other investments 13.1%
FOREIGN INVESTMENTS 0.9%
Row: 1, Col: 1, Value: 11.6
Row: 1, Col: 2, Value: 3.2
Row: 1, Col: 3, Value: 1.3
Row: 1, Col: 4, Value: 42.0
Row: 1, Col: 5, Value: 41.9
Row: 1, Col: 1, Value: 13.1
Row: 1, Col: 2, Value: 1.6
Row: 1, Col: 3, Value: 1.2
Row: 1, Col: 4, Value: 52.1
Row: 1, Col: 5, Value: 32.0
*
**
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 41.9%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.8%
Methanex Corp. 8 7/8%, 11/15/01 A3 $ 3,760,000 $ 4,059,296
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.3%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,360,000 1,503,249
ENERGY - 0.4%
OIL & GAS - 0.4%
McDermott, Inc. 7.95%, 7/2/97 Baa3 500,000 508,100
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa3 410,000 400,927
USX Corp.:
8 7/8%, 9/15/97 Baa3 460,000 474,002
6 3/8%, 7/15/98 Baa3 651,000 644,191
TOTAL ENERGY 2,027,220
FINANCE - 25.4%
ASSET-BACKED SECURITIES - 14.1%
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 6,840,000 6,801,491
5.85%, 2/15/03 A3 800,000 778,250
Caterpillar Financial Asset Trust
6.65%, 6/25/00 A2 1,101,359 1,101,359
Chase Manhattan Grantor Trust 5.90%,
11/15/01 Aaa 4,668,148 4,653,536
Chevy Chase Auto Receivables Trust
5.80%, 6/15/02 Aaa 2,818,428 2,803,455
Concord Leasing, Inc. (d):
5.04%, 7/15/98 AAA 310,378 307,305
5.31%, 1/20/99 AAA 38,269 37,931
Discover Card Master Trust I 6.90%, 2/16/00 A2 1,888,000 1,899,800
Discover Card Trust:
7 7/8%, 4/16/98 A2 480,000 478,949
6 1/8%, 5/15/98 A2 1,700,000 1,696,804
7 1/2%, 6/16/00 A2 650,000 660,764
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 4,781,096 4,760,179
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 4,112,918 4,160,463
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa $ 500,509 $ 491,906
5.80%, 2/15/27 Aaa 3,500,000 3,437,630
6.10%, 4/15/27 Aaa 3,691,931 3,666,549
6.45%, 5/15/27 Aaa 1,550,000 1,546,367
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 439,122 437,750
MBNA Master Credit Card Trust
7 3/4%, 10/15/98 Aaa 900,000 907,313
Midlantic Grantor Trust, Class B,
5.15%, 9/15/97 A1 29,084 29,039
Premier Auto Trust:
5.89%, 8/17/98 Aaa 289,585 289,675
4.95%, 2/2/99 A2 1,251,226 1,237,737
8.05%, 4/4/00 Aaa 5,100,000 5,264,953
6.35%, 7/6/00 A3 1,980,000 1,960,819
Prime Credit Card Master Trust 7.45%, 11/15/02 Aaa 1,580,000 1,619,747
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 30,488 30,554
Standard Credit Card Master Trust I:
4.85%, 3/7/99 A2 2,000,000 1,980,620
7.65%, 2/15/00 A2 800,000 816,500
6 3/4%, 6/7/00 Aaa 4,830,000 4,866,225
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 1,020,589 1,012,137
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 469,579 469,579
7.275%, 10/10/00 Baa2 452,412 455,805
8.20%, 1/10/01 Baa2 457,572 463,863
WFS Financial Grantor Trust:
6.05%, 6/1/00 Aaa 3,460,000 3,460,000
5 7/8%, 3/1/02 Aaa 3,554,972 3,528,310
Western Financial Grantor Trust 6.20%, 2/1/02 Aaa 1,569,896 1,572,153
69,685,517
BANKS - 5.9%
Bank of Boston Corp. 9 1/2%, 8/15/97 Baa1 2,013,000 2,093,117
Banponce Financial Corp.:
6%, 4/15/97 Baa1 250,000 249,688
6.34%, 3/29/99 Baa1 740,000 730,987
7.65%, 5/3/00 Baa1 1,260,000 1,283,814
6.88%, 6/16/00 Baa1 650,000 647,966
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
Banponce Corp.:
5 3/4%, 3/1/99 Baa1 $ 990,000 $ 963,805
6.34%, 3/29/99 Baa1 1,100,000 1,086,635
Capital One Bank:
8 1/8%, 2/27/98 Baa3 2,130,000 2,183,804
6.66%, 8/17/98 Baa3 2,850,000 2,844,357
First Fidelity Bancorporation 8 1/2%, 4/1/98 A2 1,010,000 1,046,461
First USA Bank 6 1/8%, 10/30/97 Baa3 1,670,000 1,668,764
Kansallis-Osake-Pankki (NY) yankee
9 3/4%, 12/15/98 A3 1,000,000 1,073,220
KeyCorp 7.10%, 3/28/97 A1 1,440,000 1,453,450
Manufacturers Hanover Trust, NY (e):
5.4375%, 4/30/97 A1 1,000,000 996,750
euro 5 3/4%, 7/15/97 A2 3,450,000 3,415,500
Marine Midland Banks, Inc. 8 5/8%, 3/1/97 Baa1 1,850,000 1,881,728
Provident Bank:
5%, 6/15/96 A3 1,000,000 998,400
6 1/8%, 12/15/00 A3 2,540,000 2,451,303
Signet Banking Corp. 5.375%, 5/15/97 (e) Baa2 2,430,000 2,419,357
29,489,106
CREDIT & OTHER FINANCE - 5.1%
Advanta National Bank 6.41%, 4/30/98 Baa2 1,820,000 1,815,450
Associates Corp. of North America
6 7/8%, 1/15/97 Aa3 400,000 402,444
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 636,300
Case Equipment Loan Trust 6.45%, 9/15/02 A3 1,400,000 1,371,552
General Motors Acceptance Corp.:
5 3/8%, 3/9/98 A3 5,840,000 5,744,633
5.45%, 3/1/99 A3 3,650,000 3,537,690
6 3/8%, 4/26/99 A3 900,000 893,745
Greyhound Financial Corp.:
8 1/4%, 3/11/97 Baa1 1,100,000 1,119,338
6.94%, 1/28/98 Baa2 3,000,000 3,017,010
MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,640,000 1,605,544
Tenneco Credit Corp.:
10 1/8%, 12/1/97 Baa2 500,000 527,070
10.05%, 8/17/98 Baa2 2,880,000 3,087,706
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 $ 786,086 $ 783,138
Union Acceptance Corp. 7.075%, 7/10/02 Baa2 642,030 642,627
25,184,247
INSURANCE - 0.2%
ITT Hartford Group, Inc. 7 1/4%, 12/1/96 A1 850,000 852,652
SAVINGS & LOANS - 0.1%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 300,000 311,877
TOTAL FINANCE 125,523,399
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Cardinal Distribution Inc. 8%, 3/1/97 A3 950,000 964,716
MEDIA & LEISURE - 1.8%
BROADCASTING - 1.5%
Time Warner, Inc. 7.45%, 2/1/98 Ba1 7,510,000 7,596,065
LEISURE DURABLES & TOYS - 0.3%
Mattel, Inc. 6 7/8%, 8/1/97 Baa1 1,250,000 1,251,125
TOTAL MEDIA & LEISURE 8,847,190
NONDURABLES - 1.4%
FOODS - 0.5%
Nabisco, Inc. 8%, 1/15/00 Baa2 2,410,000 2,477,335
TOBACCO - 0.9%
RJR Nabisco, Inc.:
8%, 1/15/00 Baa3 1,320,000 1,314,773
8%, 7/15/01 Baa3 3,310,000 3,247,971
4,562,744
TOTAL NONDURABLES 7,040,079
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
RETAIL & WHOLESALE - 1.4%
GENERAL MERCHANDISE STORES - 1.3%
Dayton Hudson Corp. 10%, 12/1/00 A3 $ 1,070,000 $ 1,187,625
Sears Roebuck & Co.:
8.95%, 11/27/96 A2 245,000 249,268
9.22%, 1/30/97 A2 1,700,000 1,742,330
7 3/4%, 2/27/97 A2 2,210,000 2,242,377
7.30%, 6/12/97 A2 245,000 248,462
5.83%, 7/27/98 A2 470,000 464,158
6,134,220
GROCERY STORES - 0.1%
American Stores Co.:
8 1/4%, 4/21/98 Baa3 300,000 308,001
8.44%, 4/24/98 Baa3 300,000 309,051
617,052
TOTAL RETAIL & WHOLESALE 6,751,272
SERVICES - 0.8%
Loewen Group International, Inc.
