(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
BALANCED FUND -
CLASS A, CLASS T AND CLASS B
ANNUAL REPORT
OCTOBER 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 10 THE MANAGERS' REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 13 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 14 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 44 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 52 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 61 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 62
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
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. A stock mutual fund, for instance, is already
diversified, because it invests in many different companies. You can
increase your diversification further by investing in a number of
different stock funds, or in such other investment categories 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, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR BALANCED 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). The initial offering of Class A shares took place on September
3, 1996. Class A shares bear a 0.25% 12b-1 fee. Returns prior to
September 3, 1996 are those of Class T, the original class of the
fund, and reflect Class T's 0.50% 12b-1 fee (0.65% prior to January 1,
1996). Effective August 1, 1997, the maximum 5.25% sales charge on
Class A shares was increased to 5.75%. If Fidelity had not reimbursed
certain class expenses, the total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - CLASS A 20.99% 65.98% 260.84%
ADVISOR BALANCED - CLASS A 14.03% 56.44% 240.09%
(INCL. MAX. 5.75% SALES CHARGE)
S&P 500(REGISTERED TRADEMARK) 32.11% 147.49% 387.82%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 43.65% 142.28%
BALANCED FUNDS AVERAGE 19.51% 86.93% 231.34%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 the performance of the
Standard & Poor's 500 Index - a widely recognized, unmanaged index of
common stocks - and the performance of the Lehman Brothers Aggregate
Bond Index - a market value weighted performance benchmark for
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with
maturities of at least one year. To measure how Class A's performance
stacked up against its peers, you can compare it to the balanced funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past one
year average represents a peer group of 343 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - CLASS A 20.99% 10.67% 13.69%
ADVISOR BALANCED - CLASS A 14.03% 9.36% 13.02%
(INCL. MAX. 5.75% SALES CHARGE)
S&P 500 32.11% 19.87% 17.16%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 7.51% 9.25%
BALANCED FUNDS AVERAGE 19.51% 13.27% 12.66%
AVERAGE ANNUAL TOTAL RETURNS take Class A's cumulative return and show
you what would have happened if Class A shares had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 103223 S00000000000001
FA Balanced -CL A S&P 500
LB Aggregate Bond
00249 SP001
LB001
1987/10/31 9425.00 10000.00
10000.00
1987/11/30 9255.27 9176.00
10080.10
1987/12/31 9659.87 9874.29
10217.41
1988/01/31 10226.91 10290.00
10576.57
1988/02/29 10652.19 10769.52
10702.12
1988/03/31 10682.56 10436.74
10601.68
1988/04/30 10867.28 10552.59
10544.47
1988/05/31 10908.32 10644.39
10473.59
1988/06/30 11360.77 11132.97
10726.27
1988/07/31 11319.19 11090.67
10670.01
1988/08/31 11277.62 10713.58
10697.98
1988/09/30 11486.44 11169.98
10940.18
1988/10/31 11654.89 11480.51
11146.14
1988/11/30 11539.08 11316.34
11010.74
1988/12/31 11677.35 11514.37
11023.14
1989/01/31 12136.75 12357.22
11181.74
1989/02/28 12179.48 12049.53
11100.69
1989/03/31 12384.46 12330.28
11148.69
1989/04/30 12882.00 12970.22
11381.98
1989/05/31 13303.83 13495.52
11681.08
1989/06/30 13487.22 13418.59
12036.74
1989/07/31 14099.77 14630.29
12292.61
1989/08/31 14318.54 14917.05
12110.48
1989/09/30 14340.90 14855.89
12172.46
1989/10/31 14119.76 14511.23
12472.19
1989/11/30 14407.24 14807.26
12591.06
1989/12/31 14549.62 15162.63
12624.75
1990/01/31 13845.80 14145.22
12474.73
1990/02/28 13882.21 14327.69
12515.10
1990/03/31 14076.51 14707.38
12524.32
1990/04/30 13892.26 14339.69
12409.57
1990/05/31 14408.16 15737.81
12777.00
1990/06/30 14469.28 15630.80
12982.01
1990/07/31 14431.99 15580.78
13161.59
1990/08/31 13549.41 14172.28
12985.82
1990/09/30 13236.68 13482.09
13093.26
1990/10/31 13110.74 13424.11
13259.49
1990/11/30 13702.67 14291.31
13544.91
1990/12/31 14121.43 14690.04
13755.96
1991/01/31 14850.53 15330.52
13926.01
1991/02/28 15720.33 16426.66
14044.88
1991/03/31 16119.61 16824.18
14141.50
1991/04/30 16429.60 16864.56
14294.70
1991/05/31 17114.17 17593.11
14378.30
1991/06/30 16763.40 16787.34
14370.99
1991/07/31 17480.35 17569.63
14570.28
1991/08/31 17923.55 17986.03
14885.58
1991/09/30 18055.51 17685.67
15187.21
1991/10/31 18581.53 17922.66
15356.30
1991/11/30 18147.56 17200.37
15497.11
1991/12/31 18990.71 19168.09
15957.35
1992/01/31 19115.65 18811.57
15740.26
1992/02/29 19518.23 19056.12
15842.60
1992/03/31 19448.94 18684.52
15753.29
1992/04/30 19602.97 19233.85
15867.08
1992/05/31 19995.02 19328.10
16166.49
1992/06/30 19813.22 19040.11
16388.98
1992/07/31 20391.81 19818.85
16723.35
1992/08/31 20391.81 19412.56
16892.76
1992/09/30 20560.51 19641.63
17093.00
1992/10/31 20489.42 19710.37
16866.38
1992/11/30 20617.39 20382.50
16870.19
1992/12/31 20737.78 20633.20
17138.45
1993/01/31 21129.06 20806.52
17467.10
1993/02/28 21580.53 21089.49
17772.87
1993/03/31 22395.04 21534.48
17846.93
1993/04/30 23032.30 21013.34
17971.20
1993/05/31 23472.31 21576.50
17994.09
1993/06/30 23321.18 21639.07
18320.20
1993/07/31 23565.86 21552.52
18423.81
1993/08/31 24422.25 22369.36
18746.74
1993/09/30 24193.92 22197.11
18798.23
1993/10/31 24517.53 22656.59
18868.48
1993/11/30 24193.92 22441.36
18707.97
1993/12/31 24813.81 22712.90
18809.36
1994/01/31 25503.53 23485.14
19063.31
1994/02/28 25054.41 22848.69
18732.12
1994/03/31 24053.79 21852.49
18270.29
1994/04/30 23859.81 22132.20
18124.40
1994/05/31 23956.80 22495.17
18121.86
1994/06/30 23502.15 21944.03
18081.81
1994/07/31 23956.61 22663.80
18440.98
1994/08/31 24248.76 23593.01
18463.86
1994/09/30 24086.72 23014.99
18192.10
1994/10/31 23859.02 23532.82
18175.89
1994/11/30 23533.75 22675.76
18135.53
1994/12/31 23550.01 23012.04
18260.76
1995/01/31 23484.41 23608.74
18622.15
1995/02/28 23894.41 24528.77
19064.90
1995/03/31 24291.41 25252.62
19181.87
1995/04/30 24555.98 25996.31
19449.81
1995/05/31 25035.53 27035.38
20202.47
1995/06/30 25336.09 27663.41
20350.58
1995/07/31 25719.46 28580.73
20305.13
1995/08/31 25786.14 28652.47
20550.19
1995/09/30 26035.26 29861.60
20750.11
1995/10/31 25732.53 29755.00
21019.96
1995/11/30 26455.73 31061.24
21334.94
1995/12/31 26861.62 31659.48
21634.35
1996/01/31 27100.99 32737.17
21778.02
1996/02/29 26656.44 33040.64
21399.47
1996/03/31 26452.49 33358.82
21250.72
1996/04/30 26418.04 33850.53
21131.21
1996/05/31 26555.82 34723.54
21088.30
1996/06/30 26711.54 34855.83
21371.50
1996/07/31 26155.78 33315.90
21429.98
1996/08/31 26364.19 34018.54
21394.06
1996/09/30 27391.40 35933.10
21766.89
1996/10/31 28109.92 36924.13
22249.06
1996/11/30 29617.06 39715.23
22630.16
1996/12/31 29092.60 38928.47
22419.74
1997/01/31 30088.44 41360.72
22488.40
1997/02/28 30550.79 41684.99
22544.34
1997/03/31 29493.60 39972.15
22294.51
1997/04/30 30712.05 42358.49
22628.25
1997/05/31 31948.42 44937.28
22842.16
1997/06/30 33165.59 46950.47
23113.28
1997/07/31 34950.04 50686.31
23736.57
1997/08/31 33399.91 47846.87
23534.10
1997/09/30 34752.68 50467.44
23881.19
1997/10/31 34009.01 48781.83
24227.64
IMATRL PRASUN SHR__CHT 19971031 19971113 103232 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Balanced Fund - Class A on October 31,
1987, and the current maximum 5.75% sales charge was paid. As the
chart shows, by October 31, 1997, the value of the investment would
have grown to $34,009 - a 240.09% increase on the initial investment.
For comparison, look at how both the S&P 500 and the Lehman Brothers
Aggregate Bond Index did over the same period. With dividends and
capital gains, if any, reinvested in each, the same $10,000 would have
grown to $48,782 - a 387.82% increase and $24,228 - a 142.28%
increase, respectively.
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
long-term growth and
short-term volatility. 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)
FIDELITY ADVISOR BALANCED FUND - CLASS T
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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - CLASS T 21.36% 66.59% 262.16%
ADVISOR BALANCED - CLASS T 17.11% 60.76% 249.48%
(INCL. MAX. 3.50% SALES CHARGE)
S&P 500(REGISTERED TRADEMARK) 32.11% 147.49% 387.82%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 43.65% 142.28%
BALANCED FUNDS AVERAGE 19.51% 86.93% 231.34%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 T's returns to the performance of the
Standard & Poor's 500 Index - a widely recognized, unmanaged index of
common stocks - and the performance of the Lehman Brothers Aggregate
Bond Index - a market value weighted performance benchmark for
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with
maturities of at least one year. To measure how Class T's performance
stacked up against its peers, you can compare it to the balanced funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past one
year average represents a peer group of 343 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - CLASS T 21.36% 10.75% 13.73%
ADVISOR BALANCED - CLASS T 17.11% 9.96% 13.33%
(INCL. MAX. 3.50% SALES CHARGE)
S&P 500 32.11% 19.87% 17.16%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 7.51% 9.25%
BALANCED FUNDS AVERAGE 19.51% 13.27% 12.66%
AVERAGE ANNUAL TOTAL RETURNS take Class T's cumulative return and show
you what would have happened if Class T shares had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
___IMAHDR PRASUN SHR__CHT 19971031 19971113 103300 S00000000000001
FA Balanced -CL T S&P 500
LB Aggregate Bond
00170 SP001
LB001
1987/10/31 9650.00 10000.00
10000.00
1987/11/30 9476.22 9176.00
10080.10
1987/12/31 9890.48 9874.29
10217.41
1988/01/31 10471.05 10290.00
10576.57
1988/02/29 10906.48 10769.52
10702.12
1988/03/31 10937.58 10436.74
10601.68
1988/04/30 11126.71 10552.59
10544.47
1988/05/31 11168.73 10644.39
10473.59
1988/06/30 11631.98 11132.97
10726.27
1988/07/31 11589.41 11090.67
10670.01
1988/08/31 11546.84 10713.58
10697.98
1988/09/30 11760.65 11169.98
10940.18
1988/10/31 11933.13 11480.51
11146.14
1988/11/30 11814.55 11316.34
11010.74
1988/12/31 11956.12 11514.37
11023.14
1989/01/31 12426.49 12357.22
11181.74
1989/02/28 12470.24 12049.53
11100.69
1989/03/31 12680.11 12330.28
11148.69
1989/04/30 13189.53 12970.22
11381.98
1989/05/31 13621.43 13495.52
11681.08
1989/06/30 13809.19 13418.59
12036.74
1989/07/31 14436.37 14630.29
12292.61
1989/08/31 14660.37 14917.05
12110.48
1989/09/30 14683.25 14855.89
12172.46
1989/10/31 14456.83 14511.23
12472.19
1989/11/30 14751.18 14807.26
12591.06
1989/12/31 14896.96 15162.63
12624.75
1990/01/31 14176.34 14145.22
12474.73
1990/02/28 14213.61 14327.69
12515.10
1990/03/31 14412.56 14707.38
12524.32
1990/04/30 14223.91 14339.69
12409.57
1990/05/31 14752.12 15737.81
12777.00
1990/06/30 14814.70 15630.80
12982.01
1990/07/31 14776.52 15580.78
13161.59
1990/08/31 13872.87 14172.28
12985.82
1990/09/30 13552.67 13482.09
13093.26
1990/10/31 13423.72 13424.11
13259.49
1990/11/30 14029.79 14291.31
13544.91
1990/12/31 14458.55 14690.04
13755.96
1991/01/31 15205.05 15330.52
13926.01
1991/02/28 16095.61 16426.66
14044.88
1991/03/31 16504.43 16824.18
14141.50
1991/04/30 16821.82 16864.56
14294.70
1991/05/31 17522.73 17593.11
14378.30
1991/06/30 17163.59 16787.34
14370.99
1991/07/31 17897.65 17569.63
14570.28
1991/08/31 18351.43 17986.03
14885.58
1991/09/30 18486.54 17685.67
15187.21
1991/10/31 19025.12 17922.66
15356.30
1991/11/30 18580.79 17200.37
15497.11
1991/12/31 19444.07 19168.09
15957.35
1992/01/31 19571.99 18811.57
15740.26
1992/02/29 19984.19 19056.12
15842.60
1992/03/31 19913.24 18684.52
15753.29
1992/04/30 20070.94 19233.85
15867.08
1992/05/31 20472.36 19328.10
16166.49
1992/06/30 20286.21 19040.11
16388.98
1992/07/31 20878.62 19818.85
16723.35
1992/08/31 20878.62 19412.56
16892.76
1992/09/30 21051.34 19641.63
17093.00
1992/10/31 20978.55 19710.37
16866.38
1992/11/30 21109.58 20382.50
16870.19
1992/12/31 21232.85 20633.20
17138.45
1993/01/31 21633.47 20806.52
17467.10
1993/02/28 22095.72 21089.49
17772.87
1993/03/31 22929.67 21534.48
17846.93
1993/04/30 23582.14 21013.34
17971.20
1993/05/31 24032.66 21576.50
17994.09
1993/06/30 23877.92 21639.07
18320.20
1993/07/31 24128.45 21552.52
18423.81
1993/08/31 25005.27 22369.36
18746.74
1993/09/30 24771.49 22197.11
18798.23
1993/10/31 25102.83 22656.59
18868.48
1993/11/30 24771.49 22441.36
18707.97
1993/12/31 25406.18 22712.90
18809.36
1994/01/31 26112.36 23485.14
19063.31
1994/02/28 25652.52 22848.69
18732.12
1994/03/31 24628.02 21852.49
18270.29
1994/04/30 24429.41 22132.20
18124.40
1994/05/31 24528.72 22495.17
18121.86
1994/06/30 24063.20 21944.03
18081.81
1994/07/31 24528.51 22663.80
18440.98
1994/08/31 24827.64 23593.01
18463.86
1994/09/30 24661.73 23014.99
18192.10
1994/10/31 24428.60 23532.82
18175.89
1994/11/30 24095.56 22675.76
18135.53
1994/12/31 24112.21 23012.04
18260.76
1995/01/31 24045.05 23608.74
18622.15
1995/02/28 24464.83 24528.77
19064.90
1995/03/31 24871.31 25252.62
19181.87
1995/04/30 25142.20 25996.31
19449.81
1995/05/31 25633.19 27035.38
20202.47
1995/06/30 25940.93 27663.41
20350.58
1995/07/31 26333.46 28580.73
20305.13
1995/08/31 26401.72 28652.47
20550.19
1995/09/30 26656.80 29861.60
20750.11
1995/10/31 26346.83 29755.00
21019.96
1995/11/30 27087.30 31061.24
21334.94
1995/12/31 27502.87 31659.48
21634.35
1996/01/31 27747.97 32737.17
21778.02
1996/02/29 27292.80 33040.64
21399.47
1996/03/31 27083.98 33358.82
21250.72
1996/04/30 27048.71 33850.53
21131.21
1996/05/31 27189.78 34723.54
21088.30
1996/06/30 27349.22 34855.83
21371.50
1996/07/31 26780.18 33315.90
21429.98
1996/08/31 26993.57 34018.54
21394.06
1996/09/30 28044.79 35933.10
21766.89
1996/10/31 28797.43 36924.13
22249.06
1996/11/30 30338.55 39715.23
22630.16
1996/12/31 29820.30 38928.47
22419.74
1997/01/31 30839.80 41360.72
22488.40
1997/02/28 31313.14 41684.99
22544.34
1997/03/31 30230.21 39972.15
22294.51
1997/04/30 31496.68 42358.49
22628.25
1997/05/31 32763.16 44937.28
22842.16
1997/06/30 34028.33 46950.47
23113.28
1997/07/31 35875.68 50686.31
23736.57
1997/08/31 34286.96 47846.87
23534.10
1997/09/30 35692.08 50467.44
23881.19
1997/10/31 34948.11 48781.83
24227.64
IMATRL PRASUN SHR__CHT 19971031 19971113 103304 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Balanced Fund - Class T on October 31,
1987, and the current maximum 3.50% sales charge was paid. As the
chart shows, by October 31, 1997, the value of the investment would
have grown to $34,948 - a 249.48% increase on the initial investment.
For comparison, look at how both the S&P 500 and the Lehman Brothers
Aggregate Bond Index did over the same period. With dividends and
capital gains, if any, reinvested in each, the same $10,000 would have
grown to $48,782 - a 387.82% increase and $24,228 - a 142.28%
increase, respectively.
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
long-term growth and
short-term volatility. 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)
ADVISOR BALANCED 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). The initial offering of Class B shares took place on December
31, 1996. Returns prior to December 31, 1996 are those of Class T, the
original class of the fund, and reflect Class T's 0.50% 12b-1 fee
(0.65% prior to January 1, 1996). Had Class B's 12b-1 fee been
reflected, returns prior to December 31, 1996 would have been lower.
Class B's contingent deferred sales charges included in the past one
year, past five years and past 10 years total return figures are 5%,
2% and 0%, respectively.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - CLASS B 20.39% 65.26% 259.26%
ADVISOR BALANCED - CLASS B 15.39% 63.26% 259.26%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
S&P 500(REGISTERED TRADEMARK) 32.11% 147.49% 387.82%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 43.65% 142.28%
BALANCED FUNDS AVERAGE 19.51% 86.93% 231.34%
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 the performance of the
Standard & Poor's 500 Index - a widely recognized, unmanaged index of
common stocks - and the performance of the Lehman Brothers Aggregate
Bond Index - a market value weighted performance benchmark for
investment-grade fixed-rate debt issues, including government,
corporate, asset-backed, and mortgage-backed securities, with
maturities of at least one year. To measure how Class B's performance
stacked up against its peers, you can compare it to the balanced funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past one
year average represents a peer group of 343 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - CLASS B 20.39% 10.57% 13.64%
ADVISOR BALANCED - CLASS B 15.39% 10.30% 13.64%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
S&P 500 32.11% 19.87% 17.16%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 7.51% 9.25%
BALANCED FUNDS AVERAGE 19.51% 13.27% 12.66%
AVERAGE ANNUAL TOTAL RETURNS take Class B's cumulative return and show
you what would have happened if Class B shares had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 103238 S00000000000001
FA Balanced -CL B S&P 500
LB Aggregate Bond
00241 SP001
LB001
1987/10/31 10000.00 10000.00
10000.00
1987/11/30 9819.92 9176.00
10080.10
1987/12/31 10249.20 9874.29
10217.41
1988/01/31 10850.83 10290.00
10576.57
1988/02/29 11302.05 10769.52
10702.12
1988/03/31 11334.28 10436.74
10601.68
1988/04/30 11530.27 10552.59
10544.47
1988/05/31 11573.82 10644.39
10473.59
1988/06/30 12053.87 11132.97
10726.27
1988/07/31 12009.75 11090.67
10670.01
1988/08/31 11965.64 10713.58
10697.98
1988/09/30 12187.20 11169.98
10940.18
1988/10/31 12365.93 11480.51
11146.14
1988/11/30 12243.06 11316.34
11010.74
1988/12/31 12389.76 11514.37
11023.14
1989/01/31 12877.19 12357.22
11181.74
1989/02/28 12922.53 12049.53
11100.69
1989/03/31 13140.01 12330.28
11148.69
1989/04/30 13667.91 12970.22
11381.98
1989/05/31 14115.47 13495.52
11681.08
1989/06/30 14310.04 13418.59
12036.74
1989/07/31 14959.97 14630.29
12292.61
1989/08/31 15192.09 14917.05
12110.48
1989/09/30 15215.80 14855.89
12172.46
1989/10/31 14981.17 14511.23
12472.19
1989/11/30 15286.19 14807.26
12591.06
1989/12/31 15437.26 15162.63
12624.75
1990/01/31 14690.51 14145.22
12474.73
1990/02/28 14729.13 14327.69
12515.10
1990/03/31 14935.29 14707.38
12524.32
1990/04/30 14739.80 14339.69
12409.57
1990/05/31 15287.17 15737.81
12777.00
1990/06/30 15352.02 15630.80
12982.01
1990/07/31 15312.45 15580.78
13161.59
1990/08/31 14376.03 14172.28
12985.82
1990/09/30 14044.22 13482.09
13093.26
1990/10/31 13910.60 13424.11
13259.49
1990/11/30 14538.64 14291.31
13544.91
1990/12/31 14982.95 14690.04
13755.96
1991/01/31 15756.53 15330.52
13926.01
1991/02/28 16679.39 16426.66
14044.88
1991/03/31 17103.03 16824.18
14141.50
1991/04/30 17431.94 16864.56
14294.70
1991/05/31 18158.27 17593.11
14378.30
1991/06/30 17786.10 16787.34
14370.99
1991/07/31 18546.79 17569.63
14570.28
1991/08/31 19017.02 17986.03
14885.58
1991/09/30 19157.04 17685.67
15187.21
1991/10/31 19715.15 17922.66
15356.30
1991/11/30 19254.71 17200.37
15497.11
1991/12/31 20149.30 19168.09
15957.35
1992/01/31 20281.86 18811.57
15740.26
1992/02/29 20709.00 19056.12
15842.60
1992/03/31 20635.48 18684.52
15753.29
1992/04/30 20798.90 19233.85
15867.08
1992/05/31 21214.88 19328.10
16166.49
1992/06/30 21021.98 19040.11
16388.98
1992/07/31 21635.87 19818.85
16723.35
1992/08/31 21635.87 19412.56
16892.76
1992/09/30 21814.87 19641.63
17093.00
1992/10/31 21739.43 19710.37
16866.38
1992/11/30 21875.21 20382.50
16870.19
1992/12/31 22002.95 20633.20
17138.45
1993/01/31 22418.10 20806.52
17467.10
1993/02/28 22897.12 21089.49
17772.87
1993/03/31 23761.32 21534.48
17846.93
1993/04/30 24437.46 21013.34
17971.20
1993/05/31 24904.31 21576.50
17994.09
1993/06/30 24743.96 21639.07
18320.20
1993/07/31 25003.57 21552.52
18423.81
1993/08/31 25912.20 22369.36
18746.74
1993/09/30 25669.94 22197.11
18798.23
1993/10/31 26013.30 22656.59
18868.48
1993/11/30 25669.94 22441.36
18707.97
1993/12/31 26327.65 22712.90
18809.36
1994/01/31 27059.44 23485.14
19063.31
1994/02/28 26582.93 22848.69
18732.12
1994/03/31 25521.27 21852.49
18270.29
1994/04/30 25315.45 22132.20
18124.40
1994/05/31 25418.36 22495.17
18121.86
1994/06/30 24935.96 21944.03
18081.81
1994/07/31 25418.15 22663.80
18440.98
1994/08/31 25728.13 23593.01
18463.86
1994/09/30 25556.20 23014.99
18192.10
1994/10/31 25314.61 23532.82
18175.89
1994/11/30 24969.49 22675.76
18135.53
1994/12/31 24986.75 23012.04
18260.76
1995/01/31 24917.15 23608.74
18622.15
1995/02/28 25352.15 24528.77
19064.90
1995/03/31 25773.38 25252.62
19181.87
1995/04/30 26054.09 25996.31
19449.81
1995/05/31 26562.89 27035.38
20202.47
1995/06/30 26881.79 27663.41
20350.58
1995/07/31 27288.56 28580.73
20305.13
1995/08/31 27359.30 28652.47
20550.19
1995/09/30 27623.62 29861.60
20750.11
1995/10/31 27302.42 29755.00
21019.96
1995/11/30 28069.74 31061.24
21334.94
1995/12/31 28500.39 31659.48
21634.35
1996/01/31 28754.37 32737.17
21778.02
1996/02/29 28282.69 33040.64
21399.47
1996/03/31 28066.30 33358.82
21250.72
1996/04/30 28029.75 33850.53
21131.21
1996/05/31 28175.93 34723.54
21088.30
1996/06/30 28341.16 34855.83
21371.50
1996/07/31 27751.49 33315.90
21429.98
1996/08/31 27972.61 34018.54
21394.06
1996/09/30 29061.96 35933.10
21766.89
1996/10/31 29841.90 36924.13
22249.06
1996/11/30 31438.92 39715.23
22630.16
1996/12/31 30864.13 38928.47
22419.74
1997/01/31 31920.61 41360.72
22488.40
1997/02/28 32373.38 41684.99
22544.34
1997/03/31 31252.47 39972.15
22294.51
1997/04/30 32525.37 42358.49
22628.25
1997/05/31 33817.27 44937.28
22842.16
1997/06/30 35088.93 46950.47
23113.28
1997/07/31 36979.95 50686.31
23736.57
1997/08/31 35318.14 47846.87
23534.10
1997/09/30 36713.34 50467.44
23881.19
1997/10/31 35926.07 48781.83
24227.64
IMATRL PRASUN SHR__CHT 19971031 19971113 103250 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Balanced Fund - Class B on October 31,
1987. As the chart shows, by October 31, 1997, the value of the
investment would have grown to $35,926 - a 259.26% increase on the
initial investment. For comparison, look at how both the S&P 500 and
the Lehman Brothers Aggregate Bond Index did over the same period.
With dividends and capital gains, if any, reinvested in each, the same
$10,000 would have grown to $48,782 - a 387.82% increase and $24,228 -
a 142.28% increase, respectively.
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
long-term growth and
short-term volatility. 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 MANAGERS' OVERVIEW
MARKET RECAP
A favorable economic backdrop of
low inflation, moderate growth and
healthy corporate earnings
translated into positive results for
both stocks and bonds for the
12-month period that ended
October 31, 1997. The stock
market rallied through much of the
period, as prices in general reached
record levels. The Standard & Poor's
500 Index returned 32.11% during
the period. Large-cap,
household-name stocks led much of
this growth, and the Dow Jones
Industrial Average reached the
8,000-point mark for the first time
in its history. International market
volatility got into the act in October,
as currency problems erupted in
Southeast Asia. The Dow fell
550-plus points in one day, only to
reclaim 330-plus points the next.
Inflationary concern and economic
data played major roles in the
direction of the bond market. The
Lehman Brothers Aggregate Bond
Index - a broad measure of the
U.S. taxable bond market - returned
8.89% during the period. Through
the first half of the year, bonds
suffered from the perception of an
accelerating economy and, in turn,
that inflation would make an
appearance. After a Federal Reserve
Board rate hike in March,
encouraging economic data and the
sense that no further rate increases
would be forthcoming sent bond
markets on a rally that lasted from
April through July. While some of
these gains evaporated in August, a
strong September and October
helped ease the pain. The bond
market attracted wary stock investors
in late October, due to the
aforementioned overseas
developments.
NOTE TO SHAREHOLDERS: The following is an interview with Bettina
Doulton, who managed the fund during the period, with additional
comments from John Avery, who will become manager of the fund
effective January 1, 1998.
Q. HOW DID THE FUND PERFORM, BETTINA?
B.D. For the 12 months that ended October 31, 1997, the fund's Class
A, Class T and Class B shares returned 20.99%, 21.36% and 20.39%,
respectively. These returns topped that of the balanced funds average
which, according to Lipper Analytical Services, returned 19.51% during
that period. Given the fund's balanced asset allocation - namely its
blend of equities and bonds - performance typically falls between its
two benchmark indices, the Standard & Poor's 500 Index and the Lehman
Brothers Aggregate Bond Index. During the period, the S&P 500 and
Lehman Brothers Aggregate Bond Index gained 32.11% and 8.89%,
respectively.
Q. WHAT STRATEGIES HELPED THE FUND OUTPERFORM ITS LIPPER GROUP?
B.D. While I typically focus on individual stocks - rather than
industry sectors - my analysis uncovered a number of attractive
investments within the finance and pharmaceuticals industries.
Emphasizing these stocks helped, since finance and drug stocks
performed very well during the period. BankAmerica and Bristol-Myers
Squibb, both top holdings, were particularly impressive performers.
Relative to many other balanced funds, an underweighting in telephone
and electric utility stocks also worked out well, as unfolding
deregulation caused these groups to struggle. Performance also
benefited from a moderately higher weighting in stocks, since stocks
strongly outperformed bonds during the period.
Q. WERE THERE ANY DISAPPOINTING INVESTMENTS, OR AREAS WHERE THE FUND
LOST GROUND?
B.D. There were certainly a few smaller positions that didn't perform
as I expected - largely because what I felt were promising business
prospects didn't materialize. However, given the strength of the
market, I'd characterize most of my disappointments as missed
opportunities. In some cases, I sold stocks too early as they reached
my price targets, only to watch them continue rising. In other
situations, I simply missed out on stocks by not buying them fast
enough. The fund's underexposure to technology stocks - the
best-performing sector over the past year - also hurt. However, given
the fund's income-oriented objective, it's difficult to justify a
sizable weighting in technology stocks because they generally don't
pay attractive dividends. The fund's position in General Signal was
disappointing, as was R.R. Donnelley, which had a lackluster
second-half performance.
Q. HOW DID THE BOND PORTION OF THE PORTFOLIO FARE?
B.D. The fund's bond positions performed well through much of the
period, with significant emphasis being placed on short-term corporate
bonds, particularly bonds issued by companies that wouldn't be too
sensitive to economic swings. Shorter-term bonds - typically in the
two-to-four-year range - offered yield advantages relative to
Treasuries. In the summer of 1997, we saw some foreshadowing of the
currency problems that eventually blew up in Southeast Asia in late
October. While Asian corporate bonds struggled during that time, the
fund itself had only very small positions that were adversely
affected. The only types of bonds that did really well in October were
Treasuries, as U.S. corporate bonds felt the ramifications from Asia's
woes. With mortgage rates down toward the end of the period, the
fund's underweighting in mortgage-backed bonds could prove prudent.
Many mortgages are now "in the money," or are refinancable because of
the lower rates. This type of climate increases prepayment risk - in
which the bondholder prepays principal - and is generally a negative
trend for mortgage-related bonds.
Q. TURNING TO YOU, JOHN, WHAT CHANGES DO YOU ENVISION MAKING TO THE
FUND IN THE COMING MONTHS?
J.A. Very few. Bettina and I have very similar investment approaches
and styles and I think the transition will be mostly seamless. I'm not
going to come in on January 2 and turn the portfolio upside down. In
fact, if shareholders look at the top holdings now and three months
from now, there will most likely be a lot of similarities. I'd like to
keep the allocation balance of the fund roughly the same: 60% in
equities, 30% in high-grade bonds, 5% in high-yield bonds and the
remainder in cash. I'll generally focus on mid- and large-cap issues,
with an emphasis on companies with market capitalizations of $2
billion or more. In terms of the Southeast Asia debacle, I'll admit
it's a concern. Historically, corrections of this magnitude have
resulted in a shakeout, but I don't think the companies that have been
affected will be able to assess the damage until next quarter. The
future implications will certainly be something to keep an eye on.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
PHILIP MORRIS COMPANIES, INC. 2.7 2.4
CITICORP 2.6 2.4
BANKAMERICA CORP. 2.3 2.1
GENERAL ELECTRIC CO. 2.2 2.1
BRISTOL-MYERS SQUIBB CO. 2.2 1.7
TOP FIVE BOND ISSUERS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
(WITH MATURITIES OF MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
U.S. TREASURY 8.3 6.2
FEDERAL NATIONAL MORTGAGE ASSOCIATION 5.5 5.9
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.7 1.3
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.7 1.1
WORLDCOM, INC. 0.6 0.3
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
FINANCE 22.2 20.2
NONDURABLES 8.6 8.8
ENERGY 8.2 8.1
HEALTH 7.9 8.1
INDUSTRIAL MACHINERY & EQUIPMENT 5.6 6.2
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997**
ROW: 1, COL: 1, VALUE: 2.7
ROW: 1, COL: 2, VALUE: 1.1
ROW: 1, COL: 3, VALUE: 2.1
ROW: 1, COL: 4, VALUE: 25.1
ROW: 1, COL: 5, VALUE: 59.0
STOCKS 62.4%
BONDS 34.9%
CONVERTIBLE
SECURITIES 0.8%
CERTIFICATES OF
DEPOSIT 0.0%
SHORT-TERM
INVESTMENTS 1.9%
FOREIGN
INVESTMENTS 11.2%
STOCKS 61.0%
BONDS 36.1%
CONVERTIBLE
SECURITIES 1.1%
CERTIFICATES OF
DEPOSIT 0.1%
SHORT-TERM
INVESTMENTS 1.7%
FOREIGN
INVESTMENTS 9.8%
ROW: 1, COL: 1, VALUE: 2.9
ROW: 1, COL: 2, VALUE: 0.0
ROW: 1, COL: 3, VALUE: 1.8
ROW: 1, COL: 4, VALUE: 34.9
ROW: 1, COL: 5, VALUE: 60.4
*
**
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 59.4%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 4.2%
AEROSPACE & DEFENSE - 3.2%
AlliedSignal, Inc. 965,200 $ 34,747
Boeing Co. 12,398 594
Lockheed Martin Corp. 279,800 26,598
Sundstrand Corp. 179,000 9,733
Textron, Inc. 62,100 3,590
United Technologies Corp. 246,400 17,248
92,510
DEFENSE ELECTRONICS - 0.7%
Raytheon Co. 396,600 21,516
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 120,500 9,783
TOTAL AEROSPACE & DEFENSE 123,809
BASIC INDUSTRIES - 2.1%
CHEMICALS & PLASTICS - 1.3%
Air Products & Chemicals, Inc. 207,300 15,755
Goodrich (B.F.) Co. 149,000 6,640
Monsanto Co. 138,000 5,900
Nalco Chemical Co. 77,600 3,104
Praxair, Inc. 160,700 7,000
38,399
PAPER & FOREST PRODUCTS - 0.8%
Chesapeake Corp. 1,700 54
Fort James Corp. 151,250 6,003
Kimberly-Clark Corp. 327,600 17,015
23,072
TOTAL BASIC INDUSTRIES 61,471
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.3%
Masco Corp. 173,700 7,621
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 1.3%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Johnson Controls, Inc. 105,500 $ 4,734
CONSUMER DURABLES - 1.1%
Minnesota Mining & Manufacturing Co. 355,000 32,483
TEXTILES & APPAREL - 0.0%
Fieldcrest Cannon, Inc. (a) 14,600 488
TOTAL DURABLES 37,705
ENERGY - 7.7%
ENERGY SERVICES - 0.4%
Halliburton Co. 130,000 7,751
Schlumberger Ltd. 58,200 5,093
12,844
OIL & GAS - 7.3%
Amoco Corp. 250,700 22,986
British Petroleum PLC:
Ord. 3,490,485 51,171
ADR 66,077 5,798
Chevron Corp. 125,900 10,442
Exxon Corp. 128,600 7,901
Mobil Corp. 237,200 17,271
Royal Dutch Petroleum Co.:
Ord. 117,600 6,210
NY shares 787,600 41,447
Texaco, Inc. 437,200 24,893
Total SA Class B 49,500 5,484
Total SA sponsored ADR 53,800 2,986
USX-Marathon Group 476,300 17,028
213,617
TOTAL ENERGY 226,461
FINANCE - 15.4%
BANKS - 8.2%
Banc One Corp. 132,000 6,881
Bank of New York Co., Inc. 177,200 8,339
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
BANKS - CONTINUED
BankAmerica Corp. 943,800 $ 67,482
Chase Manhattan Corp. 222,000 25,613
Citicorp 617,800 77,264
National City Corp. 10 1
NationsBank Corp. 693,600 41,529
U.S. Bancorp 27,400 2,786
Wells Fargo & Co. 34,200 9,965
239,860
CREDIT & OTHER FINANCE - 2.4%
American Express Co. 644,800 50,294
Beneficial Corp. 100,200 7,684
First Chicago NBD Corp. 75,000 5,456
Household International, Inc. 42,300 4,790
Transamerica Corp. 12,400 1,252
69,476
FEDERAL SPONSORED CREDIT - 2.4%
Federal Home Loan Mortgage Corporation 1,128,900 42,757
Federal National Mortgage Association 606,300 29,368
72,125
INSURANCE - 2.0%
Allstate Corp. 329,100 27,295
Hartford Financial Services Group, Inc. 198,700 16,095
Progressive Corp. 1,100 114
St. Paul Companies, Inc. (The) 84,800 6,779
Travelers Group, Inc. (The) 103,333 7,233
57,516
SAVINGS & LOANS - 0.4%
Washington Mutual, Inc. 160,000 10,950
TOTAL FINANCE 449,927
HEALTH - 7.8%
DRUGS & PHARMACEUTICALS - 7.2%
American Home Products Corp. 676,100 50,116
Bristol-Myers Squibb Co. 732,740 64,298
Merck & Co., Inc. 250,200 22,330
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Novartis AG (Reg.) 3,400 $ 5,332
Schering-Plough Corp. 494,900 27,745
SmithKline Beecham PLC ADR 867,500 41,315
211,136
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Baxter International, Inc. 349,100 16,146
TOTAL HEALTH 227,282
HOLDING COMPANIES - 0.0%
CINergy Corp. 36,500 1,204
INDUSTRIAL MACHINERY & EQUIPMENT - 5.0%
ELECTRICAL EQUIPMENT - 2.6%
Emerson Electric Co. 91,500 4,798
General Electric Co. 1,011,100 65,279
Grainger (W.W.), Inc. 25,200 2,203
Honeywell, Inc. 54,900 3,737
76,017
INDUSTRIAL MACHINERY & EQUIPMENT - 1.6%
Cooper Industries, Inc. 351,129 18,303
Tyco International Ltd. 750,678 28,338
46,641
POLLUTION CONTROL - 0.8%
Browning-Ferris Industries, Inc. 644,600 20,950
Waste Management, Inc. 179,700 4,200
25,150
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 147,808
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.1%
Benedek Communications Corp. warrants 7/1/00 (a) 10,500 21
CS Wireless Systems, Inc. (a)(f) 381 -
Time Warner, Inc. 59,500 3,432
3,453
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.3%
Cedar Fair LP depositary unit 150,000 $ 7,341
PUBLISHING - 0.3%
McGraw-Hill, Inc. 145,100 9,486
TOTAL MEDIA & LEISURE 20,280
NONDURABLES - 7.6%
FOODS - 1.4%
Flowers Industries, Inc. 98,000 1,862
General Mills, Inc. 30,000 1,980
Heinz (H.J.) Co. 330,300 15,338
Nabisco Holdings Corp. Class A 219,200 9,015
Sara Lee Corp. 228,000 11,657
39,852
HOUSEHOLD PRODUCTS - 2.7%
Procter & Gamble Co. 287,600 19,557
Renaissance Cosmetics, Inc. warrants 8/31/06 (a)(f) 2,250 -
Unilever PLC Ord. 1,932,800 14,361
Unilever NV:
Ord. 120,000 6,367
ADR 755,600 40,330
80,615
TOBACCO - 3.5%
Philip Morris Companies, Inc. 1,989,000 78,814
RJR Nabisco Holdings Corp. 719,200 22,790
101,604
TOTAL NONDURABLES 222,071
RETAIL & WHOLESALE - 1.4%
DRUG STORES - 0.5%
CVS Corp. 73,900 4,531
Rite Aid Corp. 161,900 9,613
14,144
GENERAL MERCHANDISE STORES - 0.7%
Wal-Mart Stores, Inc. 603,000 21,180
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.2%
American Stores Co. 258,000 $ 6,627
TOTAL RETAIL & WHOLESALE 41,951
SERVICES - 0.8%
LEASING & RENTAL - 0.1%
Ryder Systems, Inc. 87,700 3,069
PRINTING - 0.7%
Deluxe Corp. 150,600 4,932
Donnelley (R.R.) & Sons Co. 481,400 15,706
20,638
SERVICES - 0.0%
Orion Network Systems, Inc. warrants 1/15/07 (a) 1,445 19
Orion Network Systems, Inc. warrants 1/15/07 (a) 6,760 74
93
TOTAL SERVICES 23,800
TECHNOLOGY - 3.1%
COMPUTERS & OFFICE EQUIPMENT - 2.3%
Exide Electronics Group, Inc. (a) 2,317 67
International Business Machines Corp. 31,800 3,118
Pitney Bowes, Inc. 613,200 48,634
Xerox Corp. 201,300 15,966
67,785
ELECTRONICS - 0.7%
AMP, Inc. 59,100 2,660
Thomas & Betts Corp. 335,400 16,686
19,346
PHOTOGRAPHIC EQUIPMENT - 0.1%
Eastman Kodak Co. 72,000 4,311
TOTAL TECHNOLOGY 91,442
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 0.2%
RAILROADS - 0.2%
Burlington Northern Santa Fe Corp. 23,500 $ 2,232
CSX Corp. 21,900 1,198
Union Pacific Corp. 30,000 1,838
5,268
UTILITIES - 1.8%
CELLULAR - 0.0%
McCaw International Ltd. warrants 4/15/07 (a)(f) 5,760 14
Microcell Telecommunications, Inc. (a):
warrants 6/1/06 21,520 409
conditional warrants 6/1/06 21,520 -
423
ELECTRIC UTILITY - 0.4%
Allegheny Energy, Inc. 37,000 1,045
CMS Energy Corp. 222,100 8,107
Edison International 90,000 2,306
11,458
GAS - 0.1%
Consolidated Natural Gas Co. 48,800 2,638
TELEPHONE SERVICES - 1.3%
AT&T Corp. 177,600 8,691
ALLTEL Corp. 46,900 1,659
Ameritech Corp. 118,600 7,709
BCE, Inc. 267,600 7,457
Frontier Corp. 14,300 309
GTE Corp. 243,900 10,351
Hyperion Telecommunications, Inc.
warrants 4/15/01 (a)(f) 3,790 284
RSL Communications Ltd. /RSL Communications PLC
warrants 11/15/06 (a) 990 91
Sprint Corp. 30,000 1,560
38,111
TOTAL UTILITIES 52,630
TOTAL COMMON STOCKS
(Cost $1,320,472) 1,740,730
PREFERRED STOCKS - 2.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.6%
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Republic Industries, Inc. $1.55 74,000 $ 2,091
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications Ltd $3.00 Series C (f) 85,000 5,153
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.0%
Benedek Communications Corp. 15% (a) 6,100 744
LODGING & GAMING - 0.2%
Host Marriott Financial Trust $3.375 (f) 85,000 5,472
TOTAL MEDIA & LEISURE 6,216
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E, $7.00 12,000 3,900
TOTAL CONVERTIBLE PREFERRED STOCKS 17,360
NONCONVERTIBLE PREFERRED STOCKS - 1.6%
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.0%
American Annuity Group Capital Trust II 8 3/4% 1,000 1,060
SIG Capital Trust I 9 1/2%, (f) 80 81
1,141
SAVINGS & LOANS - 0.1%
California Federal Preferred Capital Corp. 9 1/8% 61,560 1,631
TOTAL FINANCE 2,772
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Echostar Communications Corp. 12 1/8%, pay-in-kind 233 $ 238
MEDIA & LEISURE - 0.8%
BROADCASTING - 0.7%
Adelphia Communications Corp. 13% (f) 5,170 589
American Radio Systems Corp. 11 3/8%, pay-in-kind 24,712 2,839
Cablevision System Corp.:
11 1/8%, depositary shares pay-in-kind 32,526 3,578
Series H, $11.75 pay-in-kind 7,125 805
CapStar Broadcasting Partners, Inc. 12%, pay-in-kind 1,500 165
Chancellor Media Corp. 12%, pay-in-kind (f) 6,621 761
Citadel Brodcasting Co. 13 1/4%, pay-in-kind (f) 10,350 1,139
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 788 827
SFX Broadcasting, Inc. 12 5/8% 408 47
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 8,888 10,266
21,016
PUBLISHING - 0.1%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 3,480 368
Series D, $10 28,400 2,911
3,279
TOTAL MEDIA & LEISURE 24,295
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Renaissance Cosmetics, Inc. 14%, pay-in-kind 2,674 1,791
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.2%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 5,048 5,856
UTILITIES - 0.4%
CELLULAR - 0.1%
Nextel Communications Corp. 13%, pay-in-kind (f) 2,749 3,010
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.3%
American Communications Services, Inc.
12 3/4%, pay-in-kind (f) 521 $ 490
Hyperion Telecommunications, Inc.
12 7/8%, pay-in-kind (f) 1,209 1,173
ICG Holdings, Inc. 14 1/4%, pay-in-kind 491 562
IXC Communications, Inc. 12 1/2%, pay-in-kind (f) 495 551
NEXTLINK Communications, Inc. 14%, pay-in-kind 93,857 5,537
8,313
TOTAL UTILITIES 11,323
TOTAL NONCONVERTIBLE PREFERRED STOCKS 46,275
TOTAL PREFERRED STOCKS
(Cost $56,096) 63,635
CORPORATE BONDS - 18.8%
MOODY'S RATINGS (C) PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - 0.5%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 Baa2 $ 4,340 3,581
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Time Warner, Inc. liquid yield option notes
0%, 6/22/13 Ba1 11,500 5,520
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 5%, 10/1/03 Baa3 2,460 3,370
TECHNOLOGY - 0.1%
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Unisys Corp. 8 1/4%, 3/15/06 B3 800 1,588
TOTAL CONVERTIBLE BONDS 14,059
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - 18.3%
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.7%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 $ 2,217 $ 2,417
Argo-Tech Corp. 8 5/8%, 10/1/07 (f) B3 440 440
Fairchild Corp. 12%, 10/15/01 Caa1 210 211
Lockheed Martin Corp. 7.20%, 5/1/36 A3 15,000 16,169
19,237
DEFENSE ELECTRONICS - 0.3%
Raytheon Co. 6.45%, 8/15/04 Baa1 8,000 8,057
Tracor, Inc. 8 1/2%, 3/1/07 B1 710 710
8,767
SHIP BUILDING & REPAIR - 0.0%
Newport News Shipbuilding, Inc.:
8 5/8%, 12/1/06 Ba2 70 73
9 1/4%, 12/1/06 B1 450 468
541
TOTAL AEROSPACE & DEFENSE 28,545
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 0.3%
Atlantis Group, Inc. 11%, 2/15/03 B2 740 751
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 1,960 2,185
Huntsman Corp. 9 1/2%, 7/1/07 (f) B2 1,880 1,962
Sovereign Specialty Chemicals, Inc.
9 1/2%, 8/1/07 (f) B3 40 41
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 2,020 2,237
11 1/4%, 4/1/07 B3 910 994
8,170
IRON & STEEL - 0.1%
GS Technologies Operating, Inc.
12 1/4%, 10/1/05 B2 610 680
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa1 1,630 1,565
WCI Steel, Inc. 10%, 12/1/04 B2 720 756
3,001
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 0.0%
Commonwealth Aluminum Corp.
10 3/4%, 10/1/06 B2 $ 1,060 $ 1,132
PACKAGING & CONTAINERS - 0.2%
Crown Cork & Seal, Inc. 5 7/8%, 4/15/98 Baa1 5,000 5,004
Huntsman Packaging Corp.
9 1/8%, 10/1/07 (f) B2 70 72
5,076
PAPER & FOREST PRODUCTS - 0.5%
APP Finance II Mauritius Ltd. 12%, 3/15/04 B3 2,265 2,106
American Pad & Paper Co., Inc.
13%, 11/15/05 B3 820 953
Doman Industries Ltd. yankee
8 3/4%, 3/15/04 B1 2,320 2,262
Florida Coast Paper Co./LLC Florida Coast
Paper Finance Corp., Series B,
12 3/4%, 6/1/03 Caa1 320 342
Koppers Industries, Inc. 8 1/2%, 2/1/04 B1 410 429
Mail-Well Corp. 10 1/2%, 2/15/04 B 190 198
Paperboard Industries International, Inc.
8 3/8%, 9/15/07 (f) Ba3 40 40
Repap New Brunswick, Inc. yankee
9 7/8%, 7/15/00 B2 1,230 1,255
Riverwood International Corp.
10 5/8%, 8/1/07 (f) B3 505 521
SD Warren Co., Series B, 12%, 12/15/04 B1 900 1,008
Stone Container Corp.:
12 5/8%, 7/15/98 B2 1,870 1,949
11 7/8%, 12/1/98 B2 630 658
10 3/4%, 10/1/02 B1 1,600 1,712
11 7/8%, 8/1/16 B2 1,180 1,289
Tembec Finance Corp. yankee
9 7/8%, 9/30/05 B1 480 503
15,225
TOTAL BASIC INDUSTRIES 32,604
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - 0.0%
BUILDING MATERIALS - 0.0%
Insilco Corp. 10 1/4%, 8/15/07 (f) B3 $ 290 $ 303
REAL ESTATE - 0.0%
Iron Mountain, Inc. 8 3/4%, 9/30/09 (f) B3 425 428
TOTAL CONSTRUCTION & REAL ESTATE 731
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Blue Bird Body Co. 10 3/4%, 11/15/06 B2 310 326
HOME FURNISHINGS - 0.1%
Guitar Center Management Co., Inc.
11%, 7/1/06 B2 670 737
Interlake Corp. 12 1/8%, 3/1/02 B3 1,600 1,664
Knoll, Inc. 10 7/8%, 3/15/06 B1 618 680
3,081
TEXTILES & APPAREL - 0.3%
Dan River, Inc. 10 1/8%, 12/15/03 B3 520 551
Levi Strauss & Co. 6.80%, 11/1/03 (f) Baa2 5,560 5,672
Nine West Group, Inc. (f):
8 3/8%, 8/15/05 Ba2 800 794
9%, 8/15/07 Ba3 810 808
Polymer Group, Inc. 9%, 7/1/07 B2 760 752
Synthetic Industries, Inc. 9 1/4%, 2/15/07 B2 990 1,022
9,599
TOTAL DURABLES 13,006
ENERGY - 0.5%
ENERGY SERVICES - 0.1%
DI Industries, Inc. 8 7/8%, 7/1/07 B1 390 400
McDermott International, Inc.
