(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
HIGH YIELD
FUND - CLASS A & CLASS B
ANNUAL REPORT
OCTOBER 31, 1995
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 32 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 44 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 45
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 the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
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 fund's total return
includes changes in a fund's 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.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Class A 15.05% 142.35% 214.26%
Advisor High Yield - Class A
(incl. max. 4.75% sales charge) 9.59% 130.83% 199.33%
Merrill Lynch High Yield Master Index 17.17% 120.20% n/a
Average High Current Yield Fund 12.73% 113.44% n/a
Consumer Price Index 2.81% 15.13% 39.10%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, 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 - a broad gauge of the high yield bond
market. To measure how Class A's performance stacked up against its peers,
you can compare it to the average high current yield fund, which reflects
the performance of 112 high current yield funds with similar objectives
tracked by Lipper Analytical Services over the past 12 months. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effects of sales charges. Comparing Class A's performance to
the consumer price index (CPI) helps show how the class did compared to
inflation. (The CPI returns begin on the month end closest to the fund's
start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Class A 15.05% 19.37% 13.85%
Advisor High Yield - Class A
(incl. max. 4.75% sales charge) 9.59% 18.21% 13.23%
Merrill Lynch High Yield Master Index 17.17% 17.10% n/a
Average High Current Yield Fund 12.73% 16.27% n/a
Consumer Price Index 2.81% 2.86% 3.81%
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
Fidelity Advisor HigHigh Yield Master (J0A0)(M
01/31/87 9525.00 10000.00
02/28/87 9705.33 10165.09
03/31/87 9803.65 10277.49
04/30/87 9598.01 10053.36
05/31/87 9494.91 10008.06
06/30/87 9646.09 10146.40
07/31/87 9679.16 10201.61
08/31/87 9775.11 10303.83
09/30/87 9419.84 10066.76
10/31/87 9025.00 9797.80
11/30/87 9354.01 10045.57
12/31/87 9521.54 10178.96
01/31/88 10020.19 10457.50
02/29/88 10341.50 10741.26
03/31/88 10274.39 10723.50
04/30/88 10245.08 10754.47
05/31/88 10278.29 10810.60
06/30/88 10685.14 11017.30
07/31/88 10839.29 11133.72
08/31/88 10786.35 11170.30
09/30/88 10900.55 11282.89
10/31/88 11023.56 11458.68
11/30/88 11056.00 11501.61
12/31/88 11163.51 11550.28
01/31/89 11465.78 11723.49
02/28/89 11545.92 11802.27
03/31/89 11433.28 11791.77
04/30/89 11306.58 11826.57
05/31/89 11592.24 12044.30
06/30/89 12006.06 12214.94
07/31/89 12071.61 12272.78
08/31/89 12193.70 12333.41
09/30/89 11835.86 12215.99
10/31/89 11391.47 12022.77
11/30/89 11424.68 12049.71
12/31/89 11569.33 12038.82
01/31/90 11401.48 11803.53
02/28/90 11340.96 11631.63
03/31/90 11540.73 11788.87
04/30/90 11679.49 11848.76
05/31/90 12071.76 12062.79
06/30/90 12416.30 12296.49
07/31/90 12705.18 12556.35
08/31/90 12393.28 12075.66
09/30/90 12079.96 11550.48
10/31/90 11798.76 11256.55
11/30/90 12167.14 11351.90
12/31/90 12414.02 11515.48
01/31/91 12699.62 11678.26
02/28/91 13428.41 12545.05
03/31/91 13932.18 13084.44
04/30/91 14356.42 13550.40
05/31/91 14509.34 13616.56
06/30/91 14898.88 13890.48
07/31/91 15437.10 14223.31
08/31/91 15637.47 14522.26
09/30/91 15848.63 14707.23
10/31/91 16479.76 15144.26
11/30/91 16670.01 15319.19
12/31/91 16752.04 15497.16
01/31/92 17519.94 16038.99
02/29/92 18245.18 16437.32
03/31/92 18762.36 16666.67
04/30/92 18933.10 16787.98
05/31/92 19139.67 17055.75
06/30/92 19428.58 17267.67
07/31/92 19778.89 17617.53
08/31/92 20144.61 17850.77
09/30/92 20360.35 18054.16
10/31/92 20098.78 17826.14
11/30/92 20318.40 18078.60
12/31/92 20620.01 18311.38
01/31/93 21171.17 18762.27
02/28/93 21634.91 19117.42
03/31/93 22136.92 19448.86
04/30/93 22263.00 19588.46
05/31/93 22565.78 19852.14
06/30/93 23116.45 20225.12
07/31/93 23419.96 20442.51
08/31/93 23602.35 20637.39
09/30/93 23647.32 20739.21
10/31/93 24212.49 21129.89
11/30/93 24387.93 21245.45
12/31/93 24836.69 21457.89
01/31/94 25550.31 21928.14
02/28/94 25445.39 21770.44
03/31/94 24669.67 21061.01
04/30/94 24394.86 20814.89
05/31/94 24546.30 20740.73
06/30/94 24501.01 20817.07
07/31/94 24595.84 20963.41
08/31/94 24771.82 21109.02
09/30/94 24897.73 21101.03
10/31/94 24852.21 21154.65
11/30/94 24454.67 20974.70
12/31/94 24465.68 21208.01
01/31/95 24676.06 21507.68
02/28/95 25470.49 22178.75
03/31/95 25699.75 22487.40
04/30/95 26529.13 23013.91
05/31/95 27123.50 23732.92
06/30/95 27066.25 23914.19
07/31/95 27732.81 24187.58
08/31/95 27889.96 24334.38
09/30/95 28225.59 24612.79
10/31/95 28593.70 24787.26
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor High Yield Fund - Class A on January 31, 1987, shortly after the
fund started, and paid the maximum 4.75% sales charge. As the chart shows,
by October 31, 1995, the value of your investment would have grown to
$28,594 - a 185.94% 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 $24,787 - a 147.87% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 8.90% 7.15% 9.66% 12.57% 15.50%
Capital appreciation return 6.15% -4.51% 10.81% 9.39% 24.17%
Total return 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 OCTOBER 31, 1995 PAST PAST 6 PAST
MONTH MONTHS YEAR
Dividends per share 7.43(cents) 44.98(cents) 92.00(cents)
Annualized dividend rate 7.35% 7.60% 8.06%
30-day annualized yield 8.05% - -
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 $11.90 over the past month, $11.74
over the past six months and $11.41 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 maximum 4.75% 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 fund's total return
includes changes in a fund's 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.
Initial offering of Class B shares took place on June 30, 1994. Class B
shares bear a 1.00% 12b-1/shareholder service fee. This fee is not
reflected in returns prior to that date, and returns would have been lower
had this fee been taken into account. Prior date returns 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 past 5 years and life of fund total returns would have been
lower. Class B's contingent deferred sales charges included in the past 1
year, past 5 years and life of fund total return figures are 4%, 1% and 0%,
respectively.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Class B 14.12% 139.20% 210.19%
Advisor High Yield - Class B
(incl. contingent deferred sales charge) 10.12% 138.20% 210.19%
Merrill Lynch High Yield Master Index 17.17% 120.20% n/a
Average High Current Yield Fund 12.73% 113.44% n/a
Consumer Price Index 2.81% 15.13% 39.10%
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, 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 - a broad gauge of the high yield bond
market. To measure how Class B's performance stacked up against its peers,
you can compare it to the average high current yield fund, which reflects
the performance of 112 high current yield funds with similar objectives
tracked by Lipper Analytical Services over the past 12 months. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effects of sales charges. Comparing Class B's performance to
the consumer price index (CPI) helps show how the class did compared to
inflation. (The CPI returns begin on the month end closest to the fund's
start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Class B 14.12% 19.06% 13.68%
Advisor High Yield - Class B
(incl. contingent deferred sales charge) 10.12% 18.96% 13.68%
Merrill Lynch High Yield Master Index 17.17% 17.10% n/a
Average High Current Yield Fund 12.73% 16.27% n/a
Consumer Price Index 2.81% 2.86% 3.81%
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
Fidelity Advisor HigHigh Yield Master (J0A0)(ML
01/31/87 10000.00 10000.00
02/28/87 10189.32 10165.09
03/31/87 10292.55 10277.49
04/30/87 10076.65 10053.36
05/31/87 9968.41 10008.06
06/30/87 10127.13 10146.40
07/31/87 10161.84 10201.61
08/31/87 10262.59 10303.83
09/30/87 9889.59 10066.76
10/31/87 9475.07 9797.80
11/30/87 9820.48 10045.57
12/31/87 9996.37 10178.96
01/31/88 10519.88 10457.50
02/29/88 10857.22 10741.26
03/31/88 10786.77 10723.50
04/30/88 10755.99 10754.47
05/31/88 10790.85 10810.60
06/30/88 11217.99 11017.30
07/31/88 11379.84 11133.72
08/31/88 11324.25 11170.30
09/30/88 11444.14 11282.89
10/31/88 11573.29 11458.68
11/30/88 11607.34 11501.61
12/31/88 11720.23 11550.28
01/31/89 12037.57 11723.49
02/28/89 12121.70 11802.27
03/31/89 12003.44 11791.77
04/30/89 11870.42 11826.57
05/31/89 12170.33 12044.30
06/30/89 12604.78 12214.94
07/31/89 12673.61 12272.78
08/31/89 12801.79 12333.41
09/30/89 12426.10 12215.99
10/31/89 11959.54 12022.77
11/30/89 11994.42 12049.71
12/31/89 12146.28 12038.82
01/31/90 11970.06 11803.53
02/28/90 11906.52 11631.63
03/31/90 12116.25 11788.87
04/30/90 12261.93 11848.76
05/31/90 12673.76 12062.79
06/30/90 13035.49 12296.49
07/31/90 13338.77 12556.35
08/31/90 13011.32 12075.66
09/30/90 12682.37 11550.48
10/31/90 12387.15 11256.55
11/30/90 12773.90 11351.90
12/31/90 13033.09 11515.48
01/31/91 13332.94 11678.26
02/28/91 14098.07 12545.05
03/31/91 14626.96 13084.44
04/30/91 15072.36 13550.40
05/31/91 15232.90 13616.56
06/30/91 15641.87 13890.48
07/31/91 16206.93 14223.31
08/31/91 16417.30 14522.26
09/30/91 16638.98 14707.23
10/31/91 17301.59 15144.26
11/30/91 17501.32 15319.19
12/31/91 17587.44 15497.16
01/31/92 18393.64 16038.99
02/29/92 19155.05 16437.32
03/31/92 19698.02 16666.67
04/30/92 19877.27 16787.98
05/31/92 20094.15 17055.75
06/30/92 20397.46 17267.67
07/31/92 20765.23 17617.53
08/31/92 21149.19 17850.77
09/30/92 21375.70 18054.16
10/31/92 21101.09 17826.14
11/30/92 21331.65 18078.60
12/31/92 21648.30 18311.38
01/31/93 22226.95 18762.27
02/28/93 22713.82 19117.42
03/31/93 23240.86 19448.86
04/30/93 23373.23 19588.46
05/31/93 23691.11 19852.14
06/30/93 24269.24 20225.12
07/31/93 24587.88 20442.51
08/31/93 24779.37 20637.39
09/30/93 24826.58 20739.21
10/31/93 25419.94 21129.89
11/30/93 25604.12 21245.45
12/31/93 26075.26 21457.89
01/31/94 26824.48 21928.14
02/28/94 26714.32 21770.44
03/31/94 25899.91 21061.01
04/30/94 25611.40 20814.89
05/31/94 25770.39 20740.73
06/30/94 25722.85 20817.07
07/31/94 25822.40 20963.41
08/31/94 26007.16 21109.02
09/30/94 26139.35 21101.03
10/31/94 26091.55 21154.65
11/30/94 25674.19 20974.70
12/31/94 25685.75 21208.01
01/31/95 25906.62 21507.68
02/28/95 26740.67 22178.75
03/31/95 26981.37 22487.40
04/30/95 27852.10 23013.91
05/31/95 28476.11 23732.92
06/30/95 28416.01 23914.19
07/31/95 29120.57 24187.58
08/31/95 29293.34 24334.38
09/30/95 29652.14 24612.79
10/31/95 29876.09 24787.26
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor High Yield Fund - Class B on January 31, 1987, shortly after the
fund started. As the chart shows, by October 31, 1995, the value of your
investment would have grown to $29,630 - a 196.30% 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 $24,787 - a 147.87% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 8.05% 6.73% 9.66% 12.57% 15.50%
Capital appreciation return 6.07% -4.59% 10.81% 9.39% 24.17%
Total return 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 OCTOBER 31, 1995 PAST PAST 6 PAST
MONTH MONTHS YEAR
Dividends per share 6.76(cents) 40.73(cents) 83.48(cents)
Annualized dividend rate 6.70% 6.89% 7.32%
30-day annualized yield 7.78% - -
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 $11.88 over the past month, $11.73
over the past six months, and $11.40 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
MARKET RECAP
Three factors helped to fuel strong
total returns for high-yield bond
investors in the 12 months ended
October 31, 1995. First, a
declining interest rate environment
created a positive backdrop for
bond investors. Second, steady
economic growth and generally
favorable corporate earnings
produced optimism regarding the
overall credit quality of the
high-yield market. Third, demand
for high-yield bonds - sparked by
investors looking for the additional
yield offered by these investments
- - has been quite strong, while
new supply during most of the
period was limited. For the 12
months ended October 31, the
Salomon Brothers Composite
High-Yield Index had a total return
of 18.45%. High-yield issues
outpaced those in most other U.S.
bond markets. The Lehman
Brothers Aggregate Bond Index
- - a broader measure of the
performance of taxable bonds in
the U.S. - returned 15.65%
during the period. A slowing
economy and reduced inflation
pressures attracted investors to
fixed-income securities -
sending market yields lower
during the period. The Federal
Reserve Board reinforced
investors' positive outlook by
lowering the fed funds rate - the
rate banks charge each other for
overnight loans - by 0.25% in
July to 5.75%. Although the
economy slowed, it continued to
grow moderately, helping
high-yield companies experience
cash-flow stability and growth.
An interview with Margaret Eagle, Portfolio Manager of Fidelity Advisor
High Yield Fund
Q. MARGARET, HOW DID THE FUND DO?
A. Quite well. For the year ended October 31, 1995, the fund's Class A
shares and Class B shares had total returns of 15.05% and 14.12%,
respectively. Those beat the average high current yield fund's return of
12.73% for the year ended October 31, 1995, as tracked by Lipper Analytical
Services. The Merrill Lynch High Yield Master Index returned 17.17% for the
year ended October 31, 1995.
Q. WHAT HELPED THE FUND OUTPERFORM THE AVERAGE?
A. Several holdings in particular. PanAmSat, a worldwide television
broadcaster, did quite well, especially during the past six months. There's
currently a large backlog of television programs wanting to be transmitted
by PanAmSat and the backlog continues to grow. GPA, one of the world's
largest leasing aircraft companies and one of the fund's largest
investments at the end of the period, had a positive impact on the fund.
Recently, GPA announced plans to securitize its aircraft and use the
proceeds to pay its creditors. Also, supply and demand for narrow bodied
airplanes has moved closer to equilibrium, reversing a long trend of
oversupply. The fundamentals of the leasing industry continue to improve
and I believe the prospects for achieving the company's recapitalization
plan are quite good.
Q. WERE THERE OTHER HOLDINGS THAT HELPED THE FUND?
A. Revlon, at 3.6% of investments at the end of the period, has made
tremendous progress since 1991. The company has posted a string of strong
quarterly earnings, and has achieved the No. 2 position in the $2.3
billion cosmetics industry. Echostar, a satellite broadcasting service, was
another winner over the past year. While the company has yet to launch its
satellite, its bonds rose in value. Echostar is one of just three companies
that have an orbital slot - an address in the sky, so to speak - which
can eventually broadcast to the United States, Canada and Mexico. The bonds
appreciated significantly over the summer when the value of orbital slots
became more apparent.
Q. WHICH HOLDINGS DIDN'T PERFORM AS WELL AS YOU HAD HOPED?
A. Wickes Lumber was somewhat disappointing. I purchased Wickes because I
thought that home builders - the company's primary customers - would start
to enjoy more activity resulting from lower interest rates and lower lumber
costs. But consumer debt is at a very high level, which kept a lid on new
home building and rehab activity. And while lumber prices did fall as I
expected, lower lumber prices actually translated into lower sales figures
for the company.
Q. SIX MONTHS AGO YOU HAD BEGUN REDUCING THE FUND'S STAKE IN DISTRESSED -
BANKRUPT - DEBT. DID YOU CONTINUE THAT STRATEGY DURING THE PAST SIX MONTHS?
A. It's more a case of not adding any new distressed debt to the fund.
There are two reasons for that. First is a lack of supply. What caused all
the attractive distressed opportunities over the past several years was a
combination of a lot of over-leveraged companies and the recession that
began in 1989. A lot of that debt has worked its way through the system and
there isn't much of it left. Second, what I am currently seeing generally
doesn't fit my investment parameters, although that could change if the
supply of attractive situations changes.
Q. HOW WILL THIS AFFECT YOUR INVESTMENT STRATEGY LOOKING AHEAD?
A. I plan to emphasize more of the relatively higher-quality portions of
the junk bond market, those rated B, just as I have over the past six
months. In my view, that's where the risk/reward payoff is the best right
now. As long as interest rates are low, inflation stays moderate and the
stock market remains strong, I think the fund should continue to do well
with that strategy.
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 a high level
of income and the potential
for capital gains by investing
primarily in high-yield bonds
START DATE: January 5, 1987
SIZE: as of October 31, 1995,
more than $1.3 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
MARGARET EAGLE'S OUTLOOK FOR
THE HIGH-YIELD MARKET IN 1996:
"In my view, the interest rate
environment could be fairly
be- nign for at least the first
half of 1996. I think the
Federal Reserve Board has
been pretty good at
orchestrating a "soft landing,"
in which economic growth is
slow, but steady, and inflation
remains low. Healthy,
non-inflationary economic
growth is a positive for the
high-yield market.
"In 1995, we've seen some
high-profile defaults in the
high-yield bond sector,
particularly with the retailers.
While I don't expect the rate
of defaults to increase
dramatically, I believe it could
slowly rise. Therefore, I think
it's very important to choose
one's spots carefully and
generally avoid the riskier
parts of the marketplace.
"The supply and demand
fundamentals for the
high-yield market should
remain attractive and we could
see even more investor
dollars coming into high-yield
securities and high-yield
mutual funds. That increased
inflow would be a positive for
the high-yield market."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1995
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
PanAmSat Corp. 3.7 1.3
Revlon Worldwide Corp. 3.6 3.5
Transamerican Refining Corp. 2.7 1.0
GPA Delaware, Inc. (various issues) 2.3 1.9
Columbia Gas Systems, Inc. (various 2.2 2.5
issues)
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 18.6 20.0
Basic Industries 8.9 14.1
Retail & Wholesale 8.8 7.9
Utilities 8.7 9.4
Nondurables 8.1 5.5
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1995
(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 6.2 1.9
B 49.1 57.3
Caa, Ca, C 11.0 11.7
Nonrated 11.0 15.0
TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1995 AND APRIL 30, 1995, ACCOUNT
FOR 11.0% AND 15.0%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION
AS OF OCTOBER 31, 1995* AS OF APRIL 30, 1995**
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%
Nonconvertible
bonds 78.9%
Convertible bonds,
preferred stocks 7.3%
Common stocks 3.0%
Short-term
investments 4.2%
Other 6.6%
FOREIGN
INVESTMENTS 7.1%
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
Row: 1, Col: 1, Value: 6.6
Row: 1, Col: 2, Value: 4.2
Row: 1, Col: 3, Value: 3.0
Row: 1, Col: 4, Value: 7.3
Row: 1, Col: 5, Value: 38.9
Row: 1, Col: 6, Value: 40.0
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 72.9%
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.1%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp., Series C, 0%, 6/30/97 - $ 428,000 $ 416,599
MEDIA & LEISURE - 0.1%
LODGING & GAMING - 0.1%
Bally Entertainment Corp. 10%, 12/15/06 Caa 750,000 731,250
TOTAL CONVERTIBLE BONDS 1,147,849
NONCONVERTIBLE BONDS - 72.8%
AEROSPACE & DEFENSE - 0.5%
Wyman-Gordon Co. 10 3/4%, 3/15/03 B1 7,030,000 7,258,475
BASIC INDUSTRIES - 7.8%
CHEMICALS & PLASTICS - 1.2%
American Pacific Corp. 11%, 2/21/02 (f) - 450,000 405,000
NL Industries, Inc. 11 3/4%, 10/15/03 B1 5,050,000 5,365,625
Pioneer Americas Acquisition Corp.
13 3/8%, 4/1/05 (f) B2 10,000,000 10,300,000
16,070,625
IRON & STEEL - 1.0%
Republic Engineered Steels, Inc. 9 7/8%, 12/15/01 B2 15,190,000
13,974,800
METALS & MINING - 1.5%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 17,350,000 19,128,375
Sherritt, Inc. 10 1/2%, 3/31/14 B1 970,000 989,400
20,117,775
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings Ltd. 0%,
11/1/03 (g) Caa 2,010,000 919,575
PAPER & FOREST PRODUCTS - 4.0%
Mail-Well Holdings, Inc 0%,
2/15/06 (g) - 1,790,000 1,074,000
Repap New Brunswick, Inc.
yankee 10 5/8%, 4/15/05 B2 6,330,000 6,456,600
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
SD Warren Co. 12%, 12/15/04 B1 $ 9,300,000 $ 10,323,000
Stone Container Corp.:
9 7/8%, 2/1/01 B1 3,820,000 3,786,575
10 3/4%, 4/1/02 B2 4,880,000 4,916,600
10 3/4%, 10/1/02 B1 4,160,000 4,352,400
11 1/2%, 10/1/04 B1 1,470,000 1,528,800
Tjiwi Kimia International Finance Co.
13 1/4%, 8/1/01 Ba3 21,190,000 23,150,075
55,588,050
TOTAL BASIC INDUSTRIES 106,670,825
CONSTRUCTION & REAL ESTATE - 0.7%
CONSTRUCTION - 0.5%
UDC Homes exchangeable
11 3/4%, 4/30/03 (b) B2 5,210,000 4,272,200
Walter Industries, Inc. 12.19%, 3/15/00 - 2,088,000 2,119,320
6,391,520
REAL ESTATE - 0.2%
Littlefield Co. 10%, 12/31/95 (e) - 3,300,000 2,990,295
TOTAL CONSTRUCTION & REAL ESTATE 9,381,815
DURABLES - 1.3%
AUTOS, TIRES, & ACCESSORIES - 1.1%
Harvard Industries, Inc.:
12%, 7/15/04 B3 4,670,000 4,903,500
11 1/8%, 8/1/05 (f) B3 5,400,000 5,481,000
Venture Holdings Trust 9 3/4%, 4/1/04 B3 6,150,000 5,319,750
15,704,250
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.2%
Forstmann Textiles, Inc. 14 3/4%, 4/15/99 (b) Ca $ 720,000 $ 216,000
Hat Brands, Inc.:
Series B, 12 5/8%, 9/15/02 - 710,000 745,500
Series D, 12 5/8%, 9/15/02 - 820,000 861,000
Leslie Fay Companies (b)(e):
9.53%, 1/15/00 - 450,880 270,528
10.54%, 1/15/02 - 407,569 203,784
2,296,812
TOTAL DURABLES 18,001,062
ENERGY - 6.2%
OIL & GAS - 6.2%
Chesapeake Energy Corp. 10 1/2%, 6/1/02 B1 450,000 454,500
Flores & Rucks, Inc. 13 1/2%, 12/1/04 B3 13,900,000 15,568,000
Mesa Capital Corp. secured 12 3/4%, 6/30/98 Caa 16,300,000 14,670,000
Plains Resources, Inc. 12%, 8/15/99 B3 5,373,000 5,547,623
Transamerican Refining Corp. 16 1/2%,
2/15/02 (i) Caa 34,630,000 36,361,500
Transtexas Gas Corp. 11 1/2%, 6/15/02 B2 9,900,000 10,320,750
United Meridian Corp. 10 3/8%, 10/15/05 B2 1,490,000 1,516,075
TOTAL ENERGY 84,438,448
FINANCE - 2.4%
CREDIT & OTHER FINANCE - 0.2%
Tembec Finance Corp. yankee 9 7/8%, 9/30/05 B1 2,530,000 2,466,750
INSURANCE - 0.8%
American Financial Corp. 9 3/4%, 4/20/04 Ba3 2,210,000 2,226,575
American Financial Corp. (Ohio) 9 3/4%, 4/20/04 Ba3 8,580,000 8,644,350
10,870,925
SAVINGS & LOANS - 0.6%
First Nationwide Holdings, Inc. 12 1/4%, 5/15/01 Ba3 6,850,000 7,637,750
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.8%
Alliance Entertainment Corp.
11 1/4%, 7/15/05 (f) B3 $ 11,490,000 $ 11,432,550
ECM Corp. extendible 14%, 6/1/02 (f) - 171,059 188,165
11,620,715
TOTAL FINANCE 32,596,140
HEALTH - 0.8%
MEDICAL FACILITIES MANAGEMENT - 0.8%
Tenet Healthcare Corp. 8 5/8%, 12/1/03 Ba2 11,180,000 11,487,450
INDUSTRIAL MACHINERY & EQUIPMENT - 3.8%
ELECTRICAL EQUIPMENT - 0.6%
PanAmSat LP/PanAmSat Capital Corp.:
secured 9 3/4%, 8/1/00 Ba3 2,400,000 2,520,000
0%, 8/1/03 (g) B3 6,520,000 5,183,400
7,703,400
INDUSTRIAL MACHINERY & EQUIPMENT - 2.5%
Calmar, Inc.11 1/2%, 8/15/05 (f) B3 8,250,000 8,476,875
MVE, Inc. 12 1/2%, 2/15/02 B3 8,240,000 8,446,000
Specialty Equipment Cos., Inc. 11 3/8%, 12/1/03 B3 7,050,000 7,261,500
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 565,000 562,175
10 3/4%, 11/1/03 Caa 1,938,000 1,918,620
UCAR Global Enterprises, Inc. 12%, 1/15/05 B2 7,025,000 7,903,125
34,568,295
POLLUTION CONTROL - 0.7%
Envirosource, Inc. 9 3/4%, 6/15/03 B3 10,500,000 9,240,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 51,511,695
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - 13.8%
BROADCASTING - 8.6%
Allbritton Communications Co. 11 1/2%, 8/15/04 B3 $ 4,690,000 $ 4,924,500
Bell Cablemedia PLC 0%, 9/15/05 (f)(g) B2 27,400,000 16,440,000
CAI Wireless System, Inc. 12 1/4%, 9/15/02 B3 6,600,000 6,996,000
Chancellor Broadcasting 12 1/2%, 10/1/04 B3 5,730,000 6,016,500
Citicasters, Inc. 9 3/4%, 2/15/04 B- 8,125,000 8,165,625
Cooke Media Group, Inc. 11 5/8%, 4/1/99 - 4,575,000 4,346,250
Diamond Cable Communications PLC 0%,
9/30/04 (g) B3 24,440,000 16,619,200
PTI Holdings, Inc. 7%, 12/17/02 - 1,774,755 1,082,601
Peoples Choice TV Corp. Unit 0%,
6/1/04 (g) Caa 15,310,000 8,535,325
Robin Media Group, Inc. 11 1/8%, 4/1/97 - 12,270,000 12,607,425
SCI Television, Inc. secured 11%, 6/30/05 B2 4,390,000 4,647,913
Telemundo Group, Inc. 10 1/4%, 12/30/01 - 500,000 485,000
Telewest PLC 0%, 10/1/07 (g) B1 17,280,000 10,087,200
Univision Network Holding LP 7%, 12/17/02 - 12,135,225 7,341,811
Viacom, Inc. 8%, 7/7/06 B1 9,350,000 9,256,500
117,551,850
LEISURE DURABLES & TOYS - 0.1%
ICON Health And Fitness, Inc. 13%, 7/15/02 B3 1,460,000 1,562,200
LODGING & GAMING - 4.2%
Grand Casino Resorts, Inc. 12 1/2%, 2/1/00 Ba3 2,720,000 3,046,400
Mohegan Tribal Gaming Authority
13 1/2%, 11/15/02 (f) - 14,370,000 15,052,575
Players International, Inc. 10 7/8%, 4/15/05 Ba3 24,870,000 23,626,500
President Riverboat Casinos 13%, 9/15/01 B 9,710,000 8,641,900
Stratosphere Corp. 14 1/4%, 5/15/02 B2 6,620,000 7,066,850
57,434,225
RESTAURANTS - 0.9%
SC International Services, Inc. 13%, 10/1/05 B3 11,740,000 12,062,850
TOTAL MEDIA & LEISURE 188,611,125
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 7.6%
AGRICULTURE - 0.5%
Hines Horticulture, Inc. 11 3/4%,
10/15/05 (f) B3 $ 6,420,000 $ 6,564,450
FOODS - 1.3%
Chiquita Brands International, Inc.:
11 1/2%, 6/1/01 B3 1,975,000 2,083,625
9 5/8%, 1/15/04 B1 2,790,000 2,824,875
9 1/8%, 3/1/04 B1 2,100,000 2,105,250
Specialty Foods Corp.:
Series B, 11 1/8%, 10/1/02 B3 2,090,000 1,954,150
11 1/4%, 8/15/03 Caa 10,040,000 8,433,600
17,401,500
HOUSEHOLD PRODUCTS - 5.8%
McAndrews & Forbes Group, Inc.
12 1/4%, 7/1/96 - 10,850,000 10,904,250
RBX Corp. 11 1/4%, 10/15/05 (f) B3 2,770,000 2,770,000
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 16,820,000 17,282,550
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 65,167,000 48,547,065
79,503,865
TOTAL NONDURABLES 103,469,815
RETAIL & WHOLESALE - 8.5%
APPAREL STORES - 0.2%
Apparel Retailers, Inc. 0%, 8/15/05 (g) Caa 2,360,000 1,451,400
Lamonts Apparel, Inc. 10 1/4%, 11/1/99 (b)(f) - 2,201,000 550,250
2,001,650
DRUG STORES - 1.1%
Thrifty Payless, Inc. 12 1/4%, 4/15/04 B3 14,660,000 15,686,200
GROCERY STORES - 6.1%
Brunos, Inc. 10 1/2%, 8/1/05 B3 23,600,000 23,246,000
Food 4 Less Holdings, Inc. 0%, 7/15/05 (g) Caa 12,120,000 5,575,200
Pathmark Stores, Inc. 9 5/8%, 5/1/03 B2 9,980,000 9,855,250
Purity Supreme, Inc. 11 3/4%, 8/1/99 B3 4,460,000 4,878,125
Ralph's Grocery Co. 11%, 6/15/05 B3 14,690,000 14,304,383
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Star Markets, Inc. 13%, 11/1/04 B3 $ 12,860,000 $ 12,860,000
TLC Beatrice International Holdings, Inc.
11 1/2%, 10/1/05 B1 12,640,000 12,355,600
83,074,558
RETAIL & WHOLESALE, MISCELLANEOUS - 1.1%
Finlay Fine Jewelry Corp. 10 5/8%, 5/1/03 B1 8,570,000 8,441,450
Wickes Lumber Co. 11 5/8%, 12/15/03 B3 10,500,000 6,825,000
15,266,450
TOTAL RETAIL & WHOLESALE 116,028,858
SERVICES - 6.5%
ADVERTISING - 0.7%
Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 10,400,000 9,984,000
LEASING & RENTAL - 3.9%
GPA:
9 3/4%, 6/10/96 (f) Caa 2,250,000 2,244,375
9 3/4%, 7/22/96 Caa 500,000 498,750
8.28%, 2/13/97 (f) - 1,400,000 1,335,250
8.48%, 2/21/97 (f) B1 2,250,000 2,143,125
8.58%, 2/21/97 - 250,000 238,438
9.12%, 2/24/99 - 750,000 650,625
9%, 8/16/99 - 3,250,000 2,746,250
GPA Delaware, Inc.:
8 1/2%, 3/3/97 - 6,800,000 6,477,000
8 3/4%, 12/15/98 Caa 24,310,000 21,757,450
8 5/8%, 1/15/99 - 3,200,000 2,784,000
GPA Holland 8.94%, 2/16/99 - 4,500,000 3,903,750
GPA Leasing USA I, Inc. 9 1/8%, 9/02/96 B3 3,364,879 3,293,375
GPA Leasing USA Sub. I, Inc. 9 1/8%,
12/02/96 B3 2,734,490 2,661,452
Scotsman Holdings, Inc. pay-in-kind
11%, 3/1/04 - 2,594,320 2,183,561
52,917,401
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
PRINTING - 0.8%
Big Flower Press:
10 3/4%, 8/1/03 B3 $ 3,140,000 $ 3,297,000
10 3/4%, 8/1/03, Class A B3 3,450,000 3,622,500
10 3/4%, 8/1/03, Class B B3 1,000,000 1,050,000
Herff Jones, Inc. 11%, 8/15/05 (f) B2 3,600,000 3,726,000
11,695,500
SERVICES - 1.1%
Acetex Corp. 9 3/4%, 10/1/03 (f) B1 14,340,000 14,734,350
TOTAL SERVICES 89,331,251
TECHNOLOGY - 2.0%
COMMUNICATIONS EQUIPMENT - 1.5%
Echostar Communications Corp. Unit 0%,
6/1/04 (g) Caa 32,520,000 20,812,800
COMPUTER SERVICES & SOFTWARE - 0.2%
Computervision Corp. 11 3/8%, 8/15/99 B3 2,700,000 2,821,500
ELECTRONICS - 0.3%
Berg Electronics, Inc. 11 3/8%, 5/1/03 B3 3,960,000 4,435,200
TOTAL TECHNOLOGY 28,069,500
TRANSPORTATION - 2.3%
AIR TRANSPORTATION - 2.3%
Continental Airlines, Inc. 2nd priority secured
equipment certificate 11%, 3/15/00 (b) Caa 190,000 -
NWA, Inc. 8 5/8%, 8/1/96 B2 2,460,000 2,460,000
Trans World Airlines, Inc. 12%, 11/3/98 - 370,000 317,634
US Air, Inc.:
9 5/8%, 2/1/01 B3 7,720,000 6,870,800
10%, 7/1/03 B3 21,190,000 18,700,175
9 5/8%, 9/1/03 B1 3,140,000 3,030,100
TOTAL TRANSPORTATION 31,378,709
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 8.6%
CELLULAR - 5.0%
Cencall Communications Corp. 0%,
1/15/04 (g) Caa $ 18,420,000 $ 9,624,450
Comcast Cellular Corp.:
0%, 3/5/00 B2 12,330,000 9,370,800
Series B, 0%, 3/5/00 B2 14,970,000 11,377,200
Dial Call Communications, Inc.:
0%, 4/15/04 (g) Caa 9,050,000 4,592,875
0%, 12/15/05 (g) Caa 3,560,000 1,699,900
International Cabletel, Inc., Series A, 0%,
4/15/05 (g) - 6,480,000 3,888,000
Mobilmedia Communications, Inc. 0%,
12/1/03 (g) B3 2,490,000 1,879,950
Nextel Communications, Inc. 0%, 9/1/03 (g) B3 7,810,000 4,549,325
Paging Network, Inc. 10 1/8%, 8/1/07 B2 19,520,000 20,788,800
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B3 260,000 248,950
68,020,250
ELECTRIC UTILITY - 0.8%
Del Norte Funding Corp. secured leasing oblig.
11 1/4%, 1/2/14 (b) Ca 8,460,000 5,372,100
El Paso Funding Corp. lease oblig. (b):
9 3/8%, 10/1/96 Ca 1,800,000 1,138,500
9.20%, 7/2/97 Ca 930,000 590,550
10 3/4%, 4/1/13 Ca 5,560,000 3,516,700
10,617,850
GAS - 2.2%
Columbia Gas Systems, Inc. (b):
8 3/4%, 12/25/95 B3 500,000 710,000
9 1/8%, 5/1/96 B3 400,000 566,000
9%, 8/1/96 B3 4,030,000 5,813,275
10 1/8%, 11/1/96 B3 180,000 259,200
7 1/2%, 6/1/97 B3 1,350,000 1,822,500
7 1/2%, 10/1/97 B3 1,650,000 2,252,250
9.30%, 9/02/99 Caa 190,000 279,300
9.07%, 1/12/00 - 750,000 1,091,250
9 1/4%, 9/30/04 Caa 500,000 730,000
10 1/4%, 8/1/11 B3 2,980,000 4,574,300
10 1/2%, 6/1/12 B3 6,460,000 9,690,000
10.15%, 11/1/13 B3 1,581,000 2,355,690
30,143,765
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.6%
Call-Net Enterprises, Inc. yankee 0%,
12/1/04 (g) B2 $ 3,160,000 $ 2,219,900
Peoples Tele Co. 12 1/4%, 7/15/02 B2 6,400,000 6,144,000
8,363,900
TOTAL UTILITIES 117,145,765
TOTAL NONCONVERTIBLE BONDS 995,380,933
TOTAL CORPORATE BONDS
(Cost $957,314,212) 996,528,782
COMMERCIAL MORTGAGE SECURITIES - 2.4%
Bardell Associates Note Trust
12 1/2%, 11/1/08 (e) - 1,919,345 1,950,370
CBA Mortgage Corp. commercial Series 1993-C1
Class E, 7.1541%, 12/25/03 (f)(i) Ba2 3,000,000 2,599,219
Resolution Trust Corp.:
commercial:
Series 1994-N2 Class 5-A,
10 5/8%, 12/15/04 (f)(h) B2 3,400,000 3,434,000
Series 1994-C2 Class G, 8%, 4/25/25 B 4,346,272 3,585,675
Series 1994-C1 Class E, 8%, 6/25/26 BB 9,990,755 8,648,247
sequential pay Series 1994-C1 Class F,
8%, 6/25/26 B 1,144,213 935,394
SKW Real Estate LP commercial Series II Class E,
11%, 4/15/05 (f) B 5,960,000 5,989,800
SML Inc. commercial Series 1994-C1 Class C,
9.28%, 9/18/99 (e) - 2,950,000 1,947,000
Structured Asset Securities Corp.
commercial Series 1995-C1 Class E,
7 3/8%, 9/25/24 (f) BB 4,000,000 2,988,750
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $30,388,961) 32,078,455
COMMON STOCKS - 1.8%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.4%
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 $ 57,363
Nu-West Industries, Inc. Class A (rights) (a)(e) 36,540 4,750,200
Trivest 1992 Special Fund LP 3.0 (d) 743,333
5,550,896
PACKAGING & CONTAINERS - 0.0%
Crown Packaging Holdings Ltd. (warrants) (a) 2,010 38,190
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(f) 11,000 363,000
TOTAL BASIC INDUSTRIES 5,952,086
CONSTRUCTION & REAL ESTATE - 0.5%
CONSTRUCTION - 0.5%
Capital Pacific Holdings, Inc. (warrants) (a)(f) 24,095 18,071
NVR, Inc. (a) 368,706 3,687,060
NVR, Inc. (warrants) (a) 30,857 69,428
Walter Industries, Inc. (a) 173,498 2,363,910
TOTAL CONSTRUCTION & REAL ESTATE 6,138,469
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
PolyVision Corp. (a) 1,952 4,758
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(e) 7,229 79,516
HM/Hat Brands Trust Class I Units (a)(e) 410,000 410,000
489,516
TOTAL DURABLES 494,274
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (a)(f) 900 90,000
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
MVE, Inc. (warrants) (a) 13,060 261,200
XRC Corp. (a) 84,961 21,240
TOTAL HEALTH 282,440
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HOLDING COMPANIES - 0.5%
SDW Holdings Corp. (warrants) (a) 190,970 $ 1,145,820
SDW Holdings Corp. Unit (a)(f) 18,280 5,484,000
TOTAL HOLDING COMPANIES 6,629,820
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. Class A (warrants) (a) 31,141 97,316
Telex Communications Group (warrants) (a)(e) 160 10,400
107,716
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Terex Corp. (rights) (a)(e) 8,130 1,016
Thermadyne Holdings Corp. (a) 14,085 244,727
245,743
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 353,459
MEDIA & LEISURE - 0.1%
LEISURE DURABLES & TOYS - 0.1%
IHF Capital, Inc., Series I (warrants) (a)(f) 1,460 43,800
LODGING & GAMING - 0.0%
Bally's Grand, Inc. (warrants) (a) 1,743 12,855
Sun International Hotels Ltd. (a) 14,076 422,280
Sun International Hotels Ltd. Class B (a) 2,954 90,836
525,971
TOTAL MEDIA & LEISURE 569,771
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 1,122
Lamonts Apparel, Inc. (warrants) (a) 66,214 -
1,122
DRUG STORES - 0.0%
Thrifty Payless Holdings, Inc. Class C (a) 92,150 368,600
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 0.2%
Carson Pirie Scott & Co. (a) 147,331 $ 2,486,211
Federated Department Stores, Inc. (a) 8,383 212,719
2,698,930
GROCERY STORES - 0.0%
FF Holdings Corp. (a)(e) 2,600 5,200
Grand Union Capital Corp. Class B (a) 452 -
5,200
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Finlay Enterprises, Inc. (a) 2,533 34,196
TOTAL RETAIL & WHOLESALE 3,108,048
SERVICES - 0.0%
LEASING & RENTAL - 0.0%
Scotsman Holdings, Inc. (a) 18,059 236,212
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Wang Laboratories, Inc. (a) 7,866 130,772
ELECTRONICS - 0.0%
Berg Electronics Holdings Corp. (a)(f) 25,680 154,080
TOTAL TECHNOLOGY 284,852
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 5,520 -
UTILITIES - 0.1%
CELLULAR - 0.1%
Cellular Communications International, Inc. (a) 20,000 695,000
Dial Page, Inc. (warrants) (a) 5,494 9,615
704,615
GAS - 0.0%
UGI Corp. (warrants) (a) 34,867 5,230
TOTAL UTILITIES 709,845
TOTAL COMMON STOCKS
(Cost $20,736,505) 24,849,276
PREFERRED STOCKS - 9.2%
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS - 0.6%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Prime Retail, Inc., Series B, 2 1/8% 160,000 $ 3,060,000
NONDURABLES - 0.3%
TOBACCO - 0.3%
RJR Nabisco Holdings Corp. depositary shares
representing 1/10 Series C pfd 684,900 4,280,625
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. exchangeable
pay-in-kind $3.52 (a) 33,480 954,180
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
Alpine Group, Inc. cumulative 8% 1,039 46,755
TOTAL CONVERTIBLE PREFERRED STOCKS 8,341,560
NONCONVERTIBLE PREFERRED STOCKS - 8.6%
BASIC INDUSTRIES - 0.7%
CHEMICALS & PLASTICS - 0.2%
Nu-West Industries, Inc. Class A $11 (a) 20,000 3,140,000
PAPER & FOREST PRODUCTS - 0.5%
SD Warren Co. exchangeable pay-in-kind 190,970 6,111,040
TOTAL BASIC INDUSTRIES 9,251,040
ENERGY - 0.5%
OIL & GAS - 0.5%
Gulf Canada Resources Ltd., Series 1, adj. rate 2,229,785 6,302,107
Gulf Canada Resources Ltd. (e) 33,881 93,173
TOTAL ENERGY 6,395,280
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - 1.7%
SAVINGS & LOANS - 1.7%
First Nationwide Bank 11 1/2% 40,140 $ 4,575,960
Greater New York Savings Bank, Series B, 12% 669,994 19,094,829
TOTAL FINANCE 23,670,789
INDUSTRIAL MACHINERY & EQUIPMENT --0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% (a)(e) 584 360,988
MEDIA & LEISURE - 4.6%
BROADCASTING - 4.6%
Cablevision System Corp., Series G, exchangeable
pay-in-kind (a)(f) 110,860 11,446,295
PanAmSat Corp. exchangeable pay-in-kind 12 3/4% 46,995 51,107,063
TOTAL MEDIA & LEISURE 62,553,358
NONDURABLES - 0.2%
HOUSEHOLD PRODUCTS - 0.2%
Revlon Group, Inc., Series B, exchangeable $14.875 22,933 2,362,099
TECHNOLOGY - 0.9%
ELECTRONICS - 0.9%
Berg Electronics Holding Corp., Series E,
pay-in-kind $3.4687 462,259 12,943,252
TOTAL NONCONVERTIBLE PREFERRED STOCKS 117,536,806
TOTAL PREFERRED STOCKS
(Cost $119,620,258) 125,878,366
PURCHASED BANK DEBT - 2.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
El Paso Electric Co.:
secured (j) $ 920,000 $ 938,400
secured loan RGRT facility (b) 1,085,299 1,107,005
unsecured term loan (b) 730,278 452,773
GPA Group PLC:
alternative credit facility 10,318,477 9,828,350
commercial credit facility 11,868,323 11,274,907
deferred amortization facility 1,469,115 1,395,659
deferred amortization facility/
alternative credit facility 484,059 461,066
term loan 1,860,000 1,515,900
Leslie Fay Companies, Inc. (b):
revolving loan 457,237 274,343
term loan 518,400 311,040
TOTAL PURCHASED BANK DEBT
(Cost $29,381,484) 27,559,443
REPURCHASE AGREEMENTS - 11.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88%, dated
10/31/95 due 11/1/95 $ 159,926,117 159,900,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,317,341,420) $ 1,366,794,322
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 Corporation 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
Ampex Corp. 8% 2/16/95 $ 306,600
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 10,328
Bardell Associates
Note Trust 12 1/2%,
11/1/08 4/19/94 $ 1,951,269
ACQUISITION ACQUISITION
SECURITY DATE COST
FF Holdings Corp. 10/2/92
to 1/14/94 $ 10,412
Gulf Canada
Resources Ltd. 10/15/93 $ 85,118
HM/Hat Brands Trust
Class I Units 2/22/94 $ 410,000
Hat Brands, Inc.
(warrants) 9/2/92
to 2/23/94 -
Leslie Fay Companies, Inc.:
9.53%, 1/15/00 7/19/93 $ 341,542
10.54%, 1/15/02 7/19/93
to 11/11/93 $ 270,069
Littlefield Co. 10%,
12/31/95 2/28/94 $ 3,300,000
Nu-West Industries, Inc.
Class A (rights) 2/17/94 $ 3,178,980
SML, Inc. commercial
Series 1994-C1 Class C,
9.28%, 9/18/99 8/11/94 $ 1,918,238
Telex Communications
Group (warrants) 4/15/92 $ 3,200
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 $134,454,980 or 9.9% 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.
10. Issuer filed for protection under the Federal Bankruptcy Code, but is
currently paying interest under court stipulation.
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 6.2% BB 11.0%
B 49.1% B 42.9%
Caa 10.2% CCC 7.8%
Ca, C 0.8% CC, C 0.0%
D 2.5%
The percentage not rated by either S&P or Moody's amounted to 8.7%. FMR has
determined that unrated debt securities that are lower quality account for
8.7% of the total value of investment in securities.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 88.8%
Ireland 3.9
United Kingdom 3.2
Canada 2.4
Indonesia 1.7
TOTAL 100.0%
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of invest- ment securities for
income tax purposes was $1,317,342,674. Net unrealized appreciation
aggregated $49,451,648, of which $66,654,038 related to appreciated
investment securities and $17,202,390 related to depreciated investment
securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $5,281,000 all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 1,366,794,322
agreements of $159,900,000) (cost $1,317,341,420) -
See accompanying schedule
Cash 13,242,263
Receivable for investments sold 8,453,190
Dividends receivable 635,189
Interest receivable 21,165,135
Prepaid expenses 11,810
TOTAL ASSETS 1,410,301,909
LIABILITIES
Payable for investments purchased $ 50,569,482
Distributions payable 1,863,806
Accrued management fee 647,045
Distribution fees payable 360,154
Other payables and accrued expenses 509,553
TOTAL LIABILITIES 53,950,040
NET ASSETS $ 1,356,351,869
Net Assets consist of:
Paid in capital $ 1,301,709,045
Undistributed net investment income 11,252,002
Accumulated undistributed net realized gain (loss) on (6,111,557)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on investments 49,502,379
and assets and liabilities in foreign currencies
NET ASSETS $ 1,356,351,869
CALCULATION OF MAXIMUM OFFERING PRICE $11.91
CLASS A:
NET ASSET VALUE, and redemption price per share
($1,200,495,171 (divided by) 100,807,245 shares)
Maximum offering price per share (100/95.25 of $11.91) $12.50
CLASS B: $11.89
NET ASSET VALUE, offering price per share
($155,730,386 (divided by) 13,103,029 shares) A
INSTITUTIONAL CLASS: $11.76
NET ASSET VALUE, offering price and redemption price per
share ($126,312 (divided by) 10,744 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>
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 7,315,093
Dividends
Interest 83,897,889
TOTAL INCOME 91,212,982
EXPENSES
Management fee $ 5,796,415
Transfer agent fees 1,956,542
Class A
Class B 167,380
Institutional Class 1,603
Distribution fees 2,219,580
Class A
Class B 716,908
Accounting fees and expenses 296,724
Non-interested trustees' compensation 7,450
Custodian fees and expenses 28,518
Registration fees 249,536
Class A
Class B 84,807
Institutional Class 2,466
Audit 53,120
Legal 21,148
Interest 2,684
Reports to shareholders 40,223
Miscellaneous 2,110
Total expenses before reductions 11,647,214
Expense reductions (10,818) 11,636,396
NET INVESTMENT INCOME 79,576,586
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 7,703,114
Foreign currency transactions 1,348 7,704,462
Change in net unrealized appreciation (depreciation) on:
Investment securities 54,256,174
Assets and liabilities in foreign currencies 4,509 54,260,683
NET GAIN (LOSS) 61,965,145
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 141,541,731
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 79,576,586 $ 42,383,788
Net investment income
Net realized gain (loss) 7,704,462 (7,075,135)
Change in net unrealized appreciation (depreciation) 54,260,683 (21,974,620)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 141,541,731 13,334,033
FROM OPERATIONS
Distributions to shareholders (70,801,335) (43,822,276)
From net investment income
Class A
Class B (5,022,720) (137,043)
Institutional Class (205,146) -
From net realized gain - Class A - (10,720,885)
TOTAL DISTRIBUTIONS (76,029,201) (54,680,204)
Share transactions - net increase (decrease) 594,257,658 252,369,016
TOTAL INCREASE (DECREASE) IN NET ASSETS 659,770,188 211,022,845
NET ASSETS
Beginning of period 696,581,681 485,558,836
End of period (including undistributed net investment $ 1,356,351,869 $ 696,581,681
income of $11,252,002 and $3,789,207,
respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 11.220 $ 12.010 $ 11.070 $ 10.120 $ 8.150
of period
Income from Investment
Operations
Net investment income .930 E .848 .980 1.146 1.115
Net realized and unrealized .680 (.537) 1.153 .975 1.948
gain (loss)
Total from investment 1.610 .311 2.133 2.121 3.063
operations
Less Distributions
From net investment income (.920) (.851) (.963) (1.171) (1.093)
From net realized gain - (.250) (.230) - -
Total distributions (.920) (1.101) (1.193) (1.171) (1.093)
Net asset value, end of period $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120
TOTAL RETURN A, B 15.05% 2.64% 20.47% 21.96% 39.67%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 1,200,495 $ 679,623 $ 485,559 $ 136,316 $ 38,681
(000 omitted)
Ratio of expenses to average 1.15% 1.20% 1.11% 1.10% 1.10%
net assets D D
Ratio of net investment income 8.32% 6.92% 8.09% 9.95% 12.20%
to average net assets
Portfolio turnover 112% 118% 79% 100% 103%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C 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.