7 1/2%, 4/15/01 (d) Ba1 4,150,000 4,091,070
TECHNOLOGY - 2.6%
COMPUTERS & OFFICE EQUIPMENT - 2.6%
Comdisco, Inc.:
6.89%, 8/30/96 Baa2 2,480,000 2,489,300
7 3/4%, 1/29/97 Baa2 800,000 809,208
7.73%, 2/18/97 Baa2 6,950,000 7,032,775
7 1/4%, 4/15/98 Baa2 120,000 121,690
5 3/4%, 1/19/99 Baa2 1,500,000 1,467,375
5 3/4%, 2/15/01 Baa2 1,230,000 1,170,542
TOTAL TECHNOLOGY 13,090,890
TRANSPORTATION - 3.1%
AIR TRANSPORTATION - 3.1%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 6,810,000 6,932,716
9 1/2%, 7/15/98 Baa3 1,540,000 1,620,373
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - CONTINUED
AIR TRANSPORTATION - CONTINUED
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa3 $ 3,370,000 $ 3,530,142
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 3,430,000 3,441,662
TOTAL TRANSPORTATION 15,524,893
UTILITIES - 3.7%
CELLULAR - 0.6%
360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba2 2,770,000 2,651,970
ELECTRIC UTILITY - 0.8%
Gulf States Utilities Co. 9.72%, 7/1/98 Ba1 3,485,000 3,612,272
United Illuminating Co. 7 3/8%, 1/15/98 Baa3 450,000 452,358
4,064,630
GAS - 2.3%
ARKLA, Inc.:
9 7/8%, 4/15/97 Ba1 4,710,000 4,851,818
8.60%, 9/15/98 Ba2 500,000 516,415
8.875%, 7/15/99 Ba1 1,500,000 1,559,580
Florida Gas 7 3/4%, 11/1/97 (d) Baa2 1,630,000 1,663,089
Transcontinental Gas Pipe Line Corp.:
9%, 11/15/96 Baa1 1,500,000 1,522,650
6.21%, 5/15/00 Baa1 1,330,000 1,330,293
11,443,845
TOTAL UTILITIES 18,160,445
TOTAL NONCONVERTIBLE BONDS
(Cost $209,211,701) 207,583,719
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 42.3%
U.S. TREASURY OBLIGATIONS - 40.3%
7 1/4%, 11/15/96 Aaa 1,027,000 1,036,623
8 1/2%, 5/15/97 Aaa 520,000 534,383
8 3/4%, 10/15/97 Aaa 39,415,000 40,960,856
7 3/8%, 11/15/97 Aaa 30,542,000 31,162,308
9%, 5/15/98 Aaa 33,750,000 35,616,713
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - CONTINUED
9 1/4%, 8/15/98 Aaa $ 77,087,000 $ 82,157,783
8 7/8%, 11/15/98 Aaa 961,000 1,021,216
8 7/8%, 2/15/99 Aaa 890,000 949,933
9 1/8%, 5/15/99 Aaa 3,237,000 3,489,874
7 3/4%, 12/31/99 Aaa 2,569,000 2,685,401
TOTAL U.S. TREASURY OBLIGATIONS 199,615,090
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.0%
Government Trust Certificates Series 1994-C (assets
of Trust guaranteed by U.S. Government through
Export-Import Bank) 6.61%, 9/15/99 Aaa 624,728 628,029
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency) Class 1-C
9 1/4%, 11/15/01 Aaa 1,202,000 1,290,071
Israel Export Trust Certificate Series 1994-1 (assets
of Trust guaranteed by U.S. Government through
Export-Import Bank) 6.88%, 1/26/03 Aaa 988,235 995,153
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 646,400 649,975
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
4 7/8%, 9/15/98 Aaa 2,050,000 1,988,500
7 3/4%, 11/15/99 Aaa 3,124,000 3,246,586
5 3/4%, 3/15/00 Aaa 1,164,000 1,133,809
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 9,932,123
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $212,829,431) 209,547,213
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 0.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.1%
12.00%, 11/1/19 Aaa 221,360 251,873
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 804,180 907,026
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.4%
11.00%, 12/15/09 to 2/15/16 Aaa $ 750,031 $ 836,413
11 1/2%, 7/15/13 to 11/15/15 Aaa 1,471,279 1,524,699
2,361,112
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $3,574,194) 3,520,011
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7%
U.S. GOVERNMENT AGENCY - 0.2%
Federal National Mortgage Association planned
amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 1,250,000 1,237,500
PRIVATE SPONSOR - 0.5%
CBM Funding Corp. Series 1996-1 Class A-2,
6.88%, 7/1/02 (d) AA 980,000 968,975
General Electric Capital Mortgage Services, Inc.
planned amortization class series 1993-18
Class A-5, 6%, 2/25/02 AAA 1,289,686 1,288,074
TOTAL PRIVATE SPONSOR 2,257,049
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $3,507,649) 3,494,549
COMMERCIAL MORTGAGE SECURITIES - 10.5%
CBM Funding Corp. commercial Series 1996-1
Class A-1, 7.55%, 7/1/99 (d) AA 277,217 280,509
CS First Boston Mortgage Securities Corp.:
commercial Series 1995-AEWI Class A-1,
6.665%, 11/25/27 AAA 1,593,404 1,574,980
commercial floater Series 1994-CFB1
Class A-1, 5.9523%, 1/25/28 (e) Aaa 2,848,628 2,842,397
FDIC commercial Series 1994-C1:
Class II-A1, 6.30%, 9/25/25 Aaa 126,485 126,287
Class II-A2, 7.85%, 9/25/25 Aaa 2,210,000 2,233,136
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Goldman Sachs Mortgage Securities Corp. II
commercial Series 1996 Class A-1,
7.02%, 2/15/27 Aaa $ 3,757,105 $ 3,747,712
Kearny Street Mortgage commercial (d):
Class II-B, 6.60%, 10/15/02 - 325,906 326,112
Class II-C, 7.30%, 10/15/03 - 400,000 400,500
Class II-D, 7 3/4%, 10/15/05 - 300,000 300,563
Lennar Central Partners LP (d):
commercial Series 1995-1
Class C, 7.55%, 5/15/03 - 1,200,000 1,202,250
commercial floater Series 1994-1
Class B, 6 1/2%, 9/15/01 (e) - 4,943,000 4,943,000
Meritor Mortgage Security Corp. commercial
Series 1987-1 Class A3, commercial,
9.40%, 6/1/99 Baa3 674,093 679,149
Nomura Asset Securities Corp. commercial floater
Series 1994-MD-II Class A-6,
6.7025% 7/4/03 (e) - 1,232,929 1,222,334
Oregon Commercial Mortgage, Inc. commercial
Series 1995 Class 1-A, 7.15%, 6/25/26 (d) AAA 4,100,767 4,080,263
Resolution Trust Corp.:
commercial :
Series 1994-N2 Class 3,
7 1/2%, 12/15/04 (b)(d) Baa2 3,100,000 3,099,031
Series 1994-C2 Class E,
8%, 4/25/25 BB+ 3,284,591 3,105,991
Series 1995-C1 Class A-2A,
6 1/4%, 2/25/27 Aaa 548,901 547,872
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 1,367,027 1,357,416
Series 1995-C2 Class A-1A,
6 1/4%, 5/25/27 Aaa 1,465,488 1,456,787
Series 1995-C2 Class A-1B,
6 1/4%, 5/25/27 Aaa 1,510,000 1,464,700
commercial floater (e):
Series 1992-C3 Class A-2,
6.35%, 8/25/23 Aa2 236,957 237,068
Series 1993-C2 Class A-2,
6.37% 3/25/25 AAA 3,345,190 3,359,825
Series 1994-C1 Class A-3,
6.05%, 6/25/26 AAA 2,787,238 2,787,238
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
SC Finance Corp. commercial Floater
6.9875%, 8/1/04 (d)(e) - $ 4,100,000 $ 3,982,125
SKW Real Estate LP (d):
commercial floater Class A, 6.95%, 4/15/02 (b) AA 451,225 451,225
commercial Series II Class C, 7.45%, 4/15/03 BBB 1,800,000 1,800,563
Structured Asset Securities Corp. commercial:
Series 1993-C1 Class A-1,
6.60%, 10/25/24 AA+ 907,099 901,713
Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 1,462,494 1,451,982
Series 1996 Class A-1B,
5.751%, 2/25/28 AAA 470,000 459,278
Series 1996 Class A-1C,
5.944%, 2/25/28 AAA 1,627,000 1,562,427
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $51,827,024) 51,984,433
FOREIGN GOVERNMENT OBLIGATIONS (F) - 0.3%
Ontario Province Canada 15 1/4%, 8/31/12 Aa3 450,000 524,066
Province of Chaco, Argentina 11 7/8%,
9/10/97 (c) - 650,000 702,504
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $1,252,289) 1,226,570
CERTIFICATES OF DEPOSIT - 0.4%
Advanta National Bank 6.26%, 9/1/97
(Cost $1,798,128) Baa2 1,800,000 1,797,300
MUNICIPAL SECURITIES - 0.7%
Louisiana Pub. Facs. Auth. Rev.