9 3/8%, 3/15/02 Ba3 1,200 1,291
1,691
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - 0.4%
Belden & Blake Corp. 9 7/8%, 6/15/07 (f) B3 $ 1,060 $ 1,081
Chesapeake Energy Corp.:
7 7/8%, 3/15/04 Ba3 100 98
9 1/8%, 4/15/06 Ba3 250 258
8 1/2%, 3/15/12 Ba2 70 69
Clark R&M Holdings, Inc. 0%, 2/15/00 B2 1,000 770
Cross Timbers Oil Co.:
9 1/4%, 4/1/07 B2 1,380 1,411
8 3/4%, 11/1/09 (f) B2 210 209
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 1,410 1,498
Occidental Petroleum Corp.:
6.39%, 11/9/00 Baa3 1,000 1,004
8 1/2%, 11/9/01 Baa2 1,180 1,272
Ocean Energy, Inc. 8 7/8%, 7/15/07 B3 1,130 1,158
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 1,730 1,845
Plains Resources, Inc., Series B,
10 1/4%, 3/15/06 B2 400 425
Southwest Royalties, Inc.
10 1/2%, 10/15/04 (f) B3 240 238
11,336
TOTAL ENERGY 13,027
FINANCE - 6.7%
ASSET-BACKED SECURITIES - 1.7%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 1,570 1,782
Capital Equipment Receivables Trust
6.11%, 7/15/99 Aaa 14,150 14,201
Chase Manhattan Grantor Trust:
6.61%, 9/15/02 Aaa 5,193 5,231
6.76%, 9/15/02 A3 1,298 1,308
Chevy Chase Auto Receivables Trust:
6.60%, 12/15/02 Aaa 1,694 1,705
5.90%, 7/15/03 Aaa 4,708 4,707
Ford Credit Auto Owner Trust
6.40%, 5/15/02 A2 2,710 2,718
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Ford Credit Grantor Trust
5.90%, 10/15/00 Aaa $ 781 $ 782
Green Tree Financial Corp.
6.10%, 4/15/27 Aaa 1,755 1,756
MBNA Master Credit Card Trust II
7 1/4%, 9/15/02 Aaa 9,000 9,147
Sears Credit Account Master Trust II
6 1/2%, 10/15/03 Aaa 6,280 6,329
49,666
BANKS - 2.3%
ABN Amro Bank NV
6 5/8%, 10/31/01 Aa3 5,000 5,093
Bank of New York Institutional Capital Trust A
7.78%, 10/1/26 (f) A1 10,000 10,178
BanPonce Financial Corp.:
6.88%, 6/16/00 A3 2,500 2,546
6.69%, 9/21/00 A3 2,250 2,283
6 3/4%, 8/9/01 A3 3,850 3,920
BanPonce Corp. 5 3/4%, 3/1/99 A3 880 875
Capital One Bank:
6.74%, 5/31/99 Baa3 2,630 2,658
6.42%, 11/12/99 Baa3 5,000 5,017
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 9,045 9,777
First Chicago Institutional Capital B
7 3/4%, 12/1/26 (f) A1 6,000 6,133
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa1 720 728
First USA Bank 6 1/2%, 12/23/99 Aa2 4,700 4,740
Kansallis-Osake-Pankki 10%, 5/1/02 A3 710 810
Provident Bank 6 1/8%, 12/15/00 A3 3,420 3,416
Summit Bancorp. 8 5/8%, 12/10/02 BBB 1,250 1,363
Union Planters Corp. 6 3/4%, 11/1/05 Baa2 400 404
Wachovia Corp. 6.605%, 10/1/25 A1 7,550 7,725
67,666
CREDIT & OTHER FINANCE - 2.0%
AT&T Capital Corp.:
6.65%, 4/30/99 Baa3 6,560 6,626
6.41%, 8/13/99 Baa3 1,000 1,006
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Ahmanson Capital Trust I
8.36%, 12/1/26 (f) Baa3 $ 2,700 $ 2,880
Associates Corp. of North America
6 1/2%, 9/9/98 Aa3 10,000 10,056
BankBoston Capital Trust II
7 3/4%, 12/15/26 Baa1 8,000 8,200
CIT Group Holdings, Inc. 6 1/4%, 9/30/99 Aa3 8,440 8,485
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 4,750 4,771
Cityscape Financial Corp. 12 3/4%, 6/1/04 B2 970 660
Delta Financial Corp. 9 1/2%, 8/1/04 B1 210 208
First Security Capital I 8.41%, 12/15/26 A3 1,280 1,390
GST Equipment Funding, Inc.
13 1/4%, 5/1/07 (f) - 540 608
General Electric Capital Corp.
6.94%, 4/13/09 (e) Aaa 4,700 4,765
Imperial Credit Capital Trust I
10 1/4%, 6/14/02 (f) B2 510 500
Imperial Credit Industries, Inc.
9 7/8%, 1/15/07 B2 1,130 1,119
Indah Kiat Finance Mauritius Ltd.
10%, 7/1/07 (f) Ba3 490 443
MCN Investment Corp. 6.03%, 2/1/01 Baa2 2,350 2,341
Nordstrom Credit, Inc. 7 1/4%, 4/30/02 A2 3,100 3,230
Ocwen Capital Trust 10 7/8%, 8/1/27 B2 485 517
PTC International Finance BV
0%, 7/1/07 (d)(f) B3 240 155
Pindo Deli Finance Mauritius Ltd.
10 1/4%, 10/1/02 (f) Ba3 330 310
Tjiwi Kimia Mauritius Ltd.
10%, 8/1/04 (f) Ba3 940 837
59,107
INSURANCE - 0.5%
SunAmerica, Inc. 6.20%, 10/31/99 Baa1 13,750 13,743
SAVINGS & LOANS - 0.2%
First Nationwide Holdings, Inc.
10 5/8%, 10/1/03 Ba3 1,360 1,496
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 3,940 4,462
5,958
TOTAL FINANCE 196,140
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (f) B3 $ 160 $ 165
Wright Medical Technology, Inc.
11 3/4%, 7/1/00 (f)(g) Caa3 1,191 1,191
1,356
MEDICAL FACILITIES MANAGEMENT - 0.1%
Integrated Health Services, Inc. (f):
9 1/2%, 9/15/07 B2 300 303
9 1/4%, 1/15/08 B2 1,200 1,197
Tenet Healthcare Corp.:
8%, 1/15/05 Ba1 620 626
8 5/8%, 1/15/07 Ba3 170 173
Vencor, Inc. 8 5/8%, 7/15/07 (f) B1 215 209
2,508
TOTAL HEALTH 3,864
HOLDING COMPANIES - 0.2%
Gray Communications System, Inc.
10 5/8%, 10/1/06 B3 970 1,038
Norfolk Southern Corp. 7.05%, 5/1/37 Baa1 5,800 6,032
7,070
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Amphenol Corp. 9 7/8%, 5/15/07 B2 130 134
Echostar Communications Corp. secured
discount 0%, 6/1/04 (d) B2 3,829 3,417
Motors & Gears, Inc. 10 3/4%, 11/15/06 B3 1,820 1,929
5,480
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Calmar, Inc. 11 1/2%, 8/15/05 B3 100 106
Continental Global Group, Inc. 11%, 4/1/07 B2 550 580
Goss Graphic System, Inc. 12%, 10/15/06 B2 1,210 1,349
2,035
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 0.0%
Allied Waste North America
10 1/4%, 12/1/06 B3 $ 350 $ 378
Envirosource, Inc. 9 3/4%, 6/15/03 B3 270 268
646
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 8,161
MEDIA & LEISURE - 2.4%
BROADCASTING - 1.4%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (d)(f) B3 820 605
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B3 670 655
9 7/8%, 3/1/07 B3 650 663
CapStar Broadcasting Partners, Inc.:
9 1/4%, 7/1/07 B2 1,110 1,121
0%, 2/1/09 (d) B3 1,670 1,169
Chancellor Media Corp.
8 3/4%, 6/15/07 (f) B3 620 622
Continental Cablevision, Inc. 9%, 9/1/08 Baa3 1,700 1,937
CS Wireless Systems, Inc. 0%, 3/1/06 (d) Caa 1,386 402
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa1 100 80
Falcon Holdings Group LP
11%, 9/15/03 pay-in-kind - 2,387 2,434
Fox Kids Worldwide, Inc. 0%, 11/1/07 (d)(f) B1 1,720 968
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (d)(f) Caa1 146 100
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 140 144
9 3/8%, 12/1/05 B3 380 377
Intermedia Capital Partners IV L P / Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 60 66
International Cabletel, Inc 0%, 2/1/06 (d) B3 1,000 735
Olympus Communications LP/ Olympus
Capital Corp 10 5/8%, 11/15/06 B1 1,660 1,793
Panamsat Corp. 12 3/4%, 4/15/05 pay-in-kind BBB+ 444 531
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 $ 820 $ 888
TCI Communications, Inc.:
7 1/4%, 6/15/99 Ba1 1,000 1,013
6.82%, 9/15/10 (g) Ba1 4,000 4,019
TeleTrac, Inc. 14%, 8/1/07 unit (f) Caa2 920 929
Telewest PLC 0%, 10/1/07 (d) B1 770 572
Time Warner, Inc.:
7 3/4%, 6/15/05 Ba1 8,000 8,389
6.85%, 1/15/26 Ba1 7,120 7,275
UIH Australia/Pacific, Inc. (d):
Series B, 0%, 5/15/06 B2 4,330 3,009
0%, 5/15/06 (f) B2 100 70
United International Holdings, Inc.
0%, 11/15/99 B3 450 369
40,935
ENTERTAINMENT - 0.2%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 1,370 1,390
AMF Group, Inc., Series B:
0%, 3/15/06 (d) B2 360 271
10 7/8%, 3/15/06 B2 755 815
Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 890 917
Regal Cinemas, Inc. 8 1/2%, 10/1/07 (f) B1 60 60
Viacom, Inc. 8%, 7/7/06 B1 2,360 2,313
5,766
LEISURE DURABLES & TOYS - 0.0%
ICON Fitness Corp. 0%, 11/15/06 (d) Caa3 270 154
LODGING & GAMING - 0.4%
American Skiing Co. 12%, 7/15/06 B3 830 925
HMC Acquisition Properties, Inc.
9%, 12/15/07 Ba3 2,810 2,880
HMH Properties, Inc.:
9 1/2%, 5/15/05 Ba3 1,460 1,529
8 7/8%, 7/15/07 Ba3 1,210 1,237
Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 1,330 1,443
KSL Recreation Group, Inc. 10 1/4%, 5/1/07 B3 280 295
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Station Casinos, Inc. 9 3/4%, 4/15/07 B2 $ 320 $ 322
Sun International Hotels Ltd. /Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 1,780 1,825
10,456
PUBLISHING - 0.1%
Big Flower Press Holdings, Inc.:
8 7/8%, 7/1/07 B2 1,860 1,869
8 7/8%, 7/1/07 (f) B2 310 311
ITT Publimedia BV 9 3/8%, 9/15/07 (f) B3 1,040 1,082
3,262
RESTAURANTS - 0.3%
AFC Enterprises, Inc. 10 1/4%, 5/15/07 B3 1,000 1,045
Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa1 2,700 2,607
SC International Services, Inc.
9 1/4%, 9/1/07 (f) B2 800 816
Wendy's International, Inc. 6.35%, 12/15/05 Baa1 5,000 4,945
9,413
TOTAL MEDIA & LEISURE 69,986
NONDURABLES - 0.9%
FOODS - 0.3%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 3,600 3,830
International Home Foods, Inc.
10 3/8%, 11/1/06 B2 710 753
Nabisco, Inc. 8%, 1/15/00 Baa2 3,153 3,265
7,848
HOUSEHOLD PRODUCTS - 0.2%
Renaissance Cosmetic, Inc. 11 3/4%, 2/15/04 B3 1,470 1,441
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 5,425 5,723
7,164
TOBACCO - 0.4%
North Atlantic Trading, Inc. 11%, 6/15/04 (f) B3 320 326
Philip Morris Companies, Inc. 6.95%, 6/1/06 A2 10,000 10,275
10,601
TOTAL NONDURABLES 25,613
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 1.1%
APPAREL STORES - 0.1%
Mothers Work, Inc. 12 5/8%, 8/1/05 B3 $ 240 $ 256
Specialty Retailers, Inc.:
8 1/2%, 7/15/05 Ba3 530 541
9%, 7/15/07 B2 820 832
1,629
GENERAL MERCHANDISE STORES - 0.5%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa1 1,400 1,430
6.40%, 2/15/03 Baa1 425 426
Federated Department Stores, Inc.:
8 1/2%, 6/15/03 Baa2 3,000 3,280
6.79%, 7/15/27 Baa2 7,000 7,152
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 3,250 3,305
15,593
GROCERY STORES - 0.4%
American Stores Co. 7 1/2%, 5/1/37 Baa2 4,850 5,278
Brunos, Inc. 10 1/2%, 8/1/05 Caa2 160 83
Di Giorgio Corp. 10%, 6/15/07 B3 820 802
Fleming Companies, Inc.
10 1/2%, 12/1/04 (f) B3 550 572
Food 4 Less Holdings, Inc. 13 5/8%, 6/15/07 - 214 246
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa1 1,280 1,261
9 5/8%, 5/1/03 B3 950 895
Penn Traffic Co.:
10 1/4%, 2/15/02 B3 720 648
8 5/8%, 12/15/03 B3 430 363
10 3/8%, 10/1/04 B3 420 378
11 1/2%, 4/15/06 B3 350 329
Pueblo Xtra International, Inc.:
9 1/2%, 8/1/03 B3 1,320 1,287
9 1/2%, 8/1/03 B3 30 29
12,171
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Central Tractor Farm & Country, Inc.
10 5/8%, 4/1/07 B2 $ 270 $ 279
Corporate Express, Inc., Series B,
9 1/8%, 3/15/04 B2 120 122
J Crew Operating Corp. (f):
10 3/8%, 10/15/07 B3 510 505
0%, 10/15/08 (d) Caa2 680 374
1,280
TOTAL RETAIL & WHOLESALE 30,673
SERVICES - 0.3%
LEASING & RENTAL - 0.0%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 B2 1,150 1,167
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa1 1,800 1,818
SERVICES - 0.2%
Orion Network Systems, Inc.:
0%, 1/15/07 (d) B2 6,760 4,918
11 1/4%, 1/15/07 B2 1,445 1,622
Outsourcing Solutions, Inc. 11%, 11/1/06 B3 420 464
7,004
TOTAL SERVICES 9,989
TECHNOLOGY - 0.9%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc.
0%, 7/15/07 (d) B2 2,110 1,382
Jordan Telecommunication Products, Inc. (f):
0%, 8/1/07 (d) B3 1,090 850
9 7/8%, 8/1/07 B3 460 465
2,697
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.0%
DecisionOne Corp. 9 3/4%, 8/1/07 B3 $ 170 $ 174
DecisionOne Holdings Corp.
0%, 8/1/08 unit (d) Caa1 150 95
269
COMPUTERS & OFFICE EQUIPMENT - 0.6%
Comdisco, Inc.:
6.35%, 8/7/98 Baa1 2,500 2,507
6.70%, 8/6/99 Baa1 3,000 3,037
5 3/4%, 2/15/01 Baa1 6,000 5,914
6 3/8%, 11/30/01 Baa1 4,500 4,521
Dictaphone Corp. 11 3/4%, 8/1/05 Caa3 370 326
Exide Electronics Group, Inc. 11 1/2%, 5/15/06 B3 140 165
16,470
ELECTRONIC INSTRUMENTS - 0.0%
Wavetek Corp. 10 1/8%, 6/15/07 B3 180 185
ELECTRONICS - 0.2%
Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 5,370 5,482
Viasystems, Inc. 9 3/4%, 6/1/07 (f) B3 490 501
5,983
TOTAL TECHNOLOGY 25,604
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.1%
Atlas Air, Inc. pass through trust
12 1/4%, 12/1/02 Ba3 860 959
Delta Air Lines, Inc. equipment trust certificate
8.54%, 1/2/07 Baa1 765 835
1,794
RAILROADS - 0.1%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa2 4,360 4,644
TRUCKING & FREIGHT - 0.0%
Allied Holdings, Inc. 8 5/8%, 10/1/07 (f) B1 80 82
TOTAL TRANSPORTATION 6,520
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 2.2%
CELLULAR - 0.8%
Dial Call Communications, Inc.
0%, 4/15/04 (d) B3 $ 690 $ 642
McCaw International Ltd.
0%, 4/15/07 (d) CCC 5,760 3,341
Microcell Telecommunications, Inc.
0%, 6/1/06 (d) B3 3,220 2,157
Millicom International Cellular SA
0%, 6/1/06 (d) B3 8,980 6,735
Pagemart Nationwide, Inc. 0%, 2/1/05 (d) - 730 602
Pagemart, Inc. 0%, 11/1/03 (d) - 2,850 2,594
Rogers Communications, Inc. 8 7/8%, 7/15/07 B2 180 178
Telesystem International Wireless, Inc. (f):
0%, 6/30/07 (d) Caa1 1,070 642
10 1/2%, 11/1/07 Caa1 80 42
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 6,970 7,057
USA Mobile Communications, Inc. II:
9 1/2%, 2/1/04 B2 390 382
14%, 11/1/04 B2 180 200
24,572
ELECTRIC UTILITY - 0.3%
AES Corp. 8 3/8%, 8/15/07 Ba1 500 488
CMS Energy Corp. 8 1/8%, 5/15/02 Ba3 230 233
DR Investment UK PLC yankee
7.10%, 5/15/02 (f) Baa1 5,000 5,165
Virginia Electric & Power Co. 6.35%, 6/8/98 A3 3,000 3,007
8,893
GAS - 0.2%
Columbia Gas System, Inc. 6.61%, 11/28/02 Baa1 6,000 6,089
TELEPHONE SERVICES - 0.9%
GST USA, Inc. 0%, 12/15/05 (d) - 1,000 720
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) - 3,380 2,298
12 1/4%, 9/1/04 (f) - 1,075 1,140
McLeodUSA, Inc. 0%, 3/1/07 (d) B3 820 567
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 240 242
RCN Corp. 0%, 10/15/07 (d)(f) B3 1,320 766
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
RSL Communications Ltd. /RSL
Communications PLC 12 1/4%, 11/15/06 Caa1 $ 1,110 $ 1,204
Winstar Communications, Inc.
0%, 10/15/05 (d) Caa1 2,050 1,456
Winstar Equipment 12 1/2%, 3/15/04 B3 220 229
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,228 1,308
8 7/8%, 1/15/06 Ba1 5,667 6,181
7 3/4%, 4/1/07 Ba1 9,000 9,439
25,550
TOTAL UTILITIES 65,104
TOTAL NONCONVERTIBLE BONDS 536,637
TOTAL CORPORATE BONDS
(Cost $536,238) 550,696
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 10.2%
U.S. TREASURY OBLIGATIONS - 8.3%
5 7/8%, 10/31/98 Aaa 4,170 4,181
6 5/8%, 6/30/01 Aaa 38,530 39,620
6 5/8%, 3/31/02 Aaa 40,100 41,397
10 3/4%, 5/15/03 Aaa 402 495
12 3/8%, 5/15/04 Aaa 1,315 1,775
7%, 7/15/06 Aaa 92,825 99,598
12 3/4%, 11/15/10 (callable) Aaa 30,500 43,510
13 7/8%, 5/15/11 (callable) Aaa 1,410 2,144
7 1/4%, 2/15/23 Aaa 10,153 11,300
TOTAL U.S. TREASURY OBLIGATIONS 244,020
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.9%
Federal Agricultural Mortgage Corporation
7.01%, 2/10/04 Aaa $ 1,720 $ 1,809
Federal Home Loan Bank:
7.36%, 7/1/04 Aaa 1,590 1,701
7.38%, 8/5/04 Aaa 3,790 4,066
7.56%, 9/1/04 Aaa 5,530 5,989
7.70%, 9/20/04 Aaa 1,170 1,273
Federal National Mortgage Association:
8 5/8%, 6/30/04 Aaa 4,000 4,536
6.72%, 8/1/05 Aaa 3,980 4,105
Financing Corp. stripped principal 0%, 6/6/02 Aaa 5,230 3,994
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 142 151
Class 2-E, 9.40%, 5/15/02 Aaa 1,975 2,095
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 Aaa 397 386
Series 1993-D, 5.23%, 5/15/05 Aaa 712 693
Series 1994-A, 7.12%, 4/15/06 Aaa 655 682
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank) Series 1994-B,
7 1/2%, 1/26/06 Aaa 543 574
Overseas Private Investment Corp. (U.S.
Government guaranteed participation
certificate):
Series 1994-195, 6.08%, 8/15/04 (callable) Aaa 1,840 1,840
Series 1996-A1, 6.726%, 9/15/10 (callable) - 5,000 5,144
State of Israel (guaranteed by U.S. government
through Agency for International Development):
7 3/4%, 11/15/99 Aaa 2,660 2,757
0%, 11/15/01 Aaa 2,320 1,836
8%, 11/15/01 Aaa 1,160 1,245
6 1/8%, 3/15/03 Aaa 3,443 3,469
7 5/8%, 8/15/04 Aaa 1,650 1,792
5.89%, 8/15/05 Aaa 3,155 3,113
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban Development
Government guaranteed participation certificates
Series 1995-A, 8.24%, 8/1/04 Aaa $ 2,200 $ 2,450
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 55,700
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $295,108) 299,720
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 6.0%
Federal Home Loan Mortgage Corporation:
5 1/2%, 10/1/02 to 5/1/03 Aaa 4,054 3,938
7%, 7/1/99 to 7/1/26 Aaa 4,327 4,383
Federal National Mortgage Association:
5 1/2%, 8/1/02 to 4/1/26 Aaa 84,526 82,184
6%, 6/1/11 to 9/1/25 Aaa 17,416 16,825
6 1/2%, 2/1/24 to 9/1/27 Aaa 50,782 50,011
Government National Mortgage Association:
7%, 12/15/22 to 12/15/25 Aaa 2,730 2,751
8%, 11/15/21 to 12/15/26 Aaa 15,843 16,458
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $174,199) 176,550
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
U.S. GOVERNMENT AGENCY - 0.5%
Federal Home Loan Mortgage Corporation
planned amortization class Series 1645
Class ZA, 5 1/2%, 4/15/05 Aaa 11,092 10,980
Federal National Mortgage Association planned
amortization class Series 1993-129 Class D,
6.10%, 6/25/05 Aaa 5,000 5,000
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $15,700) 15,980
COMMERCIAL MORTGAGE SECURITIES - 0.4%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
American Southwest Financial Securities
Series 1994-C2 Class B2,
9.6596%, 12/25/01 (f)(g) - $ 700 $ 712
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.7349%, 8/1/24 (f)(g) - 1,836 1,398
CS First Boston Mortgage Securities Corp.
floater Series 1995-AEWI Class E,
9.7763%, 11/25/97 (f)(g) - 250 253
DLJ Mortgage Acceptance Corp.
Series 1993-MF12 Class B-2,
10.10%, 9/18/03 (f) - 700 712
First Chicago /Lennar Trust I Series 1997-CHL1 (g):
Class E, 8.1217%, 4/1/39 - 650 548
Class D, 8.12%, 5/29/08 - 700 704
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1996-C1
Class F, 7.86%, 11/15/06 (f) Ba3 500 477
Morgan Stanley Capital One, Inc.
Series 1996-MBL1 Class E,
8.6777%, 5/25/21 (f)(g) - 764 718
Penn Mutual Life Insurance Co. (The)
Series 1996-PML Class K,
7.90%, 11/15/26 (f) - 1,250 906
Structured Asset Securities Corp.:
Series 1995-C1 Class E,
7 3/8%, 9/25/24 (f) BB 1,000 921
Series 1993-C1 Class E,
6.60%, 10/25/24 (f) B 500 175
sequential pay Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 210 210
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,356 1,378
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (f) Aaa 1,727 1,748
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $9,949) 10,860
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.6%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 $ 1,250 $ 1,296
Manitoba Province yankee 6 3/8%, 10/15/99 A1 4,780 4,825
Mexico Value recovery rights
6/30/03 discount A - 1 -
Quebec Province yankee (e):
6.86%, 4/15/26 A2 8,000 8,221
7.22%, 7/22/36 A2 3,200 3,388
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $16,962) 17,730
SUPRANATIONAL OBLIGATIONS - 0.1%
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $3,975) Aaa 4,000 4,115
CERTIFICATES OF DEPOSIT - 0.1%
Canadian Imperial Bank of Commerce NY
Branch yankee 6.20%, 8/1/00
(Cost $3,005) 3,000 3,002
CASH EQUIVALENTS - 1.7%
SHARES
Taxable Central Cash Fund (b)
(Cost $48,548) 48,547,890 48,548
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,480,252) $ 2,931,566
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund
was 5.64%. The yield refers to the income earned by investing in the
fund over the seven-day period, expressed as an annual percentage.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
5. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
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 $81,448,000 or
2.7% of net assets.
7. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
8. For foreign government obligations not 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 23.2% AAA, AA, A 22.4%
Baa 5.3% BBB 7.6%
Ba 2.4% BB 0.8%
B 4.5% B 4.5%
Caa 0.4% CCC 0.4%
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 Moody's or S&P amounted to 0.7%. FMR has determined that
unrated debt securities that are lower quality account for 0.6% of the
total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $2,482,190,000. Net unrealized appreciation
aggregated $449,376,000, of which $472,670,000 related to appreciated
investment securities and $23,294,000 related to depreciated
investment securities.
The fund hereby designates approximately $29,059,000 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, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (COST $2,480,252) - $ 2,931,566
SEE ACCOMPANYING SCHEDULE
CASH 57
RECEIVABLE FOR INVESTMENTS SOLD 26,407
RECEIVABLE FOR FUND SHARES SOLD 3,842
DIVIDENDS RECEIVABLE 2,866
INTEREST RECEIVABLE 16,998
OTHER RECEIVABLES 332
PREPAID EXPENSES 2
TOTAL ASSETS 2,982,070
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 7,193
PAYABLE FOR FUND SHARES REDEEMED 8,236
ACCRUED MANAGEMENT FEE 1,134
DISTRIBUTION FEES PAYABLE 1,260
OTHER PAYABLES AND ACCRUED EXPENSES 578
TOTAL LIABILITIES 18,401
NET ASSETS $ 2,963,669
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,277,330
UNDISTRIBUTED NET INVESTMENT INCOME 9,114
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 225,890
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 451,335
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS $ 2,963,669
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $18.75
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($7,565 (DIVIDED BY) 403.49 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/94.25 OF $18.75) $19.89
CLASS T: $18.79
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,901,222 (DIVIDED BY) 154,430 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $18.79) $19.47
CLASS B: $18.71
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($15,958 (DIVIDED BY) 853 SHARES) A
INSTITUTIONAL CLASS: $18.85
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($38,924 (DIVIDED BY) 2,065 SHARES)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME $ 42,317
DIVIDENDS
INTEREST 79,944
TOTAL INCOME 122,261
EXPENSES
MANAGEMENT FEE $ 13,237
TRANSFER AGENT FEES 5,419
DISTRIBUTION FEES 14,623
ACCOUNTING FEES AND EXPENSES 807
NON-INTERESTED TRUSTEES' COMPENSATION 23
CUSTODIAN FEES AND EXPENSES 93
REGISTRATION FEES 134
AUDIT 92
LEGAL 17
INTEREST 1
MISCELLANEOUS 96
TOTAL EXPENSES BEFORE REDUCTIONS 34,542
EXPENSE REDUCTIONS (215) 34,327
NET INVESTMENT INCOME 87,934
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 229,516
FOREIGN CURRENCY TRANSACTIONS 108 229,624
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 251,898
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 1 251,899
NET GAIN (LOSS) 481,523
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 569,457
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 87,934 $ 107,896
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 229,624 30,925
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 251,899 144,053
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 569,457 282,874
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (90,048) (124,584)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (19,449) (6,649)
TOTAL DISTRIBUTIONS (109,497) (131,233)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (512,007) (578,059)
TOTAL INCREASE (DECREASE) IN NET ASSETS (52,047) (426,418)
NET ASSETS
BEGINNING OF PERIOD 3,015,716 3,442,134
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,963,669 $ 3,015,716
INCOME OF $9,114 AND $10,411, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1997 1996 E
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.04 $ 15.22
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .48 .08
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.83 .88
TOTAL FROM INVESTMENT OPERATIONS 3.31 .96
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.49) (.14)
FROM NET REALIZED GAIN (.11) -
TOTAL DISTRIBUTIONS (.60) (.14)
NET ASSET VALUE, END OF PERIOD $ 18.75 $ 16.04
TOTAL RETURN B, C 20.99% 6.34%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 8 $ 1
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.41% F 1.50% A,
F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 1.40% G 1.49% A,
G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 2.68% 3.07% A
PORTFOLIO TURNOVER 70% 223%
AVERAGE COMMISSION RATE H $ .0435 $ .0106
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 D 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 16.07 $ 15.30 $ 14.67 $ 15.91 $ 14.41
OF PERIOD
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .53 C .51 C .59 .38 .48
NET REALIZED AND UNREALIZED 2.84 .88 .54 (.79) 2.18
GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS 3.37 1.39 1.13 (.41) 2.66
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.54) (.59) (.50) (.28) (.56)
IN EXCESS OF NET - - - (.02) -
INVESTMENT INCOME
FROM NET REALIZED GAIN (.11) (.03) - (.49) (.60)
RETURN OF CAPITAL - - - (.04) -
TOTAL DISTRIBUTIONS (.65) (.62) (.50) (.83) (1.16)
NET ASSET VALUE, END OF PERIOD $ 18.79 $ 16.07 $ 15.30 $ 14.67 $ 15.91
TOTAL RETURN A, B 21.36% 9.30% 7.85% (2.69)% 19.66%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,901 $ 2,993 $ 3,441 $ 3,129 $ 1,654
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.17% 1.26% 1.47% 1.59% 1.52%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET 1.17% 1.25% 1.46% 1.58% 1.51%
ASSETS AFTER EXPENSE REDUCTIONS E E E E
RATIO OF NET INVESTMENT INCOME 2.98% 3.32% 3.99% 3.79% 3.24%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER 70% 223% 297% 202% 200%
AVERAGE COMMISSION RATE F $ .0435 $ .0106
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - CLASS B
YEAR ENDED
OCTOBER 31,
1997 E
<TABLE>
<CAPTION>
<S> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.36
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .29
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.38
TOTAL FROM INVESTMENT OPERATIONS 2.67
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.32)
NET ASSET VALUE, END OF PERIOD $ 18.71
TOTAL RETURN B, C 16.40%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 16
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.12% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 2.11% A,
F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.88% A
PORTFOLIO TURNOVER 70%
AVERAGE COMMISSION RATE G $ .0435
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD DECEMBER 31, 1996 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO OCTOBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1997 1996 1995 E
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.11 $ 15.40 $ 15.23
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .61 D .54 D .25
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.86 .87 .09
TOTAL FROM INVESTMENT OPERATIONS 3.47 1.41 .34
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.62) (.67) (.17)
FROM NET REALIZED GAIN (.11) (.03) -
TOTAL DISTRIBUTIONS (.73) (.70) (.17)
NET ASSET VALUE, END OF PERIOD $ 18.85 $ 16.11 $ 15.40
TOTAL RETURN B, C 21.97% 9.41% 2.22%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 39 $ 22 $ 1
RATIO OF EXPENSES TO AVERAGE NET ASSETS .69% 1.06% .92% A,
F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .69% 1.03% G .91% A,
EXPENSE REDUCTIONS G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 3.42% 3.54% 4.54% A
PORTFOLIO TURNOVER 70% 223% 297%
AVERAGE COMMISSION RATE H $ .0435 $ .0106
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Balanced Fund (the fund) (formerly Fidelity Advisor
Income & Growth 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 T, 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 Class B shares on
December 31, 1996. Investment income, realized and unrealized capital
gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. 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. 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. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
period end. Income receipts and expense payments are translated into
U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions. Purchases and sales of securities are translated
into U.S. dollars at the contractual currency exchange rates
established at the time of each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, 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."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
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
Class B, and shares of Class B for distribution under federal and
state securities law. These expenses are borne by Class B and
amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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.
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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
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 FMR, may transfer uninvested cash
balances into one or more joint trading accounts. These balances are
invested in one or more repurchase agreements for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by FMR Texas, Inc., an affiliate of FMR. The Cash
Fund is an open-end money market fund available only to investment
companies and other accounts managed by FMR and its
2. OPERATING POLICIES - CONTINUED
TAXABLE CENTRAL CASH FUND - CONTINUED
affiliates. The Cash Fund seeks preservation of capital, liquidity,
and current income by investing in U.S. Treasury securities and
repurchase agreements for these securities. Income distributions from
the Cash Fund are declared daily and paid monthly from net interest
income. Income distributions received by the fund are recorded as
interest income in the accompanying financial statements.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,009,067,000 and $2,525,099,000, respectively, of which
U.S. government and government agency obligations aggregated
$641,378,000 and $768,825,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .15%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .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 each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .25%
CLASS T .50%
CLASS B 1.00%*
* .75% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 11,000 $ 11,000
CLASS T 14,549,000 14,549,000
CLASS B 63,000 16,000
$ 14,623,000 $ 14,576,000
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
SALES LOAD. FDC receives a front-end sales charge of up to 5.75% for
selling Class A shares (5.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, respectively, and the proceeds of
a contingent deferred sales charge levied on Class B share redemptions
occurring within six years of purchase (five years prior to January 2,
1997). The Class B charge is based on declining rates which range from
5% to 1% (4% to 1% prior to January 2, 1997) 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 the following sales charge amounts
related to each class, a portion of which is paid to securities
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 139,000 $ 102,000
CLASS T 1,052,000 777,000
CLASS B 9,000 0*
$ 1,200,000 $ 879,000
* WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO DEALERS THROUGH WHICH
THE SALES ARE MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC* $ 10,000 .24
CLASS T** FIIOC* 5,353,000 .18
CLASS B FIIOC* 16,000 .25
INSTITUTIONAL CLASS FIIOC* 40,000 .14
$ 5,419,000
* FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC)
AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN
TRANSFER, DIVIDEND DISBURSING, AND SHAREHOLDER SERVICES TO FIIOC FOR
WHICH FIIOC RECEIVED ITS ALLOCABLE SHARE OF ALL SUCH FEES.
ACCOUNTING FEES. Fidelity Service Company, Inc. (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 $259,000 for the
period.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each class:
FMR REIMBURSEMENT
EXPENSE
LIMITATION
CLASS A 1.50% $ 7,000
FMR also agreed to reimburse certain transfer agent, registration and
other class specific expenses for Class A. For the period, the
reimbursement reduced these expenses by $4,000.
5. EXPENSE REDUCTIONS - CONTINUED
Effective November 1, 1997, Class A, Class T, Class B and
Institutional Class expense limitations were changed from 1.50% to
1.05%, 1.75% to 1.30%, 2.25% to 1.80% and from 1.25% to .80% of each
class' average net assets, respectively.
FMR has also 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 $202,000 under this arrangement.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $2,000 under the custodian
arrangement.
6. 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 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 $5,637,000. The weighted average interest rate was 5.875%.
7. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of
approximately 21.3% of the total outstanding shares of the fund.
8. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
AMOUNTS IN THOUSANDS 1997 B 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 111 $ 4
FROM NET REALIZED GAIN 12 -
TOTAL $ 123 $ 4
CLASS T
FROM NET INVESTMENT INCOME $ 88,845 $ 124,292
FROM NET REALIZED GAIN 19,290 6,647
TOTAL $ 108,135 $ 130,939
CLASS B
FROM NET INVESTMENT INCOME $ 137 $ -
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME $ 955 $ 288
FROM NET REALIZED GAIN 147 2
TOTAL $ 1,102 $ 290
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
B DISTRIBUTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1997.
9. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997B 1996A 1997B 1996A
AMOUNTS IN THOUSANDS
CLASS A 398 79 $ 7,127 $ 1,223
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 7 - 117 4
SHARES REDEEMED (75) (5) (1,376) (76)
NET INCREASE (DECREASE) 330 74 $ 5,868 $ 1,151
CLASS T 26,574 36,300 $ 469,471 $ 563,225
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 5,886 7,921 101,958 122,603
SHARES REDEEMED (64,227) (82,882) (1,117,978) (1,284,921)
NET INCREASE (DECREASE) (31,767) (38,661) $ (546,549) $ (599,093)
CLASS B 1,099 - $ 20,123 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 7 - 128 -
SHARES REDEEMED (253) - (4,772) -
NET INCREASE (DECREASE) 853 - $ 15,479 $ -
INSTITUTIONAL CLASS 1,168 1,421 $ 21,544 $ 21,932
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 60 17 1,061 270
SHARES REDEEMED (517) (149) (9,410) (2,319)
NET INCREASE (DECREASE) 711 1,289 $ 13,195 $ 19,883
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996
B SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1997
10. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 30,000
CLASS T 58,000
CLASS B 27,000
INSTITUTIONAL CLASS 19,000
$ 134,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Balanced Fund (formerly Fidelity Advisor Income &
Growth Fund):
We have audited the accompanying statement of assets and liabilities
of Fidelity Advisor Series II: Fidelity Advisor Balanced Fund
(formerly Fidelity Advisor Income & Growth Fund), including the
schedule of portfolio investments, as of October 31, 1997, 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 of Class A, Class T, Class B and
Institutional Class for each of the periods indicated therein. 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, 1997 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
Balanced Fund (formerly Fidelity Advisor Income & Growth Fund) as of
October 31, 1997, 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 of Class A, Class T,
Class B and Institutional Class for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Balanced 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 12/8/97 12/5/97 $0.16 $1.26
Class T 12/8/97 12/5/97 $0.16 $1.26
Class B 12/8/97 12/5/97 $0.12 $1.26
Class C 12/8/97 12/5/97 $0.16 $1.26
A total of 11.81% 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.
Totals of 100%, and 36% of the dividends distributed during the fiscal
year qualify for the dividends-received deduction for corporate
shareholders of Class A and Class T, respectively.
The fund will notify shareholders in January 1998 of these percentages
for use in preparing 1997 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
Robert C. Pozen, Senior Vice President
William S. Hayes, Vice President
Richard A. Spillane, Vice President
Bettina E. Doulton, Vice President
Kevin Grant, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributions Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank, N.A.
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International
Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Funds
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
BALANCED FUND -
INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 6 THE MANAGERS' 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 40 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 48 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 57 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 58
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
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. A stock mutual fund, for instance, is already
diversified, because it invests in many different companies. You can
increase your diversification further by investing in a number of
different stock funds, or in such other investment categories 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, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR BALANCED 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of 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 T, the original class of the fund, and reflect
Class T's prior 0.65% 12b-1 fee. If Fidelity had not reimbursed
certain class expenses, the past five year and past 10 year total
returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - INSTITUTIONAL CLASS 21.97% 69.00% 267.41%
S&P 500(REGISTERED TRADEMARK) 32.11% 147.49% 387.82%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 43.65% 142.28%
BALANCED FUNDS AVERAGE 19.51% 86.93% 231.34%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. 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 the
performance of the Standard & Poor's 500 Index - a widely recognized,
unmanaged index of common stocks - and the performance of the Lehman
Brothers Aggregate Bond Index - a market value weighted performance
benchmark for investment-grade fixed-rate debt issues, including
government, corporate, asset-backed, and mortgage-backed securities,
with maturities of at least one year. To measure how Institutional
Class' performance stacked up against its peers, you can compare it to
the balanced funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 343 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR BALANCED - INSTITUTIONAL CLASS 21.97% 11.07% 13.90%
S&P 500 32.11% 19.87% 17.16%
LEHMAN BROTHERS AGGREGATE BOND INDEX 8.89% 7.51% 9.25%
BALANCED FUNDS AVERAGE 19.51% 13.27% 12.66%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' cumulative
return and show you what would have happened if Institutional Class
shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 103310 S00000000000001
FA Balanced -CL I S&P 500
LB Aggregate Bond
00642 SP001
LB001
1987/10/31 10000.00 10000.00
10000.00
1987/11/30 9819.92 9176.00
10080.10
1987/12/31 10249.20 9874.29
10217.41
1988/01/31 10850.83 10290.00
10576.57
1988/02/29 11302.05 10769.52
10702.12
1988/03/31 11334.28 10436.74
10601.68
1988/04/30 11530.27 10552.59
10544.47
1988/05/31 11573.82 10644.39
10473.59
1988/06/30 12053.87 11132.97
10726.27
1988/07/31 12009.75 11090.67
10670.01
1988/08/31 11965.64 10713.58
10697.98
1988/09/30 12187.20 11169.98
10940.18
1988/10/31 12365.93 11480.51
11146.14
1988/11/30 12243.06 11316.34
11010.74
1988/12/31 12389.76 11514.37
11023.14
1989/01/31 12877.19 12357.22
11181.74
1989/02/28 12922.53 12049.53
11100.69
1989/03/31 13140.01 12330.28
11148.69
1989/04/30 13667.91 12970.22
11381.98
1989/05/31 14115.47 13495.52
11681.08
1989/06/30 14310.04 13418.59
12036.74
1989/07/31 14959.97 14630.29
12292.61
1989/08/31 15192.09 14917.05
12110.48
1989/09/30 15215.80 14855.89
12172.46
1989/10/31 14981.17 14511.23
12472.19
1989/11/30 15286.19 14807.26
12591.06
1989/12/31 15437.26 15162.63
12624.75
1990/01/31 14690.51 14145.22
12474.73
1990/02/28 14729.13 14327.69
12515.10
1990/03/31 14935.29 14707.38
12524.32
1990/04/30 14739.80 14339.69
12409.57
1990/05/31 15287.17 15737.81
12777.00
1990/06/30 15352.02 15630.80
12982.01
1990/07/31 15312.45 15580.78
13161.59
1990/08/31 14376.03 14172.28
12985.82
1990/09/30 14044.22 13482.09
13093.26
1990/10/31 13910.60 13424.11
13259.49
1990/11/30 14538.64 14291.31
13544.91
1990/12/31 14982.95 14690.04
13755.96
1991/01/31 15756.53 15330.52
13926.01
1991/02/28 16679.39 16426.66
14044.88
1991/03/31 17103.03 16824.18
14141.50
1991/04/30 17431.94 16864.56
14294.70
1991/05/31 18158.27 17593.11
14378.30
1991/06/30 17786.10 16787.34
14370.99
1991/07/31 18546.79 17569.63
14570.28
1991/08/31 19017.02 17986.03
14885.58
1991/09/30 19157.04 17685.67
15187.21
1991/10/31 19715.15 17922.66
15356.30
1991/11/30 19254.71 17200.37
15497.11
1991/12/31 20149.30 19168.09
15957.35
1992/01/31 20281.86 18811.57
15740.26
1992/02/29 20709.00 19056.12
15842.60
1992/03/31 20635.48 18684.52
15753.29
1992/04/30 20798.90 19233.85
15867.08
1992/05/31 21214.88 19328.10
16166.49
1992/06/30 21021.98 19040.11
16388.98
1992/07/31 21635.87 19818.85
16723.35
1992/08/31 21635.87 19412.56
16892.76
1992/09/30 21814.87 19641.63
17093.00
1992/10/31 21739.43 19710.37
16866.38
1992/11/30 21875.21 20382.50
16870.19
1992/12/31 22002.95 20633.20
17138.45
1993/01/31 22418.10 20806.52
17467.10
1993/02/28 22897.12 21089.49
17772.87
1993/03/31 23761.32 21534.48
17846.93
1993/04/30 24437.46 21013.34
17971.20
1993/05/31 24904.31 21576.50
17994.09
1993/06/30 24743.96 21639.07
18320.20
1993/07/31 25003.57 21552.52
18423.81
1993/08/31 25912.20 22369.36
18746.74
1993/09/30 25669.94 22197.11
18798.23
1993/10/31 26013.30 22656.59
18868.48
1993/11/30 25669.94 22441.36
18707.97
1993/12/31 26327.65 22712.90
18809.36
1994/01/31 27059.44 23485.14
19063.31
1994/02/28 26582.93 22848.69
18732.12
1994/03/31 25521.27 21852.49
18270.29
1994/04/30 25315.45 22132.20
18124.40
1994/05/31 25418.36 22495.17
18121.86
1994/06/30 24935.96 21944.03
18081.81
1994/07/31 25418.15 22663.80
18440.98
1994/08/31 25728.13 23593.01
18463.86
1994/09/30 25556.20 23014.99
18192.10
1994/10/31 25314.61 23532.82
18175.89
1994/11/30 24969.49 22675.76
18135.53
1994/12/31 24986.75 23012.04
18260.76
1995/01/31 24917.15 23608.74
18622.15
1995/02/28 25352.15 24528.77
19064.90
1995/03/31 25773.38 25252.62
19181.87
1995/04/30 26054.09 25996.31
19449.81
1995/05/31 26562.89 27035.38
20202.47
1995/06/30 26881.79 27663.41
20350.58
1995/07/31 27288.56 28580.73
20305.13
1995/08/31 27376.98 28652.47
20550.19
1995/09/30 27658.98 29861.60
20750.11
1995/10/31 27533.83 29755.00
21019.96
1995/11/30 28284.75 31061.24
21334.94
1995/12/31 28734.60 31659.48
21634.35
1996/01/31 28971.17 32737.17
21778.02
1996/02/29 28516.22 33040.64
21399.47
1996/03/31 28299.39 33358.82
21250.72
1996/04/30 28281.04 33850.53
21131.21
1996/05/31 28427.86 34723.54
21088.30
1996/06/30 28594.18 34855.83
21371.50
1996/07/31 28000.78 33315.90
21429.98
1996/08/31 28204.76 34018.54
21394.06
1996/09/30 29338.40 35933.10
21766.89
1996/10/31 30123.75 36924.13
22249.06
1996/11/30 31750.55 39715.23
22630.16
1996/12/31 31228.83 38928.47
22419.74
1997/01/31 32312.24 41360.72
22488.40
1997/02/28 32825.43 41684.99
22544.34
1997/03/31 31712.71 39972.15
22294.51
1997/04/30 33036.47 42358.49
22628.25
1997/05/31 34379.41 44937.28
22842.16
1997/06/30 35701.59 46950.47
23113.28
1997/07/31 37673.19 50686.31
23736.57
1997/08/31 36030.19 47846.87
23534.10
1997/09/30 37500.68 50467.44
23881.19
1997/10/31 36740.53 48781.83
24227.64
IMATRL PRASUN SHR__CHT 19971031 19971113 103314 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Balanced Fund - Institutional Class on
October 31, 1987. As the chart shows, by October 31, 1997, the value
of the investment would have grown to $36,741 - a 267.41% increase on
the 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 and capital gains, if any, reinvested in each, the same
$10,000 would have grown to $48,782 - a 387.82% increase and $24,228 -
a 142.28% increase, respectively.
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
long-term growth and
short-term volatility. 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 MANAGERS' OVERVIEW
MARKET RECAP
A favorable economic backdrop of
low inflation, moderate growth and
healthy corporate earnings
translated into positive results for
both stocks and bonds for the
12-month period that ended
October 31, 1997. The stock
market rallied through much of the
period, as prices in general reached
record levels. The Standard & Poor's
500 Index returned 32.11% during
the period. Large-cap,
household-name stocks led much of
this growth, and the Dow Jones
Industrial Average reached the
8,000-point mark for the first time
in its history. International market
volatility got into the act in October,
as currency problems erupted in
Southeast Asia. The Dow fell
550-plus points in one day, only to
reclaim 330-plus points the next.
Inflationary concern and economic
data played major roles in the
direction of the bond market. The
Lehman Brothers Aggregate Bond
Index - a broad measure of the
U.S. taxable bond market - returned
8.89% during the period. Through
the first half of the year, bonds
suffered from the perception of an
accelerating economy and, in turn,
that inflation would make an
appearance. After a Federal Reserve
Board rate hike in March,
encouraging economic data and the
sense that no further rate increases
would be forthcoming sent bond
markets on a rally that lasted from
April through July. While some of
these gains evaporated in August, a
strong September and October
helped ease the pain. The bond
market attracted wary stock investors
in late October, due to the
aforementioned overseas
developments.
NOTE TO SHAREHOLDERS: The following is an interview with Bettina
Doulton, who managed the fund during the period, with additional
comments from John Avery, who will become manager of the fund
effective January 1, 1998.
Q. HOW DID THE FUND PERFORM, BETTINA?
A. For the 12 months that ended October 31, 1997, the fund's
Institutional Class shares returned 21.97%. This topped the balanced
funds average which, according to Lipper Analytical Services, returned
19.51% during that period. Given the fund's balanced asset allocation
- - namely its blend of equities and bonds - performance typically falls
between its two benchmark indices, the Standard & Poor's 500 Index and
the Lehman Brothers Aggregate Bond Index. During the period, the S&P
500 and Lehman Brothers Aggregate Bond Index gained 32.11% and 8.89%,
respectively.
Q. WHAT STRATEGIES HELPED THE FUND OUTPERFORM ITS LIPPER GROUP?
B.D. While I typically focus on individual stocks - rather than
industry sectors - my analysis uncovered a number of attractive
investments within the finance and pharmaceuticals industries.
Emphasizing these stocks helped, since finance and drug stocks
performed very well during the period. BankAmerica and Bristol-Myers
Squibb, both top holdings, were particularly impressive performers.
Relative to many other balanced funds, an underweighting in telephone
and electric utility stocks also worked out well, as unfolding
deregulation caused these groups to struggle. Performance also
benefited from a moderately higher weighting in stocks, since stocks
strongly outperformed bonds during the period.
Q. WERE THERE ANY DISAPPOINTING INVESTMENTS, OR AREAS WHERE THE FUND
LOST GROUND?
B.D. There were certainly a few smaller positions that didn't perform
as I expected - largely because what I felt were promising business
prospects didn't materialize. However, given the strength of the
market, I'd characterize most of my disappointments as missed
opportunities. In some cases, I sold stocks too early as they reached
my price targets, only to watch them continue rising. In other
situations, I simply missed out on stocks by not buying them fast
enough. The fund's underexposure to technology stocks - the
best-performing sector over the past year - also hurt. However, given
the fund's income-oriented objective, it's difficult to justify a
sizable weighting in technology stocks because they generally don't
pay attractive dividends. The fund's position in General Signal was
disappointing, as was R.R. Donnelley, which had a lackluster
second-half performance.
Q. HOW DID THE BOND PORTION OF THE PORTFOLIO FARE?
B.D. The fund's bond positions performed well through much of the
period, with significant emphasis being placed on short-term corporate
bonds, particularly bonds issued by companies that wouldn't be too
sensitive to economic swings. Shorter-term bonds - typically in the
two-to-four-year range - offered yield advantages relative to
Treasuries. In the summer of 1997, we saw some foreshadowing of the
currency problems that eventually blew up in Southeast Asia in late
October. While Asian corporate bonds struggled during that time, the
fund itself had only very small positions that were adversely
affected. The only types of bonds that did really well in October were
Treasuries, as U.S. corporate bonds felt the ramifications from Asia's
woes. With mortgage rates down toward the end of the period, the
fund's underweighting in mortgage-backed bonds could prove prudent.
Many mortgages are now "in the money," or are refinancable because of
the lower rates. This type of climate increases prepayment risk - in
which the bondholder prepays principal - and is generally a negative
trend for mortgage-related bonds.
Q. TURNING TO YOU, JOHN, WHAT CHANGES DO YOU ENVISION MAKING TO THE
FUND IN THE COMING MONTHS?