D FMR VOLUNTARILY 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.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED OCTOBER 31,
1995 1994 C
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.210 $ 11.300
Income from Investment Operations
Net investment income .794 D .223
Net realized and unrealized gain (loss) .721 (.118)
Total from investment operations 1.515 .105
Less Distributions
From net investment income (.835) (.195)
Net asset value, end of period $ 11.890 $ 11.210
TOTAL RETURN B 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 155,730 $ 16,959
Ratio of expenses to average net assets 2.01% 2.20%
A
Ratio of net investment income to average net assets 7.46% 5.92%
A
Portfolio turnover 112% 118%
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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED
OCTOBER 31,
1995 C
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.560
Income from Investment Operations
Net investment income .390 D
Net realized and unrealized gain (loss) .193
Total from investment operations .583
Less Distributions
From net investment income (.383)
Net asset value, end of period $ 11.760
TOTAL RETURN B 5.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 126
Ratio of expenses to average net assets .70% A
Ratio of net investment income to average net assets 8.77% A
Portfolio turnover 112%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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. 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 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 for 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. 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, which 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, 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 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 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 $13,129,833 or
.97% 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 $27,559,443 or 2.0% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,474,628,446 and $971,120,595, respectively, of which U.S.
government and government agency obligations aggregated $13,024,838 and
$583,262, 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 .1200% 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 annual 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. This fee is 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. For the period, the fund paid
FDC $2,219,580 and $716,908 under the Class A Plan and Class B Plan,
respectively, of which $2,185,795 and $179,328 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
shares or render shareholder support services. No payments were made under
the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $8,787,240 on sales of Class A shares of the fund, of which
$7,458,410 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 $75,583 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. During the period November 1, 1994
to December 31, 1994, the Transfer Agents received fees based on the type,
size, number of accounts and the number of transactions made by
shareholders of the respective classes of the fund. Effective January 1,
1995, the Board of Trustees approved revised transfer agent contracts
pursuant to which 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.
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.
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 $3,958 for the period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
5. BANK BORROWINGS -
CONTINUED
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balance during the period for
which the loan was outstanding amounted to $5,004,000. The weighted average
interest rate was 6.44%.
6. 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
$10,818 under this arrangement.
7. SHARE TRANSACTIONS.
Share transactions for the three classes were as follows:
SHARES DOLLARS
YEAR ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1995 A 1994 B 1995 A 1994 B
CLASS A
Shares sold 72,296,680 51,111,011 $ 827,485,219 $ 591,939,008
Reinvestment of distributions 4,457,097 3,136,354 51,022,509 36,406,934
Shares redeemed (36,544,460) (34,071,719) (417,458,680) (392,991,729)
Net increase (decrease) 40,209,317 20,175,646 $ 461,049,048 $ 235,354,213
CLASS B
Shares sold 12,362,241 2,044,546 $ 142,069,706 $ 22,993,859
Reinvestment of distributions 307,892 7,632 3,566,698 85,963
Shares redeemed (1,079,462) (539,820) (12,397,200) (6,065,019)
Net increase (decrease) 11,590,671 1,512,358 $ 133,239,204 $ 17,014,803
INSTITUTIONAL CLASS
Shares sold 1,184,886 - $ 13,857,675 $ -
Reinvestment of distributions 16,851 - 198,685 -
Shares redeemed (1,190,993) - (14,086,954) -
Net increase (decrease) 10,744 - $ (30,594) $ -
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
B SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD JUNE 30, 1994
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Advisor Series II and the Shareholders of Advisor High
Yield Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor High Yield Fund, including the
schedule of portfolio investments, as of October 31, 1995, and the related
statement of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended
(Class A), for the year ended October 31, 1995 and for the period June 30,
1994 (commencement of sale of Class B shares) to October 31, 1994 (Class B)
and for the period July 3, 1995 (commencement of sale of Institutional
Class shares) 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 October 31, 1995 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 High Yield Fund as of
October 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended (Class A), for the year ended October 31, 1995 and for
the period June 30, 1994 (commencement of sale of Class B shares) to
October 31, 1994 (Class B) and for the period July 3, 1995 (commencement of
sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
A total of 6% of the dividends distributed during the fiscal year qualifies
for the dividends-received deductions for corporate shareholders.
The fund will notify shareholders in January 1996 of the applicable
percentage for use in preparing 1995 income tax returns.
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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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 - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1995
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 28 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 34 Notes to the financial statements.
REPORT OF INDEPENDENT 40 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 41
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 the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
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 fund's total return
includes changes in a fund's 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. 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 past five years and life of fund total
returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Institutional Class 14.50% 141.19% 212.76%
Merrill Lynch High Yield Master Index 17.17% 120.20% n/a
Average High Current Yield Fund 12.73% 113.44% n/a
Consumer Price Index 2.81% 15.13% 39.10%
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 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 - a broad gauge of the
high yield bond market. To measure how Institutional Class' performance
stacked up against its peers, you can compare it to the average high
current yield fund, which reflects the performance of 112 high current
yield funds with similar objectives tracked by Lipper Analytical Services
over the past 12 months. These benchmarks include reinvested dividends and
capital gains, if any. Comparing Institutional Class' performance to the
consumer price index (CPI) helps show how the class did compared to
inflation. (The CPI returns begin on the month end closest to the fund's
start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor High Yield - Institutional Class 14.50% 19.25% 13.79%
Merrill Lynch High Yield Master Index 17.17% 17.10% n/a
Average High Current Yield Fund 12.73% 16.27% n/a
Consumer Price Index 2.81% 2.86% 3.81%
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
Fidelity Advisor HiHigh Yield Master (J0A0)(ML
01/31/87 10000.00 10000.00
02/28/87 10189.32 10165.09
03/31/87 10292.55 10277.49
04/30/87 10076.65 10053.36
05/31/87 9968.41 10008.06
06/30/87 10127.13 10146.40
07/31/87 10161.84 10201.61
08/31/87 10262.59 10303.83
09/30/87 9889.59 10066.76
10/31/87 9475.07 9797.80
11/30/87 9820.48 10045.57
12/31/87 9996.37 10178.96
01/31/88 10519.88 10457.50
02/29/88 10857.22 10741.26
03/31/88 10786.77 10723.50
04/30/88 10755.99 10754.47
05/31/88 10790.85 10810.60
06/30/88 11217.99 11017.30
07/31/88 11379.84 11133.72
08/31/88 11324.25 11170.30
09/30/88 11444.14 11282.89
10/31/88 11573.29 11458.68
11/30/88 11607.34 11501.61
12/31/88 11720.23 11550.28
01/31/89 12037.57 11723.49
02/28/89 12121.70 11802.27
03/31/89 12003.44 11791.77
04/30/89 11870.42 11826.57
05/31/89 12170.33 12044.30
06/30/89 12604.78 12214.94
07/31/89 12673.61 12272.78
08/31/89 12801.79 12333.41
09/30/89 12426.10 12215.99
10/31/89 11959.54 12022.77
11/30/89 11994.42 12049.71
12/31/89 12146.28 12038.82
01/31/90 11970.06 11803.53
02/28/90 11906.52 11631.63
03/31/90 12116.25 11788.87
04/30/90 12261.93 11848.76
05/31/90 12673.76 12062.79
06/30/90 13035.49 12296.49
07/31/90 13338.77 12556.35
08/31/90 13011.32 12075.66
09/30/90 12682.37 11550.48
10/31/90 12387.15 11256.55
11/30/90 12773.90 11351.90
12/31/90 13033.09 11515.48
01/31/91 13332.94 11678.26
02/28/91 14098.07 12545.05
03/31/91 14626.96 13084.44
04/30/91 15072.36 13550.40
05/31/91 15232.90 13616.56
06/30/91 15641.87 13890.48
07/31/91 16206.93 14223.31
08/31/91 16417.30 14522.26
09/30/91 16638.98 14707.23
10/31/91 17301.59 15144.26
11/30/91 17501.32 15319.19
12/31/91 17587.44 15497.16
01/31/92 18393.64 16038.99
02/29/92 19155.05 16437.32
03/31/92 19698.02 16666.67
04/30/92 19877.27 16787.98
05/31/92 20094.15 17055.75
06/30/92 20397.46 17267.67
07/31/92 20765.23 17617.53
08/31/92 21149.19 17850.77
09/30/92 21375.70 18054.16
10/31/92 21101.09 17826.14
11/30/92 21331.65 18078.60
12/31/92 21648.30 18311.38
01/31/93 22226.95 18762.27
02/28/93 22713.82 19117.42
03/31/93 23240.86 19448.86
04/30/93 23373.23 19588.46
05/31/93 23691.11 19852.14
06/30/93 24269.24 20225.12
07/31/93 24587.88 20442.51
08/31/93 24779.37 20637.39
09/30/93 24826.58 20739.21
10/31/93 25419.94 21129.89
11/30/93 25604.12 21245.45
12/31/93 26075.26 21457.89
01/31/94 26824.48 21928.14
02/28/94 26714.32 21770.44
03/31/94 25899.91 21061.01
04/30/94 25611.40 20814.89
05/31/94 25770.39 20740.73
06/30/94 25722.85 20817.07
07/31/94 25779.22 20963.41
08/31/94 25940.53 21109.02
09/30/94 26052.18 21101.03
10/31/94 25963.36 21154.65
11/30/94 25553.77 20974.70
12/31/94 25524.52 21208.01
01/31/95 25727.89 21507.68
02/28/95 26540.46 22178.75
03/31/95 26763.09 22487.40
04/30/95 27586.86 23013.91
05/31/95 28211.78 23732.92
06/30/95 28133.95 23914.19
07/31/95 28785.71 24187.58
08/31/95 28957.03 24334.38
09/30/95 29264.58 24612.79
10/31/95 29630.23 24787.26
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Advisor High Yield Fund - Institutional Class on January 31, 1987, shortly
after the fund started. As the chart shows, by October 31, 1995, the value
of your investment would have grown to $29,876 - a 198.76% 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 $24,787 - a 147.87% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 9.69% 7.15% 9.66% 12.57% 15.50%
Capital appreciation return -4.81% -4.51% 10.81% 9.39% 24.17%
Total return 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
DIVIDENDS per share show the income paid by the class for a set period. A
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. Dividends and yield information will be reported once
the Institutional Class has a longer operating history.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Three factors helped to fuel
strong total returns for high-yield
bond investors in the 12 months
ended October 31, 1995. First, a
declining interest rate environment
created a positive backdrop for
bond investors. Second, steady
economic growth and generally
favorable corporate earnings
produced optimism regarding the
overall credit quality of the
high-yield market. Third, demand
for high-yield bonds - sparked
by investors looking for the
additional yield offered by these
investments - has been quite
strong, while new supply during
most of the period was limited.
For the 12 months ended
October 31, the Salomon
Brothers Composite High-Yield
Index had a total return of
18.45%. High-yield issues
outpaced those in most other
U.S. bond markets. The Lehman
Brothers Aggregate Bond Index
- - a broader measure of the
performance of taxable bonds in
the U.S. - returned 15.65%
during the period. A slowing
economy and reduced inflation
pressures attracted investors to
fixed-income securities -
sending market yields lower
during the period. The Federal
Reserve Board reinforced
investors' positive outlook by
lowering the fed funds rate - the
rate banks charge each other for
overnight loans - by 0.25% in
July to 5.75%. Although the
economy slowed, it continued to
grow moderately, helping
high-yield companies experience
cash-flow stability and growth.
An interview with Margaret Eagle, Portfolio Manager of Fidelity Advisor
High Yield Fund
Q. MARGARET, HOW DID THE FUND DO?
A. Quite well. For the year ended October 31, 1995, Fidelity Advisor High
Yield Fund - Institutional Class had a total return of 14.50%. That beat
the average high current yield fund's return of 12.73% for the year ended
October 31, 1995, as tracked by Lipper Analytical Services. The Merrill
Lynch High Yield Master Index returned 17.17% for the year ended October
31, 1995.
Q. WHAT HELPED THE FUND OUTPERFORM THE AVERAGE?
A. Several holdings in particular. PanAmSat, a worldwide television
broadcaster, did quite well, especially during the past six months. There's
currently a large backlog of television programs wanting to be transmitted
by PanAmSat and the backlog continues to grow. GPA, one of the world's
largest leasing aircraft companies and one of the fund's
largest investments at the end of the period, had a positive impact on the
fund. Recently, GPA announced plans to securitize its aircraft and use the
proceeds to pay its creditors. Also, supply and demand for narrow bodied
airplanes has moved closer to equilibrium, reversing a long trend of
oversupply. The fundamentals of the leasing industry continue to improve
and I believe the prospects for achieving the company's recapitalization
plan are quite good.
Q. WERE THERE OTHER HOLDINGS THAT HELPED THE FUND?
A. Revlon, at 3.6% of investments at the end of the period, has made
tremendous progress since 1991. The company has posted a string of strong
quarterly earnings, and has achieved the No. 2 position in the $2.3
billion cosmetics industry. Echostar, a satellite broadcasting service, was
another winner over the past year. While the company has yet to launch its
satellite, its bonds rose in value. Echostar is one of just three companies
that have an orbital slot - an address in the sky, so to speak - which can
eventually broadcast to the United States, Canada and Mexico. The bonds
appreciated significantly over the summer when the value of orbital slots
became more apparent.
Q. WHICH HOLDINGS DIDN'T PERFORM AS WELL AS YOU HAD HOPED?
A. Wickes Lumber was somewhat disappointing. I purchased Wickes because I
thought that home builders - the company's primary customers - would start
to enjoy more activity resulting from lower interest rates and lower lumber
costs. But consumer debt is at a very high level, which kept a lid on new
home building and rehab activity. And while lumber prices did fall as I
expected, lower lumber prices actually translated into lower sales figures
for the company.
Q. SIX MONTHS AGO YOU HAD BEGUN REDUCING THE FUND'S STAKE IN DISTRESSED -
BANKRUPT - DEBT. DID YOU CONTINUE THAT STRATEGY DURING THE PAST SIX MONTHS?
A. It's more a case of not adding any new distressed debt to the fund.
There are two reasons for that. First is a lack of supply. What caused all
the attractive distressed opportunities over the past several years was a
combination of a lot of over-leveraged companies and the recession that
began in 1989. A lot of that debt has worked its way through the system and
there isn't much of it left. Second, what I am currently seeing generally
doesn't fit my investment parameters, although that could change if the
supply of attractive situations changes.
Q. HOW WILL THIS AFFECT YOUR INVESTMENT STRATEGY LOOKING AHEAD?
A. I plan to emphasize more of the relatively higher-quality portions of
the junk bond market, those rated B, just as I have over the past six
months. In my view, that's where the risk/reward payoff is the best right
now. As long as interest rates are low, inflation stays moderate and the
stock market remains strong, I think the fund should continue to do well
with that strategy.
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 a high level
of income and the potential
for capital gains by investing
primarily in high-yield bonds
START DATE: January 5, 1987
SIZE: as of October 31, 1995,
more than $1.3 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
MARGARET EAGLE'S OUTLOOK FOR
THE HIGH-YIELD MARKET IN 1996:
"In my view, the interest rate
environment could be fairly
be- nign for at least the first
half of 1996. I think the
Federal Reserve Board has
been pretty good at
orchestrating a "soft landing,"
in which economic growth is
slow, but steady, and inflation
remains low. Healthy,
non-inflationary economic
growth is a positive for the
high-yield market.
"In 1995, we've seen some
high-profile defaults in the
high-yield bond sector,
particularly with the retailers.
While I don't expect the rate
of defaults to increase
dramatically, I believe it could
slowly rise. Therefore, I think
it's very important to choose
one's spots carefully and
generally avoid the riskier
parts of the marketplace.
"The supply and demand
fundamentals for the
high-yield market should
remain attractive and we could
see even more investor
dollars coming into high-yield
securities and high-yield
mutual funds. That increased
inflow would be a positive for
the high-yield market."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1995
(BY ISSUER, EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
PanAmSat Corp. 3.7 1.3
Revlon Worldwide Corp. 3.6 3.5
Transamerican Refining Corp. 2.7 1.0
GPA Delaware, Inc. (various issues) 2.3 1.9
Columbia Gas Systems, Inc. (various 2.2 2.5
issues)
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 18.6 20.0
Basic Industries 8.9 14.1
Retail & Wholesale 8.8 7.9
Utilities 8.7 9.4
Nondurables 8.1 5.5
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1995
(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 6.2 1.9
B 49.1 57.3
Caa, Ca, C 11.0 11.7
Nonrated 11.0 15.0
TABLE EXCLUDES SHORT-TERM INVESTMENTS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1995 AND APRIL 30, 1995, ACCOUNT
FOR 11.0% AND 15.0%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION
AS OF OCTOBER 31, 1995* AS OF APRIL 30, 1995**
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%
Nonconvertible
bonds 78.9%
Convertible bonds,
preferred stocks 7.3%
Common stocks 3.0%
Short-term
investments 4.2%
Other 6.6%
FOREIGN
INVESTMENTS 7.1%
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
Row: 1, Col: 1, Value: 6.6
Row: 1, Col: 2, Value: 4.2
Row: 1, Col: 3, Value: 3.0
Row: 1, Col: 4, Value: 7.3
Row: 1, Col: 5, Value: 38.9
Row: 1, Col: 6, Value: 40.0
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 72.9%
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.1%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp., Series C, 0%, 6/30/97 - $ 428,000 $ 416,599
MEDIA & LEISURE - 0.1%
LODGING & GAMING - 0.1%
Bally Entertainment Corp. 10%, 12/15/06 Caa 750,000 731,250
TOTAL CONVERTIBLE BONDS 1,147,849
NONCONVERTIBLE BONDS - 72.8%
AEROSPACE & DEFENSE - 0.5%
Wyman-Gordon Co. 10 3/4%, 3/15/03 B1 7,030,000 7,258,475
BASIC INDUSTRIES - 7.8%
CHEMICALS & PLASTICS - 1.2%
American Pacific Corp. 11%, 2/21/02 (f) - 450,000 405,000
NL Industries, Inc. 11 3/4%, 10/15/03 B1 5,050,000 5,365,625
Pioneer Americas Acquisition Corp.
13 3/8%, 4/1/05 (f) B2 10,000,000 10,300,000
16,070,625
IRON & STEEL - 1.0%
Republic Engineered Steels, Inc. 9 7/8%, 12/15/01 B2 15,190,000
13,974,800
METALS & MINING - 1.5%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 17,350,000 19,128,375
Sherritt, Inc. 10 1/2%, 3/31/14 B1 970,000 989,400
20,117,775
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings Ltd. 0%,
11/1/03 (g) Caa 2,010,000 919,575
PAPER & FOREST PRODUCTS - 4.0%
Mail-Well Holdings, Inc 0%,
2/15/06 (g) - 1,790,000 1,074,000
Repap New Brunswick, Inc.
yankee 10 5/8%, 4/15/05 B2 6,330,000 6,456,600
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
SD Warren Co. 12%, 12/15/04 B1 $ 9,300,000 $ 10,323,000
Stone Container Corp.:
9 7/8%, 2/1/01 B1 3,820,000 3,786,575
10 3/4%, 4/1/02 B2 4,880,000 4,916,600
10 3/4%, 10/1/02 B1 4,160,000 4,352,400
11 1/2%, 10/1/04 B1 1,470,000 1,528,800
Tjiwi Kimia International Finance Co.
13 1/4%, 8/1/01 Ba3 21,190,000 23,150,075
55,588,050
TOTAL BASIC INDUSTRIES 106,670,825
CONSTRUCTION & REAL ESTATE - 0.7%
CONSTRUCTION - 0.5%
UDC Homes exchangeable
11 3/4%, 4/30/03 (b) B2 5,210,000 4,272,200
Walter Industries, Inc. 12.19%, 3/15/00 - 2,088,000 2,119,320
6,391,520
REAL ESTATE - 0.2%
Littlefield Co. 10%, 12/31/95 (e) - 3,300,000 2,990,295
TOTAL CONSTRUCTION & REAL ESTATE 9,381,815
DURABLES - 1.3%
AUTOS, TIRES, & ACCESSORIES - 1.1%
Harvard Industries, Inc.:
12%, 7/15/04 B3 4,670,000 4,903,500
11 1/8%, 8/1/05 (f) B3 5,400,000 5,481,000
Venture Holdings Trust 9 3/4%, 4/1/04 B3 6,150,000 5,319,750
15,704,250
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.2%
Forstmann Textiles, Inc. 14 3/4%, 4/15/99 (b) Ca $ 720,000 $ 216,000
Hat Brands, Inc.:
Series B, 12 5/8%, 9/15/02 - 710,000 745,500
Series D, 12 5/8%, 9/15/02 - 820,000 861,000
Leslie Fay Companies (b)(e):
9.53%, 1/15/00 - 450,880 270,528
10.54%, 1/15/02 - 407,569 203,784
2,296,812
TOTAL DURABLES 18,001,062
ENERGY - 6.2%
OIL & GAS - 6.2%
Chesapeake Energy Corp. 10 1/2%, 6/1/02 B1 450,000 454,500
Flores & Rucks, Inc. 13 1/2%, 12/1/04 B3 13,900,000 15,568,000
Mesa Capital Corp. secured 12 3/4%, 6/30/98 Caa 16,300,000 14,670,000
Plains Resources, Inc. 12%, 8/15/99 B3 5,373,000 5,547,623
Transamerican Refining Corp. 16 1/2%,
2/15/02 (i) Caa 34,630,000 36,361,500
Transtexas Gas Corp. 11 1/2%, 6/15/02 B2 9,900,000 10,320,750
United Meridian Corp. 10 3/8%, 10/15/05 B2 1,490,000 1,516,075
TOTAL ENERGY 84,438,448
FINANCE - 2.4%
CREDIT & OTHER FINANCE - 0.2%
Tembec Finance Corp. yankee 9 7/8%, 9/30/05 B1 2,530,000 2,466,750
INSURANCE - 0.8%
American Financial Corp. 9 3/4%, 4/20/04 Ba3 2,210,000 2,226,575
American Financial Corp. (Ohio) 9 3/4%, 4/20/04 Ba3 8,580,000 8,644,350
10,870,925
SAVINGS & LOANS - 0.6%
First Nationwide Holdings, Inc. 12 1/4%, 5/15/01 Ba3 6,850,000 7,637,750
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.8%
Alliance Entertainment Corp.
11 1/4%, 7/15/05 (f) B3 $ 11,490,000 $ 11,432,550
ECM Corp. extendible 14%, 6/1/02 (f) - 171,059 188,165
11,620,715
TOTAL FINANCE 32,596,140
HEALTH - 0.8%
MEDICAL FACILITIES MANAGEMENT - 0.8%
Tenet Healthcare Corp. 8 5/8%, 12/1/03 Ba2 11,180,000 11,487,450
INDUSTRIAL MACHINERY & EQUIPMENT - 3.8%
ELECTRICAL EQUIPMENT - 0.6%
PanAmSat LP/PanAmSat Capital Corp.:
secured 9 3/4%, 8/1/00 Ba3 2,400,000 2,520,000
0%, 8/1/03 (g) B3 6,520,000 5,183,400
7,703,400
INDUSTRIAL MACHINERY & EQUIPMENT - 2.5%
Calmar, Inc.11 1/2%, 8/15/05 (f) B3 8,250,000 8,476,875
MVE, Inc. 12 1/2%, 2/15/02 B3 8,240,000 8,446,000
Specialty Equipment Cos., Inc. 11 3/8%, 12/1/03 B3 7,050,000 7,261,500
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 565,000 562,175
10 3/4%, 11/1/03 Caa 1,938,000 1,918,620
UCAR Global Enterprises, Inc. 12%, 1/15/05 B2 7,025,000 7,903,125
34,568,295
POLLUTION CONTROL - 0.7%
Envirosource, Inc. 9 3/4%, 6/15/03 B3 10,500,000 9,240,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 51,511,695
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - 13.8%
BROADCASTING - 8.6%
Allbritton Communications Co. 11 1/2%, 8/15/04 B3 $ 4,690,000 $ 4,924,500
Bell Cablemedia PLC 0%, 9/15/05 (f)(g) B2 27,400,000 16,440,000
CAI Wireless System, Inc. 12 1/4%, 9/15/02 B3 6,600,000 6,996,000
Chancellor Broadcasting 12 1/2%, 10/1/04 B3 5,730,000 6,016,500
Citicasters, Inc. 9 3/4%, 2/15/04 B- 8,125,000 8,165,625
Cooke Media Group, Inc. 11 5/8%, 4/1/99 - 4,575,000 4,346,250
Diamond Cable Communications PLC 0%,
9/30/04 (g) B3 24,440,000 16,619,200
PTI Holdings, Inc. 7%, 12/17/02 - 1,774,755 1,082,601
Peoples Choice TV Corp. Unit 0%,
6/1/04 (g) Caa 15,310,000 8,535,325
Robin Media Group, Inc. 11 1/8%, 4/1/97 - 12,270,000 12,607,425
SCI Television, Inc. secured 11%, 6/30/05 B2 4,390,000 4,647,913
Telemundo Group, Inc. 10 1/4%, 12/30/01 - 500,000 485,000
Telewest PLC 0%, 10/1/07 (g) B1 17,280,000 10,087,200
Univision Network Holding LP 7%, 12/17/02 - 12,135,225 7,341,811
Viacom, Inc. 8%, 7/7/06 B1 9,350,000 9,256,500
117,551,850
LEISURE DURABLES & TOYS - 0.1%
ICON Health And Fitness, Inc. 13%, 7/15/02 B3 1,460,000 1,562,200
LODGING & GAMING - 4.2%
Grand Casino Resorts, Inc. 12 1/2%, 2/1/00 Ba3 2,720,000 3,046,400
Mohegan Tribal Gaming Authority
13 1/2%, 11/15/02 (f) - 14,370,000 15,052,575
Players International, Inc. 10 7/8%, 4/15/05 Ba3 24,870,000 23,626,500
President Riverboat Casinos 13%, 9/15/01 B 9,710,000 8,641,900
Stratosphere Corp. 14 1/4%, 5/15/02 B2 6,620,000 7,066,850
57,434,225
RESTAURANTS - 0.9%
SC International Services, Inc. 13%, 10/1/05 B3 11,740,000 12,062,850
TOTAL MEDIA & LEISURE 188,611,125
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 7.6%
AGRICULTURE - 0.5%
Hines Horticulture, Inc. 11 3/4%,
10/15/05 (f) B3 $ 6,420,000 $ 6,564,450
FOODS - 1.3%
Chiquita Brands International, Inc.:
11 1/2%, 6/1/01 B3 1,975,000 2,083,625
9 5/8%, 1/15/04 B1 2,790,000 2,824,875
9 1/8%, 3/1/04 B1 2,100,000 2,105,250
Specialty Foods Corp.:
Series B, 11 1/8%, 10/1/02 B3 2,090,000 1,954,150
11 1/4%, 8/15/03 Caa 10,040,000 8,433,600
17,401,500
HOUSEHOLD PRODUCTS - 5.8%
McAndrews & Forbes Group, Inc.
12 1/4%, 7/1/96 - 10,850,000 10,904,250
RBX Corp. 11 1/4%, 10/15/05 (f) B3 2,770,000 2,770,000
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 16,820,000 17,282,550
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 65,167,000 48,547,065
79,503,865
TOTAL NONDURABLES 103,469,815
RETAIL & WHOLESALE - 8.5%
APPAREL STORES - 0.2%
Apparel Retailers, Inc. 0%, 8/15/05 (g) Caa 2,360,000 1,451,400
Lamonts Apparel, Inc. 10 1/4%, 11/1/99 (b)(f) - 2,201,000 550,250
2,001,650
DRUG STORES - 1.1%
Thrifty Payless, Inc. 12 1/4%, 4/15/04 B3 14,660,000 15,686,200
GROCERY STORES - 6.1%
Brunos, Inc. 10 1/2%, 8/1/05 B3 23,600,000 23,246,000
Food 4 Less Holdings, Inc. 0%, 7/15/05 (g) Caa 12,120,000 5,575,200
Pathmark Stores, Inc. 9 5/8%, 5/1/03 B2 9,980,000 9,855,250
Purity Supreme, Inc. 11 3/4%, 8/1/99 B3 4,460,000 4,878,125
Ralph's Grocery Co. 11%, 6/15/05 B3 14,690,000 14,304,383
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Star Markets, Inc. 13%, 11/1/04 B3 $ 12,860,000 $ 12,860,000
TLC Beatrice International Holdings, Inc.
11 1/2%, 10/1/05 B1 12,640,000 12,355,600
83,074,558
RETAIL & WHOLESALE, MISCELLANEOUS - 1.1%
Finlay Fine Jewelry Corp. 10 5/8%, 5/1/03 B1 8,570,000 8,441,450
Wickes Lumber Co. 11 5/8%, 12/15/03 B3 10,500,000 6,825,000
15,266,450
TOTAL RETAIL & WHOLESALE 116,028,858
SERVICES - 6.5%
ADVERTISING - 0.7%
Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 10,400,000 9,984,000
LEASING & RENTAL - 3.9%
GPA:
9 3/4%, 6/10/96 (f) Caa 2,250,000 2,244,375
9 3/4%, 7/22/96 Caa 500,000 498,750
8.28%, 2/13/97 (f) - 1,400,000 1,335,250
8.48%, 2/21/97 (f) B1 2,250,000 2,143,125
8.58%, 2/21/97 - 250,000 238,438
9.12%, 2/24/99 - 750,000 650,625
9%, 8/16/99 - 3,250,000 2,746,250
GPA Delaware, Inc.:
8 1/2%, 3/3/97 - 6,800,000 6,477,000
8 3/4%, 12/15/98 Caa 24,310,000 21,757,450
8 5/8%, 1/15/99 - 3,200,000 2,784,000
GPA Holland 8.94%, 2/16/99 - 4,500,000 3,903,750
GPA Leasing USA I, Inc. 9 1/8%, 9/02/96 B3 3,364,879 3,293,375
GPA Leasing USA Sub. I, Inc. 9 1/8%,
12/02/96 B3 2,734,490 2,661,452
Scotsman Holdings, Inc. pay-in-kind
11%, 3/1/04 - 2,594,320 2,183,561
52,917,401
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
PRINTING - 0.8%
Big Flower Press:
10 3/4%, 8/1/03 B3 $ 3,140,000 $ 3,297,000
10 3/4%, 8/1/03, Class A B3 3,450,000 3,622,500
10 3/4%, 8/1/03, Class B B3 1,000,000 1,050,000
Herff Jones, Inc. 11%, 8/15/05 (f) B2 3,600,000 3,726,000
11,695,500
SERVICES - 1.1%
Acetex Corp. 9 3/4%, 10/1/03 (f) B1 14,340,000 14,734,350
TOTAL SERVICES 89,331,251
TECHNOLOGY - 2.0%
COMMUNICATIONS EQUIPMENT - 1.5%
Echostar Communications Corp. Unit 0%,
6/1/04 (g) Caa 32,520,000 20,812,800
COMPUTER SERVICES & SOFTWARE - 0.2%
Computervision Corp. 11 3/8%, 8/15/99 B3 2,700,000 2,821,500
ELECTRONICS - 0.3%
Berg Electronics, Inc. 11 3/8%, 5/1/03 B3 3,960,000 4,435,200
TOTAL TECHNOLOGY 28,069,500
TRANSPORTATION - 2.3%
AIR TRANSPORTATION - 2.3%
Continental Airlines, Inc. 2nd priority secured
equipment certificate 11%, 3/15/00 (b) Caa 190,000 -
NWA, Inc. 8 5/8%, 8/1/96 B2 2,460,000 2,460,000
Trans World Airlines, Inc. 12%, 11/3/98 - 370,000 317,634
US Air, Inc.:
9 5/8%, 2/1/01 B3 7,720,000 6,870,800
10%, 7/1/03 B3 21,190,000 18,700,175
9 5/8%, 9/1/03 B1 3,140,000 3,030,100
TOTAL TRANSPORTATION 31,378,709
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 8.6%
CELLULAR - 5.0%
Cencall Communications Corp. 0%,
1/15/04 (g) Caa $ 18,420,000 $ 9,624,450
Comcast Cellular Corp.:
0%, 3/5/00 B2 12,330,000 9,370,800
Series B, 0%, 3/5/00 B2 14,970,000 11,377,200
Dial Call Communications, Inc.:
0%, 4/15/04 (g) Caa 9,050,000 4,592,875
0%, 12/15/05 (g) Caa 3,560,000 1,699,900
International Cabletel, Inc., Series A, 0%,
4/15/05 (g) - 6,480,000 3,888,000
Mobilmedia Communications, Inc. 0%,
12/1/03 (g) B3 2,490,000 1,879,950
Nextel Communications, Inc. 0%, 9/1/03 (g) B3 7,810,000 4,549,325
Paging Network, Inc. 10 1/8%, 8/1/07 B2 19,520,000 20,788,800
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B3 260,000 248,950
68,020,250
ELECTRIC UTILITY - 0.8%
Del Norte Funding Corp. secured leasing oblig.
11 1/4%, 1/2/14 (b) Ca 8,460,000 5,372,100
El Paso Funding Corp. lease oblig. (b):
9 3/8%, 10/1/96 Ca 1,800,000 1,138,500
9.20%, 7/2/97 Ca 930,000 590,550
10 3/4%, 4/1/13 Ca 5,560,000 3,516,700
10,617,850
GAS - 2.2%
Columbia Gas Systems, Inc. (b):
8 3/4%, 12/25/95 B3 500,000 710,000
9 1/8%, 5/1/96 B3 400,000 566,000
9%, 8/1/96 B3 4,030,000 5,813,275
10 1/8%, 11/1/96 B3 180,000 259,200
7 1/2%, 6/1/97 B3 1,350,000 1,822,500
7 1/2%, 10/1/97 B3 1,650,000 2,252,250
9.30%, 9/02/99 Caa 190,000 279,300
9.07%, 1/12/00 - 750,000 1,091,250
9 1/4%, 9/30/04 Caa 500,000 730,000
10 1/4%, 8/1/11 B3 2,980,000 4,574,300
10 1/2%, 6/1/12 B3 6,460,000 9,690,000
10.15%, 11/1/13 B3 1,581,000 2,355,690
30,143,765
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.6%
Call-Net Enterprises, Inc. yankee 0%,
12/1/04 (g) B2 $ 3,160,000 $ 2,219,900
Peoples Tele Co. 12 1/4%, 7/15/02 B2 6,400,000 6,144,000
8,363,900
TOTAL UTILITIES 117,145,765
TOTAL NONCONVERTIBLE BONDS 995,380,933
TOTAL CORPORATE BONDS
(Cost $957,314,212) 996,528,782
COMMERCIAL MORTGAGE SECURITIES - 2.4%
Bardell Associates Note Trust
12 1/2%, 11/1/08 (e) - 1,919,345 1,950,370
CBA Mortgage Corp. commercial Series 1993-C1
Class E, 7.1541%, 12/25/03 (f)(i) Ba2 3,000,000 2,599,219
Resolution Trust Corp.:
commercial:
Series 1994-N2 Class 5-A,
10 5/8%, 12/15/04 (f)(h) B2 3,400,000 3,434,000
Series 1994-C2 Class G, 8%, 4/25/25 B 4,346,272 3,585,675
Series 1994-C1 Class E, 8%, 6/25/26 BB 9,990,755 8,648,247
sequential pay Series 1994-C1 Class F,
8%, 6/25/26 B 1,144,213 935,394
SKW Real Estate LP commercial Series II Class E,
11%, 4/15/05 (f) B 5,960,000 5,989,800
SML Inc. commercial Series 1994-C1 Class C,
9.28%, 9/18/99 (e) - 2,950,000 1,947,000
Structured Asset Securities Corp.
commercial Series 1995-C1 Class E,
7 3/8%, 9/25/24 (f) BB 4,000,000 2,988,750
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $30,388,961) 32,078,455
COMMON STOCKS - 1.8%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.4%
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 $ 57,363
Nu-West Industries, Inc. Class A (rights) (a)(e) 36,540 4,750,200
Trivest 1992 Special Fund LP 3.0 (d) 743,333
5,550,896
PACKAGING & CONTAINERS - 0.0%
Crown Packaging Holdings Ltd. (warrants) (a) 2,010 38,190
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(f) 11,000 363,000
TOTAL BASIC INDUSTRIES 5,952,086
CONSTRUCTION & REAL ESTATE - 0.5%
CONSTRUCTION - 0.5%
Capital Pacific Holdings, Inc. (warrants) (a)(f) 24,095 18,071
NVR, Inc. (a) 368,706 3,687,060
NVR, Inc. (warrants) (a) 30,857 69,428
Walter Industries, Inc. (a) 173,498 2,363,910
TOTAL CONSTRUCTION & REAL ESTATE 6,138,469
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
PolyVision Corp. (a) 1,952 4,758
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(e) 7,229 79,516
HM/Hat Brands Trust Class I Units (a)(e) 410,000 410,000
489,516
TOTAL DURABLES 494,274
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (a)(f) 900 90,000
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
MVE, Inc. (warrants) (a) 13,060 261,200
XRC Corp. (a) 84,961 21,240
TOTAL HEALTH 282,440
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HOLDING COMPANIES - 0.5%
SDW Holdings Corp. (warrants) (a) 190,970 $ 1,145,820
SDW Holdings Corp. Unit (a)(f) 18,280 5,484,000
TOTAL HOLDING COMPANIES 6,629,820
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. Class A (warrants) (a) 31,141 97,316
Telex Communications Group (warrants) (a)(e) 160 10,400
107,716
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Terex Corp. (rights) (a)(e) 8,130 1,016
Thermadyne Holdings Corp. (a) 14,085 244,727
245,743
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 353,459
MEDIA & LEISURE - 0.1%
LEISURE DURABLES & TOYS - 0.1%
IHF Capital, Inc., Series I (warrants) (a)(f) 1,460 43,800
LODGING & GAMING - 0.0%
Bally's Grand, Inc. (warrants) (a) 1,743 12,855
Sun International Hotels Ltd. (a) 14,076 422,280
Sun International Hotels Ltd. Class B (a) 2,954 90,836
525,971
TOTAL MEDIA & LEISURE 569,771
RETAIL & WHOLESALE - 0.2%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 1,122
Lamonts Apparel, Inc. (warrants) (a) 66,214 -
1,122
DRUG STORES - 0.0%
Thrifty Payless Holdings, Inc. Class C (a) 92,150 368,600
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 0.2%
Carson Pirie Scott & Co. (a) 147,331 $ 2,486,211
Federated Department Stores, Inc. (a) 8,383 212,719
2,698,930
GROCERY STORES - 0.0%
FF Holdings Corp. (a)(e) 2,600 5,200
Grand Union Capital Corp. Class B (a) 452 -
5,200
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Finlay Enterprises, Inc. (a) 2,533 34,196
TOTAL RETAIL & WHOLESALE 3,108,048
SERVICES - 0.0%
LEASING & RENTAL - 0.0%
Scotsman Holdings, Inc. (a) 18,059 236,212
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Wang Laboratories, Inc. (a) 7,866 130,772
ELECTRONICS - 0.0%
Berg Electronics Holdings Corp. (a)(f) 25,680 154,080
TOTAL TECHNOLOGY 284,852
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 5,520 -
UTILITIES - 0.1%
CELLULAR - 0.1%
Cellular Communications International, Inc. (a) 20,000 695,000
Dial Page, Inc. (warrants) (a) 5,494 9,615
704,615
GAS - 0.0%
UGI Corp. (warrants) (a) 34,867 5,230
TOTAL UTILITIES 709,845
TOTAL COMMON STOCKS
(Cost $20,736,505) 24,849,276
PREFERRED STOCKS - 9.2%
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS - 0.6%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Prime Retail, Inc., Series B, 2 1/8% 160,000 $ 3,060,000
NONDURABLES - 0.3%
TOBACCO - 0.3%
RJR Nabisco Holdings Corp. depositary shares
representing 1/10 Series C pfd 684,900 4,280,625
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. exchangeable
pay-in-kind $3.52 (a) 33,480 954,180
TECHNOLOGY - 0.0%
ELECTRONICS - 0.0%
Alpine Group, Inc. cumulative 8% 1,039 46,755
TOTAL CONVERTIBLE PREFERRED STOCKS 8,341,560
NONCONVERTIBLE PREFERRED STOCKS - 8.6%
BASIC INDUSTRIES - 0.7%
CHEMICALS & PLASTICS - 0.2%
Nu-West Industries, Inc. Class A $11 (a) 20,000 3,140,000
PAPER & FOREST PRODUCTS - 0.5%
SD Warren Co. exchangeable pay-in-kind 190,970 6,111,040
TOTAL BASIC INDUSTRIES 9,251,040
ENERGY - 0.5%
OIL & GAS - 0.5%
Gulf Canada Resources Ltd., Series 1, adj. rate 2,229,785 6,302,107
Gulf Canada Resources Ltd. (e) 33,881 93,173
TOTAL ENERGY 6,395,280
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - 1.7%
SAVINGS & LOANS - 1.7%
First Nationwide Bank 11 1/2% 40,140 $ 4,575,960
Greater New York Savings Bank, Series B, 12% 669,994 19,094,829
TOTAL FINANCE 23,670,789
INDUSTRIAL MACHINERY & EQUIPMENT --0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% (a)(e) 584 360,988
MEDIA & LEISURE - 4.6%
BROADCASTING - 4.6%
Cablevision System Corp., Series G, exchangeable
pay-in-kind (a)(f) 110,860 11,446,295
PanAmSat Corp. exchangeable pay-in-kind 12 3/4% 46,995 51,107,063
TOTAL MEDIA & LEISURE 62,553,358
NONDURABLES - 0.2%
HOUSEHOLD PRODUCTS - 0.2%
Revlon Group, Inc., Series B, exchangeable $14.875 22,933 2,362,099
TECHNOLOGY - 0.9%
ELECTRONICS - 0.9%
Berg Electronics Holding Corp., Series E,
pay-in-kind $3.4687 462,259 12,943,252
TOTAL NONCONVERTIBLE PREFERRED STOCKS 117,536,806
TOTAL PREFERRED STOCKS
(Cost $119,620,258) 125,878,366
PURCHASED BANK DEBT - 2.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
El Paso Electric Co.:
secured (j) $ 920,000 $ 938,400
secured loan RGRT facility (b) 1,085,299 1,107,005
unsecured term loan (b) 730,278 452,773
GPA Group PLC:
alternative credit facility 10,318,477 9,828,350
commercial credit facility 11,868,323 11,274,907
deferred amortization facility 1,469,115 1,395,659
deferred amortization facility/
alternative credit facility 484,059 461,066
term loan 1,860,000 1,515,900
Leslie Fay Companies, Inc. (b):
revolving loan 457,237 274,343
term loan 518,400 311,040
TOTAL PURCHASED BANK DEBT
(Cost $29,381,484) 27,559,443
REPURCHASE AGREEMENTS - 11.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88%, dated
10/31/95 due 11/1/95 $ 159,926,117 159,900,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,317,341,420) $ 1,366,794,322
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 Corporation 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
Ampex Corp. 8% 2/16/95 $ 306,600
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 10,328
Bardell Associates
Note Trust 12 1/2%,
11/1/08 4/19/94 $ 1,951,269
ACQUISITION ACQUISITION
SECURITY DATE COST
FF Holdings Corp. 10/2/92
to 1/14/94 $ 10,412
Gulf Canada
Resources Ltd. 10/15/93 $ 85,118
HM/Hat Brands Trust
Class I Units 2/22/94 $ 410,000
Hat Brands, Inc.
(warrants) 9/2/92
to 2/23/94 -
Leslie Fay Companies, Inc.:
9.53%, 1/15/00 7/19/93 $ 341,542
10.54%, 1/15/02 7/19/93
to 11/11/93 $ 270,069
Littlefield Co. 10%,
12/31/95 2/28/94 $ 3,300,000
Nu-West Industries, Inc.
Class A (rights) 2/17/94 $ 3,178,980
SML, Inc. commercial
Series 1994-C1 Class C,
9.28%, 9/18/99 8/11/94 $ 1,918,238
Telex Communications
Group (warrants) 4/15/92 $ 3,200
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 $134,454,980 or 9.9% 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.
10. Issuer filed for protection under the Federal Bankruptcy Code, but is
currently paying interest under court stipulation.
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 6.2% BB 11.0%
B 49.1% B 42.9%
Caa 10.2% CCC 7.8%
Ca, C 0.8% CC, C 0.0%
D 2.5%
The percentage not rated by either S&P or Moody's amounted to 8.7%. FMR has
determined that unrated debt securities that are lower quality account for
8.7% of the total value of investment in securities.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 88.8%
Ireland 3.9
United Kingdom 3.2
Canada 2.4
Indonesia 1.7
TOTAL 100.0%
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of invest- ment securities for
income tax purposes was $1,317,342,674. Net unrealized appreciation
aggregated $49,451,648, of which $66,654,038 related to appreciated
investment securities and $17,202,390 related to depreciated investment
securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $5,281,000 all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 1,366,794,322
agreements of $159,900,000) (cost $1,317,341,420) -
See accompanying schedule
Cash 13,242,263
Receivable for investments sold 8,453,190
Dividends receivable 635,189
Interest receivable 21,165,135
Prepaid expenses 11,810
TOTAL ASSETS 1,410,301,909
LIABILITIES
Payable for investments purchased $ 50,569,482
Distributions payable 1,863,806
Accrued management fee 647,045
Distribution fees payable 360,154
Other payables and accrued expenses 509,553
TOTAL LIABILITIES 53,950,040
NET ASSETS $ 1,356,351,869
Net Assets consist of:
Paid in capital $ 1,301,709,045
Undistributed net investment income 11,252,002
Accumulated undistributed net realized gain (loss) on (6,111,557)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on investments 49,502,379
and assets and liabilities in foreign currencies
NET ASSETS $ 1,356,351,869
CALCULATION OF MAXIMUM OFFERING PRICE $11.91
CLASS A:
NET ASSET VALUE, and redemption price per share
($1,200,495,171 (divided by) 100,807,245 shares)
Maximum offering price per share (100/95.25 of $11.91) $12.50
CLASS B: $11.89
NET ASSET VALUE, offering price per share
($155,730,386 (divided by) 13,103,029 shares) A
INSTITUTIONAL CLASS: $11.76
NET ASSET VALUE, offering price and redemption price per
share ($126,312 (divided by) 10,744 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>
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 7,315,093
Dividends
Interest 83,897,889
TOTAL INCOME 91,212,982
EXPENSES
Management fee $ 5,796,415
Transfer agent fees 1,956,542
Class A
Class B 167,380
Institutional Class 1,603
Distribution fees 2,219,580
Class A
Class B 716,908
Accounting fees and expenses 296,724
Non-interested trustees' compensation 7,450
Custodian fees and expenses 28,518
Registration fees 249,536
Class A
Class B 84,807
Institutional Class 2,466
Audit 53,120
Legal 21,148
Interest 2,684
Reports to shareholders 40,223
Miscellaneous 2,110
Total expenses before reductions 11,647,214
Expense reductions (10,818) 11,636,396
NET INVESTMENT INCOME 79,576,586
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 7,703,114
Foreign currency transactions 1,348 7,704,462
Change in net unrealized appreciation (depreciation) on:
Investment securities 54,256,174
Assets and liabilities in foreign currencies 4,509 54,260,683
NET GAIN (LOSS) 61,965,145
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 141,541,731
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 79,576,586 $ 42,383,788
Net investment income
Net realized gain (loss) 7,704,462 (7,075,135)
Change in net unrealized appreciation (depreciation) 54,260,683 (21,974,620)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 141,541,731 13,334,033
FROM OPERATIONS
Distributions to shareholders (70,801,335) (43,822,276)
From net investment income
Class A
Class B (5,022,720) (137,043)
Institutional Class (205,146) -
From net realized gain - Class A - (10,720,885)
TOTAL DISTRIBUTIONS (76,029,201) (54,680,204)
Share transactions - net increase (decrease) 594,257,658 252,369,016
TOTAL INCREASE (DECREASE) IN NET ASSETS 659,770,188 211,022,845
NET ASSETS
Beginning of period 696,581,681 485,558,836
End of period (including undistributed net investment $ 1,356,351,869 $ 696,581,681
income of $11,252,002 and $3,789,207,
respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 11.220 $ 12.010 $ 11.070 $ 10.120 $ 8.150
of period
Income from Investment
Operations
Net investment income .930 E .848 .980 1.146 1.115
Net realized and unrealized .680 (.537) 1.153 .975 1.948
gain (loss)
Total from investment 1.610 .311 2.133 2.121 3.063
operations
Less Distributions
From net investment income (.920) (.851) (.963) (1.171) (1.093)
From net realized gain - (.250) (.230) - -
Total distributions (.920) (1.101) (1.193) (1.171) (1.093)
Net asset value, end of period $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120
TOTAL RETURN A, B 15.05% 2.64% 20.47% 21.96% 39.67%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 1,200,495 $ 679,623 $ 485,559 $ 136,316 $ 38,681
(000 omitted)
Ratio of expenses to average 1.15% 1.20% 1.11% 1.10% 1.10%
net assets D D
Ratio of net investment income 8.32% 6.92% 8.09% 9.95% 12.20%
to average net assets
Portfolio turnover 112% 118% 79% 100% 103%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C 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.
D FMR VOLUNTARILY 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.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED OCTOBER 31,
1995 1994 C
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.210 $ 11.300
Income from Investment Operations
Net investment income .794 D .223
Net realized and unrealized gain (loss) .721 (.118)
Total from investment operations 1.515 .105
Less Distributions
From net investment income (.835) (.195)
Net asset value, end of period $ 11.890 $ 11.210
TOTAL RETURN B 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 155,730 $ 16,959
Ratio of expenses to average net assets 2.01% 2.20%
A
Ratio of net investment income to average net assets 7.46% 5.92%
A
Portfolio turnover 112% 118%
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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED
OCTOBER 31,
1995 C
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 11.560
Income from Investment Operations
Net investment income .390 D
Net realized and unrealized gain (loss) .193
Total from investment operations .583
Less Distributions
From net investment income (.383)
Net asset value, end of period $ 11.760
TOTAL RETURN B 5.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 126
Ratio of expenses to average net assets .70% A
Ratio of net investment income to average net assets 8.77% A
Portfolio turnover 112%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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. 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 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 for 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. 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, which 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, 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 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 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 $13,129,833 or
.97% 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 $27,559,443 or 2.0% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,474,628,446 and $971,120,595, respectively, of which U.S.
government and government agency obligations aggregated $13,024,838 and
$583,262, 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 .1200% 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 annual 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. This fee is 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. For the period, the fund paid
FDC $2,219,580 and $716,908 under the Class A Plan and Class B Plan,
respectively, of which $2,185,795 and $179,328 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
shares or render shareholder support services. No payments were made under
the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $8,787,240 on sales of Class A shares of the fund, of which
$7,458,410 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 $75,583 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. During the period November 1, 1994
to December 31, 1994, the Transfer Agents received fees based on the type,
size, number of accounts and the number of transactions made by
shareholders of the respective classes of the fund. Effective January 1,
1995, the Board of Trustees approved revised transfer agent contracts
pursuant to which 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.
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.
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 $3,958 for the period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
5. BANK BORROWINGS -
CONTINUED
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balance during the period for
which the loan was outstanding amounted to $5,004,000. The weighted average
interest rate was 6.44%.
6. 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
$10,818 under this arrangement.