9.95%, 6/1/96 A3 2,095,000 2,097,722
Shreveport Louisiana Wtr. & Swr. Rev.
Taxable Rfdg. Series A, 0%, 12/1/96 Aaa 1,500,000 1,448,680
TOTAL MUNICIPAL SECURITIES
(Cost $3,686,748) 3,546,402
REPURCHASE AGREEMENTS - 2.5%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 12,460,845 $ 12,459,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $500,146,164) $ 495,159,197
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
3. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Province of Chaco,
Argentina 11 7/8%,
9/10/97 3/9/94 $ 934,096
4. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $27,934,511 or 5.6% of net
assets.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
6. Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 68.3% AAA, AA, A 68.7%
Baa 16.6% BBB 17.3%
Ba 5.0% BB 7.4%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 2.6%.
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $500,160,956. Net unrealized depreciation aggregated
$5,001,759, of which $1,373,528 related to appreciated investment
securities and $6,375,287 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $38,019,000 which will expire between October 31, 1996 and
October 31, 2003.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 495,159,197
agreements of $12,459,000) (cost $500,146,164) -
See accompanying schedule
Cash 89,558
Receivable for investments sold 2,795,292
Interest receivable 7,591,580
Other receivables 2,354
Prepaid expenses 3,014
TOTAL ASSETS 505,640,995
LIABILITIES
Payable for investments purchased $ 5,097,464
Payable for fund shares redeemed 1,291,963
Distributions payable 451,279
Accrued management fee 176,354
Distribution fees payable 61,473
Other payables and accrued expenses 132,735
TOTAL LIABILITIES 7,211,268
NET ASSETS $ 498,429,727
Net Assets consist of:
Paid in capital $ 541,382,096
Distributions in excess of net investment income (2,770,187)
Accumulated undistributed net realized gain (loss) on (35,195,215)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (4,986,967)
investments
NET ASSETS $ 498,429,727
CALCULATION OF MAXIMUM OFFERING PRICE $9.34
CLASS A:
NET ASSET VALUE, and redemption price per share
($486,725,127 (divided by) 52,084,585 shares)
Maximum offering price per share (100/98.50 of $9.34) $9.48
INSTITUTIONAL CLASS: $9.34
NET ASSET VALUE, offering price and redemption price
per share ($11,704,600 (divided by) 1,252,775 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 18,985,763
Interest
EXPENSES
Management fee $ 1,185,271
Transfer agent fees 550,814
Class A
Institutional Class 9,135
Distribution fees - Class A 389,753
Accounting fees and expenses 102,975
Non-interested trustees' compensation 1,097
Custodian fees and expenses 12,224
Registration fees 18,642
Class A
Institutional Class 30,778
Audit 12,199
Legal 3,866
Reports to shareholders 5,453
Miscellaneous 4,339
Total expenses before reductions 2,326,546
Expense reductions (31,412) 2,295,134
NET INVESTMENT INCOME 16,690,629
REALIZED AND UNREALIZED GAIN (LOSS) 2,961,218
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) (9,517,371)
on investment securities
NET GAIN (LOSS) (6,556,153)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 10,134,476
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 16,690,629 $ 38,568,812
Net investment income
Net realized gain (loss) 2,961,218 (29,368,060)
Change in net unrealized appreciation (depreciation) (9,517,371) 24,940,899
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 10,134,476 34,141,651
FROM OPERATIONS
Distributions to shareholders (16,288,795) (27,653,285)
From net investment income
Class A
Institutional Class (336,398) (106,031)
Return of capital (Note 1) - (10,490,479)
Class A
Institutional Class - (36,934)
TOTAL DISTRIBUTIONS (16,625,193) (38,286,729)
Share transactions - net increase (decrease) (51,451,989) (227,408,479)
TOTAL INCREASE (DECREASE) IN NET ASSETS (57,942,706) (231,553,557)
NET ASSETS
Beginning of period 556,372,433 787,925,990
End of period (including distributions in excess $ 498,429,727 $ 556,372,433
of net investment income of $2,770,187 and
$2,835,623, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1996
(UNAUDITED) 1995 1994 F, H 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870 $ 9.620
beginning of period
Income from .298 D .403 .479 .732 .830 .848
Investment
Operations
Net investment
income
Net realized and (.131) .148 E (.501) .146 .071 .270
unrealized gain
(loss)
Total from investment .167 .551 (.022) .878 .901 1.118
operations
Less Distributions (.297) (.407) (.464) (.738) (.821) (.868)
From net investment
income
In excess of net - - (.044) - - -
investment income
Return of capital - (.154) (.080) - - -
(Note 1)
Total distributions (.297) (.561) (.588) (.738) (.821) (.868)
Net asset value, $ 9.340 $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870
end of period
TOTAL RETURN B, C 1.77% 6.05% (0.22) 9.13% 9.44% 12.19%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 486,725 $ 546,546 $ 787,926 $ 654,202 $ 170,558 $ 25,244
period (000 omitted)
Ratio of expenses to .87% .89% .97% .95% .90% .90%
average net assets A G G
Ratio of net investment 6.33% 6.05% 5.91% 6.77% 7.59% 8.50%
income to average A
net assets
Portfolio turnover rate 141% 179% 108% 58% 57% 127%
A
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
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 THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
F EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
H AMOUNTS HAVE BEEN ADJUSTED TO CONFORM WITH PRESENT PERIOD ACCOUNTING
POLICIES.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS JULY 3, 1995
ENDED (COMMENCEMENT
APRIL 30, 1996 OF OPERATIONS) TO
OCTOBER 31,
(UNAUDITED) 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.470 $ 9.450
Income from Investment Operations
Net investment income .303 C .137
Net realized and unrealized gain (loss) (.129) .067 D
Total from investment operations .174 .204
Less Distributions
From net investment income (.304) (.136)
Return of capital (Note 1) - (.048)
Total distributions (.304) (.184)
Net asset value, end of period $ 9.340 $ 9.470
TOTAL RETURN B, F 1.84% 2.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 11,705 $ 9,827
Ratio of expenses to average net assets .85% A, .85% A,
E E
Ratio of net investment income to average net assets 6.35% A 6.10% A
Portfolio turnover rate 141% A 179%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Short Fixed-Income (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A and Institutional Class shares, each of which has
equal rights as to assets and voting privileges. Each class has exclusive
voting rights with respect to its distribution plan. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities (including restricted securities) for
which market quotations are not readily available are valued at their fair
value as determined in good faith under consistently applied procedures
under the general supervision of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. FMR bears all organizational expenses except for
registering and qualifying each class and shares of each class for
distribution under federal and state securities law. These expenses are
borne by each class and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends are declared
separately for each class, while capital gain distributions are declared at
the fund level and allocated to each class on a pro rata basis based on the
number of shares held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, foreign currency transactions, market
discount and losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments may include temporary book and tax basis differences that will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
For the period ended October 31, 1995, the fund's distributions exceeded
the aggregate amount of taxable income and net realized gains resulting in
a return of capital. This was due to certain foreign currency losses which
decreased taxable income available for distribution after certain
distributions had been made.
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 fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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 SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $702,504 or 0.1%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $361,053,612 and $420,297,457, respectively, of which U.S.
government and government agency obligations aggregated $241,702,816 and
$313,038,787, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. 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 annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan) and Institutional Class shares
(collectively referred to as "the Plans"). Under the Class A Plan, the fund
pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. This fee is based on an annual rate of .15%
of the average net assets of Class A. For the period, the fund paid FDC
$389,753 under the Class A Plan, of which $389,753 was paid to securities
dealers, banks and other financial institutions for the
distribution of Class A shares, and providing shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A and
Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. FDC received a front-end sales charge of up to 1.50% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $340,559 on sales of Class A shares of the fund, of which
$282,201 was paid to securities dealers, banks, and other financial
institutions.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Institutional Class shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
shareholder reports, except proxy statements. For the period, the transfer
agent fees were equivalent to an annualized rate of .21% and .18% of
average net assets for Class A and Institutional Class, respectively.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above an annual
rate of 1.00% and 0.85% of average net assets for Class A and Institutional
Class, respectively. For the period, the reimbursement reduced expenses by
$0, and $21,325 for Class A and Institutional Class, respectively.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the class' expenses. During the period, the fund's
custodian fees were reduced by $6,791 under the custodian arrangement and
Class A and Institutional Class expenses were reduced by $3,018 and $278,
respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
CLASS A
Shares sold 8,840,986 20,377,823 $ 83,669,068 $ 190,869,432
Reinvestment of distributions 1,396,746 3,265,988 13,213,001 30,573,100
Shares redeemed (15,886,771) (48,984,447) (150,367,476) (458,631,505)
Net increase (decrease) (5,649,039) (25,340,636) $ (53,485,407) $
(237,188,973)
INSTITUTIONAL CLASS
Shares sold 480,927 1,074,155 $ 4,557,160 $ 10,126,478
Reinvestment of distributions 30,896 13,078 292,075 123,702
Shares redeemed (296,558) (49,723) (2,815,817) (469,686)
Net increase (decrease) 215,265 1,037,510 $ 2,033,418 $ 9,780,494
A SHARE TRANSACTIONS FOR THE INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
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 Investments Institutional Operations Company
Boston, MA
CUSTODIAN
Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal
Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
SHORT FIXED-INCOME
FUND - CLASS A
SEMIANNUAL REPORT
APRIL 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 22 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 27 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first four
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR SHORT FIXED-INCOME FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $10,000 investment. A class' total return
includes changes in share price, plus reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at income to
measure performance. If Fidelity had not reimbursed certain class expenses,
the past five years and life of fund total returns and dividends would have
been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTH YEAR YEARS FUND
S
Advisor Short Fixed-Income - Class A 1.77% 6.47% 36.55% 81.32%
Advisor Short Fixed-Income - Class A 0.24% 4.87% 34.50% 78.60%
(incl. max. 1.50% sales charge)
Lehman Brothers 1-3 Year 2.13% 6.92% 36.16% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds 1.86% 6.47% 34.06% n/a
Average
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on September 16, 1987. 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. You can compare Class A's returns to the
performance of the Lehman Brothers 1-3 Year Government/Corporate Bond
Index, which is comprised of government and corporate fixed-rate debt
issues. Issues included in the Index have maturities of one to three years.