J.A. Very few. Bettina and I have very similar investment approaches
and styles and I think the transition will be mostly seamless. I'm not
going to come in on January 2 and turn the portfolio upside down. In
fact, if shareholders look at the top holdings now and three months
from now, there will most likely be a lot of similarities. I'd like to
keep the allocation balance of the fund roughly the same: 60% in
equities, 30% in high-grade bonds, 5% in high-yield bonds and the
remainder in cash. I'll generally focus on mid- and large-cap issues,
with an emphasis on companies with market capitalizations of $2
billion or more. In terms of the Southeast Asia debacle, I'll admit
it's a concern. Historically, corrections of this magnitude have
resulted in a shakeout, but I don't think the companies that have been
affected will be able to assess the damage until next quarter. The
future implications will certainly be something to keep an eye on.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
PHILIP MORRIS COMPANIES, INC. 2.7 2.4
CITICORP 2.6 2.4
BANKAMERICA CORP. 2.3 2.1
GENERAL ELECTRIC CO. 2.2 2.1
BRISTOL-MYERS SQUIBB CO. 2.2 1.7
TOP FIVE BOND ISSUERS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
(WITH MATURITIES OF MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
U.S. TREASURY 8.3 6.2
FEDERAL NATIONAL MORTGAGE ASSOCIATION 5.5 5.9
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.7 1.3
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.7 1.1
WORLDCOM, INC. 0.6 0.3
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
FINANCE 22.2 20.2
NONDURABLES 8.6 8.8
ENERGY 8.2 8.1
HEALTH 7.9 8.1
INDUSTRIAL MACHINERY & EQUIPMENT 5.6 6.2
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997**
ROW: 1, COL: 1, VALUE: 2.7
ROW: 1, COL: 2, VALUE: 1.1
ROW: 1, COL: 3, VALUE: 2.1
ROW: 1, COL: 4, VALUE: 25.1
ROW: 1, COL: 5, VALUE: 59.0
STOCKS 62.4%
BONDS 34.9%
CONVERTIBLE
SECURITIES 0.8%
CERTIFICATES OF
DEPOSIT 0.0%
SHORT-TERM
INVESTMENTS 1.9%
FOREIGN
INVESTMENTS 11.2%
STOCKS 61.0%
BONDS 36.1%
CONVERTIBLE
SECURITIES 1.1%
CERTIFICATES OF
DEPOSIT 0.1%
SHORT-TERM
INVESTMENTS 1.7%
FOREIGN
INVESTMENTS 9.8%
ROW: 1, COL: 1, VALUE: 2.9
ROW: 1, COL: 2, VALUE: 0.0
ROW: 1, COL: 3, VALUE: 1.8
ROW: 1, COL: 4, VALUE: 34.9
ROW: 1, COL: 5, VALUE: 60.4
*
**
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 59.4%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 4.2%
AEROSPACE & DEFENSE - 3.2%
AlliedSignal, Inc. 965,200 $ 34,747
Boeing Co. 12,398 594
Lockheed Martin Corp. 279,800 26,598
Sundstrand Corp. 179,000 9,733
Textron, Inc. 62,100 3,590
United Technologies Corp. 246,400 17,248
92,510
DEFENSE ELECTRONICS - 0.7%
Raytheon Co. 396,600 21,516
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 120,500 9,783
TOTAL AEROSPACE & DEFENSE 123,809
BASIC INDUSTRIES - 2.1%
CHEMICALS & PLASTICS - 1.3%
Air Products & Chemicals, Inc. 207,300 15,755
Goodrich (B.F.) Co. 149,000 6,640
Monsanto Co. 138,000 5,900
Nalco Chemical Co. 77,600 3,104
Praxair, Inc. 160,700 7,000
38,399
PAPER & FOREST PRODUCTS - 0.8%
Chesapeake Corp. 1,700 54
Fort James Corp. 151,250 6,003
Kimberly-Clark Corp. 327,600 17,015
23,072
TOTAL BASIC INDUSTRIES 61,471
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.3%
Masco Corp. 173,700 7,621
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 1.3%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Johnson Controls, Inc. 105,500 $ 4,734
CONSUMER DURABLES - 1.1%
Minnesota Mining & Manufacturing Co. 355,000 32,483
TEXTILES & APPAREL - 0.0%
Fieldcrest Cannon, Inc. (a) 14,600 488
TOTAL DURABLES 37,705
ENERGY - 7.7%
ENERGY SERVICES - 0.4%
Halliburton Co. 130,000 7,751
Schlumberger Ltd. 58,200 5,093
12,844
OIL & GAS - 7.3%
Amoco Corp. 250,700 22,986
British Petroleum PLC:
Ord. 3,490,485 51,171
ADR 66,077 5,798
Chevron Corp. 125,900 10,442
Exxon Corp. 128,600 7,901
Mobil Corp. 237,200 17,271
Royal Dutch Petroleum Co.:
Ord. 117,600 6,210
NY shares 787,600 41,447
Texaco, Inc. 437,200 24,893
Total SA Class B 49,500 5,484
Total SA sponsored ADR 53,800 2,986
USX-Marathon Group 476,300 17,028
213,617
TOTAL ENERGY 226,461
FINANCE - 15.4%
BANKS - 8.2%
Banc One Corp. 132,000 6,881
Bank of New York Co., Inc. 177,200 8,339
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
BANKS - CONTINUED
BankAmerica Corp. 943,800 $ 67,482
Chase Manhattan Corp. 222,000 25,613
Citicorp 617,800 77,264
National City Corp. 10 1
NationsBank Corp. 693,600 41,529
U.S. Bancorp 27,400 2,786
Wells Fargo & Co. 34,200 9,965
239,860
CREDIT & OTHER FINANCE - 2.4%
American Express Co. 644,800 50,294
Beneficial Corp. 100,200 7,684
First Chicago NBD Corp. 75,000 5,456
Household International, Inc. 42,300 4,790
Transamerica Corp. 12,400 1,252
69,476
FEDERAL SPONSORED CREDIT - 2.4%
Federal Home Loan Mortgage Corporation 1,128,900 42,757
Federal National Mortgage Association 606,300 29,368
72,125
INSURANCE - 2.0%
Allstate Corp. 329,100 27,295
Hartford Financial Services Group, Inc. 198,700 16,095
Progressive Corp. 1,100 114
St. Paul Companies, Inc. (The) 84,800 6,779
Travelers Group, Inc. (The) 103,333 7,233
57,516
SAVINGS & LOANS - 0.4%
Washington Mutual, Inc. 160,000 10,950
TOTAL FINANCE 449,927
HEALTH - 7.8%
DRUGS & PHARMACEUTICALS - 7.2%
American Home Products Corp. 676,100 50,116
Bristol-Myers Squibb Co. 732,740 64,298
Merck & Co., Inc. 250,200 22,330
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Novartis AG (Reg.) 3,400 $ 5,332
Schering-Plough Corp. 494,900 27,745
SmithKline Beecham PLC ADR 867,500 41,315
211,136
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Baxter International, Inc. 349,100 16,146
TOTAL HEALTH 227,282
HOLDING COMPANIES - 0.0%
CINergy Corp. 36,500 1,204
INDUSTRIAL MACHINERY & EQUIPMENT - 5.0%
ELECTRICAL EQUIPMENT - 2.6%
Emerson Electric Co. 91,500 4,798
General Electric Co. 1,011,100 65,279
Grainger (W.W.), Inc. 25,200 2,203
Honeywell, Inc. 54,900 3,737
76,017
INDUSTRIAL MACHINERY & EQUIPMENT - 1.6%
Cooper Industries, Inc. 351,129 18,303
Tyco International Ltd. 750,678 28,338
46,641
POLLUTION CONTROL - 0.8%
Browning-Ferris Industries, Inc. 644,600 20,950
Waste Management, Inc. 179,700 4,200
25,150
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 147,808
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.1%
Benedek Communications Corp. warrants 7/1/00 (a) 10,500 21
CS Wireless Systems, Inc. (a)(f) 381 -
Time Warner, Inc. 59,500 3,432
3,453
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.3%
Cedar Fair LP depositary unit 150,000 $ 7,341
PUBLISHING - 0.3%
McGraw-Hill, Inc. 145,100 9,486
TOTAL MEDIA & LEISURE 20,280
NONDURABLES - 7.6%
FOODS - 1.4%
Flowers Industries, Inc. 98,000 1,862
General Mills, Inc. 30,000 1,980
Heinz (H.J.) Co. 330,300 15,338
Nabisco Holdings Corp. Class A 219,200 9,015
Sara Lee Corp. 228,000 11,657
39,852
HOUSEHOLD PRODUCTS - 2.7%
Procter & Gamble Co. 287,600 19,557
Renaissance Cosmetics, Inc. warrants 8/31/06 (a)(f) 2,250 -
Unilever PLC Ord. 1,932,800 14,361
Unilever NV:
Ord. 120,000 6,367
ADR 755,600 40,330
80,615
TOBACCO - 3.5%
Philip Morris Companies, Inc. 1,989,000 78,814
RJR Nabisco Holdings Corp. 719,200 22,790
101,604
TOTAL NONDURABLES 222,071
RETAIL & WHOLESALE - 1.4%
DRUG STORES - 0.5%
CVS Corp. 73,900 4,531
Rite Aid Corp. 161,900 9,613
14,144
GENERAL MERCHANDISE STORES - 0.7%
Wal-Mart Stores, Inc. 603,000 21,180
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.2%
American Stores Co. 258,000 $ 6,627
TOTAL RETAIL & WHOLESALE 41,951
SERVICES - 0.8%
LEASING & RENTAL - 0.1%
Ryder Systems, Inc. 87,700 3,069
PRINTING - 0.7%
Deluxe Corp. 150,600 4,932
Donnelley (R.R.) & Sons Co. 481,400 15,706
20,638
SERVICES - 0.0%
Orion Network Systems, Inc. warrants 1/15/07 (a) 1,445 19
Orion Network Systems, Inc. warrants 1/15/07 (a) 6,760 74
93
TOTAL SERVICES 23,800
TECHNOLOGY - 3.1%
COMPUTERS & OFFICE EQUIPMENT - 2.3%
Exide Electronics Group, Inc. (a) 2,317 67
International Business Machines Corp. 31,800 3,118
Pitney Bowes, Inc. 613,200 48,634
Xerox Corp. 201,300 15,966
67,785
ELECTRONICS - 0.7%
AMP, Inc. 59,100 2,660
Thomas & Betts Corp. 335,400 16,686
19,346
PHOTOGRAPHIC EQUIPMENT - 0.1%
Eastman Kodak Co. 72,000 4,311
TOTAL TECHNOLOGY 91,442
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 0.2%
RAILROADS - 0.2%
Burlington Northern Santa Fe Corp. 23,500 $ 2,232
CSX Corp. 21,900 1,198
Union Pacific Corp. 30,000 1,838
5,268
UTILITIES - 1.8%
CELLULAR - 0.0%
McCaw International Ltd. warrants 4/15/07 (a)(f) 5,760 14
Microcell Telecommunications, Inc. (a):
warrants 6/1/06 21,520 409
conditional warrants 6/1/06 21,520 -
423
ELECTRIC UTILITY - 0.4%
Allegheny Energy, Inc. 37,000 1,045
CMS Energy Corp. 222,100 8,107
Edison International 90,000 2,306
11,458
GAS - 0.1%
Consolidated Natural Gas Co. 48,800 2,638
TELEPHONE SERVICES - 1.3%
AT&T Corp. 177,600 8,691
ALLTEL Corp. 46,900 1,659
Ameritech Corp. 118,600 7,709
BCE, Inc. 267,600 7,457
Frontier Corp. 14,300 309
GTE Corp. 243,900 10,351
Hyperion Telecommunications, Inc.
warrants 4/15/01 (a)(f) 3,790 284
RSL Communications Ltd. /RSL Communications PLC
warrants 11/15/06 (a) 990 91
Sprint Corp. 30,000 1,560
38,111
TOTAL UTILITIES 52,630
TOTAL COMMON STOCKS
(Cost $1,320,472) 1,740,730
PREFERRED STOCKS - 2.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.6%
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Republic Industries, Inc. $1.55 74,000 $ 2,091
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications Ltd $3.00 Series C (f) 85,000 5,153
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.0%
Benedek Communications Corp. 15% (a) 6,100 744
LODGING & GAMING - 0.2%
Host Marriott Financial Trust $3.375 (f) 85,000 5,472
TOTAL MEDIA & LEISURE 6,216
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E, $7.00 12,000 3,900
TOTAL CONVERTIBLE PREFERRED STOCKS 17,360
NONCONVERTIBLE PREFERRED STOCKS - 1.6%
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.0%
American Annuity Group Capital Trust II 8 3/4% 1,000 1,060
SIG Capital Trust I 9 1/2%, (f) 80 81
1,141
SAVINGS & LOANS - 0.1%
California Federal Preferred Capital Corp. 9 1/8% 61,560 1,631
TOTAL FINANCE 2,772
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Echostar Communications Corp. 12 1/8%, pay-in-kind 233 $ 238
MEDIA & LEISURE - 0.8%
BROADCASTING - 0.7%
Adelphia Communications Corp. 13% (f) 5,170 589
American Radio Systems Corp. 11 3/8%, pay-in-kind 24,712 2,839
Cablevision System Corp.:
11 1/8%, depositary shares pay-in-kind 32,526 3,578
Series H, $11.75 pay-in-kind 7,125 805
CapStar Broadcasting Partners, Inc. 12%, pay-in-kind 1,500 165
Chancellor Media Corp. 12%, pay-in-kind (f) 6,621 761
Citadel Brodcasting Co. 13 1/4%, pay-in-kind (f) 10,350 1,139
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 788 827
SFX Broadcasting, Inc. 12 5/8% 408 47
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 8,888 10,266
21,016
PUBLISHING - 0.1%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 3,480 368
Series D, $10 28,400 2,911
3,279
TOTAL MEDIA & LEISURE 24,295
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Renaissance Cosmetics, Inc. 14%, pay-in-kind 2,674 1,791
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.2%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 5,048 5,856
UTILITIES - 0.4%
CELLULAR - 0.1%
Nextel Communications Corp. 13%, pay-in-kind (f) 2,749 3,010
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.3%
American Communications Services, Inc.
12 3/4%, pay-in-kind (f) 521 $ 490
Hyperion Telecommunications, Inc.
12 7/8%, pay-in-kind (f) 1,209 1,173
ICG Holdings, Inc. 14 1/4%, pay-in-kind 491 562
IXC Communications, Inc. 12 1/2%, pay-in-kind (f) 495 551
NEXTLINK Communications, Inc. 14%, pay-in-kind 93,857 5,537
8,313
TOTAL UTILITIES 11,323
TOTAL NONCONVERTIBLE PREFERRED STOCKS 46,275
TOTAL PREFERRED STOCKS
(Cost $56,096) 63,635
CORPORATE BONDS - 18.8%
MOODY'S RATINGS (C) PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - 0.5%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 Baa2 $ 4,340 3,581
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Time Warner, Inc. liquid yield option notes
0%, 6/22/13 Ba1 11,500 5,520
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 5%, 10/1/03 Baa3 2,460 3,370
TECHNOLOGY - 0.1%
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Unisys Corp. 8 1/4%, 3/15/06 B3 800 1,588
TOTAL CONVERTIBLE BONDS 14,059
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - 18.3%
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.7%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 $ 2,217 $ 2,417
Argo-Tech Corp. 8 5/8%, 10/1/07 (f) B3 440 440
Fairchild Corp. 12%, 10/15/01 Caa1 210 211
Lockheed Martin Corp. 7.20%, 5/1/36 A3 15,000 16,169
19,237
DEFENSE ELECTRONICS - 0.3%
Raytheon Co. 6.45%, 8/15/04 Baa1 8,000 8,057
Tracor, Inc. 8 1/2%, 3/1/07 B1 710 710
8,767
SHIP BUILDING & REPAIR - 0.0%
Newport News Shipbuilding, Inc.:
8 5/8%, 12/1/06 Ba2 70 73
9 1/4%, 12/1/06 B1 450 468
541
TOTAL AEROSPACE & DEFENSE 28,545
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 0.3%
Atlantis Group, Inc. 11%, 2/15/03 B2 740 751
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 1,960 2,185
Huntsman Corp. 9 1/2%, 7/1/07 (f) B2 1,880 1,962
Sovereign Specialty Chemicals, Inc.
9 1/2%, 8/1/07 (f) B3 40 41
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 2,020 2,237
11 1/4%, 4/1/07 B3 910 994
8,170
IRON & STEEL - 0.1%
GS Technologies Operating, Inc.
12 1/4%, 10/1/05 B2 610 680
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa1 1,630 1,565
WCI Steel, Inc. 10%, 12/1/04 B2 720 756
3,001
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 0.0%
Commonwealth Aluminum Corp.
10 3/4%, 10/1/06 B2 $ 1,060 $ 1,132
PACKAGING & CONTAINERS - 0.2%
Crown Cork & Seal, Inc. 5 7/8%, 4/15/98 Baa1 5,000 5,004
Huntsman Packaging Corp.
9 1/8%, 10/1/07 (f) B2 70 72
5,076
PAPER & FOREST PRODUCTS - 0.5%
APP Finance II Mauritius Ltd. 12%, 3/15/04 B3 2,265 2,106
American Pad & Paper Co., Inc.
13%, 11/15/05 B3 820 953
Doman Industries Ltd. yankee
8 3/4%, 3/15/04 B1 2,320 2,262
Florida Coast Paper Co./LLC Florida Coast
Paper Finance Corp., Series B,
12 3/4%, 6/1/03 Caa1 320 342
Koppers Industries, Inc. 8 1/2%, 2/1/04 B1 410 429
Mail-Well Corp. 10 1/2%, 2/15/04 B 190 198
Paperboard Industries International, Inc.
8 3/8%, 9/15/07 (f) Ba3 40 40
Repap New Brunswick, Inc. yankee
9 7/8%, 7/15/00 B2 1,230 1,255
Riverwood International Corp.
10 5/8%, 8/1/07 (f) B3 505 521
SD Warren Co., Series B, 12%, 12/15/04 B1 900 1,008
Stone Container Corp.:
12 5/8%, 7/15/98 B2 1,870 1,949
11 7/8%, 12/1/98 B2 630 658
10 3/4%, 10/1/02 B1 1,600 1,712
11 7/8%, 8/1/16 B2 1,180 1,289
Tembec Finance Corp. yankee
9 7/8%, 9/30/05 B1 480 503
15,225
TOTAL BASIC INDUSTRIES 32,604
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - 0.0%
BUILDING MATERIALS - 0.0%
Insilco Corp. 10 1/4%, 8/15/07 (f) B3 $ 290 $ 303
REAL ESTATE - 0.0%
Iron Mountain, Inc. 8 3/4%, 9/30/09 (f) B3 425 428
TOTAL CONSTRUCTION & REAL ESTATE 731
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Blue Bird Body Co. 10 3/4%, 11/15/06 B2 310 326
HOME FURNISHINGS - 0.1%
Guitar Center Management Co., Inc.
11%, 7/1/06 B2 670 737
Interlake Corp. 12 1/8%, 3/1/02 B3 1,600 1,664
Knoll, Inc. 10 7/8%, 3/15/06 B1 618 680
3,081
TEXTILES & APPAREL - 0.3%
Dan River, Inc. 10 1/8%, 12/15/03 B3 520 551
Levi Strauss & Co. 6.80%, 11/1/03 (f) Baa2 5,560 5,672
Nine West Group, Inc. (f):
8 3/8%, 8/15/05 Ba2 800 794
9%, 8/15/07 Ba3 810 808
Polymer Group, Inc. 9%, 7/1/07 B2 760 752
Synthetic Industries, Inc. 9 1/4%, 2/15/07 B2 990 1,022
9,599
TOTAL DURABLES 13,006
ENERGY - 0.5%
ENERGY SERVICES - 0.1%
DI Industries, Inc. 8 7/8%, 7/1/07 B1 390 400
McDermott International, Inc.
9 3/8%, 3/15/02 Ba3 1,200 1,291
1,691
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - 0.4%
Belden & Blake Corp. 9 7/8%, 6/15/07 (f) B3 $ 1,060 $ 1,081
Chesapeake Energy Corp.:
7 7/8%, 3/15/04 Ba3 100 98
9 1/8%, 4/15/06 Ba3 250 258
8 1/2%, 3/15/12 Ba2 70 69
Clark R&M Holdings, Inc. 0%, 2/15/00 B2 1,000 770
Cross Timbers Oil Co.:
9 1/4%, 4/1/07 B2 1,380 1,411
8 3/4%, 11/1/09 (f) B2 210 209
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 1,410 1,498
Occidental Petroleum Corp.:
6.39%, 11/9/00 Baa3 1,000 1,004
8 1/2%, 11/9/01 Baa2 1,180 1,272
Ocean Energy, Inc. 8 7/8%, 7/15/07 B3 1,130 1,158
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 1,730 1,845
Plains Resources, Inc., Series B,
10 1/4%, 3/15/06 B2 400 425
Southwest Royalties, Inc.
10 1/2%, 10/15/04 (f) B3 240 238
11,336
TOTAL ENERGY 13,027
FINANCE - 6.7%
ASSET-BACKED SECURITIES - 1.7%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 1,570 1,782
Capital Equipment Receivables Trust
6.11%, 7/15/99 Aaa 14,150 14,201
Chase Manhattan Grantor Trust:
6.61%, 9/15/02 Aaa 5,193 5,231
6.76%, 9/15/02 A3 1,298 1,308
Chevy Chase Auto Receivables Trust:
6.60%, 12/15/02 Aaa 1,694 1,705
5.90%, 7/15/03 Aaa 4,708 4,707
Ford Credit Auto Owner Trust
6.40%, 5/15/02 A2 2,710 2,718
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Ford Credit Grantor Trust
5.90%, 10/15/00 Aaa $ 781 $ 782
Green Tree Financial Corp.
6.10%, 4/15/27 Aaa 1,755 1,756
MBNA Master Credit Card Trust II
7 1/4%, 9/15/02 Aaa 9,000 9,147
Sears Credit Account Master Trust II
6 1/2%, 10/15/03 Aaa 6,280 6,329
49,666
BANKS - 2.3%
ABN Amro Bank NV
6 5/8%, 10/31/01 Aa3 5,000 5,093
Bank of New York Institutional Capital Trust A
7.78%, 10/1/26 (f) A1 10,000 10,178
BanPonce Financial Corp.:
6.88%, 6/16/00 A3 2,500 2,546
6.69%, 9/21/00 A3 2,250 2,283
6 3/4%, 8/9/01 A3 3,850 3,920
BanPonce Corp. 5 3/4%, 3/1/99 A3 880 875
Capital One Bank:
6.74%, 5/31/99 Baa3 2,630 2,658
6.42%, 11/12/99 Baa3 5,000 5,017
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 9,045 9,777
First Chicago Institutional Capital B
7 3/4%, 12/1/26 (f) A1 6,000 6,133
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa1 720 728
First USA Bank 6 1/2%, 12/23/99 Aa2 4,700 4,740
Kansallis-Osake-Pankki 10%, 5/1/02 A3 710 810
Provident Bank 6 1/8%, 12/15/00 A3 3,420 3,416
Summit Bancorp. 8 5/8%, 12/10/02 BBB 1,250 1,363
Union Planters Corp. 6 3/4%, 11/1/05 Baa2 400 404
Wachovia Corp. 6.605%, 10/1/25 A1 7,550 7,725
67,666
CREDIT & OTHER FINANCE - 2.0%
AT&T Capital Corp.:
6.65%, 4/30/99 Baa3 6,560 6,626
6.41%, 8/13/99 Baa3 1,000 1,006
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Ahmanson Capital Trust I
8.36%, 12/1/26 (f) Baa3 $ 2,700 $ 2,880
Associates Corp. of North America
6 1/2%, 9/9/98 Aa3 10,000 10,056
BankBoston Capital Trust II
7 3/4%, 12/15/26 Baa1 8,000 8,200
CIT Group Holdings, Inc. 6 1/4%, 9/30/99 Aa3 8,440 8,485
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 4,750 4,771
Cityscape Financial Corp. 12 3/4%, 6/1/04 B2 970 660
Delta Financial Corp. 9 1/2%, 8/1/04 B1 210 208
First Security Capital I 8.41%, 12/15/26 A3 1,280 1,390
GST Equipment Funding, Inc.
13 1/4%, 5/1/07 (f) - 540 608
General Electric Capital Corp.
6.94%, 4/13/09 (e) Aaa 4,700 4,765
Imperial Credit Capital Trust I
10 1/4%, 6/14/02 (f) B2 510 500
Imperial Credit Industries, Inc.
9 7/8%, 1/15/07 B2 1,130 1,119
Indah Kiat Finance Mauritius Ltd.
10%, 7/1/07 (f) Ba3 490 443
MCN Investment Corp. 6.03%, 2/1/01 Baa2 2,350 2,341
Nordstrom Credit, Inc. 7 1/4%, 4/30/02 A2 3,100 3,230
Ocwen Capital Trust 10 7/8%, 8/1/27 B2 485 517
PTC International Finance BV
0%, 7/1/07 (d)(f) B3 240 155
Pindo Deli Finance Mauritius Ltd.
10 1/4%, 10/1/02 (f) Ba3 330 310
Tjiwi Kimia Mauritius Ltd.
10%, 8/1/04 (f) Ba3 940 837
59,107
INSURANCE - 0.5%
SunAmerica, Inc. 6.20%, 10/31/99 Baa1 13,750 13,743
SAVINGS & LOANS - 0.2%
First Nationwide Holdings, Inc.
10 5/8%, 10/1/03 Ba3 1,360 1,496
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 3,940 4,462
5,958
TOTAL FINANCE 196,140
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (f) B3 $ 160 $ 165
Wright Medical Technology, Inc.
11 3/4%, 7/1/00 (f)(g) Caa3 1,191 1,191
1,356
MEDICAL FACILITIES MANAGEMENT - 0.1%
Integrated Health Services, Inc. (f):
9 1/2%, 9/15/07 B2 300 303
9 1/4%, 1/15/08 B2 1,200 1,197
Tenet Healthcare Corp.:
8%, 1/15/05 Ba1 620 626
8 5/8%, 1/15/07 Ba3 170 173
Vencor, Inc. 8 5/8%, 7/15/07 (f) B1 215 209
2,508
TOTAL HEALTH 3,864
HOLDING COMPANIES - 0.2%
Gray Communications System, Inc.
10 5/8%, 10/1/06 B3 970 1,038
Norfolk Southern Corp. 7.05%, 5/1/37 Baa1 5,800 6,032
7,070
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Amphenol Corp. 9 7/8%, 5/15/07 B2 130 134
Echostar Communications Corp. secured
discount 0%, 6/1/04 (d) B2 3,829 3,417
Motors & Gears, Inc. 10 3/4%, 11/15/06 B3 1,820 1,929
5,480
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Calmar, Inc. 11 1/2%, 8/15/05 B3 100 106
Continental Global Group, Inc. 11%, 4/1/07 B2 550 580
Goss Graphic System, Inc. 12%, 10/15/06 B2 1,210 1,349
2,035
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 0.0%
Allied Waste North America
10 1/4%, 12/1/06 B3 $ 350 $ 378
Envirosource, Inc. 9 3/4%, 6/15/03 B3 270 268
646
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 8,161
MEDIA & LEISURE - 2.4%
BROADCASTING - 1.4%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (d)(f) B3 820 605
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B3 670 655
9 7/8%, 3/1/07 B3 650 663
CapStar Broadcasting Partners, Inc.:
9 1/4%, 7/1/07 B2 1,110 1,121
0%, 2/1/09 (d) B3 1,670 1,169
Chancellor Media Corp.
8 3/4%, 6/15/07 (f) B3 620 622
Continental Cablevision, Inc. 9%, 9/1/08 Baa3 1,700 1,937
CS Wireless Systems, Inc. 0%, 3/1/06 (d) Caa 1,386 402
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa1 100 80
Falcon Holdings Group LP
11%, 9/15/03 pay-in-kind - 2,387 2,434
Fox Kids Worldwide, Inc. 0%, 11/1/07 (d)(f) B1 1,720 968
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (d)(f) Caa1 146 100
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 140 144
9 3/8%, 12/1/05 B3 380 377
Intermedia Capital Partners IV L P / Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 60 66
International Cabletel, Inc 0%, 2/1/06 (d) B3 1,000 735
Olympus Communications LP/ Olympus
Capital Corp 10 5/8%, 11/15/06 B1 1,660 1,793
Panamsat Corp. 12 3/4%, 4/15/05 pay-in-kind BBB+ 444 531
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 $ 820 $ 888
TCI Communications, Inc.:
7 1/4%, 6/15/99 Ba1 1,000 1,013
6.82%, 9/15/10 (g) Ba1 4,000 4,019
TeleTrac, Inc. 14%, 8/1/07 unit (f) Caa2 920 929
Telewest PLC 0%, 10/1/07 (d) B1 770 572
Time Warner, Inc.:
7 3/4%, 6/15/05 Ba1 8,000 8,389
6.85%, 1/15/26 Ba1 7,120 7,275
UIH Australia/Pacific, Inc. (d):
Series B, 0%, 5/15/06 B2 4,330 3,009
0%, 5/15/06 (f) B2 100 70
United International Holdings, Inc.
0%, 11/15/99 B3 450 369
40,935
ENTERTAINMENT - 0.2%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 1,370 1,390
AMF Group, Inc., Series B:
0%, 3/15/06 (d) B2 360 271
10 7/8%, 3/15/06 B2 755 815
Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 890 917
Regal Cinemas, Inc. 8 1/2%, 10/1/07 (f) B1 60 60
Viacom, Inc. 8%, 7/7/06 B1 2,360 2,313
5,766
LEISURE DURABLES & TOYS - 0.0%
ICON Fitness Corp. 0%, 11/15/06 (d) Caa3 270 154
LODGING & GAMING - 0.4%
American Skiing Co. 12%, 7/15/06 B3 830 925
HMC Acquisition Properties, Inc.
9%, 12/15/07 Ba3 2,810 2,880
HMH Properties, Inc.:
9 1/2%, 5/15/05 Ba3 1,460 1,529
8 7/8%, 7/15/07 Ba3 1,210 1,237
Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 1,330 1,443
KSL Recreation Group, Inc. 10 1/4%, 5/1/07 B3 280 295
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Station Casinos, Inc. 9 3/4%, 4/15/07 B2 $ 320 $ 322
Sun International Hotels Ltd. /Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 1,780 1,825
10,456
PUBLISHING - 0.1%
Big Flower Press Holdings, Inc.:
8 7/8%, 7/1/07 B2 1,860 1,869
8 7/8%, 7/1/07 (f) B2 310 311
ITT Publimedia BV 9 3/8%, 9/15/07 (f) B3 1,040 1,082
3,262
RESTAURANTS - 0.3%
AFC Enterprises, Inc. 10 1/4%, 5/15/07 B3 1,000 1,045
Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa1 2,700 2,607
SC International Services, Inc.
9 1/4%, 9/1/07 (f) B2 800 816
Wendy's International, Inc. 6.35%, 12/15/05 Baa1 5,000 4,945
9,413
TOTAL MEDIA & LEISURE 69,986
NONDURABLES - 0.9%
FOODS - 0.3%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 3,600 3,830
International Home Foods, Inc.
10 3/8%, 11/1/06 B2 710 753
Nabisco, Inc. 8%, 1/15/00 Baa2 3,153 3,265
7,848
HOUSEHOLD PRODUCTS - 0.2%
Renaissance Cosmetic, Inc. 11 3/4%, 2/15/04 B3 1,470 1,441
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 5,425 5,723
7,164
TOBACCO - 0.4%
North Atlantic Trading, Inc. 11%, 6/15/04 (f) B3 320 326
Philip Morris Companies, Inc. 6.95%, 6/1/06 A2 10,000 10,275
10,601
TOTAL NONDURABLES 25,613
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 1.1%
APPAREL STORES - 0.1%
Mothers Work, Inc. 12 5/8%, 8/1/05 B3 $ 240 $ 256
Specialty Retailers, Inc.:
8 1/2%, 7/15/05 Ba3 530 541
9%, 7/15/07 B2 820 832
1,629
GENERAL MERCHANDISE STORES - 0.5%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa1 1,400 1,430
6.40%, 2/15/03 Baa1 425 426
Federated Department Stores, Inc.:
8 1/2%, 6/15/03 Baa2 3,000 3,280
6.79%, 7/15/27 Baa2 7,000 7,152
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 3,250 3,305
15,593
GROCERY STORES - 0.4%
American Stores Co. 7 1/2%, 5/1/37 Baa2 4,850 5,278
Brunos, Inc. 10 1/2%, 8/1/05 Caa2 160 83
Di Giorgio Corp. 10%, 6/15/07 B3 820 802
Fleming Companies, Inc.
10 1/2%, 12/1/04 (f) B3 550 572
Food 4 Less Holdings, Inc. 13 5/8%, 6/15/07 - 214 246
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa1 1,280 1,261
9 5/8%, 5/1/03 B3 950 895
Penn Traffic Co.:
10 1/4%, 2/15/02 B3 720 648
8 5/8%, 12/15/03 B3 430 363
10 3/8%, 10/1/04 B3 420 378
11 1/2%, 4/15/06 B3 350 329
Pueblo Xtra International, Inc.:
9 1/2%, 8/1/03 B3 1,320 1,287
9 1/2%, 8/1/03 B3 30 29
12,171
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Central Tractor Farm & Country, Inc.
10 5/8%, 4/1/07 B2 $ 270 $ 279
Corporate Express, Inc., Series B,
9 1/8%, 3/15/04 B2 120 122
J Crew Operating Corp. (f):
10 3/8%, 10/15/07 B3 510 505
0%, 10/15/08 (d) Caa2 680 374
1,280
TOTAL RETAIL & WHOLESALE 30,673
SERVICES - 0.3%
LEASING & RENTAL - 0.0%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 B2 1,150 1,167
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa1 1,800 1,818
SERVICES - 0.2%
Orion Network Systems, Inc.:
0%, 1/15/07 (d) B2 6,760 4,918
11 1/4%, 1/15/07 B2 1,445 1,622
Outsourcing Solutions, Inc. 11%, 11/1/06 B3 420 464
7,004
TOTAL SERVICES 9,989
TECHNOLOGY - 0.9%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc.
0%, 7/15/07 (d) B2 2,110 1,382
Jordan Telecommunication Products, Inc. (f):
0%, 8/1/07 (d) B3 1,090 850
9 7/8%, 8/1/07 B3 460 465
2,697
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.0%
DecisionOne Corp. 9 3/4%, 8/1/07 B3 $ 170 $ 174
DecisionOne Holdings Corp.
0%, 8/1/08 unit (d) Caa1 150 95
269
COMPUTERS & OFFICE EQUIPMENT - 0.6%
Comdisco, Inc.:
6.35%, 8/7/98 Baa1 2,500 2,507
6.70%, 8/6/99 Baa1 3,000 3,037
5 3/4%, 2/15/01 Baa1 6,000 5,914
6 3/8%, 11/30/01 Baa1 4,500 4,521
Dictaphone Corp. 11 3/4%, 8/1/05 Caa3 370 326
Exide Electronics Group, Inc. 11 1/2%, 5/15/06 B3 140 165
16,470
ELECTRONIC INSTRUMENTS - 0.0%
Wavetek Corp. 10 1/8%, 6/15/07 B3 180 185
ELECTRONICS - 0.2%
Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 5,370 5,482
Viasystems, Inc. 9 3/4%, 6/1/07 (f) B3 490 501
5,983
TOTAL TECHNOLOGY 25,604
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.1%
Atlas Air, Inc. pass through trust
12 1/4%, 12/1/02 Ba3 860 959
Delta Air Lines, Inc. equipment trust certificate
8.54%, 1/2/07 Baa1 765 835
1,794
RAILROADS - 0.1%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa2 4,360 4,644
TRUCKING & FREIGHT - 0.0%
Allied Holdings, Inc. 8 5/8%, 10/1/07 (f) B1 80 82
TOTAL TRANSPORTATION 6,520
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 2.2%
CELLULAR - 0.8%
Dial Call Communications, Inc.
0%, 4/15/04 (d) B3 $ 690 $ 642
McCaw International Ltd.
0%, 4/15/07 (d) CCC 5,760 3,341
Microcell Telecommunications, Inc.
0%, 6/1/06 (d) B3 3,220 2,157
Millicom International Cellular SA
0%, 6/1/06 (d) B3 8,980 6,735
Pagemart Nationwide, Inc. 0%, 2/1/05 (d) - 730 602
Pagemart, Inc. 0%, 11/1/03 (d) - 2,850 2,594
Rogers Communications, Inc. 8 7/8%, 7/15/07 B2 180 178
Telesystem International Wireless, Inc. (f):
0%, 6/30/07 (d) Caa1 1,070 642
10 1/2%, 11/1/07 Caa1 80 42
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 6,970 7,057
USA Mobile Communications, Inc. II:
9 1/2%, 2/1/04 B2 390 382
14%, 11/1/04 B2 180 200
24,572
ELECTRIC UTILITY - 0.3%
AES Corp. 8 3/8%, 8/15/07 Ba1 500 488
CMS Energy Corp. 8 1/8%, 5/15/02 Ba3 230 233
DR Investment UK PLC yankee
7.10%, 5/15/02 (f) Baa1 5,000 5,165
Virginia Electric & Power Co. 6.35%, 6/8/98 A3 3,000 3,007
8,893
GAS - 0.2%
Columbia Gas System, Inc. 6.61%, 11/28/02 Baa1 6,000 6,089
TELEPHONE SERVICES - 0.9%
GST USA, Inc. 0%, 12/15/05 (d) - 1,000 720
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) - 3,380 2,298
12 1/4%, 9/1/04 (f) - 1,075 1,140
McLeodUSA, Inc. 0%, 3/1/07 (d) B3 820 567
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 240 242
RCN Corp. 0%, 10/15/07 (d)(f) B3 1,320 766
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
RSL Communications Ltd. /RSL
Communications PLC 12 1/4%, 11/15/06 Caa1 $ 1,110 $ 1,204
Winstar Communications, Inc.
0%, 10/15/05 (d) Caa1 2,050 1,456
Winstar Equipment 12 1/2%, 3/15/04 B3 220 229
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,228 1,308
8 7/8%, 1/15/06 Ba1 5,667 6,181
7 3/4%, 4/1/07 Ba1 9,000 9,439
25,550
TOTAL UTILITIES 65,104
TOTAL NONCONVERTIBLE BONDS 536,637
TOTAL CORPORATE BONDS
(Cost $536,238) 550,696
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 10.2%
U.S. TREASURY OBLIGATIONS - 8.3%
5 7/8%, 10/31/98 Aaa 4,170 4,181
6 5/8%, 6/30/01 Aaa 38,530 39,620
6 5/8%, 3/31/02 Aaa 40,100 41,397
10 3/4%, 5/15/03 Aaa 402 495
12 3/8%, 5/15/04 Aaa 1,315 1,775
7%, 7/15/06 Aaa 92,825 99,598
12 3/4%, 11/15/10 (callable) Aaa 30,500 43,510
13 7/8%, 5/15/11 (callable) Aaa 1,410 2,144
7 1/4%, 2/15/23 Aaa 10,153 11,300
TOTAL U.S. TREASURY OBLIGATIONS 244,020
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.9%
Federal Agricultural Mortgage Corporation
7.01%, 2/10/04 Aaa $ 1,720 $ 1,809
Federal Home Loan Bank:
7.36%, 7/1/04 Aaa 1,590 1,701
7.38%, 8/5/04 Aaa 3,790 4,066
7.56%, 9/1/04 Aaa 5,530 5,989
7.70%, 9/20/04 Aaa 1,170 1,273
Federal National Mortgage Association:
8 5/8%, 6/30/04 Aaa 4,000 4,536
6.72%, 8/1/05 Aaa 3,980 4,105
Financing Corp. stripped principal 0%, 6/6/02 Aaa 5,230 3,994
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 142 151
Class 2-E, 9.40%, 5/15/02 Aaa 1,975 2,095
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 Aaa 397 386
Series 1993-D, 5.23%, 5/15/05 Aaa 712 693
Series 1994-A, 7.12%, 4/15/06 Aaa 655 682
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank) Series 1994-B,
7 1/2%, 1/26/06 Aaa 543 574
Overseas Private Investment Corp. (U.S.
Government guaranteed participation
certificate):
Series 1994-195, 6.08%, 8/15/04 (callable) Aaa 1,840 1,840
Series 1996-A1, 6.726%, 9/15/10 (callable) - 5,000 5,144
State of Israel (guaranteed by U.S. government
through Agency for International Development):
7 3/4%, 11/15/99 Aaa 2,660 2,757
0%, 11/15/01 Aaa 2,320 1,836
8%, 11/15/01 Aaa 1,160 1,245
6 1/8%, 3/15/03 Aaa 3,443 3,469
7 5/8%, 8/15/04 Aaa 1,650 1,792
5.89%, 8/15/05 Aaa 3,155 3,113
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban Development
Government guaranteed participation certificates
Series 1995-A, 8.24%, 8/1/04 Aaa $ 2,200 $ 2,450
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 55,700
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $295,108) 299,720
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 6.0%
Federal Home Loan Mortgage Corporation:
5 1/2%, 10/1/02 to 5/1/03 Aaa 4,054 3,938
7%, 7/1/99 to 7/1/26 Aaa 4,327 4,383
Federal National Mortgage Association:
5 1/2%, 8/1/02 to 4/1/26 Aaa 84,526 82,184
6%, 6/1/11 to 9/1/25 Aaa 17,416 16,825
6 1/2%, 2/1/24 to 9/1/27 Aaa 50,782 50,011
Government National Mortgage Association:
7%, 12/15/22 to 12/15/25 Aaa 2,730 2,751
8%, 11/15/21 to 12/15/26 Aaa 15,843 16,458
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $174,199) 176,550
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
U.S. GOVERNMENT AGENCY - 0.5%
Federal Home Loan Mortgage Corporation
planned amortization class Series 1645
Class ZA, 5 1/2%, 4/15/05 Aaa 11,092 10,980
Federal National Mortgage Association planned
amortization class Series 1993-129 Class D,
6.10%, 6/25/05 Aaa 5,000 5,000
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $15,700) 15,980
COMMERCIAL MORTGAGE SECURITIES - 0.4%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
American Southwest Financial Securities
Series 1994-C2 Class B2,
9.6596%, 12/25/01 (f)(g) - $ 700 $ 712
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.7349%, 8/1/24 (f)(g) - 1,836 1,398
CS First Boston Mortgage Securities Corp.
floater Series 1995-AEWI Class E,
9.7763%, 11/25/97 (f)(g) - 250 253
DLJ Mortgage Acceptance Corp.
Series 1993-MF12 Class B-2,
10.10%, 9/18/03 (f) - 700 712
First Chicago /Lennar Trust I Series 1997-CHL1 (g):
Class E, 8.1217%, 4/1/39 - 650 548
Class D, 8.12%, 5/29/08 - 700 704
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1996-C1
Class F, 7.86%, 11/15/06 (f) Ba3 500 477
Morgan Stanley Capital One, Inc.
Series 1996-MBL1 Class E,
8.6777%, 5/25/21 (f)(g) - 764 718
Penn Mutual Life Insurance Co. (The)
Series 1996-PML Class K,
7.90%, 11/15/26 (f) - 1,250 906
Structured Asset Securities Corp.:
Series 1995-C1 Class E,
7 3/8%, 9/25/24 (f) BB 1,000 921
Series 1993-C1 Class E,
6.60%, 10/25/24 (f) B 500 175
sequential pay Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 210 210
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,356 1,378
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (f) Aaa 1,727 1,748
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $9,949) 10,860
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.6%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 $ 1,250 $ 1,296
Manitoba Province yankee 6 3/8%, 10/15/99 A1 4,780 4,825
Mexico Value recovery rights
6/30/03 discount A - 1 -
Quebec Province yankee (e):
6.86%, 4/15/26 A2 8,000 8,221
7.22%, 7/22/36 A2 3,200 3,388
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $16,962) 17,730
SUPRANATIONAL OBLIGATIONS - 0.1%
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $3,975) Aaa 4,000 4,115
CERTIFICATES OF DEPOSIT - 0.1%
Canadian Imperial Bank of Commerce NY
Branch yankee 6.20%, 8/1/00
(Cost $3,005) 3,000 3,002
CASH EQUIVALENTS - 1.7%
SHARES
Taxable Central Cash Fund (b)
(Cost $48,548) 48,547,890 48,548
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,480,252) $ 2,931,566
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund
was 5.64%. The yield refers to the income earned by investing in the
fund over the seven-day period, expressed as an annual percentage.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
5. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
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 $81,448,000 or
2.7% of net assets.
7. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
8. For foreign government obligations not 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 23.2% AAA, AA, A 22.4%
Baa 5.3% BBB 7.6%
Ba 2.4% BB 0.8%
B 4.5% B 4.5%
Caa 0.4% CCC 0.4%
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 Moody's or S&P amounted to 0.7%. FMR has determined that
unrated debt securities that are lower quality account for 0.6% of the
total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $2,482,190,000. Net unrealized appreciation
aggregated $449,376,000, of which $472,670,000 related to appreciated
investment securities and $23,294,000 related to depreciated
investment securities.
The fund hereby designates approximately $29,059,000 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, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (COST $2,480,252) - $ 2,931,566
SEE ACCOMPANYING SCHEDULE
CASH 57
RECEIVABLE FOR INVESTMENTS SOLD 26,407
RECEIVABLE FOR FUND SHARES SOLD 3,842
DIVIDENDS RECEIVABLE 2,866
INTEREST RECEIVABLE 16,998
OTHER RECEIVABLES 332
PREPAID EXPENSES 2
TOTAL ASSETS 2,982,070
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 7,193
PAYABLE FOR FUND SHARES REDEEMED 8,236
ACCRUED MANAGEMENT FEE 1,134
DISTRIBUTION FEES PAYABLE 1,260
OTHER PAYABLES AND ACCRUED EXPENSES 578
TOTAL LIABILITIES 18,401
NET ASSETS $ 2,963,669
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,277,330
UNDISTRIBUTED NET INVESTMENT INCOME 9,114
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 225,890
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 451,335
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS $ 2,963,669
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $18.75
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($7,565 (DIVIDED BY) 403.49 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/94.25 OF $18.75) $19.89
CLASS T: $18.79
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,901,222 (DIVIDED BY) 154,430 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $18.79) $19.47
CLASS B: $18.71
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($15,958 (DIVIDED BY) 853 SHARES) A
INSTITUTIONAL CLASS: $18.85
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($38,924 (DIVIDED BY) 2,065 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>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 42,317
DIVIDENDS
INTEREST 79,944
TOTAL INCOME 122,261
EXPENSES
MANAGEMENT FEE $ 13,237
TRANSFER AGENT FEES 5,419
DISTRIBUTION FEES 14,623
ACCOUNTING FEES AND EXPENSES 807
NON-INTERESTED TRUSTEES' COMPENSATION 23
CUSTODIAN FEES AND EXPENSES 93
REGISTRATION FEES 134
AUDIT 92
LEGAL 17
INTEREST 1
MISCELLANEOUS 96
TOTAL EXPENSES BEFORE REDUCTIONS 34,542
EXPENSE REDUCTIONS (215) 34,327
NET INVESTMENT INCOME 87,934
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 229,516
FOREIGN CURRENCY TRANSACTIONS 108 229,624
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 251,898
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 1 251,899
NET GAIN (LOSS) 481,523
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 569,457
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 87,934 $ 107,896
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 229,624 30,925
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 251,899 144,053
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 569,457 282,874
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (90,048) (124,584)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (19,449) (6,649)
TOTAL DISTRIBUTIONS (109,497) (131,233)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (512,007) (578,059)
TOTAL INCREASE (DECREASE) IN NET ASSETS (52,047) (426,418)
NET ASSETS
BEGINNING OF PERIOD 3,015,716 3,442,134
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,963,669 $ 3,015,716
INCOME OF $9,114 AND $10,411, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1997 1996 E
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.04 $ 15.22
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .48 .08
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.83 .88
TOTAL FROM INVESTMENT OPERATIONS 3.31 .96
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.49) (.14)
FROM NET REALIZED GAIN (.11) -
TOTAL DISTRIBUTIONS (.60) (.14)
NET ASSET VALUE, END OF PERIOD $ 18.75 $ 16.04
TOTAL RETURN B, C 20.99% 6.34%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 8 $ 1
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.41% F 1.50% A,
F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 1.40% G 1.49% A,
G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 2.68% 3.07% A
PORTFOLIO TURNOVER 70% 223%
AVERAGE COMMISSION RATE H $ .0435 $ .0106
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 D 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 16.07 $ 15.30 $ 14.67 $ 15.91 $ 14.41
OF PERIOD
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .53 C .51 C .59 .38 .48
NET REALIZED AND UNREALIZED 2.84 .88 .54 (.79) 2.18
GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS 3.37 1.39 1.13 (.41) 2.66
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.54) (.59) (.50) (.28) (.56)
IN EXCESS OF NET - - - (.02) -
INVESTMENT INCOME
FROM NET REALIZED GAIN (.11) (.03) - (.49) (.60)
RETURN OF CAPITAL - - - (.04) -
TOTAL DISTRIBUTIONS (.65) (.62) (.50) (.83) (1.16)
NET ASSET VALUE, END OF PERIOD $ 18.79 $ 16.07 $ 15.30 $ 14.67 $ 15.91
TOTAL RETURN A, B 21.36% 9.30% 7.85% (2.69)% 19.66%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,901 $ 2,993 $ 3,441 $ 3,129 $ 1,654
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.17% 1.26% 1.47% 1.59% 1.52%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET 1.17% 1.25% 1.46% 1.58% 1.51%
ASSETS AFTER EXPENSE REDUCTIONS E E E E
RATIO OF NET INVESTMENT INCOME 2.98% 3.32% 3.99% 3.79% 3.24%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER 70% 223% 297% 202% 200%
AVERAGE COMMISSION RATE F $ .0435 $ .0106
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - CLASS B
YEAR ENDED
OCTOBER 31,
1997 E
<TABLE>
<CAPTION>
<S> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.36
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .29
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.38
TOTAL FROM INVESTMENT OPERATIONS 2.67
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.32)
NET ASSET VALUE, END OF PERIOD $ 18.71
TOTAL RETURN B, C 16.40%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 16
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.12% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 2.11% A,
F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.88% A
PORTFOLIO TURNOVER 70%
AVERAGE COMMISSION RATE G $ .0435
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD DECEMBER 31, 1996 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO OCTOBER 31, 1997.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1997 1996 1995 E
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.11 $ 15.40 $ 15.23
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .61 D .54 D .25
NET REALIZED AND UNREALIZED GAIN (LOSS) 2.86 .87 .09
TOTAL FROM INVESTMENT OPERATIONS 3.47 1.41 .34
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.62) (.67) (.17)
FROM NET REALIZED GAIN (.11) (.03) -
TOTAL DISTRIBUTIONS (.73) (.70) (.17)
NET ASSET VALUE, END OF PERIOD $ 18.85 $ 16.11 $ 15.40
TOTAL RETURN B, C 21.97% 9.41% 2.22%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 39 $ 22 $ 1
RATIO OF EXPENSES TO AVERAGE NET ASSETS .69% 1.06% .92% A,
F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .69% 1.03% G .91% A,
EXPENSE REDUCTIONS G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 3.42% 3.54% 4.54% A
PORTFOLIO TURNOVER 70% 223% 297%
AVERAGE COMMISSION RATE H $ .0435 $ .0106
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
11. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Balanced Fund (the fund) (formerly Fidelity Advisor
Income & Growth 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 T, 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 Class B shares on
December 31, 1996. Investment income, realized and unrealized capital
gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. 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. 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. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
period end. Income receipts and expense payments are translated into
U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions. Purchases and sales of securities are translated
into U.S. dollars at the contractual currency exchange rates
established at the time of each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, 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."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
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
Class B, and shares of Class B for distribution under federal and
state securities law. These expenses are borne by Class B and
amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date. Income dividends and capital gain distributions are
declared separately for each class.