7. SHARE TRANSACTIONS.
Share transactions for the three classes were as follows:
SHARES DOLLARS
YEAR ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1995 A 1994 B 1995 A 1994 B
CLASS A
Shares sold 72,296,680 51,111,011 $ 827,485,219 $ 591,939,008
Reinvestment of distributions 4,457,097 3,136,354 51,022,509 36,406,934
Shares redeemed (36,544,460) (34,071,719) (417,458,680) (392,991,729)
Net increase (decrease) 40,209,317 20,175,646 $ 461,049,048 $ 235,354,213
CLASS B
Shares sold 12,362,241 2,044,546 $ 142,069,706 $ 22,993,859
Reinvestment of distributions 307,892 7,632 3,566,698 85,963
Shares redeemed (1,079,462) (539,820) (12,397,200) (6,065,019)
Net increase (decrease) 11,590,671 1,512,358 $ 133,239,204 $ 17,014,803
INSTITUTIONAL CLASS
Shares sold 1,184,886 - $ 13,857,675 $ -
Reinvestment of distributions 16,851 - 198,685 -
Shares redeemed (1,190,993) - (14,086,954) -
Net increase (decrease) 10,744 - $ (30,594) $ -
A SHARE TRANSACTIONS FOR INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
B SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD JUNE 30, 1994
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Advisor Series II and the Shareholders of Advisor High
Yield Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor High Yield Fund, including the
schedule of portfolio investments, as of October 31, 1995, and the related
statement of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended
(Class A), for the year ended October 31, 1995 and for the period June 30,
1994 (commencement of sale of Class B shares) to October 31, 1994 (Class B)
and for the period July 3, 1995 (commencement of sale of Institutional
Class shares) 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 October 31, 1995 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 High Yield Fund as of
October 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended (Class A), for the year ended October 31, 1995 and for
the period June 30, 1994 (commencement of sale of Class B shares) to
October 31, 1994 (Class B) and for the period July 3, 1995 (commencement of
sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
A total of 6% of the dividends distributed during the fiscal year qualifies
for the dividends-received deductions for corporate shareholders.
The fund will notify shareholders in January 1996 of the applicable
percentage for use in preparing 1995 income tax returns.
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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 21 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 26 Notes to the financial statements.
REPORT OF INDEPENDENT 31 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 the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
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 fund's total return
includes changes in a fund's 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 OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Class A 6.05% 41.78% 78.17%
Advisor Short Fixed-Income - Class A
(incl. max. 1.50% sales charge) 4.46% 39.65% 75.49%
Lehman Brothers 1-3 Year
Government-Corporate Bond Index 8.93% 40.79% n/a
Average Short Investment Grade Bond Fund 8.79% 42.23% n/a
Consumer Price Index 2.81% 15.13% 33.65%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, 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 - a broad
measure of the performance of short-term government and corporate bonds. To
measure how Class A's performance stacked up against its peers, you can
compare it to the average short investment grade bond fund, which reflects
the performance of 144 funds with similar objectives tracked by Lipper
Analytical Services over the past 12 months. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect of
sales charges. Comparing Class A's performance to the consumer price index
(CPI) helps show how your fund did compared to inflation. (The CPI returns
begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Class A 6.05% 7.23% 7.36%
Advisor Short Fixed-Income - Class A
(incl. max. 1.50% sales charge) 4.46% 6.91% 7.16%
Lehman Brothers 1-3 Year
Government-Corporate Bond Index 8.93% 7.08% n/a
Average Short Investment Grade Bond Fund 8.79% 7.29% n/a
Consumer Price Index 2.81% 2.86% 3.65%
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
Fidelity Advisor ShoLB 1-3 Year Government/Corp
09/30/87 9850.00 10000.00
10/31/87 9999.49 10197.98
11/30/87 10069.38 10266.04
12/31/87 10130.15 10337.38
01/31/88 10263.19 10493.14
02/29/88 10364.90 10584.77
03/31/88 10397.94 10608.33
04/30/88 10410.62 10622.40
05/31/88 10402.91 10618.15
06/30/88 10508.28 10724.50
07/31/88 10509.69 10732.03
08/31/88 10553.35 10759.19
09/30/88 10658.72 10883.86
10/31/88 10755.10 10993.49
11/30/88 10723.65 10967.31
12/31/88 10756.74 10992.51
01/31/89 10844.41 11080.86
02/28/89 10863.57 11083.48
03/31/89 10918.18 11128.31
04/30/89 11036.70 11308.94
05/31/89 11187.27 11469.62
06/30/89 11369.33 11681.34
07/31/89 11562.89 11855.43
08/31/89 11480.37 11788.34
09/30/89 11539.61 11857.72
10/31/89 11711.46 12042.61
11/30/89 11803.46 12150.27
12/31/89 11865.45 12198.37
01/31/90 11838.59 12211.13
02/28/90 11886.45 12275.93
03/31/90 11949.35 12314.87
04/30/90 11960.25 12345.63
05/31/90 12148.22 12536.40
06/30/90 12242.20 12668.94
07/31/90 12387.19 12822.41
08/31/90 12367.36 12867.89
09/30/90 12398.20 12964.43
10/31/90 12366.56 13098.27
11/30/90 12444.44 13226.22
12/31/90 12561.85 13381.00
01/31/91 12524.08 13502.08
02/28/91 12654.01 13599.59
03/31/91 12879.98 13698.42
04/30/91 13067.46 13832.59
05/31/91 13200.84 13918.98
06/30/91 13265.37 13970.68
07/31/91 13356.50 14093.39
08/31/91 13580.71 14284.50
09/30/91 13721.20 14438.30
10/31/91 13874.36 14593.74
11/30/91 14014.71 14741.32
12/31/91 14241.52 14964.17
01/31/92 14299.93 14948.79
02/29/92 14396.33 14996.24
03/31/92 14463.54 14992.96
04/30/92 14557.35 15130.08
05/31/92 14708.26 15271.77
06/30/92 14843.45 15427.86
07/31/92 15028.03 15608.82
08/31/92 15155.65 15734.81
09/30/92 15281.00 15883.70
10/31/92 15184.02 15788.15
11/30/92 15191.10 15765.90
12/31/92 15324.72 15914.79
01/31/93 15556.96 16084.62
02/28/93 15746.23 16215.84
03/31/93 15847.34 16268.53
04/30/93 15927.54 16370.63
05/31/93 15995.14 16333.32
06/30/93 16155.75 16457.02
07/31/93 16251.31 16494.65
08/31/93 16410.75 16632.74
09/30/93 16467.43 16686.41
10/31/93 16569.96 16725.35
11/30/93 16638.14 16730.26
12/31/93 16779.65 16798.00
01/31/94 16884.35 16905.00
02/28/94 16746.56 16802.58
03/31/94 16362.99 16716.19
04/30/94 16276.72 16652.70
05/31/94 16374.72 16675.28
06/30/94 16245.85 16719.13
07/31/94 16394.04 16871.30
08/31/94 16527.13 16928.24
09/30/94 16520.77 16890.61
10/31/94 16533.37 16929.22
11/30/94 16561.77 16858.21
12/31/94 16214.32 16890.28
01/31/95 16334.96 17122.29
02/28/95 16537.36 17359.21
03/31/95 16624.29 17457.70
04/30/95 16759.64 17615.76
05/31/95 17061.18 17920.74
06/30/95 17141.52 18018.26
07/31/95 17204.66 18090.25
08/31/95 17306.84 18199.88
09/30/95 17389.90 18289.87
10/31/95 17533.49 18441.70
$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 October 31, 1995, the value of your investment would have
grown to $17,533 - a 75.33% 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 $18,442 - an 84.42% 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
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 6.16% A 5.82% A 7.72% 8.63% 9.59%
Capital appreciation return -0.11% -6.04% 1.41% 0.81% 2.60%
Total return 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 OCTOBER 31, 1995 PAST PAST 6 PAST
MONTH MONTHS YEAR
Dividends per share A 4.79(cents) 27.62(cents) 56.14(cents)
Annualized dividend rate 5.96% 5.80% 5.99%
30-day annualized yield 5.21% - -
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 $9.46
over the past month, $9.44 over the past six months and $9.38 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 NON-TAXABLE DIVIDENDS: 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 ARE EXPECTED TO BE 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. THE EXACT NON-TAXABLE AMOUNT TO USE IN PREPARING YOUR
INCOME TAX RETURN WILL DEPEND ON YOUR SHARE ACTIVITY AND WILL BE REPORTED
TO YOU IN JANUARY 1996
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
U.S. bond markets posted strong
returns during the 12 months ended
October 31, 1995. For the 12-month
period, the Lehman Brothers
Aggregate Bond Index - a broad
measure of U.S. taxable bonds -
posted a total return of 15.65%. A
strong rally starting in November
1994 helped bonds recover from
the effects of the sharply rising
interest rate environment seen
earlier that year. Indications of a
slowing economy and a relative
absence of inflation pressures
encouraged bond investors, helping
to push interest rates down.
Monetary policy also played a role
in the bond market's performance.
In an effort to thwart the possibility of
a recession, the Federal Reserve
Board lowered the fed funds rate -
the rate banks charge each other
for overnight loans - by 0.25% in
July to 5.75%. This policy reversal
followed a string of seven
successive interest rate increases
in 1994 and early 1995.
Mortgage-backed securities also
benefited from this environment, as
illustrated by the performance of the
Salomon Brothers Mortgage Index,
which returned 14.54% during the
period. Outside of the U.S.,
markets had mixed returns.
Emerging markets recovered from
the lows initiated by Mexico's peso
devaluation in December 1994. The
J.P. Morgan Emerging Markets
Bond Index returned 8.01% during
the 12-month period. Declining
interest rates and a relatively
weaker U.S. dollar helped the
Salomon Brothers World
Government Bond Index - which
includes U.S. issues - to post a
15.20% return.
An interview with Charles Morrison, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. CHARLIE, HOW HAS THE FUND PERFORMED?
A. For the 12 months ended October 31, 1995, Class A had a total return of
6.05%. During the same period, the average short investment grade bond fund
returned 8.79%, according to Lipper Analytical Services, and the Lehman
Brothers 1-3 Year Government-Corporate Bond Index was up 8.93%.
Q. WHAT ACCOUNTED FOR THE FUND'S SUBPAR PERFORMANCE?
A. The fund's 12-month performance was markedly affected by emerging market
debt investments, especially in Mexico, that it held in the latter part of
1994 and the beginning of 1995. After I assumed management responsibility
for the fund in February, I significantly reduced the fund's emerging
market debt investments. The fund currently holds approximately 0.2% in
emerging market, dollar-denominated debt, and I don't intend to invest
abroad in the foreseeable future. If we were to look at the fund's
performance over the past six months, we would see that it has performed
much better than during the first six months. Over the past six months, the
fund posted a return that is much more in line with its peers and the
short-term government/corporate market.
Q. WHERE HAVE YOU FOUND INVESTMENT OPPORTUNITIES?
A. There have been three main areas within the market where I have recently
taken advantage of attractive opportunities. First, I have reduced the
overall corporate exposure within the fund to take advantage of the
historically narrow yield differential between corporate and Treasury bonds
with similar maturities. Although both 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 good shape, I find
the valuation of that market to be increasingly less attractive because
corporates have become relatively expensive. Second, I've added to the
fund's commercial mortgage-backed investments, which make up 12.2% of the
fund at the end of the period. This market is comprised of debt issues
secured by the mortgages on commercial properties. It is an evolving market
that provides greater yield and return potential than similar quality
corporate securities. It has done well over the past six months, as the
market has matured and the buyer universe has grown, increasing liquidity.
By reducing corporates and buying higher-rated - primarily AAA - commercial
mortgage-backed securities, I have increased the overall credit quality of
the fund.
Q. AND THE THIRD AREA?
A. I have taken advantage of the flattening of the yield curve - when the
difference between long-term rates and short-term rates diminishes - by
selling very short, three- to six-month securities and long, five-year
securities, and purchasing two-year issues. This makes sense to me given
the historical flatness of the yield curve, and helps to limit the risk to
the fund should the curve steepen, with long rates going up more than short
rates.
Q. DID CURRENCIES AFFECT THE FUND?
A. In general, currencies were a negative factor during the fund's fiscal
year. The fund realized currency losses from selling some bonds whose
currencies had weakened versus the dollar. Most of these currency losses
were realized early in the fiscal year when the fund was eliminating a lot
of its foreign holdings. Going forward, I don't expect to be making
significant investments in non dollar-denominated bonds. For tax purposes,
these currency losses will cause part of this year's dividend to be treated
as a return of capital, which won't be taxable to the fund's shareholders.
The exact amount will be reported on shareholders' 1995 tax information
that we'll be sending out in January.
Q. WHAT'S YOUR OUTLOOK?
A. I consider the fund to be defensively positioned at this time. This
comes not from a particular concern over the direction of the economy, but
more from the historically high valuations that exist
within many of the investment alternatives available in the short-maturity
sector of the market. I will continue to focus on special situations that
look to provide value in the market, but don't expect to significantly
change the overall structure of the fund until we see greater variations
within the various subsectors of the market, such as corporates and
mortgages.
FUND FACTS
GOAL: high current income
with preservation of capital
by investing primarily in a
broad range of
investment-grade
fixed-income securities, such
as corporate and
government bonds - both
foreign and domestic - with
a dollar-weighted average of
three years or less
START DATE: September 16,
1987
SIZE: as of October 31, 1995,
more than $556 million
MANAGER: Charles Morrison,
since February 1995; joined
Fidelity in 1987
(checkmark)
CHARLIE MORRISON ON THE
FEDERAL BUDGET AND THE FEDERAL
RESERVE BOARD:
"There has been a great deal
of discussion lately about
Washington's attempt to
reduce government spending
and the federal budget deficit.
Generally, reduced
government spending leads
to a drag on the economy. In
such a scenario, it would not
be unusual for the Federal
Reserve Board to ease
monetary policy by lowering
interest rates. This is similar
to how the Fed might increase
rates to curb growth and
inflation in a period of high
government spending.
"In terms of overall strategic
direction for the fund, I'll
continue to focus less on
active interest rate
forecasting and more on
adding value through
research-driven security
selection, market sector
rotation, yield curve
positioning and opportunistic
trading."
DISTRIBUTIONS
A total of 34.17% of the
dividends distributed during
the fiscal year was derived
from interest on U.S.
Government securities which
is generally exempt from state
income tax.
The fund will notify
shareholders in January 1996
of the applicable percentage
for use in preparing 1995
income tax returns.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1995
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS
6 MONTHS AGO
Aaa 60.0 58.3
Aa 0.1 0.6
A 11.9 11.3
Baa 11.9 16.5
Ba 5.6 7.4
Not rated 10.5 5.4
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 OCTOBER 31, 1995
6 MONTHS AGO
Years 2.1 2.2
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 OCTOBER 31, 1995
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 OCTOBER 31, 1995 * AS OF APRIL 30, 1995 **
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%
Corporate bonds 40.3%
U.S. government
and government
agency
obligations 51.4%
Foreign government
obligations 0.2%
Short-term
investments 0.4%
Other investments 7.7%
FOREIGN INVESTMENTS 0.3%
Row: 1, Col: 1, Value: 13.1
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 2.0
Row: 1, Col: 4, Value: 53.1
Row: 1, Col: 5, Value: 33.0
Row: 1, Col: 1, Value: 7.7
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 2.0
Row: 1, Col: 4, Value: 47.0
Row: 1, Col: 5, Value: 40.3
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investments in Securities
NONCONVERTIBLE BONDS - 33.0%
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
AEROSPACE & DEFENSE - 0.2%
SHIP BUILDING & REPAIR - 0.2%
Tennessee Gas Pipeline Co. 9 1/4%, 5/15/96 Baa2 $ 1,320,000 $ 1,340,368
BASIC INDUSTRIES - 1.0%
CHEMICALS & PLASTICS - 0.7%
Methanex Corp. 8 7/8%, 11/15/01 A3 3,760,000 4,121,900
PAPER & FOREST PRODUCTS - 0.3%
Boise Cascade Corp. 7 3/8%, 8/1/97 Baa3 1,440,000 1,462,925
TOTAL BASIC INDUSTRIES 5,584,825
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Ford Motor Co. 1993-A Pass Thru Trust, ctf
4.67%, 1/1/96 A1 2,350,000 2,344,830
ENERGY - 0.1%
OIL & GAS - 0.1%
McDermott International, Inc. 7.95%, 7/2/97 Baa3 500,000 512,105
FINANCE - 19.2%
ASSET-BACKED SECURITIES - 7.5%
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 641,900
Capital Auto Receivables Asset Trust,
5.85%, 1/15/98 Aaa 387,139 385,446
Caterpillar Financial Asset Trust
6.65%, 6/25/00 A2 1,410,225 1,416,585
Concord Leasing, Inc. (c):
5.04%, 7/15/98 AAA 476,804 470,839
5.31%, 1/20/99 AAA 82,057 81,047
Discover Card Trust:
7 7/8%, 4/16/98 A2 480,000 483,000
6 1/8%, 5/15/98 A2 1,700,000 1,696,804
6.90%, 2/16/00 A2 1,888,000 1,916,320
General Motors Acceptance Corp. Grantor Trust
1995-A, 7.15%, 3/15/00 Aaa 5,536,757 5,616,320
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 591,378 588,775
MBNA Master Credit Card Trust
7 3/4%, 10/15/98 Aaa 900,000 913,781
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Midlantic Grantor Trust, Class B,
5.15%, 9/15/97 A1 $ 58,048 $ 58,003
Premier Auto Trust:
5.89%, 8/17/98 Aaa 492,655 492,193
4.95%, 2/2/99 A2 1,707,924 1,688,442
8.05%, 4/4/00 Aaa 5,100,000 5,345,438
SC Finance Corp. Recreational Vehicle Loan
Trust, 7 1/4%, 9/15/06 Aaa 35,291 35,556
Standard Credit Card Master Trust I:
9%, 8/7/97 A2 1,700,000 1,736,656
8 1/4%, 10/7/97 A2 6,310,000 6,432,256
4.85%, 3/7/99 A2 2,000,000 1,963,900
7.65%, 2/15/00 A2 800,000 825,250
6 3/4% 6/07/00 Aaa 4,830,000 4,916,022
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 1,054,331 1,050,700
United Federal Savings Bank Grantor Trust :
6.975%, 7/10/00 Baa2 594,675 599,319
7.275%, 11/10/00 Baa2 577,161 583,833
Union Acceptance Corp. 7.075%, 7/10/02 Baa2 783,401 788,783
Union Federal Savings 1994-D
8.20%, 1/10/01 Baa2 565,577 580,598
41,307,766
BANKS - 2.9%
Bank of Boston Corp. 9 1/2%, 8/15/97 Baa1 2,013,000 2,127,741
Continental Bank Mortgage Corp.
9 7/8%, 6/15/96 A2 1,200,000 1,225,500
First Bank Systems, Inc. 9.89%, 3/6/96 A3 100,000 101,369
First Fidelity Bancorporation 8 1/2%, 4/1/98 A3 1,010,000 1,063,530
KeyCorp 7.10%, 3/28/97 A1 1,440,000 1,460,304
Manufacturers Hanover Trust, NY (d):
5 3/4%, 4/30/97 A2 1,000,000 993,730
euro 6.1875%, 7/15/97 A3 3,450,000 3,445,688
Marine Midland Banks, Inc.
8 5/8%, 3/1/97 Baa1 1,850,000 1,901,708
Provident Bank 5%, 6/15/96 A3 1,000,000 993,250
Signet Banking Corp. 6%, 5/15/97 (d) Baa2 2,430,000 2,412,771
15,725,591
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 7.5%
Advanta Corp. 8.18%, 2/9/97 Baa3 $ 1,820,000 $ 1,862,151
Associates Corp. of North America
6 7/8%, 1/15/97 Aa3 400,000 403,672
Case Equipment Loan Trust:
1995-A3 6.15% 9/15/02 Aaa 6,840,000 6,857,100
6.45%, 9/15/02 A3 1,400,000 1,403,500
Chrysler Financial Corp.:
euro 9 1/2%, 4/12/96 BBB 1,000,000 1,014,900
6%, 4/15/96 A3 3,590,000 3,587,882
10.34%, 5/15/08 A3 3,450,000 3,523,244
Ford Motor Credit Corp.:
9%, 6/28/96 A2 50,000 50,953
6.05%, 3/31/98 A1 1,460,000 1,459,168
General Motors Acceptance Corp.:
7 3/4%, 1/17/97 A3 3,610,000 3,682,489
7 7/8%, 2/27/97 A3 2,230,000 2,281,914
7.90%, 3/12/97 A3 3,650,000 3,738,367
7 1/8%, 5/23/97 A3 900,000 914,400
Greyhound Financial Corp.:
8 1/4%, 3/11/97 Baa1 1,100,000 1,128,435
6.94%, 1/28/98 Baa2 3,000,000 3,040,380
Tenneco Credit Corp. 10.05%, 8/17/98 Baa2 2,670,000 2,904,693
Westinghouse Credit Corp.:
8.70%, 5/20/96 Ba1 935,000 943,256
8.79%, 5/22/96 Ba1 2,000,000 2,018,840
9.06%, 6/3/98 Ba1 400,000 420,332
41,235,676
INSURANCE - 0.2%
ITT Hartford Group, Inc. 7 1/4%, 12/1/96 A1 850,000 859,223
SAVINGS & LOANS - 1.1%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 300,000 317,826
USAT Holdings, Inc. 8.05%, 5/15/98 (c) Ba2 6,000,000 5,925,000
6,242,826
TOTAL FINANCE 105,371,082
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Cardinal Distribution Inc. 8%, 3/01/97 A3 $ 950,000 $ 968,573
INDUSTRIAL MACHINERY & EQUIPMENT -0.2%
ELECTRICAL EQUIPMENT - 0.2%
Westinghouse Electric Corp.:
8.71%, 2/13/98 Ba1 245,000 254,528
8.96%, 6/17/98 Ba1 700,000 734,356
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 988,884
MEDIA & LEISURE - 0.4%
LEISURE DURABLES & TOYS - 0.4%
Brunswick Corp. 8 1/8%, 4/1/97 Baa1 925,000 940,781
Mattel, Inc. 6 7/8%, 8/1/97 Baa1 1,250,000 1,256,888
TOTAL MEDIA & LEISURE 2,197,669
NONDURABLES - 0.1%
TOBACCO - 0.1%
Philip Morris Companies, Inc.
8 7/8%, 7/1/96 A2 350,000 356,832
RETAIL & WHOLESALE - 1.0%
GENERAL MERCHANDISE STORES - 0.9%
Sears, Roebuck & Co.:
8.55%, 8/1/96 A2 500,000 508,735
8.95%, 11/27/96 A2 245,000 252,499
9.22%, 1/30/97 A2 1,700,000 1,765,926
7 3/4%, 2/27/97 A2 2,210,000 2,260,808
7.30%, 6/12/97 A2 245,000 249,937
5,037,905
GROCERY STORES - 0.1%
American Stores Co.:
8 1/4%, 4/21/98 Baa3 300,000 312,354
8.44%, 4/24/98 Baa3 300,000 313,686
626,040
TOTAL RETAIL & WHOLESALE 5,663,945
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
SERVICES - 0.1%
ADVERTISING - 0.1%
Valassis Inserts, Inc. 9 3/8%, 3/15/99 Ba2 $ 725,000 $ 728,625
TECHNOLOGY - 1.9%
COMPUTERS & OFFICE EQUIPMENT - 1.9%
Comdisco, Inc.:
6.89%, 8/30/96 Baa2 2,480,000 2,495,500
7 3/4%, 1/29/97 Baa2 800,000 814,128
7.73%, 2/18/97 Baa2 6,950,000 7,073,224
7 1/4%, 4/15/98 Baa2 120,000 122,580
TOTAL TECHNOLOGY 10,505,432
TRANSPORTATION - 2.4%
AIR TRANSPORTATION - 2.2%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 6,810,000 6,948,652
9 1/2%, 7/15/98 Baa3 250,000 268,228
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Ba1 2,000,000 2,124,720
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 2,580,000 2,571,305
11,912,905
TRUCKING & FREIGHT - 0.2%
Federal Express Corp. 9 3/4%, 5/15/96 Baa2 1,000,000 1,018,120
TOTAL TRANSPORTATION 12,931,025
UTILITIES - 5.8%
ELECTRIC UTILITY - 3.6%
Gulf States Utilities Co.:
5%, 1/1/96 Baa3 575,000 573,540
9.72%, 7/1/98 Ba1 3,485,000 3,648,377
Long Island Lighting Co.:
8 3/4%, 5/1/96 Baa3 5,580,000 5,648,578
7.3%, 7/15/99 Ba1 1,630,000 1,621,214
Public Service Co. of New Hampshire 1st mtg.:
8 7/8%, 5/15/96 Ba1 1,210,000 1,230,691
9.17%, 5/15/98 Ba1 6,100,000 6,430,620
United Illuminating Co. 7 3/8%, 1/15/98 Baa3 450,000 458,694
19,611,714
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
UTILITIES - CONTINUED
GAS - 2.2%
ARKLA, Inc.:
9.38%, 3/15/96 Ba2 $ 1,500,000 $ 1,513,290
9 7/8%, 4/15/97 Ba2 1,440,000 1,505,549
8.875%, 7/15/99 Ba2 1,500,000 1,591,305
Florida Gas 7 3/4%, 11/1/97 (c) Baa2 1,630,000 1,675,705
Transco Energy Co. 9 1/2%, 12/1/95 Baa2 3,250,000 3,260,563
Transcontinental Gas Pipe Line Corp.:
9%, 11/15/96 Baa1 1,500,000 1,541,625
6.21%, 5/15/00 Baa1 1,330,000 1,329,455
12,417,492
TOTAL UTILITIES 32,029,206
TOTAL NONCONVERTIBLE BONDS
(Cost $182,337,257) 181,523,401
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 53.1%
U.S. TREASURY OBLIGATIONS - 50.2%
4 3/8%, 11/15/96 Aaa 41,040,000 40,539,722
7 1/4%, 11/15/96 Aaa 31,186,000 31,692,773
8 1/2%, 5/15/97 Aaa 8,300,000 8,647,521
8 3/4%, 10/15/97 Aaa 61,745,000 65,256,438
5 1/8%, 3/31/98 Aaa 71,075,000 70,197,935
9%, 5/15/98 Aaa 4,690,000 5,052,725
9 1/4%, 8/15/98 Aaa 26,650,000 29,048,500
5 1/8% 12/31/98 Aaa 975,000 958,240
7 3/4%, 12/31/99 Aaa 23,314,000 24,964,165
TOTAL U.S. TREASURY OBLIGATIONS 276,358,019
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.9%
Federal Home Loan Mortgage Corp.:
4.78%, 2/10/97 (callable) Aaa 800,000 788,938
Government Trust Certificates
(assets of the Trust guaranteed by U.S.
Government through Defense Security
Assistance Agency):
Class 3-B 8.55%, 11/15/97 Aaa 1,384,374 1,409,390
Class 1-C 9 1/4%, 11/15/01 Aaa 1,609,000 1,770,190
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Trust Certificates
(assets of Trust guaranteed by U.S. Government
through Export-Import Bank):
Series 1994-C, 6.61%, 9/15/99 Aaa $ 346,615 $ 350,745
Series 1995-A, 6.28%, 6/15/04 Aaa 2,180,000 2,182,616
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
5 1/4%, 3/15/98 Aaa 2,480,000 2,449,769
4 7/8%, 9/15/98 Aaa 2,050,000 1,998,750
6%, 2/15/99 Aaa 740,000 742,160
7 3/4%, 11/15/99 Aaa 3,124,000 3,309,784
Private Export Funding Corp. :
Series CC, 9 1/2%, 3/31/99 Aaa 320,000 353,894
6.86%, 4/30/04 Aaa 727,200 742,493
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 16,098,729
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $287,625,100) 292,456,748
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
U.S. GOVERNMENT AGENCY - 0.3%
Federal National Mortgage Association
planned amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 1,250,000 1,233,200
PRIVATE SPONSOR - 0.3%
General Electric Capital Mortgage Services, Inc.
planned amortization class Series 1993-18
Class A-5, 6%, 2/25/02 AAA 1,810,000 1,800,950
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $3,011,850) 3,034,150
COMMERCIAL MORTGAGE SECURITIES - 12.2%
CS First Boston Mortgage Securities Corp.:
commercial floater Series 1994-CFB1,
Class A-1, 6.425%, 1/25/28 (d) AAA 3,665,091 3,660,510
Series 1995-AEW1, Class A-1
6.665%, 11/25/27 Aaa 1,700,000 1,698,938
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FDIC commercial Series 1994-C1 Class II-A1,
6.30%, 9/25/25 Aaa $ 1,343,413 $ 1,342,573
Kearny Street Mortgage (c):
commercial floater, Series 1995-1,
Class A-1, 7.04%, 2/20/30 (d) AAA 892,427 905,814
commercial :
Class II-B, 6.60%, 10/15/02 - 1,000,000 1,002,360
Class II-C, 7.30%, 10/15/03 - 400,000 401,192
Class II-D, 7 3/4%, 10/15/05 - 300,000 301,086
Lennar Central Partners LP (c):
commercial Series 1995-1,
Class C, 7.55%, 5/15/03 - 1,200,000 1,200,000
commercial floater Series 1994-1,
Class B, 6 7/8%, 9/15/01 (d) - 4,943,000 4,944,532
Merrill Lynch Mortgage Investments, Inc. commercial
Series 1995-C2, Class A-1,
7.38%, 6/15/21 Aaa 2,300,000 2,340,969
Meritor Mortgage Security Corp. commercial
Series 1987-1 Class A-3, commercial,
9.40%, 6/1/99 Baa3 1,312,503 1,322,347
Morgan Stanley Capital commercial Series 1995-1
Class A-1, 7%, 2/15/02 (c) AAA 6,005,386 6,076,700
Nomura Asset Securities Corp.
commercial floater Series 1994-MD-II,
Class A-6, 7.097% 7/4/03 (d) - 1,296,427 1,289,337
Oregon pass thru certificates commercial
Series 1995 Class A-1, 7.15%, 6/25/26 (c) AAA 4,641,847 4,659,254
SKW Real Estate LP (c):
commercial floater Class A, 6.45%, 4/15/02 (e) AA 2,839,776 2,842,439
Class C 7.45% 04/15/03 BBB 1,800,000 1,804,500
SC Finance Corp. commercial floater
7.425%, 8/1/04 (c)(d) - 4,100,000 4,117,938
Whitehall Partners commercial Series 1995-C1
Class A-2, 6.91%, 7/20/25 (c) - 6,799,270 6,846,015
Resolution Trust Corp.:
commercial:
Series 1994-N2 Class 3,
7 1/2%, 12/15/04 (c)(e) Baa2 3,100,000 3,113,563
Series 1994-C2 Class A-2,
7 3/4%, 4/25/25 AAA 507,820 510,200
Series 1994-C2 Class A-4,
7 1/2%, 4/25/25 AAA 723,384 724,062
Series 1994-C2 Class E,
8%, 4/25/25 BB+ 3,392,482 3,139,106
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
Resolution Trust Corp.: - continued
commercial:
Series 1994-C1 Class A-4,
7 1/4%, 6/25/26 AAA $ 1,068,586 $ 1,065,246
Series 1995-C1 Class A-2A,
6 1/4%, 2/25/27 Aaa 2,157,987 2,147,534
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 1,235,617 1,229,439
commercial floater (d):
Series 1992-C3 Class A-2,
6.725%, 8/25/23 Aa2 464,095 464,530
Series 1993-C2 Class A-2,
6.0875% 3/25/25 AAA 3,884,319 3,908,596
Series 1994-C1 Class A-3,
6.4875%, 6/25/26 AAA 3,016,675 3,014,789
Ryland Mortgage Securities Corp. commercial
Series 1992-C3 Class A-2, 7 1/2%, 8/1/23 Aaa - -
Structured Asset Securities Corp. commercial
Series 1993-C1 Class A-1,
6.60%, 10/25/24 AA 1,347,198 1,341,304
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $66,785,079) 67,414,873
FOREIGN GOVERNMENT OBLIGATIONS (F) - 0.2%
Province of Chaco, Argentina 11 7/8%,
9/10/97 (b)
(Cost $934,096) - 866,667 892,667
CERTIFICATES OF DEPOSIT - 0.3%
Advanta National Bank 6.26%, 9/1/97
(Cost $1,798,128) 1,800,000 1,800,000
MUNICIPAL SECURITIES - 0.6%
Louisiana Pub. Facs. Auth. Rev
9.95%, 6/1/96 A3 2,095,000 2,140,252
Shreveport Louisiana Wtr. & Swr. Rev.
Rfdg. 0%, 12/1/96 Aaa 1,500,000 1,407,765
TOTAL MUNICIPAL SECURITIES
(Cost $3,647,942) 3,548,017
TOTAL INVESTMENT IN SECURITIES - 100.0%
(Cost $546,139,452) $ 550,669,856
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
(b) 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
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $46,367,984 or 8.3% of net
assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
(f) 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 72.0% AAA, AA, A 74.2%
Baa 11.9% BBB 12.1%
Ba 5.6% BB 7.8%
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 4.1%.
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $546,287,155. Net unrealized appreciation aggregated
$4,382,701, of which $6,832,308 related to appreciated investment
securities and $2,449,607 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $38,011,000 which will expire between October 31, 1996 and
October 31, 2003.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1995
ASSETS
Investment in securities, at value (cost $546,139,452) - $ 550,669,856
See accompanying schedule
Interest receivable 8,336,799
Other receivables 2,354
Prepaid expenses 12,056
Receivable from investment adviser for expense 5,453
reductions
TOTAL ASSETS 559,026,518
LIABILITIES
Payable to custodian bank $ 49,100
Payable for fund shares redeemed 1,645,410
Distributions payable 488,375
Accrued management fee 209,342
Distribution fees payable 68,805
Other payables and accrued expenses 193,053
TOTAL LIABILITIES 2,654,085
NET ASSETS $ 556,372,433
Net Assets consist of:
Paid in capital $ 592,834,085
Distributions in excess of net investment income (2,835,623)
Accumulated undistributed net realized gain (loss) on (38,156,433)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 4,530,404
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 556,372,433
CALCULATION OF MAXIMUM OFFERING PRICE $9.47
CLASS A:
NET ASSET VALUE, and redemption price per share
($546,545,862 (divided by) 57,733,624 shares)
Maximum offering price per share (100/98.50 of $9.47) $9.61
INSTITUTIONAL CLASS: $9.47
NET ASSET VALUE, offering price and redemption price per
share ($9,826,571 (divided by) 1,037,510 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 44,263,122
Interest
EXPENSES
Management fee $ 2,889,187
Transfer agent fees 1,421,694
Class A
Institutional Class 40
Distribution fees - Class A 952,752
Accounting fees and expenses 231,369
Non-interested trustees' compensation 3,464
Custodian fees and expenses 42,240
Registration fees 80,673
Class A
Institutional Class 14,616
Audit 37,941
Reports to shareholders 25,787
Total expenses before reductions 5,699,763
Expense reductions (5,453) 5,694,310
NET INVESTMENT INCOME 38,568,812
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (30,705,630)
Foreign currency transactions 1,337,570 (29,368,060)
Change in net unrealized appreciation (depreciation) on:
Investment securities 24,485,726
Assets and liabilities in foreign currencies 455,173 24,940,899
NET GAIN (LOSS) (4,427,161)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 34,141,651
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 38,568,812 $ 47,704,156
Net investment income
Net realized gain (loss) (29,368,060) (26,191,734)
Change in net unrealized appreciation (depreciation) 24,940,899 (26,799,695)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 34,141,651 (5,287,273)
FROM OPERATIONS
Distributions to shareholders (27,653,285) (38,309,373)
From net investment income
Class A
Institutional Class (106,031) -
In excess of net investment income - (3,559,742)
Class A
Return of capital (Note 1) (10,490,479) (6,458,279)
Class A
Institutional Class (36,934) -
TOTAL DISTRIBUTIONS (38,286,729) (48,327,394)
Share transactions - net increase (decrease) (227,408,479) 187,338,982
TOTAL INCREASE (DECREASE) IN NET ASSETS (231,553,557) 133,724,315
NET ASSETS
Beginning of period 787,925,990 654,201,675
End of period (including distributions in excess of $ 556,372,433 $ 787,925,990
net investment income of $2,835,623 and
$3,773,984, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C, E 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 9.480 $ 10.090 $ 9.950 $ 9.870 $ 9.620
of period
Income from Investment
Operations
Net investment income .403 .479 .732 .830 .848
Net realized and unrealized .148 F (.501) .146 .071 .270
gain (loss)
Total from investment .551 (.022) .878 .901 1.118
operations
Less Distributions
From net investment income (.407) (.464) (.738) (.821) (.868)
In excess of net - (.044) - - -
investment income
Return of capital (.154) (.080) - - -
Total distributions (.561) (.588) (.738) (.821) (.868)
Net asset value, end of $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870
period
TOTAL RETURN A, B 6.05% (0.22)% 9.13% 9.44% 12.19%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 546,546 $ 787,926 $ 654,202 $ 170,558 $ 25,244
(000 omitted)
Ratio of expenses to average .89% .97% .95% .90% .90%
net assets D D
Ratio of net investment 6.05% 5.91% 6.77% 7.59% 8.50%
income to average net
assets
Portfolio turnover 179% 108% 58% 57% 127%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C 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.
D FMR VOLUNTARILY 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.
E AMOUNTS HAVE BEEN ADJUSTED TO CONFORM WITH PRESENT PERIOD ACCOUNTING
POLICIES.
F THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
JULY 3, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
OCTOBER 31,
1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.450
Income from Investment Operations
Net investment income .137
Net realized and unrealized gain (loss) .067 D
Total from investment operations .204
Less Distributions
From net investment income (.136)
Return of capital (.048)
TOTAL DISTRIBUTIONS (.184)
Net asset value, end of period $ 9.470
TOTAL RETURN B 2.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 9,827
Ratio of expenses to average net assets .85% A,
C
Ratio of net investment income to average net assets 6.10% A
Portfolio turnover 179%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C FMR VOLUNTARILY 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.
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.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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. 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 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.
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."
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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, which 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 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.
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. Futures contracts
involve, to varying degrees, risk of loss in excess of the futures
variation margin reflected in the Statement of Assets and Liabilities. The
underlying face amount at value is shown in the schedule of investments
under the caption "Futures Contracts." This amount reflects each contract's
exposure to the underlying instrument at period end. 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
2. OPERATING POLICIES -
CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS - CONTINUED
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.
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 $892,667 or 0.2%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $973,193,592 and $1,013,282,400, respectively, of which U.S.
government and government agency obligations aggregated $816,902,007 and
$758,343,245, 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 .1200% 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 annual 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
$952,752 under the Class A Plan, of which $933,777 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives 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 $786,085 on sales of Class A shares of the
fund, of which $618,178 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. During the period November 1, 1994 to December
31, 1994, State Street received fees based on the type, size, number of
accounts and the number of transactions made by the shareholders. Effective
January 1, 1995, the Board of Trustees approved a revised transfer agent
contract pursuant to which 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
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 $5,453 for Class A and Institutional Class,
respectively.
6. SHARE TRANSACTIONS.
Share transactions for each class was as follows:
SHARES DOLLARS
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1995 A 1994 1995 A 1994
CLASS A
Shares sold 20,377,823 72,835,096 $ 190,869,432 $ 719,576,625
Reinvestment of distributions 3,265,988 3,897,323 30,573,100 37,895,194
Shares redeemed (48,984,447) (58,463,343) (458,631,505) (570,132,837)
Net increase (decrease) (25,340,636) 18,269,076 $ (237,188,973) $
187,338,982
INSTITUTIONAL CLASS
Shares sold 1,074,155 - $ 10,126,478 $ -
Reinvestment of distributions 13,078 - 123,702 -
Shares redeemed (49,723) - (469,686) -
Net increase (decrease) 1,037,510 - $ 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Short Fixed-Income Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Short Fixed-Income Fund,
including the schedule of portfolio investments, as of October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A) and for the period July 3, 1995 (commencement
of sale of Institutional Class shares) 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 October 31, 1995, 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 Short Fixed-Income Fund, as
of October 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period
then ended (Class A), and for the period July 3, 1995 (commencement of sale
of Institutional Class shares) to October 31, 1995 ( Institutional Class),
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 21 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 26 Notes to the financial statements.
REPORT OF INDEPENDENT 31 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 the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
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 fund's total return
includes changes in a fund's 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. 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 one year, past five years and the life of fund total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Institutional Class 6.10% 41.85% 78.25%
Lehman Brothers 1-3 Year
Government-Corporate Bond Index 8.93% 40.79% n/a
Average Short Investment Grade Bond Fund 8.79% 42.23% n/a
Consumer Price Index 2.81% 15.13% 33.65%
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 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 - a broad measure of the performance of short-term government and
corporate bonds. To measure how Institutional Class' performance stacked up
against its peers, you can compare it to the average short investment grade
bond fund, which reflects the performance of 144 funds with similar
objectives tracked by Lipper Analytical Services over the past 12 months.
These benchmarks include reinvested dividends and capital gains, if any,
and exclude the effect of sales charges. Comparing Institutional Class'
performance to the consumer price index (CPI) helps show how your fund did
compared to inflation. (The CPI returns begin on the month end closest to
the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Institutional 6.10% 7.24% 7.37%
Class
Lehman Brothers 1-3 Year
Government-Corporate Bond Index 8.93% 7.08% n/a
Average Short Investment Grade Bond Fund 8.79% 7.29% n/a
Consumer Price Index 2.81% 2.86% 3.65%
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
Fidelity Advisor ShLB 1-3 Year Government/Corp
09/30/87 10000.00 10000.00
10/31/87 10151.77 10197.98
11/30/87 10222.72 10266.04
12/31/87 10284.41 10337.38
01/31/88 10419.48 10493.14
02/29/88 10522.74 10584.77
03/31/88 10556.28 10608.33
04/30/88 10569.16 10622.40
05/31/88 10561.33 10618.15
06/30/88 10668.31 10724.50
07/31/88 10669.73 10732.03
08/31/88 10714.06 10759.19
09/30/88 10821.04 10883.86
10/31/88 10918.88 10993.49
11/30/88 10886.96 10967.31
12/31/88 10920.55 10992.51
01/31/89 11009.55 11080.86
02/28/89 11029.00 11083.48
03/31/89 11084.45 11128.31
04/30/89 11204.77 11308.94
05/31/89 11357.63 11469.62
06/30/89 11542.47 11681.34
07/31/89 11738.98 11855.43
08/31/89 11655.20 11788.34
09/30/89 11715.34 11857.72
10/31/89 11889.81 12042.61
11/30/89 11983.20 12150.27
12/31/89 12046.15 12198.37
01/31/90 12018.87 12211.13
02/28/90 12067.46 12275.93
03/31/90 12131.32 12314.87
04/30/90 12142.39 12345.63
05/31/90 12333.21 12536.40
06/30/90 12428.63 12668.94
07/31/90 12575.82 12822.41
08/31/90 12555.70 12867.89
09/30/90 12587.01 12964.43
10/31/90 12554.88 13098.27
11/30/90 12633.95 13226.22
12/31/90 12753.15 13381.00
01/31/91 12714.81 13502.08
02/28/91 12846.72 13599.59
03/31/91 13076.12 13698.42
04/30/91 13266.46 13832.59
05/31/91 13401.87 13918.98
06/30/91 13467.38 13970.68
07/31/91 13559.90 14093.39
08/31/91 13787.52 14284.50
09/30/91 13930.15 14438.30
10/31/91 14085.65 14593.74
11/30/91 14228.13 14741.32
12/31/91 14458.40 14964.17
01/31/92 14517.70 14948.79
02/29/92 14615.57 14996.24
03/31/92 14683.79 14992.96
04/30/92 14779.04 15130.08
05/31/92 14932.25 15271.77
06/30/92 15069.49 15427.86
07/31/92 15256.89 15608.82
08/31/92 15386.45 15734.81
09/30/92 15513.70 15883.70
10/31/92 15415.25 15788.15
11/30/92 15422.43 15765.90
12/31/92 15558.09 15914.79
01/31/93 15793.87 16084.62
02/28/93 15986.02 16215.84
03/31/93 16088.67 16268.53
04/30/93 16170.09 16370.63
05/31/93 16238.72 16333.32
06/30/93 16401.78 16457.02
07/31/93 16498.79 16494.65
08/31/93 16660.66 16632.74
09/30/93 16718.20 16686.41
10/31/93 16822.29 16725.35
11/30/93 16891.51 16730.26
12/31/93 17035.18 16798.00
01/31/94 17141.47 16905.00
02/28/94 17001.59 16802.58
03/31/94 16612.17 16716.19
04/30/94 16524.59 16652.70
05/31/94 16624.08 16675.28
06/30/94 16493.25 16719.13
07/31/94 16643.69 16871.30
08/31/94 16778.81 16928.24
09/30/94 16772.35 16890.61
10/31/94 16785.15 16929.22
11/30/94 16813.98 16858.21
12/31/94 16461.24 16890.28
01/31/95 16583.71 17122.29
02/28/95 16789.20 17359.21
03/31/95 16877.45 17457.70
04/30/95 17014.86 17615.76
05/31/95 17320.99 17920.74
06/30/95 17402.55 18018.26
07/31/95 17486.63 18090.25
08/31/95 17593.46 18199.88
09/30/95 17679.97 18289.87
10/31/95 17808.84 18441.70
$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 October 31,
1995, the value of your investment would have grown to $17,809 - a 78.09%
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
$18,442 - an 84.42% 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
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 6.21% A 5.82% A 7.72% 8.63% 9.59%
Capital appreciation return -0.11% -6.04% 1.41% 0.81% 2.60%
Total return 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 OCTOBER 31, 1995 PAST MONTH LIFE OF CLASS
Dividends per share A 4.89(cents) 18.43(cents)
Annualized dividend rate 6.08% 5.93%
30-day annualized yield n/a -
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 $9.47
over the past month, and $9.45 over the life of Class, you can compare the
class' income over these two 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 NON-TAXABLE DIVIDENDS: 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 ARE EXPECTED TO BE 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.
THE EXACT NON-TAXABLE AMOUNT TO USE IN PREPARING YOUR INCOME TAX RETURN
WILL DEPEND ON YOUR SHARE ACTIVITY AND WILL BE REPORTED TO YOU IN JANUARY
1996.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
U.S. bond markets posted strong
returns during the 12 months
ended October 31, 1995. For the
12-month period, the Lehman
Brothers Aggregate Bond Index - a
broad measure of U.S. taxable
bonds - posted a total return of
15.65%. A strong rally starting in
November 1994 helped bonds
recover from the effects of the
sharply rising interest rate
environment seen earlier that year.
Indications of a slowing economy
and a relative absence of inflation
pressures encouraged bond
investors, helping to push interest
rates down. Monetary policy also
played a role in the bond market's
performance. In an effort to thwart
the possibility of a recession, the
Federal Reserve Board lowered
the fed funds rate - the rate banks
charge each other for overnight
loans - by 0.25% in July to
5.75%. This policy reversal
followed a string of seven
successive interest rate increases
in 1994 and early 1995.
Mortgage-backed securities also
benefited from this environment, as
illustrated by the performance of
the Salomon Brothers Mortgage
Index, which returned 14.54%
during the period. Outside of the
U.S., markets had mixed returns.
Emerging markets recovered from
the lows initiated by Mexico's peso
devaluation in December 1994.
The J.P. Morgan Emerging
Markets Bond Index returned
8.01% during the 12-month period.
Declining interest rates and a
relatively weaker U.S. dollar helped
the Salomon Brothers World
Government Bond Index - which
includes U.S. issues - to post a
15.20% return.
An interview with Charles Morrison, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. CHARLIE, HOW HAS THE FUND PERFORMED?
A. For the 12 months ended October 31, 1995, Institutional Class had a
total return of 6.10%. During the same period, the average short investment
grade bond fund returned 8.79%, according to Lipper Analytical Services,
and the Lehman Brothers 1-3 Year Government-Corporate Bond Index was up
8.93%.
Q. WHAT ACCOUNTED FOR THE FUND'S SUBPAR PERFORMANCE?
A. The fund's 12-month performance was markedly affected by emerging market
debt investments, especially in Mexico, that it held in the latter part of
1994 and the beginning of 1995. After I assumed management responsibility
for the fund in February, I significantly reduced the fund's emerging
market debt investments. The fund currently holds approximately 0.2% in
emerging market, dollar-denominated debt, and I don't intend to invest
abroad in the foreseeable future. If we were to look at the fund's
performance over the past six months, we would see that it has performed
much better than during the first six months. Over the past six months, the
fund posted a return that is much more in line with its peers and the
short-term government/corporate market.
Q. WHERE HAVE YOU FOUND INVESTMENT OPPORTUNITIES?
A. There have been three main areas within the market where I have recently
taken advantage of attractive opportunities. First, I have reduced the
overall corporate exposure within the fund to take advantage of the
historically narrow yield differential between corporate and Treasury bonds
with similar maturities. Although both 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 good shape, I find
the valuation of that market to be increasingly less attractive because
corporates have become relatively expensive. Second, I've added to the
fund's commercial mortgage-backed investments, which make up 12.2% of the
fund at the end of the period. This market is comprised of debt issues
secured by the mortgages on commercial properties. It is an evolving market
that provides greater yield and return potential than similar quality
corporate securities. It has done well over the past six months, as the
market has matured and the buyer universe has grown, increasing liquidity.
By reducing corporates and buying higher-rated - primarily AAA - commercial
mortgage-backed securities, I have increased the overall credit quality of
the fund.
Q. AND THE THIRD AREA?
A. I have taken advantage of the flattening of the yield curve - when the
difference between long-term rates and short-term rates diminishes - by
selling very short, three- to six-month securities and long, five-year
securities, and purchasing two-year issues. This makes sense to me given
the historical flatness of the yield curve, and helps to limit the risk to
the fund should the curve steepen, with long rates going up more than short
rates.
Q. DID CURRENCIES AFFECT THE FUND?
A. In general, currencies were a negative factor during the fund's fiscal
year. The fund realized currency losses from selling some bonds whose
currencies had weakened versus the dollar. Most of these currency losses
were realized early in the fiscal year when the fund was eliminating a lot
of its foreign holdings. Going forward, I don't expect to be making
significant investments in non dollar-denominated bonds. For tax purposes,
these currency losses will cause part of this year's dividend to be treated
as a return of capital, which won't be taxable to the fund's shareholders.
The exact amount will be reported on shareholders' 1995 tax information
that we'll be sending out in January.
Q. WHAT'S YOUR OUTLOOK?
A. I consider the fund to be defensively positioned at this time. This
comes not from a particular concern over the direction of the economy, but
more from the historically high valuations that exist within many of the
investment alternatives available in the short-maturity sector of the
market. I will continue to focus on special situations that look to provide
value in the market, but don't expect to significantly change the overall
structure of the fund until we see greater variations within the various
subsectors of the market, such as corporates and mortgages.
FUND FACTS
GOAL: high current income
with preservation of capital
by investing primarily in a
broad range of
investment-grade
fixed-income securities, such
as corporate and
government bonds - both
foreign and domestic - with
a dollar-weighted average of
three years or less
START DATE: September 16,
1987
SIZE: as of October 31, 1995,
more than $556 million
MANAGER: Charles Morrison,
since February 1995; joined
Fidelity in 1987
(checkmark)
CHARLIE MORRISON ON THE
FEDERAL BUDGET AND THE FEDERAL
RESERVE BOARD:
"There has been a great deal
of dis- cussion lately about
Washington's attempt to
reduce government spending
and the federal budget deficit.
Generally, reduced
government spending leads to
a drag on the economy. In
such a scenario, it would not
be unusual for the Federal
Reserve Board to ease
monetary policy by lowering
interest rates. This is similar to
how the Fed might increase
rates to curb growth and
inflation in a period of high
government spending.
"In terms of overall strategic
direction for the fund, I'll
continue to focus less on
active interest rate
forecasting and more on
adding value through
research-driven security
selection, market sector
rotation, yield curve
positioning and opportunistic
trading."