To measure how Class A's performance stacked up against its peers, you can
compare it to the short investment grade debt funds average, which reflects
the performance of 98 funds with similar objectives tracked by Lipper
Analytical Services over the past six months. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED APRIL 30, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Class A 6.47% 6.43% 7.14%
Advisor Short Fixed-Income - Class A 4.87% 6.11% 6.95%
(incl. max. 1.50% sales charge)
Lehman Brothers 1-3 Year 6.92% 6.37% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds Average 6.47% 6.03% n/a
AVERAGE ANNUAL TOTAL RETURNS take Class A's actual (or cumulative) return
and show you what would have happened
if Class A shares had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960430 19960522 150442 S00000000000001
FA Sht. Fixed Inc. SP Standard & Poor 500
00222 SP001
1987/09/30 9850.00 10000
1987/10/31 9999.49 10197.98
1987/11/30 10069.38 10266.04
1987/12/31 10130.15 10337.38
1988/01/31 10263.19 10493.14
1988/02/29 10364.90 10584.77
1988/03/31 10397.94 10608.33
1988/04/30 10410.62 10622.4
1988/05/31 10402.91 10618.15
1988/06/30 10508.28 10724.5
1988/07/31 10509.69 10732.03
1988/08/31 10553.35 10759.19
1988/09/30 10658.72 10883.86
1988/10/31 10755.10 10993.49
1988/11/30 10723.65 10967.31
1988/12/31 10756.74 10992.51
1989/01/31 10844.41 11080.86
1989/02/28 10863.57 11083.48
1989/03/31 10918.18 11128.31
1989/04/30 11036.70 11308.94
1989/05/31 11187.27 11469.62
1989/06/30 11369.33 11681.34
1989/07/31 11562.89 11855.43
1989/08/31 11480.37 11788.34
1989/09/30 11539.61 11857.72
1989/10/31 11711.46 12042.61
1989/11/30 11803.46 12150.27
1989/12/31 11865.45 12198.37
1990/01/31 11838.59 12211.13
1990/02/28 11886.45 12275.93
1990/03/31 11949.35 12314.87
1990/04/30 11960.25 12345.63
1990/05/31 12148.22 12536.4
1990/06/30 12242.20 12668.94
1990/07/31 12387.19 12822.41
1990/08/31 12367.36 12867.89
1990/09/30 12398.20 12964.43
1990/10/31 12366.56 13098.27
1990/11/30 12444.44 13226.22
1990/12/31 12561.85 13381
1991/01/31 12524.08 13502.08
1991/02/28 12654.01 13599.59
1991/03/31 12879.98 13698.42
1991/04/30 13067.46 13832.59
1991/05/31 13200.84 13918.98
1991/06/30 13265.37 13970.68
1991/07/31 13356.50 14093.39
1991/08/31 13580.71 14284.5
1991/09/30 13721.20 14438.3
1991/10/31 13874.36 14593.74
1991/11/30 14014.71 14741.32
1991/12/31 14241.52 14964.17
1992/01/31 14299.93 14948.79
1992/02/29 14396.33 14996.24
1992/03/31 14463.54 14992.96
1992/04/30 14557.35 15130.08
1992/05/31 14708.26 15271.77
1992/06/30 14843.45 15427.86
1992/07/31 15028.03 15608.82
1992/08/31 15155.65 15734.81
1992/09/30 15281.00 15883.7
1992/10/31 15184.02 15788.15
1992/11/30 15191.10 15765.9
1992/12/31 15324.72 15914.79
1993/01/31 15556.96 16084.62
1993/02/28 15746.23 16215.84
1993/03/31 15847.34 16268.53
1993/04/30 15927.54 16370.63
1993/05/31 15995.14 16333.32
1993/06/30 16155.75 16457.02
1993/07/31 16251.31 16494.65
1993/08/31 16410.75 16632.74
1993/09/30 16467.43 16686.41
1993/10/31 16569.96 16725.35
1993/11/30 16638.14 16730.26
1993/12/31 16779.65 16798
1994/01/31 16884.35 16905
1994/02/28 16746.56 16802.58
1994/03/31 16362.99 16716.19
1994/04/30 16276.72 16652.7
1994/05/31 16374.72 16675.28
1994/06/30 16245.85 16719.13
1994/07/31 16394.04 16871.3
1994/08/31 16527.13 16928.24
1994/09/30 16520.77 16890.61
1994/10/31 16533.37 16929.22
1994/11/30 16561.77 16858.21
1994/12/31 16214.32 16890.28
1995/01/31 16334.96 17122.29
1995/02/28 16537.36 17359.21
1995/03/31 16624.29 17457.7
1995/04/30 16759.64 17615.76
1995/05/31 17061.18 17920.74
1995/06/30 17141.52 18018.26
1995/07/31 17204.66 18090.25
1995/08/31 17306.84 18199.88
1995/09/30 17389.90 18289.87
1995/10/31 17533.49 18441.7
1995/11/30 17675.74 18600.41
1995/12/31 17805.75 18741.45
1996/01/31 17936.81 18901.8
1996/02/29 17874.74 18829.8
1996/03/31 17841.39 18816.06
1996/04/30 17843.56 18835.04
IMATRL PRASUN SHR__CHT 19960430 19960522 150446 R00000000000117
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor Short Fixed-Income Fund - Class A on September 30, 1987, shortly
after the fund started, and paid the maximum 1.50% sales charge. As the
chart shows, by April 30, 1996, the value of your investment would have
grown to $17,844 - a 78.44% increase on your initial investment. For
comparison, look at how the Lehman Brothers 1-3 Year Government/Corporate
Bond Index did over the same period. With dividends reinvested, the same
$10,000 investment would have grown to $18,835 - an 88.35% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield of
a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1996 1995 1994 1993 1992 1991
Dividend return 3.14% 6.16% A 5.82% A 7.72% 8.63% 9.59%
Capital appreciation -1.37% -0.11% -6.04% 1.41% 0.81% 2.60%
return
Total return 1.77% 6.05% -0.22% 9.13% 9.44% 12.19%
DIVIDEND returns and capital appreciation returns are both part of a class'
total return. A dividend return reflects the actual dividends paid by the
class. A capital appreciation return reflects both the amount paid by the
class to shareholders as capital gain distributions and changes in the
class' share price. Both returns assume the dividends or gains are
reinvested, if any, and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED APRIL 30, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.11(cents) 29.73(cents) 57.34(cents)
Annualized dividend rate 6.64% 6.30% 6.07%
30-day annualized yield 5.45% - -
DIVIDENDS per share show the income paid by the class for a set period. If
you annualize this number, based on an average net asset value of $9.36
over the past month, $9.47 over the past six months, and $9.45 over the
past year, you can compare the class' income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis. The offering share price used in the calculation of the
yield includes the effect of Class A's maximum 1.50% sales charge.
A DIVIDENDS PAID ARE BASED ON THE CLASS' INVESTMENT INCOME AND DO NOT
REFLECT CURRENCY RELATED LOSSES. AS A RESULT OF CURRENCY LOSSES, CLASS A
DIVIDENDS PAID DURING 1995 OF APPROXIMATELY 15.4(CENTS) PER SHARE WERE A
NON-TAXABLE RETURN OF CAPITAL. CLASS A DIVIDENDS PAID DURING 1994 OF
APPROXIMATELY 8.0(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF CAPITAL.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Charles Morrison, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. CHARLIE, HOW HAS THE FUND PERFORMED?