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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.
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.
12. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
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 FMR, may transfer uninvested cash
balances into one or more joint trading accounts. These balances are
invested in one or more repurchase agreements for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by FMR Texas, Inc., an affiliate of FMR. The Cash
Fund is an open-end money market fund available only to investment
companies and other accounts managed by FMR and its
2. OPERATING POLICIES - CONTINUED
TAXABLE CENTRAL CASH FUND - CONTINUED
affiliates. The Cash Fund seeks preservation of capital, liquidity,
and current income by investing in U.S. Treasury securities and
repurchase agreements for these securities. Income distributions from
the Cash Fund are declared daily and paid monthly from net interest
income. Income distributions received by the fund are recorded as
interest income in the accompanying financial statements.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
13. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,009,067,000 and $2,525,099,000, respectively, of which
U.S. government and government agency obligations aggregated
$641,378,000 and $768,825,000, respectively.
14. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .15%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .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 each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .25%
CLASS T .50%
CLASS B 1.00%*
* .75% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 11,000 $ 11,000
CLASS T 14,549,000 14,549,000
CLASS B 63,000 16,000
$ 14,623,000 $ 14,576,000
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
SALES LOAD. FDC receives a front-end sales charge of up to 5.75% for
selling Class A shares (5.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, respectively, and the proceeds of
a contingent deferred sales charge levied on Class B share redemptions
occurring within six years of purchase (five years prior to January 2,
1997). The Class B charge is based on declining rates which range from
5% to 1% (4% to 1% prior to January 2, 1997) 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 the following sales charge amounts
related to each class, a portion of which is paid to securities
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 139,000 $ 102,000
CLASS T 1,052,000 777,000
CLASS B 9,000 0*
$ 1,200,000 $ 879,000
* WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO DEALERS THROUGH WHICH
THE SALES ARE MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC* $ 10,000 .24
CLASS T** FIIOC* 5,353,000 .18
CLASS B FIIOC* 16,000 .25
INSTITUTIONAL CLASS FIIOC* 40,000 .14
$ 5,419,000
* FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC)
AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN
TRANSFER, DIVIDEND DISBURSING, AND SHAREHOLDER SERVICES TO FIIOC FOR
WHICH FIIOC RECEIVED ITS ALLOCABLE SHARE OF ALL SUCH FEES.
ACCOUNTING FEES. Fidelity Service Company, Inc. (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 $259,000 for the
period.
15. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each class:
FMR REIMBURSEMENT
EXPENSE
LIMITATION
CLASS A 1.50% $ 7,000
FMR also agreed to reimburse certain transfer agent, registration and
other class specific expenses for Class A. For the period, the
reimbursement reduced these expenses by $4,000.
5. EXPENSE REDUCTIONS - CONTINUED
Effective November 1, 1997, Class A, Class T, Class B and
Institutional Class expense limitations were changed from 1.50% to
1.05%, 1.75% to 1.30%, 2.25% to 1.80% and from 1.25% to .80% of each
class' average net assets, respectively.
FMR has also 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 $202,000 under this arrangement.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $2,000 under the custodian
arrangement.
16. 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 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 $5,637,000. The weighted average interest rate was 5.875%.
17. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of
approximately 21.3% of the total outstanding shares of the fund.
18. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
AMOUNTS IN THOUSANDS 1997 B 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 111 $ 4
FROM NET REALIZED GAIN 12 -
TOTAL $ 123 $ 4
CLASS T
FROM NET INVESTMENT INCOME $ 88,845 $ 124,292
FROM NET REALIZED GAIN 19,290 6,647
TOTAL $ 108,135 $ 130,939
CLASS B
FROM NET INVESTMENT INCOME $ 137 $ -
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME $ 955 $ 288
FROM NET REALIZED GAIN 147 2
TOTAL $ 1,102 $ 290
C DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
D DISTRIBUTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1997.
19. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997B 1996A 1997B 1996A
AMOUNTS IN THOUSANDS
CLASS A 398 79 $ 7,127 $ 1,223
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 7 - 117 4
SHARES REDEEMED (75) (5) (1,376) (76)
NET INCREASE (DECREASE) 330 74 $ 5,868 $ 1,151
CLASS T 26,574 36,300 $ 469,471 $ 563,225
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 5,886 7,921 101,958 122,603
SHARES REDEEMED (64,227) (82,882) (1,117,978) (1,284,921)
NET INCREASE (DECREASE) (31,767) (38,661) $ (546,549) $ (599,093)
CLASS B 1,099 - $ 20,123 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 7 - 128 -
SHARES REDEEMED (253) - (4,772) -
NET INCREASE (DECREASE) 853 - $ 15,479 $ -
INSTITUTIONAL CLASS 1,168 1,421 $ 21,544 $ 21,932
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 60 17 1,061 270
SHARES REDEEMED (517) (149) (9,410) (2,319)
NET INCREASE (DECREASE) 711 1,289 $ 13,195 $ 19,883
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996
B SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1997
20. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 30,000
CLASS T 58,000
CLASS B 27,000
INSTITUTIONAL CLASS 19,000
$ 134,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Balanced Fund (formerly Fidelity Advisor Income &
Growth Fund):
We have audited the accompanying statement of assets and liabilities
of Fidelity Advisor Series II: Fidelity Advisor Balanced Fund
(formerly Fidelity Advisor Income & Growth Fund), including the
schedule of portfolio investments, as of October 31, 1997, 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 of Class A, Class T, Class B and
Institutional Class for each of the periods indicated therein. 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, 1997 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
Balanced Fund (formerly Fidelity Advisor Income & Growth Fund) as of
October 31, 1997, 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 of Class A, Class T,
Class B and Institutional Class for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Balanced 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
Institutional Class 12/8/97 12/5/97 $0.18 $1.26
A total of 11.81% 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 56% of the dividends distributed during the fiscal year
qualify for the dividends-received deduction for corporate
shareholders of Institutional Class.
The fund will notify shareholders in January 1998 of these percentages
for use in preparing 1997 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
Richard C. Pozen, Senior Vice President
William S. Hayes, Vice President
Richard A. Spillane, Vice President
Bettina E. Doulton, Vice President
Kevin Grant, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Richard C. Pozen
Thomas R. Williams *
* INDEPENDENT TRUSTEES
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank, N.A.
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International
Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
GOVERNMENT INVESTMENT
FUND - CLASS A, CLASS T, AND CLASS B
ANNUAL REPORT
OCTOBER 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 15 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 18 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 19 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 23 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 31 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 38 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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class A shares
took place on September 3, 1996. Class A shares bear a 0.15% 12b-1
fee. Returns prior to September 3, 1996 are those of Class T, the
original class of the fund, and reflect Class T's 0.25% 12b-1 fee. If
Fidelity had not reimbursed certain class expenses, the total returns
and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - CLASS A 8.09% 38.22% 115.08%
ADVISOR GOVERNMENT INVESTMENT - CLASS A 2.95% 31.66% 104.86%
(INCL. MAX 4.75% SALES CHARGE)
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 42.43% 134.51%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 42.57% 134.93%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 36.24% 115.30%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 Lehman
Brothers Government Bond Index and the Salomon Brothers
Treasury/Agency Index, both of which are indexes of U.S. government
and government agency securities (other than mortgage securities) with
maturities of one year of more. To measure how Class A's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 179 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - CLASS A 8.09% 6.69% 7.96%
ADVISOR GOVERNMENT INVESTMENT - CLASS A 2.95% 5.65% 7.44%
(INCL. MAX. 4.75% SALES CHARGE)
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 7.33% 8.90%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 7.35% 8.92%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 6.35% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' cumulative return
and show you what would have happened if Class A shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971203 185732 S00000000000001
FA Govt Inv -CL A LB Government Bond
00265 LB003
1987/10/31 9525.00 10000.00
1987/11/30 9599.85 10049.44
1987/12/31 9684.44 10169.29
1988/01/31 9979.57 10501.42
1988/02/29 10091.16 10614.28
1988/03/31 10033.45 10504.65
1988/04/30 9974.11 10448.49
1988/05/31 9914.88 10374.05
1988/06/30 10114.02 10603.27
1988/07/31 10096.66 10531.25
1988/08/31 10091.29 10552.21
1988/09/30 10262.69 10782.77
1988/10/31 10414.45 10972.75
1988/11/30 10327.42 10842.96
1988/12/31 10320.89 10884.34
1989/01/31 10440.80 11022.73
1989/02/28 10408.44 10932.98
1989/03/31 10439.26 10999.89
1989/04/30 10608.62 11235.83
1989/05/31 10815.84 11500.78
1989/06/30 11057.42 11884.51
1989/07/31 11229.59 12135.49
1989/08/31 11114.66 11931.26
1989/09/30 11179.20 11982.59
1989/10/31 11390.27 12292.69
1989/11/30 11476.80 12411.73
1989/12/31 11533.59 12432.69
1990/01/31 11408.10 12256.68
1990/02/28 11445.68 12281.13
1990/03/31 11462.61 12278.44
1990/04/30 11359.63 12170.15
1990/05/31 11692.48 12509.54
1990/06/30 11860.90 12707.58
1990/07/31 12004.67 12870.16
1990/08/31 11927.91 12690.92
1990/09/30 12007.20 12812.65
1990/10/31 12127.82 13021.98
1990/11/30 12339.29 13310.58
1990/12/31 12498.43 13516.42
1991/01/31 12635.57 13661.53
1991/02/28 12740.78 13739.72
1991/03/31 12791.98 13809.59
1991/04/30 12898.28 13961.14
1991/05/31 12965.97 14015.42
1991/06/30 12958.61 13995.54
1991/07/31 13097.52 14161.61
1991/08/31 13300.66 14489.98
1991/09/30 13541.05 14793.89
1991/10/31 13662.02 14923.42
1991/11/30 13741.00 15073.09
1991/12/31 14179.57 15586.61
1992/01/31 13987.24 15343.96
1992/02/29 14051.57 15403.88
1992/03/31 13955.18 15313.86
1992/04/30 14036.95 15410.33
1992/05/31 14294.62 15694.63
1992/06/30 14492.50 15919.55
1992/07/31 14737.21 16320.74
1992/08/31 14864.07 16472.83
1992/09/30 15002.16 16705.81
1992/10/31 14821.28 16464.77
1992/11/30 14858.78 16436.29
1992/12/31 15098.95 16713.06
1993/01/31 15357.55 17068.04
1993/02/28 15645.75 17409.85
1993/03/31 15735.45 17468.16
1993/04/30 15853.99 17602.52
1993/05/31 15878.97 17583.17
1993/06/30 16191.53 17973.34
1993/07/31 16271.72 18082.98
1993/08/31 16537.02 18486.59
1993/09/30 16567.37 18557.26
1993/10/31 16678.49 18627.40
1993/11/30 16423.36 18423.17
1993/12/31 16511.80 18494.38
1994/01/31 16799.69 18747.51
1994/02/28 16410.62 18350.62
1994/03/31 15914.65 17937.87
1994/04/30 15755.87 17796.80
1994/05/31 15772.29 17773.96
1994/06/30 15718.58 17733.11
1994/07/31 16061.27 18059.06
1994/08/31 16051.89 18062.56
1994/09/30 15826.37 17808.08
1994/10/31 15799.60 17794.65
1994/11/30 15769.49 17762.13
1994/12/31 15876.22 17870.16
1995/01/31 16161.23 18202.83
1995/02/28 16514.39 18594.61
1995/03/31 16623.84 18711.24
1995/04/30 16820.72 18955.77
1995/05/31 17474.93 19720.27
1995/06/30 17597.59 19871.55
1995/07/31 17535.79 19798.46
1995/08/31 17735.06 20031.17
1995/09/30 17896.60 20224.11
1995/10/31 18155.96 20532.06
1995/11/30 18414.97 20852.10
1995/12/31 18678.69 21147.69
1996/01/31 18774.54 21277.48
1996/02/29 18389.68 20844.04
1996/03/31 18219.89 20669.91
1996/04/30 18102.87 20537.97
1996/05/31 18064.55 20503.57
1996/06/30 18274.84 20768.26
1996/07/31 18311.73 20819.58
1996/08/31 18268.90 20773.10
1996/09/30 18559.03 21117.86
1996/10/31 18953.56 21582.47
1996/11/30 19266.02 21957.87
1996/12/31 19060.30 21733.76
1997/01/31 19075.64 21757.94
1997/02/28 19104.03 21787.77
1997/03/31 18894.98 21557.21
1997/04/30 19174.61 21868.38
1997/05/31 19313.87 22057.02
1997/06/30 19513.26 22304.51
1997/07/31 20067.85 22937.60
1997/08/31 19871.41 22710.81
1997/09/30 20154.79 23052.35
1997/10/31 20486.43 23451.12
IMATRL PRASUN SHR__CHT 19971031 19971203 185735 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class A on
October 31, 1987, and the current maximum 4.75% sales charge was paid.
As the chart shows, by October 31, 1997, the value of the investment
would have grown to $20,486 - a 104.86% increase on the initial
investment. For comparison, look at how the Lehman Brothers Government
Bond Index did over the same period. With dividends reinvested, the
same $10,000 would have grown to $23,451 - a 134.51% increase.
Beginning with this report, the fund will compare its performance to
that of the Lehman Brothers Government Bond Index rather than the
Salomon Brothers Treasury/Agency Index. The indexes include the same
types of bonds, and their performance is not materially different. The
fund is changing to the Lehman Brothers index mainly because Lehman
Brothers indexes are used by most other Fidelity bond funds. For
comparison purposes, both indexes are shown on 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.19% 6.20% 6.99% 5.01% 6.13%
CAPITAL APPRECIATION RETURN 1.90% -1.86% 7.92% -10.28 6.40%
%
TOTAL RETURN 8.09% 4.34% 14.91% -5.27% 12.53%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.73(CENTS) 27.93(CENTS) 55.88(CENTS)
ANNUALIZED DIVIDEND RATE 5.81% 5.84% 5.92%
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 $9.59 over the past one
month, $9.48 over the past six months and $9.44 over the past one
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. Yield information will be
reported once Class A has a longer, more stable, operating history.
FIDELITY ADVISOR GOVERNMENT INVESTMENT FUND - CLASS T
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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - CLASS T 7.97% 38.06% 114.82%
ADVISOR GOVERNMENT INVESTMENT - CLASS T 4.20% 33.23% 107.31%
(INCL. MAX 3.50% SALES CHARGE)
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 42.43% 134.51%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 42.57% 134.93%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 36.24% 115.30%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 T's returns to those of the Lehman
Brothers Government Bond Index and the Salomon Brothers
Treasury/Agency Index, both of which are indexes of U.S. government
and government agency securities (other than mortgage securities) with
maturities of one year of more. To measure how Class T's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 179 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - CLASS T 7.97% 6.66% 7.95%
ADVISOR GOVERNMENT INVESTMENT - CLASS T 4.20% 5.91% 7.56%
(INCL. MAX. 3.50% SALES CHARGE)
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 7.33% 8.90%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 7.35% 8.92%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 6.35% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class T shares' cumulative return
and show you what would have happened if Class T shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971205 132318 S00000000000001
FA Govt Inv -CL T LB Government Bond
00167 LB003
1987/10/31 9650.00 10000.00
1987/11/30 9725.83 10049.44
1987/12/31 9811.54 10169.29
1988/01/31 10110.53 10501.42
1988/02/29 10223.59 10614.28
1988/03/31 10165.12 10504.65
1988/04/30 10105.00 10448.49
1988/05/31 10045.00 10374.05
1988/06/30 10246.75 10603.27
1988/07/31 10229.16 10531.25
1988/08/31 10223.73 10552.21
1988/09/30 10397.37 10782.77
1988/10/31 10551.13 10972.75
1988/11/30 10462.95 10842.96
1988/12/31 10456.34 10884.34
1989/01/31 10577.82 11022.73
1989/02/28 10545.03 10932.98
1989/03/31 10576.25 10999.89
1989/04/30 10747.84 11235.83
1989/05/31 10957.78 11500.78
1989/06/30 11202.53 11884.51
1989/07/31 11376.96 12135.49
1989/08/31 11260.52 11931.26
1989/09/30 11325.91 11982.59
1989/10/31 11539.75 12292.69
1989/11/30 11627.41 12411.73
1989/12/31 11684.95 12432.69
1990/01/31 11557.81 12256.68
1990/02/28 11595.88 12281.13
1990/03/31 11613.04 12278.44
1990/04/30 11508.71 12170.15
1990/05/31 11845.92 12509.54
1990/06/30 12016.55 12707.58
1990/07/31 12162.21 12870.16
1990/08/31 12084.44 12690.92
1990/09/30 12164.77 12812.65
1990/10/31 12286.98 13021.98
1990/11/30 12501.22 13310.58
1990/12/31 12662.45 13516.42
1991/01/31 12801.39 13661.53
1991/02/28 12907.98 13739.72
1991/03/31 12959.86 13809.59
1991/04/30 13067.55 13961.14
1991/05/31 13136.13 14015.42
1991/06/30 13128.67 13995.54
1991/07/31 13269.41 14161.61
1991/08/31 13475.21 14489.98
1991/09/30 13718.76 14793.89
1991/10/31 13841.31 14923.42
1991/11/30 13921.33 15073.09
1991/12/31 14365.65 15586.61
1992/01/31 14170.80 15343.96
1992/02/29 14235.97 15403.88
1992/03/31 14138.32 15313.86
1992/04/30 14221.17 15410.33
1992/05/31 14482.21 15694.63
1992/06/30 14682.69 15919.55
1992/07/31 14930.61 16320.74
1992/08/31 15059.14 16472.83
1992/09/30 15199.04 16705.81
1992/10/31 15015.79 16464.77
1992/11/30 15053.78 16436.29
1992/12/31 15297.10 16713.06
1993/01/31 15559.09 17068.04
1993/02/28 15851.07 17409.85
1993/03/31 15941.95 17468.16
1993/04/30 16062.05 17602.52
1993/05/31 16087.36 17583.17
1993/06/30 16404.02 17973.34
1993/07/31 16485.26 18082.98
1993/08/31 16754.04 18486.59
1993/09/30 16784.79 18557.26
1993/10/31 16897.37 18627.40
1993/11/30 16638.89 18423.17
1993/12/31 16728.49 18494.38
1994/01/31 17020.15 18747.51
1994/02/28 16625.98 18350.62
1994/03/31 16123.50 17937.87
1994/04/30 15962.64 17796.80
1994/05/31 15979.28 17773.96
1994/06/30 15924.86 17733.11
1994/07/31 16272.05 18059.06
1994/08/31 16262.55 18062.56
1994/09/30 16034.07 17808.08
1994/10/31 16006.95 17794.65
1994/11/30 15976.43 17762.13
1994/12/31 16084.57 17870.16
1995/01/31 16373.32 18202.83
1995/02/28 16731.11 18594.61
1995/03/31 16842.00 18711.24
1995/04/30 17041.46 18955.77
1995/05/31 17704.26 19720.27
1995/06/30 17828.53 19871.55
1995/07/31 17765.92 19798.46
1995/08/31 17967.81 20031.17
1995/09/30 18131.46 20224.11
1995/10/31 18394.23 20532.06
1995/11/30 18656.64 20852.10
1995/12/31 18923.82 21147.69
1996/01/31 19020.92 21277.48
1996/02/29 18631.01 20844.04
1996/03/31 18459.00 20669.91
1996/04/30 18340.44 20537.97
1996/05/31 18301.62 20503.57
1996/06/30 18514.66 20768.26
1996/07/31 18552.04 20819.58
1996/08/31 18508.65 20773.10
1996/09/30 18801.69 21117.86
1996/10/31 19199.57 21582.47
1996/11/30 19514.68 21957.87
1996/12/31 19325.40 21733.76
1997/01/31 19317.46 21757.94
1997/02/28 19344.87 21787.77
1997/03/31 19131.51 21557.21
1997/04/30 19392.54 21868.38
1997/05/31 19552.82 22057.02
1997/06/30 19774.01 22304.51
1997/07/31 20312.57 22937.60
1997/08/31 20111.42 22710.81
1997/09/30 20396.66 23052.35
1997/10/31 20730.60 23451.12
IMATRL PRASUN SHR__CHT 19971031 19971205 132320 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class T on
October 31, 1987, and the current maximum 3.50% sales charge was paid.
As the chart shows, by October 31, 1997, the value of the investment
would have grown to $20,731 - a 107.31% increase on the initial
investment. For comparison, look at how the Lehman Brothers Government
Bond Index did over the same period. With dividends reinvested the
same $10,000 would have grown to $23,451 - a 134.51% increase.
Beginning with this report, the fund will compare its performance to
that of the Lehman Brothers Government Bond Index rather than the
Salomon Brothers Treasury/Agency Index. The indexes include the same
types of bonds, and their performance is not materially different. The
fund is changing to the Lehman Brothers index mainly because Lehman
Brothers indexes are used by most other Fidelity bond funds. For
comparison purposes, both indexes are shown on 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.07% 6.24% 6.99% 5.01% 6.13%
CAPITAL APPRECIATION RETURN 1.90% -1.86% 7.92% -10.28 6.40%
%
TOTAL RETURN 7.97% 4.38% 14.91% -5.27% 12.53%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.65(CENTS) 27.43(CENTS) 54.89(CENTS)
ANNUALIZED DIVIDEND RATE 5.71% 5.74% 5.81%
30-DAY ANNUALIZED YIELD 5.37% - -
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 $9.59 over the past one
month, or $9.48 over the past six months or $9.44 over the past one
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 T's
current maximum 3.50% sales charge. If Fidelity had not reimbursed
certain class expenses, the yield would have been 5.31%.
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class B shares
took place on June 30, 1994. Class B shares bear a 0.90%
12b-1/shareholder service fee (1.00% prior to January 1, 1996).
Returns prior to June 30, 1994 are those of Class T, the original
class of the fund, and reflect Class T's 0.25% 12b-1 fee. Had Class
B's 12b-1 fee been reflected, returns prior to June 30, 1994 would
have been lower. Class B's contingent deferred sales charges included
in the past one year, past five years and past 10 years total return
figures are 5%, 2% and 0%, respectively. If Fidelity had not
reimbursed certain class expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - CLASS B 7.20% 34.74% 109.65%
ADVISOR GOVERNMENT INVESTMENT - CLASS B 2.20% 32.75% 109.65%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 42.43% 134.51%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 42.57% 134.93%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 36.24% 115.30%
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 Lehman
Brothers Government Bond Index and the Salomon Brothers
Treasury/Agency Index, both of which are indexes of U.S. government
and government agency securities (other than mortgage securities) with
maturities of one year of more. To measure how Class B's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 179 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - CLASS B 7.20% 6.14% 7.68%
ADVISOR GOVERNMENT INVESTMENT - CLASS B 2.20% 5.83% 7.68%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 7.33% 8.90%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 7.35% 8.92%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 6.35% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' cumulative return
and show you what would have happened if Class B shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971203 185720 S00000000000001
FA Govt Inv -CL B LB Government Bond
00667 LB003
1987/10/31 10000.00 10000.00
1987/11/30 10078.58 10049.44
1987/12/31 10167.40 10169.29
1988/01/31 10477.23 10501.42
1988/02/29 10594.40 10614.28
1988/03/31 10533.81 10504.65
1988/04/30 10471.50 10448.49
1988/05/31 10409.33 10374.05
1988/06/30 10618.39 10603.27
1988/07/31 10600.17 10531.25
1988/08/31 10594.53 10552.21
1988/09/30 10774.48 10782.77
1988/10/31 10933.81 10972.75
1988/11/30 10842.44 10842.96
1988/12/31 10835.58 10884.34
1989/01/31 10961.47 11022.73
1989/02/28 10927.49 10932.98
1989/03/31 10959.85 10999.89
1989/04/30 11137.65 11235.83
1989/05/31 11355.21 11500.78
1989/06/30 11608.84 11884.51
1989/07/31 11789.60 12135.49
1989/08/31 11668.93 11931.26
1989/09/30 11736.69 11982.59
1989/10/31 11958.29 12292.69
1989/11/30 12049.13 12411.73
1989/12/31 12108.75 12432.69
1990/01/31 11977.00 12256.68
1990/02/28 12016.46 12281.13
1990/03/31 12034.24 12278.44
1990/04/30 11926.12 12170.15
1990/05/31 12275.56 12509.54
1990/06/30 12452.39 12707.58
1990/07/31 12603.32 12870.16
1990/08/31 12522.74 12690.92
1990/09/30 12605.98 12812.65
1990/10/31 12732.62 13021.98
1990/11/30 12954.63 13310.58
1990/12/31 13121.71 13516.42
1991/01/31 13265.69 13661.53
1991/02/28 13376.14 13739.72
1991/03/31 13429.91 13809.59
1991/04/30 13541.50 13961.14
1991/05/31 13612.57 14015.42
1991/06/30 13604.84 13995.54
1991/07/31 13750.68 14161.61
1991/08/31 13963.95 14489.98
1991/09/30 14216.33 14793.89
1991/10/31 14343.33 14923.42
1991/11/30 14426.25 15073.09
1991/12/31 14886.68 15586.61
1992/01/31 14684.76 15343.96
1992/02/29 14752.31 15403.88
1992/03/31 14651.11 15313.86
1992/04/30 14736.96 15410.33
1992/05/31 15007.47 15694.63
1992/06/30 15215.22 15919.55
1992/07/31 15472.14 16320.74
1992/08/31 15605.32 16472.83
1992/09/30 15750.30 16705.81
1992/10/31 15560.40 16464.77
1992/11/30 15599.77 16436.29
1992/12/31 15851.92 16713.06
1993/01/31 16123.41 17068.04
1993/02/28 16425.98 17409.85
1993/03/31 16520.15 17468.16
1993/04/30 16644.61 17602.52
1993/05/31 16670.83 17583.17
1993/06/30 16998.98 17973.34
1993/07/31 17083.17 18082.98
1993/08/31 17361.70 18486.59
1993/09/30 17393.56 18557.26
1993/10/31 17510.22 18627.40
1993/11/30 17242.37 18423.17
1993/12/31 17335.22 18494.38
1994/01/31 17637.47 18747.51
1994/02/28 17229.00 18350.62
1994/03/31 16708.29 17937.87
1994/04/30 16541.59 17796.80
1994/05/31 16558.84 17773.96
1994/06/30 16502.44 17733.11
1994/07/31 16833.48 18059.06
1994/08/31 16826.89 18062.56
1994/09/30 16557.04 17808.08
1994/10/31 16518.30 17794.65
1994/11/30 16475.98 17762.13
1994/12/31 16576.41 17870.16
1995/01/31 16863.21 18202.83
1995/02/28 17224.76 18594.61
1995/03/31 17328.36 18711.24
1995/04/30 17522.59 18955.77
1995/05/31 18193.13 19720.27
1995/06/30 18309.52 19871.55
1995/07/31 18232.97 19798.46
1995/08/31 18428.59 20031.17
1995/09/30 18585.01 20224.11
1995/10/31 18861.79 20532.06
1995/11/30 19119.17 20852.10
1995/12/31 19381.90 21147.69
1996/01/31 19469.99 21277.48
1996/02/29 19060.91 20844.04
1996/03/31 18875.37 20669.91
1996/04/30 18725.26 20537.97
1996/05/31 18674.38 20503.57
1996/06/30 18901.49 20768.26
1996/07/31 18929.16 20819.58
1996/08/31 18874.00 20773.10
1996/09/30 19163.09 21117.86
1996/10/31 19558.13 21582.47
1996/11/30 19870.16 21957.87
1996/12/31 19647.77 21733.76
1997/01/31 19650.59 21757.94
1997/02/28 19647.74 21787.77
1997/03/31 19441.00 21557.21
1997/04/30 19695.87 21868.38
1997/05/31 19826.54 22057.02
1997/06/30 20040.39 22304.51
1997/07/31 20575.66 22937.60
1997/08/31 20360.49 22710.81
1997/09/30 20660.13 23052.35
1997/10/31 20965.37 23451.12
IMATRL PRASUN SHR__CHT 19971031 19971203 185723 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class B on
October 31, 1987. As the chart shows, by October 31, 1997, the value
of the investment would have grown to $20,965 - a 109.65% increase on
the initial investment. For comparison, look at how the Lehman
Brothers Government Bond Index did over the same period. With
dividends reinvested the same $10,000 would have grown to $23,451 - a
134.51% increase. Beginning with this report, the fund will compare
its performance to that of the Lehman Brothers Government Bond Index
rather than the Salomon Brothers Treasury/Agency Index. The indexes
include the same types of bonds, and their performance is not
materially different. The fund is changing to the Lehman Brothers
index mainly because Lehman Brothers indexes are used by most other
Fidelity bond funds. For comparison purposes, both indexes are shown
on pages 11 and 12.
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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 5.41% 5.55% 6.15% 4.72% 6.13%
CAPITAL APPRECIATION RETURN 1.79% -1.86% 8.04% -10.38 6.40%
%
TOTAL RETURN 7.20% 3.69% 14.19% -5.66% 12.53%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.12(CENTS) 24.33(CENTS) 48.96(CENTS)
ANNUALIZED DIVIDEND RATE 5.06% 5.10% 5.19%
30-DAY ANNUALIZED YIELD 4.92% - -
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 $9.58 over the past one
month, $9.47 over the past six months, and $9.44 over the past one
year. The 30-day annualized YIELD is a standard formula for all funds
based on the yields of the bonds in the fund, averaged over the past
30 days. This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. The offering share price
used in the calculation of the yield excludes the effect of Class B's
contingent deferred sales charge. If Fidelity had not reimbursed
certain class expenses, the yield would have been 4.91%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's primary nemesis -
rising inflation - remained in check
throughout most of the 12 months that
ended October 31, 1997, translating
into a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 8.89% during the
period. Through the first half of the
period, bonds suffered from the
perception of an accelerating
economy and, in turn, that inflation
would make an appearance. The
Federal Reserve Board raised a key
short-term interest rate in March, in
an attempt to curb any potential
hints of inflation. For the most part,
though, investors had been
anticipating this hike. Spurred on by
encouraging economic data, as well as
the Fed's reluctance to raise rates
further, bond markets rallied from
April through July. While some of
these gains evaporated in August -
as inflation fears cropped up again
- - a strong September and October
helped ease the pain. The bond
market attracted wary stock investors
in October, as the U.S. equity market
stumbled due to overseas
developments. Treasuries, in
particular, performed well toward the
end of the period. Relative interest-rate
stability provided a fairly positive
backdrop for mortgage-backed
securities, as the Lehman Brothers
Mortgage-Backed Securities Index
returned 9.12% over the 12-month
period. Sustained economic growth
and demand for higher yields helped
corporate bonds, as the Lehman
Brothers Corporate Bond Index
returned 9.25% over the same
period.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Advisor Government Investment Fund
Q. HOW DID THE FUND PERFORM, CURT?
B.D. For the year that ended October 31, 1997, the fund's Class A,
Class T and Class B shares had total returns of 8.09%, 7.97% and
7.20%, respectively. To compare the fund's performance with that of
its competitors, the U.S. government funds average had a return of
7.99%, according to Lipper Analytical Services. To gauge how the fund
did relative to the overall government securities market, the Lehman
Brothers Government Bond Index had a 12-month return of 8.66%.
Q. DID YOU ALTER YOUR STRATEGY IN LIGHT OF THE MARKET'S CHANGING
DIRECTION?
A. The main thrust of my investment strategy remained the same
throughout the past six months: I managed the fund to have
approximately the same sensitivity to interest-rate movements as the
market for government securities as represented by the Salomon
Brothers Treasury/Agency Index. It's my view that very few people can
pinpoint the direction and magnitude of interest-rate changes with any
accuracy and consistency. Given that, I believe that managing a fund
based on the future level of interest rates can backfire if you place
an incorrect bet. So I kept the fund "duration neutral," meaning that
it was essentially no more or less sensitive to interest-rate changes
than the short-maturity part of the government/agency bond market.
Q. DURING THE PAST SIX MONTHS, YOU INCREASED THE FUND'S STAKE IN
AGENCY AND MORTGAGE SECURITIES. WHAT PROMPTED THAT STRATEGY AND HOW
DID IT AFFECT THE FUND'S PERFORMANCE IN THE SECOND HALF OF THE PERIOD?
A. I did so because agencies and mortgages were more attractive given
their higher yields. Having relatively high-yielding agency and
mortgage securities - as opposed to more Treasuries - was a plus for
the fund during most of the period. However, amid the volatility we
saw in October, agencies and mortgages didn't perform as well as
Treasuries, so that position detracted slightly from the fund's
performance toward the end of the period.
Q. WITHIN THE AGENCY SECTOR, WHICH SECURITIES DID YOU EMPHASIZE?
A. I focused on agency securities that are non-callable - those that
can't be redeemed by their issuer before maturity. Bonds typically are
called when interest rates fall so significantly that issuers can save
money by issuing new bonds at lower rates. A call is a positive for
issuers because it cuts their borrowing costs. But holders of callable
bonds are often at a disadvantage because they may have to reinvest
the proceeds from a called bond in new, lower-yielding bonds. I prefer
non-callable securities because they generally perform better than
callable bonds when interest rates fall and bond prices rally, and
generally fare no worse than callable bonds when interest rates rise
and bond prices fall.
Q. MORTGAGE-BACKED SECURITIES ALSO ARE SUSCEPTIBLE TO BEING PRE-PAID
BEFORE MATURITY AS HOMEOWNERS REFINANCE. IN LIGHT OF THAT, WHICH
MORTGAGE SECURITIES DID YOU CHOOSE?
A. The likelihood of a mortgage security being pre-paid because of
increased refinancing activity is one of the most important factors I
consider, since it can dramatically affect the security's price. I
tend to emphasize mortgage securities where I think the level of
refinancing activity will not change greatly as interest rates rise or
fall. For example, I chose those securities where the underlying loans
had interest rates well above or well below current interest rates,
because they are generally less likely to experience changes in
refinancing activity. I also focused on "seasoned" mortgages - those
that were issued between five and 10 years ago. For a variety of
reasons, homeowners with seasoned mortgages have chosen not to
refinance despite being presented with several attractive
opportunities to do so. Seasoned mortgages stand only a small chance
of being paid off before maturity.
Q. WHAT'S YOUR OUTLOOK FOR THE
BOND MARKET?
A. Before currency-related problems in Southeast Asia shook global
markets in October, bond investors appeared worried that the Federal
Reserve Board would have to increase interest rates in response to the
U.S. economy's strength. But now many market observers are speculating
that the troubles in Southeast Asia may mean that the U.S. economy
will cool off, eliminating the need for the Fed to raise interest
rates to thwart inflation. Until these issues are sorted out, though,
I think the bond market could be somewhat more volatile in the months
ahead.
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.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO 14.3 7.0
COUPON
BONDS
5 - 8.4 16.0
5.99%
6 - 19.9 22.1
6.99%
7 - 12.0 10.1
7.99%
8 - 28.0 38.8
8.99%
9 - 8.9 4.4
9.99%
10 - 1.1 0.5
10.99%
11 - 6.4 0.3
11.99%
12% AND 0.4 0.4
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1997
6 MONTHS AGO
YEARS 8.2 8.4
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, 1997
6 MONTHS AGO
YEARS 4.9 4.8
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 (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 AS OF APRIL 30, 1997
ROW: 1, COL: 1, VALUE: 2.0
ROW: 1, COL: 2, VALUE: 55.0
ROW: 1, COL: 3, VALUE: 20.0
ROW: 1, COL: 4, VALUE: 23.0
MORTGAGE-BACKED
SECURITIES 19.9%
U.S. TREASURY
OBLIGATIONS 39.1%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 40.6%
SHORT-TERM
INVESTMENTS 0.4%
MORTGAGE-BACKED
SECURITIES 23.3%
U.S. TREASURY
OBLIGATIONS 20.1%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 56.0%
SHORT-TERM
INVESTMENTS 0.6%
ROW: 1, COL: 1, VALUE: 1.8
ROW: 1, COL: 2, VALUE: 40.2
ROW: 1, COL: 3, VALUE: 39.0
ROW: 1, COL: 4, VALUE: 19.0
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 76.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 20.1%
11 1/4%, 8/15/03 $ 3,300,000 $ 4,147,176
11 3/4%, 2/15/10 (callable) 2,395,000 3,201,061
8 7/8%, 2/15/19 22,200,000 29,099,316
8 1/8%, 8/15/19 330,000 404,148
36,851,701
U.S. GOVERNMENT AGENCY OBLIGATIONS - 56.0%
Federal Agricultural Mortgage Corporation:
7.48%, 11/27/00 1,800,000 1,880,712
7.01%, 8/10/04 500,000 524,610
Federal Farm Credit Bank 5.51%, 1/25/01 1,000,000 990,000
Federal Home Loan Bank:
6.37%, 6/30/03 230,000 233,917
7.59%, 3/10/05 290,000 314,198
Federal Home Loan Mortgage Corporation
8%, 1/26/05 330,000 365,010
Federal National Mortgage Association:
5.55%, 1/17/01 1,750,000 1,734,688
8 5/8%, 6/30/04 1,000,000 1,134,060
7.16%, 5/11/05 2,850,000 3,016,098
Financing Corp. stripped principal:
Series A, 0%, 2/8/03 5,000,000 3,668,500
0%, 3/7/03 10,000,000 7,272,600
Government Loan Trusts (assets of Trust guaranteed by U.S.
government through Agency for International Development)
Class 1-B, 8 1/2%, 4/1/06 1,070,000 1,181,034
Government Trust Certificates (assets of Trust guaranteed
by U.S. government through Defense Security
Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 6,922,996 7,353,953
Class 2-E, 9.40%, 5/15/02 1,087,836 1,154,085
Class T-3, 9 5/8%, 5/15/02 642,490 680,982
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. government through
Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 235,200 228,842
Series 1993-D, 5.23%, 5/15/05 323,191 314,190
Series 1994-A, 7.12%, 4/15/06 1,832,118 1,905,188
Series 1994-C, 6.61%, 9/15/99 110,355 111,092
Series 1994-F, 8.187%, 12/15/04 5,529,202 5,859,047
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) Series 1994-B, 7 1/2%, 1/26/06 $ 247,543 $ 261,497
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) Series 1994-1, 6.88%, 1/26/03 342,941 349,869
Overseas Private Investment Corp. U.S. government
guaranteed participation certificates (callable):
Series 1994-195, 6.08%, 8/15/04 2,050,000 2,050,164
Series 1996-A1, 6.726%, 9/15/10 2,000,000 2,057,520
Private Export Funding Corp. secured:
5.65%, 3/15/03 943,250 934,893
6.86%, 4/30/04 1,309,750 1,340,059
State of Israel (guaranteed by U.S. government through
Agency for International Development):
7 1/8%, 8/15/99 2,167,000 2,216,297
0%, 11/15/00 11,140,000 9,336,545
0%, 11/15/01 7,500,000 5,934,225
8%, 11/15/01 5,540,000 5,945,860
6 1/8%, 3/15/03 630,000 634,725
7 5/8%, 8/15/04 480,000 521,369
5.89%, 8/15/05 8,420,000 8,306,860
6.60%, 2/15/08 12,815,000 13,161,902
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. government through Export-Import Bank):
8.17%, 1/15/07 570,000 618,159
6.69%, 1/15/09 (a) 1,069,405 1,094,925
U.S. Department of Housing & Urban Development
government guaranteed participation certificates:
Series 1995-A, 8.24%, 8/1/02 4,000,000 4,377,720
Series 1995-A, 8.27%, 8/1/03 415,000 459,704
Series 1996-A, 6.98%, 8/1/05 3,000,000 3,155,460
102,680,559
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $133,138,424) 139,532,260
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 17.2%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.1%
6 1/2%, 5/1/08 $ 371,664 $ 372,790
6.77%, 11/1/03 4,758,200 4,889,051
8 1/2%, 8/1/09 to 10/1/25 762,024 797,036
9%, 10/1/08 to 10/1/20 1,538,326 1,642,872
9 1/2%, 2/1/08 to 7/1/21 1,059,097 1,149,522
10 1/2%, 1/1/16 to 12/1/20 791,496 881,866
11%, 7/1/13 to 5/1/14 617,951 689,931
12 1/2%, 2/1/10 to 6/1/19 573,658 666,172
11,089,240
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.2%
5 1/2%, 7/1/09 2,942,776 2,867,971
6%, 12/1/08 155,580 154,311
6.345%, 3/1/99 1,809,126 1,813,083
6 1/2%, 6/1/07 to 2/1/10 2,334,663 2,339,249
8 1/4%, 12/1/01 680,408 731,296
8 1/2%, 8/1/16 to 1/1/17 274,057 289,494
9%, 11/1/11 645,093 683,186
9 1/4%, 9/1/16 141,500 152,702
9 1/2%, 5/1/07 to 5/1/20 2,222,540 2,353,017
12 1/2%, 8/1/15 26,839 31,658
11,415,967
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.9%
7 1/2%, 9/15/06 to 1/15/08 2,784,808 2,870,940
9%, 5/15/01 to 12/15/09 839,686 870,073
9 1/2%, 11/15/09 311,986 338,479
10 1/2%, 8/15/16 to 1/15/18 999,830 1,121,202
11%, 12/15/15 to 7/15/19 943,423 1,077,306
11 1/2%, 3/15/10 to 8/15/20 2,263,601 2,600,751
13 1/2%, 7/15/11 60,631 72,760
8,951,511
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $31,007,938) 31,456,718
COLLATERALIZED MORTGAGE OBLIGATIONS - 6.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
Federal Home Loan Mortgage Corporation:
Series 1535 Class PM, 7%, 6/15/01 $ 3,028,764 $ 3,070,410
sequential pay Series 1353 Class A, 5 1/2%, 11/15/04 37,768 37,591
Federal National Mortgage Association:
planned amortization class Series 1993-134 Class GA,
6 1/2%, 2/25/07 2,730,000 2,764,658
sequential pay Series 1996-M5 Class A1, 7.141%, 6/25/08 3,463,175
3,557,330
Series 1994-M3 Class A, 7.71%, 4/1/06 1,737,365 1,748,224
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $11,023,018) 11,178,213
CASH EQUIVALENTS - 0.6%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.68%, dated
10/31/97 due 11/3/97 $ 1,117,529 1,117,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $176,286,380) $ 183,284,191
LEGEND
9. Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At the
period end, the value of these securities amounted to $1,094,925 or
0.6% of net assets.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $176,308,671. Net unrealized appreciation
aggregated $6,975,520, of which $7,105,188 related to appreciated
investment securities and $129,668 related to depreciated investment
securities.
At October 31, 1997, the fund had a capital loss carryforward of
approximately $6,368,000 of which $3,261,000, $2,767,000 and $340,000
will expire on October 31, 2002, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 183,284,191
AGREEMENTS OF $1,117,000) (COST $176,286,380) -
SEE ACCOMPANYING SCHEDULE
CASH 563,561
RECEIVABLE FOR INVESTMENTS SOLD 133,568
INTEREST RECEIVABLE 2,433,514
TOTAL ASSETS 186,414,834
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 431,192
DISTRIBUTIONS PAYABLE 124,497
ACCRUED MANAGEMENT FEE 51,504
DISTRIBUTION FEES PAYABLE 43,476
OTHER PAYABLES AND ACCRUED EXPENSES 85,733
TOTAL LIABILITIES 736,402
NET ASSETS $ 185,678,432
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 184,628,451
UNDISTRIBUTED NET INVESTMENT INCOME 443,959
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (6,391,789)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 6,997,811
NET ASSETS $ 185,678,432
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $9.67
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,581,993 (DIVIDED BY) 163,631 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $9.67) $10.15
CLASS T: $9.67
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($144,948,403 (DIVIDED BY) 14,994,788 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $9.67) $10.02
CLASS B: $9.66
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($18,781,658 (DIVIDED BY) 1,944,297 SHARES) A
INSTITUTIONAL CLASS: $9.65
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($20,366,378 (DIVIDED BY) 2,110,473 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 14,520,325
INTEREST
EXPENSES
MANAGEMENT FEE $ 930,159
TRANSFER AGENT FEES 496,575
DISTRIBUTION FEES 584,502
ACCOUNTING FEES AND EXPENSES 87,365
NON-INTERESTED TRUSTEES' COMPENSATION 1,899
CUSTODIAN FEES AND EXPENSES 13,752
REGISTRATION FEES 81,054
AUDIT 60,355
LEGAL 1,383
INTEREST 1,615
MISCELLANEOUS 6,067
TOTAL EXPENSES BEFORE REDUCTIONS 2,264,726
EXPENSE REDUCTIONS (96,050) 2,168,676
NET INVESTMENT INCOME 12,351,649
REALIZED AND UNREALIZED GAIN (LOSS) (45,568)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 2,565,980
INVESTMENT SECURITIES
NET GAIN (LOSS) 2,520,412
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 14,872,061
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 12,351,649 $ 16,576,353
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (45,568) (2,903,627)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 2,565,980 (3,481,958)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 14,872,061 10,190,768
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (12,220,693) (16,570,486)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (80,094,142) 34,526,256
TOTAL INCREASE (DECREASE) IN NET ASSETS (77,442,774) 28,146,538
NET ASSETS
BEGINNING OF PERIOD 263,121,206 234,974,668
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 185,678,432 $ 263,121,206
INCOME OF $443,959 AND $294,939, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 F
SELECTED PER-SHARE DATA D
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.490 $ 9.250
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .552 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) .187 .241 E
TOTAL FROM INVESTMENT OPERATIONS .739 .331
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.559) (.091)
NET ASSET VALUE, END OF PERIOD $ 9.670 $ 9.490
TOTAL RETURN B, C 8.09% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 1,582 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% G .90% A,
G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.98% 6.28% A
PORTFOLIO TURNOVER RATE 136% 153%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD DUE TO THE TIMING
OF SALES AND REPURCHASES OF CLASS SHARES IN RELATION TO FLUCTUATING
MARKET VALUES OF THE INVESTMENTS OF THE FUND.
F FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS T
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 C 1993
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.490 $ 9.670 $ 8.960 $ 10.140 $ 9.730
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .558 D .586 D .594 .515 .567
NET REALIZED AND UNREALIZED .171 (.180) .701 (1.031) .601
GAIN (LOSS)
TOTAL FROM INVESTMENT .729 .406 1.295 (.516) 1.168
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.549) (.586) (.585) (.504) (.558)
FROM NET REALIZED GAIN - - - (.130) (.200)
IN EXCESS OF NET REALIZED GAIN - - - (.030) -
TOTAL DISTRIBUTIONS (.549) (.586) (.585) (.664) (.758)
NET ASSET VALUE, END OF PERIOD $ 9.670 $ 9.490 $ 9.670 $ 8.960 $ 10.140
TOTAL RETURN A, B 7.97% 4.38% 14.91% (5.27)% 12.53%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 144,948 $ 217,883 $ 208,620 $ 114,453 $ 69,876
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE 1.00% 1.00% .89% E .74% E .68% E
NET ASSETS E
RATIO OF EXPENSES TO AVERAGE 1.00% .99% F .89% .74% .68%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO 5.88% 6.19% 6.34% 6.18% 6.11%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 136% 153% 261% 313% 333%
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 F
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.490 $ 9.670 $ 8.950 $ 9.100
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .494 D .520 D .542 .144
NET REALIZED AND UNREALIZED GAIN (LOSS) .166 (.177) .693 (.137)
TOTAL FROM INVESTMENT OPERATIONS .660 .343 1.235 .007
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.490) (.523) (.515) (.157)
NET ASSET VALUE, END OF PERIOD $ 9.660 $ 9.490 $ 9.670 $ 8.950
TOTAL RETURN B, C 7.20% 3.69% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 18,782 $ 17,355 $ 11,766 $ 2,062
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.65% 1.67% E 1.65% E 1.70% A,
E E
RATIO OF NET INVESTMENT INCOME TO AVERAGE 5.24% 5.51% 5.58% 5.22% A
NET ASSETS
PORTFOLIO TURNOVER RATE 136% 153% 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 6 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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO OCTOBER 31, 1994.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 F
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.480 $ 9.670 $ 9.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .580 D .604 D .197
NET REALIZED AND UNREALIZED GAIN (LOSS) .165 (.180) .108
TOTAL FROM INVESTMENT OPERATIONS .745 .424 .305
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.575) (.614) (.195)
NET ASSET VALUE, END OF PERIOD $ 9.650 $ 9.480 $ 9.670
TOTAL RETURN B, C 8.18% 4.58% 3.23%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 20,366 $ 27,660 $ 14,588
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% .75% E .75% A,
E E
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.12% 6.43% 6.48% A
PORTFOLIO TURNOVER RATE 136% 153% 261%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F 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, 1997
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 T, Class B, and Institutional Class
shares, each of which has equal rights as to assets and voting
privileges. Each class has exclusive voting rights with respect to its
distribution plan. Investment income, realized and unrealized capital
gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
between the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. 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
and capital gain distributions are declared separately for each class.
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, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments 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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $285,193,649 and $362,312,288, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% 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 each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
C .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 1,086 $ 1,086
CLASS T 427,659 427,659
CLASS B 155,757 43,269
$ 584,502 $ 472,014
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares (4.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, and the proceeds of a contingent
deferred sales charge levied on Class B share redemptions occurring
within six years of purchase (five years prior to January 2, 1997).
The Class B charge is based on declining rates which range from 5% to
1%(4% to 1% prior to January 2, 1997) 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 the following sales charge amounts
related to each class, a portion of which is paid to securities
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 31,629 $ 24,716
CLASS T 76,261 55,749
CLASS B 87,840 0*
$ 195,730 $ 80,465
D WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO DEALERS THROUGH WHICH THE
SALES ARE MADE.
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 3,619 .50
CLASS T** FIIOC * 413,305 .24
CLASS B FIIOC * 39,211 .23
INSTITUTIONAL CLASS FIIOC * 40,440 .18
$ 496,575
E FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC),
AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN TRANSFER, DIVIDEND DISBURSING, AND
SHAREHOLDER SERVICES TO FIIOC FOR WHICH FIIOC RECEIVED ITS ALLOCABLE
SHARE OF ALL SUCH FEES.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company, Inc. 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. 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 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 loans were outstanding
amounted to $3,427,000 and $3,333,333, respectively. The weighted
average interest rate was 5.81%.
6. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each class:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 29,617
CLASS T 1.00% 46,088
CLASS B 1.65% 13,359
INSTITUTIONAL CLASS .75% 6,335
$ 95,399
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $651 under the custodian
arrangement.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 42,611 $ 1,602
CLASS T
FROM NET INVESTMENT INCOME 9,932,617 14,160,622
CLASS B
FROM NET INVESTMENT INCOME 901,652 822,494
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME 1,343,813 1,585,768
$ 12,220,693 $ 16,570,486
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 178,436 23,309 $ 1,694,126 $ 216,298
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 3,776 170 35,859 1,602
SHARES REDEEMED (42,060) - (399,267) -
NET INCREASE (DECREASE) 140,152 23,479 $ 1,330,718 $ 217,900
CLASS T 7,027,367 16,389,663 $ 66,447,581 $ 156,392,785
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 889,673 1,323,588 8,404,098 12,548,852
SHARES REDEEMED (15,881,447) (16,317,212) (149,782,096) (154,061,866)
NET INCREASE (DECREASE) (7,964,407) 1,396,039 $ (74,930,417) $ 14,879,771
CLASS B 604,961 1,364,781 $ 5,722,117 $ 13,027,776
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 71,140 64,712 672,141 612,407
SHARES REDEEMED (560,735) (817,313) (5,289,699) (7,792,379)
NET INCREASE (DECREASE) 115,366 612,180 $ 1,104,559 $ 5,847,804
INSTITUTIONAL CLASS 790,278 2,699,943 $ 7,450,279 $ 25,667,067
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 121,048 131,515 1,142,532 1,241,701
SHARES REDEEMED (1,719,049) (1,421,950) (16,191,813) (13,327,987)
NET INCREASE (DECREASE) (807,723) 1,409,508 $ (7,599,002) $ 13,580,781
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
9. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 27,516
CLASS T 24,520
CLASS B 12,917
INSTITUTIONAL CLASS 16,101
$ 81,054
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, 1997, 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 of Class
A, Class B, Class T and Institutional Class for each of the periods
indicated therein. 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, 1997 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, 1997, 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 of Class A, Class B, Class T and Institutional Class for
each of the periods indicated therein, in conformity with generally
accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENTS
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
GOVERNMENT INVESTMENT
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1997
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 23 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 30 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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares
are sold to eligible investors without a sales load or 12b-1 fee.
Returns prior to July 3, 1995 are those of Class T, the original class
of the fund, and reflect Class T's 0.25% 12b-1 fee. If Fidelity had
not reimbursed certain class expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - 8.18% 38.72% 115.85%
INSTITUTIONAL CLASS
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 42.43% 134.51%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 42.57% 134.93%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 36.24% 115.30%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. 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 Lehman Brothers Government Bond Index and the Salomon Brothers
Treasury/Agency Index, both of which are indexes of U.S. government
and government agency securities (other than mortgage securities) with
maturities of one year of more. To measure how Institutional Class'
performance stacked up against its peers, you can compare it to the
general U.S. government funds average, which reflects the performance
of mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
179 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR GOVERNMENT INVESTMENT - 8.18% 6.76% 8.00%
INSTITUTIONAL CLASS
LEHMAN BROTHERS GOVERNMENT BOND INDEX 8.66% 7.33% 8.90%
SALOMON BROTHERS TREASURY/AGENCY INDEX 8.62% 7.35% 8.92%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 7.99% 6.35% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' cumulative
return and show you what would have happened if Institutional Class
shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971203 185805 S00000000000001
FA Govt Inv -CL I LB Government Bond
00697 LB003
1987/10/31 10000.00 10000.00
1987/11/30 10078.58 10049.44
1987/12/31 10167.40 10169.29
1988/01/31 10477.23 10501.42
1988/02/29 10594.40 10614.28
1988/03/31 10533.81 10504.65
1988/04/30 10471.50 10448.49
1988/05/31 10409.33 10374.05
1988/06/30 10618.39 10603.27
1988/07/31 10600.17 10531.25
1988/08/31 10594.53 10552.21
1988/09/30 10774.48 10782.77
1988/10/31 10933.81 10972.75
1988/11/30 10842.44 10842.96
1988/12/31 10835.58 10884.34
1989/01/31 10961.47 11022.73
1989/02/28 10927.49 10932.98
1989/03/31 10959.85 10999.89
1989/04/30 11137.65 11235.83
1989/05/31 11355.21 11500.78
1989/06/30 11608.84 11884.51
1989/07/31 11789.60 12135.49
1989/08/31 11668.93 11931.26
1989/09/30 11736.69 11982.59
1989/10/31 11958.29 12292.69
1989/11/30 12049.13 12411.73
1989/12/31 12108.75 12432.69
1990/01/31 11977.00 12256.68
1990/02/28 12016.46 12281.13
1990/03/31 12034.24 12278.44
1990/04/30 11926.12 12170.15
1990/05/31 12275.56 12509.54
1990/06/30 12452.39 12707.58
1990/07/31 12603.32 12870.16
1990/08/31 12522.74 12690.92
1990/09/30 12605.98 12812.65
1990/10/31 12732.62 13021.98
1990/11/30 12954.63 13310.58
1990/12/31 13121.71 13516.42
1991/01/31 13265.69 13661.53
1991/02/28 13376.14 13739.72
1991/03/31 13429.91 13809.59
1991/04/30 13541.50 13961.14
1991/05/31 13612.57 14015.42
1991/06/30 13604.84 13995.54
1991/07/31 13750.68 14161.61
1991/08/31 13963.95 14489.98
1991/09/30 14216.33 14793.89
1991/10/31 14343.33 14923.42
1991/11/30 14426.25 15073.09
1991/12/31 14886.68 15586.61
1992/01/31 14684.76 15343.96
1992/02/29 14752.31 15403.88
1992/03/31 14651.11 15313.86
1992/04/30 14736.96 15410.33
1992/05/31 15007.47 15694.63
1992/06/30 15215.22 15919.55
1992/07/31 15472.14 16320.74
1992/08/31 15605.32 16472.83
1992/09/30 15750.30 16705.81
1992/10/31 15560.40 16464.77
1992/11/30 15599.77 16436.29
1992/12/31 15851.92 16713.06
1993/01/31 16123.41 17068.04
1993/02/28 16425.98 17409.85
1993/03/31 16520.15 17468.16
1993/04/30 16644.61 17602.52
1993/05/31 16670.83 17583.17
1993/06/30 16998.98 17973.34
1993/07/31 17083.17 18082.98
1993/08/31 17361.70 18486.59
1993/09/30 17393.56 18557.26
1993/10/31 17510.22 18627.40
1993/11/30 17242.37 18423.17
1993/12/31 17335.22 18494.38
1994/01/31 17637.47 18747.51
1994/02/28 17229.00 18350.62
1994/03/31 16708.29 17937.87
1994/04/30 16541.59 17796.80
1994/05/31 16558.84 17773.96
1994/06/30 16502.44 17733.11
1994/07/31 16862.22 18059.06
1994/08/31 16852.38 18062.56
1994/09/30 16615.61 17808.08
1994/10/31 16587.51 17794.65
1994/11/30 16555.89 17762.13
1994/12/31 16667.95 17870.16
1995/01/31 16967.17 18202.83
1995/02/28 17337.94 18594.61
1995/03/31 17452.85 18711.24
1995/04/30 17659.55 18955.77
1995/05/31 18346.39 19720.27
1995/06/30 18475.16 19871.55
1995/07/31 18411.70 19798.46
1995/08/31 18625.01 20031.17
1995/09/30 18800.84 20224.11
1995/10/31 19080.43 20532.06
1995/11/30 19358.01 20852.10
1995/12/31 19621.57 21147.69
1996/01/31 19728.20 21277.48
1996/02/29 19329.03 20844.04
1996/03/31 19157.06 20669.91
1996/04/30 19037.37 20537.97
1996/05/31 19000.20 20503.57
1996/06/30 19224.85 20768.26
1996/07/31 19267.60 20819.58
1996/08/31 19226.21 20773.10
1996/09/30 19535.29 21117.86
1996/10/31 19953.47 21582.47
1996/11/30 20289.44 21957.87
1996/12/31 20079.25 21733.76
1997/01/31 20095.28 21757.94
1997/02/28 20103.95 21787.77
1997/03/31 19908.37 21557.21
1997/04/30 20185.05 21868.38
1997/05/31 20334.81 22057.02
1997/06/30 20569.57 22304.51
1997/07/31 21135.47 22937.60
1997/08/31 20930.16 22710.81
1997/09/30 21254.12 23052.35
1997/10/31 21584.75 23451.12
IMATRL PRASUN SHR__CHT 19971031 19971203 185808 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund -
Institutional Class on October 31, 1987. As the chart shows, by
October 31, 1997, the value of the investment would have grown to
$21,585 - a 115.85% increase on the initial investment. For
comparison, look at how the Lehman Brothers Government Bond Index did
over the same period. With dividends reinvested the same $10,000 would
have grown to $23,451 - a 134.51% increase. Beginning with this
report, the fund will compare its performance to that of the Lehman
Brothers Government Bond Index rather than the Salomon Brothers
Treasury/Agency Index. The indexes include the same types of bonds,
and their performance is not materially different. The fund is
changing to the Lehman Brothers index mainly because Lehman Brothers
indexes are used by most other Fidelity bond funds. For comparison
purposes, both indexes are shown on 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.39% 6.54% 7.11% 5.01% 6.13%
CAPITAL APPRECIATION RETURN 1.79% -1.96% 7.92% -10.28 6.40%
%
TOTAL RETURN 8.18% 4.58% 15.03% -5.27% 12.53%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.86(CENTS) 28.63(CENTS) 57.53(CENTS)
ANNUALIZED DIVIDEND RATE 5.98% 6.00% 6.10%
30-DAY ANNUALIZED YIELD 5.83% - -
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 $9.57 over the past one
month, $9.46 over the past six months, and $9.43 over the past one
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.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's primary nemesis -
rising inflation - remained in check
throughout most of the 12 months that
ended October 31, 1997, translating
into a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 8.89% during the
period. Through the first half of the
period, bonds suffered from the
perception of an accelerating
economy and, in turn, that inflation
would make an appearance. The
Federal Reserve Board raised a key
short-term interest rate in March, in
an attempt to curb any potential
hints of inflation. For the most part,
though, investors had been
anticipating this hike. Spurred on by
encouraging economic data, as well as
the Fed's reluctance to raise rates
further, bond markets rallied from
April through July. While some of
these gains evaporated in August -
as inflation fears cropped up again
- - a strong September and October
helped ease the pain. The bond
market attracted wary stock investors
in October, as the U.S. equity market
stumbled due to overseas
developments. Treasuries, in
particular, performed well toward the
end of the period. Relative interest-rate
stability provided a fairly positive
backdrop for mortgage-backed
securities, as the Lehman Brothers
Mortgage-Backed Securities Index
returned 9.12% over the 12-month
period. Sustained economic growth
and demand for higher yields helped
corporate bonds, as the Lehman
Brothers Corporate Bond Index
returned 9.25% over the same
period.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Advisor Government Investment Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the year that ended October 31, 1997, the fund's Institutional
Class shares had a total return of 8.18%. To compare the fund's
performance with that of its competitors, the U.S. government funds
average had a return of 7.99%, according to Lipper Analytical
Services. To gauge how the fund did relative to the overall government
securities market, the Lehman Brothers Government Bond Index had a
12-month return of 8.66%.
Q. DID YOU ALTER YOUR STRATEGY IN LIGHT OF THE MARKET'S CHANGING
DIRECTION?
A. The main thrust of my investment strategy remained the same
throughout the past six months: I managed the fund to have
approximately the same sensitivity to interest-rate movements as the
market for government securities as represented by the Salomon
Brothers Treasury/Agency Index. It's my view that very few people can
pinpoint the direction and magnitude of interest-rate changes with any
accuracy and consistency. Given that, I believe that managing a fund
based on the future level of interest rates can backfire if you place
an incorrect bet. So I kept the fund "duration neutral," meaning that
it was essentially no more or less sensitive to interest-rate changes
than the short-maturity part of the government/agency bond market.
Q. DURING THE PAST SIX MONTHS, YOU INCREASED THE FUND'S STAKE IN
AGENCY AND MORTGAGE SECURITIES. WHAT PROMPTED THAT STRATEGY AND HOW
DID IT AFFECT THE FUND'S PERFORMANCE IN THE SECOND HALF OF THE PERIOD?
A. I did so because agencies and mortgages were more attractive given
their higher yields. Having relatively high-yielding agency and
mortgage securities - as opposed to more Treasuries - was a plus for
the fund during most of the period. However, amid the volatility we
saw in October, agencies and mortgages didn't perform as well as
Treasuries, so that position detracted slightly from the fund's
performance toward the end of the period.
Q. WITHIN THE AGENCY SECTOR, WHICH SECURITIES DID YOU EMPHASIZE?
A. I focused on agency securities that are non-callable - those that
can't be redeemed by their issuer before maturity. Bonds typically are
called when interest rates fall so significantly that issuers can save
money by issuing new bonds at lower rates. A call is a positive for
issuers because it cuts their borrowing costs. But holders of callable
bonds are often at a disadvantage because they may have to reinvest
the proceeds from a called bond in new, lower-yielding bonds. I prefer
non-callable securities because they generally perform better than
callable bonds when interest rates fall and bond prices rally, and
generally fare no worse than callable bonds when interest rates rise
and bond prices fall.
Q. MORTGAGE-BACKED SECURITIES ALSO ARE SUSCEPTIBLE TO BEING PRE-PAID
BEFORE MATURITY AS HOMEOWNERS REFINANCE. IN LIGHT OF THAT, WHICH
MORTGAGE SECURITIES DID YOU CHOOSE?
A. The likelihood of a mortgage security being pre-paid because of
increased refinancing activity is one of the most important factors I
consider, since it can dramatically affect the security's price. I
tend to emphasize mortgage securities where I think the level of
refinancing activity will not change greatly as interest rates rise or
fall. For example, I chose those securities where the underlying loans
had interest rates well above or well below current interest rates,
because they are generally less likely to experience changes in
refinancing activity. I also focused on "seasoned" mortgages - those
that were issued between five and 10 years ago. For a variety of
reasons, homeowners with seasoned mortgages have chosen not to
refinance despite being presented with several attractive
opportunities to do so. Seasoned mortgages stand only a small chance
of being paid off before maturity.
Q. WHAT'S YOUR OUTLOOK FOR THE
BOND MARKET?
A. Before currency-related problems in Southeast Asia shook global
markets in October, bond investors appeared worried that the Federal
Reserve Board would have to increase interest rates in response to the
U.S. economy's strength. But now many market observers are speculating
that the troubles in Southeast Asia may mean that the U.S. economy
will cool off, eliminating the need for the Fed to raise interest
rates to thwart inflation. Until these issues are sorted out, though,
I think the bond market could be somewhat more volatile in the months
ahead.
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.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO 14.3 7.0
COUPON
BONDS
5 - 8.4 16.0
5.99%
6 - 19.9 22.1
6.99%
7 - 12.0 10.1
7.99%
8 - 28.0 38.8
8.99%
9 - 8.9 4.4
9.99%
10 - 1.1 0.5
10.99%
11 - 6.4 0.3
11.99%
12% AND 0.4 0.4
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1997
6 MONTHS AGO
YEARS 8.2 8.4
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, 1997
6 MONTHS AGO
YEARS 4.9 4.8
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 (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 AS OF APRIL 30, 1997
ROW: 1, COL: 1, VALUE: 2.0
ROW: 1, COL: 2, VALUE: 55.0
ROW: 1, COL: 3, VALUE: 20.0
ROW: 1, COL: 4, VALUE: 23.0
MORTGAGE-BACKED
SECURITIES 19.9%
U.S. TREASURY
OBLIGATIONS 39.1%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 40.6%
SHORT-TERM
INVESTMENTS 0.4%
MORTGAGE-BACKED
SECURITIES 23.3%
U.S. TREASURY
OBLIGATIONS 20.1%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 56.0%
SHORT-TERM
INVESTMENTS 0.6%
ROW: 1, COL: 1, VALUE: 1.8
ROW: 1, COL: 2, VALUE: 40.2
ROW: 1, COL: 3, VALUE: 39.0
ROW: 1, COL: 4, VALUE: 19.0
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 76.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 20.1%
11 1/4%, 8/15/03 $ 3,300,000 $ 4,147,176
11 3/4%, 2/15/10 (callable) 2,395,000 3,201,061
8 7/8%, 2/15/19 22,200,000 29,099,316
8 1/8%, 8/15/19 330,000 404,148
36,851,701
U.S. GOVERNMENT AGENCY OBLIGATIONS - 56.0%
Federal Agricultural Mortgage Corporation:
7.48%, 11/27/00 1,800,000 1,880,712
7.01%, 8/10/04 500,000 524,610
Federal Farm Credit Bank 5.51%, 1/25/01 1,000,000 990,000
Federal Home Loan Bank:
6.37%, 6/30/03 230,000 233,917
7.59%, 3/10/05 290,000 314,198
Federal Home Loan Mortgage Corporation
8%, 1/26/05 330,000 365,010
Federal National Mortgage Association:
5.55%, 1/17/01 1,750,000 1,734,688
8 5/8%, 6/30/04 1,000,000 1,134,060
7.16%, 5/11/05 2,850,000 3,016,098
Financing Corp. stripped principal:
Series A, 0%, 2/8/03 5,000,000 3,668,500
0%, 3/7/03 10,000,000 7,272,600
Government Loan Trusts (assets of Trust guaranteed by U.S.
government through Agency for International Development)
Class 1-B, 8 1/2%, 4/1/06 1,070,000 1,181,034
Government Trust Certificates (assets of Trust guaranteed
by U.S. government through Defense Security
Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 6,922,996 7,353,953
Class 2-E, 9.40%, 5/15/02 1,087,836 1,154,085
Class T-3, 9 5/8%, 5/15/02 642,490 680,982
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. government through
Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 235,200 228,842
Series 1993-D, 5.23%, 5/15/05 323,191 314,190
Series 1994-A, 7.12%, 4/15/06 1,832,118 1,905,188
Series 1994-C, 6.61%, 9/15/99 110,355 111,092
Series 1994-F, 8.187%, 12/15/04 5,529,202 5,859,047
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) Series 1994-B, 7 1/2%, 1/26/06 $ 247,543 $ 261,497
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) Series 1994-1, 6.88%, 1/26/03 342,941 349,869
Overseas Private Investment Corp. U.S. government
guaranteed participation certificates (callable):
Series 1994-195, 6.08%, 8/15/04 2,050,000 2,050,164
Series 1996-A1, 6.726%, 9/15/10 2,000,000 2,057,520
Private Export Funding Corp. secured:
5.65%, 3/15/03 943,250 934,893
6.86%, 4/30/04 1,309,750 1,340,059
State of Israel (guaranteed by U.S. government through
Agency for International Development):
7 1/8%, 8/15/99 2,167,000 2,216,297
0%, 11/15/00 11,140,000 9,336,545
0%, 11/15/01 7,500,000 5,934,225
8%, 11/15/01 5,540,000 5,945,860
6 1/8%, 3/15/03 630,000 634,725
7 5/8%, 8/15/04 480,000 521,369
5.89%, 8/15/05 8,420,000 8,306,860
6.60%, 2/15/08 12,815,000 13,161,902
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. government through Export-Import Bank):
8.17%, 1/15/07 570,000 618,159
6.69%, 1/15/09 (a) 1,069,405 1,094,925
U.S. Department of Housing & Urban Development
government guaranteed participation certificates:
Series 1995-A, 8.24%, 8/1/02 4,000,000 4,377,720
Series 1995-A, 8.27%, 8/1/03 415,000 459,704
Series 1996-A, 6.98%, 8/1/05 3,000,000 3,155,460
102,680,559
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $133,138,424) 139,532,260
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 17.2%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.1%
6 1/2%, 5/1/08 $ 371,664 $ 372,790
6.77%, 11/1/03 4,758,200 4,889,051
8 1/2%, 8/1/09 to 10/1/25 762,024 797,036
9%, 10/1/08 to 10/1/20 1,538,326 1,642,872
9 1/2%, 2/1/08 to 7/1/21 1,059,097 1,149,522
10 1/2%, 1/1/16 to 12/1/20 791,496 881,866
11%, 7/1/13 to 5/1/14 617,951 689,931
12 1/2%, 2/1/10 to 6/1/19 573,658 666,172
11,089,240
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.2%
5 1/2%, 7/1/09 2,942,776 2,867,971
6%, 12/1/08 155,580 154,311
6.345%, 3/1/99 1,809,126 1,813,083
6 1/2%, 6/1/07 to 2/1/10 2,334,663 2,339,249
8 1/4%, 12/1/01 680,408 731,296
8 1/2%, 8/1/16 to 1/1/17 274,057 289,494
9%, 11/1/11 645,093 683,186
9 1/4%, 9/1/16 141,500 152,702
9 1/2%, 5/1/07 to 5/1/20 2,222,540 2,353,017
12 1/2%, 8/1/15 26,839 31,658
11,415,967
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 4.9%
7 1/2%, 9/15/06 to 1/15/08 2,784,808 2,870,940
9%, 5/15/01 to 12/15/09 839,686 870,073
9 1/2%, 11/15/09 311,986 338,479
10 1/2%, 8/15/16 to 1/15/18 999,830 1,121,202
11%, 12/15/15 to 7/15/19 943,423 1,077,306
11 1/2%, 3/15/10 to 8/15/20 2,263,601 2,600,751
13 1/2%, 7/15/11 60,631 72,760
8,951,511
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $31,007,938) 31,456,718
COLLATERALIZED MORTGAGE OBLIGATIONS - 6.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
Federal Home Loan Mortgage Corporation:
Series 1535 Class PM, 7%, 6/15/01 $ 3,028,764 $ 3,070,410
sequential pay Series 1353 Class A, 5 1/2%, 11/15/04 37,768 37,591
Federal National Mortgage Association:
planned amortization class Series 1993-134 Class GA,
6 1/2%, 2/25/07 2,730,000 2,764,658
sequential pay Series 1996-M5 Class A1, 7.141%, 6/25/08 3,463,175
3,557,330
Series 1994-M3 Class A, 7.71%, 4/1/06 1,737,365 1,748,224
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $11,023,018) 11,178,213
CASH EQUIVALENTS - 0.6%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.68%, dated
10/31/97 due 11/3/97 $ 1,117,529 1,117,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $176,286,380) $ 183,284,191
LEGEND
10. Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$1,094,925 or 0.6% of net assets.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $176,308,671. Net unrealized appreciation
aggregated $6,975,520, of which $7,105,188 related to appreciated
investment securities and $129,668 related to depreciated investment
securities.
At October 31, 1997, the fund had a capital loss carryforward of
approximately $6,368,000 of which $3,261,000, $2,767,000 and $340,000
will expire on October 31, 2002, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 183,284,191
AGREEMENTS OF $1,117,000) (COST $176,286,380) -
SEE ACCOMPANYING SCHEDULE
CASH 563,561
RECEIVABLE FOR INVESTMENTS SOLD 133,568
INTEREST RECEIVABLE 2,433,514
TOTAL ASSETS 186,414,834
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 431,192
DISTRIBUTIONS PAYABLE 124,497
ACCRUED MANAGEMENT FEE 51,504
DISTRIBUTION FEES PAYABLE 43,476
OTHER PAYABLES AND ACCRUED EXPENSES 85,733
TOTAL LIABILITIES 736,402
NET ASSETS $ 185,678,432
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 184,628,451
UNDISTRIBUTED NET INVESTMENT INCOME 443,959
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (6,391,789)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 6,997,811
NET ASSETS $ 185,678,432
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $9.67
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,581,993 (DIVIDED BY) 163,631 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $9.67) $10.15
CLASS T: $9.67
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($144,948,403 (DIVIDED BY) 14,994,788 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $9.67) $10.02
CLASS B: $9.66
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($18,781,658 (DIVIDED BY) 1,944,297 SHARES) A
INSTITUTIONAL CLASS: $9.65
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($20,366,378 (DIVIDED BY) 2,110,473 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 14,520,325
INTEREST
EXPENSES
MANAGEMENT FEE $ 930,159
TRANSFER AGENT FEES 496,575
DISTRIBUTION FEES 584,502
ACCOUNTING FEES AND EXPENSES 87,365
NON-INTERESTED TRUSTEES' COMPENSATION 1,899
CUSTODIAN FEES AND EXPENSES 13,752
REGISTRATION FEES 81,054
AUDIT 60,355
LEGAL 1,383
INTEREST 1,615
MISCELLANEOUS 6,067
TOTAL EXPENSES BEFORE REDUCTIONS 2,264,726
EXPENSE REDUCTIONS (96,050) 2,168,676
NET INVESTMENT INCOME 12,351,649
REALIZED AND UNREALIZED GAIN (LOSS) (45,568)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 2,565,980
INVESTMENT SECURITIES
NET GAIN (LOSS) 2,520,412
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 14,872,061
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 12,351,649 $ 16,576,353
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (45,568) (2,903,627)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 2,565,980 (3,481,958)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 14,872,061 10,190,768
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (12,220,693) (16,570,486)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (80,094,142) 34,526,256
TOTAL INCREASE (DECREASE) IN NET ASSETS (77,442,774) 28,146,538
NET ASSETS
BEGINNING OF PERIOD 263,121,206 234,974,668
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 185,678,432 $ 263,121,206
INCOME OF $443,959 AND $294,939, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 F
SELECTED PER-SHARE DATA D
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.490 $ 9.250
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .552 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) .187 .241 E
TOTAL FROM INVESTMENT OPERATIONS .739 .331
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.559) (.091)
NET ASSET VALUE, END OF PERIOD $ 9.670 $ 9.490
TOTAL RETURN B, C 8.09% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 1,582 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% G .90% A,
G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.98% 6.28% A
PORTFOLIO TURNOVER RATE 136% 153%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD DUE TO THE TIMING
OF SALES AND REPURCHASES OF CLASS SHARES IN RELATION TO FLUCTUATING
MARKET VALUES OF THE INVESTMENTS OF THE FUND.
F FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS T
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 C 1993
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.490 $ 9.670 $ 8.960 $ 10.140 $ 9.730
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .558 D .586 D .594 .515 .567
NET REALIZED AND UNREALIZED .171 (.180) .701 (1.031) .601
GAIN (LOSS)
TOTAL FROM INVESTMENT .729 .406 1.295 (.516) 1.168
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.549) (.586) (.585) (.504) (.558)
FROM NET REALIZED GAIN - - - (.130) (.200)
IN EXCESS OF NET REALIZED GAIN - - - (.030) -
TOTAL DISTRIBUTIONS (.549) (.586) (.585) (.664) (.758)
NET ASSET VALUE, END OF PERIOD $ 9.670 $ 9.490 $ 9.670 $ 8.960 $ 10.140
TOTAL RETURN A, B 7.97% 4.38% 14.91% (5.27)% 12.53%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 144,948 $ 217,883 $ 208,620 $ 114,453 $ 69,876
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE 1.00% 1.00% .89% E .74% E .68% E
NET ASSETS E
RATIO OF EXPENSES TO AVERAGE 1.00% .99% F .89% .74% .68%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO 5.88% 6.19% 6.34% 6.18% 6.11%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 136% 153% 261% 313% 333%
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 F
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.490 $ 9.670 $ 8.950 $ 9.100
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .494 D .520 D .542 .144
NET REALIZED AND UNREALIZED GAIN (LOSS) .166 (.177) .693 (.137)
TOTAL FROM INVESTMENT OPERATIONS .660 .343 1.235 .007
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.490) (.523) (.515) (.157)
NET ASSET VALUE, END OF PERIOD $ 9.660 $ 9.490 $ 9.670 $ 8.950
TOTAL RETURN B, C 7.20% 3.69% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 18,782 $ 17,355 $ 11,766 $ 2,062
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.65% 1.67% E 1.65% E 1.70% A,
E E
RATIO OF NET INVESTMENT INCOME TO AVERAGE 5.24% 5.51% 5.58% 5.22% A
NET ASSETS
PORTFOLIO TURNOVER RATE 136% 153% 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 6 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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO OCTOBER 31, 1994.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 F
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.480 $ 9.670 $ 9.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .580 D .604 D .197
NET REALIZED AND UNREALIZED GAIN (LOSS) .165 (.180) .108
TOTAL FROM INVESTMENT OPERATIONS .745 .424 .305
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.575) (.614) (.195)
NET ASSET VALUE, END OF PERIOD $ 9.650 $ 9.480 $ 9.670
TOTAL RETURN B, C 8.18% 4.58% 3.23%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 20,366 $ 27,660 $ 14,588
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% .75% E .75% A,
E E
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.12% 6.43% 6.48% A
PORTFOLIO TURNOVER RATE 136% 153% 261%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F 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, 1997
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 T, Class B, and Institutional Class
shares, each of which has equal rights as to assets and voting
privileges. Each class has exclusive voting rights with respect to its
distribution plan. Investment income, realized and unrealized capital
gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
between the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. 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
and capital gain distributions are declared separately for each class.
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, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments 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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $285,193,649 and $362,312,288, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% 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 each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
B .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 1,086 $ 1,086
CLASS T 427,659 427,659
CLASS B 155,757 43,269
$ 584,502 $ 472,014
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares (4.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, and the proceeds of a contingent
deferred sales charge levied on Class B share redemptions occurring
within six years of purchase (five years prior to January 2, 1997).
The Class B charge is based on declining rates which range from 5% to
1%(4% to 1% prior to January 2, 1997) 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 the following sales charge amounts
related to each class, a portion of which is paid to securities
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 31,629 $ 24,716
CLASS T 76,261 55,749
CLASS B 87,840 0*
$ 195,730 $ 80,465
C WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO DEALERS THROUGH WHICH THE
SALES ARE MADE.
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 3,619 .50
CLASS T** FIIOC * 413,305 .24
CLASS B FIIOC * 39,211 .23
INSTITUTIONAL CLASS FIIOC * 40,440 .18
$ 496,575
D FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC),
AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN TRANSFER, DIVIDEND DISBURSING, AND
SHAREHOLDER SERVICES TO FIIOC FOR WHICH FIIOC RECEIVED ITS ALLOCABLE
SHARE OF ALL SUCH FEES.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company, Inc. 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. 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 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 loans were outstanding
amounted to $3,427,000 and $3,333,333, respectively. The weighted
average interest rate was 5.81%.
6. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each class:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 29,617
CLASS T 1.00% 46,088
CLASS B 1.65% 13,359
INSTITUTIONAL CLASS .75% 6,335
$ 95,399
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $651 under the custodian
arrangement.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 42,611 $ 1,602
CLASS T
FROM NET INVESTMENT INCOME 9,932,617 14,160,622
CLASS B
FROM NET INVESTMENT INCOME 901,652 822,494
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME 1,343,813 1,585,768
$ 12,220,693 $ 16,570,486
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 178,436 23,309 $ 1,694,126 $ 216,298
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 3,776 170 35,859 1,602
SHARES REDEEMED (42,060) - (399,267) -
NET INCREASE (DECREASE) 140,152 23,479 $ 1,330,718 $ 217,900
CLASS T 7,027,367 16,389,663 $ 66,447,581 $ 156,392,785
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 889,673 1,323,588 8,404,098 12,548,852
SHARES REDEEMED (15,881,447) (16,317,212) (149,782,096) (154,061,866)
NET INCREASE (DECREASE) (7,964,407) 1,396,039 $ (74,930,417) $ 14,879,771
CLASS B 604,961 1,364,781 $ 5,722,117 $ 13,027,776
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 71,140 64,712 672,141 612,407
SHARES REDEEMED (560,735) (817,313) (5,289,699) (7,792,379)
NET INCREASE (DECREASE) 115,366 612,180 $ 1,104,559 $ 5,847,804
INSTITUTIONAL CLASS 790,278 2,699,943 $ 7,450,279 $ 25,667,067
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 121,048 131,515 1,142,532 1,241,701
SHARES REDEEMED (1,719,049) (1,421,950) (16,191,813) (13,327,987)
NET INCREASE (DECREASE) (807,723) 1,409,508 $ (7,599,002) $ 13,580,781
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
9. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 27,516
CLASS T 24,520
CLASS B 12,917
INSTITUTIONAL CLASS 16,101
$ 81,054
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, 1997, 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 of Class
A, Class B, Class T and Institutional Class for each of the periods
indicated therein. 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, 1997 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, 1997, 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 of Class A, Class B, Class T and Institutional Class for
each of the periods indicated therein, in conformity with generally
accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
HIGH YIELD
FUND - CLASS A, CLASS T AND CLASS B
ANNUAL REPORT
OCTOBER 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 15 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 18 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 19 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 40 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 48 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 57 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 58
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class A shares
took place on September 3, 1996. Class A shares bear a 0.15% 12b-1
fee. Returns prior to September 3, 1996 are those of Class T, the
original class of the fund, and reflect Class T's 0.25% 12b-1 fee.
Effective August 1, 1997, the maximum 4.25% sales charge on Class A
shares was increased to 4.75%. If Fidelity had not reimbursed certain
class expenses during the periods shown, the past five year and past
10 year total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - CLASS A 15.18% 84.67% 311.25%
ADVISOR HIGH YIELD - CLASS A 9.71% 75.89% 291.72%
(INCL. MAX. 4.75% SALES CHARGE)
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 75.42% 219.17%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 72.92% 181.61%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 market capitalization weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how Class A's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
173 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - CLASS A 15.18% 13.05% 15.19%
ADVISOR HIGH YIELD - CLASS A 9.71% 11.96% 14.63%
(INCL. MAX. 4.75% SALES CHARGE)
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 11.90% 12.31%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 11.54% 10.82%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' 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 an
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 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 104242 S00000000000001
FA High Yield -CL A ML High Yield Master
00258 ML002
1987/10/31 9525.00 10000.00
1987/11/30 9872.23 10252.88
1987/12/31 10049.05 10389.03
1988/01/31 10575.32 10673.32
1988/02/29 10914.44 10962.94
1988/03/31 10843.61 10944.81
1988/04/30 10812.67 10976.42
1988/05/31 10847.72 11033.71
1988/06/30 11277.11 11244.67
1988/07/31 11439.81 11363.49
1988/08/31 11383.93 11400.83
1988/09/30 11504.45 11515.75
1988/10/31 11634.28 11695.17
1988/11/30 11668.51 11738.98
1988/12/31 11781.99 11788.65
1989/01/31 12101.00 11965.44
1989/02/28 12185.58 12045.85
1989/03/31 12066.70 12035.13
1989/04/30 11932.98 12070.65
1989/05/31 12234.46 12292.86
1989/06/30 12671.21 12467.02
1989/07/31 12740.40 12526.07
1989/08/31 12869.25 12587.94
1989/09/30 12491.58 12468.10
1989/10/31 12022.57 12270.89
1989/11/30 12057.63 12298.39
1989/12/31 12210.29 12287.27
1990/01/31 12033.14 12047.13
1990/02/28 11969.27 11871.68
1990/03/31 12180.10 12032.16
1990/04/30 12326.55 12093.29
1990/05/31 12740.55 12311.74
1990/06/30 13104.19 12550.26
1990/07/31 13409.06 12815.48
1990/08/31 13079.89 12324.88
1990/09/30 12749.21 11788.85
1990/10/31 12452.43 11488.86
1990/11/30 12841.22 11586.18
1990/12/31 13101.77 11753.13
1991/01/31 13403.20 11919.27
1991/02/28 14172.37 12803.96
1991/03/31 14704.04 13354.47
1991/04/30 15151.79 13830.05
1991/05/31 15313.18 13897.58
1991/06/30 15724.30 14177.15
1991/07/31 16292.34 14516.85
1991/08/31 16503.81 14821.96
1991/09/30 16726.66 15010.75
1991/10/31 17392.76 15456.80
1991/11/30 17593.55 15635.34
1991/12/31 17680.12 15816.98
1992/01/31 18490.57 16370.00
1992/02/29 19255.99 16776.55
1992/03/31 19801.83 17010.63
1992/04/30 19982.02 17134.44
1992/05/31 20200.04 17407.75
1992/06/30 20504.95 17624.03
1992/07/31 20874.66 17981.11
1992/08/31 21260.65 18219.17
1992/09/30 21488.35 18426.76
1992/10/31 21212.29 18194.03
1992/11/30 21444.07 18451.70
1992/12/31 21762.39 18689.28
1993/01/31 22344.08 19149.49
1993/02/28 22833.52 19511.96
1993/03/31 23363.33 19850.24
1993/04/30 23496.41 19992.72
1993/05/31 23815.96 20261.85
1993/06/30 24397.13 20642.52
1993/07/31 24717.46 20864.40
1993/08/31 24909.96 21063.29
1993/09/30 24957.41 21167.22
1993/10/31 25553.90 21565.96
1993/11/30 25739.06 21683.91
1993/12/31 26212.68 21900.73
1994/01/31 26965.84 22380.69
1994/02/28 26855.10 22219.74
1994/03/31 26036.40 21495.66
1994/04/30 25746.37 21244.46
1994/05/31 25906.20 21168.78
1994/06/30 25858.40 21246.69
1994/07/31 25958.48 21396.05
1994/08/31 26144.22 21544.66
1994/09/30 26277.10 21536.51
1994/10/31 26229.05 21591.24
1994/11/30 25809.49 21407.57
1994/12/31 25821.11 21645.69
1995/01/31 26043.15 21951.55
1995/02/28 26881.59 22636.47
1995/03/31 27123.56 22951.49
1995/04/30 27998.88 23488.87
1995/05/31 28626.18 24222.71
1995/06/30 28565.76 24407.73
1995/07/31 29269.25 24686.76
1995/08/31 29435.10 24836.59
1995/09/30 29789.33 25120.75
1995/10/31 30177.83 25298.82
1995/11/30 30341.44 25545.77
1995/12/31 30797.10 25955.83
1996/01/31 31521.72 26365.75
1996/02/29 31946.83 26405.45
1996/03/31 31728.58 26333.74
1996/04/30 32101.26 26345.67
1996/05/31 32342.72 26535.66
1996/06/30 32391.84 26695.06
1996/07/31 32396.42 26876.30
1996/08/31 32859.71 27153.85
1996/09/30 33927.09 27736.45
1996/10/31 34008.72 28040.43
1996/11/30 34415.02 28607.32
1996/12/31 34814.76 28827.45
1997/01/31 35155.13 29048.99
1997/02/28 35839.58 29456.49
1997/03/31 34880.14 29129.33
1997/04/30 35123.86 29460.87
1997/05/31 36158.92 30047.04
1997/06/30 36815.47 30512.17
1997/07/31 38042.58 31244.40
1997/08/31 38229.15 31174.10
1997/09/30 39577.14 31706.35
1997/10/31 39171.91 31916.78
IMATRL PRASUN SHR__CHT 19971031 19971113 104246 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class A on October 31,
1987, and the current maximum 4.75% sales charge was paid. As the
chart shows, by October 31, 1997, the value of the investment would
have grown to $39,172 - a 291.72% increase on the initial investment.
For comparison, look at how the Merrill Lynch High Yield Master Index
did over the same period. With dividends reinvested, the same $10,000
would have grown to $31,917 - a 219.17% 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 9.54% 9.42% 8.90% 7.15% 9.66%
CAPITAL APPRECIATION RETURN 5.64% 3.27% 6.15% -4.51% 10.81%
TOTAL RETURN 15.18% 12.69% 15.05% 2.64% 20.47%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.55(CENTS) 43.90(CENTS) 107.78(CENTS)
ANNUALIZED DIVIDEND RATE 6.74% 6.86% 8.64%
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 $13.18 over the past
one month, or $12.70 over the past six months and $12.47 over the past
one year, you can compare the class' income over these three periods.
The 30-day annualized YIELD is a standard formula for all bond funds
based on the yields of the bonds in the fund, averaged over the past
30 days. This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. The offering share price
used in the calculation of the yield includes the effect of Class A's
current maximum 4.75% sales charge.
FIDELITY ADVISOR HIGH YIELD FUND - CLASS T
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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses during the periods shown, the past 10 year total
returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - CLASS T 15.21% 85.08% 312.17%
ADVISOR HIGH YIELD - CLASS T 11.18% 78.60% 297.75%
(INCL. MAX. 3.50% SALES CHARGE)
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 75.42% 219.17%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 72.92% 181.61%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 T's returns to those of the Merrill
Lynch High Yield Master Index - a market capitalization weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how Class T's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
173 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - CLASS T 15.21% 13.10% 15.21%
ADVISOR HIGH YIELD - CLASS T 11.18% 12.30% 14.80%
(INCL. MAX. 3.50% SALES CHARGE)
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 11.90% 12.31%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 11.54% 10.82%
AVERAGE ANNUAL TOTAL RETURNS take Class T shares' cumulative return
and show you what would have happened if Class T 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 an
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 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 104244 S00000000000001
FA High Yield -CL B ML High Yield Master
00665 ML002
1987/10/31 10000.00 10000.00
1987/11/30 10364.55 10252.88
1987/12/31 10550.18 10389.03
1988/01/31 11102.70 10673.32
1988/02/29 11458.73 10962.94
1988/03/31 11384.37 10944.81
1988/04/30 11351.88 10976.42
1988/05/31 11388.68 11033.71
1988/06/30 11839.49 11244.67
1988/07/31 12010.30 11363.49
1988/08/31 11951.63 11400.83
1988/09/30 12078.16 11515.75
1988/10/31 12214.47 11695.17
1988/11/30 12250.41 11738.98
1988/12/31 12369.54 11788.65
1989/01/31 12704.47 11965.44
1989/02/28 12793.26 12045.85
1989/03/31 12668.45 12035.13
1989/04/30 12528.06 12070.65
1989/05/31 12844.58 12292.86
1989/06/30 13303.11 12467.02
1989/07/31 13375.75 12526.07
1989/08/31 13511.03 12587.94
1989/09/30 13114.52 12468.10
1989/10/31 12622.12 12270.89
1989/11/30 12658.92 12298.39
1989/12/31 12819.20 12287.27
1990/01/31 12633.22 12047.13
1990/02/28 12566.16 11871.68
1990/03/31 12787.51 12032.16
1990/04/30 12941.26 12093.29
1990/05/31 13375.90 12311.74
1990/06/30 13757.68 12550.26
1990/07/31 14077.75 12815.48
1990/08/31 13732.17 12324.88
1990/09/30 13384.99 11788.85
1990/10/31 13073.41 11488.86
1990/11/30 13481.59 11586.18
1990/12/31 13755.14 11753.13
1991/01/31 14071.60 11919.27
1991/02/28 14879.12 12803.96
1991/03/31 15437.31 13354.47
1991/04/30 15907.39 13830.05
1991/05/31 16076.83 13897.58
1991/06/30 16508.45 14177.15
1991/07/31 17104.81 14516.85
1991/08/31 17326.84 14821.96
1991/09/30 17560.80 15010.75
1991/10/31 18260.12 15456.80
1991/11/30 18470.92 15635.34
1991/12/31 18561.81 15816.98
1992/01/31 19412.67 16370.00
1992/02/29 20216.27 16776.55
1992/03/31 20789.32 17010.63
1992/04/30 20978.50 17134.44
1992/05/31 21207.39 17407.75
1992/06/30 21527.51 17624.03
1992/07/31 21915.66 17981.11
1992/08/31 22320.89 18219.17
1992/09/30 22559.94 18426.76
1992/10/31 22270.12 18194.03
1992/11/30 22513.46 18451.70
1992/12/31 22847.65 18689.28
1993/01/31 23458.36 19149.49
1993/02/28 23972.20 19511.96
1993/03/31 24528.43 19850.24
1993/04/30 24668.14 19992.72
1993/05/31 25003.63 20261.85
1993/06/30 25613.79 20642.52
1993/07/31 25950.09 20864.40
1993/08/31 26152.18 21063.29
1993/09/30 26202.01 21167.22
1993/10/31 26828.24 21565.96
1993/11/30 27022.63 21683.91
1993/12/31 27519.87 21900.73
1994/01/31 28310.59 22380.69
1994/02/28 28194.34 22219.74
1994/03/31 27334.81 21495.66
1994/04/30 27030.31 21244.46
1994/05/31 27198.11 21168.78
1994/06/30 27142.87 21246.69
1994/07/31 27202.35 21396.05
1994/08/31 27372.57 21544.66
1994/09/30 27490.39 21536.51
1994/10/31 27396.66 21591.24
1994/11/30 26964.46 21407.57
1994/12/31 26933.60 21645.69
1995/01/31 27148.20 21951.55
1995/02/28 28005.62 22636.47
1995/03/31 28240.54 22951.49
1995/04/30 29109.79 23488.87
1995/05/31 29769.20 24222.71
1995/06/30 29687.08 24407.73
1995/07/31 30374.82 24686.76
1995/08/31 30555.60 24836.59
1995/09/30 30880.13 25120.75
1995/10/31 31265.96 25298.82
1995/11/30 31391.76 25545.77
1995/12/31 31872.40 25955.83
1996/01/31 32577.33 26365.75
1996/02/29 32997.90 26405.45
1996/03/31 32752.89 26333.74
1996/04/30 33121.82 26345.67
1996/05/31 33382.17 26535.66
1996/06/30 33386.12 26695.06
1996/07/31 33399.26 26876.30
1996/08/31 33830.23 27153.85
1996/09/30 34950.02 27736.45
1996/10/31 35048.90 28040.43
1996/11/30 35425.51 28607.32
1996/12/31 35841.77 28827.45
1997/01/31 36202.82 29048.99
1997/02/28 36861.04 29456.49
1997/03/31 35829.00 29129.33
1997/04/30 36095.42 29460.87
1997/05/31 37087.32 30047.04
1997/06/30 37773.87 30512.17
1997/07/31 39015.08 31244.40
1997/08/31 39186.65 31174.10
1997/09/30 40548.21 31706.35
1997/10/31 40107.12 31916.78
IMATRL PRASUN SHR__CHT 19971031 19971113 104248 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class T on October 31,
1987, and the current maximum 3.50% sales charge was paid. As the
chart shows, by October 31, 1997, the value of the investment would
have grown to $39,775 - a 297.75% increase on the initial investment.
For comparison, look at how the Merrill Lynch High Yield Master Index
did over the same period. With dividends reinvested, the same $10,000
would have grown to $31,917 - a 219.17% 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 9.57% 9.56% 8.90% 7.15% 9.66%
CAPITAL APPRECIATION RETURN 5.64% 3.36% 6.15% -4.51% 10.81%
TOTAL RETURN 15.21% 12.92% 15.05% 2.64% 20.47%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.32(CENTS) 43.92(CENTS) 108.17(CENTS)
ANNUALIZED DIVIDEND RATE 6.53% 6.86% 8.67%
30-DAY ANNUALIZED YIELD 7.47% - -
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 $13.19 over the past
one month, $12.70 over the past six months and $12.47 over the past
one 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 T's
current maximum 3.50% sales charge.
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class B shares
took place on June 30, 1994. Class B shares bear a 0.90%
12b-1/shareholder service fee (1.00% prior to January 1, 1996).
Returns prior to June 30, 1994 are those of Class T, the original
class of the fund, and reflect Class T's 0.25% 12b-1 fee. Had Class
B's 12b-1 fee been reflected, returns prior to June 30, 1994 would
have been lower. Class B's contingent deferred sales charges included
in the past one year, past five years and past 10 years total return
figures are 5%, 2% and 0%, respectively. If Fidelity had not
reimbursed certain class expenses during the periods shown, the past
10 years total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - CLASS B 14.34% 79.96% 300.76%
ADVISOR HIGH YIELD - CLASS B 9.34% 77.96% 300.76%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 75.42% 219.17%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 72.92% 181.61%
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 market capitalization weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how Class B's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
173 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - CLASS B 14.34% 12.47% 14.89%
ADVISOR HIGH YIELD - CLASS B 9.34% 12.22% 14.89%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 11.90% 12.31%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 11.54% 10.82%
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' or cumulative return
and show you what would have happened if Class B 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 an
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 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 105606 S00000000000001
FA High Yield -CL T ML High Yield Master
00165 ML002
1987/10/31 9650.00 10000.00
1987/11/30 10001.79 10252.88
1987/12/31 10180.92 10389.03
1988/01/31 10714.10 10673.32
1988/02/29 11057.67 10962.94
1988/03/31 10985.92 10944.81
1988/04/30 10954.57 10976.42
1988/05/31 10990.08 11033.71
1988/06/30 11425.10 11244.67
1988/07/31 11589.94 11363.49
1988/08/31 11533.32 11400.83
1988/09/30 11655.43 11515.75
1988/10/31 11786.96 11695.17
1988/11/30 11821.64 11738.98
1988/12/31 11936.61 11788.65
1989/01/31 12259.81 11965.44
1989/02/28 12345.50 12045.85
1989/03/31 12225.05 12035.13
1989/04/30 12089.58 12070.65
1989/05/31 12395.02 12292.86
1989/06/30 12837.50 12467.02
1989/07/31 12907.60 12526.07
1989/08/31 13038.14 12587.94
1989/09/30 12655.52 12468.10
1989/10/31 12180.35 12270.89
1989/11/30 12215.86 12298.39
1989/12/31 12370.53 12287.27
1990/01/31 12191.06 12047.13
1990/02/28 12126.34 11871.68
1990/03/31 12339.95 12032.16
1990/04/30 12488.31 12093.29
1990/05/31 12907.75 12311.74
1990/06/30 13276.16 12550.26
1990/07/31 13585.03 12815.48
1990/08/31 13251.54 12324.88
1990/09/30 12916.52 11788.85
1990/10/31 12615.84 11488.86
1990/11/30 13009.74 11586.18
1990/12/31 13273.71 11753.13
1991/01/31 13579.10 11919.27
1991/02/28 14358.36 12803.96
1991/03/31 14897.00 13354.47
1991/04/30 15350.63 13830.05
1991/05/31 15514.14 13897.58
1991/06/30 15930.65 14177.15
1991/07/31 16506.15 14516.85
1991/08/31 16720.40 14821.96
1991/09/30 16946.17 15010.75
1991/10/31 17621.01 15456.80
1991/11/30 17824.44 15635.34
1991/12/31 17912.14 15816.98
1992/01/31 18733.23 16370.00
1992/02/29 19508.70 16776.55
1992/03/31 20061.69 17010.63
1992/04/30 20244.26 17134.44
1992/05/31 20465.13 17407.75
1992/06/30 20774.04 17624.03
1992/07/31 21148.61 17981.11
1992/08/31 21539.66 18219.17
1992/09/30 21770.35 18426.76
1992/10/31 21490.66 18194.03
1992/11/30 21725.49 18451.70
1992/12/31 22047.98 18689.28
1993/01/31 22637.31 19149.49
1993/02/28 23133.17 19511.96
1993/03/31 23669.94 19850.24
1993/04/30 23804.76 19992.72
1993/05/31 24128.51 20261.85
1993/06/30 24717.30 20642.52
1993/07/31 25041.83 20864.40
1993/08/31 25236.86 21063.29
1993/09/30 25284.94 21167.22
1993/10/31 25889.25 21565.96
1993/11/30 26076.84 21683.91
1993/12/31 26556.68 21900.73
1994/01/31 27319.72 22380.69
1994/02/28 27207.53 22219.74
1994/03/31 26378.09 21495.66
1994/04/30 26084.25 21244.46
1994/05/31 26246.18 21168.78
1994/06/30 26197.75 21246.69
1994/07/31 26299.14 21396.05
1994/08/31 26487.32 21544.66
1994/09/30 26621.94 21536.51
1994/10/31 26573.27 21591.24
1994/11/30 26148.20 21407.57
1994/12/31 26159.97 21645.69
1995/01/31 26384.92 21951.55
1995/02/28 27234.36 22636.47
1995/03/31 27479.51 22951.49
1995/04/30 28366.32 23488.87
1995/05/31 29001.85 24222.71
1995/06/30 28940.64 24407.73
1995/07/31 29653.36 24686.76
1995/08/31 29821.39 24836.59
1995/09/30 30180.26 25120.75
1995/10/31 30573.87 25298.82
1995/11/30 30739.62 25545.77
1995/12/31 31201.26 25955.83
1996/01/31 31935.39 26365.75
1996/02/29 32366.08 26405.45
1996/03/31 32144.97 26333.74
1996/04/30 32522.54 26345.67
1996/05/31 32767.16 26535.66
1996/06/30 32816.93 26695.06
1996/07/31 32821.57 26876.30
1996/08/31 33290.94 27153.85
1996/09/30 34408.68 27736.45
1996/10/31 34523.83 28040.43
1996/11/30 34940.13 28607.32
1996/12/31 35339.47 28827.45
1997/01/31 35713.01 29048.99
1997/02/28 36380.38 29456.49
1997/03/31 35384.02 29129.33
1997/04/30 35665.88 29460.87
1997/05/31 36693.09 30047.04
1997/06/30 37360.56 30512.17
1997/07/31 38606.76 31244.40
1997/08/31 38826.82 31174.10
1997/09/30 40192.77 31706.35
1997/10/31 39774.68 31916.78
IMATRL PRASUN SHR__CHT 19971031 19971113 105609 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class B on October 31,
1987. As the chart shows, by October 31, 1997, the value of the
investment would have grown to $40,076 - a 300.76% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master Index did over the same period. With dividends
reinvested, the same $10,000 would have grown to $31,917 - a 219.17%
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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 8.85% 8.82% 8.05% 6.73% 9.66%
CAPITAL APPRECIATION RETURN 5.49% 3.28% 6.07% -4.59% 10.81%
TOTAL RETURN 14.34% 12.10% 14.12% 2.14% 20.47%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 6.74(CENTS) 39.90(CENTS) 100.22(CENTS)
ANNUALIZED DIVIDEND RATE 6.03% 6.25% 8.06%
30-DAY ANNUALIZED YIELD 7.26% - -
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 $13.15 over the past
one month, $12.66 over the past six months, and $12.44 over the past
one 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
Backed by steady economic
growth, a robust equity market
and a positive supply and demand
scenario, the high-yield market
posted healthy returns for the 12
months that ended October 31,
1997. During this time, the Merrill
Lynch High Yield Master Index -
a broad measure of the high-yield
market - returned 13.82%. By
comparison, the Lehman Brothers
Aggregate Bond Index - a
performance gauge for the U.S.
taxable bond market - returned
8.89%. The Standard & Poor's
500 Index - which measures the
performance of U.S. stocks -
gained 32.11%. Given the
high-yield market's tendency to
perform somewhat in line with the
stock market during periods of
economic expansion - and with
stocks reaching all-time valuation
highs during the period -
high-yield issues benefited
accordingly. A friendly economy also
translated into strong corporate
profits and record levels of new
high-yield issuance. Companies felt
confident raising capital through the
high-yield arena, and their
confidence was rewarded as
demand continued to absorb this
new supply. Although a few big
companies encountered difficulties,
defaults overall remained low. Over
the 12-month period, the
Moody's trailing default rate
averaged 1.82% of outstanding
principal, well shy of the market's
historical average. High-yield
issues declined along with equities
toward the end of the period -
due mainly to the currency crisis
in Southeast Asia and concern
over valuations - but overall
were able to weather the storm
relatively well.