DISTRIBUTIONS
A total of 34.17% of the
dividends distributed during
the fiscal year was derived
from interest on U.S.
Government securities which
is generally exempt from state
income tax.
The fund will notify
shareholders in January 1996
of the applicable percentage
for use in preparing 1995
income tax returns.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1995
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS
6 MONTHS AGO
Aaa 60.0 58.3
Aa 0.1 0.6
A 11.9 11.3
Baa 11.9 16.5
Ba 5.6 7.4
Not rated 10.5 5.4
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 OCTOBER 31, 1995
6 MONTHS AGO
Years 2.1 2.2
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 OCTOBER 31, 1995
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 OCTOBER 31, 1995 * AS OF APRIL 30, 1995 **
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%
Corporate bonds 40.3%
U.S. government
and government
agency
obligations 51.4%
Foreign government
obligations 0.2%
Short-term
investments 0.4%
Other investments 7.7%
FOREIGN INVESTMENTS 0.3%
Row: 1, Col: 1, Value: 13.1
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 2.0
Row: 1, Col: 4, Value: 53.1
Row: 1, Col: 5, Value: 33.0
Row: 1, Col: 1, Value: 7.7
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 2.0
Row: 1, Col: 4, Value: 47.0
Row: 1, Col: 5, Value: 40.3
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investments in Securities
NONCONVERTIBLE BONDS - 33.0%
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
AEROSPACE & DEFENSE - 0.2%
SHIP BUILDING & REPAIR - 0.2%
Tennessee Gas Pipeline Co. 9 1/4%, 5/15/96 Baa2 $ 1,320,000 $ 1,340,368
BASIC INDUSTRIES - 1.0%
CHEMICALS & PLASTICS - 0.7%
Methanex Corp. 8 7/8%, 11/15/01 A3 3,760,000 4,121,900
PAPER & FOREST PRODUCTS - 0.3%
Boise Cascade Corp. 7 3/8%, 8/1/97 Baa3 1,440,000 1,462,925
TOTAL BASIC INDUSTRIES 5,584,825
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Ford Motor Co. 1993-A Pass Thru Trust, ctf
4.67%, 1/1/96 A1 2,350,000 2,344,830
ENERGY - 0.1%
OIL & GAS - 0.1%
McDermott International, Inc. 7.95%, 7/2/97 Baa3 500,000 512,105
FINANCE - 19.2%
ASSET-BACKED SECURITIES - 7.5%
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 641,900
Capital Auto Receivables Asset Trust,
5.85%, 1/15/98 Aaa 387,139 385,446
Caterpillar Financial Asset Trust
6.65%, 6/25/00 A2 1,410,225 1,416,585
Concord Leasing, Inc. (c):
5.04%, 7/15/98 AAA 476,804 470,839
5.31%, 1/20/99 AAA 82,057 81,047
Discover Card Trust:
7 7/8%, 4/16/98 A2 480,000 483,000
6 1/8%, 5/15/98 A2 1,700,000 1,696,804
6.90%, 2/16/00 A2 1,888,000 1,916,320
General Motors Acceptance Corp. Grantor Trust
1995-A, 7.15%, 3/15/00 Aaa 5,536,757 5,616,320
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 591,378 588,775
MBNA Master Credit Card Trust
7 3/4%, 10/15/98 Aaa 900,000 913,781
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Midlantic Grantor Trust, Class B,
5.15%, 9/15/97 A1 $ 58,048 $ 58,003
Premier Auto Trust:
5.89%, 8/17/98 Aaa 492,655 492,193
4.95%, 2/2/99 A2 1,707,924 1,688,442
8.05%, 4/4/00 Aaa 5,100,000 5,345,438
SC Finance Corp. Recreational Vehicle Loan
Trust, 7 1/4%, 9/15/06 Aaa 35,291 35,556
Standard Credit Card Master Trust I:
9%, 8/7/97 A2 1,700,000 1,736,656
8 1/4%, 10/7/97 A2 6,310,000 6,432,256
4.85%, 3/7/99 A2 2,000,000 1,963,900
7.65%, 2/15/00 A2 800,000 825,250
6 3/4% 6/07/00 Aaa 4,830,000 4,916,022
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 1,054,331 1,050,700
United Federal Savings Bank Grantor Trust :
6.975%, 7/10/00 Baa2 594,675 599,319
7.275%, 11/10/00 Baa2 577,161 583,833
Union Acceptance Corp. 7.075%, 7/10/02 Baa2 783,401 788,783
Union Federal Savings 1994-D
8.20%, 1/10/01 Baa2 565,577 580,598
41,307,766
BANKS - 2.9%
Bank of Boston Corp. 9 1/2%, 8/15/97 Baa1 2,013,000 2,127,741
Continental Bank Mortgage Corp.
9 7/8%, 6/15/96 A2 1,200,000 1,225,500
First Bank Systems, Inc. 9.89%, 3/6/96 A3 100,000 101,369
First Fidelity Bancorporation 8 1/2%, 4/1/98 A3 1,010,000 1,063,530
KeyCorp 7.10%, 3/28/97 A1 1,440,000 1,460,304
Manufacturers Hanover Trust, NY (d):
5 3/4%, 4/30/97 A2 1,000,000 993,730
euro 6.1875%, 7/15/97 A3 3,450,000 3,445,688
Marine Midland Banks, Inc.
8 5/8%, 3/1/97 Baa1 1,850,000 1,901,708
Provident Bank 5%, 6/15/96 A3 1,000,000 993,250
Signet Banking Corp. 6%, 5/15/97 (d) Baa2 2,430,000 2,412,771
15,725,591
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 7.5%
Advanta Corp. 8.18%, 2/9/97 Baa3 $ 1,820,000 $ 1,862,151
Associates Corp. of North America
6 7/8%, 1/15/97 Aa3 400,000 403,672
Case Equipment Loan Trust:
1995-A3 6.15% 9/15/02 Aaa 6,840,000 6,857,100
6.45%, 9/15/02 A3 1,400,000 1,403,500
Chrysler Financial Corp.:
euro 9 1/2%, 4/12/96 BBB 1,000,000 1,014,900
6%, 4/15/96 A3 3,590,000 3,587,882
10.34%, 5/15/08 A3 3,450,000 3,523,244
Ford Motor Credit Corp.:
9%, 6/28/96 A2 50,000 50,953
6.05%, 3/31/98 A1 1,460,000 1,459,168
General Motors Acceptance Corp.:
7 3/4%, 1/17/97 A3 3,610,000 3,682,489
7 7/8%, 2/27/97 A3 2,230,000 2,281,914
7.90%, 3/12/97 A3 3,650,000 3,738,367
7 1/8%, 5/23/97 A3 900,000 914,400
Greyhound Financial Corp.:
8 1/4%, 3/11/97 Baa1 1,100,000 1,128,435
6.94%, 1/28/98 Baa2 3,000,000 3,040,380
Tenneco Credit Corp. 10.05%, 8/17/98 Baa2 2,670,000 2,904,693
Westinghouse Credit Corp.:
8.70%, 5/20/96 Ba1 935,000 943,256
8.79%, 5/22/96 Ba1 2,000,000 2,018,840
9.06%, 6/3/98 Ba1 400,000 420,332
41,235,676
INSURANCE - 0.2%
ITT Hartford Group, Inc. 7 1/4%, 12/1/96 A1 850,000 859,223
SAVINGS & LOANS - 1.1%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 300,000 317,826
USAT Holdings, Inc. 8.05%, 5/15/98 (c) Ba2 6,000,000 5,925,000
6,242,826
TOTAL FINANCE 105,371,082
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Cardinal Distribution Inc. 8%, 3/01/97 A3 $ 950,000 $ 968,573
INDUSTRIAL MACHINERY & EQUIPMENT -0.2%
ELECTRICAL EQUIPMENT - 0.2%
Westinghouse Electric Corp.:
8.71%, 2/13/98 Ba1 245,000 254,528
8.96%, 6/17/98 Ba1 700,000 734,356
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 988,884
MEDIA & LEISURE - 0.4%
LEISURE DURABLES & TOYS - 0.4%
Brunswick Corp. 8 1/8%, 4/1/97 Baa1 925,000 940,781
Mattel, Inc. 6 7/8%, 8/1/97 Baa1 1,250,000 1,256,888
TOTAL MEDIA & LEISURE 2,197,669
NONDURABLES - 0.1%
TOBACCO - 0.1%
Philip Morris Companies, Inc.
8 7/8%, 7/1/96 A2 350,000 356,832
RETAIL & WHOLESALE - 1.0%
GENERAL MERCHANDISE STORES - 0.9%
Sears, Roebuck & Co.:
8.55%, 8/1/96 A2 500,000 508,735
8.95%, 11/27/96 A2 245,000 252,499
9.22%, 1/30/97 A2 1,700,000 1,765,926
7 3/4%, 2/27/97 A2 2,210,000 2,260,808
7.30%, 6/12/97 A2 245,000 249,937
5,037,905
GROCERY STORES - 0.1%
American Stores Co.:
8 1/4%, 4/21/98 Baa3 300,000 312,354
8.44%, 4/24/98 Baa3 300,000 313,686
626,040
TOTAL RETAIL & WHOLESALE 5,663,945
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
SERVICES - 0.1%
ADVERTISING - 0.1%
Valassis Inserts, Inc. 9 3/8%, 3/15/99 Ba2 $ 725,000 $ 728,625
TECHNOLOGY - 1.9%
COMPUTERS & OFFICE EQUIPMENT - 1.9%
Comdisco, Inc.:
6.89%, 8/30/96 Baa2 2,480,000 2,495,500
7 3/4%, 1/29/97 Baa2 800,000 814,128
7.73%, 2/18/97 Baa2 6,950,000 7,073,224
7 1/4%, 4/15/98 Baa2 120,000 122,580
TOTAL TECHNOLOGY 10,505,432
TRANSPORTATION - 2.4%
AIR TRANSPORTATION - 2.2%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 6,810,000 6,948,652
9 1/2%, 7/15/98 Baa3 250,000 268,228
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Ba1 2,000,000 2,124,720
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 2,580,000 2,571,305
11,912,905
TRUCKING & FREIGHT - 0.2%
Federal Express Corp. 9 3/4%, 5/15/96 Baa2 1,000,000 1,018,120
TOTAL TRANSPORTATION 12,931,025
UTILITIES - 5.8%
ELECTRIC UTILITY - 3.6%
Gulf States Utilities Co.:
5%, 1/1/96 Baa3 575,000 573,540
9.72%, 7/1/98 Ba1 3,485,000 3,648,377
Long Island Lighting Co.:
8 3/4%, 5/1/96 Baa3 5,580,000 5,648,578
7.3%, 7/15/99 Ba1 1,630,000 1,621,214
Public Service Co. of New Hampshire 1st mtg.:
8 7/8%, 5/15/96 Ba1 1,210,000 1,230,691
9.17%, 5/15/98 Ba1 6,100,000 6,430,620
United Illuminating Co. 7 3/8%, 1/15/98 Baa3 450,000 458,694
19,611,714
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
UTILITIES - CONTINUED
GAS - 2.2%
ARKLA, Inc.:
9.38%, 3/15/96 Ba2 $ 1,500,000 $ 1,513,290
9 7/8%, 4/15/97 Ba2 1,440,000 1,505,549
8.875%, 7/15/99 Ba2 1,500,000 1,591,305
Florida Gas 7 3/4%, 11/1/97 (c) Baa2 1,630,000 1,675,705
Transco Energy Co. 9 1/2%, 12/1/95 Baa2 3,250,000 3,260,563
Transcontinental Gas Pipe Line Corp.:
9%, 11/15/96 Baa1 1,500,000 1,541,625
6.21%, 5/15/00 Baa1 1,330,000 1,329,455
12,417,492
TOTAL UTILITIES 32,029,206
TOTAL NONCONVERTIBLE BONDS
(Cost $182,337,257) 181,523,401
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 53.1%
U.S. TREASURY OBLIGATIONS - 50.2%
4 3/8%, 11/15/96 Aaa 41,040,000 40,539,722
7 1/4%, 11/15/96 Aaa 31,186,000 31,692,773
8 1/2%, 5/15/97 Aaa 8,300,000 8,647,521
8 3/4%, 10/15/97 Aaa 61,745,000 65,256,438
5 1/8%, 3/31/98 Aaa 71,075,000 70,197,935
9%, 5/15/98 Aaa 4,690,000 5,052,725
9 1/4%, 8/15/98 Aaa 26,650,000 29,048,500
5 1/8% 12/31/98 Aaa 975,000 958,240
7 3/4%, 12/31/99 Aaa 23,314,000 24,964,165
TOTAL U.S. TREASURY OBLIGATIONS 276,358,019
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.9%
Federal Home Loan Mortgage Corp.:
4.78%, 2/10/97 (callable) Aaa 800,000 788,938
Government Trust Certificates
(assets of the Trust guaranteed by U.S.
Government through Defense Security
Assistance Agency):
Class 3-B 8.55%, 11/15/97 Aaa 1,384,374 1,409,390
Class 1-C 9 1/4%, 11/15/01 Aaa 1,609,000 1,770,190
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Trust Certificates
(assets of Trust guaranteed by U.S. Government
through Export-Import Bank):
Series 1994-C, 6.61%, 9/15/99 Aaa $ 346,615 $ 350,745
Series 1995-A, 6.28%, 6/15/04 Aaa 2,180,000 2,182,616
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
5 1/4%, 3/15/98 Aaa 2,480,000 2,449,769
4 7/8%, 9/15/98 Aaa 2,050,000 1,998,750
6%, 2/15/99 Aaa 740,000 742,160
7 3/4%, 11/15/99 Aaa 3,124,000 3,309,784
Private Export Funding Corp. :
Series CC, 9 1/2%, 3/31/99 Aaa 320,000 353,894
6.86%, 4/30/04 Aaa 727,200 742,493
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 16,098,729
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $287,625,100) 292,456,748
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
U.S. GOVERNMENT AGENCY - 0.3%
Federal National Mortgage Association
planned amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 1,250,000 1,233,200
PRIVATE SPONSOR - 0.3%
General Electric Capital Mortgage Services, Inc.
planned amortization class Series 1993-18
Class A-5, 6%, 2/25/02 AAA 1,810,000 1,800,950
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $3,011,850) 3,034,150
COMMERCIAL MORTGAGE SECURITIES - 12.2%
CS First Boston Mortgage Securities Corp.:
commercial floater Series 1994-CFB1,
Class A-1, 6.425%, 1/25/28 (d) AAA 3,665,091 3,660,510
Series 1995-AEW1, Class A-1
6.665%, 11/25/27 Aaa 1,700,000 1,698,938
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FDIC commercial Series 1994-C1 Class II-A1,
6.30%, 9/25/25 Aaa $ 1,343,413 $ 1,342,573
Kearny Street Mortgage (c):
commercial floater, Series 1995-1,
Class A-1, 7.04%, 2/20/30 (d) AAA 892,427 905,814
commercial :
Class II-B, 6.60%, 10/15/02 - 1,000,000 1,002,360
Class II-C, 7.30%, 10/15/03 - 400,000 401,192
Class II-D, 7 3/4%, 10/15/05 - 300,000 301,086
Lennar Central Partners LP (c):
commercial Series 1995-1,
Class C, 7.55%, 5/15/03 - 1,200,000 1,200,000
commercial floater Series 1994-1,
Class B, 6 7/8%, 9/15/01 (d) - 4,943,000 4,944,532
Merrill Lynch Mortgage Investments, Inc. commercial
Series 1995-C2, Class A-1,
7.38%, 6/15/21 Aaa 2,300,000 2,340,969
Meritor Mortgage Security Corp. commercial
Series 1987-1 Class A-3, commercial,
9.40%, 6/1/99 Baa3 1,312,503 1,322,347
Morgan Stanley Capital commercial Series 1995-1
Class A-1, 7%, 2/15/02 (c) AAA 6,005,386 6,076,700
Nomura Asset Securities Corp.
commercial floater Series 1994-MD-II,
Class A-6, 7.097% 7/4/03 (d) - 1,296,427 1,289,337
Oregon pass thru certificates commercial
Series 1995 Class A-1, 7.15%, 6/25/26 (c) AAA 4,641,847 4,659,254
SKW Real Estate LP (c):
commercial floater Class A, 6.45%, 4/15/02 (e) AA 2,839,776 2,842,439
Class C 7.45% 04/15/03 BBB 1,800,000 1,804,500
SC Finance Corp. commercial floater
7.425%, 8/1/04 (c)(d) - 4,100,000 4,117,938
Whitehall Partners commercial Series 1995-C1
Class A-2, 6.91%, 7/20/25 (c) - 6,799,270 6,846,015
Resolution Trust Corp.:
commercial:
Series 1994-N2 Class 3,
7 1/2%, 12/15/04 (c)(e) Baa2 3,100,000 3,113,563
Series 1994-C2 Class A-2,
7 3/4%, 4/25/25 AAA 507,820 510,200
Series 1994-C2 Class A-4,
7 1/2%, 4/25/25 AAA 723,384 724,062
Series 1994-C2 Class E,
8%, 4/25/25 BB+ 3,392,482 3,139,106
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
Resolution Trust Corp.: - continued
commercial:
Series 1994-C1 Class A-4,
7 1/4%, 6/25/26 AAA $ 1,068,586 $ 1,065,246
Series 1995-C1 Class A-2A,
6 1/4%, 2/25/27 Aaa 2,157,987 2,147,534
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 1,235,617 1,229,439
commercial floater (d):
Series 1992-C3 Class A-2,
6.725%, 8/25/23 Aa2 464,095 464,530
Series 1993-C2 Class A-2,
6.0875% 3/25/25 AAA 3,884,319 3,908,596
Series 1994-C1 Class A-3,
6.4875%, 6/25/26 AAA 3,016,675 3,014,789
Ryland Mortgage Securities Corp. commercial
Series 1992-C3 Class A-2, 7 1/2%, 8/1/23 Aaa - -
Structured Asset Securities Corp. commercial
Series 1993-C1 Class A-1,
6.60%, 10/25/24 AA 1,347,198 1,341,304
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $66,785,079) 67,414,873
FOREIGN GOVERNMENT OBLIGATIONS (F) - 0.2%
Province of Chaco, Argentina 11 7/8%,
9/10/97 (b)
(Cost $934,096) - 866,667 892,667
CERTIFICATES OF DEPOSIT - 0.3%
Advanta National Bank 6.26%, 9/1/97
(Cost $1,798,128) 1,800,000 1,800,000
MUNICIPAL SECURITIES - 0.6%
Louisiana Pub. Facs. Auth. Rev
9.95%, 6/1/96 A3 2,095,000 2,140,252
Shreveport Louisiana Wtr. & Swr. Rev.
Rfdg. 0%, 12/1/96 Aaa 1,500,000 1,407,765
TOTAL MUNICIPAL SECURITIES
(Cost $3,647,942) 3,548,017
TOTAL INVESTMENT IN SECURITIES - 100.0%
(Cost $546,139,452) $ 550,669,856
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
(b) 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
(c) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $46,367,984 or 8.3% of net
assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
(f) 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 72.0% AAA, AA, A 74.2%
Baa 11.9% BBB 12.1%
Ba 5.6% BB 7.8%
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 4.1%.
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $546,287,155. Net unrealized appreciation aggregated
$4,382,701, of which $6,832,308 related to appreciated investment
securities and $2,449,607 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $38,011,000 which will expire between October 31, 1996 and
October 31, 2003.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1995
ASSETS
Investment in securities, at value (cost $546,139,452) - $ 550,669,856
See accompanying schedule
Interest receivable 8,336,799
Other receivables 2,354
Prepaid expenses 12,056
Receivable from investment adviser for expense 5,453
reductions
TOTAL ASSETS 559,026,518
LIABILITIES
Payable to custodian bank $ 49,100
Payable for fund shares redeemed 1,645,410
Distributions payable 488,375
Accrued management fee 209,342
Distribution fees payable 68,805
Other payables and accrued expenses 193,053
TOTAL LIABILITIES 2,654,085
NET ASSETS $ 556,372,433
Net Assets consist of:
Paid in capital $ 592,834,085
Distributions in excess of net investment income (2,835,623)
Accumulated undistributed net realized gain (loss) on (38,156,433)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 4,530,404
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 556,372,433
CALCULATION OF MAXIMUM OFFERING PRICE $9.47
CLASS A:
NET ASSET VALUE, and redemption price per share
($546,545,862 (divided by) 57,733,624 shares)
Maximum offering price per share (100/98.50 of $9.47) $9.61
INSTITUTIONAL CLASS: $9.47
NET ASSET VALUE, offering price and redemption price per
share ($9,826,571 (divided by) 1,037,510 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 44,263,122
Interest
EXPENSES
Management fee $ 2,889,187
Transfer agent fees 1,421,694
Class A
Institutional Class 40
Distribution fees - Class A 952,752
Accounting fees and expenses 231,369
Non-interested trustees' compensation 3,464
Custodian fees and expenses 42,240
Registration fees 80,673
Class A
Institutional Class 14,616
Audit 37,941
Reports to shareholders 25,787
Total expenses before reductions 5,699,763
Expense reductions (5,453) 5,694,310
NET INVESTMENT INCOME 38,568,812
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (30,705,630)
Foreign currency transactions 1,337,570 (29,368,060)
Change in net unrealized appreciation (depreciation) on:
Investment securities 24,485,726
Assets and liabilities in foreign currencies 455,173 24,940,899
NET GAIN (LOSS) (4,427,161)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 34,141,651
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 38,568,812 $ 47,704,156
Net investment income
Net realized gain (loss) (29,368,060) (26,191,734)
Change in net unrealized appreciation (depreciation) 24,940,899 (26,799,695)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 34,141,651 (5,287,273)
FROM OPERATIONS
Distributions to shareholders (27,653,285) (38,309,373)
From net investment income
Class A
Institutional Class (106,031) -
In excess of net investment income - (3,559,742)
Class A
Return of capital (Note 1) (10,490,479) (6,458,279)
Class A
Institutional Class (36,934) -
TOTAL DISTRIBUTIONS (38,286,729) (48,327,394)
Share transactions - net increase (decrease) (227,408,479) 187,338,982
TOTAL INCREASE (DECREASE) IN NET ASSETS (231,553,557) 133,724,315
NET ASSETS
Beginning of period 787,925,990 654,201,675
End of period (including distributions in excess of $ 556,372,433 $ 787,925,990
net investment income of $2,835,623 and
$3,773,984, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C, E 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 9.480 $ 10.090 $ 9.950 $ 9.870 $ 9.620
of period
Income from Investment
Operations
Net investment income .403 .479 .732 .830 .848
Net realized and unrealized .148 F (.501) .146 .071 .270
gain (loss)
Total from investment .551 (.022) .878 .901 1.118
operations
Less Distributions
From net investment income (.407) (.464) (.738) (.821) (.868)
In excess of net - (.044) - - -
investment income
Return of capital (.154) (.080) - - -
Total distributions (.561) (.588) (.738) (.821) (.868)
Net asset value, end of $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870
period
TOTAL RETURN A, B 6.05% (0.22)% 9.13% 9.44% 12.19%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 546,546 $ 787,926 $ 654,202 $ 170,558 $ 25,244
(000 omitted)
Ratio of expenses to average .89% .97% .95% .90% .90%
net assets D D
Ratio of net investment 6.05% 5.91% 6.77% 7.59% 8.50%
income to average net
assets
Portfolio turnover 179% 108% 58% 57% 127%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C 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.
D FMR VOLUNTARILY 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.
E AMOUNTS HAVE BEEN ADJUSTED TO CONFORM WITH PRESENT PERIOD ACCOUNTING
POLICIES.
F THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
JULY 3, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
OCTOBER 31,
1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.450
Income from Investment Operations
Net investment income .137
Net realized and unrealized gain (loss) .067 D
Total from investment operations .204
Less Distributions
From net investment income (.136)
Return of capital (.048)
TOTAL DISTRIBUTIONS (.184)
Net asset value, end of period $ 9.470
TOTAL RETURN B 2.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 9,827
Ratio of expenses to average net assets .85% A,
C
Ratio of net investment income to average net assets 6.10% A
Portfolio turnover 179%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C FMR VOLUNTARILY 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.
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.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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. 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 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.
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."
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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, which 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 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.
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. Futures contracts
involve, to varying degrees, risk of loss in excess of the futures
variation margin reflected in the Statement of Assets and Liabilities. The
underlying face amount at value is shown in the schedule of investments
under the caption "Futures Contracts." This amount reflects each contract's
exposure to the underlying instrument at period end. 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
2. OPERATING POLICIES -
CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS - CONTINUED
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.
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 $892,667 or 0.2%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $973,193,592 and $1,013,282,400, respectively, of which U.S.
government and government agency obligations aggregated $816,902,007 and
$758,343,245, 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 .1200% 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 annual 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
$952,752 under the Class A Plan, of which $933,777 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives 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 $786,085 on sales of Class A shares of the
fund, of which $618,178 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. During the period November 1, 1994 to December
31, 1994, State Street received fees based on the type, size, number of
accounts and the number of transactions made by the shareholders. Effective
January 1, 1995, the Board of Trustees approved a revised transfer agent
contract pursuant to which 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
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 $5,453 for Class A and Institutional Class,
respectively.
6. SHARE TRANSACTIONS.
Share transactions for each class was as follows:
SHARES DOLLARS
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1995 A 1994 1995 A 1994
CLASS A
Shares sold 20,377,823 72,835,096 $ 190,869,432 $ 719,576,625
Reinvestment of distributions 3,265,988 3,897,323 30,573,100 37,895,194
Shares redeemed (48,984,447) (58,463,343) (458,631,505) (570,132,837)
Net increase (decrease) (25,340,636) 18,269,076 $ (237,188,973) $
187,338,982
INSTITUTIONAL CLASS
Shares sold 1,074,155 - $ 10,126,478 $ -
Reinvestment of distributions 13,078 - 123,702 -
Shares redeemed (49,723) - (469,686) -
Net increase (decrease) 1,037,510 - $ 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Short Fixed-Income Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Short Fixed-Income Fund,
including the schedule of portfolio investments, as of October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A) and for the period July 3, 1995 (commencement
of sale of Institutional Class shares) 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 October 31, 1995, 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 Short Fixed-Income Fund, as
of October 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the five years in the period
then ended (Class A), and for the period July 3, 1995 (commencement of sale
of Institutional Class shares) to October 31, 1995 ( Institutional Class),
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 29 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 34 Notes to the financial statements.
REPORT OF INDEPENDENT 41 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 42
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 the markets have been fairly positive this year, no one can
predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
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, as we witnessed last year. 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 fund's total return
includes changes in a fund's 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 0.65% 12b-1 fee. If Fidelity had not
reimbursed certain class expenses, the past one year, five year and life of
fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Income & Growth - Institutional Class 8.77% 97.93% 164.59%
S&P 500(registered trademark) 26.44% 121.65% 204.47%
Lehman Brothers Aggregate Bond Index 15.65% 58.53% n/a
Average Balanced Fund 17.98% 89.93% 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 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 Composite Index of 500 Stocks - a
common proxy for the U.S. stock market - and the performance of the Lehman
Brothers Aggregate Bond Index, a broad measure of the bond market. To
measure how Institutional Class' performance stacked up against its peers,
you can compare it to the average balanced fund, which reflects the
performance of 199 balanced funds with similar objectives tracked by Lipper
Analytical Services over the past 12 months. These benchmarks include
reinvested dividends and capital gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Income & Growth - Institutional Class 8.77% 14.63% 11.66%
S&P 500 26.44% 17.26% 13.45%
Lehman Brothers Aggregate Bond Index 15.65% 9.65% n/a
Average Balanced Fund 17.98% 13.61% 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
Fidelity Advisor InStandard & Poor's LB Aggregate Bond I
01/31/87 10000.00 10000.00 10000.00
02/28/87 10298.08 10395.00 10069.35
03/31/87 10701.56 10695.42 10023.96
04/30/87 10440.55 10600.23 9749.09
05/31/87 10411.55 10692.45 9710.95
06/30/87 10662.73 11232.42 9844.60
07/31/87 11177.89 11801.90 9837.04
08/31/87 11411.17 12242.11 9784.40
09/30/87 11217.11 11974.01 9576.04
10/31/87 9239.92 9394.81 9917.10
11/30/87 9073.53 8620.68 9996.53
12/31/87 9470.18 9276.71 10132.70
01/31/88 10026.08 9667.26 10488.89
02/29/88 10443.01 10117.75 10613.40
03/31/88 10472.79 9805.11 10513.79
04/30/88 10653.88 9913.95 10457.05
05/31/88 10694.12 10000.20 10386.76
06/30/88 11137.68 10459.21 10637.35
07/31/88 11096.92 10419.47 10581.56
08/31/88 11056.16 10065.20 10609.30
09/30/88 11260.88 10493.98 10849.49
10/31/88 11426.03 10785.71 11053.74
11/30/88 11312.49 10631.48 10919.46
12/31/88 11448.04 10817.53 10931.76
01/31/89 11898.42 11609.37 11089.05
02/28/89 11940.32 11320.30 11008.67
03/31/89 12141.27 11584.06 11056.26
04/30/89 12629.04 12185.28 11287.63
05/31/89 13042.58 12678.78 11584.24
06/30/89 13222.37 12606.51 11936.96
07/31/89 13822.90 13744.88 12190.70
08/31/89 14037.37 14014.28 12010.09
09/30/89 14059.28 13956.82 12071.55
10/31/89 13842.49 13633.02 12369.11
11/30/89 14124.32 13911.13 12487.00
12/31/89 14263.91 14245.00 12520.41
01/31/90 13573.91 13289.16 12371.63
02/28/90 13609.60 13460.59 12411.35
03/31/90 13800.09 13817.30 12420.49
04/30/90 13619.46 13471.87 12306.70
05/31/90 14125.23 14785.37 12671.08
06/30/90 14185.15 14684.83 12874.39
07/31/90 14148.59 14637.84 13052.48
08/31/90 13283.34 13314.58 12878.17
09/30/90 12976.75 12666.16 12984.71
10/31/90 12853.28 12611.70 13149.57
11/30/90 13433.59 13426.41 13432.62
12/31/90 13844.13 13801.01 13641.92
01/31/91 14558.91 14402.73 13810.56
02/28/91 15411.63 15432.53 13928.45
03/31/91 15803.07 15805.99 14024.27
04/30/91 16106.97 15843.93 14176.20
05/31/91 16778.10 16528.39 14259.10
06/30/91 16434.22 15771.39 14251.85
07/31/91 17137.09 16506.33 14449.49
08/31/91 17571.58 16897.53 14762.17
09/30/91 17700.96 16615.34 15061.31
10/31/91 18216.64 16837.99 15229.00
11/30/91 17791.20 16159.42 15368.64
12/31/91 18617.79 18008.06 15825.06
01/31/92 18740.28 17673.11 15609.77
02/29/92 19134.96 17902.86 15711.27
03/31/92 19067.03 17553.75 15622.70
04/30/92 19218.02 18069.83 15735.54
05/31/92 19602.38 18158.37 16032.47
06/30/92 19424.15 17887.81 16253.11
07/31/92 19991.38 18619.43 16584.71
08/31/92 19991.38 18237.73 16752.72
09/30/92 20156.77 18452.93 16951.30
10/31/92 20087.07 18517.52 16726.56
11/30/92 20212.52 19148.96 16730.34
12/31/92 20330.55 19384.50 16996.38
01/31/93 20714.15 19547.33 17322.30
02/28/93 21156.76 19813.17 17625.53
03/31/93 21955.27 20231.23 17698.98
04/30/93 22580.02 19741.63 17822.22
05/31/93 23011.39 20270.71 17844.92
06/30/93 22863.23 20329.49 18168.32
07/31/93 23103.10 20248.18 18271.08
08/31/93 23942.67 21015.58 18591.33
09/30/93 23718.82 20853.76 18642.40
10/31/93 24036.08 21285.43 18712.06
11/30/93 23718.82 21083.22 18552.88
12/31/93 24326.54 21338.33 18653.43
01/31/94 25002.72 22063.83 18905.28
02/28/94 24562.42 21465.90 18576.83
03/31/94 23581.45 20529.99 18118.83
04/30/94 23391.28 20792.77 17974.15
05/31/94 23486.37 21133.77 17971.63
06/30/94 23040.64 20616.00 17931.91
07/31/94 23486.17 21292.20 18288.10
08/31/94 23772.59 22165.18 18310.80
09/30/94 23613.73 21622.14 18041.29
10/31/94 23390.51 22108.63 18025.22
11/30/94 23071.62 21303.44 17985.19
12/31/94 23087.56 21619.37 18109.38
01/31/95 23023.25 22179.96 18467.77
02/28/95 23425.19 23044.31 18906.86
03/31/95 23814.40 23724.35 19022.85
04/30/95 24073.78 24423.03 19288.57
05/31/95 24543.91 25399.22 20034.99
06/30/95 24838.57 25989.24 20181.88
07/31/95 25214.41 26851.05 20136.80
08/31/95 25296.12 26918.44 20379.83
09/30/95 25556.68 28054.40 20578.09
10/31/95 25441.04 27954.25 20845.71
$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 October 31, 1995, the value of your investment would
have grown to $25,441 - a 154.41% 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 $27,954 - a 179.54% increase.
If you had put $10,000 in the bond index, it would have grown to $20,846 -
a 108.46% 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
MARKET RECAP
A favorable interest rate
environment helped spur strong
returns for both stock and bond
markets in the U.S. during the 12
months ended October 31, 1995.
A strong rally starting in November
1994 helped bonds recover from
the effects of sharply rising
interest rates seen earlier that
year. For the 12-month period, the
Lehman Brothers Aggregate Bond
Index - a broad measure of U.S.
taxable bonds - had a total return
of 15.65%. Indications of a
slowing economy and a relative
absence of inflation pressures
encouraged bond investors. In an
effort to thwart the possibility of a
recession, the Federal Reserve
Board lowered the fed funds rate
- - the rate banks charge each
other for overnight loans - by
0.25% in July to 5.75%, reversing its
1994 policy of interest rate increases.
Strong corporate earnings helped
propel the Standard & Poor's
Composite Index of 500 Stocks to
a 12-month total return of 26.44%
- - well above its historical annual
average of roughly 12%.
Technology companies - whose
goods and services benefited
from both corporate and
consumer demand - posted the
strongest earnings growth and
stock price gains. In June, the
Dow Jones Industrial Average
closed above 4500 for the first
time. Returns from foreign
markets were varied, as investors
brought capital back to the U.S.
market. The Morgan Stanley
EAFE (Europe, Australia, Far
East) Index returned -0.37% for
the year ended October 31.
An interview with Robert Haber, Portfolio Manager of Fidelity
Advisor Income & Growth Fund
Q. HOW HAS THE FUND PERFORMED, BOB?
A. For the 12 months ended October 31, 1995, Institutional Class had a
total return of 8.77%, compared to a return of 17.98% for the average
balanced fund tracked by Lipper Analytical Services.
Q. WHY DID THE FUND SUBSTANTIALLY UNDERPERFORM ITS PEERS?
A. Throughout my tenure on the fund, I have focused on maximizing rewards
and managing risk. Going into the period, I found stocks to be high-priced.
As a result, I put more of the fund's assets into bonds, as a defensive
move. That turned out to be a move that hurt the fund's performance, as
stocks have continued to perform very well. In addition, within the context
of this strategy, I made some tactical moves that detracted from
performance.
Q. WHAT WERE THEY?
A. First of all, while I positioned the fund's bond investments
aggressively - increasing their duration, or sensitivity to interest rates
- - I wasn't aggressive enough. That is, I anticipated this year's drop in
interest rates - and rise in bond prices - but didn't foresee the magnitude
of that drop; the fund would have done better with an even longer duration.
This year's rally was unusual in that rates in the market started dropping
before the Federal Reserve Board even finished raising short-term rates in
early 1995. I could have responded more quickly. So while the fund's bonds
have been good contributors, they weren't positioned aggressively enough to
fully take advantage of the market rally.
Q. WHAT ABOUT THE FUND'S EQUITY
INVESTMENTS?
A. On the stock side, the fund was heavily invested in cyclicals - stocks
that tend to rise and fall with the economy - which lagged the market, even
though many of these companies posted strong earnings. Signs of an economic
slowdown detracted from investors' interest in these stocks. For example,
one of the fund's investments, Reynolds Metals, showed strong earnings
growth but its stock has not responded. At the end of the period, I
continued to hold this stock. I like the outlook for the supply/demand
dynamic in the aluminum industry, and Reynolds has strong foil and aluminum
can businesses that tend to be less cyclical in nature.
Q. WHICH STOCK INVESTMENTS HELPED THE FUND'S PERFORMANCE?
A. The fund's top two equity investments contributed well. Bell Atlantic
has a strong dividend yield, with earnings that could grow steadily
regardless of the economic climate of the next year or so. Chrysler also
has benefited from a solid product line, has a good balance sheet, and I
find its stock to be very cheap. In addition, it has a high dividend
relative to the market, one of the aspects I'm focusing on as a defensive
measure in this market.
Q. HOW ARE YOU POSITIONING THE FUND'S BOND INVESTMENTS?
A. More aggressively than they had been earlier in the period. That is,
I've increased their overall duration, or sensitivity to interest rates.
Faced with a weakening economy, I like the prospects for bonds. In terms of
security selection, almost all of the fund's fixed-income investments are
Treasury issues. Yield spreads - the difference in yield between bonds with
the same maturity but different credit quality - are quite narrow, meaning
there is little incentive to invest in lower credit issues or other options
such as mortgage-backed securities.
Q. WHAT ABOUT OVERSEAS INVESTMENTS?
A. The fund's overseas investments - 20.2% of the fund at the end of the
period - are focused in Japan for the most part. I've concentrated on
larger, blue chip, export-driven companies such as Hitachi and TDK, on the
theory that the yen is overvalued. As it declines, it will help these
companies and the Japanese economy. In fact, that happened later in the
period, although stock price gains were offset by yen depreciation.
Q. LET'S TAKE A LOOK AT THE NEXT SIX MONTHS. WHAT'S YOUR OUTLOOK?
A. I'm concerned about the stock market because I still find valuations to
be high and expect earnings to decelerate as the economy slows further.
With that kind of economic slowdown, I anticipate that lower interest rates
will ensue. As a result, I'm looking to use the fund's bond investments
both defensively - investing more there to insulate the fund from exposure
to a suspect stock market - and offensively - as a way to take advantage of
falling rates. On the stock side, I'm sticking with cyclicals, on the
theory that, historically, when they get as oversold, or cheap, as they
have, and when rates start falling, investors start to think about the next
economic expansion and migrate toward cyclical issues. As a result, I'm
focusing on cyclical stocks that have strong earnings potential and
attractive prices.
FUND FACTS
GOAL: to provide as much
income as possible,
consistent with the
preservation of capital, by
investing in both stocks and
bonds
START DATE: January 6, 1987
SIZE: more than $3.4 billion
MANAGER: Robert Haber,
since January 1987; joined
Fidelity in 1985
(checkmark)
BOB HABER ON THE STRENGTH OF
THE STOCK MARKET:
"We have come through an
unprecedented period of
strength in the U.S. stock
market. It has been more
than five years since the Dow
Jones Industrial Average has
experienced a correction of
12% or more, longer than any
such period in market history.
It also has been 12 years
since a year's low on the Dow
fell below the previous year's
low, again the longest period
in history for that type of
occurrence. Finally, the Dow
has not experienced a single
decline of 3.5% or more year
to date; that's the first time
that has happened this
century. These are among the
statistics - along with the
high stock prices, shrinking
earnings growth and shrinking
dividend yields - that lead
me to be cautious about
stocks. I believe it is prudent
to expect a correction at some
point; by nature, historically,
that's the way that markets
work."
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Bell Atlantic Corp. 2.2 0.0
Chrysler Corp. 1.3 0.0
Omron Corp. 1.3 0.3
Falconbridge Ltd. (1st installment receipt) 1.2 0.0
Reynolds Metals Co. 1.0 0.2
TOP FIVE FIXED-INCOME SECURITIES AS OF OCTOBER 31, 1995
<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) 43.6 14.9
NEC Corp. 1.90%, 3/30/01 1.0 0.3
Carnival Cruise Lines, Inc. 4 1/2%, 7/1/97 0.6 0.7
Canon, Inc. 1.30%, 12/19/08 0.4 0.0
First Financial Management Corp. 5%, 0.4 0.1
12/15/99
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Basic Industries 9.4 11.9
Technology 8.0 5.6
Utilities 4.8 0.9
Energy 3.8 6.4
Industrial Machinery & Equipment 3.7 0.8
ASSET ALLOCATION
AS OF OCTOBER 31, 1995 * AS OF APRIL 30, 1995 **
Row: 1, Col: 1, Value: 1.7
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 8.4
Row: 1, Col: 4, Value: 44.0
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 25.9
Row: 1, Col: 1, Value: 1.1
Row: 1, Col: 2, Value: 33.0
Row: 1, Col: 3, Value: 15.5
Row: 1, Col: 4, Value: 19.7
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 10.7
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%
Stocks and
equity futures 30.7%
Bonds 19.7%
Convertible
securities 15.5%
Short-term
investments 34.0%
Other
investments 0.1%
FOREIGN
INVESTMENTS 17.9%
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investments in Securities
COMMON STOCKS - 38.9%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.7%
AEROSPACE & DEFENSE - 0.1%
Flightsafety International, Inc. 38,000 $ 1,814
Rockwell International Corp. 1,000 45
Teleflex, Inc. 1,000 42
1,901
DEFENSE ELECTRONICS - 0.6%
Litton Industries, Inc. (a) 541,300 21,449
TOTAL AEROSPACE & DEFENSE 23,350
BASIC INDUSTRIES - 8.3%
CHEMICALS & PLASTICS - 1.3%
Albemarle Corp. 198,500 3,697
du Pont (E.I.) de Nemours & Co. 1,000 62
FMC Corp. (a) 46,600 3,338
IMC Fertilizer Group, Inc. 15,700 1,099
International Specialty Products, Inc. 232,700 2,007
Kemira OY 1,099,700 9,252
Mississippi Chemical Corp. 147,800 3,566
Nippon Shokubai Co. Ltd. 499,000 4,361
Olin Corp. 1,000 64
Praxair, Inc. 135,800 3,667
Rohm & Haas Co. 129,200 7,138
Sekisui Chemical Co. Ltd. 463,000 6,034
Vigoro Corp. 1,000 43
44,328
IRON & STEEL - 0.2%
Kobe Steel (a) 2,623,000 6,888
Nucor Corp. 34,500 1,660
8,548
METALS & MINING - 6.6%
Alcan Aluminium Ltd. 486,400 15,421
Alumax, Inc. (a) 81,300 2,398
Aluminum Co. of America 45,400 2,315
Brush Wellman, Inc. 1,000 17
Capral Aluminium Ltd. 7,966,900 18,175
Comalco Ltd. 2,847,400 14,356
Cominco Ltd. (a) 1,000 19
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
METALS & MINING - CONTINUED
Eramet SA 125,322 $ 8,470
Falconbridge Ltd. 567,200 12,498
Falconbridge Ltd. (1st installment receipt) (i) 4,181,800 39,268
Inco Ltd. 604,533 20,796
Kaiser Aluminum Corp. (a) 395,000 4,444
Pechiney International SA 171,450 8,954
QNI Ltd. 6,631,184 12,708
Reynolds Metals Co. 666,100 33,555
Sherritt, Inc. (a) 2,129,100 27,514
Union Miniere SA (a) 1,000 64
220,972
PAPER & FOREST PRODUCTS - 0.2%
Boise Cascade Corp. 1,000 37
Consolidated Papers, Inc. 64,200 3,675
Crestbrook Forest Industries Ltd. 106,900 1,391
James River Corp. of Virginia 1,000 32
5,135
TOTAL BASIC INDUSTRIES 278,983
CONGLOMERATES - 0.8%
Crane Co. 142,300 5,034
Harris Corp. 228,000 13,253
Mark IV Industries, Inc. 343,200 6,692
Textron, Inc. 34,800 2,393
Tyco International Ltd. 15,300 929
28,301
CONSTRUCTION & REAL ESTATE - 1.8%
BUILDING MATERIALS - 0.3%
Carlisle Companies, Inc. 1,000 41
Masco Corp. 22,700 638
Sherwin-Williams Co. 52,700 1,984
Texas Industries, Inc. 133,700 7,036
Vulcan Materials Co. 600 33
9,732
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 0.5%
American Buildings Co. (a) 143,700 $ 3,629
Granite Construction, Inc. 53,900 1,529
Webb (Del E.) Corp. 616,400 12,790
17,948
REAL ESTATE INVESTMENT TRUSTS - 1.0%
CBL & Associates Properties, Inc. 50,500 1,073
CWM Mortgage Holdings, Inc. 1,000 15
Cali Realty Corp. 112,400 2,191
CenterPoint Properties Corp. 59,000 1,335
Colonial Properties Trust (SBI) 37,200 930
Equity Residential Properties Trust (SBI) 107,600 3,013
Franchise Finance Corp. of America 278,500 5,883
Highwoods Properties, Inc. 25,100 668
LTC Properties, Inc. 211,300 3,064
Liberty Property Trust (SBI) 29,700 601
National Golf Properties, Inc. 173,100 3,743
Shurgard Storage Centers, Inc. 53,600 1,367
Sovran Self Storage, Inc. 42,000 1,040
Speiker Properties, Inc. 286,500 6,948
Starwood Lodging Trust combined certificate (SBI) 47,400 1,292
33,163
TOTAL CONSTRUCTION & REAL ESTATE 60,843
DURABLES - 3.2%
AUTOS, TIRES, & ACCESSORIES - 2.6%
Borg-Warner Automotive, Inc. 143,500 4,233
Bridgestone Corp. 132,000 1,837
Chrysler Corp. 839,800 43,355
Dana Corp. 36,300 930
Genuine Parts Co. 246,800 9,779
Johnson Controls, Inc. 192,700 11,225
NGK Spark Plug Co. Ltd. (warrants) (a) 2,450 3,369
Snap-on Tools Corp. 200,600 8,500
Suzuki Motor Corp. 266,000 2,685
85,913
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - CONTINUED
HOME FURNISHINGS - 0.4%
Heilig-Meyers Co. 118,900 $ 2,185
Herman Miller, Inc. 98,200 2,909
Leggett & Platt, Inc. 406,300 9,751
14,845
TEXTILES & APPAREL - 0.2%
Guilford Mills, Inc. 77,200 1,708
Mohawk Industries, Inc. (a) 23,200 348
Russell Corp. 1,000 25
Stride Rite Corp. 86,700 975
Unifi, Inc. 223,300 5,024
Westpoint Stevens, Inc. Class A 1,000 21
8,101
TOTAL DURABLES 108,859
ENERGY - 2.1%
COAL - 0.0%
Eastern Enterprises Co. 42,600 1,273
ENERGY SERVICES - 0.9%
Baker Hughes, Inc. 332,800 6,531
Halliburton Co. 1,000 42
Helmerich & Payne, Inc. 1,000 26
Nabors Industries, Inc. (a) 642,100 5,538
Petroleum Helicopters, Inc. (non-vtg.) 106,000 1,087
Pride Petroleum Services, Inc. (a) 100 1
Production Operators Corp. 1,000 30
Transocean Drilling AS (a) 1,140,150 17,398
30,653
OIL & GAS - 1.2%
Amerada Hess Corp. 1,000 45
Atlantic Richfield Co. 11,100 1,185
British Petroleum PLC ADR 1,000 88
Canada Occidental Petroleum Ltd. 1,000 29
Coastal Corp. (The) 316,300 10,240
Elf Gabon 100 15
Forest Oil Corp. (a) 1,000 2
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Louisiana Land & Exploration Co. 184,200 $ 6,516
Occidental Petroleum Corp. 1,000 22
Pancanadian Petroleum Ltd. 125,000 4,184
Santa Fe Energy Resources, Inc. (a) 1,086,200 9,640
Wascana Energy, Inc. (a) 839,400 6,633
38,599
TOTAL ENERGY 70,525
FINANCE - 1.2%
INSURANCE - 0.8%
ACE Ltd. 366,700 12,468
Allmerica Financial Corp. (a) 6,900 173
American Travellers Corp. 4,200 94
Capital RE Corp. 20,700 585
Liberty Corp. (The) 108,200 3,625
Old Republic International Corp. 275,500 7,886
Transport Holdings, Inc. Class A (a) 5 -
Travelers, Inc. (The) 600 30
USLIFE Corp. 122,100 3,480
28,341
SECURITIES INDUSTRY - 0.4%
Daiwa Securities Co. Ltd. 1,082,000 12,723
TOTAL FINANCE 41,064
HEALTH - 1.2%
DRUGS & PHARMACEUTICALS - 0.2%
Upjohn Co. 147,400 7,481
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Advanced Technology Laboratories, Inc. (a) 89,600 1,613
Baxter International, Inc. 58,100 2,244
Bergen Brunswig Corp. Class A 56,100 1,164
St. Jude Medical, Inc. 28,900 1,539
6,560
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - 0.8%
Beverly Enterprises, Inc. (a) 99,100 $ 1,165
Foundation Health Corp. 114,300 4,843
Integrated Health Services, Inc. 71,800 1,642
Summit Care Corp. (a) 64,800 1,345
Tenet Healthcare Corp. 86,000 1,537
United HealthCare Corp. 171,900 9,132
Vencor, Inc. (a) 213,500 5,925
25,589
TOTAL HEALTH 39,630
INDUSTRIAL MACHINERY & EQUIPMENT - 3.7%
ACCESS & MEASUREMENT CUTTING TOOLS - 0.1%
Stanley Works 29,900 1,428
ELECTRICAL EQUIPMENT - 2.4%
California Microwave Corp. (a) 47,000 1,035
Mitsubishi Electric Co. Ord. 3,765,000 28,185
Murata Manufacturing Co. Ltd. 303,000 10,131
Omron Corp. 1,797,000 42,083
81,434
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
Caterpillar, Inc. 591,900 33,220
Dover Corp. 5,200 205
IDEX Corp. 1,200 45
Parker-Hannifin Corp. 43,600 1,472
Timken Co. 78,200 3,148
38,090
LAWN & GARDEN TRACTORS, EQUIPMENT - 0.0%
Toro Co. 46,900 1,354
POLLUTION CONTROL - 0.0%
Safety Kleen Corp. 32,900 506
WMX Technologies, Inc. 28,100 790
1,296
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 123,602
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.7%
LEISURE DURABLES & TOYS - 0.5%
Brunswick Corp. 744,500 $ 14,518
Hasbro, Inc. 1,000 31
Mattel, Inc. 47,500 1,366
15,915
LODGING & GAMING - 0.0%
Resort Hotels PLC (a) 5,487,300 -
PUBLISHING - 0.0%
Banta Corp. 17,400 753
RESTAURANTS - 0.2%
Ryan's Family Steak Houses, Inc. (a) 897,900 6,959
TOTAL MEDIA & LEISURE 23,627
NONDURABLES - 1.8%
BEVERAGES - 0.1%
Brahma (Cia Cervejaria) PN Class B (Pfd. Reg.) 10,939,900 4,176
FOODS - 0.2%
Chiquita Brands International, Inc. 295,400 4,800
HOUSEHOLD PRODUCTS - 0.6%
First Brands Corp. 234,400 10,724
Stanhome, Inc. 315,900 9,635
20,359
TOBACCO - 0.9%
Philip Morris Companies, Inc. 333,300 28,163
Souza Cruz Industria Comerico 227,600 1,629
29,792
TOTAL NONDURABLES 59,127
PRECIOUS METALS - 1.1%
Buffelsfontein Gold Mining Ltd. Ord. (a) 3,100 13
Coeur d'Alene Mines Corp. 67,400 1,137
Echo Bay Mines Ltd. 296,321 2,672
Firstmiss Gold, Inc. 27,842 501
Free State Consolidated Gold Mines Ltd.:
ADR 373,900 3,529
Ord. 360,586 3,361
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
PRECIOUS METALS - CONTINUED
Hecla Mining Co. (a) 242,200 $ 1,786
Newmont Mining Corp. 1,000 38
Pegasus Gold, Inc. (a) 535,500 5,925
Placer Dome, Inc. 45,500 998
Vaal Reefs Exploration and Mining Co. Ltd.:
ADR 335,400 1,908
(Reg.) 20,100 1,149
Western Mining Holdings Ltd. 2,097,436 13,430
36,447
RETAIL & WHOLESALE - 2.2%
GENERAL MERCHANDISE STORES - 0.9%
Consolidated Stores Corp. (a) 228,300 5,279
Dayton Hudson Corp. 1,000 69
Dillard Department Stores, Inc. Class A 129,600 3,515
Ito-Yokado Co. Ltd. 237,000 12,982
May Department Stores Co. (The) 1,000 39
Price/Costco, Inc. (a) 152,900 2,599
Proffitts, Inc. (a) 114,700 2,681
Wal-Mart Stores, Inc. 104,000 2,249
29,413
GROCERY STORES - 0.6%
Albertson's, Inc. 275,600 9,164
Vons Companies, Inc. (a) 432,400 10,972
20,136
RETAIL & WHOLESALE, MISCELLANEOUS - 0.7%
Fingerhut Companies, Inc. 484,100 6,596
Pier 1 Imports, Inc. 1,199,800 11,548
Uny Co. Ltd. 104,000 1,794
Waban, Inc. (a) 338,200 5,284
25,222
TOTAL RETAIL & WHOLESALE 74,771
SERVICES - 0.3%
PRINTING - 0.1%
Deluxe Corp. 39,300 1,056
Standard Register Co. 50,100 1,127
2,183
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - CONTINUED
SERVICES - 0.2%
CDI Corp. (a) 213,700 $ 3,152
Interim Services, Inc. (a) 111,600 3,320
Western Atlas, Inc. (a) 400 18
6,490
TOTAL SERVICES 8,673
TECHNOLOGY - 5.1%
COMPUTER SERVICES & SOFTWARE - 0.8%
Adobe Systems, Inc. 10,400 592
BancTec, Inc. (a) 341,800 6,409
Black Box Corp. 202,200 3,286
DST Systems, Inc. 17,700 372
FTP Software, Inc. 274,100 7,401
Policy Management Systems Corp. (a) 212,800 10,028
SunGard Data Systems, Inc. 7,600 209
28,297
COMPUTERS & OFFICE EQUIPMENT - 1.0%
Canon, Inc. 492,000 8,436
Hewlett-Packard Co. 1,000 93
NEC Corp. 203,000 2,685
Pitney Bowes, Inc. 46,900 2,046
Ricoh Co. Ltd. Ord. 1,911,000 20,598
Sun Microsystems, Inc. (a) 1,000 78
33,936
ELECTRONIC INSTRUMENTS - 0.0%
TSI, Inc. 1,500 18
ELECTRONICS - 3.3%
AMP, Inc. 131,800 5,174
Hitachi Ltd. 2,836,000 29,178
Kyocera Corp. 104,000 8,540
Kyocera Corp. (warrants) (a) 2,555 4,312
Marshall Industries (a) 142,500 5,023
Nichicon Corp. 265,000 3,583
Nitto Denko Corp. 1,370,000 21,881
Rohm Co. Ltd. 45,000 2,738
Rohm Co. Ltd. (warrants) (a) 1,270 933
Ryoyo Electro Corp. Ord. 93,000 2,178
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
TDK Corp. 437,000 $ 22,566
Wako Electric Co. Ltd. 134,000 3,230
109,336
TOTAL TECHNOLOGY 171,587
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.0%
Mesa Airlines, Inc. (a) 51,700 491
Northwest Airlines Corp. Class A (a) 1,000 40
531
RAILROADS - 0.1%
Union Pacific Corp. 27,500 1,798
TRUCKING & FREIGHT - 0.0%
Expeditors International of Washington, Inc. 58,300 1,530
TOTAL TRANSPORTATION 3,859
UTILITIES - 4.6%
ELECTRIC UTILITY - 0.2%
Fuji Electric Co. Ltd. 1,411,000 6,816
GAS - 0.2%
ENSERCH Corp. 1,000 15
Equitable Resources, Inc. 99,500 2,910
Questar Corp. 55,000 1,657
4,582
TELEPHONE SERVICES - 4.2%
Ameritech Corp. 383,700 20,720
Bell Atlantic Corp. 1,182,900 75,262
Pacific Telesis Group 902,300 27,407
Telebras PN (Pfd. Reg.) 451,677,900 18,316
141,705
TOTAL UTILITIES 153,103
TOTAL COMMON STOCKS
(Cost $1,289,226) 1,306,351
PREFERRED STOCKS - 2.4%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 2.2%
BASIC INDUSTRIES - 0.5%
METALS & MINING - 0.5%
Alumax, Inc., Series A, $4.00 52,333 $ 6,490
Kaiser Aluminum Corp. $0.96 435,500 5,008
Reynolds Metals Co. $3.31 77,800 3,890
15,388
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. Indexed $3.00 422,700 23,883
Santa Fe Energy Resources, Inc. $0.732 330,600 3,223
Unocal Corp. $3.50 (b) 455,300 23,334
50,440
FINANCE - 0.2%
BANKS - 0.1%
Barnett Banks, Inc., Series A, $4.50 (g) 44,000 4,620
SAVINGS & LOANS - 0.1%
Glendale Federal Bank, Series E, $2.1875 57,600 2,426
TOTAL FINANCE 7,046
TOTAL CONVERTIBLE PREFERRED STOCKS 72,874
NONCONVERTIBLE PREFERRED STOCKS - 0.2%
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Harvard Industries, Inc. pay-in-kind $14.25 103,125 2,785
FINANCE - 0.1%
SAVINGS & LOANS - 0.1%
First Nationwide Bank 11 1/2% 18,500 2,100
Greater New York Savings Bank Series B, 12% 65,769 1,874
3,974
TOTAL NONCONVERTIBLE PREFERRED STOCKS 6,759
TOTAL PREFERRED STOCKS
(Cost $75,283) 79,633
CORPORATE BONDS - 7.1%
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
CONVERTIBLE BONDS - 6.2%
AEROSPACE & DEFENSE - 0.1%
Orbital Sciences Corp. 6 3/4%, 3/1/03 (g) B3 $ 3,971 $ 4,328
BASIC INDUSTRIES - 0.5%
IRON & STEEL - 0.2%
Trimas Corp. 5%, 8/1/03 (g) Ba3 6,304 6,493
METALS & MINING - 0.3%
Inco Ltd. 5 3/4%, 7/1/04 Baa2 8,670 11,423
TOTAL BASIC INDUSTRIES 17,916
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Liberty Property exchangeable 8%, 7/1/01 - 7,022 7,110
ENERGY - 0.1%
OIL & GAS - 0.1%
Horsham Corp. 3 1/4%, 12/10/18 Ba2 2,425 1,989
FINANCE - 0.4%
CREDIT & OTHER FINANCE - 0.4%
Huntingdon International Holdings PLC:
euro 7 1/2%, 9/25/06 - 365 274
7 1/2%, 9/25/06 - 5,060 3,744
Investor AB 8%, 6/1/01 (g) A- SEK 30,380 7,069
MBL International Finance Bermuda Trust
3%, 11/30/02 Aa3 3,150 3,268
14,355
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Omnicare, Inc. 5 3/4%, 10/1/03 (g) B2 2,410 6,019
MEDIA & LEISURE - 0.8%
ENTERTAINMENT - 0.6%
Carnival Cruise Lines, Inc. 4 1/2%, 7/1/97 (g) Baa1 15,840 21,701
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.2%
Wendy's International, Inc. 7%, 4/1/06 (g) Baa3 $ 3,139 $ 5,132
TOTAL MEDIA & LEISURE 26,833
RETAIL & WHOLESALE - 0.3%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
Lowe's Companies, Inc. 3%, 7/22/03 A3 8,000 8,760
SERVICES - 0.4%
First Financial Management Corp.