A. It has performed in line with the market and its competitors over the
past six months and one year. For the six months ended April 30, 1996,
Class A had a total return of 1.77%, compared to 1.86% for the short
investment grade debt funds average tracked by Lipper Analytical Services,
and 2.13% for the Lehman Brothers 1-3 Year Government/Corporate Bond Index.
For the 12 months ended April 30, 1996, Class A returned 6.47%, compared to
6.47% for the short investment grade debt funds average and 6.92% for the
Lehman Brothers index.
Q. LET'S TAKE A LOOK AT THE INVESTING ENVIRONMENT OVER THE PAST SIX MONTHS.
WHAT WAS IT LIKE?
A. It's been an interesting six months. The market was quite strong through
January, as a weak economic outlook and stable inflation caused interest
rates to continue to decline. The weak economy led investors to believe
that the Federal Reserve Board would continue to lower interest rates, a
trend it has pursued since mid-1995. Beginning in February, that positive
backdrop for the market began to change. The outlook for the economy began
to improve as several economic statistics came in stronger than originally
expected. Most notably, the February employment report reflected some of
the strongest growth in monthly employment we have seen in many years. As a
result, interest rates started to rise. The back-up - or rise - in interest
rates from mid-February to the end of the period was quite dramatic, as
two-year Treasury yields moved from about 4.8% to about 6.1% over that
period.
Q. WHAT SORT OF MOVES DID YOU MAKE WITH THE FUND IN THIS TYPE OF
ENVIRONMENT?
A. I continued to maintain a defensive posture over the past six months, as
many of the sectors in the short end of the market continued to trade at
historically high valuations. Sectors such as mortgage-backed securities
and corporate bonds offered only a small yield advantage over Treasuries.
As a way of adding incremental return, I took advantage of opportunities to
trade out of some securities and into others that I felt provided stronger
fundamental and/or structural characteristics.
Q. CAN YOU GIVE US SOME EXAMPLES OF THE NEW KINDS OF BONDS YOU'VE INVESTED
IN?
A. One area of focus has been in selective longer maturity - four to five
years - BBB-rated corporates. Strong fundamentals (factors related to the
fiscal health of issuers) and technicals (the supply of and demand for
corporate issues), in addition to expectations of such positive events as
stronger-than-forecasted earnings, made certain corporate securities
attractive. RJR Nabisco, 360 Degrees Communications and the Loewen Group
were among the companies whose bonds I bought. Beyond that, my general
theme was to concentrate the fund in short-duration corporate bonds,
asset-backed securities and some commercial mortgage-backed securities.
Q. YOU'VE TALKED ABOUT ASSET-BACKED SECURITIES IN THE PAST, AND HAD 14.1%
OF THE FUND INVESTED IN THEM AS OF THE END OF THE PERIOD. HOW HAS THAT
MARKET WORKED OUT OVER THE PAST SIX MONTHS?
A. To remind shareholders, asset-backed securities are bonds issued by
financial institutions that are backed by loans or credit payments.
Traditionally, they have originated primarily from auto loans and credit
cards. During the first quarter of 1996, issuance in this market was at
historically high levels. With such a large supply, one would think prices
would be low and yields high to attract buyers. On the contrary, there was
such strong demand for short-duration, high-quality asset-backeds that
yields have remained relatively low. In spite of that, I have maintained a
large exposure to the asset-backed market, but diversified into several
non-traditional funding sources, such as equipment loan trusts,
manufactured housing and third-party guarantor issuers where I felt yield
spreads offered more value.
Q. AND LET'S TOUCH ON COMMERCIAL MORTGAGE-BACKED SECURITIES . . .
A. I continued to own primarily high-quality securities over the past six
months. I did swap out of some of the highest dollar-priced issues in the
fund as the market was rallying in January in order to cushion the fund
from unexpected prepayment activity. My strategy has been to focus on
shorter-duration commercial mortgage-backed securities. As with most
mortgage-backeds, actual versus expected prepayment activity is an
important determinant of total return. By maintaining shorter-term exposure
to the commercial mortgage-backed market, the measurement and volatility of
cash flows often are more predictable than with longer-duration commercial
mortgage-backed securities. These shorter-maturity securities are more
appropriate for the fund, which aims at providing returns similar to what
one would expect from the short-term investment-grade bond market. This
strategy is in keeping with the fund's goal of high current income with
preservation of capital.
Q. WHAT'S YOUR OUTLOOK?
A. As I noted above, I consider the fund to be defensively positioned at
this time. I find this to be appropriate given the relative valuations that
exist in today's market. The fund's positioning allows for greater
flexibility in the event I wish to take a more aggressive stance at some
point in the future. Looking forward, I do not expect the overall
positioning of the fund to change dramatically, unless we see some
cheapening of those parts of the market that offer a yield advantage to
Treasuries, such as corporate bonds and mortgage-backed securities. With
that said, I will continue to scour the market for opportunities to sell
some securities and buy others that I think may provide stronger
fundamental and/or structural characteristics.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks to obtain a
high level of current income,
consistent with
preservation of capital, by
investing primarily in a
broad range of
investment-grade,
fixed-income securities.
Where appropriate, the
fund will take advantage of
opportunities to realize
capital appreciation.
START DATE:
September 16, 1987
SIZE: as of April 30, 1996,
more than $498 million
MANAGER: Charles Morrison,
since February 1995; joined
Fidelity in 1987
(checkmark)
CHARLIE MORRISON ON CORPORATE
BONDS:
"The corporate market today
offers little yield advantage
relative to the Treasury market.
There are a number of factors
that justify this relationship.
For example, the
fundamentals (factors relating
to the fiscal health of issuers)
and technicals (the supply of
and demand for corporate
issues) of the corporate market
are in very sound shape.
Further, continued modest
economic growth has been
supportive of the market as
corporate America has taken
the opportunity to use its
improved cash flow to further
enhance its balance sheet.
Given this strong positioning,
I am comfortable maintaining
an overweighted exposure to
the corporate market."
(solid bullet) As of June 24, 1996, there
will be two changes to the
funds investment policies.
First, Fidelity will use two
additional agencies - Duff &
Phelps Credit Rating Co. and
Fitch Investor Services, as well
as Moody's Investors Service
and Standard & Poor's, which
the fund already uses - to
determine the credit quality of
the fund's bonds. In addition,
as of June 24, the fund will
reserve the right to invest up to
5% - down from 35% - in
non-investment grade
securities. Further, while the
fund currently cannot invest in
bonds with a rating lower than
"B," as of June 24, the fund will
reserve the right to include
bonds rated lower than "B" in
the 5% non-investment-grade
portion. The fund does not
intend to seek out the lower
quality, non-investment grade
bonds. Instead, this change
gives the fund additional
flexibility under unusual
circumstances.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF APRIL 30, 1996
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS
6 MONTHS AGO
Aaa 57.4 60.0
Aa 0.2 0.1
A 10.7 11.9
Baa 16.6 11.9
Ba 5.0 5.6
Not rated 7.6 10.5
TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES
OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY
FIDELITY.