An interview with Margaret Eagle, Portfolio Manager of Fidelity
Advisor High Yield Fund
Q. HOW HAS THE FUND PERFORMED OVER THE PAST YEAR, MARGARET?
B.D. It was a fairly strong period for the high-yield market and the
fund. For the 12 months that ended October 31, 1997, the fund's Class
A, Class T and Class B shares had total returns of 15.18%, 15.21% and
14.34%, respectively. To compare how the fund did relative to its
peers, the high current yields funds average returned 14.46% during
the period, according to Lipper Analytical Services. To gauge how the
fund did relative to the high-yield market, the Merrill Lynch High
Yield Master Index returned 13.82% for the year.
Q. WHAT HOLDINGS MADE A POSITIVE CONTRIBUTION TO THE FUND'S
PERFORMANCE?
A. Alternative local telephone companies - which provide local
telephone services primarily to small- and medium-sized businesses -
were some of our biggest winners. Some of these holdings are zero
coupon bonds, which make no periodic interest payments, and suffered
fairly dramatically when interest rates rose in the late winter and
early spring. However, I continued to add to the fund's stake in this
industry because I liked its prospects for growth. My patience was
rewarded as two of the fund's largest holdings in the industry -
Brooks and Nextlink - rebounded and posted strong gains for the year.
In addition to increased revenues, Brooks rose on the announcement
that it would be taken over by WorldCom. Nextlink profited from its
extraordinary management team led by cellular pioneer Craig McCaw and
benefited from its initial public offering of stock, which provided
another avenue for the company to raise capital.
Q. WHAT WERE SOME OF THE OTHER WINNERS IN THE TELECOMMUNICATIONS
SECTOR?
A. We saw strong gains from Echostar, PanAmSat, Nextel and Microcell.
Direct satellite broadcasting company Echostar enjoyed rising
subscriber growth, while satellite company PanAmSat rose on the news
that it was tendering for - or buying back - our holdings at a
significant profit to the fund. Nextel and Microcell - which provide
personal communications systems with cellular, paging and dispatch
services - saw improved profitability as a result of rising demand for
their products.
Q. WHAT OTHER COMPANIES CONTRIBUTED TO PERFORMANCE?
A. We saw impressive gains from fresh fruit company Fresh Del Monte.
The company posted rising revenues thanks to its strong franchise and
brand recognition. Its new and capable management team focused on
lowering debt and introduced a popular kind of new pineapple. Fresh
Del Monte did an initial public offering and announced its intention
to tender for the bonds, both of which helped its bonds' prices. Radio
holdings SFX Broadcasting and Chancellor Broadcasting posted solid
gains as consolidation in the industry reduced costs, thereby driving
profitability higher. Supermarket chain Smith Foods tendered for its
bonds at a profit to the fund, while our holdings in Ralph's were
boosted when it was taken over by Fred Meyer Stores.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Dictaphone, which makes dictating machines and related products,
faltered when the company announced very disappointing earnings in the
second quarter of 1997. But in the third quarter the numbers were much
stronger and the bonds rallied, although not enough to offset their
earlier losses.
Q. WHAT'S YOUR OUTLOOK?
A. While the U.S. economy continues to look strong, fiscal and
economic problems in Southeast Asia and Japan could slow U.S. domestic
growth because those countries are fertile markets for U.S. products.
Even though many high-yield companies have made good progress toward
better earnings and cash flow this year, the default rate - which
measures how many high-yield companies have defaulted on their debt
obligations - has crept up a bit, although it remained below
historical levels. Looking ahead, I'll likely continue to emphasize
companies in the telecommunications and other sectors that I believe
are less sensitive to a weaker economy, should that occur.
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.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
NEXTEL COMMUNICATIONS, INC. 3.1 1.6
TIME WARNER, INC. 2.6 3.3
PANAMSAT CORP. 2.3 2.7
SFX BROADCASTING, INC. 2.2 1.5
PATHMARK STORES, INC. 2.1 2.5
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
MEDIA & LEISURE 27.0 20.5
UTILITIES 20.9 13.1
BASIC INDUSTRIES 7.5 14.7
RETAIL & WHOLESALE 5.8 6.2
INDUSTRIAL MACHINERY & EQUIPMENT 5.5 5.8
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA, AA, A 0 0.0
.
0
BAA 2 0.0
.
3
BA 4 5.2
.
1
B 5 47.7
0
.
2
CAA, CA, C 9 14.7
.
5
NOT RATED 3 6.1
.
6
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1997 AND APRIL 30, 1997
ACCOUNT FOR 3.6% AND 6.1%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997 **
NONCONVERTIBLE
BONDS 68.4%
CONVERTIBLE BONDS,
PREFERRED STOCKS 17.8%
COMMON STOCKS 5.8%
SHORT-TERM
INVESTMENTS 6.6%
FOREIGN GOVERNMENT
OBLIGATIONS 0.2%
OTHER INVESTMENTS 1.2%
NONCONVERTIBLE
BONDS 72.3%
CONVERTIBLE BONDS,
PREFERRED STOCKS 13.3%
COMMON STOCKS 3.4%
SHORT-TERM
INVESTMENTS 9.6%
FOREIGN GOVERNMENT
OBLIGATIONS 0.0%
OTHER INVESTMENTS 1.4%
ROW: 1, COL: 1, VALUE: 2.1
ROW: 1, COL: 2, VALUE: 1.2
ROW: 1, COL: 3, VALUE: 6.7
ROW: 1, COL: 4, VALUE: 5.8
ROW: 1, COL: 5, VALUE: 16.8
ROW: 1, COL: 6, VALUE: 67.40000000000001
ROW: 1, COL: 1, VALUE: 1.4
ROW: 1, COL: 2, VALUE: 0.0
ROW: 1, COL: 3, VALUE: 9.6
ROW: 1, COL: 4, VALUE: 3.4
ROW: 1, COL: 5, VALUE: 13.3
ROW: 1, COL: 6, VALUE: 72.3
* FOREIGN
INVESTMENTS 6.6%
** FOREIGN
INVESTMENTS 5.9%
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CORPORATE BONDS - 68.4%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.0%
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
APP Global Finance NV Ltd. 2%,
7/25/00 (f) - $ 1,000 $ 940
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0%,
12/15/05 (d)(f) - 110 110
TOTAL CONVERTIBLE BONDS 1,050
NONCONVERTIBLE BONDS - 68.4%
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.4%
Argo-Tech Corp. 8 5/8%, 10/1/07 (f) B3 3,160 3,160
K&F Industries, Inc. 9 1/4%, 10/15/07 (f) B3 3,600 3,600
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 5,818 5,818
12,578
DEFENSE ELECTRONICS - 0.1%
Tracor, Inc. 8 1/2%, 3/1/07 B1 3,260 3,260
SHIP BUILDING & REPAIR - 0.5%
Newport News Shipbuilding, Inc.
9 1/4%, 12/1/06 B1 12,340 12,834
TOTAL AEROSPACE & DEFENSE 28,672
BASIC INDUSTRIES - 7.1%
CHEMICALS & PLASTICS - 2.0%
BPC Holdings Corp. 12 1/2%, 6/15/06 Caa3 9,160 10,076
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 2,270 2,531
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 9,740 10,544
Sovereign Specialty Chemicals, Inc.
9 1/2%, 8/1/07 (f) B3 3,060 3,129
Sterling Chemicals Holdings, Inc.
11 3/4%, 8/15/06 B3 18,580 20,577
Texas Petrochemicals Corp. 11 1/8%, 7/1/06 B3 10,830 11,913
58,770
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 0.2%
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa1 $ 4,990 $ 4,790
METALS & MINING - 0.9%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 22,140 23,634
Well Aluminum Corp. 10 1/8%, 6/1/05 (f) B2 1,760 1,822
25,456
PACKAGING & CONTAINERS - 0.1%
Fonda Group, Inc. 9 1/2%, 3/1/07 B3 2,350 2,233
PAPER & FOREST PRODUCTS - 3.9%
APP Finance II Mauritius Ltd.
12%, 3/15/04 B3 22,275 20,716
American Pad & Paper Co., Inc.
13%, 11/15/05 B3 4,418 5,136
Container Corp. of America:
10 3/4%, 5/1/02 B1 3,240 3,548
gtd. 9 3/4%, 4/1/03 B1 8,490 9,074
gtd. 11 1/4%, 5/1/04 B1 4,550 4,982
Florida Coast Paper Co. LLC\Florida Coast
Paper Finance Corp., Series B,
12 3/4%, 6/1/03 Caa1 20,240 21,657
Riverwood International Corp.:
10 5/8%, 8/1/07 (f) - 4,870 5,028
10 7/8%, 4/1/08 Caa1 22,460 22,066
SD Warren Co., Series B, 12%, 12/15/04 B1 3,380 3,786
Stone Container Corp.:
12 1/4%, 4/1/02 unit B3 11,170 11,561
11 7/8%, 8/1/16 B2 5,040 5,506
113,060
TOTAL BASIC INDUSTRIES 204,309
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.1%
Insilco Corp. 10 1/4%, 8/15/07 (f) B3 $ 3,390 $ 3,543
CONSTRUCTION - 0.1%
Compania Latinoamericana de Infraestructura &
Servicios SA 11 5/8%, 6/1/04 (f) BB- 3,890 3,953
REAL ESTATE - 0.4%
Iron Mountain, Inc. 8 3/4%, 9/30/09 (f) B3 8,930 8,997
Pierce Leahy Corp. 11 1/8%, 7/15/06 B3 1,886 2,131
11,128
TOTAL CONSTRUCTION & REAL ESTATE 18,624
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Aftermarket Technology Corp. 12%, 8/1/04 B3 4,120 4,573
Key Plastics, Inc. 10 1/4%, 3/15/07 B3 2,070 2,153
Safelite Glass Corp. 9 7/8%, 12/15/06 (f) B3 4,430 4,762
11,488
TEXTILES & APPAREL - 1.3%
Consoltex Group, Inc./Consoltex USA, Inc. gtd.
11%, 10/1/03 B3 16,790 17,462
GFSI, Inc. 9 5/8%, 3/1/07 B3 1,880 1,908
Polymer Group, Inc. 9%, 7/1/07 B2 18,200 18,018
37,388
TOTAL DURABLES 48,876
ENERGY - 2.5%
ENERGY SERVICES - 0.6%
Cliffs Drilling Co. 10 1/4%, 5/15/03 B1 15,080 16,286
OIL & GAS - 1.9%
Cross Timbers Oil Co. 8 3/4%, 11/1/09 (f) B2 4,620 4,608
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 8,865 9,419
KCS Energy, Inc. 11%, 1/15/03 B1 11,590 12,633
Ocean Energy, Inc. 8 7/8%, 7/15/07 B3 14,500 14,863
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Pogo Producing Co. 8 3/4%, 5/15/07 B1 $ 3,920 $ 3,959
Southwest Royalties, Inc. 10 1/2%,
10/15/04 (f) B3 2,830 2,802
United Meridian Corp. 10 3/8%, 10/15/05 B2 7,400 8,029
56,313
TOTAL ENERGY 72,599
FINANCE - 4.8%
ASSET-BACKED SECURITIES - 1.1%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 28,515 32,364
CREDIT & OTHER FINANCE - 2.6%
Aames Financial Corp. 9 1/8%, 11/1/03 Ba3 5,530 5,392
GST Equipment Funding, Inc.
13 1/4%, 5/1/07 (f) - 13,760 15,480
Homeside, Inc. 11 1/8%, 5/15/03 Ba1 2,890 3,439
Netia Holdings BV (f):
0%, 11/1/07 (d) B3 12,280 7,061
10 1/4%, 11/1/07 B3 12,280 11,789
Ocwen Capital Trust 10 7/8%, 8/1/27 B2 3,080 3,280
PTC International Finance BV 0%,
7/1/07 (d)(f) B3 16,860 10,875
Stone Container Finance Co. yankee
11 1/2%, 8/15/06 (f) B2 10,000 10,600
Tjiwi Kimia Mauritius Ltd. 10%, 8/1/04 (f) Ba3 1,080 961
Winstar Equipment II Corp.
12 1/2%, 3/15/04 (f) - 5,450 5,668
74,545
SAVINGS & LOANS - 1.1%
First Nationwide Holdings, Inc.
10 5/8%, 10/1/03 Ba3 18,520 20,372
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 10,730 12,152
32,524
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.0%
ECM Corp. extendible 14%, 6/1/02 (f) - $ 71 $ 78
TOTAL FINANCE 139,511
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 0.1%
Leiner Health Products, Inc.
9 5/8%, 7/1/07 (f) B3 1,550 1,624
MEDICAL EQUIPMENT & SUPPLIES - 0.4%
Alaris Medical Systems, Inc. 9 3/4%, 12/1/06 B3 2,660 2,740
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (f) B3 9,400 9,682
12,422
MEDICAL FACILITIES MANAGEMENT - 2.6%
Integrated Health Services, Inc. (f):
9 1/2%, 9/15/07 B2 16,580 16,746
9 1/4%, 1/15/08 B2 12,997 12,965
Mariner Health Group, Inc. 9 1/2%, 4/1/06 B2 1,620 1,685
Paracelsus Healthcare Corp. 10%, 8/15/06 B3 11,540 12,002
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 18,330 18,695
Vencor, Inc. 8 5/8%, 7/15/07 (f) B1 12,650 12,302
74,395
TOTAL HEALTH 88,441
INDUSTRIAL MACHINERY & EQUIPMENT - 4.7%
ELECTRICAL EQUIPMENT - 1.7%
Amphenol Corp. 9 7/8%, 5/15/07 B2 2,270 2,338
L-3 Communications Corp.
10 3/8%, 5/1/07 (f) B2 2,600 2,795
Motors & Gears, Inc. 10 3/4%, 11/15/06 B3 11,080 11,745
Omnipoint Corp.:
11 5/8%, 8/15/06 B2 7,920 8,197
Series A, 11 5/8%, 8/15/06 B3 8,250 8,539
Rayovac Corp. 10 1/4%, 11/1/06 B3 13,560 14,645
48,259
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 2.2%
Calmar, Inc. 11 1/2%, 8/15/05 B3 $ 15,050 $ 15,950
Continental Global Group, Inc. 11%, 4/1/07 B2 7,900 8,335
Goss Graphic System, Inc. 12%, 10/15/06 B2 17,920 19,981
International Knife & Saw, Inc.
11 3/8%, 11/15/06 B3 4,240 4,537
Mosler, Inc. 11%, 4/15/03 Caa3 6,350 4,509
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 7,050 7,632
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B1 565 587
10 3/4%, 11/1/03 B3 1,938 2,079
63,610
POLLUTION CONTROL - 0.8%
Allied Waste North America
10 1/4%, 12/1/06 B3 21,110 22,799
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 134,668
MEDIA & LEISURE - 14.7%
BROADCASTING - 10.9%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (d)(f) B3 5,960 4,396
Adelphia Communications Corp.:
9 1/4%, 10/1/02 (f) B3 20,200 20,049
9 1/2%, 2/15/04 B3 6,724 6,569
9 7/8%, 3/1/07 B3 15,000 15,300
American Telecasting, Inc. (d):
0%, 6/15/04 Caa1 5,820 2,212
0%, 8/15/05 Caa1 11,640 3,958
Benedek Communications Corp.
0%, 5/15/06 (d) B- 2,430 1,713
CapStar Broadcasting Partners, Inc.
9 1/4%, 7/1/07 B2 12,270 12,393
Chancellor Media Corp.
8 3/4%, 6/15/07 (f) B3 14,810 14,847
Charter Communications LP/Charter
Communications Southeast Capital Corp.
11 1/4%, 3/15/06 B3 610 659
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Citadel Broadcasting Co.
10 1/4%, 7/1/07 (f) B3 $ 5,300 $ 5,592
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa1 27,400 21,920
Echostar DBS Corp. 12 1/2%, 7/1/02 (f) Caa1 16,670 17,629
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (d)(f) Caa1 3,850 2,647
Highwaymaster Communications, Inc.
13 3/4%, 9/15/05 unit (f) Caa1 3,450 3,398
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 790 869
International Cabletel, Inc.
0%, 2/1/06 (d) B3 12,720 9,349
Lenfest Communications, Inc.:
8 3/8%, 11/1/05 Ba3 2,830 2,837
10 1/2%, 6/15/06 B2 820 886
NTL, Inc. 10%, 2/15/07 B3 18,800 19,364
PanAmSat Corp. 12 3/4%, 4/15/05 pay-in-kind BBB+ 56,151 67,100
Peoples Choice TV Corp. unit
0%, 6/1/04 (d) Caa 5,580 2,288
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 23,690 25,644
Spanish Broadcasting System, Inc.
7 1/2%, 6/15/02 B2 5,270 6,087
Telewest PLC 0%, 10/1/07 (d) B1 42,880 31,836
UIH Australia Pacific, Inc. (d):
Series B, 0%, 5/15/06 B2 13,180 9,160
0%, 5/15/06 (f) B2 6,510 4,524
313,226
ENTERTAINMENT - 1.6%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 4,750 4,821
Ameristar Casinos, Inc. 10 1/2%, 8/1/04 (f) B3 4,740 4,598
AMF Group, Inc., Series B, 10 7/8%, 3/15/06 B2 10,000 10,800
Cobblestone Golf Group, Inc. 11 1/2%, 6/1/03 B2 10,170 10,932
Hollywood Theaters, Inc.
10 5/8%, 8/1/07 (f) B3 5,410 5,681
Livent, Inc. 9 3/8%, 10/15/04 (f) B1 1,650 1,662
Premier Parks, Inc. 9 3/4%, 1/15/07 B2 3,590 3,770
Regal Cinemas, Inc. 8 1/2%, 10/1/07 (f) B1 2,160 2,144
44,408
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.2%
E&S Holdings Corp. 10 3/8%, 10/1/06 B3 $ 4,160 $ 3,536
Leslie's Poolmart, Inc. 10 3/8%, 7/15/04 (f) B2 3,110 3,196
6,732
LODGING & GAMING - 1.3%
American Skiing Co. 12%, 7/15/06 B3 800 892
HMH Properties, Inc. 8 7/8%, 7/15/07 Ba3 12,220 12,495
Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 3,480 3,776
KSL Recreation Group, Inc. 10 1/4%, 5/1/07 B3 13,990 14,759
Sun International Hotels Ltd. /Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 2,800 2,870
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 2,750 3,121
37,913
PUBLISHING - 0.3%
Garden State Newspapers, Inc.
8 3/4%, 10/1/09 (f) B1 1,720 1,711
ITT Publimedia BV 9 3/8%, 9/15/07 (f) B3 4,040 4,202
Sun Media Corp. yankee:
9 1/2%, 2/15/07 B3 2,430 2,564
9 1/2%, 5/15/07 B3 1,200 1,269
9,746
RESTAURANTS - 0.4%
SC International Services, Inc.
9 1/4%, 9/1/07 (f) B2 11,790 12,026
TOTAL MEDIA & LEISURE 424,051
NONDURABLES - 1.5%
AGRICULTURE - 0.1%
Windy Hill Pet Food, Inc. 9 3/4%, 5/15/07 B3 2,790 2,832
FOODS - 1.1%
Fresh Del Monte Produce NV 10%, 5/1/03 B2 19,151 20,109
Gorges/Quik-To-Fix Foods, Inc.
11 1/2%, 12/1/06 B3 12,000 12,450
32,559
TOBACCO - 0.3%
North Atlantic Trading, Inc. 11%, 6/15/04 (f) B3 6,550 6,681
TOTAL NONDURABLES 42,072
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 4.9%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(f) - $ 2,201 $ 83
GENERAL MERCHANDISE STORES - 0.2%
Jitney-Jungle Stores America, Inc.
10 3/8%, 9/15/07 (f) B3 5,470 5,648
GROCERY STORES - 4.3%
Fleming Companies, Inc. (f):
10 1/2%, 12/1/04 B3 3,990 4,150
10 5/8%, 7/31/07 B3 6,240 6,583
Food 4 Less Holdings, Inc.:
0%, 7/15/05 (d) Caa1 9,120 7,433
13 5/8%, 6/15/07 - 2,475 2,853
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa1 46,195 45,500
12 5/8%, 6/15/02 Caa1 4,410 4,432
9 5/8%, 5/1/03 B3 10,580 9,972
Ralph's Grocery Co. 11%, 6/15/05 B3 20,270 22,348
Star Markets, Inc. 13%, 11/1/04 B3 13,740 15,526
Supermercados Norte
10 7/8%, 2/9/04 (f) B1 6,160 5,914
124,711
RETAIL & WHOLESALE, MISCELLANEOUS - 0.4%
J Crew Operating Corp.
10 3/8%, 10/15/07 (f) B3 7,220 7,147
J Crew Group, Inc. 0%,
10/15/08 (d)(f) Caa2 4,723 2,598
9,745
TOTAL RETAIL & WHOLESALE 140,187
SERVICES - 2.3%
LEASING & RENTAL - 0.5%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 B2 13,370 13,571
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
PRINTING - 0.5%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa1 $ 15,370 $ 15,523
SERVICES - 1.3%
Coach USA, Inc. 9 3/8%, 7/1/07 (f) B1 2,990 3,020
Orion Network Systems, Inc.:
0%, 1/15/07 (d) B2 19,560 14,230
11 1/4%, 1/15/07 B2 18,480 20,744
37,994
TOTAL SERVICES 67,088
TECHNOLOGY - 3.5%
COMMUNICATIONS EQUIPMENT - 1.2%
Echostar Communications Corp. secured
discount 0%, 6/1/04 (d) B2 35,318 31,521
Jordan Telecommunication Products, Inc.
9 7/8%, 8/1/07 (f) B3 3,480 3,515
35,036
COMPUTER SERVICES & SOFTWARE - 0.5%
DecisionOne Corp. 9 3/4%, 8/1/07 B3 10,550 10,787
DecisionOne Holdings Corp. 0%,
8/1/08 unit (d) Caa1 2,000 1,260
Federal Data Corp. 10 1/8%, 8/1/05 (f) B3 2,440 2,495
14,542
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Dictaphone Corp. 11 3/4%, 8/1/05 Caa3 13,390 11,783
ELECTRONIC INSTRUMENTS - 0.4%
High Voltage Engineering Corp. 10 1/2%,
8/15/04 (f) B3 6,620 6,819
Packard Bioscience, Inc. 9 3/8%, 3/1/07 B3 4,630 4,653
11,472
ELECTRONICS - 1.0%
Stellex Industries, Inc. 9 1/2%, 11/1/07 (f) B3 2,380 2,356
Viasystems, Inc. 9 3/4%, 6/1/07 (f) B3 26,750 27,352
29,708
TOTAL TECHNOLOGY 102,541
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 0.4%
RAILROADS - 0.4%
TFM SA de CV (f):
10 1/4%, 6/15/07 B2 $ 5,110 $ 5,110
0%, 6/15/09 (d) B2 9,380 5,863
10,973
UTILITIES - 15.6%
CELLULAR - 6.2%
Dial Call Communications, Inc.
0%, 4/15/04 (d) B3 25,660 23,864
Fonorola, Inc. 12 1/2%, 8/15/02 B2 7,180 7,988
Grupo Iusacell SA 10%, 7/15/04 (f) B2 9,260 8,982
McCaw International Ltd. 0%, 4/15/07 (d) CCC 55,000 31,900
Metrocall, Inc. 9 3/4%, 11/1/07 (f) B3 8,540 8,433
Microcell Telecommunications, Inc.
0%, 6/1/06 (d) B3 9,150 6,131
Millicom International Cellular SA
0%, 6/1/06 (d) B3 27,530 20,648
Nextel Communications, Inc. (d):
0%, 9/1/03 B3 32,150 31,186
0%, 9/15/07 (f) B3 21,371 12,395
Pagemart Nationwide, Inc.
0%, 2/1/05 (d) - 4,600 3,795
Pagemart, Inc. 0%, 11/1/03 (d) - 1,920 1,747
Rogers Communications, Inc.
8 7/8%, 7/15/07 B2 7,450 7,376
Telesystem International Wireless, Inc. (d)(f):
0%, 6/30/07 Caa1 19,730 11,836
0%, 11/1/07 Caa1 4,970 2,634
178,915
TELEPHONE SERVICES - 9.4%
American Communications Services, Inc.:
0%, 11/1/05 (d) - 5,680 3,976
0%, 4/1/06 - 1,620 1,085
13 3/4%, 7/15/07 (f) - 3,240 3,596
Brooks Fiber Properties, Inc.:
0%, 3/1/06 (d) - 4,570 3,713
11 7/8%, 11/1/06 - 10,800 8,451
10%, 6/1/07 - 6,940 7,877
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
GCI, Inc. 9 3/4%, 8/1/07 B2 $ 5,920 $ 6,038
Hermes Europe Railtel BV
11 1/2%, 8/15/07 (f) B3 6,540 7,047
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) - 14,050 9,554
12 1/4%, 9/1/04 (f) - 9,790 10,377
ITC Deltacom, Inc. 11%, 6/1/07 (f) - 8,870 9,447
McLeodUSA, Inc. 9 1/4%, 7/15/07 (f) B3 12,240 12,577
NEXTLINK Communications, Inc.:
12 1/2%, 4/15/06 B3 28,040 31,545
9 5/8%, 10/1/07 B3 10,120 10,209
Qwest Communications International, Inc.:
10 7/8%, 4/1/07 B2 17,170 19,059
0%, 10/15/07 (d)(f) B2 17,190 11,002
RCN Corp. (f):
0%, 10/15/07 (d) B3 18,730 10,863
10%, 10/15/07 B3 15,560 15,366
RSL Communications Ltd. /RSL Communications
PLC 12 1/4%, 11/15/06 Caa1 20,830 22,602
Source Media, Inc. 12%, 11/1/04 (f) B3 4,080 4,090
Teleport Communications Group, Inc.:
9 7/8%, 7/1/06 B1 7,680 8,371
0%, 7/1/07 (d) B1 44,520 34,835
Transtel SA 12 1/2%, 11/1/07 (f) B2 11,470 10,667
Winstar Equipment 12 1/2%, 3/15/04 B3 7,950 8,288
270,635
TOTAL UTILITIES 449,550
TOTAL NONCONVERTIBLE BONDS 1,972,162
TOTAL CORPORATE BONDS
(Cost $1,909,853) 1,973,212
COMMERCIAL MORTGAGE SECURITIES - 1.1%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Bardell Associates Note Trust 12 1/2%,
11/1/08 (e) - $ 1,785 $ 1,897
CS First Boston Mortgage Securities Corp.
Series 1995-AEWI Class E,
9.7579%, 11/25/97 (f) (g) - 1,650 1,672
First Chicago/Lennar Trust I Series 1997-CHL1
Class E, 8.1217%, 2/28/11 (g) - 10,700 9,021
Merrill Lynch Mortgage Investments, Inc.
Series 1994 Class M1-E, 8.1029%,
6/25/22 (f) (g) Ba2 4,370 4,433
Structured Asset Securities Corp. (f):
Series 1995-C1 Class E, 7 3/8%,
9/25/24 BB 4,000 3,683
Series 1996-CFL Class G, 7 3/4%,
2/25/28 - 8,060 7,175
SML, Inc. Series 1994-C1 Class C,
9.20%, 9/18/99 (e) - 2,950 2,685
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $26,207) 30,566
FOREIGN GOVERNMENT OBLIGATIONS (I) - 0.2%
Mexico Value recovery rights
6/30/03 discount D - 1 -
United Mexican States global bond
11 1/2%, 5/15/26 Ba2 5,000 5,425
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $6,088) 5,425
COMMON STOCKS - 5.8%
SHARES
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.0%
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 125
Trivest 1992 Special Fund Ltd. 3.0 (h) 359
Foamex-JPS Automotive LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a) 15,350 368
Sterling Chemical Holdings warrants 8/15/08 (a) 8,460 321
1,173
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings Ltd. warrants 10/15/03 (a) 2,010 $ -
Gaylord Container Corp. Class A (a) 454,100 3,008
3,008
PAPER & FOREST PRODUCTS - 0.1%
Mail-Well Holdings, Inc. (a)(f) 46,877 1,617
TOTAL BASIC INDUSTRIES 5,798
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Capital Pacific Holdings, Inc. warrants 5/1/02 (a)(f) 24,095 24
DURABLES - 0.0%
TEXTILES & APPAREL - 0.0%
Arena Brands Holdings Corp. Class B 34,000 1,373
Hat Brands, Inc. Class I unit (a)(e) 410,000 -
TOTAL DURABLES 1,373
ENERGY - 0.9%
ENERGY SERVICES - 0.2%
Cliffs Drilling Co. (a) 75,800 5,510
OIL & GAS - 0.7%
Ocean Energy, Inc. (a) 191,500 11,825
Pioneer Natural Resources Co. 235,769 9,445
21,270
TOTAL ENERGY 26,780
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 900 90
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
XRC Corp. (a) 84,961 $ 1
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Echostar Communications Corp. Class A (a) 507,537 9,643
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Thermadyne Holdings Corp. (a) 14,085 423
POLLUTION CONTROL - 0.0%
Allied Waste Industries, Inc. (a) 40,000 815
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 10,881
MEDIA & LEISURE - 2.2%
BROADCASTING - 1.1%
Adelphia Communications Class A (a) 109,300 1,544
Chancellor Media Corp. (a) 99,273 5,448
CS Wireless Systems, Inc. (a)(f) 439 -
Jacor Communications, Inc. Class A (a) 111,400 4,665
PanAmSat Corp. (a) 102,701 4,301
Paxson Communications Corp. (a) 655,500 7,374
Pegasus Communications Corp. unit 6,509 7,209
Telemundo Group, Inc. Class A (a) 55,000 1,788
32,329
ENTERTAINMENT - 0.4%
Livent, Inc. (a) 125,200 1,156
Viacom, Inc. Class B (non-vtg.) (a) 313,500 9,483
10,639
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I, warrants 11/14/99 (a)(f) 1,460 88
LODGING & GAMING - 0.6%
Host Marriott Corp. (a) 385,800 8,054
Showboat, Inc. 398,100 7,912
15,966
PUBLISHING - 0.1%
Hollinger International, Inc. Class A 265,400 3,467
TOTAL MEDIA & LEISURE 62,489
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a):
(New) 35,870 $ 3
warrants 6/10/99 66,214 -
3
RETAIL & WHOLESALE, MISCELLANEOUS - 0.4%
Corporate Express, Inc. 728,700 10,703
TOTAL RETAIL & WHOLESALE 10,706
SERVICES - 0.5%
LEASING & RENTAL - 0.1%
Hollywood Entertainment Corp. (a) 281,580 3,449
SERVICES - 0.4%
Orion Network Systems, Inc. (a):
warrants 1/15/07 18,480 240
warrants 1/15/07 19,560 215
Protection One, Inc. (a) 518,600 9,335
9,790
TOTAL SERVICES 13,239
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Intermedia Communications Florida, Inc. warrants 6/1/00 (a) 2,500
175
ELECTRONIC INSTRUMENTS - 0.0%
Berg Electronics Corp. (a) 12,496 292
TOTAL TECHNOLOGY 467
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. warrants 12/15/00 (a) 5,520 18
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - 1.2%
CELLULAR - 0.7%
McCaw International Ltd. warrants 4/15/07 (a)(f) 55,000 $ 138
Microcell Telecommunications, Inc. (a):
warrants 6/1/06 183,560 3,488
conditional warrants 6/1/06 183,560 2
Nextel Communications, Inc. (a):
Class A 306,587 8,047
warrants 12/15/98 5,494 1
Powertel, Inc. warrants 2/1/06 (a) 85,408 790
Telesystem International Wireless, Inc. (sub-vtg.) (a) 400,000 6,319
18,785
ELECTRIC UTILITY - 0.1%
AES Corp. (a) 82,200 3,257
Niagara Mohawk Power Corp. (a) 93,300 904
4,161
TELEPHONE SERVICES - 0.4%
Hyperion Telecommunications, Inc. warrants
4/15/01 (a)(f) 14,050 1,054
RSL Communications Ltd. /RSL Communications PLC
warrants 11/15/06 (a) 25,710 2,365
Source Media, Inc. unit (f) 86 2,193
Winstar Communications, Inc. (a) 50,000 1,144
WorldCom, Inc. (a) 175,300 5,894
12,650
TOTAL UTILITIES 35,596
TOTAL COMMON STOCKS
(Cost $134,403) 167,462
PREFERRED STOCKS - 17.8%
CONVERTIBLE PREFERRED STOCKS - 0.2%
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Prime Retail, Inc., Series B, $2.125 160,000 3,910
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
Benedek Communications Corp. 15% 15,472 $ 1,888
TOTAL CONVERTIBLE PREFERRED STOCKS 5,798
NONCONVERTIBLE PREFERRED STOCKS - 17.6%
BASIC INDUSTRIES - 0.2%
PAPER & FOREST PRODUCTS - 0.2%
SDW Holdings Corp. 15% (f) 182,800 6,672
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd., Series 1, adj. rate 33,881 103
FINANCE - 0.4%
CREDIT & OTHER FINANCE - 0.4%
American Annuity Group Capital Trust II 8 3/4% 10,340 10,965
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT - 0.3%
Fresenius Medical Care Capital Trust 9% 9,847 10,216
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Ampex Corp. 8% (e) 584 454
Echostar Communications Corp. 12 1/8%, pay-in-kind 10,250 10,455
10,909
MEDIA & LEISURE - 10.0%
BROADCASTING - 9.2%
Adelphia Communications Corp. 13% (f) 134,481 15,331
American Radio Systems Corp. 11 3/8%, pay-in-kind 138,612 15,923
Cablevision Systems Corp.:
11 1/8%, depositary shares pay-in-kind 218,301 24,013
Series H, $11.75, pay-in-kind 229,579 25,942
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
CapStar Broadcasting Partners, Inc. 12%, pay-in-kind 126,563 $
13,922
Chancellor Media Corp.:
12%, pay-in-kind (f) 82,552 9,493
Series A, $12.25 160,700 21,855
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 12,724 13,360
NTL, Inc. 13%, pay-in-kind 10,907 11,998
SFX Broadcasting, Inc. 12 5/8% 333,948 38,070
Spanish Broadcasting Systems, Inc. 14 1/4%,
pay-in-kind (f) 1,066 1,122
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 63,986 73,904
264,933
PUBLISHING - 0.8%
K-III Communications Corp.:
Series D, $10 153,157 15,699
Series E, 9.20% (f) 76,000 7,486
23,185
TOTAL MEDIA & LEISURE 288,118
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Revlon Group, Inc., Series B, 14 7/8% 23,243 2,348
RETAIL & WHOLESALE - 0.4%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. $3.52 pay-in-kind 116,319 2,355
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
J Crew Operation Corp. 14 1/2%, pay-in-kind (e) 10,500 10,658
TOTAL RETAIL & WHOLESALE 13,013
TECHNOLOGY - 1.7%
COMMUNICATIONS EQUIPMENT - 1.7%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 41,945 48,656
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - 4.1%
CELLULAR - 1.3%
Nextel Communications Corp. 13%, pay-in-kind (f) 34,646 $ 37,937
TELEPHONE SERVICES - 2.8%
American Communications Services, Inc. 12 3/4%,
pay-in-kind (f) 4,972 4,674
Hyperion Telecommunication, Inc. 12 7/8%,
pay-in-kind (f) 21,090 20,457
ICG Holdings, Inc. 14 1/4%, pay-in-kind 16,006 18,327
IXC Communications, Inc. 12 1/2%, pay-in-kind (f) 11,704 13,021
NEXTLINK Communications, Inc.14%, pay-in-kind 400,131 23,608
80,087
TOTAL UTILITIES 118,024
TOTAL NONCONVERTIBLE PREFERRED STOCKS 509,024
TOTAL PREFERRED STOCKS
(Cost $484,559) 514,822
PURCHASED BANK DEBT - 0.1%
PRINCIPAL
AMOUNT (000S)
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $1,423) $ 1,860 $ 1,776
CASH EQUIVALENTS - 6.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account dated
10/31/97 due 11/3/97:
at 5.68% $ 176,293 176,210
at 5.60% 14,807 14,800
TOTAL CASH EQUIVALENTS
(Cost $191,010) 191,010
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,753,543) $ 2,884,273
LEGEND
1. Non-income producing
2. Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
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 COST
SECURITY DATE (000S)
Ampex Corp. 8% 2/16/95 $ 307
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 10
Bardell Associates Note
Trust 12 1/2%,
11/1/08 4/19/94 $ 1,815
Hat Brands, Inc.
Class I unit 2/22/94 $ 410
J Crew Operation Corp.
14 1/2% pay-in-kind 10/30/97 $ 10,658
SML, Inc.
Series 1994-C1
Class C, 9.20%,
9/18/99 8/11/94 1,918
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 $646,388,000 or
22.1% of net assets.
7. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
8. Represents number of units held.
9. For foreign government obligations not 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 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 2.3%
Ba 3.8% BB 3.1%
B 50.2% B 49.5%
Caa 8.4% CCC 7.2%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 3.6%. FMR has
determined that unrated debt securities that are lower quality account
for 3.6% of the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $2,754,240,000. Net unrealized appreciation
aggregated $130,033,000, of which $160,777,000 related to appreciated
investment securities and $30,744,000 related to depreciated
investment securities.
The fund hereby designates approximately $5,255,000 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, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 2,884,273
AGREEMENTS OF $191,010) (COST $2,753,543) -
SEE ACCOMPANYING SCHEDULE
CASH 6,209
RECEIVABLE FOR INVESTMENTS SOLD 47,171
DIVIDENDS RECEIVABLE 474
INTEREST RECEIVABLE 41,188
OTHER RECEIVABLES 182
TOTAL ASSETS 2,979,497
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 50,825
DISTRIBUTIONS PAYABLE 3,849
ACCRUED MANAGEMENT FEE 1,473
DISTRIBUTION FEES PAYABLE 939
OTHER PAYABLES AND ACCRUED EXPENSES 817
TOTAL LIABILITIES 57,903
NET ASSETS $ 2,921,594
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,675,379
UNDISTRIBUTED NET INVESTMENT INCOME 42,691
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 72,794
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 130,730
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS $ 2,921,594
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $12.93
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($44,236 (DIVIDED BY) 3,422 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $12.93) $13.57
CLASS T: $12.94
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,208,173 (DIVIDED BY) 170,712 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $12.94) $13.41
CLASS B: $12.89
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($593,358 (DIVIDED BY) 46,015 SHARES) A
INSTITUTIONAL CLASS: $12.71
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($75,827 (DIVIDED BY) 5,964 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>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 35,386
DIVIDENDS
INTEREST 210,444
TOTAL INCOME 245,830
EXPENSES
MANAGEMENT FEE $ 14,787
TRANSFER AGENT FEES 4,786
DISTRIBUTION FEES 9,101
ACCOUNTING FEES AND EXPENSES 822
NON-INTERESTED TRUSTEES' COMPENSATION 20
CUSTODIAN FEES AND EXPENSES 88
REGISTRATION FEES 375
AUDIT 103
LEGAL 18
INTEREST 3
MISCELLANEOUS 91
TOTAL EXPENSES BEFORE REDUCTIONS 30,194
EXPENSE REDUCTIONS (99) 30,095
NET INVESTMENT INCOME 215,735
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 84,552
FOREIGN CURRENCY TRANSACTIONS (1) 84,551
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 55,926
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (45) 55,881
NET GAIN (LOSS) 140,432
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 356,167
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 215,735 $ 155,775
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 84,551 25,944
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 55,881 25,347
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 356,167 207,066
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (210,159) (147,602)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (10,591) -
TOTAL DISTRIBUTIONS (220,750) (147,602)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 691,063 679,298
TOTAL INCREASE (DECREASE) IN NET ASSETS 826,480 738,762
NET ASSETS
BEGINNING OF PERIOD 2,095,114 1,356,352
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,921,594 $ 2,095,114
INCOME OF $42,691 AND $28,145, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1997 1996 E
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.300 $ 12.010
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D 1.058 .163
NET REALIZED AND UNREALIZED GAIN (LOSS) .710 .267
TOTAL FROM INVESTMENT OPERATIONS 1.768 .430
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.078) (.140)
FROM NET REALIZED GAIN (.060) -
TOTAL DISTRIBUTIONS (1.138) (.140)
NET ASSET VALUE, END OF PERIOD $ 12.930 $ 12.300
TOTAL RETURN B, C 15.18% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 44 $ 4
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.15% 1.25% A,
G
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 1.14% F 1.25% A
RATIO OF NET INTEREST INCOME TO AVERAGE NET ASSETS 8.58% 9.06% A
PORTFOLIO TURNOVER RATE 105% 121%
AVERAGE COMMISSION RATE H $ .0431 $ .0388
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS CLASS - T
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 D 1993
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 12.310 $ 11.910 $ 11.220 $ 12.010 $ 11.070
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME 1.086 C 1.105 C .930 C .848 .980
NET REALIZED AND .686 .364 .680 (.537) 1.153
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT 1.772 1.469 1.610 .311 2.133
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.082) (1.069) (.920) (.851) (.963)
FROM NET REALIZED GAIN (.060) - - (.250) (.230)
TOTAL DISTRIBUTIONS (1.142) (1.069) (.920) (1.101) (1.193)
NET ASSET VALUE, END OF PERIOD $ 12.940 $ 12.310 $ 11.910 $ 11.220 $ 12.010
TOTAL RETURN A, B 15.21% 12.92% 15.05% 2.64% 20.47%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,208 $ 1,709 $ 1,200 $ 680 $ 486
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.09% 1.12% 1.15% 1.20% 1.11%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET 1.08% E 1.11% E 1.15% 1.20% 1.11%
ASSETS AFTER EXPENSE REDUCTIONS
RATIO OF NET INTEREST INCOME 8.72% 9.20% 8.32% 6.92% 8.09%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 105% 121% 112% 118% 79%
AVERAGE COMMISSION RATE F $ .0431 $ .0388
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS CLASS - B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 D
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.280 $ 11.890 $ 11.210 $ 11.300
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .998 C 1.017 C .794 C .223
NET REALIZED AND UNREALIZED GAIN (LOSS) .674 .361 .721 (.118)
TOTAL FROM INVESTMENT OPERATIONS 1.672 1.378 1.515 .105
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.002) (.988) (.835) (.195)
FROM NET REALIZED GAIN (.060) - - -
TOTAL DISTRIBUTIONS (1.062) (.988) (.835) (.195)
NET ASSET VALUE, END OF PERIOD $ 12.890 $ 12.280 $ 11.890 $ 11.210
TOTAL RETURN B 14.34% 12.10% 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 593 $ 344 $ 156 $ 17
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.74% 1.79% 2.01% 2.20%
A
RATIO OF NET INTEREST INCOME TO AVERAGE 8.04% 8.52% 7.46% 5.92%
NET ASSETS A
PORTFOLIO TURNOVER RATE 105% 121% 112% 118%
AVERAGE COMMISSION RATE E $ .0431 $ .0388
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO OCTOBER 31, 1994.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.120 $ 11.760 $ 11.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D 1.094 1.070 .390
NET REALIZED AND UNREALIZED GAIN (LOSS) .671 .368 .193
TOTAL FROM INVESTMENT OPERATIONS 1.765 1.438 .583
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.115) (1.078) (.383)
FROM NET REALIZED GAIN (.060) - -
TOTAL DISTRIBUTIONS (1.175) (1.078) (.383)
NET ASSET VALUE, END OF PERIOD $ 12.710 $ 12.120 $ 11.760
TOTAL RETURN B, C 15.42% 12.81% 5.07%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 76 $ 38 $ 0.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS .85% 1.10% .70%
A
RATIO OF EXPENSES TO AVERAGE NET ASSETS .85% 1.05% .70%
AFTER EXPENSE REDUCTIONS F A
RATIO OF NET INTEREST INCOME TO AVERAGE NET ASSETS 8.96% 9.26% 8.77%
A
PORTFOLIO TURNOVER RATE 105% 121% 112%
AVERAGE COMMISSION RATE G $ .0431 $ .0388
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
10. 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 T, Class B, and Institutional Class
shares, each of which has equal rights as to assets and voting
privileges. Each class has exclusive voting rights with respect to its
distribution plan. Investment income, realized and unrealized capital
gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market
(sales prices if the principal market is an exchange) in which such
securities are normally traded. Equity securities for which quotations
are readily available are valued at the last sale price, or if no sale
price, at the closing bid price. Securities (including restricted
securities) for which market quotations are not readily available are
valued primarily using dealer-supplied quotes 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 with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, 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."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain. The fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a
portion of interest has become doubtful based on consistently applied
procedures, under the general supervision of the Board of Trustees of
the fund. A debt obligation is removed from non-accrual status when
the issuer resumes interest payments or when collectibility of
interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
between the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date. Income dividends
and capital gain distributions are declared separately for each class.
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
differing treatments for paydown gains/losses on certain securities,
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.
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.
11. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. Certain funds use foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
2. OPERATING POLICIES - CONTINUED
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 $15,819,000 or 0.5% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,776,000 or 0.1% of net
assets.
12. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,067,494,000 and $2,414,952,000, respectively.
13. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .59% 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 each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
B .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 29,000 $ 29,000
CLASS T 4,930,000 4,930,000
CLASS B 4,142,000 1,151,000
$ 9,101,000 $ 6,110,000
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares (4.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, and the proceeds of a contingent
deferred sales charge levied on Class B share redemptions occurring
within six years of purchase (five years prior to January 2, 1997).
The Class B charge is based on declining rates which range from 5% to
1%(4% to 1% prior to January 2, 1997) 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 the following sales charge amounts
related to each class, a portion of which is paid to securities,
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 609,000 $ 447,000
CLASS T 2,978,000 1,999,000
CLASS B 1,076,000 0 *
$ 4,663,000 $ 2,446,000
C WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO DEALERS THROUGH
WHICH THE SALES ARE MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 42,000 .21
CLASS T FIIOC * 3,761,000 .19
CLASS B FIIOC * 888,000 .19
INSTITUTIONAL FIIOC * 95,000 .17
CLASS
$ 4,786,000
D FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC)
AN AFFILIATE OF FMR.
ACCOUNTING FEES. Fidelity Service Company, Inc. (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 $13,000 for the
period.
14. 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 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
balances during the period for which loans were outstanding amounted
to $12,788,000 and $10,358,000, respectively. The weighted average
interest rate was 5.83%.
15. EXPENSE REDUCTIONS.
FMR has also 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 $49,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and each class' transfer agent whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of expenses.