5%, 12/15/99 (g) Baa2 8,310 13,296
TECHNOLOGY - 2.9%
COMMUNICATIONS EQUIPMENT - 0.4%
Aspect Telecommunication Corp.
5%, 10/15/03 (b)(g) B3 6,648 11,808
General Instrument Corp. 5%,
6/15/00 (g) B1 1,502 1,502
13,310
COMPUTERS & OFFICE EQUIPMENT - 1.8%
Acer, Inc. 4%, 6/10/01 - 4,030 12,171
Canon, Inc. 1.30%, 12/19/08 A JPY 1,146,000 13,363
NEC Corp. 1.90%, 3/30/01 A3 JPY 2,578,000 34,784
60,318
ELECTRONICS - 0.7%
Nitto Denko Corp. 3.90%, 3/30/01 Baa1 JPY 835,000 10,342
United Microelectronics Corp. euro 1 1/4%,
6/8/04 - 9,702 13,049
23,391
TOTAL TECHNOLOGY 97,019
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
AMR Corp. 6 1/8%, 11/1/24 Ba2 2,910 2,852
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
Compania de Telefonos de Chile yankee
4 1/2%, 1/15/03 (g) Baa2 $ 7,145 $ 7,538
TOTAL CONVERTIBLE BONDS 208,015
NONCONVERTIBLE BONDS - 0.9%
AEROSPACE & DEFENSE - 0.1%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 2,217 2,428
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
NL Industries, Inc. 0%, 10/15/05 (j) B2 4,980 3,754
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Lear Seating Corp. 8 1/4%, 2/1/02 B2 960 941
ENERGY - 0.1%
OIL & GAS - 0.1%
Wainoco Oil Corp. 12%, 8/1/02 B1 2,490 2,484
FINANCE - 0.0%
INSURANCE - 0.0%
American Life Holdings 11 1/4%, 9/15/04 B1 996 1,043
MEDIA & LEISURE - 0.2%
LODGING & GAMING - 0.2%
Stratosphere Corp. 14 1/4%, 5/15/02 B2 4,510 4,814
NONDURABLES - 0.3%
FOODS - 0.0%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 996 1,008
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - CONTINUED
HOUSEHOLD PRODUCTS - 0.3%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 $ 3,905 $ 4,012
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 5,450 4,060
8,072
TOTAL NONDURABLES 9,080
RETAIL & WHOLESALE - 0.0%
DRUG STORES - 0.0%
Thrifty Payless, Inc. 12 1/4%, 4/15/04 B3 563 602
GROCERY STORES - 0.0%
Pathmark Stores, Inc. 0%, 11/1/03 (j) B3 990 639
TOTAL RETAIL & WHOLESALE 1,241
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
US Air, Inc.:
9 5/8%, 2/1/01 B3 488 434
10%, 7/1/03 B3 1,510 1,333
1,767
UTILITIES - 0.0%
CELLULAR - 0.0%
Paging Network, Inc. 8 7/8%, 2/1/06 B2 990 983
TOTAL NONCONVERTIBLE BONDS 28,535
TOTAL CORPORATE BONDS
(Cost $233,669) 236,550
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 44.8%
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
U.S. TREASURY OBLIGATIONS - 44.7%
7 1/4%, 11/15/96 Aaa $ 109,660 $ 111,442
6 1/2%, 5/15/97 Aaa 44,000 44,557
8 1/2%, 5/15/97 (f) Aaa 124,626 129,844
5 7/8%, 7/31/97 Aaa 170,110 170,775
7 3/4%, 12/31/99 Aaa 93,130 99,722
8 1/8%, 8/15/19 (f) Aaa 442,512 532,674
7 5/8%, 2/15/25 Aaa 98,760 114,654
6 7/8%, 8/15/25 Aaa 244,160 262,052
U.S. Treasury Bills, yields at date of purchase
5.24% to 5.39%, 12/7/95 Aaa 36,020 35,838
1,501,558
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.1%
State of Israel (guaranteed by U.S. government
through Agency for International
Development) 7 3/4%, 11/15/99 Aaa 2,660 2,819
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $1,461,725) 1,504,377
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.0%
Mexico Value Recovery (a) - 1 -
Province of Chaco, Argentina
11 7/8%, 9/10/97 (c) - 533 549
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $559) 549
REPURCHASE AGREEMENTS - 6.2%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88%, dated
10/31/95 due 11/1/95 $ 209,093 209,059
PURCHASED OPTIONS - 0.6%
UNDERLYING FACE VALUE
EXPIRATION DATE/ AMOUNT AT VALUE (NOTE 1)
STRIKE PRICE (000S) (000S)
225,000 J. Aron and Co. OTC Put Options
on Japanese Yen Mar. 96/93.10 $ 229,624 $ 17,280
46,000 Swiss Bank Corp. OTC Put Options
on Japanese Yen Mar. 96/93.58 49,945 3,376
97,170 Goldman Sachs and Co. OTC
Put Options on U.S. Treasury bonds,
7 5/8%, 2/15/25 Nov. 95/112.25 112,687 121
97,170 Goldman Sachs and Co. OTC
Put Options on U.S. Treasury bonds,
7 5/8%, 2/15/25 Nov. 95/113.75 112,687 356
TOTAL PURCHASED OPTIONS
(Cost $16,307) 21,133
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,285,828) $ 3,357,652
SECURITIES SOLD SHORT
AMOUNTS IN THOUSANDS
NUMBER OF SHARES ISSUER VALUE
341 Aspect Telecommunication Corp. $ 11,729
83 Barnett Banks, Inc. 4,566
910 Carnival Corporation Class A 21,158
87 Compania de Telefonos de Chile sponsored ADR 6,271
190 First Data Corp. 12,584
63 General Instrument Corp. 1,201
197 Investor AB Free shares 7,032
167 Omnicare, Inc. 6,039
276 Orbital Sciences Corp. 3,933
278 Trimas Corp. 5,777
253 Wendy's International, Inc. 5,030
TOTAL SECURITIES SOLD SHORT
(Total proceeds $73,680) $ 85,320
THE VALUE OF SECURITIES SOLD SHORT AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 2.5%
FUTURES CONTRACTS
AMOUNTS IN THOUSANDS EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
1,154 Midcap 400 Stock Index
Futures Contracts December, 1995 $ 121,459 $ (4,975)
477 S&P 500 Stock Index
Futures Contracts December, 1995 $ 139,248 (897)
$ (5,872)
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 7.8%
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
JPY - Japanese yen
SEK - Swedish krona
LEGEND
1. Non-income producing
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $35,142,000 or 1.0% of net
assets.
3. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Province of Chaco, Argentina
11 7/8%, 9/10/97 3/9/94 $ 559
4. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
5. Principal amount is stated in United States dollars unless otherwise
noted.
6. A portion of the security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $12,614,000.
7. 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 $89,506,000.
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.
9. Purchased on an installment basis. Market value reflects only those
payments made through October 31, 1995. The remaining installments
aggregating CAD 79,454,000 are due July 31, 1996 and January 31, 1997.
10. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
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 45.3% AAA, AA, A 39.8%
Baa 2.1% BBB 1.4%
Ba 0.3% BB 0.3%
B 1.6% B 1.1%
Caa 0.0% 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 1.1%. FMR has determined that unrated
debt securities that are lower quality account for 1.1% of the total value
of investment in securities.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 79.8%
Japan 9.8
Canada 4.5
Australia 1.8
Others (individually less than 1%) 4.1
TOTAL 100.0%
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $3,291,770,000. Net unrealized appreciation aggregated
$65,882,000, of which $153,807,000 related to appreciated investment
securities and $87,925,000 related to depreciated investment securities.
The fund hereby designates $1,150,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 3,357,652
agreements of $209,059) (cost $3,285,828) - See
accompanying schedule
Securities sold short, at value (proceeds received $73,680) (85,320) $ 3,272,332
Restricted cash on securities sold short 73,680
Receivable for investments sold 117,559
Receivable for fund shares sold 5,781
Dividends receivable 3,488
Interest receivable 31,455
Other receivables 10
Prepaid expenses 12
TOTAL ASSETS 3,504,317
LIABILITIES
Payable to custodian bank 1,933
Payable for investments purchased 44,017
Payable for fund shares redeemed 9,361
Accrued management fee 1,471
Distribution fees payable 1,886
Payable for daily variation on futures contracts 1,228
Other payables and accrued expenses 2,287
TOTAL LIABILITIES 62,183
NET ASSETS $ 3,442,134
Net Assets consist of:
Paid in capital $ 3,354,675
Undistributed net investment income 27,758
Accumulated undistributed net realized gain (loss) on investments 4,318
and foreign currency transactions
Net unrealized appreciation (depreciation) on investments and 55,383
assets and liabilities in foreign currencies
NET ASSETS $ 3,442,134
CALCULATION OF MAXIMUM OFFERING PRICE $15.30
CLASS A:
NET ASSET VALUE, and redemption price per share
($3,441,141 (divided by) 224,858 shares)
Maximum offering price per share (100/95.25 of $15.30) $16.06
INSTITUTIONAL CLASS: $15.40
NET ASSET VALUE, offering price and redemption price per share
($993 (divided by) 64.5 shares)
</TABLE>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 28,010
Dividends
Interest 155,803
TOTAL INCOME 183,813
EXPENSES
Management fee $ 17,383
Transfer agent fees 6,667
Class A
Institutional Class 1
Distribution fees - Class A 21,914
Accounting fees and expenses 758
Non-interested trustees' compensation 28
Custodian fees and expenses 342
Registration fees 161
Class A
Institutional Class 14
Audit 61
Legal 60
Reports to shareholders 21
Dividends on securities sold short 2,020
<TABLE>
<CAPTION>
<S> <C> <C>
Miscellaneous 255
Total expenses before reductions 49,685
Expense reductions (466) 49,219
NET INVESTMENT INCOME 134,594
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized gain (loss) of $656 17,679
on sales of investment in affiliated issues)
Foreign currency transactions (13,029)
Futures contracts 45,326
Short sales (11,994) 37,982
Change in net unrealized appreciation (depreciation) on:
Investment securities 89,961
Assets and liabilities in foreign currencies 15,855
Futures contracts (9,187)
Short sales (6,153) 90,476
NET GAIN (LOSS) 128,458
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 263,052
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 134,594 $ 96,897
Net investment income
Net realized gain (loss) 37,982 (77,188)
Change in net unrealized appreciation (depreciation) 90,476 (102,068)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 263,052 (82,359)
FROM OPERATIONS
Distributions to shareholders (112,646) (40,466)
From net investment income
Class A
Institutional Class (70) -
In excess of net investment income - Class A - (3,288)
From net realized gain - Class A - (56,730)
Return of capital - Class A (Note 1) - (6,785)
TOTAL DISTRIBUTIONS (112,716) (107,269)
Share transactions - net increase (decrease) 163,022 1,664,280
TOTAL INCREASE (DECREASE) IN NET ASSETS 313,358 1,474,652
NET ASSETS
Beginning of period 3,128,776 1,654,124
End of period (including undistributed net investment $ 3,442,134 $ 3,128,776
income of $27,758 and $6,656, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 14.67 $ 15.91 $ 14.41 $ 14.13 $ 10.41
of period
Income from Investment
Operations
Net investment income .59 .38 .48 .50 .51
Net realized and unrealized .54 (.79) 2.18 .85 3.74
gain (loss)
Total from investment 1.13 (.41) 2.66 1.35 4.25
operations
Less Distributions
From net investment income (.50) (.28) (.56) (.46) (.53)
In excess of net - (.02) - - -
investment income
From net realized gain - (.49) (.60) (.61) -
Return of capital - (.04) - - -
Total distributions (.50) (.83) (1.16) (1.07) (.53)
Net asset value, end of period $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13
TOTAL RETURN A, B 7.85% (2.69) 19.66% 10.27% 41.73%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 3,441 $ 3,129 $ 1,654 $ 398 $ 136
(in millions)
Ratio of expenses to average 1.47% 1.59% 1.52% 1.60% 1.71%
net assets
Ratio of expenses to average net 1.46% 1.58% 1.51% 1.60% 1.71%
assets after expense
reductions
Ratio of net investment income 3.99% 3.79% 3.24% 3.97% 4.19%
to average net assets
Portfolio turnover 297% 202% 200% 389% 220%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
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 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED
OCTOBER 31,
1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.23
Income from Investment Operations
Net investment income .25
Net realized and unrealized gain (loss) .09
Total from investment operations .34
Less Distributions
From net investment income (.17)
Net asset value, end of period $ 15.40
TOTAL RETURN B, C 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 993
Ratio of expenses to average net assets .92% A,
D
Ratio of expenses to average net assets after expense reductions .91% A
Ratio of net investment income to average net assets 4.54% A
Portfolio turnover 297%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE INSTITUTIONAL CLASS'
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE
RATIO WOULD HAVE BEEN HIGHER.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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 following
summarizes the significant accounting policies of the fund:
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 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 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 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, which 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,
passive foreign investment companies (PFIC), 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.
For the period ended October 31, 1994, 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 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 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.
2. OPERATING POLICIES - CONTINUED
SHORT SALES AGAINST THE BOX - CONTINUED
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. Futures contracts involve, to varying degrees, risk
of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities. The underlying face amount at value is
shown in the schedule of investments under the captions "Purchased
Options" and "Futures Contracts". 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 $549,000 or 0.0%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $8,706,238,000 and $7,812,595,000, respectively, of which U.S.
government and government agency obligations aggregated $3,594,258,000 and
$2,651,361,000, respectively.
The market value of futures contracts opened and closed during the period
amounted to $2,503,822,000 and $2,452,648,000, 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 .2700% 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 annual 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. This fee is based on an annual rate of .65%
of the average net assets of Class A. For the period, the fund paid FDC
$21,914,000 under the Class A Plan, of which $16,749,000 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $10,071,000 on sales of Class A shares of the fund, of which
$8,397,000 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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. During the period November 1, 1994 to December
31, 1994, State Street received fees based on the type, size, number of
accounts and the number of transactions made by shareholders. Effective
January 1, 1995, the Board of Trustees approved a revised transfer agent
contract pursuant to which 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.
ACCOUNTING FEES. Fidelity Service Co., an affiliate of FMR, maintains the
fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $2,372,000 for the period.
5. EXPENSE REDUCTIONS.
Effective October 30, 1995, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of 1.90% and 1.25% of average
net assets for Class A and Institutional Class, respectively. For the
period, the reimbursement reduced expenses by $12,000 for Institutional
Class.
For the period, 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 $454,000 under this arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares was as follows:
SHARE TRANSACTIONS
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31,
OCTOBER 31, OCTOBER 31,
1995 A 1994 1995 A 1994
AMOUNTS IN THOUSANDS
CLASS A
Shares sold 65,838 139,531 $ 973,364 $ 2,113,111
Reinvestment of distributions 7,001 6,294 103,985 95,269
Shares redeemed (61,310) (36,474) (915,254) (544,100)
Net increase (decrease) 11,529 109,351 $ 162,095 $ 1,664,280
INSTITUTIONAL CLASS
Shares sold 473.6 - $ 7,256 $ -
Reinvestment of distributions 4.3 - 67 -
Shares redeemed (413.4) - (6,396) -
Net increase (decrease) 64.5 - $ 927 $ -
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
DOLLAR AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Montupet SA $ - $ 663 $ - $ -
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 October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A)and the period July 3, 1995 (commencement of
sale of Institutional Class shares) 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 October 31, 1995 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
October 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended (Class A) and the period July 3, 1995 (commencement of
sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Income & Growth Fund voted to pay
shareholders of record at the opening of business on record date, the
following distributions derived from capital gains realized from sales of
portfolio securities, and dividends derived from net investment income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Class A 12/11/95 12/8/95 $ .23 $ .03
Institutional Class 12/11/95 12/8/95 $ .25 $ .03
A total of 41.4% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
A total of 29% of the dividends distributed during the fiscal year
qualifies for the dividends-received deductions for corporate shareholders.
The fund will notify shareholders in January 1996 of these percentages for
use in preparing 1995 income tax returns.
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
Robert Haber, 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 Investment Institutional Operations Company Boston, MA
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York
Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 29 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 34 Notes to the financial statements.
REPORT OF INDEPENDENT 41 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 42
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 the markets have been fairly positive this year, no one can
predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
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, as we witnessed last year. 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 fund's total return
includes changes in a fund's 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).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Income & Growth - Class A 7.85% 96.27% 162.36%
Advisor Income & Growth - Class A
(incl. max. 4.75% sales charge) 2.73% 86.95% 149.90%
S&P 500(registered trademark) 26.44% 121.65% 204.47%
Lehman Brothers Aggregate Bond Index 15.65% 58.53% n/a
Average Balanced Fund 17.98% 89.93% n/a
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, 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 Composite Index of 500 Stocks - a common proxy for the
U.S. stock market - and the performance of the Lehman Brothers Aggregate
Bond Index, a broad measure of the bond market. To measure how Class A's
performance stacked up against its peers, you can compare it to the average
balanced fund, which reflects the performance of 199 balanced funds with
similar objectives tracked by Lipper Analytical Services over the past 12
months. These benchmarks include reinvested dividends and capital gains, if
any, and exclude the effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Income & Growth - Class A 7.85% 14.44% 11.55%
Advisor Income & Growth - Class A
(incl. max. 4.75% sales charge) 2.73% 13.33% 10.94%
S&P 500 26.44% 17.26% 13.45%
Lehman Brothers Aggregate Bond Index 15.65% 9.65% n/a
Average Balanced Fund 17.98% 13.61% 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
Fidelity Advisor IStandard & Poor's 5LB Aggregate Bond
01/31/87 9525.00 10000.00 10000.00
02/28/87 9808.92 10395.00 10069.35
03/31/87 10193.24 10695.42 10023.96
04/30/87 9944.62 10600.23 9749.09
05/31/87 9917.00 10692.45 9710.95
06/30/87 10156.25 11232.42 9844.60
07/31/87 10646.94 11801.90 9837.04
08/31/87 10869.14 12242.11 9784.40
09/30/87 10684.30 11974.01 9576.04
10/31/87 8801.03 9394.81 9917.10
11/30/87 8642.53 8620.68 9996.53
12/31/87 9020.35 9276.71 10132.70
01/31/88 9549.84 9667.26 10488.89
02/29/88 9946.97 10117.75 10613.40
03/31/88 9975.33 9805.11 10513.79
04/30/88 10147.82 9913.95 10457.05
05/31/88 10186.15 10000.20 10386.76
06/30/88 10608.64 10459.21 10637.35
07/31/88 10569.81 10419.47 10581.56
08/31/88 10530.99 10065.20 10609.30
09/30/88 10725.99 10493.98 10849.49
10/31/88 10883.29 10785.71 11053.74
11/30/88 10775.14 10631.48 10919.46
12/31/88 10904.26 10817.53 10931.76
01/31/89 11333.25 11609.37 11089.05
02/28/89 11373.15 11320.30 11008.67
03/31/89 11564.56 11584.06 11056.26
04/30/89 12029.16 12185.28 11287.63
05/31/89 12423.06 12678.78 11584.24
06/30/89 12594.31 12606.51 11936.96
07/31/89 13166.31 13744.88 12190.70
08/31/89 13370.60 14014.28 12010.09
09/30/89 13391.47 13956.82 12071.55
10/31/89 13184.97 13633.02 12369.11
11/30/89 13453.42 13911.13 12487.00
12/31/89 13586.38 14245.00 12520.41
01/31/90 12929.15 13289.16 12371.63
02/28/90 12963.15 13460.59 12411.35
03/31/90 13144.59 13817.30 12420.49
04/30/90 12972.54 13471.87 12306.70
05/31/90 13454.28 14785.37 12671.08
06/30/90 13511.35 14684.83 12874.39
07/31/90 13476.53 14637.84 13052.48
08/31/90 12652.38 13314.58 12878.17
09/30/90 12360.36 12666.16 12984.71
10/31/90 12242.75 12611.70 13149.57
11/30/90 12795.50 13426.41 13432.62
12/31/90 13186.54 13801.01 13641.92
01/31/91 13867.36 14402.73 13810.56
02/28/91 14679.58 15432.53 13928.45
03/31/91 15052.42 15805.99 14024.27
04/30/91 15341.89 15843.93 14176.20
05/31/91 15981.14 16528.39 14259.10
06/30/91 15653.60 15771.39 14251.85
07/31/91 16323.07 16506.33 14449.49
08/31/91 16736.93 16897.53 14762.17
09/30/91 16860.16 16615.34 15061.31
10/31/91 17351.35 16837.99 15229.00
11/30/91 16946.12 16159.42 15368.64
12/31/91 17733.45 18008.06 15825.06
01/31/92 17850.12 17673.11 15609.77
02/29/92 18226.04 17902.86 15711.27
03/31/92 18161.34 17553.75 15622.70
04/30/92 18305.17 18069.83 15735.54
05/31/92 18671.27 18158.37 16032.47
06/30/92 18501.50 17887.81 16253.11
07/31/92 19041.79 18619.43 16584.71
08/31/92 19041.79 18237.73 16752.72
09/30/92 19199.32 18452.93 16951.30
10/31/92 19132.93 18517.52 16726.56
11/30/92 19252.43 19148.96 16730.34
12/31/92 19364.85 19384.50 16996.38
01/31/93 19730.23 19547.33 17322.30
02/28/93 20151.81 19813.17 17625.53
03/31/93 20912.40 20231.23 17698.98
04/30/93 21507.47 19741.63 17822.22
05/31/93 21918.35 20270.71 17844.92
06/30/93 21777.22 20329.49 18168.32
07/31/93 22005.71 20248.18 18271.08
08/31/93 22805.39 21015.58 18591.33
09/30/93 22592.18 20853.76 18642.40
10/31/93 22894.37 21285.43 18712.06
11/30/93 22592.18 21083.22 18552.88
12/31/93 23171.03 21338.33 18653.43
01/31/94 23815.09 22063.83 18905.28
02/28/94 23395.70 21465.90 18576.83
03/31/94 22461.33 20529.99 18118.83
04/30/94 22280.19 20792.77 17974.15
05/31/94 22370.76 21133.77 17971.63
06/30/94 21946.21 20616.00 17931.91
07/31/94 22370.58 21292.20 18288.10
08/31/94 22643.39 22165.18 18310.80
09/30/94 22492.08 21622.14 18041.29
10/31/94 22279.46 22108.63 18025.22
11/30/94 21975.72 21303.44 17985.19
12/31/94 21990.90 21619.37 18109.38
01/31/95 21929.65 22179.96 18467.77
02/28/95 22312.50 23044.31 18906.86
03/31/95 22683.21 23724.35 19022.85
04/30/95 22930.27 24423.03 19288.57
05/31/95 23378.07 25399.22 20034.99
06/30/95 23658.73 25989.24 20181.88
07/31/95 24016.73 26851.05 20136.80
08/31/95 24078.99 26918.44 20379.83
09/30/95 24311.62 28054.40 20578.09
10/31/95 24028.93 27954.25 20845.71
Index (SH
$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 maximum
4.75% sales charge. As the chart shows, by October 31, 1995, the value of
your investment would have grown to $24,029 - a 140.29% 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
$27,954 - a 179.54% increase. If you had put $10,000 in the bond index, it
would have grown to $20,846 - a 108.46% 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
MARKET RECAP
A favorable interest rate
environment helped spur strong
returns for both stock and bond
markets in the U.S. during the 12
months ended October 31, 1995. A
strong rally starting in November
1994 helped bonds recover from
the effects of sharply rising
interest rates seen earlier that
year. For the 12-month period,
the Lehman Brothers Aggregate
Bond Index - a broad measure
of U.S. taxable bonds - had a
total return of 15.65%. Indications
of a slowing economy and a
relative absence of inflation
pressures encouraged bond
investors. In an effort to thwart the
possibility of a recession, the
Federal Reserve Board lowered
the fed funds rate - the rate
banks charge each other for
overnight loans - by 0.25% in July
to 5.75%, reversing its 1994 policy
of interest rate increases. Strong
corporate earnings helped propel the
Standard & Poor's Composite
Index of 500 Stocks to a 12-month
total return of 26.44% - well
above its historical annual
average of roughly 12%.
Technology companies - whose
goods and services benefited
from both corporate and
consumer demand - posted the
strongest earnings growth and
stock price gains. In June, the
Dow Jones Industrial Average
closed above 4500 for the first
time. Returns from foreign
markets were varied, as investors
brought capital back to the U.S.
market. The Morgan Stanley
EAFE (Europe, Australia, Far
East) Index returned -0.37% for
the year ended October 31.
An interview with Robert Haber, Portfolio Manager of Fidelity
Advisor Income & Growth Fund
Q. HOW HAS THE FUND PERFORMED, BOB?
A. For the 12 months ended October 31, 1995, Class A had a total return of
7.85%, compared to a return of 17.98% for the average balanced fund tracked
by Lipper Analytical Services.
Q. WHY DID THE FUND SUBSTANTIALLY UNDERPERFORM ITS PEERS?
A. Throughout my tenure on the fund, I have focused on maximizing rewards
and managing risk. Going into the period, I found stocks to be high-priced.
As a result, I put more of the fund's assets into bonds, as a defensive
move. That turned out to be a move that hurt the fund's performance, as
stocks have continued to perform very well. In addition, within the context
of this strategy, I made some tactical moves that detracted from
performance.
Q. WHAT WERE THEY?
A. First of all, while I positioned the fund's bond investments
aggressively - increasing their duration, or sensitivity to interest rates
- - I wasn't aggressive enough. That is, I anticipated this year's drop in
interest rates - and rise in bond prices - but didn't foresee the magnitude
of that drop; the fund would have done better with an even longer duration.
This year's rally was unusual in that rates in the market started dropping
before the Federal Reserve Board even finished raising short-term rates in
early 1995. I could have responded more quickly. So while the fund's bonds
have been good contributors, they weren't positioned aggressively enough to
fully take advantage of the market rally.
Q. WHAT ABOUT THE FUND'S EQUITY
INVESTMENTS?
A. On the stock side, the fund was heavily invested in cyclicals - stocks
that tend to rise and fall with the economy - which lagged the market, even
though many of these companies posted strong earnings. Signs of an economic
slowdown detracted from investors' interest in these stocks. For example,
one of the fund's investments, Reynolds Metals, showed strong earnings
growth but its stock has not responded. At the end of the period, I
continued to hold this stock. I like the outlook for the supply/demand
dynamic in the aluminum industry, and Reynolds has strong foil and aluminum
can businesses that tend to be less cyclical in nature.
Q. WHICH STOCK INVESTMENTS HELPED THE FUND'S PERFORMANCE?
A. The fund's top two equity investments contributed well. Bell Atlantic
has a strong dividend yield, with earnings that could grow steadily
regardless of the economic climate of the next year or so. Chrysler also
has benefited from a solid product line, has a good balance sheet, and I
find its stock to be very cheap. In addition, it has a high dividend
relative to the market, one of the aspects I'm focusing on as a defensive
measure in this market.
Q. HOW ARE YOU POSITIONING THE FUND'S BOND INVESTMENTS?
A. More aggressively than they had been earlier in the period. That is,
I've increased their overall duration, or sensitivity to interest rates.
Faced with a weakening economy, I like the prospects for bonds. In terms of
security selection, almost all of the fund's fixed-income investments are
Treasury issues. Yield spreads - the difference in yield between bonds
with the same maturity but different credit quality - are quite narrow,
meaning there is little incentive to invest in lower credit issues or other
options such as mortgage-backed securities.
Q. WHAT ABOUT OVERSEAS INVESTMENTS?
A. The fund's overseas investments - 20.2% of the fund at the end of the
period - are focused in Japan for the most part. I've concentrated on
larger, blue chip, export-driven companies such as Hitachi and TDK, on the
theory that the yen is overvalued. As it declines, it will help these
companies and the Japanese economy. In fact, that happened later in the
period, although stock price gains were offset by yen depreciation.
Q. LET'S TAKE A LOOK AT THE NEXT SIX MONTHS. WHAT'S YOUR OUTLOOK?
A. I'm concerned about the stock market because I still find valuations to
be high and expect earnings to decelerate as the economy slows further.
With that kind of economic slowdown, I anticipate that lower interest rates
will ensue. As a result, I'm looking to use the fund's bond investments
both defensively - investing more there to insulate the fund from exposure
to a suspect stock market - and offensively - as a way to take advantage of
falling rates. On the stock side, I'm sticking with cyclicals, on the
theory that, historically, when they get as oversold, or cheap, as they
have, and when rates start falling, investors start to think about the next
economic expansion and migrate toward cyclical issues. As a result, I'm
focusing on cyclical stocks that have strong earnings potential and
attractive prices.
FUND FACTS
GOAL: to provide as much
income as possible,
consistent with the
preservation of capital, by
investing in both stocks and
bonds
START DATE: January 6, 1987
SIZE: more than $3.4 billion
MANAGER: Robert Haber,
since January 1987; joined
Fidelity in 1985
(checkmark)
BOB HABER ON THE STRENGTH OF
THE STOCK MARKET:
"We have come through an
unprecedented period of
strength in the U.S. stock
market. It has been more
than five years since the Dow
Jones Industrial Average has
experienced a correction of
12% or more, longer than any
such period in market history.
It also has been 12 years
since a year's low on the Dow
fell below the previous year's
low, again the longest period
in history for that type of
occurrence. Finally, the Dow
has not experienced a single
decline of 3.5% or more year
to date; that's the first time
that has happened this
century. These are among the
statistics - along with the
high stock prices, shrinking
earnings growth and shrinking
dividend yields - that lead
me to be cautious about
stocks. I believe it is prudent
to expect a correction at some
point; by nature, historically,
that's the way that markets
work."
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Bell Atlantic Corp. 2.2 0.0
Chrysler Corp. 1.3 0.0
Omron Corp. 1.3 0.3
Falconbridge Ltd. (1st installment receipt) 1.2 0.0
Reynolds Metals Co. 1.0 0.2
TOP FIVE FIXED-INCOME SECURITIES AS OF OCTOBER 31, 1995
<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) 43.6 14.9
NEC Corp. 1.90%, 3/30/01 1.0 0.3
Carnival Cruise Lines, Inc. 4 1/2%, 7/1/97 0.6 0.7
Canon, Inc. 1.30%, 12/19/08 0.4 0.0
First Financial Management Corp. 5%, 0.4 0.1
12/15/99
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Basic Industries 9.4 11.9
Technology 8.0 5.6
Utilities 4.8 0.9
Energy 3.8 6.4
Industrial Machinery & Equipment 3.7 0.8
ASSET ALLOCATION
AS OF OCTOBER 31, 1995 * AS OF APRIL 30, 1995 **
Row: 1, Col: 1, Value: 1.7
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 8.4
Row: 1, Col: 4, Value: 44.0
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 25.9
Row: 1, Col: 1, Value: 1.1
Row: 1, Col: 2, Value: 33.0
Row: 1, Col: 3, Value: 15.5
Row: 1, Col: 4, Value: 19.7
Row: 1, Col: 5, Value: 20.0
Row: 1, Col: 6, Value: 10.7
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%
Stocks and
equity futures 30.7%
Bonds 19.7%
Convertible
securities 15.5%
Short-term
investments 34.0%
Other
investments 0.1%
FOREIGN
INVESTMENTS 17.9%
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investments in Securities
COMMON STOCKS - 38.9%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.7%
AEROSPACE & DEFENSE - 0.1%
Flightsafety International, Inc. 38,000 $ 1,814
Rockwell International Corp. 1,000 45
Teleflex, Inc. 1,000 42
1,901
DEFENSE ELECTRONICS - 0.6%
Litton Industries, Inc. (a) 541,300 21,449
TOTAL AEROSPACE & DEFENSE 23,350
BASIC INDUSTRIES - 8.3%
CHEMICALS & PLASTICS - 1.3%
Albemarle Corp. 198,500 3,697
du Pont (E.I.) de Nemours & Co. 1,000 62
FMC Corp. (a) 46,600 3,338
IMC Fertilizer Group, Inc. 15,700 1,099
International Specialty Products, Inc. 232,700 2,007
Kemira OY 1,099,700 9,252
Mississippi Chemical Corp. 147,800 3,566
Nippon Shokubai Co. Ltd. 499,000 4,361
Olin Corp. 1,000 64
Praxair, Inc. 135,800 3,667
Rohm & Haas Co. 129,200 7,138
Sekisui Chemical Co. Ltd. 463,000 6,034
Vigoro Corp. 1,000 43
44,328
IRON & STEEL - 0.2%
Kobe Steel (a) 2,623,000 6,888
Nucor Corp. 34,500 1,660
8,548
METALS & MINING - 6.6%
Alcan Aluminium Ltd. 486,400 15,421
Alumax, Inc. (a) 81,300 2,398
Aluminum Co. of America 45,400 2,315
Brush Wellman, Inc. 1,000 17
Capral Aluminium Ltd. 7,966,900 18,175
Comalco Ltd. 2,847,400 14,356
Cominco Ltd. (a) 1,000 19
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
METALS & MINING - CONTINUED
Eramet SA 125,322 $ 8,470
Falconbridge Ltd. 567,200 12,498
Falconbridge Ltd. (1st installment receipt) (i) 4,181,800 39,268
Inco Ltd. 604,533 20,796
Kaiser Aluminum Corp. (a) 395,000 4,444
Pechiney International SA 171,450 8,954
QNI Ltd. 6,631,184 12,708
Reynolds Metals Co. 666,100 33,555
Sherritt, Inc. (a) 2,129,100 27,514
Union Miniere SA (a) 1,000 64
220,972
PAPER & FOREST PRODUCTS - 0.2%
Boise Cascade Corp. 1,000 37
Consolidated Papers, Inc. 64,200 3,675
Crestbrook Forest Industries Ltd. 106,900 1,391
James River Corp. of Virginia 1,000 32
5,135
TOTAL BASIC INDUSTRIES 278,983
CONGLOMERATES - 0.8%
Crane Co. 142,300 5,034
Harris Corp. 228,000 13,253
Mark IV Industries, Inc. 343,200 6,692
Textron, Inc. 34,800 2,393
Tyco International Ltd. 15,300 929
28,301
CONSTRUCTION & REAL ESTATE - 1.8%
BUILDING MATERIALS - 0.3%
Carlisle Companies, Inc. 1,000 41
Masco Corp. 22,700 638
Sherwin-Williams Co. 52,700 1,984
Texas Industries, Inc. 133,700 7,036
Vulcan Materials Co. 600 33
9,732
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 0.5%
American Buildings Co. (a) 143,700 $ 3,629
Granite Construction, Inc. 53,900 1,529
Webb (Del E.) Corp. 616,400 12,790
17,948
REAL ESTATE INVESTMENT TRUSTS - 1.0%
CBL & Associates Properties, Inc. 50,500 1,073
CWM Mortgage Holdings, Inc. 1,000 15
Cali Realty Corp. 112,400 2,191
CenterPoint Properties Corp. 59,000 1,335
Colonial Properties Trust (SBI) 37,200 930
Equity Residential Properties Trust (SBI) 107,600 3,013
Franchise Finance Corp. of America 278,500 5,883
Highwoods Properties, Inc. 25,100 668
LTC Properties, Inc. 211,300 3,064
Liberty Property Trust (SBI) 29,700 601
National Golf Properties, Inc. 173,100 3,743
Shurgard Storage Centers, Inc. 53,600 1,367
Sovran Self Storage, Inc. 42,000 1,040
Speiker Properties, Inc. 286,500 6,948
Starwood Lodging Trust combined certificate (SBI) 47,400 1,292
33,163
TOTAL CONSTRUCTION & REAL ESTATE 60,843
DURABLES - 3.2%
AUTOS, TIRES, & ACCESSORIES - 2.6%
Borg-Warner Automotive, Inc. 143,500 4,233
Bridgestone Corp. 132,000 1,837
Chrysler Corp. 839,800 43,355
Dana Corp. 36,300 930
Genuine Parts Co. 246,800 9,779
Johnson Controls, Inc. 192,700 11,225
NGK Spark Plug Co. Ltd. (warrants) (a) 2,450 3,369
Snap-on Tools Corp. 200,600 8,500
Suzuki Motor Corp. 266,000 2,685
85,913
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - CONTINUED
HOME FURNISHINGS - 0.4%
Heilig-Meyers Co. 118,900 $ 2,185
Herman Miller, Inc. 98,200 2,909
Leggett & Platt, Inc. 406,300 9,751
14,845
TEXTILES & APPAREL - 0.2%
Guilford Mills, Inc. 77,200 1,708
Mohawk Industries, Inc. (a) 23,200 348
Russell Corp. 1,000 25
Stride Rite Corp. 86,700 975
Unifi, Inc. 223,300 5,024
Westpoint Stevens, Inc. Class A 1,000 21
8,101
TOTAL DURABLES 108,859
ENERGY - 2.1%
COAL - 0.0%
Eastern Enterprises Co. 42,600 1,273
ENERGY SERVICES - 0.9%
Baker Hughes, Inc. 332,800 6,531
Halliburton Co. 1,000 42
Helmerich & Payne, Inc. 1,000 26
Nabors Industries, Inc. (a) 642,100 5,538
Petroleum Helicopters, Inc. (non-vtg.) 106,000 1,087
Pride Petroleum Services, Inc. (a) 100 1
Production Operators Corp. 1,000 30
Transocean Drilling AS (a) 1,140,150 17,398
30,653
OIL & GAS - 1.2%
Amerada Hess Corp. 1,000 45
Atlantic Richfield Co. 11,100 1,185
British Petroleum PLC ADR 1,000 88
Canada Occidental Petroleum Ltd. 1,000 29
Coastal Corp. (The) 316,300 10,240
Elf Gabon 100 15
Forest Oil Corp. (a) 1,000 2
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Louisiana Land & Exploration Co. 184,200 $ 6,516
Occidental Petroleum Corp. 1,000 22
Pancanadian Petroleum Ltd. 125,000 4,184
Santa Fe Energy Resources, Inc. (a) 1,086,200 9,640
Wascana Energy, Inc. (a) 839,400 6,633
38,599
TOTAL ENERGY 70,525
FINANCE - 1.2%
INSURANCE - 0.8%
ACE Ltd. 366,700 12,468
Allmerica Financial Corp. (a) 6,900 173
American Travellers Corp. 4,200 94
Capital RE Corp. 20,700 585
Liberty Corp. (The) 108,200 3,625
Old Republic International Corp. 275,500 7,886
Transport Holdings, Inc. Class A (a) 5 -
Travelers, Inc. (The) 600 30
USLIFE Corp. 122,100 3,480
28,341
SECURITIES INDUSTRY - 0.4%
Daiwa Securities Co. Ltd. 1,082,000 12,723
TOTAL FINANCE 41,064
HEALTH - 1.2%
DRUGS & PHARMACEUTICALS - 0.2%
Upjohn Co. 147,400 7,481
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Advanced Technology Laboratories, Inc. (a) 89,600 1,613
Baxter International, Inc. 58,100 2,244
Bergen Brunswig Corp. Class A 56,100 1,164
St. Jude Medical, Inc. 28,900 1,539
6,560
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - 0.8%
Beverly Enterprises, Inc. (a) 99,100 $ 1,165
Foundation Health Corp. 114,300 4,843
Integrated Health Services, Inc. 71,800 1,642
Summit Care Corp. (a) 64,800 1,345
Tenet Healthcare Corp. 86,000 1,537
United HealthCare Corp. 171,900 9,132
Vencor, Inc. (a) 213,500 5,925
25,589
TOTAL HEALTH 39,630
INDUSTRIAL MACHINERY & EQUIPMENT - 3.7%
ACCESS & MEASUREMENT CUTTING TOOLS - 0.1%
Stanley Works 29,900 1,428
ELECTRICAL EQUIPMENT - 2.4%
California Microwave Corp. (a) 47,000 1,035
Mitsubishi Electric Co. Ord. 3,765,000 28,185
Murata Manufacturing Co. Ltd. 303,000 10,131
Omron Corp. 1,797,000 42,083
81,434
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
Caterpillar, Inc. 591,900 33,220
Dover Corp. 5,200 205
IDEX Corp. 1,200 45
Parker-Hannifin Corp. 43,600 1,472
Timken Co. 78,200 3,148
38,090
LAWN & GARDEN TRACTORS, EQUIPMENT - 0.0%
Toro Co. 46,900 1,354
POLLUTION CONTROL - 0.0%
Safety Kleen Corp. 32,900 506
WMX Technologies, Inc. 28,100 790
1,296
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 123,602
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.7%
LEISURE DURABLES & TOYS - 0.5%
Brunswick Corp. 744,500 $ 14,518
Hasbro, Inc. 1,000 31
Mattel, Inc. 47,500 1,366
15,915
LODGING & GAMING - 0.0%
Resort Hotels PLC (a) 5,487,300 -
PUBLISHING - 0.0%
Banta Corp. 17,400 753
RESTAURANTS - 0.2%
Ryan's Family Steak Houses, Inc. (a) 897,900 6,959
TOTAL MEDIA & LEISURE 23,627
NONDURABLES - 1.8%
BEVERAGES - 0.1%
Brahma (Cia Cervejaria) PN Class B (Pfd. Reg.) 10,939,900 4,176
FOODS - 0.2%
Chiquita Brands International, Inc. 295,400 4,800
HOUSEHOLD PRODUCTS - 0.6%
First Brands Corp. 234,400 10,724
Stanhome, Inc. 315,900 9,635
20,359
TOBACCO - 0.9%
Philip Morris Companies, Inc. 333,300 28,163
Souza Cruz Industria Comerico 227,600 1,629
29,792
TOTAL NONDURABLES 59,127
PRECIOUS METALS - 1.1%
Buffelsfontein Gold Mining Ltd. Ord. (a) 3,100 13
Coeur d'Alene Mines Corp. 67,400 1,137
Echo Bay Mines Ltd. 296,321 2,672
Firstmiss Gold, Inc. 27,842 501
Free State Consolidated Gold Mines Ltd.:
ADR 373,900 3,529
Ord. 360,586 3,361
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
PRECIOUS METALS - CONTINUED
Hecla Mining Co. (a) 242,200 $ 1,786
Newmont Mining Corp. 1,000 38
Pegasus Gold, Inc. (a) 535,500 5,925
Placer Dome, Inc. 45,500 998
Vaal Reefs Exploration and Mining Co. Ltd.:
ADR 335,400 1,908
(Reg.) 20,100 1,149
Western Mining Holdings Ltd. 2,097,436 13,430
36,447
RETAIL & WHOLESALE - 2.2%
GENERAL MERCHANDISE STORES - 0.9%
Consolidated Stores Corp. (a) 228,300 5,279
Dayton Hudson Corp. 1,000 69
Dillard Department Stores, Inc. Class A 129,600 3,515
Ito-Yokado Co. Ltd. 237,000 12,982
May Department Stores Co. (The) 1,000 39
Price/Costco, Inc. (a) 152,900 2,599
Proffitts, Inc. (a) 114,700 2,681
Wal-Mart Stores, Inc. 104,000 2,249
29,413
GROCERY STORES - 0.6%
Albertson's, Inc. 275,600 9,164
Vons Companies, Inc. (a) 432,400 10,972
20,136
RETAIL & WHOLESALE, MISCELLANEOUS - 0.7%
Fingerhut Companies, Inc. 484,100 6,596
Pier 1 Imports, Inc. 1,199,800 11,548
Uny Co. Ltd. 104,000 1,794
Waban, Inc. (a) 338,200 5,284
25,222
TOTAL RETAIL & WHOLESALE 74,771
SERVICES - 0.3%
PRINTING - 0.1%
Deluxe Corp. 39,300 1,056
Standard Register Co. 50,100 1,127
2,183
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - CONTINUED
SERVICES - 0.2%
CDI Corp. (a) 213,700 $ 3,152
Interim Services, Inc. (a) 111,600 3,320
Western Atlas, Inc. (a) 400 18
6,490
TOTAL SERVICES 8,673
TECHNOLOGY - 5.1%
COMPUTER SERVICES & SOFTWARE - 0.8%
Adobe Systems, Inc. 10,400 592
BancTec, Inc. (a) 341,800 6,409
Black Box Corp. 202,200 3,286
DST Systems, Inc. 17,700 372
FTP Software, Inc. 274,100 7,401
Policy Management Systems Corp. (a) 212,800 10,028
SunGard Data Systems, Inc. 7,600 209
28,297
COMPUTERS & OFFICE EQUIPMENT - 1.0%
Canon, Inc. 492,000 8,436
Hewlett-Packard Co. 1,000 93
NEC Corp. 203,000 2,685
Pitney Bowes, Inc. 46,900 2,046
Ricoh Co. Ltd. Ord. 1,911,000 20,598
Sun Microsystems, Inc. (a) 1,000 78
33,936
ELECTRONIC INSTRUMENTS - 0.0%
TSI, Inc. 1,500 18
ELECTRONICS - 3.3%
AMP, Inc. 131,800 5,174
Hitachi Ltd. 2,836,000 29,178
Kyocera Corp. 104,000 8,540
Kyocera Corp. (warrants) (a) 2,555 4,312
Marshall Industries (a) 142,500 5,023
Nichicon Corp. 265,000 3,583
Nitto Denko Corp. 1,370,000 21,881
Rohm Co. Ltd. 45,000 2,738
Rohm Co. Ltd. (warrants) (a) 1,270 933
Ryoyo Electro Corp. Ord. 93,000 2,178
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
TDK Corp. 437,000 $ 22,566
Wako Electric Co. Ltd. 134,000 3,230
109,336
TOTAL TECHNOLOGY 171,587
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.0%
Mesa Airlines, Inc. (a) 51,700 491
Northwest Airlines Corp. Class A (a) 1,000 40
531
RAILROADS - 0.1%
Union Pacific Corp. 27,500 1,798
TRUCKING & FREIGHT - 0.0%
Expeditors International of Washington, Inc. 58,300 1,530
TOTAL TRANSPORTATION 3,859
UTILITIES - 4.6%
ELECTRIC UTILITY - 0.2%
Fuji Electric Co. Ltd. 1,411,000 6,816
GAS - 0.2%
ENSERCH Corp. 1,000 15
Equitable Resources, Inc. 99,500 2,910
Questar Corp. 55,000 1,657
4,582
TELEPHONE SERVICES - 4.2%
Ameritech Corp. 383,700 20,720
Bell Atlantic Corp. 1,182,900 75,262
Pacific Telesis Group 902,300 27,407
Telebras PN (Pfd. Reg.) 451,677,900 18,316
141,705
TOTAL UTILITIES 153,103
TOTAL COMMON STOCKS
(Cost $1,289,226) 1,306,351
PREFERRED STOCKS - 2.4%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 2.2%
BASIC INDUSTRIES - 0.5%
METALS & MINING - 0.5%
Alumax, Inc., Series A, $4.00 52,333 $ 6,490
Kaiser Aluminum Corp. $0.96 435,500 5,008
Reynolds Metals Co. $3.31 77,800 3,890
15,388
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. Indexed $3.00 422,700 23,883
Santa Fe Energy Resources, Inc. $0.732 330,600 3,223
Unocal Corp. $3.50 (b) 455,300 23,334
50,440
FINANCE - 0.2%
BANKS - 0.1%
Barnett Banks, Inc., Series A, $4.50 (g) 44,000 4,620
SAVINGS & LOANS - 0.1%
Glendale Federal Bank, Series E, $2.1875 57,600 2,426
TOTAL FINANCE 7,046
TOTAL CONVERTIBLE PREFERRED STOCKS 72,874
NONCONVERTIBLE PREFERRED STOCKS - 0.2%
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Harvard Industries, Inc. pay-in-kind $14.25 103,125 2,785
FINANCE - 0.1%
SAVINGS & LOANS - 0.1%
First Nationwide Bank 11 1/2% 18,500 2,100
Greater New York Savings Bank Series B, 12% 65,769 1,874
3,974
TOTAL NONCONVERTIBLE PREFERRED STOCKS 6,759
TOTAL PREFERRED STOCKS
(Cost $75,283) 79,633
CORPORATE BONDS - 7.1%
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
CONVERTIBLE BONDS - 6.2%
AEROSPACE & DEFENSE - 0.1%
Orbital Sciences Corp. 6 3/4%, 3/1/03 (g) B3 $ 3,971 $ 4,328
BASIC INDUSTRIES - 0.5%
IRON & STEEL - 0.2%
Trimas Corp. 5%, 8/1/03 (g) Ba3 6,304 6,493
METALS & MINING - 0.3%
Inco Ltd. 5 3/4%, 7/1/04 Baa2 8,670 11,423
TOTAL BASIC INDUSTRIES 17,916
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Liberty Property exchangeable 8%, 7/1/01 - 7,022 7,110
ENERGY - 0.1%
OIL & GAS - 0.1%
Horsham Corp. 3 1/4%, 12/10/18 Ba2 2,425 1,989
FINANCE - 0.4%
CREDIT & OTHER FINANCE - 0.4%
Huntingdon International Holdings PLC:
euro 7 1/2%, 9/25/06 - 365 274
7 1/2%, 9/25/06 - 5,060 3,744
Investor AB 8%, 6/1/01 (g) A- SEK 30,380 7,069
MBL International Finance Bermuda Trust
3%, 11/30/02 Aa3 3,150 3,268
14,355
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Omnicare, Inc. 5 3/4%, 10/1/03 (g) B2 2,410 6,019
MEDIA & LEISURE - 0.8%
ENTERTAINMENT - 0.6%
Carnival Cruise Lines, Inc. 4 1/2%, 7/1/97 (g) Baa1 15,840 21,701
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.2%
Wendy's International, Inc. 7%, 4/1/06 (g) Baa3 $ 3,139 $ 5,132
TOTAL MEDIA & LEISURE 26,833
RETAIL & WHOLESALE - 0.3%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
Lowe's Companies, Inc. 3%, 7/22/03 A3 8,000 8,760
SERVICES - 0.4%
First Financial Management Corp.