AVERAGE YEARS TO MATURITY AS OF APRIL 30, 1996
6 MONTHS AGO
Years 2.2 2.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF APRIL 30, 1996
6 MONTHS AGO
Years 1.7 1.7
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION
AS OF APRIL 30, 1996 * AS OF OCTOBER 31, 1995 **
Corporate bonds 41.9%
U.S. government
and government
agency
obligations 43.0%
Foreign government
obligations 0.3%
Short-term
investments 3.2%
Other investments 11.6%
FOREIGN INVESTMENTS 1.8%
Corporate bonds 33.0%
U.S. government
and government
agency
obligations 53.1%
Foreign government
obligations 0.2%
Short-term
investments 0.6%
Other investments 13.1%
FOREIGN INVESTMENTS 0.9%
Row: 1, Col: 1, Value: 11.6
Row: 1, Col: 2, Value: 3.2
Row: 1, Col: 3, Value: 1.3
Row: 1, Col: 4, Value: 42.0
Row: 1, Col: 5, Value: 41.9
Row: 1, Col: 1, Value: 13.1
Row: 1, Col: 2, Value: 1.6
Row: 1, Col: 3, Value: 1.2
Row: 1, Col: 4, Value: 52.1
Row: 1, Col: 5, Value: 32.0
*
**
INVESTMENTS APRIL 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 41.9%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.8%
Methanex Corp. 8 7/8%, 11/15/01 A3 $ 3,760,000 $ 4,059,296
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.3%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,360,000 1,503,249
ENERGY - 0.4%
OIL & GAS - 0.4%
McDermott, Inc. 7.95%, 7/2/97 Baa3 500,000 508,100
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa3 410,000 400,927
USX Corp.:
8 7/8%, 9/15/97 Baa3 460,000 474,002
6 3/8%, 7/15/98 Baa3 651,000 644,191
TOTAL ENERGY 2,027,220
FINANCE - 25.4%
ASSET-BACKED SECURITIES - 14.1%
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 6,840,000 6,801,491
5.85%, 2/15/03 A3 800,000 778,250
Caterpillar Financial Asset Trust
6.65%, 6/25/00 A2 1,101,359 1,101,359
Chase Manhattan Grantor Trust 5.90%,
11/15/01 Aaa 4,668,148 4,653,536
Chevy Chase Auto Receivables Trust
5.80%, 6/15/02 Aaa 2,818,428 2,803,455
Concord Leasing, Inc. (d):
5.04%, 7/15/98 AAA 310,378 307,305
5.31%, 1/20/99 AAA 38,269 37,931
Discover Card Master Trust I 6.90%, 2/16/00 A2 1,888,000 1,899,800
Discover Card Trust:
7 7/8%, 4/16/98 A2 480,000 478,949
6 1/8%, 5/15/98 A2 1,700,000 1,696,804
7 1/2%, 6/16/00 A2 650,000 660,764
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 4,781,096 4,760,179
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 4,112,918 4,160,463
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa $ 500,509 $ 491,906
5.80%, 2/15/27 Aaa 3,500,000 3,437,630
6.10%, 4/15/27 Aaa 3,691,931 3,666,549
6.45%, 5/15/27 Aaa 1,550,000 1,546,367
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 439,122 437,750
MBNA Master Credit Card Trust
7 3/4%, 10/15/98 Aaa 900,000 907,313
Midlantic Grantor Trust, Class B,
5.15%, 9/15/97 A1 29,084 29,039
Premier Auto Trust:
5.89%, 8/17/98 Aaa 289,585 289,675
4.95%, 2/2/99 A2 1,251,226 1,237,737
8.05%, 4/4/00 Aaa 5,100,000 5,264,953
6.35%, 7/6/00 A3 1,980,000 1,960,819
Prime Credit Card Master Trust 7.45%, 11/15/02 Aaa 1,580,000 1,619,747
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 30,488 30,554
Standard Credit Card Master Trust I:
4.85%, 3/7/99 A2 2,000,000 1,980,620
7.65%, 2/15/00 A2 800,000 816,500
6 3/4%, 6/7/00 Aaa 4,830,000 4,866,225
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 1,020,589 1,012,137
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 469,579 469,579
7.275%, 10/10/00 Baa2 452,412 455,805
8.20%, 1/10/01 Baa2 457,572 463,863
WFS Financial Grantor Trust:
6.05%, 6/1/00 Aaa 3,460,000 3,460,000
5 7/8%, 3/1/02 Aaa 3,554,972 3,528,310
Western Financial Grantor Trust 6.20%, 2/1/02 Aaa 1,569,896 1,572,153
69,685,517
BANKS - 5.9%
Bank of Boston Corp. 9 1/2%, 8/15/97 Baa1 2,013,000 2,093,117
Banponce Financial Corp.:
6%, 4/15/97 Baa1 250,000 249,688
6.34%, 3/29/99 Baa1 740,000 730,987
7.65%, 5/3/00 Baa1 1,260,000 1,283,814
6.88%, 6/16/00 Baa1 650,000 647,966
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
Banponce Corp.:
5 3/4%, 3/1/99 Baa1 $ 990,000 $ 963,805
6.34%, 3/29/99 Baa1 1,100,000 1,086,635
Capital One Bank:
8 1/8%, 2/27/98 Baa3 2,130,000 2,183,804
6.66%, 8/17/98 Baa3 2,850,000 2,844,357
First Fidelity Bancorporation 8 1/2%, 4/1/98 A2 1,010,000 1,046,461
First USA Bank 6 1/8%, 10/30/97 Baa3 1,670,000 1,668,764
Kansallis-Osake-Pankki (NY) yankee
9 3/4%, 12/15/98 A3 1,000,000 1,073,220
KeyCorp 7.10%, 3/28/97 A1 1,440,000 1,453,450
Manufacturers Hanover Trust, NY (e):
5.4375%, 4/30/97 A1 1,000,000 996,750
euro 5 3/4%, 7/15/97 A2 3,450,000 3,415,500
Marine Midland Banks, Inc. 8 5/8%, 3/1/97 Baa1 1,850,000 1,881,728
Provident Bank:
5%, 6/15/96 A3 1,000,000 998,400
6 1/8%, 12/15/00 A3 2,540,000 2,451,303
Signet Banking Corp. 5.375%, 5/15/97 (e) Baa2 2,430,000 2,419,357
29,489,106
CREDIT & OTHER FINANCE - 5.1%
Advanta National Bank 6.41%, 4/30/98 Baa2 1,820,000 1,815,450
Associates Corp. of North America
6 7/8%, 1/15/97 Aa3 400,000 402,444
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 636,300
Case Equipment Loan Trust 6.45%, 9/15/02 A3 1,400,000 1,371,552
General Motors Acceptance Corp.:
5 3/8%, 3/9/98 A3 5,840,000 5,744,633
5.45%, 3/1/99 A3 3,650,000 3,537,690
6 3/8%, 4/26/99 A3 900,000 893,745
Greyhound Financial Corp.:
8 1/4%, 3/11/97 Baa1 1,100,000 1,119,338
6.94%, 1/28/98 Baa2 3,000,000 3,017,010
MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,640,000 1,605,544
Tenneco Credit Corp.:
10 1/8%, 12/1/97 Baa2 500,000 527,070
10.05%, 8/17/98 Baa2 2,880,000 3,087,706
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 $ 786,086 $ 783,138
Union Acceptance Corp. 7.075%, 7/10/02 Baa2 642,030 642,627
25,184,247
INSURANCE - 0.2%
ITT Hartford Group, Inc. 7 1/4%, 12/1/96 A1 850,000 852,652
SAVINGS & LOANS - 0.1%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 300,000 311,877
TOTAL FINANCE 125,523,399
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Cardinal Distribution Inc. 8%, 3/1/97 A3 950,000 964,716
MEDIA & LEISURE - 1.8%
BROADCASTING - 1.5%
Time Warner, Inc. 7.45%, 2/1/98 Ba1 7,510,000 7,596,065
LEISURE DURABLES & TOYS - 0.3%
Mattel, Inc. 6 7/8%, 8/1/97 Baa1 1,250,000 1,251,125
TOTAL MEDIA & LEISURE 8,847,190
NONDURABLES - 1.4%
FOODS - 0.5%
Nabisco, Inc. 8%, 1/15/00 Baa2 2,410,000 2,477,335
TOBACCO - 0.9%
RJR Nabisco, Inc.:
8%, 1/15/00 Baa3 1,320,000 1,314,773
8%, 7/15/01 Baa3 3,310,000 3,247,971
4,562,744
TOTAL NONDURABLES 7,040,079
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
RETAIL & WHOLESALE - 1.4%
GENERAL MERCHANDISE STORES - 1.3%
Dayton Hudson Corp. 10%, 12/1/00 A3 $ 1,070,000 $ 1,187,625
Sears Roebuck & Co.:
8.95%, 11/27/96 A2 245,000 249,268
9.22%, 1/30/97 A2 1,700,000 1,742,330
7 3/4%, 2/27/97 A2 2,210,000 2,242,377
7.30%, 6/12/97 A2 245,000 248,462
5.83%, 7/27/98 A2 470,000 464,158
6,134,220
GROCERY STORES - 0.1%
American Stores Co.:
8 1/4%, 4/21/98 Baa3 300,000 308,001
8.44%, 4/24/98 Baa3 300,000 309,051
617,052
TOTAL RETAIL & WHOLESALE 6,751,272
SERVICES - 0.8%
Loewen Group International, Inc.