During the period, the fund's custodian fees were reduced by $43,000
under the custodian arrangement, and each applicable class' expenses
were reduced as follows under the transfer agent arrangements:
TRANSFER
AGENT
INTEREST CREDITS
CLASS T $ 6,000
CLASS B 1,000
$ 7,000
16. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
AMOUNTS IN THOUSANDS 1997 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 1,492 $ 21
FROM NET REALIZED GAIN 32 -
TOTAL $ 1,524 $ 21
CLASS T
FROM NET INVESTMENT INCOME $ 168,378 $ 126,490
FROM NET REALIZED GAIN 8,606 -
TOTAL $ 176,984 $ 126,490
CLASS B
FROM NET INVESTMENT INCOME $ 35,586 $ 19,788
FROM NET REALIZED GAIN 1,771 -
TOTAL $ 37,357 $ 19,788
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME $ 4,703 $ 1,303
FROM NET REALIZED GAIN 182 -
TOTAL $ 4,885 $ 1,303
$ 220,750 $ 147,602
E DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
17. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNT IN THOUSANDS SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 3,449 320 $ 43,286 $ 3,920
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 89 1 1,128 14
SHARES REDEEMED (430) (7) (5,420) (86)
NET INCREASE (DECREASE) 3,108 314 $ 38,994 $ 3,848
CLASS T 79,054 91,099 $ 982,916 $ 1,097,837
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 10,932 7,820 135,681 94,206
SHARES REDEEMED (58,169) (60,831) (724,770) (733,452)
NET INCREASE (DECREASE) 31,817 38,088 $ 393,827 $ 458,591
CLASS B 25,512 21,079 $ 317,577 $ 255,498
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 1,929 1,065 23,896 12,810
SHARES REDEEMED (9,476) (7,197) (118,144) (88,123)
NET INCREASE (DECREASE) 17,965 14,947 $ 223,329 $ 180,185
INSTITUTIONAL CLASS 6,258 5,514 $ 76,404 $ 65,404
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 342 94 4,195 1,124
SHARES REDEEMED (3,741) (2,514) (45,686) (29,854)
NET INCREASE (DECREASE) 2,859 3,094 $ 34,913 $ 36,674
</TABLE>
F SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 30, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
18. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 34,000
CLASS T 235,000
CLASS B 82,000
INSTITUTIONAL CLASS 24,000
$ 375,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor High Yield Fund:
We have audited the accompanying statements of assets and liabilities
of Fidelity Advisor Series II: Fidelity Advisor High Yield Fund,
including the schedule of portfolio investments, as of October 31,
1997, 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 of Class A, Class
B, Class T and Institutional Class for each of the periods indicated
therein. 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, 1997 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, 1997, 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 of
Class A, Class B, Class T and Institutional Class for each of the
periods indicated therein, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor High Yield 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 12/8/97 12/5/97 $0.00 $0.30
Class T 12/8/97 12/5/97 $0.00 $0.30
Class B 12/8/97 12/5/97 $0.00 $0.30
Class C 12/8/97 12/5/97 $0.00 $0.30
A total of 12% of the dividends distributed by Class A, Class T and
Class B during the fiscal year qualifies for the dividends-received
deduction for corporate shareholders.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 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
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Margaret L. Eagle, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENTS
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International
Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
HIGH YIELD
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1997
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 32 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 40 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 49 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 50
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares
are sold to eligible investors without a sales load or 12b-1 fee.
Returns prior to July 3, 1995 are those of Class T, the original class
of the fund, and reflect Class T's 0.25% 12b-1 fee. If Fidelity had
not reimbursed certain class expenses, the past five years and past 10
years total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - INSTITUTIONAL CLASS 15.42% 84.31% 310.46%
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 75.42% 219.17%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 72.92% 181.61%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. 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 market capitalization
weighted index of all domestic and yankee high-yield bonds. Issues
included in the index have maturities of at least one year and have a
credit rating lower than BBB-/Baa3, but are not in default. To measure
how Institutional Class' performance stacked up against its peers, you
can compare it to the high current yield funds average, which reflects
the performance of mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past one year average represents
a peer group of 173 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR HIGH YIELD - INSTITUTIONAL CLASS 15.42% 13.01% 15.17%
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 11.90% 12.31%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 11.54% 10.82%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' 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 an 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 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 105610 S00000000000001
FA High Yield -CL I ML High Yield Master
00644 ML002
1987/10/31 10000.00 10000.00
1987/11/30 10364.55 10252.88
1987/12/31 10550.18 10389.03
1988/01/31 11102.70 10673.32
1988/02/29 11458.73 10962.94
1988/03/31 11384.37 10944.81
1988/04/30 11351.88 10976.42
1988/05/31 11388.68 11033.71
1988/06/30 11839.49 11244.67
1988/07/31 12010.30 11363.49
1988/08/31 11951.63 11400.83
1988/09/30 12078.16 11515.75
1988/10/31 12214.47 11695.17
1988/11/30 12250.41 11738.98
1988/12/31 12369.54 11788.65
1989/01/31 12704.47 11965.44
1989/02/28 12793.26 12045.85
1989/03/31 12668.45 12035.13
1989/04/30 12528.06 12070.65
1989/05/31 12844.58 12292.86
1989/06/30 13303.11 12467.02
1989/07/31 13375.75 12526.07
1989/08/31 13511.03 12587.94
1989/09/30 13114.52 12468.10
1989/10/31 12622.12 12270.89
1989/11/30 12658.92 12298.39
1989/12/31 12819.20 12287.27
1990/01/31 12633.22 12047.13
1990/02/28 12566.16 11871.68
1990/03/31 12787.51 12032.16
1990/04/30 12941.26 12093.29
1990/05/31 13375.90 12311.74
1990/06/30 13757.68 12550.26
1990/07/31 14077.75 12815.48
1990/08/31 13732.17 12324.88
1990/09/30 13384.99 11788.85
1990/10/31 13073.41 11488.86
1990/11/30 13481.59 11586.18
1990/12/31 13755.14 11753.13
1991/01/31 14071.60 11919.27
1991/02/28 14879.12 12803.96
1991/03/31 15437.31 13354.47
1991/04/30 15907.39 13830.05
1991/05/31 16076.83 13897.58
1991/06/30 16508.45 14177.15
1991/07/31 17104.81 14516.85
1991/08/31 17326.84 14821.96
1991/09/30 17560.80 15010.75
1991/10/31 18260.12 15456.80
1991/11/30 18470.92 15635.34
1991/12/31 18561.81 15816.98
1992/01/31 19412.67 16370.00
1992/02/29 20216.27 16776.55
1992/03/31 20789.32 17010.63
1992/04/30 20978.50 17134.44
1992/05/31 21207.39 17407.75
1992/06/30 21527.51 17624.03
1992/07/31 21915.66 17981.11
1992/08/31 22320.89 18219.17
1992/09/30 22559.94 18426.76
1992/10/31 22270.12 18194.03
1992/11/30 22513.46 18451.70
1992/12/31 22847.65 18689.28
1993/01/31 23458.36 19149.49
1993/02/28 23972.20 19511.96
1993/03/31 24528.43 19850.24
1993/04/30 24668.14 19992.72
1993/05/31 25003.63 20261.85
1993/06/30 25613.79 20642.52
1993/07/31 25950.09 20864.40
1993/08/31 26152.18 21063.29
1993/09/30 26202.01 21167.22
1993/10/31 26828.24 21565.96
1993/11/30 27022.63 21683.91
1993/12/31 27519.87 21900.73
1994/01/31 28310.59 22380.69
1994/02/28 28194.34 22219.74
1994/03/31 27334.81 21495.66
1994/04/30 27030.31 21244.46
1994/05/31 27198.11 21168.78
1994/06/30 27147.93 21246.69
1994/07/31 27253.00 21396.05
1994/08/31 27448.00 21544.66
1994/09/30 27587.50 21536.51
1994/10/31 27537.06 21591.24
1994/11/30 27096.58 21407.57
1994/12/31 27108.78 21645.69
1995/01/31 27341.89 21951.55
1995/02/28 28222.14 22636.47
1995/03/31 28476.18 22951.49
1995/04/30 29395.15 23488.87
1995/05/31 30053.73 24222.71
1995/06/30 29990.30 24407.73
1995/07/31 30727.48 24686.76
1995/08/31 30909.79 24836.59
1995/09/30 31288.38 25120.75
1995/10/31 31524.70 25298.82
1995/11/30 31695.00 25545.77
1995/12/31 32175.42 25955.83
1996/01/31 32940.58 26365.75
1996/02/29 33365.97 26405.45
1996/03/31 33169.73 26333.74
1996/04/30 33532.67 26345.67
1996/05/31 33760.50 26535.66
1996/06/30 33816.55 26695.06
1996/07/31 33821.67 26876.30
1996/08/31 34282.16 27153.85
1996/09/30 35451.73 27736.45
1996/10/31 35563.96 28040.43
1996/11/30 36009.54 28607.32
1996/12/31 36435.74 28827.45
1997/01/31 36806.16 29048.99
1997/02/28 37515.04 29456.49
1997/03/31 36510.22 29129.33
1997/04/30 36811.91 29460.87
1997/05/31 37863.21 30047.04
1997/06/30 38569.31 30512.17
1997/07/31 39853.18 31244.40
1997/08/31 40092.45 31174.10
1997/09/30 41503.76 31706.35
1997/10/31 41078.28 31916.78
IMATRL PRASUN SHR__CHT 19971031 19971113 105612 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Institutional Class on
October 31, 1987. As the chart shows, by October 31, 1997, the value
of the investment would have grown to $41,046 - a 310.46% increase on
the initial investment. For comparison, look at how the Merrill Lynch
High Yield Master Index did over the same period. With dividends
reinvested, the same $10,000 investment would have grown to $31,917 -
a 219.17% 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 10.03% 9.75% 9.69% 7.15% 9.66%
CAPITAL APPRECIATION RETURN 5.39% 3.06% 4.81% -4.51% 10.81%
TOTAL RETURN 15.42% 12.81% 14.50% 2.64% 20.47%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.74(CENTS) 45.49(CENTS) 111.48(CENTS)
ANNUALIZED DIVIDEND RATE 7.03% 7.22% 9.09%
30-DAY ANNUALIZED YIELD 8.30% - -
DIVIDENDS per share show the income paid by the class for a set period
and do not reflect any tax reclassifications. If you annualize this
number, based on an average net asset value of $12.96 over the past
one month, $12.49 over the past six months, and $12.27 over the past
one 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.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Backed by steady economic
growth, a robust equity market
and a positive supply and demand
scenario, the high-yield market
posted healthy returns for the 12
months that ended October 31,
1997. During this time, the Merrill
Lynch High Yield Master Index -
a broad measure of the high-yield
market - returned 13.82%. By
comparison, the Lehman Brothers
Aggregate Bond Index - a
performance gauge for the U.S.
taxable bond market - returned
8.89%. The Standard & Poor's
500 Index - which measures the
performance of U.S. stocks -
gained 32.11%. Given the
high-yield market's tendency to
perform somewhat in line with the
stock market during periods of
economic expansion - and with
stocks reaching all-time valuation
highs during the period -
high-yield issues benefited
accordingly. A friendly economy also
translated into strong corporate
profits and record levels of new
high-yield issuance. Companies felt
confident raising capital through the
high-yield arena, and their
confidence was rewarded as
demand continued to absorb this
new supply. Although a few big
companies encountered difficulties,
defaults overall remained low. Over
the 12-month period, the
Moody's trailing default rate
averaged 1.82% of outstanding
principal, well shy of the market's
historical average. High-yield
issues declined along with equities
toward the end of the period -
due mainly to the currency crisis
in Southeast Asia and concern
over valuations - but overall
were able to weather the storm
relatively well.
An interview with Margaret Eagle, Portfolio Manager of Fidelity
Advisor High Yield Fund
Q. HOW HAS THE FUND PERFORMED OVER THE PAST YEAR, MARGARET?
A. It was a fairly strong period for the high-yield market and the
fund. For the 12 months that ended October 31, 1997, the Fidelity
Advisor High Yield Fund Institutional shares had a total return of
15.42%. To compare how the fund did relative to its peers, the high
current yield funds average returned 14.46% during the period,
according to Lipper Analytical Services. To gauge how the fund did
relative to the high-yield market, the Merrill Lynch High Yield Master
Index returned 13.82% for the year.
Q. WHAT HOLDINGS MADE A POSITIVE CONTRIBUTION TO THE FUND'S
PERFORMANCE?
A. Alternative local telephone companies - which provide local
telephone services primarily to small- and medium-sized businesses -
were some of our biggest winners. Some of these holdings are zero
coupon bonds, which make no periodic interest payments, and suffered
fairly dramatically when interest rates rose in the late winter and
early spring. However, I continued to add to the fund's stake in this
industry because I liked its prospects for growth. My patience was
rewarded as two of the fund's largest holdings in the industry -
Brooks and Nextlink - rebounded and posted strong gains for the year.
In addition to increased revenues, Brooks rose on the announcement
that it would be taken over by WorldCom. Nextlink profited from its
extraordinary management team led by cellular pioneer Craig McCaw and
benefited from its initial public offering of stock, which provided
another avenue for the company to raise capital.
Q. WHAT WERE SOME OF THE OTHER WINNERS IN THE TELECOMMUNICATIONS
SECTOR?
A. We saw strong gains from Echostar, PanAmSat, Nextel and Microcell.
Direct satellite broadcasting company Echostar enjoyed rising
subscriber growth, while satellite company PanAmSat rose on the news
that it was tendering for - or buying back - our holdings at a
significant profit to the fund. Nextel and Microcell - which provide
personal communications systems with cellular, paging and dispatch
services - saw improved profitability as a result of rising demand for
their products.
Q. WHAT OTHER COMPANIES CONTRIBUTED TO PERFORMANCE?
A. We saw impressive gains from fresh fruit company Fresh Del Monte.
The company posted rising revenues thanks to its strong franchise and
brand recognition. Its new and capable management team focused on
lowering debt and introduced a popular kind of new pineapple. Fresh
Del Monte did an initial public offering and announced its intention
to tender for the bonds, both of which helped its bonds' prices. Radio
holdings SFX Broadcasting and Chancellor Broadcasting posted solid
gains as consolidation in the industry reduced costs, thereby driving
profitability higher. Supermarket chain Smith Foods tendered for its
bonds at a profit to the fund, while our holdings in Ralph's were
boosted when it was taken over by Fred Meyer Stores.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Dictaphone, which makes dictating machines and related products,
faltered when the company announced very disappointing earnings in the
second quarter of 1997. But in the third quarter the numbers were much
stronger and the bonds rallied, although not enough to offset their
earlier losses.
Q. WHAT'S YOUR OUTLOOK?
A. While the U.S. economy continues to look strong, fiscal and
economic problems in Southeast Asia and Japan could slow U.S. domestic
growth because those countries are fertile markets for U.S. products.
Even though many high-yield companies have made good progress toward
better earnings and cash flow this year, the default rate - which
measures how many high-yield companies have defaulted on their debt
obligations - has crept up a bit, although it remained below
historical levels. Looking ahead, I'll likely continue to emphasize
companies in the telecommunications and other sectors that I believe
are less sensitive to a weaker economy, should that occur.
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.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
NEXTEL COMMUNICATIONS, INC. 3.1 1.6
TIME WARNER, INC. 2.6 3.3
PANAMSAT CORP. 2.3 2.7
SFX BROADCASTING, INC. 2.2 1.5
PATHMARK STORES, INC. 2.1 2.5
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
MEDIA & LEISURE 27.0 20.5
UTILITIES 20.9 13.1
BASIC INDUSTRIES 7.5 14.7
RETAIL & WHOLESALE 5.8 6.2
INDUSTRIAL MACHINERY & EQUIPMENT 5.5 5.8
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA, AA, A 0 0.0
.
0
BAA 2 0.0
.
3
BA 4 5.2
.
1
B 5 47.7
0
.
2
CAA, CA, C 9 14.7
.
5
NOT RATED 3 6.1
.
6
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1997 AND APRIL 30, 1997
ACCOUNT FOR 3.6% AND 6.1%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997 **
NONCONVERTIBLE
BONDS 68.4%
CONVERTIBLE BONDS,
PREFERRED STOCKS 17.8%
COMMON STOCKS 5.8%
SHORT-TERM
INVESTMENTS 6.6%
FOREIGN GOVERNMENT
OBLIGATIONS 0.2%
OTHER INVESTMENTS 1.2%
NONCONVERTIBLE
BONDS 72.3%
CONVERTIBLE BONDS,
PREFERRED STOCKS 13.3%
COMMON STOCKS 3.4%
SHORT-TERM
INVESTMENTS 9.6%
FOREIGN GOVERNMENT
OBLIGATIONS 0.0%
OTHER INVESTMENTS 1.4%
ROW: 1, COL: 1, VALUE: 2.1
ROW: 1, COL: 2, VALUE: 1.2
ROW: 1, COL: 3, VALUE: 6.7
ROW: 1, COL: 4, VALUE: 5.8
ROW: 1, COL: 5, VALUE: 16.8
ROW: 1, COL: 6, VALUE: 67.40000000000001
ROW: 1, COL: 1, VALUE: 1.4
ROW: 1, COL: 2, VALUE: 0.0
ROW: 1, COL: 3, VALUE: 9.6
ROW: 1, COL: 4, VALUE: 3.4
ROW: 1, COL: 5, VALUE: 13.3
ROW: 1, COL: 6, VALUE: 72.3
* FOREIGN
INVESTMENTS 6.6%
** FOREIGN
INVESTMENTS 5.9%
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CORPORATE BONDS - 68.4%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.0%
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
APP Global Finance NV Ltd. 2%,
7/25/00 (f) - $ 1,000 $ 940
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0%,
12/15/05 (d)(f) - 110 110
TOTAL CONVERTIBLE BONDS 1,050
NONCONVERTIBLE BONDS - 68.4%
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.4%
Argo-Tech Corp. 8 5/8%, 10/1/07 (f) B3 3,160 3,160
K&F Industries, Inc. 9 1/4%, 10/15/07 (f) B3 3,600 3,600
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 5,818 5,818
12,578
DEFENSE ELECTRONICS - 0.1%
Tracor, Inc. 8 1/2%, 3/1/07 B1 3,260 3,260
SHIP BUILDING & REPAIR - 0.5%
Newport News Shipbuilding, Inc.
9 1/4%, 12/1/06 B1 12,340 12,834
TOTAL AEROSPACE & DEFENSE 28,672
BASIC INDUSTRIES - 7.1%
CHEMICALS & PLASTICS - 2.0%
BPC Holdings Corp. 12 1/2%, 6/15/06 Caa3 9,160 10,076
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 2,270 2,531
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 9,740 10,544
Sovereign Specialty Chemicals, Inc.
9 1/2%, 8/1/07 (f) B3 3,060 3,129
Sterling Chemicals Holdings, Inc.
11 3/4%, 8/15/06 B3 18,580 20,577
Texas Petrochemicals Corp. 11 1/8%, 7/1/06 B3 10,830 11,913
58,770
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 0.2%
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa1 $ 4,990 $ 4,790
METALS & MINING - 0.9%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 22,140 23,634
Well Aluminum Corp. 10 1/8%, 6/1/05 (f) B2 1,760 1,822
25,456
PACKAGING & CONTAINERS - 0.1%
Fonda Group, Inc. 9 1/2%, 3/1/07 B3 2,350 2,233
PAPER & FOREST PRODUCTS - 3.9%
APP Finance II Mauritius Ltd.
12%, 3/15/04 B3 22,275 20,716
American Pad & Paper Co., Inc.
13%, 11/15/05 B3 4,418 5,136
Container Corp. of America:
10 3/4%, 5/1/02 B1 3,240 3,548
gtd. 9 3/4%, 4/1/03 B1 8,490 9,074
gtd. 11 1/4%, 5/1/04 B1 4,550 4,982
Florida Coast Paper Co. LLC\Florida Coast
Paper Finance Corp., Series B,
12 3/4%, 6/1/03 Caa1 20,240 21,657
Riverwood International Corp.:
10 5/8%, 8/1/07 (f) - 4,870 5,028
10 7/8%, 4/1/08 Caa1 22,460 22,066
SD Warren Co., Series B, 12%, 12/15/04 B1 3,380 3,786
Stone Container Corp.:
12 1/4%, 4/1/02 unit B3 11,170 11,561
11 7/8%, 8/1/16 B2 5,040 5,506
113,060
TOTAL BASIC INDUSTRIES 204,309
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - 0.6%
BUILDING MATERIALS - 0.1%
Insilco Corp. 10 1/4%, 8/15/07 (f) B3 $ 3,390 $ 3,543
CONSTRUCTION - 0.1%
Compania Latinoamericana de Infraestructura &
Servicios SA 11 5/8%, 6/1/04 (f) BB- 3,890 3,953
REAL ESTATE - 0.4%
Iron Mountain, Inc. 8 3/4%, 9/30/09 (f) B3 8,930 8,997
Pierce Leahy Corp. 11 1/8%, 7/15/06 B3 1,886 2,131
11,128
TOTAL CONSTRUCTION & REAL ESTATE 18,624
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Aftermarket Technology Corp. 12%, 8/1/04 B3 4,120 4,573
Key Plastics, Inc. 10 1/4%, 3/15/07 B3 2,070 2,153
Safelite Glass Corp. 9 7/8%, 12/15/06 (f) B3 4,430 4,762
11,488
TEXTILES & APPAREL - 1.3%
Consoltex Group, Inc./Consoltex USA, Inc. gtd.
11%, 10/1/03 B3 16,790 17,462
GFSI, Inc. 9 5/8%, 3/1/07 B3 1,880 1,908
Polymer Group, Inc. 9%, 7/1/07 B2 18,200 18,018
37,388
TOTAL DURABLES 48,876
ENERGY - 2.5%
ENERGY SERVICES - 0.6%
Cliffs Drilling Co. 10 1/4%, 5/15/03 B1 15,080 16,286
OIL & GAS - 1.9%
Cross Timbers Oil Co. 8 3/4%, 11/1/09 (f) B2 4,620 4,608
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 8,865 9,419
KCS Energy, Inc. 11%, 1/15/03 B1 11,590 12,633
Ocean Energy, Inc. 8 7/8%, 7/15/07 B3 14,500 14,863
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Pogo Producing Co. 8 3/4%, 5/15/07 B1 $ 3,920 $ 3,959
Southwest Royalties, Inc. 10 1/2%,
10/15/04 (f) B3 2,830 2,802
United Meridian Corp. 10 3/8%, 10/15/05 B2 7,400 8,029
56,313
TOTAL ENERGY 72,599
FINANCE - 4.8%
ASSET-BACKED SECURITIES - 1.1%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 28,515 32,364
CREDIT & OTHER FINANCE - 2.6%
Aames Financial Corp. 9 1/8%, 11/1/03 Ba3 5,530 5,392
GST Equipment Funding, Inc.
13 1/4%, 5/1/07 (f) - 13,760 15,480
Homeside, Inc. 11 1/8%, 5/15/03 Ba1 2,890 3,439
Netia Holdings BV (f):
0%, 11/1/07 (d) B3 12,280 7,061
10 1/4%, 11/1/07 B3 12,280 11,789
Ocwen Capital Trust 10 7/8%, 8/1/27 B2 3,080 3,280
PTC International Finance BV 0%,
7/1/07 (d)(f) B3 16,860 10,875
Stone Container Finance Co. yankee
11 1/2%, 8/15/06 (f) B2 10,000 10,600
Tjiwi Kimia Mauritius Ltd. 10%, 8/1/04 (f) Ba3 1,080 961
Winstar Equipment II Corp.
12 1/2%, 3/15/04 (f) - 5,450 5,668
74,545
SAVINGS & LOANS - 1.1%
First Nationwide Holdings, Inc.
10 5/8%, 10/1/03 Ba3 18,520 20,372
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 10,730 12,152
32,524
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.0%
ECM Corp. extendible 14%, 6/1/02 (f) - $ 71 $ 78
TOTAL FINANCE 139,511
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 0.1%
Leiner Health Products, Inc.
9 5/8%, 7/1/07 (f) B3 1,550 1,624
MEDICAL EQUIPMENT & SUPPLIES - 0.4%
Alaris Medical Systems, Inc. 9 3/4%, 12/1/06 B3 2,660 2,740
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (f) B3 9,400 9,682
12,422
MEDICAL FACILITIES MANAGEMENT - 2.6%
Integrated Health Services, Inc. (f):
9 1/2%, 9/15/07 B2 16,580 16,746
9 1/4%, 1/15/08 B2 12,997 12,965
Mariner Health Group, Inc. 9 1/2%, 4/1/06 B2 1,620 1,685
Paracelsus Healthcare Corp. 10%, 8/15/06 B3 11,540 12,002
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 18,330 18,695
Vencor, Inc. 8 5/8%, 7/15/07 (f) B1 12,650 12,302
74,395
TOTAL HEALTH 88,441
INDUSTRIAL MACHINERY & EQUIPMENT - 4.7%
ELECTRICAL EQUIPMENT - 1.7%
Amphenol Corp. 9 7/8%, 5/15/07 B2 2,270 2,338
L-3 Communications Corp.
10 3/8%, 5/1/07 (f) B2 2,600 2,795
Motors & Gears, Inc. 10 3/4%, 11/15/06 B3 11,080 11,745
Omnipoint Corp.:
11 5/8%, 8/15/06 B2 7,920 8,197
Series A, 11 5/8%, 8/15/06 B3 8,250 8,539
Rayovac Corp. 10 1/4%, 11/1/06 B3 13,560 14,645
48,259
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 2.2%
Calmar, Inc. 11 1/2%, 8/15/05 B3 $ 15,050 $ 15,950
Continental Global Group, Inc. 11%, 4/1/07 B2 7,900 8,335
Goss Graphic System, Inc. 12%, 10/15/06 B2 17,920 19,981
International Knife & Saw, Inc.
11 3/8%, 11/15/06 B3 4,240 4,537
Mosler, Inc. 11%, 4/15/03 Caa3 6,350 4,509
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 7,050 7,632
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B1 565 587
10 3/4%, 11/1/03 B3 1,938 2,079
63,610
POLLUTION CONTROL - 0.8%
Allied Waste North America
10 1/4%, 12/1/06 B3 21,110 22,799
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 134,668
MEDIA & LEISURE - 14.7%
BROADCASTING - 10.9%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (d)(f) B3 5,960 4,396
Adelphia Communications Corp.:
9 1/4%, 10/1/02 (f) B3 20,200 20,049
9 1/2%, 2/15/04 B3 6,724 6,569
9 7/8%, 3/1/07 B3 15,000 15,300
American Telecasting, Inc. (d):
0%, 6/15/04 Caa1 5,820 2,212
0%, 8/15/05 Caa1 11,640 3,958
Benedek Communications Corp.
0%, 5/15/06 (d) B- 2,430 1,713
CapStar Broadcasting Partners, Inc.
9 1/4%, 7/1/07 B2 12,270 12,393
Chancellor Media Corp.
8 3/4%, 6/15/07 (f) B3 14,810 14,847
Charter Communications LP/Charter
Communications Southeast Capital Corp.
11 1/4%, 3/15/06 B3 610 659
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Citadel Broadcasting Co.
10 1/4%, 7/1/07 (f) B3 $ 5,300 $ 5,592
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa1 27,400 21,920
Echostar DBS Corp. 12 1/2%, 7/1/02 (f) Caa1 16,670 17,629
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (d)(f) Caa1 3,850 2,647
Highwaymaster Communications, Inc.
13 3/4%, 9/15/05 unit (f) Caa1 3,450 3,398
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 790 869
International Cabletel, Inc.
0%, 2/1/06 (d) B3 12,720 9,349
Lenfest Communications, Inc.:
8 3/8%, 11/1/05 Ba3 2,830 2,837
10 1/2%, 6/15/06 B2 820 886
NTL, Inc. 10%, 2/15/07 B3 18,800 19,364
PanAmSat Corp. 12 3/4%, 4/15/05 pay-in-kind BBB+ 56,151 67,100
Peoples Choice TV Corp. unit
0%, 6/1/04 (d) Caa 5,580 2,288
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 23,690 25,644
Spanish Broadcasting System, Inc.
7 1/2%, 6/15/02 B2 5,270 6,087
Telewest PLC 0%, 10/1/07 (d) B1 42,880 31,836
UIH Australia Pacific, Inc. (d):
Series B, 0%, 5/15/06 B2 13,180 9,160
0%, 5/15/06 (f) B2 6,510 4,524
313,226
ENTERTAINMENT - 1.6%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 4,750 4,821
Ameristar Casinos, Inc. 10 1/2%, 8/1/04 (f) B3 4,740 4,598
AMF Group, Inc., Series B, 10 7/8%, 3/15/06 B2 10,000 10,800
Cobblestone Golf Group, Inc. 11 1/2%, 6/1/03 B2 10,170 10,932
Hollywood Theaters, Inc.
10 5/8%, 8/1/07 (f) B3 5,410 5,681
Livent, Inc. 9 3/8%, 10/15/04 (f) B1 1,650 1,662
Premier Parks, Inc. 9 3/4%, 1/15/07 B2 3,590 3,770
Regal Cinemas, Inc. 8 1/2%, 10/1/07 (f) B1 2,160 2,144
44,408
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.2%
E&S Holdings Corp. 10 3/8%, 10/1/06 B3 $ 4,160 $ 3,536
Leslie's Poolmart, Inc. 10 3/8%, 7/15/04 (f) B2 3,110 3,196
6,732
LODGING & GAMING - 1.3%
American Skiing Co. 12%, 7/15/06 B3 800 892
HMH Properties, Inc. 8 7/8%, 7/15/07 Ba3 12,220 12,495
Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 3,480 3,776
KSL Recreation Group, Inc. 10 1/4%, 5/1/07 B3 13,990 14,759
Sun International Hotels Ltd. /Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 2,800 2,870
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 2,750 3,121
37,913
PUBLISHING - 0.3%
Garden State Newspapers, Inc.
8 3/4%, 10/1/09 (f) B1 1,720 1,711
ITT Publimedia BV 9 3/8%, 9/15/07 (f) B3 4,040 4,202
Sun Media Corp. yankee:
9 1/2%, 2/15/07 B3 2,430 2,564
9 1/2%, 5/15/07 B3 1,200 1,269
9,746
RESTAURANTS - 0.4%
SC International Services, Inc.
9 1/4%, 9/1/07 (f) B2 11,790 12,026
TOTAL MEDIA & LEISURE 424,051
NONDURABLES - 1.5%
AGRICULTURE - 0.1%
Windy Hill Pet Food, Inc. 9 3/4%, 5/15/07 B3 2,790 2,832
FOODS - 1.1%
Fresh Del Monte Produce NV 10%, 5/1/03 B2 19,151 20,109
Gorges/Quik-To-Fix Foods, Inc.
11 1/2%, 12/1/06 B3 12,000 12,450
32,559
TOBACCO - 0.3%
North Atlantic Trading, Inc. 11%, 6/15/04 (f) B3 6,550 6,681
TOTAL NONDURABLES 42,072
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 4.9%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(f) - $ 2,201 $ 83
GENERAL MERCHANDISE STORES - 0.2%
Jitney-Jungle Stores America, Inc.
10 3/8%, 9/15/07 (f) B3 5,470 5,648
GROCERY STORES - 4.3%
Fleming Companies, Inc. (f):
10 1/2%, 12/1/04 B3 3,990 4,150
10 5/8%, 7/31/07 B3 6,240 6,583
Food 4 Less Holdings, Inc.:
0%, 7/15/05 (d) Caa1 9,120 7,433
13 5/8%, 6/15/07 - 2,475 2,853
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa1 46,195 45,500
12 5/8%, 6/15/02 Caa1 4,410 4,432
9 5/8%, 5/1/03 B3 10,580 9,972
Ralph's Grocery Co. 11%, 6/15/05 B3 20,270 22,348
Star Markets, Inc. 13%, 11/1/04 B3 13,740 15,526
Supermercados Norte
10 7/8%, 2/9/04 (f) B1 6,160 5,914
124,711
RETAIL & WHOLESALE, MISCELLANEOUS - 0.4%
J Crew Operating Corp.
10 3/8%, 10/15/07 (f) B3 7,220 7,147
J Crew Group, Inc. 0%,
10/15/08 (d)(f) Caa2 4,723 2,598
9,745
TOTAL RETAIL & WHOLESALE 140,187
SERVICES - 2.3%
LEASING & RENTAL - 0.5%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 B2 13,370 13,571
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
PRINTING - 0.5%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa1 $ 15,370 $ 15,523
SERVICES - 1.3%
Coach USA, Inc. 9 3/8%, 7/1/07 (f) B1 2,990 3,020
Orion Network Systems, Inc.:
0%, 1/15/07 (d) B2 19,560 14,230
11 1/4%, 1/15/07 B2 18,480 20,744
37,994
TOTAL SERVICES 67,088
TECHNOLOGY - 3.5%
COMMUNICATIONS EQUIPMENT - 1.2%
Echostar Communications Corp. secured
discount 0%, 6/1/04 (d) B2 35,318 31,521
Jordan Telecommunication Products, Inc.
9 7/8%, 8/1/07 (f) B3 3,480 3,515
35,036
COMPUTER SERVICES & SOFTWARE - 0.5%
DecisionOne Corp. 9 3/4%, 8/1/07 B3 10,550 10,787
DecisionOne Holdings Corp. 0%,
8/1/08 unit (d) Caa1 2,000 1,260
Federal Data Corp. 10 1/8%, 8/1/05 (f) B3 2,440 2,495
14,542
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Dictaphone Corp. 11 3/4%, 8/1/05 Caa3 13,390 11,783
ELECTRONIC INSTRUMENTS - 0.4%
High Voltage Engineering Corp. 10 1/2%,
8/15/04 (f) B3 6,620 6,819
Packard Bioscience, Inc. 9 3/8%, 3/1/07 B3 4,630 4,653
11,472
ELECTRONICS - 1.0%
Stellex Industries, Inc. 9 1/2%, 11/1/07 (f) B3 2,380 2,356
Viasystems, Inc. 9 3/4%, 6/1/07 (f) B3 26,750 27,352
29,708
TOTAL TECHNOLOGY 102,541
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 0.4%
RAILROADS - 0.4%
TFM SA de CV (f):
10 1/4%, 6/15/07 B2 $ 5,110 $ 5,110
0%, 6/15/09 (d) B2 9,380 5,863
10,973
UTILITIES - 15.6%
CELLULAR - 6.2%
Dial Call Communications, Inc.
0%, 4/15/04 (d) B3 25,660 23,864
Fonorola, Inc. 12 1/2%, 8/15/02 B2 7,180 7,988
Grupo Iusacell SA 10%, 7/15/04 (f) B2 9,260 8,982
McCaw International Ltd. 0%, 4/15/07 (d) CCC 55,000 31,900
Metrocall, Inc. 9 3/4%, 11/1/07 (f) B3 8,540 8,433
Microcell Telecommunications, Inc.
0%, 6/1/06 (d) B3 9,150 6,131
Millicom International Cellular SA
0%, 6/1/06 (d) B3 27,530 20,648
Nextel Communications, Inc. (d):
0%, 9/1/03 B3 32,150 31,186
0%, 9/15/07 (f) B3 21,371 12,395
Pagemart Nationwide, Inc.
0%, 2/1/05 (d) - 4,600 3,795
Pagemart, Inc. 0%, 11/1/03 (d) - 1,920 1,747
Rogers Communications, Inc.
8 7/8%, 7/15/07 B2 7,450 7,376
Telesystem International Wireless, Inc. (d)(f):
0%, 6/30/07 Caa1 19,730 11,836
0%, 11/1/07 Caa1 4,970 2,634
178,915
TELEPHONE SERVICES - 9.4%
American Communications Services, Inc.:
0%, 11/1/05 (d) - 5,680 3,976
0%, 4/1/06 - 1,620 1,085
13 3/4%, 7/15/07 (f) - 3,240 3,596
Brooks Fiber Properties, Inc.:
0%, 3/1/06 (d) - 4,570 3,713
11 7/8%, 11/1/06 - 10,800 8,451
10%, 6/1/07 - 6,940 7,877
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
GCI, Inc. 9 3/4%, 8/1/07 B2 $ 5,920 $ 6,038
Hermes Europe Railtel BV
11 1/2%, 8/15/07 (f) B3 6,540 7,047
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) - 14,050 9,554
12 1/4%, 9/1/04 (f) - 9,790 10,377
ITC Deltacom, Inc. 11%, 6/1/07 (f) - 8,870 9,447
McLeodUSA, Inc. 9 1/4%, 7/15/07 (f) B3 12,240 12,577
NEXTLINK Communications, Inc.:
12 1/2%, 4/15/06 B3 28,040 31,545
9 5/8%, 10/1/07 B3 10,120 10,209
Qwest Communications International, Inc.:
10 7/8%, 4/1/07 B2 17,170 19,059
0%, 10/15/07 (d)(f) B2 17,190 11,002
RCN Corp. (f):
0%, 10/15/07 (d) B3 18,730 10,863
10%, 10/15/07 B3 15,560 15,366
RSL Communications Ltd. /RSL Communications
PLC 12 1/4%, 11/15/06 Caa1 20,830 22,602
Source Media, Inc. 12%, 11/1/04 (f) B3 4,080 4,090
Teleport Communications Group, Inc.:
9 7/8%, 7/1/06 B1 7,680 8,371
0%, 7/1/07 (d) B1 44,520 34,835
Transtel SA 12 1/2%, 11/1/07 (f) B2 11,470 10,667
Winstar Equipment 12 1/2%, 3/15/04 B3 7,950 8,288
270,635
TOTAL UTILITIES 449,550
TOTAL NONCONVERTIBLE BONDS 1,972,162
TOTAL CORPORATE BONDS
(Cost $1,909,853) 1,973,212
COMMERCIAL MORTGAGE SECURITIES - 1.1%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Bardell Associates Note Trust 12 1/2%,
11/1/08 (e) - $ 1,785 $ 1,897
CS First Boston Mortgage Securities Corp.
Series 1995-AEWI Class E,
9.7579%, 11/25/97 (f) (g) - 1,650 1,672
First Chicago/Lennar Trust I Series 1997-CHL1
Class E, 8.1217%, 2/28/11 (g) - 10,700 9,021
Merrill Lynch Mortgage Investments, Inc.
Series 1994 Class M1-E, 8.1029%,
6/25/22 (f) (g) Ba2 4,370 4,433
Structured Asset Securities Corp. (f):
Series 1995-C1 Class E, 7 3/8%,
9/25/24 BB 4,000 3,683
Series 1996-CFL Class G, 7 3/4%,
2/25/28 - 8,060 7,175
SML, Inc. Series 1994-C1 Class C,
9.20%, 9/18/99 (e) - 2,950 2,685
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $26,207) 30,566
FOREIGN GOVERNMENT OBLIGATIONS (I) - 0.2%
Mexico Value recovery rights
6/30/03 discount D - 1 -
United Mexican States global bond
11 1/2%, 5/15/26 Ba2 5,000 5,425
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $6,088) 5,425
COMMON STOCKS - 5.8%
SHARES
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.0%
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 125
Trivest 1992 Special Fund Ltd. 3.0 (h) 359
Foamex-JPS Automotive LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a) 15,350 368
Sterling Chemical Holdings warrants 8/15/08 (a) 8,460 321
1,173
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings Ltd. warrants 10/15/03 (a) 2,010 $ -
Gaylord Container Corp. Class A (a) 454,100 3,008
3,008
PAPER & FOREST PRODUCTS - 0.1%
Mail-Well Holdings, Inc. (a)(f) 46,877 1,617
TOTAL BASIC INDUSTRIES 5,798
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Capital Pacific Holdings, Inc. warrants 5/1/02 (a)(f) 24,095 24
DURABLES - 0.0%
TEXTILES & APPAREL - 0.0%
Arena Brands Holdings Corp. Class B 34,000 1,373
Hat Brands, Inc. Class I unit (a)(e) 410,000 -
TOTAL DURABLES 1,373
ENERGY - 0.9%
ENERGY SERVICES - 0.2%
Cliffs Drilling Co. (a) 75,800 5,510
OIL & GAS - 0.7%
Ocean Energy, Inc. (a) 191,500 11,825
Pioneer Natural Resources Co. 235,769 9,445
21,270
TOTAL ENERGY 26,780
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 900 90
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
XRC Corp. (a) 84,961 $ 1
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Echostar Communications Corp. Class A (a) 507,537 9,643
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Thermadyne Holdings Corp. (a) 14,085 423
POLLUTION CONTROL - 0.0%
Allied Waste Industries, Inc. (a) 40,000 815
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 10,881
MEDIA & LEISURE - 2.2%
BROADCASTING - 1.1%
Adelphia Communications Class A (a) 109,300 1,544
Chancellor Media Corp. (a) 99,273 5,448
CS Wireless Systems, Inc. (a)(f) 439 -
Jacor Communications, Inc. Class A (a) 111,400 4,665
PanAmSat Corp. (a) 102,701 4,301
Paxson Communications Corp. (a) 655,500 7,374
Pegasus Communications Corp. unit 6,509 7,209
Telemundo Group, Inc. Class A (a) 55,000 1,788
32,329
ENTERTAINMENT - 0.4%
Livent, Inc. (a) 125,200 1,156
Viacom, Inc. Class B (non-vtg.) (a) 313,500 9,483
10,639
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I, warrants 11/14/99 (a)(f) 1,460 88
LODGING & GAMING - 0.6%
Host Marriott Corp. (a) 385,800 8,054
Showboat, Inc. 398,100 7,912
15,966
PUBLISHING - 0.1%
Hollinger International, Inc. Class A 265,400 3,467
TOTAL MEDIA & LEISURE 62,489
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 0.4%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a):
(New) 35,870 $ 3
warrants 6/10/99 66,214 -
3
RETAIL & WHOLESALE, MISCELLANEOUS - 0.4%
Corporate Express, Inc. 728,700 10,703
TOTAL RETAIL & WHOLESALE 10,706
SERVICES - 0.5%
LEASING & RENTAL - 0.1%
Hollywood Entertainment Corp. (a) 281,580 3,449
SERVICES - 0.4%
Orion Network Systems, Inc. (a):
warrants 1/15/07 18,480 240
warrants 1/15/07 19,560 215
Protection One, Inc. (a) 518,600 9,335
9,790
TOTAL SERVICES 13,239
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Intermedia Communications Florida, Inc. warrants 6/1/00 (a) 2,500
175
ELECTRONIC INSTRUMENTS - 0.0%
Berg Electronics Corp. (a) 12,496 292
TOTAL TECHNOLOGY 467
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. warrants 12/15/00 (a) 5,520 18
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - 1.2%
CELLULAR - 0.7%
McCaw International Ltd. warrants 4/15/07 (a)(f) 55,000 $ 138
Microcell Telecommunications, Inc. (a):
warrants 6/1/06 183,560 3,488
conditional warrants 6/1/06 183,560 2
Nextel Communications, Inc. (a):
Class A 306,587 8,047
warrants 12/15/98 5,494 1
Powertel, Inc. warrants 2/1/06 (a) 85,408 790
Telesystem International Wireless, Inc. (sub-vtg.) (a) 400,000 6,319
18,785
ELECTRIC UTILITY - 0.1%
AES Corp. (a) 82,200 3,257
Niagara Mohawk Power Corp. (a) 93,300 904
4,161
TELEPHONE SERVICES - 0.4%
Hyperion Telecommunications, Inc. warrants
4/15/01 (a)(f) 14,050 1,054
RSL Communications Ltd. /RSL Communications PLC
warrants 11/15/06 (a) 25,710 2,365
Source Media, Inc. unit (f) 86 2,193
Winstar Communications, Inc. (a) 50,000 1,144
WorldCom, Inc. (a) 175,300 5,894
12,650
TOTAL UTILITIES 35,596
TOTAL COMMON STOCKS
(Cost $134,403) 167,462
PREFERRED STOCKS - 17.8%
CONVERTIBLE PREFERRED STOCKS - 0.2%
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Prime Retail, Inc., Series B, $2.125 160,000 3,910
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
Benedek Communications Corp. 15% 15,472 $ 1,888
TOTAL CONVERTIBLE PREFERRED STOCKS 5,798
NONCONVERTIBLE PREFERRED STOCKS - 17.6%
BASIC INDUSTRIES - 0.2%
PAPER & FOREST PRODUCTS - 0.2%
SDW Holdings Corp. 15% (f) 182,800 6,672
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd., Series 1, adj. rate 33,881 103
FINANCE - 0.4%
CREDIT & OTHER FINANCE - 0.4%
American Annuity Group Capital Trust II 8 3/4% 10,340 10,965
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT - 0.3%
Fresenius Medical Care Capital Trust 9% 9,847 10,216
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.4%
Ampex Corp. 8% (e) 584 454
Echostar Communications Corp. 12 1/8%, pay-in-kind 10,250 10,455
10,909
MEDIA & LEISURE - 10.0%
BROADCASTING - 9.2%
Adelphia Communications Corp. 13% (f) 134,481 15,331
American Radio Systems Corp. 11 3/8%, pay-in-kind 138,612 15,923
Cablevision Systems Corp.:
11 1/8%, depositary shares pay-in-kind 218,301 24,013
Series H, $11.75, pay-in-kind 229,579 25,942
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
CapStar Broadcasting Partners, Inc. 12%, pay-in-kind 126,563 $
13,922
Chancellor Media Corp.:
12%, pay-in-kind (f) 82,552 9,493
Series A, $12.25 160,700 21,855
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 12,724 13,360
NTL, Inc. 13%, pay-in-kind 10,907 11,998
SFX Broadcasting, Inc. 12 5/8% 333,948 38,070
Spanish Broadcasting Systems, Inc. 14 1/4%,
pay-in-kind (f) 1,066 1,122
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 63,986 73,904
264,933
PUBLISHING - 0.8%
K-III Communications Corp.:
Series D, $10 153,157 15,699
Series E, 9.20% (f) 76,000 7,486
23,185
TOTAL MEDIA & LEISURE 288,118
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Revlon Group, Inc., Series B, 14 7/8% 23,243 2,348
RETAIL & WHOLESALE - 0.4%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. $3.52 pay-in-kind 116,319 2,355
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
J Crew Operation Corp. 14 1/2%, pay-in-kind (e) 10,500 10,658
TOTAL RETAIL & WHOLESALE 13,013
TECHNOLOGY - 1.7%
COMMUNICATIONS EQUIPMENT - 1.7%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 41,945 48,656
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - 4.1%
CELLULAR - 1.3%
Nextel Communications Corp. 13%, pay-in-kind (f) 34,646 $ 37,937
TELEPHONE SERVICES - 2.8%
American Communications Services, Inc. 12 3/4%,
pay-in-kind (f) 4,972 4,674
Hyperion Telecommunication, Inc. 12 7/8%,
pay-in-kind (f) 21,090 20,457
ICG Holdings, Inc. 14 1/4%, pay-in-kind 16,006 18,327
IXC Communications, Inc. 12 1/2%, pay-in-kind (f) 11,704 13,021
NEXTLINK Communications, Inc.14%, pay-in-kind 400,131 23,608
80,087
TOTAL UTILITIES 118,024
TOTAL NONCONVERTIBLE PREFERRED STOCKS 509,024
TOTAL PREFERRED STOCKS
(Cost $484,559) 514,822
PURCHASED BANK DEBT - 0.1%
PRINCIPAL
AMOUNT (000S)
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $1,423) $ 1,860 $ 1,776
CASH EQUIVALENTS - 6.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account dated
10/31/97 due 11/3/97:
at 5.68% $ 176,293 176,210
at 5.60% 14,807 14,800
TOTAL CASH EQUIVALENTS
(Cost $191,010) 191,010
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,753,543) $ 2,884,273
LEGEND
1. Non-income producing
2. Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
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 COST
SECURITY DATE (000S)
Ampex Corp. 8% 2/16/95 $ 307
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 10
Bardell Associates Note
Trust 12 1/2%,
11/1/08 4/19/94 $ 1,815
Hat Brands, Inc.
Class I unit 2/22/94 $ 410
J Crew Operation Corp.
14 1/2% pay-in-kind 10/30/97 $ 10,658
SML, Inc.
Series 1994-C1
Class C, 9.20%,
9/18/99 8/11/94 1,918
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 $646,388,000 or
22.1% of net assets.
7. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
8. Represents number of units held.
9. For foreign government obligations not 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 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 2.3%
Ba 3.8% BB 3.1%
B 50.2% B 49.5%
Caa 8.4% CCC 7.2%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 3.6%. FMR has
determined that unrated debt securities that are lower quality account
for 3.6% of the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $2,754,240,000. Net unrealized appreciation
aggregated $130,033,000, of which $160,777,000 related to appreciated
investment securities and $30,744,000 related to depreciated
investment securities.
The fund hereby designates approximately $5,255,000 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, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 2,884,273
AGREEMENTS OF $191,010) (COST $2,753,543) -
SEE ACCOMPANYING SCHEDULE
CASH 6,209
RECEIVABLE FOR INVESTMENTS SOLD 47,171
DIVIDENDS RECEIVABLE 474
INTEREST RECEIVABLE 41,188
OTHER RECEIVABLES 182
TOTAL ASSETS 2,979,497
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 50,825
DISTRIBUTIONS PAYABLE 3,849
ACCRUED MANAGEMENT FEE 1,473
DISTRIBUTION FEES PAYABLE 939
OTHER PAYABLES AND ACCRUED EXPENSES 817
TOTAL LIABILITIES 57,903
NET ASSETS $ 2,921,594
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,675,379
UNDISTRIBUTED NET INVESTMENT INCOME 42,691
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 72,794
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 130,730
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS $ 2,921,594
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $12.93
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($44,236 (DIVIDED BY) 3,422 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $12.93) $13.57
CLASS T: $12.94
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,208,173 (DIVIDED BY) 170,712 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $12.94) $13.41
CLASS B: $12.89
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($593,358 (DIVIDED BY) 46,015 SHARES) A
INSTITUTIONAL CLASS: $12.71
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($75,827 (DIVIDED BY) 5,964 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>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 35,386
DIVIDENDS
INTEREST 210,444
TOTAL INCOME 245,830
EXPENSES
MANAGEMENT FEE $ 14,787
TRANSFER AGENT FEES 4,786
DISTRIBUTION FEES 9,101
ACCOUNTING FEES AND EXPENSES 822
NON-INTERESTED TRUSTEES' COMPENSATION 20
CUSTODIAN FEES AND EXPENSES 88
REGISTRATION FEES 375
AUDIT 103
LEGAL 18
INTEREST 3
MISCELLANEOUS 91
TOTAL EXPENSES BEFORE REDUCTIONS 30,194
EXPENSE REDUCTIONS (99) 30,095
NET INVESTMENT INCOME 215,735
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 84,552
FOREIGN CURRENCY TRANSACTIONS (1) 84,551
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 55,926
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (45) 55,881
NET GAIN (LOSS) 140,432
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 356,167
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 215,735 $ 155,775
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 84,551 25,944
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 55,881 25,347
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 356,167 207,066
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (210,159) (147,602)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (10,591) -
TOTAL DISTRIBUTIONS (220,750) (147,602)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 691,063 679,298
TOTAL INCREASE (DECREASE) IN NET ASSETS 826,480 738,762
NET ASSETS
BEGINNING OF PERIOD 2,095,114 1,356,352
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,921,594 $ 2,095,114
INCOME OF $42,691 AND $28,145, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1997 1996 E
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.300 $ 12.010
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D 1.058 .163
NET REALIZED AND UNREALIZED GAIN (LOSS) .710 .267
TOTAL FROM INVESTMENT OPERATIONS 1.768 .430
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.078) (.140)
FROM NET REALIZED GAIN (.060) -
TOTAL DISTRIBUTIONS (1.138) (.140)
NET ASSET VALUE, END OF PERIOD $ 12.930 $ 12.300
TOTAL RETURN B, C 15.18% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 44 $ 4
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.15% 1.25% A,
G
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 1.14% F 1.25% A
RATIO OF NET INTEREST INCOME TO AVERAGE NET ASSETS 8.58% 9.06% A
PORTFOLIO TURNOVER RATE 105% 121%
AVERAGE COMMISSION RATE H $ .0431 $ .0388
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS CLASS - T
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 D 1993
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 12.310 $ 11.910 $ 11.220 $ 12.010 $ 11.070
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME 1.086 C 1.105 C .930 C .848 .980
NET REALIZED AND .686 .364 .680 (.537) 1.153
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT 1.772 1.469 1.610 .311 2.133
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.082) (1.069) (.920) (.851) (.963)
FROM NET REALIZED GAIN (.060) - - (.250) (.230)
TOTAL DISTRIBUTIONS (1.142) (1.069) (.920) (1.101) (1.193)
NET ASSET VALUE, END OF PERIOD $ 12.940 $ 12.310 $ 11.910 $ 11.220 $ 12.010
TOTAL RETURN A, B 15.21% 12.92% 15.05% 2.64% 20.47%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,208 $ 1,709 $ 1,200 $ 680 $ 486
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.09% 1.12% 1.15% 1.20% 1.11%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET 1.08% E 1.11% E 1.15% 1.20% 1.11%
ASSETS AFTER EXPENSE REDUCTIONS
RATIO OF NET INTEREST INCOME 8.72% 9.20% 8.32% 6.92% 8.09%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 105% 121% 112% 118% 79%
AVERAGE COMMISSION RATE F $ .0431 $ .0388
</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 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES." AS A RESULT, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS CLASS - B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 D
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.280 $ 11.890 $ 11.210 $ 11.300
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .998 C 1.017 C .794 C .223
NET REALIZED AND UNREALIZED GAIN (LOSS) .674 .361 .721 (.118)
TOTAL FROM INVESTMENT OPERATIONS 1.672 1.378 1.515 .105
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.002) (.988) (.835) (.195)
FROM NET REALIZED GAIN (.060) - - -
TOTAL DISTRIBUTIONS (1.062) (.988) (.835) (.195)
NET ASSET VALUE, END OF PERIOD $ 12.890 $ 12.280 $ 11.890 $ 11.210
TOTAL RETURN B 14.34% 12.10% 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 593 $ 344 $ 156 $ 17
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.74% 1.79% 2.01% 2.20%
A
RATIO OF NET INTEREST INCOME TO AVERAGE 8.04% 8.52% 7.46% 5.92%
NET ASSETS A
PORTFOLIO TURNOVER RATE 105% 121% 112% 118%
AVERAGE COMMISSION RATE E $ .0431 $ .0388
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO OCTOBER 31, 1994.