5%, 12/15/99 (g) Baa2 8,310 13,296
TECHNOLOGY - 2.9%
COMMUNICATIONS EQUIPMENT - 0.4%
Aspect Telecommunication Corp.
5%, 10/15/03 (b)(g) B3 6,648 11,808
General Instrument Corp. 5%,
6/15/00 (g) B1 1,502 1,502
13,310
COMPUTERS & OFFICE EQUIPMENT - 1.8%
Acer, Inc. 4%, 6/10/01 - 4,030 12,171
Canon, Inc. 1.30%, 12/19/08 A JPY 1,146,000 13,363
NEC Corp. 1.90%, 3/30/01 A3 JPY 2,578,000 34,784
60,318
ELECTRONICS - 0.7%
Nitto Denko Corp. 3.90%, 3/30/01 Baa1 JPY 835,000 10,342
United Microelectronics Corp. euro 1 1/4%,
6/8/04 - 9,702 13,049
23,391
TOTAL TECHNOLOGY 97,019
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
AMR Corp. 6 1/8%, 11/1/24 Ba2 2,910 2,852
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
Compania de Telefonos de Chile yankee
4 1/2%, 1/15/03 (g) Baa2 $ 7,145 $ 7,538
TOTAL CONVERTIBLE BONDS 208,015
NONCONVERTIBLE BONDS - 0.9%
AEROSPACE & DEFENSE - 0.1%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 2,217 2,428
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
NL Industries, Inc. 0%, 10/15/05 (j) B2 4,980 3,754
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Lear Seating Corp. 8 1/4%, 2/1/02 B2 960 941
ENERGY - 0.1%
OIL & GAS - 0.1%
Wainoco Oil Corp. 12%, 8/1/02 B1 2,490 2,484
FINANCE - 0.0%
INSURANCE - 0.0%
American Life Holdings 11 1/4%, 9/15/04 B1 996 1,043
MEDIA & LEISURE - 0.2%
LODGING & GAMING - 0.2%
Stratosphere Corp. 14 1/4%, 5/15/02 B2 4,510 4,814
NONDURABLES - 0.3%
FOODS - 0.0%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 996 1,008
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - CONTINUED
HOUSEHOLD PRODUCTS - 0.3%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 $ 3,905 $ 4,012
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 5,450 4,060
8,072
TOTAL NONDURABLES 9,080
RETAIL & WHOLESALE - 0.0%
DRUG STORES - 0.0%
Thrifty Payless, Inc. 12 1/4%, 4/15/04 B3 563 602
GROCERY STORES - 0.0%
Pathmark Stores, Inc. 0%, 11/1/03 (j) B3 990 639
TOTAL RETAIL & WHOLESALE 1,241
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
US Air, Inc.:
9 5/8%, 2/1/01 B3 488 434
10%, 7/1/03 B3 1,510 1,333
1,767
UTILITIES - 0.0%
CELLULAR - 0.0%
Paging Network, Inc. 8 7/8%, 2/1/06 B2 990 983
TOTAL NONCONVERTIBLE BONDS 28,535
TOTAL CORPORATE BONDS
(Cost $233,669) 236,550
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 44.8%
MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (E) (000S) (000S)
U.S. TREASURY OBLIGATIONS - 44.7%
7 1/4%, 11/15/96 Aaa $ 109,660 $ 111,442
6 1/2%, 5/15/97 Aaa 44,000 44,557
8 1/2%, 5/15/97 (f) Aaa 124,626 129,844
5 7/8%, 7/31/97 Aaa 170,110 170,775
7 3/4%, 12/31/99 Aaa 93,130 99,722
8 1/8%, 8/15/19 (f) Aaa 442,512 532,674
7 5/8%, 2/15/25 Aaa 98,760 114,654
6 7/8%, 8/15/25 Aaa 244,160 262,052
U.S. Treasury Bills, yields at date of purchase
5.24% to 5.39%, 12/7/95 Aaa 36,020 35,838
1,501,558
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.1%
State of Israel (guaranteed by U.S. government
through Agency for International
Development) 7 3/4%, 11/15/99 Aaa 2,660 2,819
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $1,461,725) 1,504,377
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.0%
Mexico Value Recovery (a) - 1 -
Province of Chaco, Argentina
11 7/8%, 9/10/97 (c) - 533 549
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $559) 549
REPURCHASE AGREEMENTS - 6.2%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88%, dated
10/31/95 due 11/1/95 $ 209,093 209,059
PURCHASED OPTIONS - 0.6%
UNDERLYING FACE VALUE
EXPIRATION DATE/ AMOUNT AT VALUE (NOTE 1)
STRIKE PRICE (000S) (000S)
225,000 J. Aron and Co. OTC Put Options
on Japanese Yen Mar. 96/93.10 $ 229,624 $ 17,280
46,000 Swiss Bank Corp. OTC Put Options
on Japanese Yen Mar. 96/93.58 49,945 3,376
97,170 Goldman Sachs and Co. OTC
Put Options on U.S. Treasury bonds,
7 5/8%, 2/15/25 Nov. 95/112.25 112,687 121
97,170 Goldman Sachs and Co. OTC
Put Options on U.S. Treasury bonds,
7 5/8%, 2/15/25 Nov. 95/113.75 112,687 356
TOTAL PURCHASED OPTIONS
(Cost $16,307) 21,133
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,285,828) $ 3,357,652
SECURITIES SOLD SHORT
AMOUNTS IN THOUSANDS
NUMBER OF SHARES ISSUER VALUE
341 Aspect Telecommunication Corp. $ 11,729
83 Barnett Banks, Inc. 4,566
910 Carnival Corporation Class A 21,158
87 Compania de Telefonos de Chile sponsored ADR 6,271
190 First Data Corp. 12,584
63 General Instrument Corp. 1,201
197 Investor AB Free shares 7,032
167 Omnicare, Inc. 6,039
276 Orbital Sciences Corp. 3,933
278 Trimas Corp. 5,777
253 Wendy's International, Inc. 5,030
TOTAL SECURITIES SOLD SHORT
(Total proceeds $73,680) $ 85,320
THE VALUE OF SECURITIES SOLD SHORT AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 2.5%
FUTURES CONTRACTS
AMOUNTS IN THOUSANDS EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
1,154 Midcap 400 Stock Index
Futures Contracts December, 1995 $ 121,459 $ (4,975)
477 S&P 500 Stock Index
Futures Contracts December, 1995 $ 139,248 (897)
$ (5,872)
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 7.8%
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
JPY - Japanese yen
SEK - Swedish krona
LEGEND
1. Non-income producing
2. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $35,142,000 or 1.0% of net
assets.
3. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Province of Chaco, Argentina
11 7/8%, 9/10/97 3/9/94 $ 559
4. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
5. Principal amount is stated in United States dollars unless otherwise
noted.
6. A portion of the security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $12,614,000.
7. 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 $89,506,000.
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.
9. Purchased on an installment basis. Market value reflects only those
payments made through October 31, 1995. The remaining installments
aggregating CAD 79,454,000 are due July 31, 1996 and January 31, 1997.
10. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
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 45.3% AAA, AA, A 39.8%
Baa 2.1% BBB 1.4%
Ba 0.3% BB 0.3%
B 1.6% B 1.1%
Caa 0.0% 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 1.1%. FMR has determined that unrated
debt securities that are lower quality account for 1.1% of the total value
of investment in securities.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 79.8%
Japan 9.8
Canada 4.5
Australia 1.8
Others (individually less than 1%) 4.1
TOTAL 100.0%
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $3,291,770,000. Net unrealized appreciation aggregated
$65,882,000, of which $153,807,000 related to appreciated investment
securities and $87,925,000 related to depreciated investment securities.
The fund hereby designates $1,150,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 3,357,652
agreements of $209,059) (cost $3,285,828) - See
accompanying schedule
Securities sold short, at value (proceeds received $73,680) (85,320) $ 3,272,332
Restricted cash on securities sold short 73,680
Receivable for investments sold 117,559
Receivable for fund shares sold 5,781
Dividends receivable 3,488
Interest receivable 31,455
Other receivables 10
Prepaid expenses 12
TOTAL ASSETS 3,504,317
LIABILITIES
Payable to custodian bank 1,933
Payable for investments purchased 44,017
Payable for fund shares redeemed 9,361
Accrued management fee 1,471
Distribution fees payable 1,886
Payable for daily variation on futures contracts 1,228
Other payables and accrued expenses 2,287
TOTAL LIABILITIES 62,183
NET ASSETS $ 3,442,134
Net Assets consist of:
Paid in capital $ 3,354,675
Undistributed net investment income 27,758
Accumulated undistributed net realized gain (loss) on investments 4,318
and foreign currency transactions
Net unrealized appreciation (depreciation) on investments and 55,383
assets and liabilities in foreign currencies
NET ASSETS $ 3,442,134
CALCULATION OF MAXIMUM OFFERING PRICE $15.30
CLASS A:
NET ASSET VALUE, and redemption price per share
($3,441,141 (divided by) 224,858 shares)
Maximum offering price per share (100/95.25 of $15.30) $16.06
INSTITUTIONAL CLASS: $15.40
NET ASSET VALUE, offering price and redemption price per share
($993 (divided by) 64.5 shares)
</TABLE>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 28,010
Dividends
Interest 155,803
TOTAL INCOME 183,813
EXPENSES
Management fee $ 17,383
Transfer agent fees 6,667
Class A
Institutional Class 1
Distribution fees - Class A 21,914
Accounting fees and expenses 758
Non-interested trustees' compensation 28
Custodian fees and expenses 342
Registration fees 161
Class A
Institutional Class 14
Audit 61
Legal 60
Reports to shareholders 21
Dividends on securities sold short 2,020
<TABLE>
<CAPTION>
<S> <C> <C>
Miscellaneous 255
Total expenses before reductions 49,685
Expense reductions (466) 49,219
NET INVESTMENT INCOME 134,594
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized gain (loss) of $656 17,679
on sales of investment in affiliated issues)
Foreign currency transactions (13,029)
Futures contracts 45,326
Short sales (11,994) 37,982
Change in net unrealized appreciation (depreciation) on:
Investment securities 89,961
Assets and liabilities in foreign currencies 15,855
Futures contracts (9,187)
Short sales (6,153) 90,476
NET GAIN (LOSS) 128,458
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 263,052
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 134,594 $ 96,897
Net investment income
Net realized gain (loss) 37,982 (77,188)
Change in net unrealized appreciation (depreciation) 90,476 (102,068)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 263,052 (82,359)
FROM OPERATIONS
Distributions to shareholders (112,646) (40,466)
From net investment income
Class A
Institutional Class (70) -
In excess of net investment income - Class A - (3,288)
From net realized gain - Class A - (56,730)
Return of capital - Class A (Note 1) - (6,785)
TOTAL DISTRIBUTIONS (112,716) (107,269)
Share transactions - net increase (decrease) 163,022 1,664,280
TOTAL INCREASE (DECREASE) IN NET ASSETS 313,358 1,474,652
NET ASSETS
Beginning of period 3,128,776 1,654,124
End of period (including undistributed net investment $ 3,442,134 $ 3,128,776
income of $27,758 and $6,656, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 14.67 $ 15.91 $ 14.41 $ 14.13 $ 10.41
of period
Income from Investment
Operations
Net investment income .59 .38 .48 .50 .51
Net realized and unrealized .54 (.79) 2.18 .85 3.74
gain (loss)
Total from investment 1.13 (.41) 2.66 1.35 4.25
operations
Less Distributions
From net investment income (.50) (.28) (.56) (.46) (.53)
In excess of net - (.02) - - -
investment income
From net realized gain - (.49) (.60) (.61) -
Return of capital - (.04) - - -
Total distributions (.50) (.83) (1.16) (1.07) (.53)
Net asset value, end of period $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13
TOTAL RETURN A, B 7.85% (2.69) 19.66% 10.27% 41.73%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 3,441 $ 3,129 $ 1,654 $ 398 $ 136
(in millions)
Ratio of expenses to average 1.47% 1.59% 1.52% 1.60% 1.71%
net assets
Ratio of expenses to average net 1.46% 1.58% 1.51% 1.60% 1.71%
assets after expense
reductions
Ratio of net investment income 3.99% 3.79% 3.24% 3.97% 4.19%
to average net assets
Portfolio turnover 297% 202% 200% 389% 220%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
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 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED
OCTOBER 31,
1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.23
Income from Investment Operations
Net investment income .25
Net realized and unrealized gain (loss) .09
Total from investment operations .34
Less Distributions
From net investment income (.17)
Net asset value, end of period $ 15.40
TOTAL RETURN B, C 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 993
Ratio of expenses to average net assets .92% A,
D
Ratio of expenses to average net assets after expense reductions .91% A
Ratio of net investment income to average net assets 4.54% A
Portfolio turnover 297%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE INSTITUTIONAL CLASS'
EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE
RATIO WOULD HAVE BEEN HIGHER.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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 following
summarizes the significant accounting policies of the fund:
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 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 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 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, which 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,
passive foreign investment companies (PFIC), 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.
For the period ended October 31, 1994, 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 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 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.
2. OPERATING POLICIES - CONTINUED
SHORT SALES AGAINST THE BOX - CONTINUED
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. Futures contracts involve, to varying degrees, risk
of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities. The underlying face amount at value is
shown in the schedule of investments under the captions "Purchased
Options" and "Futures Contracts". 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 $549,000 or 0.0%
of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $8,706,238,000 and $7,812,595,000, respectively, of which U.S.
government and government agency obligations aggregated $3,594,258,000 and
$2,651,361,000, respectively.
The market value of futures contracts opened and closed during the period
amounted to $2,503,822,000 and $2,452,648,000, 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 .2700% 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 annual 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. This fee is based on an annual rate of .65%
of the average net assets of Class A. For the period, the fund paid FDC
$21,914,000 under the Class A Plan, of which $16,749,000 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $10,071,000 on sales of Class A shares of the fund, of which
$8,397,000 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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. During the period November 1, 1994 to December
31, 1994, State Street received fees based on the type, size, number of
accounts and the number of transactions made by shareholders. Effective
January 1, 1995, the Board of Trustees approved a revised transfer agent
contract pursuant to which 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.
ACCOUNTING FEES. Fidelity Service Co., an affiliate of FMR, maintains the
fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $2,372,000 for the period.
5. EXPENSE REDUCTIONS.
Effective October 30, 1995, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of 1.90% and 1.25% of average
net assets for Class A and Institutional Class, respectively. For the
period, the reimbursement reduced expenses by $12,000 for Institutional
Class.
For the period, 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 $454,000 under this arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares was as follows:
SHARE TRANSACTIONS
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31,
OCTOBER 31, OCTOBER 31,
1995 A 1994 1995 A 1994
AMOUNTS IN THOUSANDS
CLASS A
Shares sold 65,838 139,531 $ 973,364 $ 2,113,111
Reinvestment of distributions 7,001 6,294 103,985 95,269
Shares redeemed (61,310) (36,474) (915,254) (544,100)
Net increase (decrease) 11,529 109,351 $ 162,095 $ 1,664,280
INSTITUTIONAL CLASS
Shares sold 473.6 - $ 7,256 $ -
Reinvestment of distributions 4.3 - 67 -
Shares redeemed (413.4) - (6,396) -
Net increase (decrease) 64.5 - $ 927 $ -
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
DOLLAR AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND MARKET
AFFILIATE COST COST INCOME VALUE
Montupet SA $ - $ 663 $ - $ -
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 October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A)and the period July 3, 1995 (commencement of
sale of Institutional Class shares) 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 October 31, 1995 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
October 31, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended (Class A) and the period July 3, 1995 (commencement of
sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Income & Growth Fund voted to pay
shareholders of record at the opening of business on record date, the
following distributions derived from capital gains realized from sales of
portfolio securities, and dividends derived from net investment income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Class A 12/11/95 12/8/95 $ .23 $ .03
Institutional Class 12/11/95 12/8/95 $ .25 $ .03
A total of 41.4% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
A total of 29% of the dividends distributed during the fiscal year
qualifies for the dividends-received deductions for corporate shareholders.
The fund will notify shareholders in January 1996 of these percentages for
use in preparing 1995 income tax returns.
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
Robert Haber, 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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York
Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 20 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 25 Notes to the financial statements.
REPORT OF INDEPENDENT 31 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 32
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 the markets have been fairly positive this year, no one can
predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
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, as we witnessed last year. 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 fund's total return
includes changes in a fund's 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).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Class A 22.88% 207.40% 357.17%
Advisor Growth Opportunities - Class A
(incl. max. 4.75% sales charge) 17.04% 192.80% 335.45%
S&P 500(registered trademark) 26.44% 121.65% 207.70%
Average Growth Fund 22.14% 125.83% n/a
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, 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 Composite Index of 500 Stocks - 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 average growth fund, which reflects
the performance of 558 growth funds with similar objectives tracked by
Lipper Analytical Services over the past 12 months. Both benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Class A 22.88% 25.18% 21.04%
Advisor Growth Opportunities - Class A
(incl. max. 4.75% sales charge) 17.04% 23.97% 20.30%
S&P 500 26.44% 17.26% 15.17%
Average Growth Fund 22.14% 17.24% 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. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking the arithmetic
average. This may produce a slightly different figure than that obtained by
averaging the cumulative total returns and annualizing the result.)
$10,000 OVER LIFE OF FUND
$43,545
$30,770
$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 maximum 4.75% sales charge. As the chart shows,
by October 31, 1995, the value of your investment would have grown to
$43,545 - a 335.45% 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 $30,770 - a
207.70% 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
MARKET RECAP
Strong corporate earnings and a
favorable interest rate
environment helped the U.S.
stock market post robust returns
for the 12 months ended October
31, 1995. The Standard & Poor's
Composite Index of 500 Stocks
finished the 12-month period with
a total return of 26.44% - well
above its historical annual
average of roughly 12%. With
inflation posing little threat,
interest rates fell during the first
half of 1995. The Federal Reserve
Board cut the federal funds rate -
the rate banks charge each other
for overnight loans - by 0.25% on
July 6 to 5.75%.
Large-capitalization stocks led the
rally. Technology companies -
whose goods and services
benefited from both corporate and
consumer demand - posted the
strongest earnings growth and
stock price gains. Lower interest
rates and continued merger and
acquisition activity helped
financial stocks perform especially
well. In June, the Dow Jones
Industrial Average closed above
4500 for the first time. Returns
from foreign markets suffered as
investors brought capital back to
the U.S. The Morgan Stanley
Emerging Markets Free Index was
down 19.43% for the 12 months
ended October 31, 1995. The
Morgan Stanley EAFE (Europe,
Australia, Far East) Index was
down 0.37% for the year ended
October 31, 1995. European
markets have fared well through
the first 10 months of 1995, while
the Japanese market has
struggled through much of the
year.
An interview with George A. Vanderheiden, Portfolio Manager of Fidelity
Advisor Growth Opportunities Fund
Q. HOW DID THE FUND PERFORM, GEORGE?
A. For the 12 months ended October 31, 1995, Fidelity Advisor Growth
Opportunities - Class A was up 22.88% while the average growth fund
returned 22.14% for the same time period, according to Lipper Analytical
Services.
Q. HOW DO YOU EXPLAIN THE FUND'S PERFORMANCE DURING THE PAST SIX MONTHS?
A. At the risk of oversimplifying, much of the return in the market over
the past year came from the phenomenal performance of the technology
sector. The semiconductor group was up 96% in the past 12 months and other
technology sectors also had spectacular gains. These were on top of
impressive gains in 1992 and 1993. Although I generally find technology
stocks attractive, I have not made the weighting as large as some other
growth funds because of my risk-adverse discipline. My investment approach
over the past 15 years has been to try to identify and invest in themes and
trends early and stay with them as long as I feel comfortable. When they
become very extended, I begin to sell. Sometimes I may sell too early and
the stocks may continue to make spectacular gains, but I'm willing to
sacrifice that if I feel as though bone-crushing declines are on the other
side of those gains.
Q. HOW HAS THIS STRATEGY WORKED IN THE PAST?
A. Very well. If the groups that were sold keep going up, the fund
underperforms. However, when the group corrects, I'm protected by being
either out of the sector entirely, or being underweighted. The last time
the fund lagged the latter stages of a bull market was in 1989, when the
fund was five or six percentage points behind the S&P 500. Over the next
five years, however, the fund beat the market by a wide margin, not once
underperforming in any year. So while the fund may not show some of the
spectacular gains of other growth funds this year - it's lagging the S&P's
26.44% 12-month return by 3.56% - the risk level going into the inevitable
correction is also less.
Q. WHAT INVESTMENTS CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE
PERIOD?
A. The fund was modestly overweighted in technology and holdings in Intel,
Compaq, IBM, Microsoft, Solectron, Hewlett Packard, and SCI Systems helped
the fund. Another important area were financial stocks, which benefited
from the decline in long-term interest rates. The mortgage related sector,
including the fund's holdings of Fannie Mae and Freddie Mac, was up 30%
during the past 12 months. The banks, in which the fund has important
holdings in the regionals and money centers, were up in excess of 30%.
Aerospace and defense was also very strong with a gain of 47%. This group
was represented by the fund's holdings in Boeing, Raytheon and Loral.
Philip Morris, the second largest position in the fund, also had a good
year with a gain in excess of 36%.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. The two fundamental factors driving this bull market since it started in
October 1990 have been rising earnings and falling interest rates. Treasury
bonds were yielding 9% when this bull move started five years ago. At the
current level of 6.5%, I think yields still have room to move lower given
the sluggish domestic and international economies and the current low
inflation rates. This is bullish for equities, especially interest
rate-sensitive stocks. The outlook for earnings, however, is not as
hopeful. The past five years have seen one of the strongest earnings gains
in the post World War II period. However, profit margins and return on
equity are back to record levels and industrial capacity is being added so
rapidly that it is forcing down operating rates. This means that profit
margins should contract and earnings growth should come to a screeching
halt by the first quarter of 1996. My opinion is that the economic slowdown
will last into the first quarter of 1996, the earnings slowdown will last
longer and that the market will show no net gain over the next six months.
I expect growth to resume in the second half of 1996. As always, remember
that it is a market of stocks rather than a stock market and all of our
resources at Fidelity are geared to finding and investing in the best
stocks for whatever market lies ahead.
FUND FACTS
GOAL: to increase the value
of the fund's shares by
investing primarily in
common stocks with
long-term growth potential
START DATE: November 18,
1987
SIZE: as of October 31, 1995,
more than $9.7 billion
MANAGER: George
Vanderheiden, since 1987;
also manages Destiny I and
Destiny II funds; joined
Fidelity in 1971
(checkmark)
GEORGE VANDERHEIDEN ON
RECENT ACTIVITY IN THE TREASURY
BOND MARKET:
"The move in bonds has been
spectacular this year, but the
equity market put on a better
show. Since the beginning of
1995, Treasury bonds
returned 21% on a total return
basis while the S&P 500
returned 29.30%
year-to-date. Looking
forward, bonds should
continue to benefit from a
slowing economy. The three
pillars of this economy over
the past year have been
inventory accumulation, capital
spending, and the export
market, and each of these
sectors is now in a slowing
mode. This is positive for
inflation, for further declines in
long term interest rates and
for a healthy bond market.
(solid bullet) The fund's long-term bond
holdings increased from
8.9% six months ago to
13.5% as of October 31,
1995.
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.
INVESTMENT CHANGES
TOP TEN STOCKS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Federal National Mortgage Association 5.4 5.2
Philip Morris Companies, Inc. 4.8 3.7
Compaq Computer Corp. 3.9 3.3
Intel Corp. 3.7 4.0
General Motors Corp. 3.5 3.4
Chrysler Corp. 2.4 2.5
Vodafone Group PLC sponsored ADR 2.3 2.1
Fleet Financial Group, Inc. 1.8 2.0
International Business Machines Corp. 1.4 2.4
Columbia/HCA Healthcare Corp. 1.2 0.9
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 16.2 16.3
Technology 15.2 14.9
Durables 8.2 7.5
Nondurables 6.0 5.0
Utilities 5.7 7.0
ASSET ALLOCATION
AS OF OCTOBER 31, 1995* AS OF APRIL 30, 1995**
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
Row: 1, Col: 1, Value: 12.3
Row: 1, Col: 2, Value: 8.9
Row: 1, Col: 3, Value: 28.8
Row: 1, Col: 4, Value: 50.0
Stocks 74.0%
Bonds 13.5%
Short-term
investments 12.5%
FOREIGN
INVESTMENTS 7.8%
Stocks 78.8%
Bonds 8.9%
Short-term
investments 12.3%
FOREIGN
INVESTMENTS 4.6%
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investments in Securities
COMMON STOCKS - 74.0%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.5%
AEROSPACE & DEFENSE - 0.7%
Boeing Co. 1,034,400 $ 67,881
CAE, Inc. 391,100 2,763
70,644
DEFENSE ELECTRONICS - 0.8%
Loral Corp. 622,200 18,433
Raytheon Co. 1,302,400 56,817
75,250
TOTAL AEROSPACE & DEFENSE 145,894
BASIC INDUSTRIES - 2.1%
CHEMICALS & PLASTICS - 0.9%
Betz Laboratories, Inc. 73,600 2,962
Carbide/Graphite Group, Inc. (a) 5,900 78
du Pont (E.I.) de Nemours & Co. 19,900 1,241
Raychem Corp. 1,383,400 64,155
Union Carbide Corp. 512,300 19,403
87,839
IRON & STEEL - 0.1%
Nucor Corp. 193,400 9,307
METALS & MINING - 0.6%
Aluminum Co. of America 242,700 12,378
Reynolds Metals Co. 868,173 43,734
56,112
PACKAGING & CONTAINERS - 0.5%
Corning, Inc. 359,100 9,381
Owens-Illinois, Inc. (a) 2,882,900 36,397
45,778
TOTAL BASIC INDUSTRIES 199,036
CONSTRUCTION & REAL ESTATE - 1.8%
BUILDING MATERIALS - 0.6%
Armstrong World Industries, Inc. 598,100 35,512
Masco Corp. 443,900 12,485
Tecumseh Products Co. Class A 229,100 10,768
58,765
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 0.9%
Beazer Homes USA, Inc. (a)(b) 717,800 $ 12,562
Centex Corp. 164,800 5,397
Daito Trust Construction 675,700 5,959
Kaufman & Broad Home Corp. (b) 1,833,300 21,312
Ryland Group, Inc. 718,700 10,511
Schuler Homes, Inc. (a) 416,500 4,946
Sekisui House Ltd. 755,000 8,730
Toll Brothers, Inc. (a) 134,900 2,411
U.S. Home Corp. (a) 431,300 11,591
83,419
ENGINEERING - 0.3%
Fluor Corp. 593,200 33,516
TOTAL CONSTRUCTION & REAL ESTATE 175,700
DURABLES - 8.2%
AUTOS, TIRES, & ACCESSORIES - 7.4%
Chrysler Corp. 4,519,600 233,324
Cummins Engine Co., Inc. 43,900 1,542
Dana Corp. 813,600 20,849
Discount Auto Parts, Inc. (a) 403,600 10,796
General Motors Corp. 7,703,039 337,008
Gentex Corp. (a) 517,100 11,505
Magna International, Inc. Class A 1,775,900 77,270
Superior Industries International, Inc. 885,300 24,899
717,193
CONSUMER ELECTRONICS - 0.5%
Black & Decker Corp. 248,400 8,415
Matsushita Electric Industrial Co. Ltd. 1,406,000 19,976
Whirlpool Corp. 477,400 25,302
53,693
HOME FURNISHINGS - 0.1%
Haverty Furniture Companies, Inc. (b) 556,400 7,720
TEXTILES & APPAREL - 0.2%
Burlington Industries, Inc. (a) 1,597,400 17,771
Fruit of the Loom, Inc. Class A (a) 166,200 2,888
20,659
TOTAL DURABLES 799,265
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 4.2%
ENERGY SERVICES - 0.3%
Baker Hughes, Inc. 362,400 $ 7,112
Dresser Industries, Inc. 78,500 1,629
Schlumberger Ltd. 402,400 25,049
33,790
OIL & GAS - 3.9%
Amerada Hess Corp. 613,300 27,675
Amoco Corp. 273,500 17,470
Apache Corp. 224,000 5,712
Atlantic Richfield Co. 503,400 53,738
British Petroleum PLC ADR 1,012,843 89,383
Burlington Resources, Inc. 1,137,500 40,950
Canada Occidental Petroleum Ltd. 366,700 10,773
Elf Aquitaine sponsored ADR 186,747 6,303
Kerr-McGee Corp. 206,900 11,405
Louisiana Land & Exploration Co. 770,100 27,242
Mobil Corp. 50,000 5,038
Murphy Oil Corp. 76,600 2,901
Noble Affiliates, Inc. 262,100 6,487
Pennzoil Co. 123,200 4,651
Santa Fe Energy Resources, Inc. (a) 666,700 5,917
Texaco, Inc. 93,600 6,377
Tosco Corp. 694,900 23,974
Union Pacific Resources Group, Inc. (a) 210,000 4,778
Unocal Corp. 949,052 24,913
375,687
TOTAL ENERGY 409,477
FINANCE - 16.2%
BANKS - 5.5%
AmSouth Bancorporation 1,093,500 43,603
Bank of Boston Corp. 336,765 14,986
Bank of New York Co., Inc. 21,300 895
Barnett Banks, Inc. 472,900 26,128
BayBanks, Inc. 203,600 16,492
Chemical Banking Corp. 758,500 43,140
Comerica, Inc. 198,400 6,671
First Interstate Bancorp 177,500 22,898
Fleet Financial Group, Inc. 4,507,645 174,671
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
BANKS - CONTINUED
KeyCorp. 572,466 $ 19,321
NationsBank Corp. 665,025 43,725
Shawmut National Corp. 3,187,139 107,964
State Street Boston Corp. 311,600 12,113
532,607
FEDERAL SPONSORED CREDIT - 6.4%
Federal Home Loan Mortgage Corporation 1,451,400 100,509
Federal National Mortgage Association 4,999,180 524,289
624,798
INSURANCE - 2.1%
Allmerica Financial Corp. (a) 506,100 12,716
Allstate Corp. 2,228,682 81,904
American International Group, Inc. 180,750 15,251
CIGNA Corp. 61,100 6,057
Chubb Corp. (The) 9,900 890
General Re Corp. 383,100 55,502
Providian Corp. 443,000 17,388
Prudential Reinsurance Holdings, Inc. (a) 118,600 2,416
Torchmark Corp. 402,900 16,720
208,844
SAVINGS & LOANS - 0.5%
Ahmanson (H.F.) & Co. 716,000 17,900
Golden West Financial Corp. 562,340 28,187
46,087
SECURITIES INDUSTRY - 1.7%
Donaldson Lufkin & Jenrette, Inc. 10,600 315
Merrill Lynch & Co., Inc. 612,500 33,994
Morgan Stanley Group, Inc. 313,100 27,240
Nomura Securities Co. Ltd. 3,118,000 57,133
United Asset Management Corp. 1,319,500 47,832
166,514
TOTAL FINANCE 1,578,850
HEALTH - 2.2%
DRUGS & PHARMACEUTICALS - 0.5%
Carter-Wallace, Inc. 370,600 3,891
Pharmacia AB:
Series A sponsored ADR 402,000 14,070
Class A Free shares 354,500 12,353
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Schering-Plough Corp. 259,100 $ 13,894
44,208
MEDICAL EQUIPMENT & SUPPLIES - 0.3%
Acuson Corp. (a) 133,400 1,551
Baxter International, Inc. 616,200 23,801
25,352
MEDICAL FACILITIES MANAGEMENT - 1.4%
American Medical Response (a) 755,300 21,809
Columbia/HCA Healthcare Corp. 2,401,422 117,970
Total Renal Care Holdings 14,600 226
140,005
TOTAL HEALTH 209,565
HOLDING COMPANIES - 0.2%
U.S. Industries, Inc.(a) 990,800 14,862
INDUSTRIAL MACHINERY & EQUIPMENT - 2.6%
ELECTRICAL EQUIPMENT - 0.9%
Cherry Corp. (a)(b):
Class A 537,300 6,716
Class B 368,300 4,696
Emerson Electric Co. 120,500 8,586
General Electric Co. 339,000 21,442
Mitsubishi Electric Co. Ord. 5,564,000 41,653
Omron Corp. 406,000 9,508
92,601
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
Caterpillar, Inc. 1,183,900 66,446
Deere & Co. 964,400 86,193
Exide Corp. 209,900 9,209
161,848
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 254,449
MEDIA & LEISURE - 1.7%
BROADCASTING - 0.1%
Liberty Media Group, Series A (a) 33,975 837
People's Choice TV Corp. (a) 56,400 1,170
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
TCI Group Class A 276,800 $ 4,706
Wireless One, Inc. 200 2
6,715
ENTERTAINMENT - 0.3%
Royal Caribbean Cruises Ltd. 1,244,900 28,633
LEISURE DURABLES & TOYS - 0.5%
Fleetwood Enterprises, Inc. 2,075,600 42,550
Outboard Marine Corp. 523,500 10,863
53,413
LODGING & GAMING - 0.4%
Circus Circus Enterprises, Inc. (a) 1,284,200 34,192
PUBLISHING - 0.0%
American Media, Inc. Class A 104,100 507
Gannett Co., Inc. 68,200 3,708
4,215
RESTAURANTS - 0.4%
Bertucci's, Inc. (a)(b) 666,100 3,997
Brinker International, Inc. (a) 445,500 5,402
Cracker Barrel Old Country Store, Inc. 108,800 1,850
Darden Restaurants, Inc. 538,200 6,122
McDonald's Corp. 496,200 20,344
37,715
TOTAL MEDIA & LEISURE 164,883
NONDURABLES - 6.0%
BEVERAGES - 0.2%
Kirin Brewery Co. Ltd. 1,850,000 18,671
HOUSEHOLD PRODUCTS - 0.2%
Kao Corp. 1,068,000 12,977
Tambrands, Inc. 193,300 8,650
21,627
TOBACCO - 5.6%
Philip Morris Companies, Inc. 5,488,400 463,770
RJR Nabisco Holdings Corp. 2,558,260 78,666
542,436
TOTAL NONDURABLES 582,734
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
PRECIOUS METALS - 0.1%
Homestake Mining Co. 168,200 $ 2,586
Santa Fe Pacific Gold Corp. 923,672 9,121
11,707
RETAIL & WHOLESALE - 4.6%
APPAREL STORES - 0.2%
TJX Companies, Inc. 1,111,300 15,003
GENERAL MERCHANDISE STORES - 2.0%
Aoyama Trading Co. Ord. 549,700 14,866
Federated Department Stores, Inc. (a) 2,879,313 73,063
Value City Department Stores, Inc. (a) 393,100 2,359
Wal-Mart Stores, Inc. 4,907,300 106,120
196,408
GROCERY STORES - 0.0%
Stop & Shop Companies, Inc. (a) 123,300 2,558
RETAIL & WHOLESALE, MISCELLANEOUS - 2.4%
Best Buy Co., Inc. (a) 13,700 284
Circuit City Stores, Inc. 2,576,700 85,997
Good Guys, Inc. (a)(b) 890,100 9,235
Home Depot, Inc. (The) 1,320,500 49,189
Lowe's Companies, Inc. 1,253,400 33,842
Officemax, Inc. (a) 954,950 23,635
Office Depot, Inc. (a) 463,200 13,259
Petsmart, Inc. (a) 253,900 8,506
Rex Stores Corp. (a)(b) 567,500 9,648
Staples, Inc. (a) 132,600 3,530
237,125
TOTAL RETAIL & WHOLESALE 451,094
SERVICES - 0.0%
Supercuts, Inc. (a) 329,100 2,468
TECHNOLOGY - 15.2%
COMMUNICATIONS EQUIPMENT - 0.6%
Cisco Systems, Inc. (a) 736,400 57,071
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 1.0%
Automatic Data Processing, Inc. 194,800 $ 13,928
Cooper & Cheyan Technology 7,800 86
DST Systems, Inc. 53,100 1,115
Enterprise Systems, Inc. 5,600 131
General Motors Corp. Class E 124,700 5,876
Micro Age, Inc. (a) 366,500 3,069
Microsoft Corp. (a) 663,600 66,360
Novell, Inc. (a) 618,600 10,207
100,772
COMPUTERS & OFFICE EQUIPMENT - 8.1%
Bay Networks, Inc. (a) 461,900 30,601
Canon, Inc. 1,743,000 29,888
Compaq Computer Corp. (a) 6,845,600 381,642
Digital Equipment Corp. (a) 771,900 41,779
Hewlett-Packard Co. 855,900 79,278
International Business Machines Corp. 1,426,300 138,708
SCI Systems, Inc. (a) 666,900 23,425
Silicon Graphics, Inc. (a) 167,400 5,566
Sun Microsystems, Inc. (a) 344,600 26,879
Tech Data Corp. (a) 1,636,600 19,844
Xerox Corp. 54,300 7,045
784,655
ELECTRONIC INSTRUMENTS - 0.0%
Quad Systems Corp. (a)(b) 300,100 2,476
ELECTRONICS - 5.5%
Hitachi Ltd. 4,883,000 50,239
Intel Corp. 5,186,600 362,414
Kyocera Corp. 86,000 7,062
Methode Electronics, Inc. Class A 461,400 7,075
Molex, Inc. 80,000 2,460
Nitto Denko Corp. 1,170,000 18,687
Rohm Co. Ltd. 53,000 3,225
Solectron Corp. (a) 1,999,800 80,492
Speedfam International, Inc. (a) 14,900 244
531,898
TOTAL TECHNOLOGY 1,476,872
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 1.7%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 229,900 $ 4,598
RAILROADS - 1.6%
Burlington Northern Sante Fe Corp. 482,700 40,486
CSX Corp. 873,800 73,181
Southern Pacific Rail Corp. (a) 1,830,793 40,735
154,402
TRUCKING & FREIGHT - 0.1%
Roadway Services, Inc. 144,700 6,475
TOTAL TRANSPORTATION 165,475
UTILITIES - 5.7%
CELLULAR - 2.7%
AirTouch Communications, Inc. (a) 1,183,500 33,730
Vodafone Group PLC sponsored ADR 5,534,200 226,210
259,940
ELECTRIC UTILITY - 0.1%
Southern Co. 282,500 6,745
GAS - 0.0%
Seagull Energy Corp. (a) 153,200 2,624
TELEPHONE SERVICES - 2.9%
Ameritech Corp. 1,032,600 55,760
Bell Atlantic Corp. 441,400 28,084
Bell South Corp. 530,000 40,545
NYNEX Corp. 927,400 43,588
SBC Communications, Inc. 1,504,600 84,070
Telefonos de Mexico SA sponsored ADR representing
shares Ord. Class L 1,021,000 28,078
280,125
TOTAL UTILITIES 549,434
TOTAL COMMON STOCKS
(Cost $5,841,119) 7,191,765
U.S. TREASURY OBLIGATIONS - 16.9%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
8 1/8%, 8/15/19 $ 1,090,000 $ 1,312,088
U.S. Treasury Bills, yield at date of purchase
5.41%,11/30/95 332,000 330,685
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,542,066) 1,642,773
REPURCHASE AGREEMENTS - 9.1%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88%, dated
10/31/95 due 11/1/95 $ 886,322 886,177
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $8,269,362) $ 9,720,715
LEGEND
1. Non-income producing
2. Affiliated company (see Note 7 of Notes to Financial Statements).
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $8,272,798,000. Net unrealized appreciation aggregated
$1,447,917,000, of which $1,590,550,000 related to appreciated investment
securities and $142,633,000 related to depreciated investment securities.
The fund hereby designates $7,717,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 9,720,715
agreements of $886,177) (cost $8,269,362) -
See accompanying schedule
Cash 1
Receivable for investments sold 22,453
Receivable for fund shares sold 47,546
Dividends receivable 9,966
Interest receivable 18,486
Other receivables 105
Prepaid expenses 12
TOTAL ASSETS 9,819,284
LIABILITIES
Payable for investments purchased $ 33,032
Payable for fund shares redeemed 9,730
Accrued management fee 5,483
Distribution fees payable 5,141
Other payables and accrued expenses 2,954
TOTAL LIABILITIES 56,340
NET ASSETS $ 9,762,944
Net Assets consist of:
Paid in capital $ 8,084,591
Undistributed net investment income 98,405
Accumulated undistributed net realized gain (loss) on 128,610
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 1,451,338
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 9,762,944
CALCULATION OF MAXIMUM OFFERING PRICE $30.89
CLASS A:
NET ASSET VALUE, and redemption price per share
($9,690,992 (divided by) 313,751 shares)
Maximum offering price per share (100/95.25 of $30.89) $32.43
INSTITUTIONAL CLASS: $30.97
NET ASSET VALUE, offering price and redemption price per
share ($71,952 (divided by) 2,323 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 117,983
Dividends (including $172 received from affiliated
issuers)
Interest 95,560
TOTAL INCOME 213,543
EXPENSES
Management fee $ 41,693
Basic fee
Performance adjustment 5,210
Transfer agent fees 13,820
Class A
Institutional Class 12
Distribution fees - Class A 44,009
Accounting fees and expenses 764
Non-interested trustees' compensation 42
Custodian fees and expenses 181
Registration fees - Class A 1,678
Registration fees - Institutional Class 16
Audit 64
Legal 83
Reports to shareholders 360
Miscellaneous 21
Total expenses before reductions 107,953
Expense reductions (425) 107,528
NET INVESTMENT INCOME 106,015
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized loss of $2,909 135,106
on sales of investments in affiliated issuers)
Foreign currency transactions 8,667 143,773
Change in net unrealized appreciation (depreciation) on:
Investment securities 1,249,070
Assets and liabilities in foreign currencies 6 1,249,076
NET GAIN (LOSS) 1,392,849
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,498,864
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 106,015 $ 35,891
Net investment income
Net realized gain (loss) 143,773 216,367
Change in net unrealized appreciation (depreciation) 1,249,076 (846)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,498,864 251,412
FROM OPERATIONS
Distributions to shareholders (49,032) (6,006)
From net investment income - Class A
From net realized gain - Class A (210,650) (72,102)
TOTAL DISTRIBUTIONS (259,682) (78,108)
Share transactions - net increase (decrease) 3,925,094 2,370,376
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,164,276 2,543,680
NET ASSETS
Beginning of period 4,598,668 2,054,988
End of period (including undistributed net investment $ 9,762,944 $ 4,598,668
income of $98,405 and $34,168, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 26.62 $ 25.39 $ 21.14 $ 20.58 $ 12.99
of period
Income from Investment
Operations
Net investment income .39 .22 .08 .14 .06
Net realized and unrealized 5.31 1.92 5.56 2.04 7.70
gain (loss)
Total from investment 5.70 2.14 5.64 2.18 7.76
operations
Less Distributions
From net investment income (.27) (.07) (.13) (.09) (.17)
From net realized gain (1.16) (.84) (1.26) (1.53) -
Total distributions (1.43) (.91) (1.39) (1.62) (.17)
Net asset value, end of period $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58
TOTAL RETURN A, B 22.88% 8.71% 28.11% 12.09% 60.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 9,691 $ 4,599 $ 2,055 $ 581 $ 213
(in millions)
Ratio of expenses to average 1.59% 1.63% 1.65% 1.60% 1.73%
net assets
Ratio of expenses to average net 1.58% 1.62% 1.64% 1.60% 1.73%
assets after expense
reductions
Ratio of net investment income 1.56% 1.12% .43% .80% .47%
to average net assets
Portfolio turnover 39% 43% 69% 94% 142%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED
OCTOBER 31,
1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 29.04
Income from Investment Operations
Net investment income .12
Net realized and unrealized gain (loss) 1.81
Total from investment operations 1.93
Net asset value, end of period $ 30.97
TOTAL RETURN B, C 6.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 72
Ratio of expenses to average net assets .82% A
Ratio of expenses to average net assets after expense reductions .81% A
Ratio of net investment income to average net assets 2.33% A
Portfolio turnover 39%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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 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.
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES - CONTINUED
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, which 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 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.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $5,400,709,000 and $2,327,055,000, respectively, of which U.S.
government and government agency obligations aggregated $928,171,000 and
$162,544,000, 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 .2700% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. The
basic fee is subject to a
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
performance adjustment (up to a maximum of (plus/minus) .20%) based on the
investment performance of the lowest performing class as compared to the
appropriate index over a specified period of time. The investment
performance is measured separately for each class of shares. For the
period, the management fee was equivalent to an annual rate of .69% 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. This fee is based on an annual rate of .65%
of the average net assets of Class A. For the period, the fund paid FDC
$44,009,000 under the Class A Plan, of which $33,781,000 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $73,545,000 on sales of Class A shares of the fund, of which
$62,086,000 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. During the period November 1, 1994 to December
31, 1994, State Street received fees based on the type, size, number of
accounts and the number of transactions made by the shareholders. Effective
January 1, 1995, the Board of Trustees approved a revised transfer agent
contract pursuant to which 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Co., an affiliate of FMR, maintains the
fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,803,000 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
$425,000 under this arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares was as follows:
SHARE TRANSACTIONS
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31,
OCTOBER 31, OCTOBER 31,
1995 A 1994 1995 A 1994
AMOUNTS IN THOUSANDS
CLASS A
Shares sold 165,240 107,230 $ 4,558,117 $ 2,769,740
Reinvestment of distributions 9,931 2,737 241,029 67,446
Shares redeemed (34,176) (18,134) (944,299) (466,810)
Net increase (decrease) 140,995 91,833 $ 3,854,847 $ 2,370,376
INSTITUTIONAL CLASS
Shares sold 2,367 - $ 71,587 $ -
Reinvestment of distributions - - - -
Shares redeemed (44) - (1,340) -
Net increase (decrease) 2,323 - $ 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 MARKET
AFFILIATE COST COST INCOME VALUE
Beazer Homes USA, Inc. $ 3,310 $ - $ - $ 12,562
Bertucci's, Inc. - - - 3,997
Cherry Corp. Class A - - - 6,716
Cherry Corp. Class B - - - 4,696
Good Guys, Inc. 2,156 - - 9,235
Haverty Furniture Companies, Inc. 1,027 - 42 7,720
Kaufman & Broad Home Corp. 2,824 - 130 21,312
Merisel, Inc. - 10,990 - -
Quad Systems Corp. 740 - - 2,476
Rex Stores Corp. 1,630 - - 9,648
Solectron Corp. 427 803 - -
TOTALS $ 12,114 $ 11,793 $ 172 $ 78,362
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Growth Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Growth Opportunities Fund,
including the schedule of portfolio investments, as of October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A)and the period July 3, 1995 (commencement of
sale of Institutional Class shares) 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 October 31, 1995 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 Growth Opportunities Fund
as of October 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended (Class A)and the period July 3, 1995 (commencement
of sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Growth Opportunities Fund voted
to pay to shareholders of record at the opening of business on record date,
the following distributions derived from capital gains realized from sales
of portfolio securities, and dividends derived from net investment income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Class A 12/11/95 12/8/95 $.41 $.40
Institutional Class 12/11/95 12/8/95 $.61 $.40
A total of 13.2% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
A total of 51% of the dividends distributed during the fiscal year
qualifies for the dividends-received deductions for corporate shareholders.