7 1/2%, 4/15/01 (d) Ba1 4,150,000 4,091,070
TECHNOLOGY - 2.6%
COMPUTERS & OFFICE EQUIPMENT - 2.6%
Comdisco, Inc.:
6.89%, 8/30/96 Baa2 2,480,000 2,489,300
7 3/4%, 1/29/97 Baa2 800,000 809,208
7.73%, 2/18/97 Baa2 6,950,000 7,032,775
7 1/4%, 4/15/98 Baa2 120,000 121,690
5 3/4%, 1/19/99 Baa2 1,500,000 1,467,375
5 3/4%, 2/15/01 Baa2 1,230,000 1,170,542
TOTAL TECHNOLOGY 13,090,890
TRANSPORTATION - 3.1%
AIR TRANSPORTATION - 3.1%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 6,810,000 6,932,716
9 1/2%, 7/15/98 Baa3 1,540,000 1,620,373
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - CONTINUED
AIR TRANSPORTATION - CONTINUED
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa3 $ 3,370,000 $ 3,530,142
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 3,430,000 3,441,662
TOTAL TRANSPORTATION 15,524,893
UTILITIES - 3.7%
CELLULAR - 0.6%
360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba2 2,770,000 2,651,970
ELECTRIC UTILITY - 0.8%
Gulf States Utilities Co. 9.72%, 7/1/98 Ba1 3,485,000 3,612,272
United Illuminating Co. 7 3/8%, 1/15/98 Baa3 450,000 452,358
4,064,630
GAS - 2.3%
ARKLA, Inc.:
9 7/8%, 4/15/97 Ba1 4,710,000 4,851,818
8.60%, 9/15/98 Ba2 500,000 516,415
8.875%, 7/15/99 Ba1 1,500,000 1,559,580
Florida Gas 7 3/4%, 11/1/97 (d) Baa2 1,630,000 1,663,089
Transcontinental Gas Pipe Line Corp.:
9%, 11/15/96 Baa1 1,500,000 1,522,650
6.21%, 5/15/00 Baa1 1,330,000 1,330,293
11,443,845
TOTAL UTILITIES 18,160,445
TOTAL NONCONVERTIBLE BONDS
(Cost $209,211,701) 207,583,719
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 42.3%
U.S. TREASURY OBLIGATIONS - 40.3%
7 1/4%, 11/15/96 Aaa 1,027,000 1,036,623
8 1/2%, 5/15/97 Aaa 520,000 534,383
8 3/4%, 10/15/97 Aaa 39,415,000 40,960,856
7 3/8%, 11/15/97 Aaa 30,542,000 31,162,308
9%, 5/15/98 Aaa 33,750,000 35,616,713
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - CONTINUED
9 1/4%, 8/15/98 Aaa $ 77,087,000 $ 82,157,783
8 7/8%, 11/15/98 Aaa 961,000 1,021,216
8 7/8%, 2/15/99 Aaa 890,000 949,933
9 1/8%, 5/15/99 Aaa 3,237,000 3,489,874
7 3/4%, 12/31/99 Aaa 2,569,000 2,685,401
TOTAL U.S. TREASURY OBLIGATIONS 199,615,090
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.0%
Government Trust Certificates Series 1994-C (assets
of Trust guaranteed by U.S. Government through
Export-Import Bank) 6.61%, 9/15/99 Aaa 624,728 628,029
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency) Class 1-C
9 1/4%, 11/15/01 Aaa 1,202,000 1,290,071
Israel Export Trust Certificate Series 1994-1 (assets
of Trust guaranteed by U.S. Government through
Export-Import Bank) 6.88%, 1/26/03 Aaa 988,235 995,153
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 646,400 649,975
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
4 7/8%, 9/15/98 Aaa 2,050,000 1,988,500
7 3/4%, 11/15/99 Aaa 3,124,000 3,246,586
5 3/4%, 3/15/00 Aaa 1,164,000 1,133,809
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 9,932,123
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $212,829,431) 209,547,213
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 0.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.1%
12.00%, 11/1/19 Aaa 221,360 251,873
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 804,180 907,026
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.4%
11.00%, 12/15/09 to 2/15/16 Aaa $ 750,031 $ 836,413
11 1/2%, 7/15/13 to 11/15/15 Aaa 1,471,279 1,524,699
2,361,112
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $3,574,194) 3,520,011
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.7%
U.S. GOVERNMENT AGENCY - 0.2%
Federal National Mortgage Association planned
amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 1,250,000 1,237,500
PRIVATE SPONSOR - 0.5%
CBM Funding Corp. Series 1996-1 Class A-2,
6.88%, 7/1/02 (d) AA 980,000 968,975
General Electric Capital Mortgage Services, Inc.
planned amortization class series 1993-18
Class A-5, 6%, 2/25/02 AAA 1,289,686 1,288,074
TOTAL PRIVATE SPONSOR 2,257,049
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $3,507,649) 3,494,549
COMMERCIAL MORTGAGE SECURITIES - 10.5%
CBM Funding Corp. commercial Series 1996-1
Class A-1, 7.55%, 7/1/99 (d) AA 277,217 280,509
CS First Boston Mortgage Securities Corp.:
commercial Series 1995-AEWI Class A-1,
6.665%, 11/25/27 AAA 1,593,404 1,574,980
commercial floater Series 1994-CFB1
Class A-1, 5.9523%, 1/25/28 (e) Aaa 2,848,628 2,842,397
FDIC commercial Series 1994-C1:
Class II-A1, 6.30%, 9/25/25 Aaa 126,485 126,287
Class II-A2, 7.85%, 9/25/25 Aaa 2,210,000 2,233,136
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Goldman Sachs Mortgage Securities Corp. II
commercial Series 1996 Class A-1,
7.02%, 2/15/27 Aaa $ 3,757,105 $ 3,747,712
Kearny Street Mortgage commercial (d):
Class II-B, 6.60%, 10/15/02 - 325,906 326,112
Class II-C, 7.30%, 10/15/03 - 400,000 400,500
Class II-D, 7 3/4%, 10/15/05 - 300,000 300,563
Lennar Central Partners LP (d):
commercial Series 1995-1
Class C, 7.55%, 5/15/03 - 1,200,000 1,202,250
commercial floater Series 1994-1
Class B, 6 1/2%, 9/15/01 (e) - 4,943,000 4,943,000
Meritor Mortgage Security Corp. commercial
Series 1987-1 Class A3, commercial,
9.40%, 6/1/99 Baa3 674,093 679,149
Nomura Asset Securities Corp. commercial floater
Series 1994-MD-II Class A-6,
6.7025% 7/4/03 (e) - 1,232,929 1,222,334
Oregon Commercial Mortgage, Inc. commercial
Series 1995 Class 1-A, 7.15%, 6/25/26 (d) AAA 4,100,767 4,080,263
Resolution Trust Corp.:
commercial :
Series 1994-N2 Class 3,
7 1/2%, 12/15/04 (b)(d) Baa2 3,100,000 3,099,031
Series 1994-C2 Class E,
8%, 4/25/25 BB+ 3,284,591 3,105,991
Series 1995-C1 Class A-2A,
6 1/4%, 2/25/27 Aaa 548,901 547,872
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 1,367,027 1,357,416
Series 1995-C2 Class A-1A,
6 1/4%, 5/25/27 Aaa 1,465,488 1,456,787
Series 1995-C2 Class A-1B,
6 1/4%, 5/25/27 Aaa 1,510,000 1,464,700
commercial floater (e):
Series 1992-C3 Class A-2,
6.35%, 8/25/23 Aa2 236,957 237,068
Series 1993-C2 Class A-2,
6.37% 3/25/25 AAA 3,345,190 3,359,825
Series 1994-C1 Class A-3,
6.05%, 6/25/26 AAA 2,787,238 2,787,238
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
SC Finance Corp. commercial Floater
6.9875%, 8/1/04 (d)(e) - $ 4,100,000 $ 3,982,125
SKW Real Estate LP (d):
commercial floater Class A, 6.95%, 4/15/02 (b) AA 451,225 451,225
commercial Series II Class C, 7.45%, 4/15/03 BBB 1,800,000 1,800,563
Structured Asset Securities Corp. commercial:
Series 1993-C1 Class A-1,
6.60%, 10/25/24 AA+ 907,099 901,713
Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 1,462,494 1,451,982
Series 1996 Class A-1B,
5.751%, 2/25/28 AAA 470,000 459,278
Series 1996 Class A-1C,
5.944%, 2/25/28 AAA 1,627,000 1,562,427
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $51,827,024) 51,984,433
FOREIGN GOVERNMENT OBLIGATIONS (F) - 0.3%
Ontario Province Canada 15 1/4%, 8/31/12 Aa3 450,000 524,066
Province of Chaco, Argentina 11 7/8%,
9/10/97 (c) - 650,000 702,504
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $1,252,289) 1,226,570
CERTIFICATES OF DEPOSIT - 0.4%
Advanta National Bank 6.26%, 9/1/97
(Cost $1,798,128) Baa2 1,800,000 1,797,300
MUNICIPAL SECURITIES - 0.7%
Louisiana Pub. Facs. Auth. Rev.
9.95%, 6/1/96 A3 2,095,000 2,097,722
Shreveport Louisiana Wtr. & Swr. Rev.
Taxable Rfdg. Series A, 0%, 12/1/96 Aaa 1,500,000 1,448,680
TOTAL MUNICIPAL SECURITIES
(Cost $3,686,748) 3,546,402
REPURCHASE AGREEMENTS - 2.5%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.33%, dated
4/30/96 due 5/1/96 $ 12,460,845 $ 12,459,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $500,146,164) $ 495,159,197
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
3. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Province of Chaco,
Argentina 11 7/8%,
9/10/97 3/9/94 $ 934,096
4. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $27,934,511 or 5.6% of net
assets.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
6. Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 68.3% AAA, AA, A 68.7%
Baa 16.6% BBB 17.3%
Ba 5.0% BB 7.4%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 2.6%.
INCOME TAX INFORMATION
At April 30, 1996, the aggregate cost of investment securities for income
tax purposes was $500,160,956. Net unrealized depreciation aggregated
$5,001,759, of which $1,373,528 related to appreciated investment
securities and $6,375,287 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $38,019,000 which will expire between October 31, 1996 and
October 31, 2003.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 495,159,197
agreements of $12,459,000) (cost $500,146,164) -
See accompanying schedule
Cash 89,558
Receivable for investments sold 2,795,292
Interest receivable 7,591,580
Other receivables 2,354
Prepaid expenses 3,014
TOTAL ASSETS 505,640,995
LIABILITIES
Payable for investments purchased $ 5,097,464
Payable for fund shares redeemed 1,291,963
Distributions payable 451,279
Accrued management fee 176,354
Distribution fees payable 61,473
Other payables and accrued expenses 132,735
TOTAL LIABILITIES 7,211,268
NET ASSETS $ 498,429,727
Net Assets consist of:
Paid in capital $ 541,382,096
Distributions in excess of net investment income (2,770,187)
Accumulated undistributed net realized gain (loss) on (35,195,215)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (4,986,967)
investments
NET ASSETS $ 498,429,727
CALCULATION OF MAXIMUM OFFERING PRICE $9.34
CLASS A:
NET ASSET VALUE, and redemption price per share
($486,725,127 (divided by) 52,084,585 shares)
Maximum offering price per share (100/98.50 of $9.34) $9.48
INSTITUTIONAL CLASS: $9.34
NET ASSET VALUE, offering price and redemption price
per share ($11,704,600 (divided by) 1,252,775 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 18,985,763
Interest
EXPENSES
Management fee $ 1,185,271
Transfer agent fees 550,814
Class A
Institutional Class 9,135
Distribution fees - Class A 389,753
Accounting fees and expenses 102,975
Non-interested trustees' compensation 1,097
Custodian fees and expenses 12,224
Registration fees 18,642
Class A
Institutional Class 30,778
Audit 12,199
Legal 3,866
Reports to shareholders 5,453
Miscellaneous 4,339
Total expenses before reductions 2,326,546
Expense reductions (31,412) 2,295,134
NET INVESTMENT INCOME 16,690,629
REALIZED AND UNREALIZED GAIN (LOSS) 2,961,218
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) (9,517,371)
on investment securities
NET GAIN (LOSS) (6,556,153)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 10,134,476
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 16,690,629 $ 38,568,812
Net investment income
Net realized gain (loss) 2,961,218 (29,368,060)
Change in net unrealized appreciation (depreciation) (9,517,371) 24,940,899
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 10,134,476 34,141,651
FROM OPERATIONS
Distributions to shareholders (16,288,795) (27,653,285)
From net investment income
Class A
Institutional Class (336,398) (106,031)
Return of capital (Note 1) - (10,490,479)
Class A
Institutional Class - (36,934)
TOTAL DISTRIBUTIONS (16,625,193) (38,286,729)
Share transactions - net increase (decrease) (51,451,989) (227,408,479)
TOTAL INCREASE (DECREASE) IN NET ASSETS (57,942,706) (231,553,557)
NET ASSETS
Beginning of period 556,372,433 787,925,990
End of period (including distributions in excess $ 498,429,727 $ 556,372,433
of net investment income of $2,770,187 and
$2,835,623, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1996
(UNAUDITED) 1995 1994 F, H 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870 $ 9.620
beginning of period
Income from .298 D .403 .479 .732 .830 .848
Investment
Operations
Net investment
income
Net realized and (.131) .148 E (.501) .146 .071 .270
unrealized gain
(loss)
Total from investment .167 .551 (.022) .878 .901 1.118
operations
Less Distributions (.297) (.407) (.464) (.738) (.821) (.868)
From net investment
income
In excess of net - - (.044) - - -
investment income
Return of capital - (.154) (.080) - - -
(Note 1)
Total distributions (.297) (.561) (.588) (.738) (.821) (.868)
Net asset value, $ 9.340 $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870
end of period
TOTAL RETURN B, C 1.77% 6.05% (0.22) 9.13% 9.44% 12.19%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 486,725 $ 546,546 $ 787,926 $ 654,202 $ 170,558 $ 25,244
period (000 omitted)
Ratio of expenses to .87% .89% .97% .95% .90% .90%
average net assets A G G
Ratio of net investment 6.33% 6.05% 5.91% 6.77% 7.59% 8.50%
income to average A
net assets
Portfolio turnover rate 141% 179% 108% 58% 57% 127%
A
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
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 THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
F EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
H AMOUNTS HAVE BEEN ADJUSTED TO CONFORM WITH PRESENT PERIOD ACCOUNTING
POLICIES.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS JULY 3, 1995
ENDED (COMMENCEMENT
APRIL 30, 1996 OF OPERATIONS) TO
OCTOBER 31,
(UNAUDITED) 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.470 $ 9.450
Income from Investment Operations
Net investment income .303 C .137
Net realized and unrealized gain (loss) (.129) .067 D
Total from investment operations .174 .204
Less Distributions
From net investment income (.304) (.136)
Return of capital (Note 1) - (.048)
Total distributions (.304) (.184)
Net asset value, end of period $ 9.340 $ 9.470
TOTAL RETURN B, F 1.84% 2.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 11,705 $ 9,827
Ratio of expenses to average net assets .85% A, .85% A,
E E
Ratio of net investment income to average net assets 6.35% A 6.10% A
Portfolio turnover rate 141% A 179%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Short Fixed-Income (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A and Institutional Class shares, each of which has
equal rights as to assets and voting privileges. Each class has exclusive
voting rights with respect to its distribution plan. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities (including restricted securities) for
which market quotations are not readily available are valued at their fair
value as determined in good faith under consistently applied procedures
under the general supervision of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. FMR bears all organizational expenses except for
registering and qualifying each class and shares of each class for
distribution under federal and state securities law. These expenses are
borne by each class and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends are declared
separately for each class, while capital gain distributions are declared at
the fund level and allocated to each class on a pro rata basis based on the
number of shares held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, foreign currency transactions, market
discount and losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments may include temporary book and tax basis differences that will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
For the period ended October 31, 1995, the fund's distributions exceeded
the aggregate amount of taxable income and net realized gains resulting in
a return of capital. This was due to certain foreign currency losses which
decreased taxable income available for distribution after certain
distributions had been made.
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 fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the 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 SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements 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 fund, through its custodian, receives 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 fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $702,504 or 0.1%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $361,053,612 and $420,297,457, respectively, of which U.S.
government and government agency obligations aggregated $241,702,816 and
$313,038,787, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. 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 annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares (Class A Plan) and Institutional Class shares
(collectively referred to as "the Plans"). Under the Class A Plan, the fund
pays Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. This fee is based on an annual rate of .15%
of the average net assets of Class A. For the period, the fund paid FDC
$389,753 under the Class A Plan, of which $389,753 was paid to securities
dealers, banks and other financial institutions for the
distribution of Class A shares, and providing shareholder support services.
Under the Plans, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's Class A and
Institutional Class shares. The Plans also authorize payments to third
parties that assist in the sale of the fund's shares or render shareholder
support services.
SALES LOAD. FDC received a front-end sales charge of up to 1.50% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $340,559 on sales of Class A shares of the fund, of which
$282,201 was paid to securities dealers, banks, and other financial
institutions.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Institutional Class shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund. With
respect to the Class A shares, State Street has delegated certain transfer,
dividend paying, and shareholder services to FIIOC for which FIIOC receives
its allocable share of all such fees. FIIOC pays for typesetting, printing
and mailing of all
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
shareholder reports, except proxy statements. For the period, the transfer
agent fees were equivalent to an annualized rate of .21% and .18% of
average net assets for Class A and Institutional Class, respectively.
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above an annual
rate of 1.00% and 0.85% of average net assets for Class A and Institutional
Class, respectively. For the period, the reimbursement reduced expenses by
$0, and $21,325 for Class A and Institutional Class, respectively.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the class' expenses. During the period, the fund's
custodian fees were reduced by $6,791 under the custodian arrangement and
Class A and Institutional Class expenses were reduced by $3,018 and $278,
respectively, under the transfer agent arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED APRIL 30,
OCTOBER 31, APRIL 30, OCTOBER 31,
1996 1995 A 1996 1995 A
CLASS A
Shares sold 8,840,986 20,377,823 $ 83,669,068 $ 190,869,432
Reinvestment of distributions 1,396,746 3,265,988 13,213,001 30,573,100
Shares redeemed (15,886,771) (48,984,447) (150,367,476) (458,631,505)
Net increase (decrease) (5,649,039) (25,340,636) $ (53,485,407) $
(237,188,973)
INSTITUTIONAL CLASS
Shares sold 480,927 1,074,155 $ 4,557,160 $ 10,126,478
Reinvestment of distributions 30,896 13,078 292,075 123,702
Shares redeemed (296,558) (49,723) (2,815,817) (469,686)
Net increase (decrease) 215,265 1,037,510 $ 2,033,418 $ 9,780,494
A SHARE TRANSACTIONS FOR THE INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
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
State Street Bank and Trust Company
Boston, MA
CUSTODIAN
Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