The fund will notify shareholders in January 1996 of these percentages for
use in preparing 1995 income tax returns.
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.
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 20 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 25 Notes to the financial statements.
REPORT OF INDEPENDENT 31 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 32
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 the markets have been fairly positive this year, no one can
predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
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, as we witnessed last year. 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 fund's total return
includes changes in a fund's 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 0.65% 12b-1 fee.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Institutional Class 23.20% 208.20% 358.35%
S&P 500(registered trademark) 26.44% 121.65% 207.70%
Average Growth Fund 22.14% 125.83% n/a
</TABLE>
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 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 Composite Index of 500 Stocks - 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 average
growth fund, which reflects the performance of 558 growth funds with
similar objectives tracked by Lipper Analytical Services over the past 12
months. Both benchmarks include reinvested dividends and capital gains, if
any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Institutional 23.20% 25.25% 21.08%
Class
S&P 500 26.44% 17.26% 15.17%
Average Growth Fund 22.14% 17.24% 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. (Note: Lipper
calculates average annual total returns by annualizing each fund's total
return, then taking the arithmetic average. This may produce a slightly
different figure than that obtained by averaging the cumulative total
returns and annualizing the result.)
$10,000 OVER LIFE OF FUND
FA Growth Opps Cl I (688) S&P 500
11/18/87 10000.00 10000.00
11/30/87 9420.00 9489.05
12/31/87 10760.00 10211.16
01/31/88 11220.00 10641.05
02/29/88 12490.00 11136.92
03/31/88 12720.00 10792.79
04/30/88 13100.00 10912.59
05/31/88 12980.00 11007.53
06/30/88 14130.00 11512.78
07/31/88 14100.00 11469.03
08/31/88 13620.00 11079.08
09/30/88 14170.00 11551.05
10/31/88 14270.00 11872.17
11/30/88 13810.00 11702.40
12/31/88 14340.64 11907.19
01/31/89 15569.24 12778.80
02/28/89 15272.68 12460.61
03/31/89 15420.96 12750.94
04/30/89 16416.54 13412.71
05/31/89 17518.04 13955.93
06/30/89 16766.06 13876.38
07/31/89 17708.68 15129.41
08/31/89 18365.34 15425.95
09/30/89 18185.29 15362.70
10/31/89 17507.45 15006.29
11/30/89 17623.95 15312.42
12/31/89 17802.80 15679.92
01/31/90 16520.54 14627.79
02/28/90 16921.24 14816.49
03/31/90 17356.29 15209.13
04/30/90 16783.86 14828.90
05/31/90 18787.39 16274.72
06/30/90 18890.43 16164.05
07/31/90 18203.50 16112.33
08/31/90 16199.97 14655.77
09/30/90 14940.61 13942.04
10/31/90 14871.92 13882.08
11/30/90 16451.84 14778.87
12/31/90 17509.61 15191.20
01/31/91 19605.66 15853.53
02/28/91 21365.89 16987.06
03/31/91 21956.49 17398.15
04/30/91 22408.13 17439.90
05/31/91 23635.65 18193.31
06/30/91 21968.07 17360.05
07/31/91 23508.27 18169.03
08/31/91 24423.12 18599.64
09/30/91 23867.26 18289.03
10/31/91 23832.52 18534.10
11/30/91 22419.71 17787.17
12/31/91 24982.85 19822.03
01/31/92 25703.15 19453.34
02/29/92 26865.73 19706.23
03/31/92 25968.52 19321.96
04/30/92 26676.18 19890.02
05/31/92 27055.28 19987.49
06/30/92 26436.08 19689.67
07/31/92 27345.93 20494.98
08/31/92 26587.72 20074.83
09/30/92 26663.54 20311.72
10/31/92 26714.09 20382.81
11/30/92 28003.04 21077.86
12/31/92 28736.79 21337.12
01/31/93 29612.91 21516.35
02/28/93 29693.79 21808.97
03/31/93 30799.05 22269.14
04/30/93 30852.96 21730.23
05/31/93 31715.61 22312.60
06/30/93 31836.92 22377.30
07/31/93 32052.58 22287.80
08/31/93 33036.53 23132.50
09/30/93 33157.84 22954.38
10/31/93 34222.66 23429.54
11/30/93 34060.92 23206.96
12/31/93 35108.69 23487.76
01/31/94 37051.41 24286.35
02/28/94 36492.36 23628.19
03/31/94 34940.98 22598.00
04/30/94 35863.42 22887.25
05/31/94 36059.09 23262.60
06/30/94 35080.74 22692.67
07/31/94 36073.06 23436.99
08/31/94 37596.49 24397.90
09/30/94 36464.40 23800.16
10/31/94 37205.15 24335.66
11/30/94 36017.16 23449.35
12/31/94 36111.72 23797.11
01/31/95 36392.92 24414.17
02/28/95 37502.91 25365.59
03/31/95 38464.90 26114.13
04/30/95 39767.29 26883.19
05/31/95 41424.88 27957.71
06/30/95 42830.87 28607.17
07/31/95 44296.06 29555.78
08/31/95 44621.66 29629.96
09/30/95 45494.85 30880.35
10/31/95 45835.25 30770.11
$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 October 31, 1995, the
value of your investment would have grown to $45,835 - a 358.35% 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 $30,770 - a 207.70% 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
MARKET RECAP
Strong corporate earnings and a
favorable interest rate
environment helped the U.S.
stock market post robust returns
for the 12 months ended October
31, 1995. The Standard & Poor's
Composite Index of 500 Stocks
finished the 12-month period with
a total return of 26.44% - well
above its historical annual
average of roughly 12%. With
inflation posing little threat,
interest rates fell during the first
half of 1995. The Federal
Reserve Board cut the federal
funds rate - the rate banks
charge each other for overnight
loans - by 0.25% on July 6 to
5.75%. Large-capitalization
stocks led the rally. Technology
companies - whose goods and
services benefited from both
corporate and consumer demand
- - posted the strongest earnings
growth and stock price gains.
Lower interest rates and
continued merger and acquisition
activity helped financial stocks
perform especially well. In June,
the Dow Jones Industrial Average
closed above 4500 for the first
time. Returns from foreign
markets suffered as investors
brought capital back to the U.S.
The Morgan Stanley Emerging
Markets Free Index was down
19.43% for the 12 months ended
October 31, 1995. The Morgan
Stanley EAFE (Europe, Australia,
Far East) Index was down 0.37%
for the year ended October 31,
1995. European markets have
fared well through the first 10
months of 1995, while the
Japanese market has struggled
through much of the year.
An interview with George A. Vanderheiden, Portfolio Manager of Fidelity
Advisor Growth Opportunities Fund
Q. HOW DID THE FUND PERFORM, GEORGE?
A. For the 12 months ended October 31, 1995, Fidelity Advisor Growth
Opportunities - Institutional Class was up 23.20% while the average growth
fund returned 22.14% for the same time period, according to Lipper
Analytical Services.
Q. HOW DO YOU EXPLAIN THE FUND'S PERFORMANCE DURING THE PAST SIX MONTHS?
A. At the risk of oversimplifying, much of the return in the market over
the past year came from the phenomenal performance of the technology
sector. The semiconductor group was up 96% in the past 12 months and other
technology sectors also had spectacular gains. These were on top of
impressive gains in 1992 and 1993. Although I generally find technology
stocks attractive, I have not made the weighting as large as some other
growth funds because of my risk-adverse discipline. My investment approach
over the past 15 years has been to try to identify and invest in themes and
trends early and stay with them as long as I feel comfortable. When they
become very extended, I begin to sell. Sometimes I may sell too early and
the stocks may continue to make spectacular gains, but I'm willing to
sacrifice that if I feel as though bone-crushing declines are on the other
side of those gains.
Q. HOW HAS THIS STRATEGY WORKED IN THE PAST?
A. Very well. If the groups that were sold keep going up, the fund
underperforms. However, when the group corrects, I'm protected by being
either out of the sector entirely, or being underweighted. The last time
the fund lagged the latter stages of a bull market was in 1989 when the
fund was five or six percentage points behind the S&P 500. Over the next
five years, however, the fund beat the market by a wide margin, not once
underperforming in any year. So while the fund may not show some of the
spectacular gains of other growth funds this year - it's lagging the S&P's
26.44% 12-month return by 3.24% - the risk level going into the inevitable
correction is also less.
Q. WHAT INVESTMENTS CONTRIBUTED TO THE FUND'S PERFORMANCE DURING THE
PERIOD?
A. The fund was modestly overweighted in technology and holdings in Intel,
Compaq, IBM, Microsoft, Solectron, Hewlett Packard, and SCI Systems helped
the fund. Another important area were financial stocks, which benefited
from the decline in long-term interest rates. The mortgage related sector,
including the fund's holdings of Fannie Mae and Freddie Mac, was up 30%
during the past 12 months. The banks, in which the fund has important
holdings in the regionals and money centers, were up in excess of 30%.
Aerospace and defense was also very strong with a gain of 47%. This group
was represented by the fund's holdings in Boeing, Raytheon and Loral.
Philip Morris, the second largest position in the fund, also had a good
year with a gain in excess of 36%.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. The two fundamental factors driving this bull market since it started in
October 1990 have been rising earnings and falling interest rates. Treasury
bonds were yielding 9% when this bull move started five years ago. At the
current level of 6.5%, I think yields still have room to move lower given
the sluggish domestic and international economies and the current low
inflation rates. This is bullish for equities, especially interest
rate-sensitive stocks. The outlook for earnings, however, is not as
hopeful. The past five years have seen one of the strongest earnings gains
in the post World War II period. However, profit margins and return on
equity are back to record levels and industrial capacity is being added so
rapidly that it is forcing down operating rates. This means that profit
margins should contract and earnings growth should come to a screeching
halt by the first quarter of 1996. My opinion is that the economic slowdown
will last into the first quarter of 1996, the earnings slowdown will last
longer and that the market will show no net gain over the next six months.
I expect growth to resume in the second half of 1996. As always, remember
that it is a market of stocks rather than a stock market and all of our
resources at Fidelity are geared to finding and investing in the best
stocks for whatever market lies ahead.
FUND FACTS
GOAL: to increase the value
of the fund's shares by
investing primarily in
common stocks with
long-term growth potential
START DATE: November 18,
1987
SIZE: as of October 31, 1995,
more than $9.7 billion
MANAGER: George
Vanderheiden, since 1987;
also manages Destiny I and
Destiny II funds; joined
Fidelity in 1971
(checkmark)
GEORGE VANDERHEIDEN ON
RECENT ACTIVITY IN THE TREASURY
BOND MARKET:
"The move in bonds has been
spectacular this year, but the
equity market put on a better
show. Since the beginning of
1995, Treasury bonds returned
21% on a total return basis
while the S&P 500 returned
29.30% year-to-date. Looking
forward, bonds should
continue to benefit from a
slowing economy. The three
pillars of this economy over the
past year have been inventory
accumulation, capital
spending, and the export
market, and each of these
sectors is now in a slowing
mode. This is positive for
inflation, for further declines in
long term interest rates and
for a healthy bond market.
(solid bullet) The fund's long-term bond
holdings increased from
8.9% six months ago to
13.5% as of October 31,
1995.
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.
INVESTMENT CHANGES
TOP TEN STOCKS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Federal National Mortgage Association 5.4 5.2
Philip Morris Companies, Inc. 4.8 3.7
Compaq Computer Corp. 3.9 3.3
Intel Corp. 3.7 4.0
General Motors Corp. 3.5 3.4
Chrysler Corp. 2.4 2.5
Vodafone Group PLC sponsored ADR 2.3 2.1
Fleet Financial Group, Inc. 1.8 2.0
International Business Machines Corp. 1.4 2.4
Columbia/HCA Healthcare Corp. 1.2 0.9
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 16.2 16.3
Technology 15.2 14.9
Durables 8.2 7.5
Nondurables 6.0 5.0
Utilities 5.7 7.0
ASSET ALLOCATION
AS OF OCTOBER 31, 1995* AS OF APRIL 30, 1995**
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
Row: 1, Col: 1, Value: 12.3
Row: 1, Col: 2, Value: 8.9
Row: 1, Col: 3, Value: 28.8
Row: 1, Col: 4, Value: 50.0
Stocks 74.0%
Bonds 13.5%
Short-term
investments 12.5%
FOREIGN
INVESTMENTS 7.8%
Stocks 78.8%
Bonds 8.9%
Short-term
investments 12.3%
FOREIGN
INVESTMENTS 4.6%
*
**
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investments in Securities
COMMON STOCKS - 74.0%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.5%
AEROSPACE & DEFENSE - 0.7%
Boeing Co. 1,034,400 $ 67,881
CAE, Inc. 391,100 2,763
70,644
DEFENSE ELECTRONICS - 0.8%
Loral Corp. 622,200 18,433
Raytheon Co. 1,302,400 56,817
75,250
TOTAL AEROSPACE & DEFENSE 145,894
BASIC INDUSTRIES - 2.1%
CHEMICALS & PLASTICS - 0.9%
Betz Laboratories, Inc. 73,600 2,962
Carbide/Graphite Group, Inc. (a) 5,900 78
du Pont (E.I.) de Nemours & Co. 19,900 1,241
Raychem Corp. 1,383,400 64,155
Union Carbide Corp. 512,300 19,403
87,839
IRON & STEEL - 0.1%
Nucor Corp. 193,400 9,307
METALS & MINING - 0.6%
Aluminum Co. of America 242,700 12,378
Reynolds Metals Co. 868,173 43,734
56,112
PACKAGING & CONTAINERS - 0.5%
Corning, Inc. 359,100 9,381
Owens-Illinois, Inc. (a) 2,882,900 36,397
45,778
TOTAL BASIC INDUSTRIES 199,036
CONSTRUCTION & REAL ESTATE - 1.8%
BUILDING MATERIALS - 0.6%
Armstrong World Industries, Inc. 598,100 35,512
Masco Corp. 443,900 12,485
Tecumseh Products Co. Class A 229,100 10,768
58,765
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - 0.9%
Beazer Homes USA, Inc. (a)(b) 717,800 $ 12,562
Centex Corp. 164,800 5,397
Daito Trust Construction 675,700 5,959
Kaufman & Broad Home Corp. (b) 1,833,300 21,312
Ryland Group, Inc. 718,700 10,511
Schuler Homes, Inc. (a) 416,500 4,946
Sekisui House Ltd. 755,000 8,730
Toll Brothers, Inc. (a) 134,900 2,411
U.S. Home Corp. (a) 431,300 11,591
83,419
ENGINEERING - 0.3%
Fluor Corp. 593,200 33,516
TOTAL CONSTRUCTION & REAL ESTATE 175,700
DURABLES - 8.2%
AUTOS, TIRES, & ACCESSORIES - 7.4%
Chrysler Corp. 4,519,600 233,324
Cummins Engine Co., Inc. 43,900 1,542
Dana Corp. 813,600 20,849
Discount Auto Parts, Inc. (a) 403,600 10,796
General Motors Corp. 7,703,039 337,008
Gentex Corp. (a) 517,100 11,505
Magna International, Inc. Class A 1,775,900 77,270
Superior Industries International, Inc. 885,300 24,899
717,193
CONSUMER ELECTRONICS - 0.5%
Black & Decker Corp. 248,400 8,415
Matsushita Electric Industrial Co. Ltd. 1,406,000 19,976
Whirlpool Corp. 477,400 25,302
53,693
HOME FURNISHINGS - 0.1%
Haverty Furniture Companies, Inc. (b) 556,400 7,720
TEXTILES & APPAREL - 0.2%
Burlington Industries, Inc. (a) 1,597,400 17,771
Fruit of the Loom, Inc. Class A (a) 166,200 2,888
20,659
TOTAL DURABLES 799,265
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 4.2%
ENERGY SERVICES - 0.3%
Baker Hughes, Inc. 362,400 $ 7,112
Dresser Industries, Inc. 78,500 1,629
Schlumberger Ltd. 402,400 25,049
33,790
OIL & GAS - 3.9%
Amerada Hess Corp. 613,300 27,675
Amoco Corp. 273,500 17,470
Apache Corp. 224,000 5,712
Atlantic Richfield Co. 503,400 53,738
British Petroleum PLC ADR 1,012,843 89,383
Burlington Resources, Inc. 1,137,500 40,950
Canada Occidental Petroleum Ltd. 366,700 10,773
Elf Aquitaine sponsored ADR 186,747 6,303
Kerr-McGee Corp. 206,900 11,405
Louisiana Land & Exploration Co. 770,100 27,242
Mobil Corp. 50,000 5,038
Murphy Oil Corp. 76,600 2,901
Noble Affiliates, Inc. 262,100 6,487
Pennzoil Co. 123,200 4,651
Santa Fe Energy Resources, Inc. (a) 666,700 5,917
Texaco, Inc. 93,600 6,377
Tosco Corp. 694,900 23,974
Union Pacific Resources Group, Inc. (a) 210,000 4,778
Unocal Corp. 949,052 24,913
375,687
TOTAL ENERGY 409,477
FINANCE - 16.2%
BANKS - 5.5%
AmSouth Bancorporation 1,093,500 43,603
Bank of Boston Corp. 336,765 14,986
Bank of New York Co., Inc. 21,300 895
Barnett Banks, Inc. 472,900 26,128
BayBanks, Inc. 203,600 16,492
Chemical Banking Corp. 758,500 43,140
Comerica, Inc. 198,400 6,671
First Interstate Bancorp 177,500 22,898
Fleet Financial Group, Inc. 4,507,645 174,671
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
BANKS - CONTINUED
KeyCorp. 572,466 $ 19,321
NationsBank Corp. 665,025 43,725
Shawmut National Corp. 3,187,139 107,964
State Street Boston Corp. 311,600 12,113
532,607
FEDERAL SPONSORED CREDIT - 6.4%
Federal Home Loan Mortgage Corporation 1,451,400 100,509
Federal National Mortgage Association 4,999,180 524,289
624,798
INSURANCE - 2.1%
Allmerica Financial Corp. (a) 506,100 12,716
Allstate Corp. 2,228,682 81,904
American International Group, Inc. 180,750 15,251
CIGNA Corp. 61,100 6,057
Chubb Corp. (The) 9,900 890
General Re Corp. 383,100 55,502
Providian Corp. 443,000 17,388
Prudential Reinsurance Holdings, Inc. (a) 118,600 2,416
Torchmark Corp. 402,900 16,720
208,844
SAVINGS & LOANS - 0.5%
Ahmanson (H.F.) & Co. 716,000 17,900
Golden West Financial Corp. 562,340 28,187
46,087
SECURITIES INDUSTRY - 1.7%
Donaldson Lufkin & Jenrette, Inc. 10,600 315
Merrill Lynch & Co., Inc. 612,500 33,994
Morgan Stanley Group, Inc. 313,100 27,240
Nomura Securities Co. Ltd. 3,118,000 57,133
United Asset Management Corp. 1,319,500 47,832
166,514
TOTAL FINANCE 1,578,850
HEALTH - 2.2%
DRUGS & PHARMACEUTICALS - 0.5%
Carter-Wallace, Inc. 370,600 3,891
Pharmacia AB:
Series A sponsored ADR 402,000 14,070
Class A Free shares 354,500 12,353
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Schering-Plough Corp. 259,100 $ 13,894
44,208
MEDICAL EQUIPMENT & SUPPLIES - 0.3%
Acuson Corp. (a) 133,400 1,551
Baxter International, Inc. 616,200 23,801
25,352
MEDICAL FACILITIES MANAGEMENT - 1.4%
American Medical Response (a) 755,300 21,809
Columbia/HCA Healthcare Corp. 2,401,422 117,970
Total Renal Care Holdings 14,600 226
140,005
TOTAL HEALTH 209,565
HOLDING COMPANIES - 0.2%
U.S. Industries, Inc.(a) 990,800 14,862
INDUSTRIAL MACHINERY & EQUIPMENT - 2.6%
ELECTRICAL EQUIPMENT - 0.9%
Cherry Corp. (a)(b):
Class A 537,300 6,716
Class B 368,300 4,696
Emerson Electric Co. 120,500 8,586
General Electric Co. 339,000 21,442
Mitsubishi Electric Co. Ord. 5,564,000 41,653
Omron Corp. 406,000 9,508
92,601
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
Caterpillar, Inc. 1,183,900 66,446
Deere & Co. 964,400 86,193
Exide Corp. 209,900 9,209
161,848
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 254,449
MEDIA & LEISURE - 1.7%
BROADCASTING - 0.1%
Liberty Media Group, Series A (a) 33,975 837
People's Choice TV Corp. (a) 56,400 1,170
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
TCI Group Class A 276,800 $ 4,706
Wireless One, Inc. 200 2
6,715
ENTERTAINMENT - 0.3%
Royal Caribbean Cruises Ltd. 1,244,900 28,633
LEISURE DURABLES & TOYS - 0.5%
Fleetwood Enterprises, Inc. 2,075,600 42,550
Outboard Marine Corp. 523,500 10,863
53,413
LODGING & GAMING - 0.4%
Circus Circus Enterprises, Inc. (a) 1,284,200 34,192
PUBLISHING - 0.0%
American Media, Inc. Class A 104,100 507
Gannett Co., Inc. 68,200 3,708
4,215
RESTAURANTS - 0.4%
Bertucci's, Inc. (a)(b) 666,100 3,997
Brinker International, Inc. (a) 445,500 5,402
Cracker Barrel Old Country Store, Inc. 108,800 1,850
Darden Restaurants, Inc. 538,200 6,122
McDonald's Corp. 496,200 20,344
37,715
TOTAL MEDIA & LEISURE 164,883
NONDURABLES - 6.0%
BEVERAGES - 0.2%
Kirin Brewery Co. Ltd. 1,850,000 18,671
HOUSEHOLD PRODUCTS - 0.2%
Kao Corp. 1,068,000 12,977
Tambrands, Inc. 193,300 8,650
21,627
TOBACCO - 5.6%
Philip Morris Companies, Inc. 5,488,400 463,770
RJR Nabisco Holdings Corp. 2,558,260 78,666
542,436
TOTAL NONDURABLES 582,734
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
PRECIOUS METALS - 0.1%
Homestake Mining Co. 168,200 $ 2,586
Santa Fe Pacific Gold Corp. 923,672 9,121
11,707
RETAIL & WHOLESALE - 4.6%
APPAREL STORES - 0.2%
TJX Companies, Inc. 1,111,300 15,003
GENERAL MERCHANDISE STORES - 2.0%
Aoyama Trading Co. Ord. 549,700 14,866
Federated Department Stores, Inc. (a) 2,879,313 73,063
Value City Department Stores, Inc. (a) 393,100 2,359
Wal-Mart Stores, Inc. 4,907,300 106,120
196,408
GROCERY STORES - 0.0%
Stop & Shop Companies, Inc. (a) 123,300 2,558
RETAIL & WHOLESALE, MISCELLANEOUS - 2.4%
Best Buy Co., Inc. (a) 13,700 284
Circuit City Stores, Inc. 2,576,700 85,997
Good Guys, Inc. (a)(b) 890,100 9,235
Home Depot, Inc. (The) 1,320,500 49,189
Lowe's Companies, Inc. 1,253,400 33,842
Officemax, Inc. (a) 954,950 23,635
Office Depot, Inc. (a) 463,200 13,259
Petsmart, Inc. (a) 253,900 8,506
Rex Stores Corp. (a)(b) 567,500 9,648
Staples, Inc. (a) 132,600 3,530
237,125
TOTAL RETAIL & WHOLESALE 451,094
SERVICES - 0.0%
Supercuts, Inc. (a) 329,100 2,468
TECHNOLOGY - 15.2%
COMMUNICATIONS EQUIPMENT - 0.6%
Cisco Systems, Inc. (a) 736,400 57,071
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 1.0%
Automatic Data Processing, Inc. 194,800 $ 13,928
Cooper & Cheyan Technology 7,800 86
DST Systems, Inc. 53,100 1,115
Enterprise Systems, Inc. 5,600 131
General Motors Corp. Class E 124,700 5,876
Micro Age, Inc. (a) 366,500 3,069
Microsoft Corp. (a) 663,600 66,360
Novell, Inc. (a) 618,600 10,207
100,772
COMPUTERS & OFFICE EQUIPMENT - 8.1%
Bay Networks, Inc. (a) 461,900 30,601
Canon, Inc. 1,743,000 29,888
Compaq Computer Corp. (a) 6,845,600 381,642
Digital Equipment Corp. (a) 771,900 41,779
Hewlett-Packard Co. 855,900 79,278
International Business Machines Corp. 1,426,300 138,708
SCI Systems, Inc. (a) 666,900 23,425
Silicon Graphics, Inc. (a) 167,400 5,566
Sun Microsystems, Inc. (a) 344,600 26,879
Tech Data Corp. (a) 1,636,600 19,844
Xerox Corp. 54,300 7,045
784,655
ELECTRONIC INSTRUMENTS - 0.0%
Quad Systems Corp. (a)(b) 300,100 2,476
ELECTRONICS - 5.5%
Hitachi Ltd. 4,883,000 50,239
Intel Corp. 5,186,600 362,414
Kyocera Corp. 86,000 7,062
Methode Electronics, Inc. Class A 461,400 7,075
Molex, Inc. 80,000 2,460
Nitto Denko Corp. 1,170,000 18,687
Rohm Co. Ltd. 53,000 3,225
Solectron Corp. (a) 1,999,800 80,492
Speedfam International, Inc. (a) 14,900 244
531,898
TOTAL TECHNOLOGY 1,476,872
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 1.7%
AIR TRANSPORTATION - 0.0%
Southwest Airlines Co. 229,900 $ 4,598
RAILROADS - 1.6%
Burlington Northern Sante Fe Corp. 482,700 40,486
CSX Corp. 873,800 73,181
Southern Pacific Rail Corp. (a) 1,830,793 40,735
154,402
TRUCKING & FREIGHT - 0.1%
Roadway Services, Inc. 144,700 6,475
TOTAL TRANSPORTATION 165,475
UTILITIES - 5.7%
CELLULAR - 2.7%
AirTouch Communications, Inc. (a) 1,183,500 33,730
Vodafone Group PLC sponsored ADR 5,534,200 226,210
259,940
ELECTRIC UTILITY - 0.1%
Southern Co. 282,500 6,745
GAS - 0.0%
Seagull Energy Corp. (a) 153,200 2,624
TELEPHONE SERVICES - 2.9%
Ameritech Corp. 1,032,600 55,760
Bell Atlantic Corp. 441,400 28,084
Bell South Corp. 530,000 40,545
NYNEX Corp. 927,400 43,588
SBC Communications, Inc. 1,504,600 84,070
Telefonos de Mexico SA sponsored ADR representing
shares Ord. Class L 1,021,000 28,078
280,125
TOTAL UTILITIES 549,434
TOTAL COMMON STOCKS
(Cost $5,841,119) 7,191,765
U.S. TREASURY OBLIGATIONS - 16.9%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
8 1/8%, 8/15/19 $ 1,090,000 $ 1,312,088
U.S. Treasury Bills, yield at date of purchase
5.41%,11/30/95 332,000 330,685
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,542,066) 1,642,773
REPURCHASE AGREEMENTS - 9.1%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88%, dated
10/31/95 due 11/1/95 $ 886,322 886,177
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $8,269,362) $ 9,720,715
LEGEND
1. Non-income producing
2. Affiliated company (see Note 7 of Notes to Financial Statements).
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $8,272,798,000. Net unrealized appreciation aggregated
$1,447,917,000, of which $1,590,550,000 related to appreciated investment
securities and $142,633,000 related to depreciated investment securities.
The fund hereby designates $7,717,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 9,720,715
agreements of $886,177) (cost $8,269,362) -
See accompanying schedule
Cash 1
Receivable for investments sold 22,453
Receivable for fund shares sold 47,546
Dividends receivable 9,966
Interest receivable 18,486
Other receivables 105
Prepaid expenses 12
TOTAL ASSETS 9,819,284
LIABILITIES
Payable for investments purchased $ 33,032
Payable for fund shares redeemed 9,730
Accrued management fee 5,483
Distribution fees payable 5,141
Other payables and accrued expenses 2,954
TOTAL LIABILITIES 56,340
NET ASSETS $ 9,762,944
Net Assets consist of:
Paid in capital $ 8,084,591
Undistributed net investment income 98,405
Accumulated undistributed net realized gain (loss) on 128,610
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 1,451,338
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 9,762,944
CALCULATION OF MAXIMUM OFFERING PRICE $30.89
CLASS A:
NET ASSET VALUE, and redemption price per share
($9,690,992 (divided by) 313,751 shares)
Maximum offering price per share (100/95.25 of $30.89) $32.43
INSTITUTIONAL CLASS: $30.97
NET ASSET VALUE, offering price and redemption price per
share ($71,952 (divided by) 2,323 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 117,983
Dividends (including $172 received from affiliated
issuers)
Interest 95,560
TOTAL INCOME 213,543
EXPENSES
Management fee $ 41,693
Basic fee
Performance adjustment 5,210
Transfer agent fees 13,820
Class A
Institutional Class 12
Distribution fees - Class A 44,009
Accounting fees and expenses 764
Non-interested trustees' compensation 42
Custodian fees and expenses 181
Registration fees - Class A 1,678
Registration fees - Institutional Class 16
Audit 64
Legal 83
Reports to shareholders 360
Miscellaneous 21
Total expenses before reductions 107,953
Expense reductions (425) 107,528
NET INVESTMENT INCOME 106,015
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized loss of $2,909 135,106
on sales of investments in affiliated issuers)
Foreign currency transactions 8,667 143,773
Change in net unrealized appreciation (depreciation) on:
Investment securities 1,249,070
Assets and liabilities in foreign currencies 6 1,249,076
NET GAIN (LOSS) 1,392,849
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,498,864
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 106,015 $ 35,891
Net investment income
Net realized gain (loss) 143,773 216,367
Change in net unrealized appreciation (depreciation) 1,249,076 (846)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,498,864 251,412
FROM OPERATIONS
Distributions to shareholders (49,032) (6,006)
From net investment income - Class A
From net realized gain - Class A (210,650) (72,102)
TOTAL DISTRIBUTIONS (259,682) (78,108)
Share transactions - net increase (decrease) 3,925,094 2,370,376
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,164,276 2,543,680
NET ASSETS
Beginning of period 4,598,668 2,054,988
End of period (including undistributed net investment $ 9,762,944 $ 4,598,668
income of $98,405 and $34,168, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 26.62 $ 25.39 $ 21.14 $ 20.58 $ 12.99
of period
Income from Investment
Operations
Net investment income .39 .22 .08 .14 .06
Net realized and unrealized 5.31 1.92 5.56 2.04 7.70
gain (loss)
Total from investment 5.70 2.14 5.64 2.18 7.76
operations
Less Distributions
From net investment income (.27) (.07) (.13) (.09) (.17)
From net realized gain (1.16) (.84) (1.26) (1.53) -
Total distributions (1.43) (.91) (1.39) (1.62) (.17)
Net asset value, end of period $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58
TOTAL RETURN A, B 22.88% 8.71% 28.11% 12.09% 60.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 9,691 $ 4,599 $ 2,055 $ 581 $ 213
(in millions)
Ratio of expenses to average 1.59% 1.63% 1.65% 1.60% 1.73%
net assets
Ratio of expenses to average net 1.58% 1.62% 1.64% 1.60% 1.73%
assets after expense
reductions
Ratio of net investment income 1.56% 1.12% .43% .80% .47%
to average net assets
Portfolio turnover 39% 43% 69% 94% 142%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED
OCTOBER 31,
1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 29.04
Income from Investment Operations
Net investment income .12
Net realized and unrealized gain (loss) 1.81
Total from investment operations 1.93
Net asset value, end of period $ 30.97
TOTAL RETURN B, C 6.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 72
Ratio of expenses to average net assets .82% A
Ratio of expenses to average net assets after expense reductions .81% A
Ratio of net investment income to average net assets 2.33% A
Portfolio turnover 39%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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 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.
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES - CONTINUED
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, which 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 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.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $5,400,709,000 and $2,327,055,000, respectively, of which U.S.
government and government agency obligations aggregated $928,171,000 and
$162,544,000, 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 .2700% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. The
basic fee is subject to a
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
performance adjustment (up to a maximum of (plus/minus) .20%) based on the
investment performance of the lowest performing class as compared to the
appropriate index over a specified period of time. The investment
performance is measured separately for each class of shares. For the
period, the management fee was equivalent to an annual rate of .69% 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. This fee is based on an annual rate of .65%
of the average net assets of Class A. For the period, the fund paid FDC
$44,009,000 under the Class A Plan, of which $33,781,000 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $73,545,000 on sales of Class A shares of the fund, of which
$62,086,000 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. During the period November 1, 1994 to December
31, 1994, State Street received fees based on the type, size, number of
accounts and the number of transactions made by the shareholders. Effective
January 1, 1995, the Board of Trustees approved a revised transfer agent
contract pursuant to which 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Co., an affiliate of FMR, maintains the
fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,803,000 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
$425,000 under this arrangement.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares was as follows:
SHARE TRANSACTIONS
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31,
OCTOBER 31, OCTOBER 31,
1995 A 1994 1995 A 1994
AMOUNTS IN THOUSANDS
CLASS A
Shares sold 165,240 107,230 $ 4,558,117 $ 2,769,740
Reinvestment of distributions 9,931 2,737 241,029 67,446
Shares redeemed (34,176) (18,134) (944,299) (466,810)
Net increase (decrease) 140,995 91,833 $ 3,854,847 $ 2,370,376
INSTITUTIONAL CLASS
Shares sold 2,367 - $ 71,587 $ -
Reinvestment of distributions - - - -
Shares redeemed (44) - (1,340) -
Net increase (decrease) 2,323 - $ 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 MARKET
AFFILIATE COST COST INCOME VALUE
Beazer Homes USA, Inc. $ 3,310 $ - $ - $ 12,562
Bertucci's, Inc. - - - 3,997
Cherry Corp. Class A - - - 6,716
Cherry Corp. Class B - - - 4,696
Good Guys, Inc. 2,156 - - 9,235
Haverty Furniture Companies, Inc. 1,027 - 42 7,720
Kaufman & Broad Home Corp. 2,824 - 130 21,312
Merisel, Inc. - 10,990 - -
Quad Systems Corp. 740 - - 2,476
Rex Stores Corp. 1,630 - - 9,648
Solectron Corp. 427 803 - -
TOTALS $ 12,114 $ 11,793 $ 172 $ 78,362
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Growth Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Growth Opportunities Fund,
including the schedule of portfolio investments, as of October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A)and the period July 3, 1995 (commencement of
sale of Institutional Class shares) 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 October 31, 1995 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 Growth Opportunities Fund
as of October 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended (Class A)and the period July 3, 1995 (commencement
of sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Growth Opportunities Fund voted
to pay to shareholders of record at the opening of business on record date,
the following distributions derived from capital gains realized from sales
of portfolio securities, and dividends derived from net investment income:
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
Class A 12/11/95 12/8/95 $.41 $.40
Institutional Class 12/11/95 12/8/95 $.61 $.40
A total of 13.2% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
A total of 51% of the dividends distributed during the fiscal year
qualifies for the dividends-received deductions for corporate shareholders.
The fund will notify shareholders in January 1996 of these percentages for
use in preparing 1995 income tax returns.
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 Investment Institutional Operations Company
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
New York, NY
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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 - CLASS A & CLASS B
ANNUAL REPORT
OCTOBER 31, 1995
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 19 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 25 Notes to the financial statements.
REPORT OF INDEPENDENT 30 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 31
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 the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
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 fund's total return
includes changes in a fund's 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 total returns and dividends would have been
lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Class A 14.91% 49.71% 87.11%
Advisor Government Investment - Class A
(incl. max. 4.75% sales charge) 9.46% 42.59% 78.22%
Lehman Brothers Government Bond Index 15.38% 57.67% n/a
Salomon Brothers Treasury/Agency Index 15.45% 57.76% n/a
Average General U.S. Government Bond Fund 14.70% 51.19% n/a
Consumer Price Index 2.81% 15.13% 39.10%
CUMULATIVE TOTAL RETURNS show Class A's 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 Class A's returns to those of the Lehman
Brothers Government Bond Index and the Salomon Brothers Treasury/ Agency
Index - both broad measures of the performance of U.S. government bonds. To
measure how Class A's performance stacked up against its peers, you can
compare it to the average general U.S. government bond fund, which reflects
the performance of 163 funds with similar objectives tracked by Lipper
Analytical Services over the past 12 months. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges. Comparing Class A's performance to the consumer price index
(CPI) helps show how the class did compared to inflation. (The CPI returns
begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Class A 14.91% 8.40% 7.36%
Advisor Government Investment - Class A
(incl. max. 4.75% sales charge) 9.46% 7.35% 6.77%
Lehman Brothers Government Bond Index 15.38% 9.53% n/a
Salomon Brothers Treasury/Agency Index 15.45% 9.55% n/a
Average General U.S. Government Bond Fund 14.70% 8.59% n/a
Consumer Price Index 2.81% 2.86% 3.81%
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
FA Gov Invest(217) LB Gov Bond
01/31/87 9525.00 10000.00
02/28/87 9557.12 10067.58
03/31/87 9515.02 10007.75
04/30/87 9175.84 9761.47
05/31/87 9138.07 9719.26
06/30/87 9261.00 9833.05
07/31/87 9278.70 9812.75
08/31/87 9226.39 9757.46
09/30/87 9042.38 9568.34
10/31/87 9330.84 9940.43
11/30/87 9404.16 9989.58
12/31/87 9487.03 10108.72
01/31/88 9776.14 10108.72
02/29/88 9885.46 10551.06
03/31/88 9828.93 10442.08
04/30/88 9770.79 10386.25
05/31/88 9712.78 10312.26
06/30/88 9907.85 10540.11
07/31/88 9890.85 10468.52
08/31/88 9885.59 10489.36
09/30/88 10053.49 10718.54
10/31/88 10202.16 10907.39
11/30/88 10116.91 10778.37
12/31/88 10110.51 10819.51
01/31/89 10227.97 10957.07
02/28/89 10196.27 10867.86
03/31/89 10226.46 10934.37
04/30/89 10392.37 11168.90
05/31/89 10595.37 11432.27
06/30/89 10832.02 11813.71
07/31/89 11000.68 12063.20
08/31/89 10888.09 11860.19
09/30/89 10951.32 11911.21
10/31/89 11158.09 12219.46
11/30/89 11242.85 12337.79
12/31/89 11298.48 12358.63
01/31/90 11175.55 12183.67
02/28/90 11212.37 12207.98
03/31/90 11228.95 12205.30
04/30/90 11128.07 12097.66
05/31/90 11454.13 12435.02
06/30/90 11619.12 12631.89
07/31/90 11759.96 12793.49
08/31/90 11684.77 12615.33
09/30/90 11762.44 12736.33
10/31/90 11880.61 12944.41
11/30/90 12087.76 13231.30
12/31/90 12243.66 13435.91
01/31/91 12378.00 13580.15
02/28/91 12481.06 13657.88
03/31/91 12531.23 13727.33
04/30/91 12635.36 13877.98
05/31/91 12701.67 13931.94
06/30/91 12694.46 13912.17
07/31/91 12830.54 14077.25
08/31/91 13029.54 14403.66
09/30/91 13265.03 14705.77
10/31/91 13383.53 14834.52
11/30/91 13460.90 14983.31
12/31/91 13890.52 15493.76
01/31/92 13702.12 15252.56
02/29/92 13765.14 15312.12
03/31/92 13670.71 15222.64
04/30/92 13750.82 15318.54
05/31/92 14003.23 15601.14
06/30/92 14197.08 15824.72
07/31/92 14436.80 16223.52
08/31/92 14561.08 16374.71
09/30/92 14696.35 16606.30
10/31/92 14519.16 16366.70
11/30/92 14555.90 16338.38
12/31/92 14791.17 16613.51
01/31/93 15044.49 16966.37
02/28/93 15326.82 17306.14
03/31/93 15414.69 17364.11
04/30/93 15530.82 17497.66
05/31/93 15555.29 17478.43
06/30/93 15861.48 17866.28
07/31/93 15940.04 17975.27
08/31/93 16199.93 18376.47
09/30/93 16229.65 18446.72
10/31/93 16338.51 18516.44
11/30/93 16088.58 18313.43
12/31/93 16175.22 18384.22
01/31/94 16457.24 18635.84
02/28/94 16076.10 18241.31
03/31/94 15590.24 17831.02
04/30/94 15434.69 17690.79
05/31/94 15450.78 17668.08
06/30/94 15398.16 17627.48
07/31/94 15733.87 17951.49
08/31/94 15724.69 17954.96
09/30/94 15503.76 17702.01
10/31/94 15477.54 17688.65
11/30/94 15448.03 17656.33
12/31/94 15552.60 17763.71
01/31/95 15831.80 18094.40
02/28/95 16177.75 18483.85
03/31/95 16284.98 18599.78
04/30/95 16477.84 18842.86
05/31/95 17118.72 19602.80
06/30/95 17238.87 19753.19
07/31/95 17178.34 19680.53
08/31/95 17373.55 19911.85
09/30/95 17531.79 20103.64
10/31/95 17785.87 20409.76
$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 maximum 4.75% sales charge. As the
chart shows, by October 31, 1995, the value of your investment would have
grown to $17,786- an 77.86% 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 $20,452 - a 104.52% increase. Henceforth, the fund will
compare its performance to the Salomon Brothers Treasury/Agency Index
rather than the Lehman Brothers Government Bond Index. Although the
difference in performance between the two indexes is small, the Salomon
Brothers Treasury/Agency Index includes fewer securities and is more
straightforward to monitor on a daily basis. For comparison purposes, both
indexes are shown on Performance: The Bottom Line, Page 4.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 6.99% 5.01% 6.13% 7.03% 7.84%
Capital appreciation 7.92% -10.28% 6.40% 1.46% 4.81%
return
Total return 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 OCTOBER 31, 1995 PAST PAST 6 PAST
MONTH MONTHS YEAR
Dividends per share 4.88(cents) 28.58(cents) 58.49(cents)
Annualized dividend rate 5.95% 5.95% 6.30%
30-day annualized yield 5.06% - -
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 $9.65 over the past month, or $9.53
over the past six months or $9.29 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 4.75% sales charge. If Fidelity had not
reimbursed certain class expenses during the periods shown, the yield would
have been 5.05%.
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 fund's total return
includes changes in a fund's 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. Initial offering of Class B shares took place on June
30, 1994. Class B shares bear a 1.00% 12b-1/shareholder service fee. This
fee is not reflected in returns prior to that date, and returns would have
been lower had this fee been taken into account. Prior date returns 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. Class B's contingent deferred sales charges included in the past one
year, past five years and life of fund total return figures are 4%, 1% and
0%, respectively.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Class B 14.19% 48.14% 85.15%
Advisor Government Investment - Class B
(incl. contingent deferred sales charge) 10.19% 47.14% 85.15%
Lehman Brothers Government Bond Index 15.38% 57.67% n/a
Salomon Brothers Treasury/Agency Index 15.45% 57.76% n/a
Average General U.S. Government Bond Fund 14.70% 51.19% n/a
Consumer Price Index 2.81% 15.13% 39.10%
CUMULATIVE TOTAL RETURNS show Class B's 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 Class B's returns to those of the Lehman
Brothers Government Bond Index and the Salomon Brothers Treasury/ Agency
Index - both broad measures of the performance of U.S. government bonds. To
measure how Class B's performance stacked up against its peers, you can
compare it to the average general U.S. government bond fund, which reflects
the performance of 163 funds with similar objectives tracked by Lipper
Analytical Services over the past 12 months. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges. Comparing Class B's performance to the consumer price index
(CPI) helps show how the class did compared to inflation. (The CPI returns
begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Class 14.19% 8.18% 7.23%
B
Advisor Government Investment - Class B
(incl. contingent deferred sales charge) 10.19% 8.03% 7.23%
Lehman Brothers Government Bond Index 15.38% 9.53% n/a
Salomon Brothers Treasury/Agency Index 15.45% 9.55% n/a
Average General U.S. Government Bond 14.70% 8.59% n/a
Fund
Consumer Price Index 2.81% 2.86% 3.81%
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
FA Gov Invest- Cl B (667)LB Gov Bond Index
01/31/87 10000.00 10000.00
02/28/87 10033.72 10067.58
03/31/87 9989.52 10007.75
04/30/87 9633.43 9761.47
05/31/87 9593.77 9719.26
06/30/87 9722.83 9833.05
07/31/87 9741.42 9812.75
08/31/87 9686.50 9757.46
09/30/87 9493.31 9568.34
10/31/87 9796.16 9940.43
11/30/87 9873.14 9989.58
12/31/87 9960.14 10108.72
01/31/88 10263.66 10108.72
02/29/88 10378.44 10551.06
03/31/88 10319.08 10442.08
04/30/88 10258.05 10386.25
05/31/88 10197.14 10312.26
06/30/88 10401.94 10540.11
07/31/88 10384.09 10468.52
08/31/88 10378.57 10489.36
09/30/88 10554.85 10718.54
10/31/88 10710.93 10907.39
11/30/88 10621.42 10778.37
12/31/88 10614.71 10819.51
01/31/89 10738.03 10957.07
02/28/89 10704.75 10867.86
03/31/89 10736.44 10934.37
04/30/89 10910.62 11168.90
05/31/89 11123.75 11432.27
06/30/89 11372.20 11813.71
07/31/89 11549.27 12063.20
08/31/89 11431.07 11860.19
09/30/89 11497.45 11911.21
10/31/89 11714.53 12219.46
11/30/89 11803.52 12337.79
12/31/89 11861.92 12358.63
01/31/90 11732.86 12183.67
02/28/90 11771.51 12207.98
03/31/90 11788.93 12205.30
04/30/90 11683.02 12097.66
05/31/90 12025.34 12435.02
06/30/90 12198.55 12631.89
07/31/90 12346.41 12793.49
08/31/90 12267.47 12615.33
09/30/90 12349.02 12736.33
10/31/90 12473.08 12944.41
11/30/90 12690.56 13231.30
12/31/90 12854.24 13435.91
01/31/91 12995.27 13580.15
02/28/91 13103.48 13657.88
03/31/91 13156.15 13727.33
04/30/91 13265.46 13877.98
05/31/91 13335.08 13931.94
06/30/91 13327.52 13912.17
07/31/91 13470.38 14077.25
08/31/91 13679.30 14403.66
09/30/91 13926.54 14705.77
10/31/91 14050.95 14834.52
11/30/91 14132.18 14983.31
12/31/91 14583.23 15493.76
01/31/92 14385.42 15252.56
02/29/92 14451.59 15312.12
03/31/92 14352.46 15222.64
04/30/92 14436.56 15318.54
05/31/92 14701.56 15601.14
06/30/92 14905.07 15824.72
07/31/92 15156.75 16223.52
08/31/92 15287.22 16374.71
09/30/92 15429.24 16606.30
10/31/92 15243.21 16366.70
11/30/92 15281.78 16338.38
12/31/92 15528.79 16613.51
01/31/93 15794.74 16966.37
02/28/93 16091.15 17306.14
03/31/93 16183.40 17364.11
04/30/93 16305.32 17497.66
05/31/93 16331.01 17478.43
06/30/93 16652.47 17866.28
07/31/93 16734.95 17975.27
08/31/93 17007.80 18376.47
09/30/93 17039.01 18446.72
10/31/93 17153.29 18516.44
11/30/93 16890.89 18313.43
12/31/93 16981.85 18384.22
01/31/94 17277.94 18635.84
02/28/94 16877.79 18241.31
03/31/94 16367.70 17831.02
04/30/94 16204.40 17690.79
05/31/94 16221.30 17668.08
06/30/94 16166.05 17627.48
07/31/94 16490.34 17951.49
08/31/94 16483.89 17954.96
09/30/94 16219.54 17702.01
10/31/94 16181.58 17688.65
11/30/94 16140.13 17656.33
12/31/94 16238.51 17763.71
01/31/95 16519.47 18094.40
02/28/95 16873.65 18483.85
03/31/95 16975.13 18599.78
04/30/95 17165.40 18842.86
05/31/95 17822.27 19602.80
06/30/95 17936.30 19753.19
07/31/95 17861.31 19680.53
08/31/95 18052.93 19911.85
09/30/95 18206.16 20103.64
10/31/95 18477.30 20409.76
$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 October 31, 1995, the value
of your investment would have grown to $18,477 - an 84.77% 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 $20,452 - a 104.52%
increase. Henceforth, the fund will compare its performance to the Salomon
Brothers Treasury/Agency Index rather than the Lehman Brothers Government
Bond Index. Although the difference in performance between the two indexes
is small, the Salomon Brothers Treasury/Agency Index includes fewer
securities and is more straightforward to monitor on a daily basis. For
comparison purposes, both indexes are shown on Performance: The Bottom
Line, Pages 7 and 8.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 6.15% 4.72% 6.13% 7.03% 7.84%
Capital appreciation return 8.04% -10.38% 6.40% 1.46% 4.81%
Total return 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 OCTOBER 31, 1995 PAST PAST PAST
MONTH 6 MONTHS YEAR
Dividends per share 4.25(cents) 24.89(cents) 51.46(cents)
Annualized dividend rate 5.19% 5.18% 5.55%
30-day annualized yield 4.54% - -
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 $9.64 over the past month, $9.53 over the
past six months, and $9.28 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.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
U.S. bond markets posted strong
returns during the 12 months ended
October 31, 1995. For the 12-month
period, the Lehman Brothers
Aggregate Bond Index - a broad
measure of U.S. taxable bonds -
posted a total return of 15.65%. A
strong rally starting in November
1994 helped bonds recover from the
effects of the sharply rising interest rate
environment seen earlier that year.
Indications of a slowing economy
and a relative absence of inflation
pressures encouraged bond
investors, helping to push interest
rates down. Monetary policy also
played a role in the bond market's
performance. In an effort to thwart the
possibility of a recession, the Federal
Reserve Board lowered the fed
funds rate - the rate banks charge
each other for overnight loans - by
0.25% in July to 5.75%. This policy
reversal followed a string of seven
successive interest rate increases in
1994 and early 1995.
Mortgage-backed securities also
benefited from this environment, as
illustrated by the performance of the
Salomon Brothers Mortgage Index,
which returned 14.54% during the
period. Outside of the U.S., markets
had mixed returns. Emerging
markets recovered from the lows
initiated by Mexico's peso
devaluation in December 1994. The
J.P. Morgan Emerging Markets Bond
Index returned 8.01% during the
12-month period. Declining interest
rates and a relatively weaker U.S.
dollar helped the Salomon Brothers
World Government Bond Index -
which includes U.S. issues - to
post a 15.20% return.
An interview with Robert Ives, Portfolio Manager of Fidelity Advisor
Government Investment Fund
Q. SO, BOB, HOW DID THE FUND DO DURING THE YEAR?
A. For the year ended October 31, 1995, the fund's Class A and B shares had
total returns of 14.91% and 14.19%, respectively. For the same period, the
average U.S. government bond fund returned 14.70%, as tracked by Lipper
Analytical Services. The fund's benchmark, the Salomon Brothers
Treasury/Agency Index, returned 15.45% for the period.
Q. THE BOND MARKET CERTAINLY HAS HAD A NICE RUN . . .
A. Yes, it certainly has. Economic growth was slower in 1995 compared to
the rapid pace of the fourth quarter of 1994. This slowing of growth caused
the bond market to rally as inflation fears, which are sparked by signs of
growth, waned. That caused a general drop in interest rates, particularly
in the longer maturity bonds of the yield curve. In fact, the yield curve
has flattened dramatically.
Q. WHAT AREAS OF THE BOND MARKET HELPED THE FUND THE MOST?
A. The chief reason for the strong performance of the fund was its position
in U.S. Treasury bonds. In a bond rally, the greatest price appreciation
usually comes from the bonds with the longer maturities. Therefore, the
fund's Treasury holdings with maturities of 10 years or more tended to help
the most. The fund's holdings in U.S. government agencies - such as Fannie
Mae - performed well in the period as did collateralized mortgage
obligations or CMOs held by the fund.
Q. WHAT INVESTMENTS DOES THE FUND HOLD IN THE CMO MARKET?
A. Planned amortization class bonds, or PACs, are a class of CMOs. PACs are
known for the greater predictability of their cash flow relative to the
more common mortgage pass-through security. In the mortgage-backed
securities market, investors fear prepayment risk, or the possibility that
these securities' underlying pool of mortgages will be paid off early and
force bond holders to invest at less attractive rates. Because of certain
unique financial characteristics, PACs tend to lessen these risks. Earlier
this year, I bought these securities because their yields were much greater
than Treasury note yields. Today, I'm reducing the fund's position in PACs
because they have performed well relative to Treasuries and are not likely
to continue to do so.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Sure. While some PAC bonds performed well during the period, most
mortgage pass-through securities did not perform as well as Treasury
securities. Pass-throughs are pools of mortgages whose cash flows are
"passed-through" to investors.
Q. HOW IS THE FUND CURRENTLY STRUCTURED?
A. The fund currently holds large positions in mortgage-backed securities,
U.S. government agencies and CMOs. In general, over the last few months,
mortgage securities have come to offer a significant yield advantage over
Treasuries. During that time, rising prepayment fears have been priced into
the mortgage-related securities - thus making them cheap relative to
Treasuries. Of course, these securities are still subject to prepayment
risks in a falling interest rate environment. Additionally, the fund is
duration neutral. This means the fund's duration - or its price sensitivity
to a given change in interest rates - is approximately that of the overall
market.
Q. HAVE YOU TAKEN ANY STEPS TO INSULATE THE FUND FROM PREPAYMENT RISK?
A. I continue to look for ways of lowering the fund's exposure to
prepayment risk in the mortgage-backed securities market. I plan to add
shorter duration CMOs and higher-coupon seasoned mortgages - or those
containing mortgage securities that have been outstanding for 10 years or
more. Fewer of these securities are likely to have their mortgages paid off
early. On the other hand, I believe most of the market's prepayment fears
have been priced into the market. Should market fears escalate, it could
signal a buying opportunity.
Q. WHAT'S YOUR MARKET OUTLOOK, BOB?
A. I think the most important thing in the next few months is the budget
situation in Washington. If the White House and Congress can make some
headway, I think it will be very positive for the bond market and it might
lead the Federal Reserve to ease short-term interest rates. This said,
however, there can be no guarantee investors will see the same stellar
performance in the bond market next year as we have seen in 1995.
FUND FACTS
GOAL: high current income
by investing mainly in
securities of any maturity
issued or guaranteed by the
U.S. government and its
agencies
START DATE: January 7, 1987
SIZE: as of October 31, 1995,
more than $234 million
MANAGER: Robert Ives, since
February 1995; joined Fidelity
in 1991
(checkmark)
ROBERT IVES ON MANAGING RISK
IN THE MORTGAGE-BACKED
SECURITIES MARKET:
"Managing mortgage-backed
securities presents a variety
of challenges. Like other
fixed-income securities, they
are affected by inflation fears
and tend to perform poorly in
rising interest rate
environments. An additional
feature of mortgage securities
is that because they
represent a pool of home
mortgages, their value is
greatly influenced by the
payment patterns of the
people holding the underlying
mortgages. If interest rates
fall far enough, mortgage
owners will be encouraged to
refinance their debt. If the
underlying mortgages of a
mortgage-backed security are
paid off early, investors are
forced to reinvest their money
at lower rates.
"I manage prepayment risk by
trying to identify mortgage
securities that have relatively
low prepayment risk. These
can include generic
pass-throughs - or pooled
mortgages whose cash flows
are passed through an
intermediary to investors -
CMOs, PACs and seasoned
mortgages. These securities
offer a limited amount of
prepayment protection while
still capturing much of the
additional yield that the
mortgage market offers."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Less than 5% 0.5 5.0
5 - 5.99% 12.2 21.4
6 - 6.99% 7.9 14.2
7 - 7.99% 12.0 7.7
8 - 8.99% 36.1 30.5
9 - 9.99% 9.8 12.6
10 - 10.99% 0.6 0.9
11 - 11.99% 3.9 0.4
12% and over 11.6 5.6
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1995
6 MONTHS AGO
Years 9.1 8.8
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 OCTOBER 31, 1995
6 MONTHS AGO
Years 4.9 4.7
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 OCTOBER 31, 1995 AS OF APRIL 30, 1995
Mortgage-backed
securities 10.6%
U.S. government
and government
agency
obligations 84.0%
Short-term
investments 5.4%
Mortgage-backed
securities 20.5%
U.S. government
and government
agency
obligations 77.8%
Short-term
investments 1.7%
Row: 1, Col: 1, Value: 5.4
Row: 1, Col: 2, Value: 84.0
Row: 1, Col: 3, Value: 10.6
Row: 1, Col: 1, Value: 1.7
Row: 1, Col: 2, Value: 77.8
Row: 1, Col: 3, Value: 20.5
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 84.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 66.0%
8%, 10/15/96 $ 10,060,000 $ 10,278,503
7 1/4%, 11/15/96 5,860,000 5,955,225
8 1/2%, 5/15/97 13,235,000 13,789,149
5 5/8%, 1/31/98 15,035,000 15,020,867
9 1/4%, 8/15/98 5,300,000 5,777,000
5 1/8%, 12/31/98 1,985,000 1,950,878
7 3/4%, 12/31/99 13,640,000 14,605,439
7 7/8%, 8/15/01 1,540,000 1,689,904
11 1/4%, 8/15/03 20,000 26,297
11 7/8%, 11/15/03 4,170,000 5,710,273
12 3/8%, 5/15/04 2,710,000 3,843,105
11 3/4%, 2/15/10 2,300,000 3,210,294
12 3/4%, 11/15/10 10,480,000 15,608,598
9%, 11/15/18 7,090,000 9,260,178
8 7/8%, 2/15/19 30,808,000 39,809,790
12%, 8/15/23 4,200,000 6,300,672
152,836,172
U.S. GOVERNMENT AGENCY OBLIGATIONS - 18.0%
Federal Agricultural Mortgage Corp.:
7.48%, 11/27/00 1,250,000 1,325,750
7.01%, 8/10/04 500,000 525,990
Federal Farm Credit Bank:
6.20%, 9/23/02 500,000 500,700
6.40%, 10/3/02 160,000 161,920
Federal Home Loan Bank 6.37%, 6/30/03 230,000 232,129
Federal Home Loan Mortgage Corporation:
4.78%, 2/10/97 (callable) 220,000 216,958
6.20%, 4/15/03 350,000 348,905
Federal National Mortgage Association:
6.52%, 9/15/97 9,000,000 9,117,774
3%, 7/13/98 (a) 320,000 324,450
7.4%, 7/01/04 190,000 203,167
Government Trust Certificates (assets of Trust
guaranteed by U.S. government through Defense
Security Assistance Agency):
Class 1-B 9 1/8%, 11/15/96 232,754 235,370
Class 3-B 8.55%, 11/15/97 358,268 364,742
Class 1-C 9 1/4%, 11/15/01 569,000 626,002
Class 2-E 9.40%, 5/15/02 140,000 154,661
Class T-2 9 5/8%, 5/15/02 423,000 467,153
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Trust Certificates (assets of Trust guaranteed
by U.S. government through Export-Import Bank):
Series 1992-A 7.02%, 9/01/04 $ 400,500 $ 412,815
Series 1994-C 6.61%, 9/15/99 211,656 214,178
Series 1994-F 8.178%, 12/15/04 4,605,496 4,920,162
Series 1995-A 6.28%, 6/15/04 630,000 630,756
Private Export Funding Corp. secured:
5 3/4%, 4/30/98 410,000 408,574
9 1/2%, 3/31/99 280,000 309,658
8.35%, 1/31/01 2,800,000 3,074,708
6.90%, 1/31/03 60,000 62,244
5.65%, 3/15/03 491,250 484,618
8 3/4%, 6/30/03 650,000 747,119
5.80%, 2/01/04 100,000 97,950
6.86%, 4/30/04 216,000 220,542
State of Israel (guaranteed by U.S. government through
Agency for International Development):
5 1/4%, 3/15/98 350,000 345,734
7 3/4%, 4/1/98 103,604 106,120
4 7/8%, 9/15/98 520,000 507,000
6%, 2/15/99 200,000 200,584
7 1/8%, 8/15/99 2,240,000 2,325,223
5 3/4%, 3/15/00 470,000 465,009
8%, 11/15/01 2,140,000 2,334,954
6 1/4%, 8/15/02 1,650,000 1,661,954
6 1/8%, 3/15/03 600,000 596,628
8 1/2%, 4/1/06 1,070,000 1,200,743
Student Loan Marketing Association:
7.56%, 12/9/96 140,000 142,603
8.14%, 10/15/03 300,000 331,219
Twelve Federal Land Banks 7.95%, 10/21/96 190,000 193,800
U.S. Housing & Urban Development:
8.24%, 8/1/02 4,000,000 4,408,750
8.27%, 8/1/03 415,000 460,909
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 41,670,225
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $187,262,602) 194,506,397
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 5.5%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.0%
6 1/2%, 5/1/08 $ 507,318 $ 503,513
8 1/2%, 8/1/09 to2/1/10 691,188 717,946
9%, 10/1/08 to 10/1/20 1,549,979 1,635,701
9 1/2%, 2/1/08 to 7/1/21 1,650,691 1,763,235
10 1/2%, 1/1/16 to12/1/20 1,284,435 1,405,831
12 1/2%, 6/1/15 to 6/1/19 858,709 986,332
7,012,558
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.5%
6%, 11/1/08 190,000 185,427
6.345%, 3/1/99 1,867,730 1,877,653
6 1/2%, 2/1/10 931,501 930,337
8 1/4%, 12/1/01 694,775 743,409
8 1/2%, 8/1/16 to 1/1/17 494,686 515,943
9 1/2%, 2/1/10 to 5/1/20 1,320,021 1,396,831
12 1/2%, 8/1/15 57,608 66,771
5,716,371
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.0%
13 1/2%, 7/15/11 86,559 103,357
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES (Cost $12,615,324) 12,832,286
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 5.1%
Federal Home Loan Mortgage Corporation:
planned amortization class:
Series 1203-G, 5%, 7/15/05 3,300,000 3,185,531
Series 1404-C, 6.40%, 2/15/05 875,000 879,646
sequential pay Series 1353 Class A,
5 1/2%, 11/15/04 88,979 87,395
Z Bond Series 9, Class E, 9.05%, 8/15/19 913,221 964,019
Federal National Mortgage Association:
planned amortization class:
Series 1992 Class 193-D, 5 3/4%, 12/25/01 2,600,000 2,583,750
Series 1993 Class 72-B, 5%, 1/25/02 1,191,060 1,175,791
Series 1993 Class 135-PC, 5 1/2%, 7/25/02 2,000,000 1,970,000
Series 1993-28 Class PD, 5 1/4%, 10/25/01 500,000 494,219
Series 1994 -M3 Class A, 7.71%, 4/1/06 364,629 377,163
TOTAL U.S. GOVERNMENT AGENCY -
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $11,264,482) 11,717,514
REPURCHASE AGREEMENTS - 5.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements,
(U.S. Treasury obligations) in a
joint trading account at 5.88%,
dated 10/31/95 due 11/1/95 $ 12,599,058 $ 12,597,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $223,739,408) $ 231,653,197
LEGEND
1. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $223,859,269. Net unrealized appreciation aggregated
$7,793,928, of which $8,084,715 related to appreciated investment
securities and $290,787 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $3,149,000 all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 231,653,197
agreements of $12,597,000) (cost $223,739,408) -
See accompanying schedule
Cash 1,220,446
Receivable for investments sold 7,863,388
Interest receivable 4,380,874
Prepaid expenses 11,810
TOTAL ASSETS 245,129,715
LIABILITIES
Payable for investments purchased $ 9,796,804
Distributions payable 128,946
Accrued management fee 43,224
Distribution fees payable 51,351
Other payables and accrued expenses 134,722
TOTAL LIABILITIES 10,155,047
NET ASSETS $ 234,974,668
Net Assets consist of:
Paid in capital $ 230,194,662
Undistributed net investment income 134,662
Accumulated undistributed net realized gain (loss) on (3,268,445)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 7,913,789
investments
NET ASSETS $ 234,974,668
CALCULATION OF MAXIMUM OFFERING PRICE $9.67
CLASS A:
NET ASSET VALUE, and redemption price per share
($208,620,112 (divided by) 21,563,156 shares)
Maximum offering price per share (100/95.25 of $9.67) $10.15
CLASS B: $9.67
NET ASSET VALUE, and offering price per share
($11,766,304 (divided by) 1,216,751 shares) A
INSTITUTIONAL CLASS: $9.67
NET ASSET VALUE, offering price and redemption price per
share ($14,588,252 (divided by) 1,508,688 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>
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 12,256,877
Interest
EXPENSES
Management fee $ 766,114
Transfer agent fees 448,552
Class A
Class B 15,819
Institutional Class 163
Distribution fees - Class A 399,006
Distribution fees - Class B 64,821
Accounting fees and expenses 68,665
Non-interested trustees' compensation 733
Custodian fees and expenses 50,480
Registration fees 64,332
Class A
Class B 58,795
Institutional Class 15,371
Audit 31,232
Legal 6,032
Reports to shareholders 32,899
Miscellaneous 4,578
Total expenses before reductions 2,027,592
Expense reductions (467,247) 1,560,345
NET INVESTMENT INCOME 10,696,532
REALIZED AND UNREALIZED GAIN (LOSS) 1,340,696
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on 12,015,016
investment securities
NET GAIN (LOSS) 13,355,712
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 24,052,244
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 10,696,532 $ 5,647,267
Net investment income
Net realized gain (loss) 1,340,696 (5,172,703)
Change in net unrealized appreciation (depreciation) 12,015,016 (5,050,214)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 24,052,244 (4,575,650)
FROM OPERATIONS
Distributions to shareholders from: (9,989,930) (4,961,635)
Net investment income
Class A
Class B (347,897) (17,915)
Institutional Class (207,322) -
Net realized gain - Class A - (932,924)
In excess of net realized gain - Class A - (205,902)
TOTAL DISTRIBUTIONS (10,545,149) (6,118,376)
Share transactions - net increase (decrease) 104,952,275 57,333,656
TOTAL INCREASE (DECREASE) IN NET ASSETS 118,459,370 46,639,630
NET ASSETS
Beginning of period 116,515,298 69,875,668
End of period (including under (over) distribution $ 234,974,668 $ 116,515,298
of net investment income of $134,662 and
$(56,402), respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 8.960 $ 10.140 $ 9.730 $ 9.590 $ 9.150
of period
Income from Investment
Operations
Net investment income .594 .515 .567 .666 .700
Net realized and unrealized .701 (1.031) .601 .125 .419
gain (loss)
Total from investment 1.295 (.516) 1.168 .791 1.119
operations
Less Distributions
From net investment (.585) (.504) (.558) (.651) (.679)
income
From net realized gain - (.130) (.200) - -
In excess of net realized - (.030) - - -
gain
Total distributions (.585) (.664) (.758) (.651) (.679)
Net asset value, end of $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590
period
TOTAL RETURN A, B 14.91% (5.27)% 12.53% 8.49% 12.65%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 208,620 $ 114,453 $ 69,876 $ 23,281 $ 13,058
(000 omitted)
Ratio of expenses to average .89% .74% .68% 1.10% 1.10%
net assets D D D D D
Ratio of net investment 6.34% 6.18% 6.11% 6.98% 7.47%
income to average net
assets
Portfolio turnover 261% 313% 333% 315% 54%
</TABLE>
A 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).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C 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.
D FMR VOLUNTARILY 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.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED
OCTOBER 31,
1995 1994 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.950 $ 9.100
Income from Investment Operations
Net investment income .542 .144
Net realized and unrealized gain (loss) .693 (.137)
Total from investment operations 1.235 .007
Less Distributions
From net investment income (.515) (.157)
Net asset value, end of period $ 9.670 $ 8.950
TOTAL RETURN B, C 14.19% .10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 11,766 $ 2,062
Ratio of expenses to average net assets 1.65% E 1.70%
A, E
Ratio of net investment income to average net assets 5.58% 5.22% A
Portfolio turnover 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 VOLUNTARILY 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED
OCTOBER 31,
1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.560
Income from Investment Operations
Net investment income .197
Net realized and unrealized gain (loss) .108
Total from investment operations .305
Less Distributions
From net investment income (.195)
Net asset value, end of period $ 9.670
TOTAL RETURN B, C 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 14,588
Ratio of expenses to average net assets .75% A,
E
Ratio of net investment income to average net assets 6.48% A
Portfolio turnover 261%
A ANNUALIZED
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD 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 CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR VOLUNTARILY 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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. 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 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 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.
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, which 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 $516,129,072 and $422,598,461, 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 .1200% to
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
.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 annual 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 the Class B Plan, the fund pays
Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. This fee is 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. For the period, the fund paid FDC $399,006 and
$64,821 under the Class A Plan and Class B Plan, respectively, of which
$391,918 and $16,159 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $954,672 on sales of Class A shares of the fund, of which
$809,841 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 $10,268 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
to as the Transfer Agents) acts in that capacity for the fund's Class B and
Institutional Class shares. During the period November 1, 1994 to December
31, 1994, the Transfer Agents received fees based on the type, size, number
of accounts and the number of transactions made by shareholders of the
respective classes of the fund. Effective January 1, 1995, the Board of
Trustees approved revised transfer agent contracts pursuant to which 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.
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 average net assets for each class.
(i) Class A. For the period, this expense limitation ranged from an annual
rate of .74% to 1.00% of average net assets and the reimbursement reduced
expenses by $390,343.
(ii) Class B. For the period, this expense limitation ranged from an annual
rate of 1.49% to 1.75% of average net assets and the reimbursement reduced
expenses by $68,975.
(iii) Institutional Class. For the period, this expense limitation was .75%
of average net assets and the reimbursement reduced expenses by $7,929.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1995 A 1994 B 1995 A 1994 B
CLASS A
Shares sold 17,166,450 10,771,285 $ 159,682,098 $ 101,402,900
Reinvestment of distributions 936,679 546,844 8,742,840 5,129,034
Shares redeemed (9,315,536) (5,434,881) (86,931,676) (51,299,776)
Net increase (decrease) 8,787,593 5,883,248 $ 81,493,262 $ 55,232,158
CLASS B
Shares sold 1,185,499 250,049 $ 11,060,085 $ 2,278,237
Reinvestment of distributions 26,606 1,572 250,266 14,174
Shares redeemed (225,713) (21,262) (2,134,205) (190,913)
Net increase (decrease) 986,392 230,359 $ 9,176,146 $ 2,101,498
INSTITUTIONAL CLASS
Shares sold 1,632,166 - $ 15,464,154 $ -
Reinvestment of distributions 19,194 - 184,114 -
Shares redeemed (142,672) - (1,365,401) -
Net increase (decrease) 1,508,688 - $ 14,282,867 $ -
A SHARE TRANSACTIONS FOR THE INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
B SHARE TRANSACTIONS FOR THE CLASS B ARE FOR THE PERIOD JUNE 30, 1994
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Government Investment Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Government Investment Fund,
including the schedule of portfolio investments, as of October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A), for the year ended October 31, 1995 and for
the period June 30, 1994 (commencement of sale of Class B shares) to
October 31, 1994 (Class B) and for the period July 3, 1995 (commencement of
sale of Institutional Class shares) 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 October 31, 1995 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 Government Investment Fund
as of October 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended (Class A), for the year ended October 31, 1995 and
for the period June 30, 1994 (commencement of sale of Class B shares) to
October 31, 1994 (Class B)and for the period July 3, 1995 (commencement of
sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
A total of 57.0% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
The fund will notify shareholders in January 1996 of the applicable
percentage for use in preparing 1995 income tax returns.
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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free 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
ANNUAL REPORT
OCTOBER 31, 1995
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 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 21 Notes to the financial statements.
REPORT OF INDEPENDENT 26 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 27
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 the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
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 fund's total return
includes changes in a fund's 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. 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 OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Institutional 15.03% 49.85% 87.30%
Class
Lehman Brothers Government Bond Index 15.38% 57.67% n/a
Salomon Brothers Treasury/Agency Index 15.45% 57.76% n/a
Average General U.S. Government Bond Fund 14.70% 51.19% n/a
Consumer Price Index 2.81% 15.13% 39.10%
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 Lehman Brothers Government Bond Index and the Salomon Brothers
Treasury/ Agency Index - both broad measures of the performance of U.S.
government bonds. To measure how Institutional Class' performance stacked
up against its peers, you can compare it to the average general U.S.
government bond fund, which reflects the performance of 163 funds with
similar objectives tracked by Lipper Analytical Services over the past 12
months. These benchmarks include reinvested dividends and capital gains, if
any. Comparing Institutional Class' performance to the consumer price index
(CPI) helps show how the class did compared to inflation. (The CPI returns
begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Government Investment - Institutional 15.03% 8.43% 7.37%
Class
Lehman Brothers Government Bond Index 15.38% 9.53% n/a
Salomon Brothers Treasury/Agency Index 15.45% 9.55% n/a
Average General U.S. Government Bond Fund 14.70% 8.59% n/a
Consumer Price Index 2.81% 2.86% 3.81%
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
FA Gov Invest Cl I (697)LB Gov Bond Index
01/31/87 10000.00 10000.00
02/28/87 10033.72 10067.58
03/31/87 9989.52 10007.75
04/30/87 9633.43 9761.47
05/31/87 9593.77 9719.26
06/30/87 9722.83 9833.05
07/31/87 9741.42 9812.75
08/31/87 9686.50 9757.46
09/30/87 9493.31 9568.34
10/31/87 9796.16 9940.43
11/30/87 9873.14 9989.58
12/31/87 9960.14 10108.72
01/31/88 10263.66 10108.72
02/29/88 10378.44 10551.06
03/31/88 10319.08 10442.08
04/30/88 10258.05 10386.25
05/31/88 10197.14 10312.26
06/30/88 10401.94 10540.11
07/31/88 10384.09 10468.52
08/31/88 10378.57 10489.36
09/30/88 10554.85 10718.54
10/31/88 10710.93 10907.39
11/30/88 10621.42 10778.37
12/31/88 10614.71 10819.51
01/31/89 10738.03 10957.07
02/28/89 10704.75 10867.86
03/31/89 10736.44 10934.37
04/30/89 10910.62 11168.90
05/31/89 11123.75 11432.27
06/30/89 11372.20 11813.71
07/31/89 11549.27 12063.20
08/31/89 11431.07 11860.19
09/30/89 11497.45 11911.21
10/31/89 11714.53 12219.46
11/30/89 11803.52 12337.79
12/31/89 11861.92 12358.63
01/31/90 11732.86 12183.67
02/28/90 11771.51 12207.98
03/31/90 11788.93 12205.30
04/30/90 11683.02 12097.66
05/31/90 12025.34 12435.02
06/30/90 12198.55 12631.89
07/31/90 12346.41 12793.49
08/31/90 12267.47 12615.33
09/30/90 12349.02 12736.33
10/31/90 12473.08 12944.41
11/30/90 12690.56 13231.30
12/31/90 12854.24 13435.91
01/31/91 12995.27 13580.15
02/28/91 13103.48 13657.88
03/31/91 13156.15 13727.33
04/30/91 13265.46 13877.98
05/31/91 13335.08 13931.94
06/30/91 13327.52 13912.17
07/31/91 13470.38 14077.25
08/31/91 13679.30 14403.66
09/30/91 13926.54 14705.77
10/31/91 14050.95 14834.52
11/30/91 14132.18 14983.31
12/31/91 14583.23 15493.76
01/31/92 14385.42 15252.56
02/29/92 14451.59 15312.12
03/31/92 14352.46 15222.64
04/30/92 14436.56 15318.54
05/31/92 14701.56 15601.14
06/30/92 14905.07 15824.72
07/31/92 15156.75 16223.52
08/31/92 15287.22 16374.71
09/30/92 15429.24 16606.30
10/31/92 15243.21 16366.70
11/30/92 15281.78 16338.38
12/31/92 15528.79 16613.51
01/31/93 15794.74 16966.37
02/28/93 16091.15 17306.14
03/31/93 16183.40 17364.11
04/30/93 16305.32 17497.66
05/31/93 16331.01 17478.43
06/30/93 16652.47 17866.28
07/31/93 16734.95 17975.27
08/31/93 17007.80 18376.47
09/30/93 17039.01 18446.72
10/31/93 17153.29 18516.44
11/30/93 16890.89 18313.43
12/31/93 16981.85 18384.22
01/31/94 17277.94 18635.84
02/28/94 16877.79 18241.31
03/31/94 16367.70 17831.02
04/30/94 16204.40 17690.79
05/31/94 16221.30 17668.08
06/30/94 16166.05 17627.48
07/31/94 16518.50 17951.49
08/31/94 16508.86 17954.96
09/30/94 16276.91 17702.01
10/31/94 16249.39 17688.65
11/30/94 16218.41 17656.33
12/31/94 16328.19 17763.71
01/31/95 16621.31 18094.40
02/28/95 16984.52 18483.85
03/31/95 17097.09 18599.78
04/30/95 17299.57 18842.86
05/31/95 17972.41 19602.80
06/30/95 18098.55 19753.19
07/31/95 18036.39 19680.53
08/31/95 18245.36 19911.85
09/30/95 18417.60 20103.64
10/31/95 18691.49 20409.76
$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 October 31,
1995, the value of your investment would have grown to $18,691 - an 86.91%
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
$20,452 - a 104.52% increase. Henceforth, the fund will compare its
performance to the Salomon Brothers Treasury/Agency Index rather than the
Lehman Brothers Government Bond Index. Although the difference in
performance between the two indexes is small, the Salomon Brothers
Treasury/Agency Index includes fewer securities and is more straightforward
to monitor on a daily basis. For comparison purposes, both indexes are
shown on Performance: The Bottom Line, Page 4.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 1993 1992 1991
Dividend return 7.10% 5.01% 6.13% 7.03% 7.84%
Capital appreciation 7.93% -10.28% 6.40% 1.46% 4.81%
return
Total return 15.03% -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 OCTOBER 31, 1995 PAST MONTH LIFE OF CLASS
Dividends per share 5.25(cents) 19.50(cents)
Annualized dividend rate 6.41% 6.21%
30-day annualized yield n/a -
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 $9.65 over the past month, or $9.55
over the life of Class, you can compare the class' income over these two
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.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
U.S. bond markets posted strong
returns during the 12 months ended
October 31, 1995. For the 12-month
period, the Lehman Brothers
Aggregate Bond Index - a broad
measure of U.S. taxable bonds -
posted a total return of 15.65%. A
strong rally starting in November
1994 helped bonds recover from
the effects of the sharply rising interest
rate environment seen earlier that
year. Indications of a slowing
economy and a relative absence of
inflation pressures encouraged
bond investors, helping to push
interest rates down. Monetary policy
also played a role in the bond
market's performance. In an effort to
thwart the possibility of a recession,
the Federal Reserve Board lowered
the fed funds rate - the rate banks
charge each other for overnight
loans - by 0.25% in July to 5.75%.
This policy reversal followed a string
of seven successive interest rate
increases in 1994 and early 1995.
Mortgage-backed securities also
benefited from this environment, as
illustrated by the performance of the
Salomon Brothers Mortgage Index,
which returned 14.54% during the
period. Outside of the U.S., markets
had mixed returns. Emerging
markets recovered from the lows
initiated by Mexico's peso
devaluation in December 1994. The
J.P. Morgan Emerging Markets
Bond Index returned 8.01% during
the 12-month period. Declining
interest rates and a relatively weaker
U.S. dollar helped the Salomon
Brothers World Government Bond
Index - which includes U.S. issues
- - to post a 15.20% return.
An interview with Robert Ives, Portfolio Manager of Fidelity Advisor
Government Investment Fund
Q. SO, BOB, HOW DID THE FUND DO DURING THE YEAR?
A. For the year ended October 31, 1995, the fund's Institutional class
shares had a total return of 15.03%. For the same period, the average U.S.
government bond fund returned 14.70%, as tracked by Lipper Analytical
Services. The fund's benchmark, the Salomon Brothers Treasury/Agency Index,
returned 15.45% for the period.
Q. THE BOND MARKET CERTAINLY HAS HAD A NICE RUN . . .
A. Yes, it certainly has. Economic growth was slower in 1995 compared to
the rapid pace of the fourth quarter of 1994. This slowing of growth caused
the bond market to rally as inflation fears, which are sparked by signs of
growth, waned. That caused a general drop in interest rates, particularly
in the longer maturity bonds of the yield curve. In fact, the yield curve
has flattened dramatically.
Q. WHAT AREAS OF THE BOND MARKET HELPED THE FUND THE MOST?
A. The chief reason for the strong performance of the fund was its position
in U.S. Treasury bonds. In a bond rally, the greatest price appreciation
usually comes from the bonds with the longer maturities. Therefore, the
fund's Treasury holdings with maturities of 10 years or more tended to help
the most. The fund's holdings in U.S. government agencies - such as Fannie
Mae - performed well in the period as did collateralized mortgage
obligations or CMOs held by the fund.
Q. WHAT INVESTMENTS DOES THE FUND HOLD IN THE CMO MARKET?
A. Planned amortization class bonds, or PACs, are a class of CMOs. PACs are
known for the greater predictability of their cash flow relative to the
more common mortgage pass-through security. In the mortgage-backed
securities market, investors fear prepayment risk, or the possibility that
these securities' underlying pool of mortgages will be paid off early and
force bond holders to invest at less attractive rates. Because of certain
unique financial characteristics, PACs tend to lessen these risks. Earlier
this year, I bought these securities because their yields were much greater
than Treasury note yields. Today, I'm reducing the fund's position in PACs
because they have performed well relative to Treasuries and are not likely
to continue to do so.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Sure. While some PAC bonds performed well during the period, most
mortgage pass-through securities did not perform as well as Treasury
securities. Pass-throughs are pools of mortgages whose cash flows are
"passed-through" to investors.
Q. HOW IS THE FUND CURRENTLY STRUCTURED?
A. The fund currently holds large positions in mortgage-backed securities,
U.S. government agencies and CMOs. In general, over the last few months,
mortgage securities have come to offer a significant yield advantage over
Treasuries. During that time, rising prepayment fears have been priced into
the mortgage-related securities - thus making them cheap relative to
Treasuries. Of course, these securities are still subject to prepayment
risks in a falling interest rate environment. Additionally, the fund is
duration neutral. This means the fund's duration - or its price sensitivity
to a given change in interest rates - is approximately that of the overall
market.
Q. HAVE YOU TAKEN ANY STEPS TO INSULATE THE FUND FROM PREPAYMENT RISK?
A. I continue to look for ways of lowering the fund's exposure to
prepayment risk in the mortgage-backed securities market. I plan to add
shorter duration CMOs and higher-coupon seasoned mortgages - or those
containing mortgage securities that have been outstanding for 10 years or
more. Fewer of these securities are likely to have their mortgages paid off
early. On the other hand, I believe most of the market's prepayment fears
have been priced into the market. Should market fears escalate, it could
signal a buying opportunity.
Q. WHAT'S YOUR MARKET OUTLOOK, BOB?
A. I think the most important thing in the next few months is the budget
situation in Washington. If the White House and Congress can make some
headway, I think it will be very positive for the bond market and it might
lead the Federal Reserve to ease short-term interest rates. This said,
however, there can be no guarantee investors will see the same stellar
performance in the bond market next year as we have seen in 1995.
FUND FACTS
GOAL: high current income
by investing mainly in
securities of any maturity
issued or guaranteed by the
U.S. government and its
agencies
START DATE: January 7, 1987
SIZE: as of October 31, 1995,
more than $234 million
MANAGER: Robert Ives, since
February 1995; joined Fidelity
in 1991
(checkmark)
ROBERT IVES ON MANAGING RISK
IN THE MORTGAGE-BACKED
SECURITIES MARKET:
"Managing mortgage-backed
securities presents a variety
of challenges. Like other
fixed-income securities, they
are affected by inflation fears
and tend to perform poorly in
rising interest rate
environments. An additional
feature of mortgage securities
is that because they
represent a pool of home
mortgages, their value is
greatly influenced by the
payment patterns of the
people holding the underlying
mortgages. If interest rates
fall far enough, mortgage
owners will be encouraged to
refinance their debt. If the
underlying mortgages of a
mortgage-backed security are
paid off early, investors are
forced to reinvest their money
at lower rates.
"I manage prepayment risk by
trying to identify mortgage
securities that have relatively
low prepayment risk. These
can include generic
pass-throughs - or pooled
mortgages whose cash flows
are passed through an
intermediary to investors -
CMOs, PACs and seasoned
mortgages. These securities
offer a limited amount of
prepayment protection while
still capturing much of the
additional yield that the
mortgage market offers."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF OCTOBER 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Less than 5% 0.5 5.0
5 - 5.99% 12.2 21.4
6 - 6.99% 7.9 14.2
7 - 7.99% 12.0 7.7
8 - 8.99% 36.1 30.5
9 - 9.99% 9.8 12.6
10 - 10.99% 0.6 0.9
11 - 11.99% 3.9 0.4
12% and over 11.6 5.6
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1995
6 MONTHS AGO
Years 9.1 8.8
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 OCTOBER 31, 1995
6 MONTHS AGO
Years 4.9 4.7
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 OCTOBER 31, 1995 AS OF APRIL 30, 1995
Mortgage-backed
securities 10.6%
U.S. government
and government
agency
obligations 84.0%
Short-term
investments 5.4%
Mortgage-backed
securities 20.5%
U.S. government
and government
agency
obligations 77.8%
Short-term
investments 1.7%
Row: 1, Col: 1, Value: 5.4
Row: 1, Col: 2, Value: 84.0
Row: 1, Col: 3, Value: 10.6
Row: 1, Col: 1, Value: 1.7
Row: 1, Col: 2, Value: 77.8
Row: 1, Col: 3, Value: 20.5
INVESTMENTS OCTOBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 84.0%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 66.0%
8%, 10/15/96 $ 10,060,000 $ 10,278,503
7 1/4%, 11/15/96 5,860,000 5,955,225
8 1/2%, 5/15/97 13,235,000 13,789,149
5 5/8%, 1/31/98 15,035,000 15,020,867
9 1/4%, 8/15/98 5,300,000 5,777,000
5 1/8%, 12/31/98 1,985,000 1,950,878
7 3/4%, 12/31/99 13,640,000 14,605,439
7 7/8%, 8/15/01 1,540,000 1,689,904
11 1/4%, 8/15/03 20,000 26,297
11 7/8%, 11/15/03 4,170,000 5,710,273
12 3/8%, 5/15/04 2,710,000 3,843,105
11 3/4%, 2/15/10 2,300,000 3,210,294
12 3/4%, 11/15/10 10,480,000 15,608,598
9%, 11/15/18 7,090,000 9,260,178
8 7/8%, 2/15/19 30,808,000 39,809,790
12%, 8/15/23 4,200,000 6,300,672
152,836,172
U.S. GOVERNMENT AGENCY OBLIGATIONS - 18.0%
Federal Agricultural Mortgage Corp.:
7.48%, 11/27/00 1,250,000 1,325,750
7.01%, 8/10/04 500,000 525,990
Federal Farm Credit Bank:
6.20%, 9/23/02 500,000 500,700
6.40%, 10/3/02 160,000 161,920
Federal Home Loan Bank 6.37%, 6/30/03 230,000 232,129
Federal Home Loan Mortgage Corporation:
4.78%, 2/10/97 (callable) 220,000 216,958
6.20%, 4/15/03 350,000 348,905
Federal National Mortgage Association:
6.52%, 9/15/97 9,000,000 9,117,774
3%, 7/13/98 (a) 320,000 324,450
7.4%, 7/01/04 190,000 203,167
Government Trust Certificates (assets of Trust
guaranteed by U.S. government through Defense
Security Assistance Agency):
Class 1-B 9 1/8%, 11/15/96 232,754 235,370
Class 3-B 8.55%, 11/15/97 358,268 364,742
Class 1-C 9 1/4%, 11/15/01 569,000 626,002
Class 2-E 9.40%, 5/15/02 140,000 154,661
Class T-2 9 5/8%, 5/15/02 423,000 467,153
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Trust Certificates (assets of Trust guaranteed
by U.S. government through Export-Import Bank):
Series 1992-A 7.02%, 9/01/04 $ 400,500 $ 412,815
Series 1994-C 6.61%, 9/15/99 211,656 214,178
Series 1994-F 8.178%, 12/15/04 4,605,496 4,920,162
Series 1995-A 6.28%, 6/15/04 630,000 630,756
Private Export Funding Corp. secured:
5 3/4%, 4/30/98 410,000 408,574
9 1/2%, 3/31/99 280,000 309,658
8.35%, 1/31/01 2,800,000 3,074,708
6.90%, 1/31/03 60,000 62,244
5.65%, 3/15/03 491,250 484,618
8 3/4%, 6/30/03 650,000 747,119
5.80%, 2/01/04 100,000 97,950
6.86%, 4/30/04 216,000 220,542
State of Israel (guaranteed by U.S. government through
Agency for International Development):
5 1/4%, 3/15/98 350,000 345,734
7 3/4%, 4/1/98 103,604 106,120
4 7/8%, 9/15/98 520,000 507,000
6%, 2/15/99 200,000 200,584
7 1/8%, 8/15/99 2,240,000 2,325,223
5 3/4%, 3/15/00 470,000 465,009
8%, 11/15/01 2,140,000 2,334,954
6 1/4%, 8/15/02 1,650,000 1,661,954
6 1/8%, 3/15/03 600,000 596,628
8 1/2%, 4/1/06 1,070,000 1,200,743
Student Loan Marketing Association:
7.56%, 12/9/96 140,000 142,603
8.14%, 10/15/03 300,000 331,219
Twelve Federal Land Banks 7.95%, 10/21/96 190,000 193,800
U.S. Housing & Urban Development:
8.24%, 8/1/02 4,000,000 4,408,750
8.27%, 8/1/03 415,000 460,909
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 41,670,225
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $187,262,602) 194,506,397
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 5.5%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.0%
6 1/2%, 5/1/08 $ 507,318 $ 503,513
8 1/2%, 8/1/09 to2/1/10 691,188 717,946
9%, 10/1/08 to 10/1/20 1,549,979 1,635,701
9 1/2%, 2/1/08 to 7/1/21 1,650,691 1,763,235
10 1/2%, 1/1/16 to12/1/20 1,284,435 1,405,831
12 1/2%, 6/1/15 to 6/1/19 858,709 986,332
7,012,558
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.5%
6%, 11/1/08 190,000 185,427
6.345%, 3/1/99 1,867,730 1,877,653
6 1/2%, 2/1/10 931,501 930,337
8 1/4%, 12/1/01 694,775 743,409
8 1/2%, 8/1/16 to 1/1/17 494,686 515,943
9 1/2%, 2/1/10 to 5/1/20 1,320,021 1,396,831
12 1/2%, 8/1/15 57,608 66,771
5,716,371
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.0%
13 1/2%, 7/15/11 86,559 103,357
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES (Cost $12,615,324) 12,832,286
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 5.1%
Federal Home Loan Mortgage Corporation:
planned amortization class:
Series 1203-G, 5%, 7/15/05 3,300,000 3,185,531
Series 1404-C, 6.40%, 2/15/05 875,000 879,646
sequential pay Series 1353 Class A,
5 1/2%, 11/15/04 88,979 87,395
Z Bond Series 9, Class E, 9.05%, 8/15/19 913,221 964,019
Federal National Mortgage Association:
planned amortization class:
Series 1992 Class 193-D, 5 3/4%, 12/25/01 2,600,000 2,583,750
Series 1993 Class 72-B, 5%, 1/25/02 1,191,060 1,175,791
Series 1993 Class 135-PC, 5 1/2%, 7/25/02 2,000,000 1,970,000
Series 1993-28 Class PD, 5 1/4%, 10/25/01 500,000 494,219
Series 1994 -M3 Class A, 7.71%, 4/1/06 364,629 377,163
TOTAL U.S. GOVERNMENT AGENCY -
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $11,264,482) 11,717,514
REPURCHASE AGREEMENTS - 5.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements,
(U.S. Treasury obligations) in a
joint trading account at 5.88%,
dated 10/31/95 due 11/1/95 $ 12,599,058 $ 12,597,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $223,739,408) $ 231,653,197
LEGEND
1. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
INCOME TAX INFORMATION
At October 31, 1995, the aggregate cost of investment securities for income
tax purposes was $223,859,269. Net unrealized appreciation aggregated
$7,793,928, of which $8,084,715 related to appreciated investment
securities and $290,787 related to depreciated investment securities.
At October 31, 1995, the fund had a capital loss carryforward of
approximately $3,149,000 all of which will expire on October 31, 2002.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 231,653,197
agreements of $12,597,000) (cost $223,739,408) -
See accompanying schedule
Cash 1,220,446
Receivable for investments sold 7,863,388
Interest receivable 4,380,874
Prepaid expenses 11,810
TOTAL ASSETS 245,129,715
LIABILITIES
Payable for investments purchased $ 9,796,804
Distributions payable 128,946
Accrued management fee 43,224
Distribution fees payable 51,351
Other payables and accrued expenses 134,722
TOTAL LIABILITIES 10,155,047
NET ASSETS $ 234,974,668
Net Assets consist of:
Paid in capital $ 230,194,662
Undistributed net investment income 134,662
Accumulated undistributed net realized gain (loss) on (3,268,445)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 7,913,789
investments
NET ASSETS $ 234,974,668
CALCULATION OF MAXIMUM OFFERING PRICE $9.67
CLASS A:
NET ASSET VALUE, and redemption price per share
($208,620,112 (divided by) 21,563,156 shares)
Maximum offering price per share (100/95.25 of $9.67) $10.15
CLASS B: $9.67
NET ASSET VALUE, and offering price per share
($11,766,304 (divided by) 1,216,751 shares) A
INSTITUTIONAL CLASS: $9.67
NET ASSET VALUE, offering price and redemption price per
share ($14,588,252 (divided by) 1,508,688 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>
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME $ 12,256,877
Interest
EXPENSES
Management fee $ 766,114
Transfer agent fees 448,552
Class A
Class B 15,819
Institutional Class 163
Distribution fees - Class A 399,006
Distribution fees - Class B 64,821
Accounting fees and expenses 68,665
Non-interested trustees' compensation 733
Custodian fees and expenses 50,480
Registration fees 64,332
Class A
Class B 58,795
Institutional Class 15,371
Audit 31,232
Legal 6,032
Reports to shareholders 32,899
Miscellaneous 4,578
Total expenses before reductions 2,027,592
Expense reductions (467,247) 1,560,345
NET INVESTMENT INCOME 10,696,532
REALIZED AND UNREALIZED GAIN (LOSS) 1,340,696
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on 12,015,016
investment securities
NET GAIN (LOSS) 13,355,712
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 24,052,244
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 10,696,532 $ 5,647,267
Net investment income
Net realized gain (loss) 1,340,696 (5,172,703)
Change in net unrealized appreciation (depreciation) 12,015,016 (5,050,214)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 24,052,244 (4,575,650)
FROM OPERATIONS
Distributions to shareholders from: (9,989,930) (4,961,635)
Net investment income
Class A
Class B (347,897) (17,915)
Institutional Class (207,322) -
Net realized gain - Class A - (932,924)
In excess of net realized gain - Class A - (205,902)
TOTAL DISTRIBUTIONS (10,545,149) (6,118,376)
Share transactions - net increase (decrease) 104,952,275 57,333,656
TOTAL INCREASE (DECREASE) IN NET ASSETS 118,459,370 46,639,630
NET ASSETS
Beginning of period 116,515,298 69,875,668
End of period (including under (over) distribution $ 234,974,668 $ 116,515,298
of net investment income of $134,662 and
$(56,402), respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1995 1994 C 1993 1992 1991
SELECTED PER-SHARE DATA
Net asset value, beginning $ 8.960 $ 10.140 $ 9.730 $ 9.590 $ 9.150
of period
Income from Investment
Operations
Net investment income .594 .515 .567 .666 .700
Net realized and unrealized .701 (1.031) .601 .125 .419
gain (loss)
Total from investment 1.295 (.516) 1.168 .791 1.119
operations
Less Distributions
From net investment (.585) (.504) (.558) (.651) (.679)
income
From net realized gain - (.130) (.200) - -
In excess of net realized - (.030) - - -
gain
Total distributions (.585) (.664) (.758) (.651) (.679)
Net asset value, end of $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590
period
TOTAL RETURN A, B 14.91% (5.27)% 12.53% 8.49% 12.65%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 208,620 $ 114,453 $ 69,876 $ 23,281 $ 13,058
(000 omitted)
Ratio of expenses to average .89% .74% .68% 1.10% 1.10%
net assets D D D D D
Ratio of net investment 6.34% 6.18% 6.11% 6.98% 7.47%
income to average net
assets
Portfolio turnover 261% 313% 333% 315% 54%
</TABLE>
A 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).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C 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.
D FMR VOLUNTARILY 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.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED
OCTOBER 31,
1995 1994 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.950 $ 9.100
Income from Investment Operations
Net investment income .542 .144
Net realized and unrealized gain (loss) .693 (.137)
Total from investment operations 1.235 .007
Less Distributions
From net investment income (.515) (.157)
Net asset value, end of period $ 9.670 $ 8.950
TOTAL RETURN B, C 14.19% .10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 11,766 $ 2,062
Ratio of expenses to average net assets 1.65% E 1.70%
A, E
Ratio of net investment income to average net assets 5.58% 5.22% A
Portfolio turnover 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 VOLUNTARILY 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED
OCTOBER 31,
1995 D
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.560
Income from Investment Operations
Net investment income .197
Net realized and unrealized gain (loss) .108
Total from investment operations .305
Less Distributions
From net investment income (.195)
Net asset value, end of period $ 9.670
TOTAL RETURN B, C 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 14,588
Ratio of expenses to average net assets .75% A,
E
Ratio of net investment income to average net assets 6.48% A
Portfolio turnover 261%
A ANNUALIZED
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD 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 CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR VOLUNTARILY 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1995
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. 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 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 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.
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, which 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 $516,129,072 and $422,598,461, 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 .1200% to
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
.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 annual 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 the Class B Plan, the fund pays
Fidelity Distributors Corporation (FDC), an affiliate of FMR, a
distribution and service fee. This fee is 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. For the period, the fund paid FDC $399,006 and
$64,821 under the Class A Plan and Class B Plan, respectively, of which
$391,918 and $16,159 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. Subject to the approval of the Board of
Trustees, the Plans also authorize payments to third parties that assist in
the sale of the fund's shares or render shareholder support services. No
payments were made under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $954,672 on sales of Class A shares of the fund, of which
$809,841 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 $10,268 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
to as the Transfer Agents) acts in that capacity for the fund's Class B and
Institutional Class shares. During the period November 1, 1994 to December
31, 1994, the Transfer Agents received fees based on the type, size, number
of accounts and the number of transactions made by shareholders of the
respective classes of the fund. Effective January 1, 1995, the Board of
Trustees approved revised transfer agent contracts pursuant to which 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.
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 average net assets for each class.
(i) Class A. For the period, this expense limitation ranged from an annual
rate of .74% to 1.00% of average net assets and the reimbursement reduced
expenses by $390,343.
(ii) Class B. For the period, this expense limitation ranged from an annual
rate of 1.49% to 1.75% of average net assets and the reimbursement reduced
expenses by $68,975.
(iii) Institutional Class. For the period, this expense limitation was .75%
of average net assets and the reimbursement reduced expenses by $7,929.
6. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
SHARES DOLLARS
YEARS ENDED OCTOBER 31, YEARS ENDED OCTOBER 31,
1995 A 1994 B 1995 A 1994 B
CLASS A
Shares sold 17,166,450 10,771,285 $ 159,682,098 $ 101,402,900
Reinvestment of distributions 936,679 546,844 8,742,840 5,129,034
Shares redeemed (9,315,536) (5,434,881) (86,931,676) (51,299,776)
Net increase (decrease) 8,787,593 5,883,248 $ 81,493,262 $ 55,232,158
CLASS B
Shares sold 1,185,499 250,049 $ 11,060,085 $ 2,278,237
Reinvestment of distributions 26,606 1,572 250,266 14,174
Shares redeemed (225,713) (21,262) (2,134,205) (190,913)
Net increase (decrease) 986,392 230,359 $ 9,176,146 $ 2,101,498
INSTITUTIONAL CLASS
Shares sold 1,632,166 - $ 15,464,154 $ -
Reinvestment of distributions 19,194 - 184,114 -
Shares redeemed (142,672) - (1,365,401) -
Net increase (decrease) 1,508,688 - $ 14,282,867 $ -
A SHARE TRANSACTIONS FOR THE INSTITUTIONAL CLASS ARE FOR THE PERIOD JULY 3,
1995 (COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1995.
B SHARE TRANSACTIONS FOR THE CLASS B ARE FOR THE PERIOD JUNE 30, 1994
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Government Investment Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series II: Fidelity Advisor Government Investment Fund,
including the schedule of portfolio investments, as of October 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Class A), for the year ended October 31, 1995 and for
the period June 30, 1994 (commencement of sale of Class B shares) to
October 31, 1994 (Class B) and for the period July 3, 1995 (commencement of
sale of Institutional Class shares) 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 October 31, 1995 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 Government Investment Fund
as of October 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended (Class A), for the year ended October 31, 1995 and
for the period June 30, 1994 (commencement of sale of Class B shares) to
October 31, 1994 (Class B)and for the period July 3, 1995 (commencement of
sale of Institutional Class shares) to October 31, 1995 (Institutional
Class), in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 8, 1995
DISTRIBUTIONS
A total of 57.0% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
The fund will notify shareholders in January 1996 of the applicable
percentage for use in preparing 1995 income tax returns.
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 Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
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 Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
STATE TAX-EXEMPT FUNDS
Fidelity Advisor New York Tax-Free Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)