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED OCTOBER 31,
1997 1996 1995 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.120 $ 11.760 $ 11.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D 1.094 1.070 .390
NET REALIZED AND UNREALIZED GAIN (LOSS) .671 .368 .193
TOTAL FROM INVESTMENT OPERATIONS 1.765 1.438 .583
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.115) (1.078) (.383)
FROM NET REALIZED GAIN (.060) - -
TOTAL DISTRIBUTIONS (1.175) (1.078) (.383)
NET ASSET VALUE, END OF PERIOD $ 12.710 $ 12.120 $ 11.760
TOTAL RETURN B, C 15.42% 12.81% 5.07%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 76 $ 38 $ 0.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS .85% 1.10% .70%
A
RATIO OF EXPENSES TO AVERAGE NET ASSETS .85% 1.05% .70%
AFTER EXPENSE REDUCTIONS F A
RATIO OF NET INTEREST INCOME TO AVERAGE NET ASSETS 8.96% 9.26% 8.77%
A
PORTFOLIO TURNOVER RATE 105% 121% 112%
AVERAGE COMMISSION RATE G $ .0431 $ .0388
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
19. 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 T, Class B, and Institutional Class
shares, each of which has equal rights as to assets and voting
privileges. Each class has exclusive voting rights with respect to its
distribution plan. Investment income, realized and unrealized capital
gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market
(sales prices if the principal market is an exchange) in which such
securities are normally traded. Equity securities for which quotations
are readily available are valued at the last sale price, or if no sale
price, at the closing bid price. Securities (including restricted
securities) for which market quotations are not readily available are
valued primarily using dealer-supplied quotes 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 with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, 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."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain. The fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a
portion of interest has become doubtful based on consistently applied
procedures, under the general supervision of the Board of Trustees of
the fund. A debt obligation is removed from non-accrual status when
the issuer resumes interest payments or when collectibility of
interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
between the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date. Income dividends
and capital gain distributions are declared separately for each class.
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
differing treatments for paydown gains/losses on certain securities,
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.
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.
20. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. Certain funds use foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
2. OPERATING POLICIES - CONTINUED
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 $15,819,000 or 0.5% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,776,000 or 0.1% of net
assets.
21. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,067,494,000 and $2,414,952,000, respectively.
22. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .59% 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 each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
G .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 29,000 $ 29,000
CLASS T 4,930,000 4,930,000
CLASS B 4,142,000 1,151,000
$ 9,101,000 $ 6,110,000
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares (4.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, and the proceeds of a contingent
deferred sales charge levied on Class B share redemptions occurring
within six years of purchase (five years prior to January 2, 1997).
The Class B charge is based on declining rates which range from 5% to
1%(4% to 1% prior to January 2, 1997) 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 the following sales charge amounts
related to each class, a portion of which is paid to securities,
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 609,000 $ 447,000
CLASS T 2,978,000 1,999,000
CLASS B 1,076,000 0 *
$ 4,663,000 $ 2,446,000
H WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO DEALERS THROUGH
WHICH THE SALES ARE MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 42,000 .21
CLASS T FIIOC * 3,761,000 .19
CLASS B FIIOC * 888,000 .19
INSTITUTIONAL FIIOC * 95,000 .17
CLASS
$ 4,786,000
I FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC)
AN AFFILIATE OF FMR.
ACCOUNTING FEES. Fidelity Service Company, Inc. (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 $13,000 for the
period.
23. 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 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
balances during the period for which loans were outstanding amounted
to $12,788,000 and $10,358,000, respectively. The weighted average
interest rate was 5.83%.
24. EXPENSE REDUCTIONS.
FMR has also 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 $49,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and each class' transfer agent whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of expenses.
During the period, the fund's custodian fees were reduced by $43,000
under the custodian arrangement, and each applicable class' expenses
were reduced as follows under the transfer agent arrangements:
TRANSFER
AGENT
INTEREST CREDITS
CLASS T $ 6,000
CLASS B 1,000
$ 7,000
25. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
AMOUNTS IN THOUSANDS 1997 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 1,492 $ 21
FROM NET REALIZED GAIN 32 -
TOTAL $ 1,524 $ 21
CLASS T
FROM NET INVESTMENT INCOME $ 168,378 $ 126,490
FROM NET REALIZED GAIN 8,606 -
TOTAL $ 176,984 $ 126,490
CLASS B
FROM NET INVESTMENT INCOME $ 35,586 $ 19,788
FROM NET REALIZED GAIN 1,771 -
TOTAL $ 37,357 $ 19,788
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME $ 4,703 $ 1,303
FROM NET REALIZED GAIN 182 -
TOTAL $ 4,885 $ 1,303
$ 220,750 $ 147,602
J DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
26. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNT IN THOUSANDS SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 3,449 320 $ 43,286 $ 3,920
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 89 1 1,128 14
SHARES REDEEMED (430) (7) (5,420) (86)
NET INCREASE (DECREASE) 3,108 314 $ 38,994 $ 3,848
CLASS T 79,054 91,099 $ 982,916 $ 1,097,837
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 10,932 7,820 135,681 94,206
SHARES REDEEMED (58,169) (60,831) (724,770) (733,452)
NET INCREASE (DECREASE) 31,817 38,088 $ 393,827 $ 458,591
CLASS B 25,512 21,079 $ 317,577 $ 255,498
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 1,929 1,065 23,896 12,810
SHARES REDEEMED (9,476) (7,197) (118,144) (88,123)
NET INCREASE (DECREASE) 17,965 14,947 $ 223,329 $ 180,185
INSTITUTIONAL CLASS 6,258 5,514 $ 76,404 $ 65,404
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 342 94 4,195 1,124
SHARES REDEEMED (3,741) (2,514) (45,686) (29,854)
NET INCREASE (DECREASE) 2,859 3,094 $ 34,913 $ 36,674
</TABLE>
K SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 30, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
27. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 34,000
CLASS T 235,000
CLASS B 82,000
INSTITUTIONAL CLASS 24,000
$ 375,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor High Yield Fund:
We have audited the accompanying statements of assets and liabilities
of Fidelity Advisor Series II: Fidelity Advisor High Yield Fund,
including the schedule of portfolio investments, as of October 31,
1997, 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 of Class A, Class
B, Class T and Institutional Class for each of the periods indicated
therein. 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, 1997 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, 1997, 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 of
Class A, Class B, Class T and Institutional Class for each of the
periods indicated therein, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND
COOPERS & LYBRAND
Boston, Massachusetts
December 12, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor High Yield 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
Institutional Class 12/8/97 12/5/97 $0.00 $0.30
A total of 12% of the dividends distributed by Institutional Class
during the fiscal year qualifies for the dividends-received deduction
for corporate shareholders.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 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
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Margaret L. Eagle, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International
Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
SHORT FIXED-INCOME
FUND - CLASS A AND CLASS T
ANNUAL REPORT
OCTOBER 31, 1997
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 25 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 32 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 39 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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class A shares
took place on September 3, 1996. Class A shares bear a 0.15% 12b-1
fee. Returns prior to September 3, 1996 are those of Class T, the
original class of the fund, and reflect Class T's 0.15% 12b-1 fee. If
Fidelity had not reimbursed certain class expenses, the total returns
and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR SHORT FIXED-INCOME - CLASS A 5.64% 28.50% 95.13%
ADVISOR SHORT FIXED-INCOME - CLASS A 4.05% 26.57% 92.20%
(INCL. MAX. 1.50% SALES CHARGE)
LEHMAN BROTHERS 1-3 YEAR 6.51% 31.92% 104.23%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.12% 30.53% 98.65%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 the performance of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index - a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues with maturities between one and three years. To
measure how Class A's performance stacked up against its peers, you
can compare it to the short investment grade debt funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past one year average
represents a peer group of 100 mutual funds. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR SHORT FIXED-INCOME - CLASS A 5.64% 5.14% 6.91%
ADVISOR SHORT FIXED-INCOME - CLASS A 4.05% 4.83% 6.75%
(INCL. MAX. 1.50% SALES CHARGE)
LEHMAN BROTHERS 1-3 YEAR 6.51% 5.70% 7.40%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.12% 5.47% 7.09%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' cumulative return
and show you what would have happened if Class A shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 110009 S00000000000001
FA Short Fixed Inc -CL A LB 1-3 Year Govt/Corp
00263 LB013
1987/10/31 9850.00 10000.00
1987/11/30 9918.84 10066.74
1987/12/31 9978.70 10136.70
1988/01/31 10109.76 10289.44
1988/02/29 10209.94 10379.28
1988/03/31 10242.49 10402.39
1988/04/30 10254.98 10416.19
1988/05/31 10247.38 10412.01
1988/06/30 10351.18 10516.30
1988/07/31 10352.56 10523.68
1988/08/31 10395.58 10550.31
1988/09/30 10499.37 10672.57
1988/10/31 10594.31 10780.07
1988/11/30 10563.34 10754.40
1988/12/31 10595.92 10779.10
1989/01/31 10682.28 10865.74
1989/02/28 10701.15 10868.31
1989/03/31 10754.96 10912.27
1989/04/30 10871.70 11089.40
1989/05/31 11020.02 11246.95
1989/06/30 11199.36 11454.56
1989/07/31 11390.03 11625.27
1989/08/31 11308.74 11559.49
1989/09/30 11367.09 11627.52
1989/10/31 11536.38 11808.82
1989/11/30 11626.99 11914.39
1989/12/31 11688.06 11961.56
1990/01/31 11661.60 11974.07
1990/02/28 11708.75 12037.61
1990/03/31 11770.71 12075.79
1990/04/30 11781.44 12105.96
1990/05/31 11966.60 12293.03
1990/06/30 12059.18 12422.99
1990/07/31 12202.00 12573.48
1990/08/31 12182.47 12618.08
1990/09/30 12212.85 12712.75
1990/10/31 12181.68 12843.99
1990/11/30 12258.40 12969.45
1990/12/31 12374.05 13121.23
1991/01/31 12336.85 13239.96
1991/02/28 12464.84 13335.58
1991/03/31 12687.43 13432.49
1991/04/30 12872.10 13564.05
1991/05/31 13003.48 13648.76
1991/06/30 13067.05 13699.46
1991/07/31 13156.82 13819.79
1991/08/31 13377.67 14007.19
1991/09/30 13516.07 14158.00
1991/10/31 13666.94 14310.42
1991/11/30 13805.19 14455.14
1991/12/31 14028.61 14673.66
1992/01/31 14086.15 14658.58
1992/02/29 14181.11 14705.11
1992/03/31 14247.31 14701.90
1992/04/30 14339.72 14836.35
1992/05/31 14488.37 14975.29
1992/06/30 14621.54 15128.35
1992/07/31 14803.36 15305.80
1992/08/31 14929.07 15429.34
1992/09/30 15052.55 15575.34
1992/10/31 14957.02 15481.65
1992/11/30 14963.99 15459.83
1992/12/31 15095.62 15605.83
1993/01/31 15324.38 15772.37
1993/02/28 15510.83 15901.04
1993/03/31 15610.42 15952.70
1993/04/30 15689.42 16052.82
1993/05/31 15756.01 16016.24
1993/06/30 15914.22 16137.53
1993/07/31 16008.35 16174.43
1993/08/31 16165.40 16309.84
1993/09/30 16221.24 16362.47
1993/10/31 16322.23 16400.65
1993/11/30 16389.40 16405.47
1993/12/31 16528.80 16471.89
1994/01/31 16631.92 16576.82
1994/02/28 16496.20 16476.38
1994/03/31 16118.36 16391.67
1994/04/30 16033.38 16329.42
1994/05/31 16129.92 16351.56
1994/06/30 16002.97 16394.56
1994/07/31 16148.94 16543.77
1994/08/31 16280.04 16599.60
1994/09/30 16273.78 16562.70
1994/10/31 16286.20 16600.56
1994/11/30 16314.17 16530.93
1994/12/31 15971.92 16562.38
1995/01/31 16090.75 16789.89
1995/02/28 16290.13 17022.21
1995/03/31 16375.76 17118.79
1995/04/30 16509.08 17273.78
1995/05/31 16806.11 17572.84
1995/06/30 16885.25 17668.46
1995/07/31 16947.45 17739.06
1995/08/31 17048.10 17846.55
1995/09/30 17129.92 17934.80
1995/10/31 17271.37 18083.69
1995/11/30 17411.49 18239.31
1995/12/31 17539.56 18377.62
1996/01/31 17668.65 18534.85
1996/02/29 17607.52 18464.25
1996/03/31 17574.66 18450.78
1996/04/30 17576.80 18469.39
1996/05/31 17615.18 18512.07
1996/06/30 17744.02 18647.48
1996/07/31 17798.84 18720.00
1996/08/31 17854.39 18788.99
1996/09/30 17993.02 18960.98
1996/10/31 18184.82 19175.01
1996/11/30 18316.09 19318.77
1996/12/31 18254.21 19321.97
1997/01/31 18330.31 19415.35
1997/02/28 18379.66 19463.48
1997/03/31 18358.25 19448.40
1997/04/30 18511.50 19607.88
1997/05/31 18627.74 19744.90
1997/06/30 18742.37 19882.24
1997/07/31 18960.68 20103.00
1997/08/31 18976.45 20121.94
1997/09/30 19111.37 20276.92
1997/10/31 19210.20 20422.92
IMATRL PRASUN SHR__CHT 19971031 19971113 110013 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class A on
October 31, 1987, and the current maximum 1.50% sales charge was paid.
As the chart shows, by October 31, 1997, the value of the investment
would have grown to $19,220 - a 92.20% increase on the initial
investment. For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $20,423 - a 104.23% 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.28% 6.35% 6.16% A 5.82% A 7.72%
CAPITAL APPRECIATION RETURN -0.64% -1.06% -0.11% -6.04% 1.41%
TOTAL RETURN 5.64% 5.29% 6.05% -0.22% 9.13%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.81(CENTS) 28.50(CENTS) 57.09(CENTS)
ANNUALIZED DIVIDEND RATE 6.09% 6.09% 6.15%
30-DAY ANNUALIZED YIELD 5.51% - -
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 $9.30 over the past one month, $9.29 over the past six
months, and $9.29 over the past one year, you can compare the class'
income over these three periods. The 30-day annualized YIELD is a
standard formula for all funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It
also helps you compare funds from different companies on an equal
basis. The offering share price used in the calculation of the yield
includes the effect of Class A's current maximum 1.50% sales charge.
A DIVIDENDS PAID ARE BASED ON THE CLASS' INVESTMENT INCOME AND DO NOT
REFLECT CURRENCY RELATED LOSSES. AS A RESULT OF CURRENCY LOSSES, CLASS
T (THE ORIGINAL CLASS OF THE FUND) DIVIDENDS PAID DURING 1995 OF
APPROXIMATELY 15.4(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF
CAPITAL. CLASS T (THE ORIGINAL CLASS OF THE FUND) DIVIDENDS PAID
DURING 1994 OF APPROXIMATELY 8.0(CENTS) PER SHARE WERE A NON-TAXABLE
RETURN OF CAPITAL.
FIDELITY ADVISOR SHORT FIXED-INCOME FUND - CLASS T
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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses, the past 10 years total returns and dividends would
have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR SHORT FIXED-INCOME - CLASS T 5.97% 29.04% 95.95%
ADVISOR SHORT FIXED-INCOME - CLASS T 4.38% 27.11% 93.01%
(INCL. MAX. 1.50% SALES CHARGE)
LEHMAN BROTHERS 1-3 YEAR 6.51% 31.92% 104.23%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.12% 30.53% 98.65%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. 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 T's returns to the performance of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index - a market
value weighted performance benchmark for government and corporate
fixed-rate
debt issues with maturities between one and three years. To measure
how Class T's performance stacked up against its peers, you can
compare it to the short investment grade debt funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past one year average
represents a peer group of 100 mutual funds. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR SHORT FIXED-INCOME - CLASS T 5.97% 5.23% 6.96%
ADVISOR SHORT FIXED-INCOME - CLASS T 4.38% 4.91% 6.80%
(INCL. MAX. 1.50% SALES CHARGE)
LEHMAN BROTHERS 1-3 YEAR 6.51% 5.70% 7.40%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.12% 5.47% 7.09%
AVERAGE ANNUAL TOTAL RETURNS take Class T shares' cumulative return
and show you what would have happened
if Class T shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 110016 S00000000000001
FA Short Fixed Inc -CL T LB 1-3 Year Govt/Corp
00173 LB013
1987/10/31 9850.00 10000.00
1987/11/30 9918.84 10066.74
1987/12/31 9978.70 10136.70
1988/01/31 10109.76 10289.44
1988/02/29 10209.94 10379.28
1988/03/31 10242.49 10402.39
1988/04/30 10254.98 10416.19
1988/05/31 10247.38 10412.01
1988/06/30 10351.18 10516.30
1988/07/31 10352.56 10523.68
1988/08/31 10395.58 10550.31
1988/09/30 10499.37 10672.57
1988/10/31 10594.31 10780.07
1988/11/30 10563.34 10754.40
1988/12/31 10595.92 10779.10
1989/01/31 10682.28 10865.74
1989/02/28 10701.15 10868.31
1989/03/31 10754.96 10912.27
1989/04/30 10871.70 11089.40
1989/05/31 11020.02 11246.95
1989/06/30 11199.36 11454.56
1989/07/31 11390.03 11625.27
1989/08/31 11308.74 11559.49
1989/09/30 11367.09 11627.52
1989/10/31 11536.38 11808.82
1989/11/30 11626.99 11914.39
1989/12/31 11688.06 11961.56
1990/01/31 11661.60 11974.07
1990/02/28 11708.75 12037.61
1990/03/31 11770.71 12075.79
1990/04/30 11781.44 12105.96
1990/05/31 11966.60 12293.03
1990/06/30 12059.18 12422.99
1990/07/31 12202.00 12573.48
1990/08/31 12182.47 12618.08
1990/09/30 12212.85 12712.75
1990/10/31 12181.68 12843.99
1990/11/30 12258.40 12969.45
1990/12/31 12374.05 13121.23
1991/01/31 12336.85 13239.96
1991/02/28 12464.84 13335.58
1991/03/31 12687.43 13432.49
1991/04/30 12872.10 13564.05
1991/05/31 13003.48 13648.76
1991/06/30 13067.05 13699.46
1991/07/31 13156.82 13819.79
1991/08/31 13377.67 14007.19
1991/09/30 13516.07 14158.00
1991/10/31 13666.94 14310.42
1991/11/30 13805.19 14455.14
1991/12/31 14028.61 14673.66
1992/01/31 14086.15 14658.58
1992/02/29 14181.11 14705.11
1992/03/31 14247.31 14701.90
1992/04/30 14339.72 14836.35
1992/05/31 14488.37 14975.29
1992/06/30 14621.54 15128.35
1992/07/31 14803.36 15305.80
1992/08/31 14929.07 15429.34
1992/09/30 15052.55 15575.34
1992/10/31 14957.02 15481.65
1992/11/30 14963.99 15459.83
1992/12/31 15095.62 15605.83
1993/01/31 15324.38 15772.37
1993/02/28 15510.83 15901.04
1993/03/31 15610.42 15952.70
1993/04/30 15689.42 16052.82
1993/05/31 15756.01 16016.24
1993/06/30 15914.22 16137.53
1993/07/31 16008.35 16174.43
1993/08/31 16165.40 16309.84
1993/09/30 16221.24 16362.47
1993/10/31 16322.23 16400.65
1993/11/30 16389.40 16405.47
1993/12/31 16528.80 16471.89
1994/01/31 16631.92 16576.82
1994/02/28 16496.20 16476.38
1994/03/31 16118.36 16391.67
1994/04/30 16033.38 16329.42
1994/05/31 16129.92 16351.56
1994/06/30 16002.97 16394.56
1994/07/31 16148.94 16543.77
1994/08/31 16280.04 16599.60
1994/09/30 16273.78 16562.70
1994/10/31 16286.20 16600.56
1994/11/30 16314.17 16530.93
1994/12/31 15971.92 16562.38
1995/01/31 16090.75 16789.89
1995/02/28 16290.13 17022.21
1995/03/31 16375.76 17118.79
1995/04/30 16509.08 17273.78
1995/05/31 16806.11 17572.84
1995/06/30 16885.25 17668.46
1995/07/31 16947.45 17739.06
1995/08/31 17048.10 17846.55
1995/09/30 17129.92 17934.80
1995/10/31 17271.37 18083.69
1995/11/30 17411.49 18239.31
1995/12/31 17539.56 18377.62
1996/01/31 17668.65 18534.85
1996/02/29 17607.52 18464.25
1996/03/31 17574.66 18450.78
1996/04/30 17576.80 18469.39
1996/05/31 17615.18 18512.07
1996/06/30 17744.02 18647.48
1996/07/31 17798.84 18720.00
1996/08/31 17854.39 18788.99
1996/09/30 18021.52 18960.98
1996/10/31 18213.50 19175.01
1996/11/30 18344.77 19318.77
1996/12/31 18341.93 19321.97
1997/01/31 18418.17 19415.35
1997/02/28 18467.50 19463.48
1997/03/31 18446.26 19448.40
1997/04/30 18599.71 19607.88
1997/05/31 18716.39 19744.90
1997/06/30 18831.11 19882.24
1997/07/31 19050.48 20103.00
1997/08/31 19067.38 20121.94
1997/09/30 19182.18 20276.92
1997/10/31 19300.83 20422.92
IMATRL PRASUN SHR__CHT 19971031 19971113 110018 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class T on
October 31, 1987, and the current maximum 1.50% sales charge was paid.
As the chart shows, by October 31, 1997, the value of the investment
would have grown to $19,301 - a 93.01% increase on the initial
investment. For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index did over the same period. With
dividends, and capital gains, if any, reinvested, the same $10,000
would have grown to $20,423 - a 104.23% 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.29% 6.40% 6.16% A 5.82% A 7.72%
CAPITAL APPRECIATION RETURN -0.32% -0.95% -0.11% -6.04% 1.41%
TOTAL RETURN 5.97% 5.45% 6.05% -0.22% 9.13%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any,
and exclude the effects of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.78(CENTS) 28.60(CENTS) 57.23(CENTS)
ANNUALIZED DIVIDEND RATE 6.03% 6.08% 6.13%
30-DAY ANNUALIZED YIELD 5.43% - -
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 $9.34 over the past one month, $9.33 over the past six
months, and $9.33 over the past one 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 T's maximum 1.50% sales charge.
A DIVIDENDS PAID ARE BASED ON THE CLASS' INVESTMENT INCOME AND DO NOT
REFLECT CURRENCY RELATED LOSSES. AS A RESULT OF CURRENCY LOSSES, CLASS
T (THE ORIGINAL CLASS OF THE FUND) DIVIDENDS PAID DURING 1995 OF
APPROXIMATELY 15.4(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF
CAPITAL. CLASS T (THE ORIGINAL CLASS OF THE FUND) DIVIDENDS PAID
DURING 1994 OF APPROXIMATELY 8.0(CENTS) PER SHARE WERE A NON-TAXABLE
RETURN OF CAPITAL.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's primary
nemesis - rising inflation -
remained in check throughout
most of the 12 months that ended
October 31, 1997, translating into
a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 8.89% during
the period. Through the first half of
the period, bonds suffered from the
perception of an accelerating
economy and, in turn, that
inflation would make an
appearance. The Federal Reserve
Board raised a key short-term
interest rate in March, in an
attempt to curb any potential hints of
inflation. For the most part, though,
investors had been anticipating this
hike. Spurred on by encouraging
economic data, as well as the Fed's
reluctance to raise rates further,
bond markets rallied from April
through July. While some of these
gains evaporated in August - as
inflation fears cropped up again -
a strong September and October
helped ease the pain. The bond
market attracted wary stock
investors in October, as the U.S.
equity market stumbled due to
overseas developments. Treasuries,
in particular, performed well
toward the end of the period.
Relative interest-rate stability
provided a fairly positive backdrop
for mortgage-backed securities, as
the Salomon Brothers Mortgage
Index returned 8.91% over the
12-month period. Sustained
economic growth and demand for
higher yields helped corporate
bonds, as the Lehman Brothers
Corporate Bond Index returned
9.25% over the same period.
An interview with Andrew Dudley, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. HOW DID THE FUND PERFORM, ANDY?
B.D. For the 12 months that ended October 31, 1997, the fund's Class A
and Class T shares had returns of 5.64% and 5.97%, respectively.
During the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index had a return of 6.51%. The short
investment grade debt funds average, as tracked by Lipper Analytical
Services, returned 6.12% during the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The fund benefited from maintaining overweighted positions,
relative to the index, in corporate bonds, asset-backed securities and
commercial mortgage-backed securities (CMBS) - three sectors that
offered yield advantages over comparable Treasuries during the period.
Asset-backed securities are bonds backed by a pool of loans such as
credit cards, while CMBS issues are bonds backed by loans on
commercial property such as office buildings or retail malls.
Selecting strong securities and issuers in the corporate sector also
helped the fund perform reasonably well.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED DURING THE PERIOD?
A. Corporate bonds, including asset-backed securities, continued to
represent a large portion of the fund - about 68% at the end of the
period. Roughly one-third of the fund was invested in corporate
securities with ratings below single-A because I felt the companies I
selected had the most potential for credit improvement. As the rating
of a bond improves, its price increases and its yield decreases
relative to Treasuries. This is known as spread tightening, as the
yield moves closer to the yield offered by comparable Treasuries,
providing the fund and the investor a return advantage.
Q. DID YOU TARGET ANY PARTICULAR SECTORS IN THE CORPORATE BOND MARKET?
A. I focused the fund's exposure to securities with three- to
five-year maturities in the cable, telecommunications and media
industries. In fact, a large component of the fund's return came from
those areas of the corporate bond market, as the companies improved
their credit profiles and consequently benefited from increased
valuations relative to comparable Treasuries. Generally,
longer-maturity bonds - in the case of this fund, bonds with
maturities greater than three years - enjoy more price appreciation
from spread tightening than shorter-maturity bonds do. In the
shorter-maturity areas, I focused on banks and finance companies. In
combination with the longer-maturity corporate securities, these
shorter-maturity issues helped me maintain an average maturity below
three years, keeping the volatility of the fund relatively low versus
the overall bond market.
Q. HOW DID ASSET-BACKED AND MORTGAGE-BACKED SECURITIES PERFORM?
A. The fund's investments in asset-backed securities have remained
relatively stable, at about 18% of the portfolio. The bulk of the
position in this sector was invested in very high-quality securities -
mostly Aaa-rated. These asset-backed bonds - which are classified as
corporate bonds under the finance industry - were a stable component
of the fund's returns. Within the mortgage sector, I primarily focused
on CMBS bonds. The market for these securities gained considerable
acceptance among investors, leading to better returns for the issues.
At the end of the period, about 7% of the fund was invested in
mortgage-backed securities, with a majority of those assets invested
in CMBS issues.
Q. WHAT'S YOUR OUTLOOK FOR THE OVERALL BOND MARKET?
A. I think caution will be the name of the game going into the next 12
months. Given the solid performance of many of the spread sectors -
meaning segments of the fixed-income market that can offer yield
advantages, or spreads, over comparable Treasuries - I think there's
less room for them to do much better in the near future. In light of
this, I take comfort in the fact that more than 61% of the fund was
invested in securities that are A-rated or better. Going forward, I
intend to be more cautious with the fund's core corporate holdings by
targeting the higher-quality issues. This is particularly true in a
period where yield advantages offered by non-Treasury securities are
so narrow.
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.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA 3 40.7
8
.
9
AA 7 5.3
.
2
A 1 16.7
5
.
1
BAA 2 26.1
7
.
1
BA 8 7.0
.
1
NOT RATED 0 1.4
.
9
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW
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, 1997
6 MONTHS AGO
YEARS 2.2 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, 1997
6 MONTHS AGO
YEARS 1.7 1.7
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 (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997 **
CORPORATE BONDS 68.8%
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS 18.9%
MORTGAGE-BACKED
SECURITIES 6.9%
FOREIGN GOVERNMENT
OBLIGATIONS 1.6%
SHORT-TERM
INVESTMENTS 2.7%
OTHER 1.1%
CORPORATE BONDS 67.1%
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS 16.4%
MORTGAGE-BACKED
SECURITIES 11.3%
FOREIGN GOVERNMENT
OBLIGATIONS 1.3%
SHORT-TERM
INVESTMENTS 2.8%
OTHER 1.1%
ROW: 1, COL: 1, VALUE: 2.1
ROW: 1, COL: 2, VALUE: 3.7
ROW: 1, COL: 3, VALUE: 2.6
ROW: 1, COL: 4, VALUE: 6.9
ROW: 1, COL: 5, VALUE: 17.9
ROW: 1, COL: 6, VALUE: 66.8
ROW: 1, COL: 1, VALUE: 2.1
ROW: 1, COL: 2, VALUE: 3.8
ROW: 1, COL: 3, VALUE: 2.3
ROW: 1, COL: 4, VALUE: 10.3
ROW: 1, COL: 5, VALUE: 15.4
ROW: 1, COL: 6, VALUE: 65.09999999999999
* FOREIGN
INVESTMENTS 4.8%
** FOREIGN
INVESTMENTS 3.8%
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 68.8%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,760,000 $ 3,975,260
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,360,000 1,494,001
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa 700,000 699,531
Pennzoil Co. 9 5/8%, 11/15/99 Baa 830,000 885,361
Tosco Corp. 7%, 7/15/00 Baa 3,150,000 3,213,567
USX Corp. 6 3/8%, 7/15/98 Baa 651,000 652,341
5,450,800
FINANCE - 38.0%
ASSET-BACKED SECURITIES - 18.3%
Capital Equipment Receivables Trust 6.57%,
3/15/01 Aa3 1,020,000 1,031,342
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 4,646,968 4,680,333
6.45%, 9/15/02 A3 1,400,000 1,389,500
5.85%, 2/15/03 A3 800,000 791,600
Caterpillar Financial Asset Trust 6.55%, 5/22/02 A3 480,000 484,350
Chase Manhattan Corp. 6.45%, 3/29/01 Aaa 2,020,000 2,026,313
Chevy Chase Auto Receivables Trust
6.20%, 3/20/04 Aaa 1,270,750 1,273,728
Contimortgage Home Equity Loan Trust 6.26%,
7/15/12 Aaa 3,750,000 3,753,516
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 634,679 639,439
Discover Card Trust 7 1/2%, 6/16/00 A2 650,000 654,264
Fidelity Funding Auto Trust 6.99%, 11/15/02 (c) Aaa 712,224 717,788
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 2,178,529 2,181,252
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 1,360,403 1,368,471
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 275,061 273,771
5.80%, 2/15/27 Aaa 2,702,023 2,697,781
6.10%, 4/15/27 Aaa 2,269,905 2,270,609
6.45%, 5/15/27 Aaa 1,550,000 1,555,317
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Green Tree Financial Corp.: - continued
6 1/2%, 6/15/27 Aaa $ 980,000 $ 984,586
6.65%, 7/15/27 Aaa 1,889,017 1,894,910
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 132,498 132,140
Norwest Automobile Trust 6.30%, 5/15/03 A2 1,424,000 1,430,675
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,710,000 1,702,742
6 1/8%, 11/15/04 Aaa 1,042,549 1,057,436
Onyx Acceptance Grantor Trust 6.20%, 6/15/03 Aaa 2,135,136
2,139,791
Petroleum Enhanced Trust Receivables
Offering Petroleum Trust 6.1875%, 2/5/03 (c) Baa 2,709,527
2,709,527
Premier Auto Trust:
4.95%, 2/2/99 A2 321,257 320,152
8.05%, 4/4/00 Aaa 6,200,000 6,269,774
6%, 5/6/00 Aaa 1,240,000 1,240,769
6.35%, 7/6/00 A3 1,980,000 1,984,950
Reliance Auto Receivables Corp., Inc. 6.10%,
7/15/02 (c) Aaa 1,154,345 1,154,345
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 18,741 18,724
Standard Credit Card Master Trust I:
7.65%, 2/15/00 A2 800,000 803,750
6 3/4%, 6/7/00 Aaa 4,830,000 4,851,107
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 457,164 457,450
Toyota Auto Receivables Grantor Trust 6.15%,
1/15/99 Baa 248,506 248,157
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa 179,588 180,093
7.275%, 10/10/00 Baa 186,374 187,161
8.20%, 1/10/01 Baa 204,892 207,742
Western Financial Grantor Trust:
6.20%, 2/1/02 Aaa 716,501 720,576
5 7/8%, 3/1/02 Aaa 1,672,230 1,695,780
WFS Financial Owner Trust:
6.40%, 7/20/02 Aaa 3,460,000 3,462,163
7.05%, 11/20/03 Aaa 3,160,000 3,218,594
6.90%, 12/20/03 Aaa 1,990,000 2,039,528
68,901,996
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - 8.1%
Banc One Corp. 6.70%, 3/24/00 Aa3 $ 1,600,000 $ 1,621,664
Banco Latinoamericano Exportaciones
SA euro:
6.45%, 9/13/99 (c) Baa 1,190,000 1,200,079
6.90%, 12/4/99 (c) Baa 700,000 708,316
Bank South Corp. 10.20%, 6/1/99 A3 2,000,000 2,124,600
BanPonce Corp.:
6.378%, 4/8/99 A3 1,100,000 1,101,540
6.488%, 3/3/00 A3 1,000,000 1,009,060
BanPonce Financial Corp.:
6.642%, 4/8/99 A3 1,730,000 1,748,892
7.65%, 5/3/00 A3 1,260,000 1,295,280
6.88%, 6/16/00 A3 650,000 661,999
Capital One Bank 8 1/8%, 3/1/00 Baa 2,589,000 2,695,253
First Fidelity Bancorp. 9 5/8%, 8/15/99 A2 970,000 1,029,015
First USA Bank:
5 3/4%, 1/15/99 Aa2 5,600,000 5,588,968
6 1/2%, 12/23/99 Aa2 2,200,000 2,218,568
Kansallis-Osake-Pankki 10%, 5/1/02 A3 1,000,000 1,140,440
KeyCorp. 7.45%, 4/5/00 A- 1,500,000 1,539,750
Union Planters National Bank:
6.29%, 8/20/98 A3 2,210,000 2,215,525
6.53%, 8/20/99 A3 2,400,000 2,412,000
30,310,949
CREDIT & OTHER FINANCE - 11.3%
AT&T Capital Corp.:
6.65%, 4/30/99 Baa 3,050,000 3,080,470
6.16%, 12/3/99 Baa 2,370,000 2,371,683
Aristar, Inc. 7 1/2%, 7/1/99 Baa 2,540,000 2,595,880
Associates Corp. of North America:
6 1/2%, 9/9/98 Aa3 1,380,000 1,387,687
7.35%, 7/6/99 Aa3 3,600,000 3,687,660
6 3/8%, 8/15/99 Aa3 1,500,000 1,507,500
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 642,700
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 2,300,000 2,310,350
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa 2,506,442 2,538,524
Finova Capital Corp.:
6.38%, 4/15/99 Baa 3,000,000 3,022,230
6.27%, 9/29/00 Baa 1,730,000 1,737,612
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
General Motors Acceptance Corp.:
5.45%, 3/1/99 A3 $ 3,650,000 $ 3,623,684
6.55%, 4/23/99 A3 5,840,000 5,890,808
6 3/8%, 4/26/99 A3 900,000 905,652
MCN Investment Corp. 5.84%, 2/1/99 Baa 1,640,000 1,643,772
North American Mortgage Co. 5.80%, 11/2/98 Baa 1,000,000 996,730
Salton Sea Funding Corp. 7.02%, 5/30/00 Baa 1,740,000 1,753,972
Sears, Roebuck Acceptance Corp.
6.17%, 1/29/99 A2 2,500,000 2,512,525
Union Acceptance Corp. 7.075%, 7/10/02 Baa 302,935 304,828
42,514,267
SAVINGS & LOANS - 0.3%
Long Island Savings Bank FSB Melville NY
7%, 6/13/02 Baa 970,000 972,425
TOTAL FINANCE 142,699,637
MEDIA & LEISURE - 6.8%
BROADCASTING - 6.8%
Bell Cablemedia PLC yankee:
0%, 7/15/04 (b) Baa 1,180,000 1,097,400
0%, 9/15/05 (b) Baa 1,000,000 865,000
Continental Cablevision, Inc. 8 1/2%, 9/15/01 Baa 2,960,000
3,143,106
TCI Communications, Inc.:
6 3/8%, 9/15/99 Ba1 6,000,000 6,001,140
7 3/8%, 2/15/00 Ba1 2,465,000 2,514,793
Tele-Communications, Inc. 9%, 1/2/02 Ba1 970,000 1,050,520
Time Warner, Inc.:
7.45%, 2/1/98 Ba1 2,240,000 2,246,384
7.95%, 2/1/00 Ba1 8,340,000 8,617,138
25,535,481
NONDURABLES - 3.5%
FOODS - 1.9%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa 2,250,000 2,281,298
Nabisco, Inc. 8%, 1/15/00 Baa 4,600,000 4,763,714
7,045,012
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONDURABLES - CONTINUED
TOBACCO - 1.6%
Philip Morris Companies, Inc.:
7 3/8%, 2/15/99 A2 $ 850,000 $ 862,495
7 1/8%, 12/1/99 A2 2,000,000 2,034,820
7 1/4%, 9/15/01 A2 1,900,000 1,956,145
RJR Nabisco, Inc. 8%, 1/15/00 Baa 1,320,000 1,345,806
6,199,266
TOTAL NONDURABLES 13,244,278
RETAIL & WHOLESALE - 2.6%
GENERAL MERCHANDISE STORES - 2.4%
Dayton Hudson Corp.:
10%, 12/1/00 Baa 1,070,000 1,176,786
6.80%, 10/1/01 Baa 1,950,000 1,991,828
Federated Department Stores, Inc.:
10%, 2/15/01 Baa 2,350,000 2,609,323
8 1/8%, 10/15/02 Baa 1,860,000 1,997,975
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,350,000 1,372,856
9,148,768
GROCERY STORES - 0.2%
American Stores Co.:
8 1/4%, 4/21/98 Baa 300,000 302,757
8.44%, 4/24/98 Baa 300,000 303,090
605,847
TOTAL RETAIL & WHOLESALE 9,754,615
TECHNOLOGY - 3.5%
COMPUTERS & OFFICE EQUIPMENT - 3.5%
Comdisco, Inc.:
5 3/4%, 1/19/99 Baa 2,010,000 2,009,477
6.18%, 2/12/99 Baa 1,740,000 1,748,248
6 1/2%, 4/30/99 Baa 4,250,000 4,269,465
6.86%, 7/29/99 Baa 5,210,000 5,273,562
13,300,752
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
TRANSPORTATION - 4.0%
AIR TRANSPORTATION - 4.0%
AMR Corp.:
7 3/4%, 12/1/97 Baa $ 6,810,000 $ 6,818,376
9 1/2%, 7/15/98 Baa 1,540,000 1,578,438
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa 3,370,000 3,390,355
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa 3,430,000 3,431,612
15,218,781
UTILITIES - 7.4%
CELLULAR - 0.8%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 2,770,000 2,804,487
ELECTRIC UTILITY - 1.7%
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa 2,500,000 2,508,300
Ohio Edison Co.:
8 3/4%, 2/15/98 Baa 1,190,000 1,199,115
7 3/8%, 9/15/02 Baa 1,200,000 1,243,512
Texas Utilities Electric Co. 7 3/8%, 11/1/99 Baa 1,100,000
1,126,642
United Illuminating Co. 7 3/8%, 1/15/98 Baa 450,000 451,422
6,528,991
GAS - 2.7%
Arkla, Inc.:
8.60%, 9/15/98 Ba2 500,000 508,495
8.43%, 9/17/98 Ba1 560,000 568,792
8 7/8%, 7/15/99 Baa 7,000,000 7,319,130
Florida Gas Transmission Co. 7 3/4%,
11/1/97 (c) BBB 1,630,000 1,630,000
10,026,417
TELEPHONE SERVICES - 2.2%
Brooks Fiber Properties, Inc.
11 7/8%, 11/1/06 - 2,555,000 1,999,288
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,606,000 1,710,486
7.55%, 4/1/04 Ba1 3,580,000 3,710,849
8 7/8%, 1/15/06 Ba1 811,000 884,566
8,305,189
TOTAL UTILITIES 27,665,084
TOTAL NONCONVERTIBLE BONDS
(Cost $257,766,742) 258,338,689
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 18.9%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 14.5%
5 1/2%, 11/15/98 Aaa $ 2,870,000 $ 2,866,872
5 7/8%, 1/31/99 Aaa 10,780,000 10,812,017
8 7/8%, 2/15/99 Aaa 8,130,000 8,452,680
7 3/4%, 12/31/99 Aaa 12,307,000 12,822,294
6 7/8%, 3/31/00 Aaa 2,987,000 3,065,409
5 3/4%, 10/31/00 Aaa 6,305,000 6,308,909
7 7/8%, 8/15/01 Aaa 5,270,000 5,643,011
10 3/4%, 5/15/03 Aaa 3,785,000 4,657,329
54,628,521
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.4%
Federal National Mortgage Association
4.95%, 9/30/98 Aaa 4,000,000 3,973,120
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 5,883,248 6,249,480
Class T-3, 9 5/8%, 5/15/02 Aaa 538,917 571,203
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. Government through
Export-Import Bank) Series 1994-C,
6.61%, 9/15/99 Aaa 330,728 332,936
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank) Series 1994-1,
6.88%, 1/26/03 Aaa 776,471 792,155
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,240,200 1,268,899
State of Israel (guaranteed by U.S. Government
through Agency for International Development)
7 3/4%, 11/15/99 Aaa 3,124,000 3,238,001
16,425,794
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $70,854,660) 71,054,315
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.3%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.6%
7%, 9/1/99 to 8/1/01 Aaa $ 2,077,871 $ 2,105,207
12%, 11/1/19 Aaa 163,399 187,783
2,292,990
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 605,205 686,847
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.5%
11%, 12/15/09 to 2/15/16 Aaa 3,130,719 3,519,775
11 1/2%, 8/15/13 to 11/15/15 Aaa 867,763 1,000,866
12%, 2/15/16 Aaa 1,011,383 1,183,338
5,703,979
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $8,658,207) 8,683,816
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.4%
PRIVATE SPONSOR - 0.2%
GE Capital Mortgage Services, Inc. planned
amortization class Series 1994-2 Class A-4,
6%, 1/25/09 Aaa 930,000 924,914
U.S. GOVERNMENT AGENCY - 0.2%
Federal National Mortgage Association
Series 1994-M3 Class A, 7.71%, 4/1/06 Aaa 698,156 702,519
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,624,030) 1,627,433
COMMERCIAL MORTGAGE SECURITIES - 4.2%
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 2/25/43 (c)(d) AA 2,380,000 2,387,809
Blackrock Capital Funding LLC Series 1996
Class C2, 7.5444%, 11/16/26 (c) Aaa 258,273 260,210
CBM Funding Corp. sequential pay:
Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 154,708 156,811
Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 980,000 1,000,519
Equitable Life Assurance Society of the United
States floater Series 174 Class D-2,
6.675%, 5/15/03 (c)(d) Baa 1,200,000 1,202,628
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Federal Deposit Insurance Corp. sequential pay:
Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa $ 977,158 $ 980,823
Series 1996-C1 Class 1A, 6 3/4%, 5/25/26 Aaa 2,829,249 2,833,832
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 791,155 793,627
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa 102,017 101,889
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6,
6.9213%, 7/4/03 (d) - 1,232,929 1,239,287
Oregon Commercial Mortgage, Inc.
Series 1995-1 Class A, 7.15%, 6/25/26 (c) Aaa 1,259,850 1,263,788
Resolution Trust Corp.:
floater Series 1993-C2 Class A-2,
6.5575%, 3/25/25 (d) Aaa 687,383 688,671
floater Series 1994-C1 Class A-3,
6.2375%, 6/25/26 (d) Aaa 1,452,791 1,451,883
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 24,366 24,336
Structured Asset Securities Corp. sequential pay:
Series 1993-C1 Class A-1A, 6.60%, 10/25/24 AA+ 187,646 187,616
Series 1995-C4 Class A-1A, 6.90%, 6/25/26 Aaa 225,526 224,715
Series 1996-C3 Class A, 6 3/4%, 6/25/30 (c) Aaa 853,122 857,121
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $15,659,141) 15,655,565
FOREIGN GOVERNMENT OBLIGATIONS (E) - 1.6%
Ontario Province global bond 6 1/8%, 6/28/00 Aa3 1,200,000
1,205,304
Slovenian Republic euro 7%, 8/6/01 A3 4,750,000 4,714,375
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,949,021) 5,919,679
CERTIFICATES OF DEPOSIT - 1.1%
Canadian Imperial Bank of Commerce
(NY Branch) yankee 6.20%, 8/1/00
(Cost $4,209,030) Aa3 4,200,000 4,202,100
CASH EQUIVALENTS - 2.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.68%, dated
10/31/97 due 11/3/97 $ 10,314,813 $ 10,310,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $375,030,831) $ 375,791,597
LEGEND
10. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
11. Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
12. 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
$16,630,135 or 4.4% of net assets.
13. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
14. For foreign government obligations not 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 58.5% AAA, AA, A 55.9%
Baa 27.1% BBB 36.2%
Ba 8.2% BB 3.0%
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 Moody's or S&P amounted to 0.9%.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $375,058,843. Net unrealized appreciation
aggregated $732,754, of which $1,995,968 related to appreciated
investment securities and $1,263,214 related to depreciated investment
securities.
At October 31, 1997, the fund had a capital loss carryforward of
approximately $42,980,000 of which $63,000, $286,000, $38,000,
$336,000, $17,692,000, $19,457,000, $2,265,000 and $2,843,000 will
expire on October 31, 1998, 1999, 2000, 2001, 2002, 2003, 2004 and
2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 375,791,597
AGREEMENTS OF $10,310,000) (COST $375,030,831) -
SEE ACCOMPANYING SCHEDULE
CASH 50
RECEIVABLE FOR INVESTMENTS SOLD 1,132,861
INTEREST RECEIVABLE 5,498,051
TOTAL ASSETS 382,422,559
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 2,739,539
PAYABLE FOR FUND SHARES REDEEMED 890,608
DISTRIBUTIONS PAYABLE 401,171
ACCRUED MANAGEMENT FEE 135,761
DISTRIBUTION FEES PAYABLE 45,731
OTHER PAYABLES AND ACCRUED EXPENSES 119,980
TOTAL LIABILITIES 4,332,790
NET ASSETS $ 378,089,769
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 420,952,974
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (289,348)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (43,334,623)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 760,766
NET ASSETS $ 378,089,769
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $9.31
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($19,725,547 (DIVIDED BY) 2,118,125 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.31) $9.45
CLASS T: $9.35
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($351,614,335 (DIVIDED BY) 37,598,152 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.35) $9.49
INSTITUTIONAL CLASS: $9.35
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($6,749,887 (DIVIDED BY) 721,886 SHARES)
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 27,552,087
INTEREST
EXPENSES
MANAGEMENT FEE $ 1,715,958
TRANSFER AGENT FEES 872,748
DISTRIBUTION FEES 575,361
ACCOUNTING FEES AND EXPENSES 159,567
NON-INTERESTED TRUSTEES' COMPENSATION 6,570
CUSTODIAN FEES AND EXPENSES 21,635
REGISTRATION FEES 95,376
AUDIT 42,000
LEGAL 2,373
MISCELLANEOUS 11,679
TOTAL EXPENSES BEFORE REDUCTIONS 3,503,267
EXPENSE REDUCTIONS (56,276) 3,446,991
NET INVESTMENT INCOME 24,105,096
REALIZED AND UNREALIZED GAIN (LOSS) (3,013,450)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,422,158
ON INVESTMENT SECURITIES
NET GAIN (LOSS) (1,591,292)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 22,513,804
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 24,105,096 $ 31,079,263
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (3,013,450) (66,135)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,422,158 (5,191,796)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 22,513,804 25,821,332
OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (23,879,338) (31,004,478)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (46,649,317) (125,084,667)
TOTAL INCREASE (DECREASE) IN NET ASSETS (48,014,851) (130,267,813)
NET ASSETS
BEGINNING OF PERIOD 426,104,620 556,372,433
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 378,089,769 $ 426,104,620
OF NET INVESTMENT INCOME OF $289,348 AND
$591,234, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS CLASS A
YEARS ENDED OCTOBER 31,
1997 1996 F
SELECTED PER-SHARE DATA D
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.370 $ 9.290
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .532 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) (.021) .081 E
TOTAL FROM INVESTMENT OPERATIONS .511 .171
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.571) (.091)
NET ASSET VALUE, END OF PERIOD $ 9.310 $ 9.370
TOTAL RETURN B, C 5.64% 1.85%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 19,726 $ 204
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% G .90% A,
G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.00% 6.27% A
PORTFOLIO TURNOVER RATE 105% 124%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD DUE TO THE TIMING
OF SALES AND REPURCHASES OF CLASS SHARES IN RELATION TO FLUCTUATING
MARKET VALUES OF THE INVESTMENTS OF THE FUND.
F FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS CLASS T
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 C 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.380 $ 9.470 $ 9.480 $ 10.090 $ 9.950
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .578 B .594 B .403 .479 .732
NET REALIZED AND UNREALIZED (.036) (.094) .148 (.501) .146
GAIN (LOSS)
TOTAL FROM INVESTMENT .542 .500 .551 (.022) .878
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.572) (.590) (.407) (.464) (.738)
IN EXCESS OF NET - - - (.044) -
INVESTMENT INCOME
RETURN OF CAPITAL - - (.154) (.080) -
TOTAL DISTRIBUTIONS (.572) (.590) (.561) (.588) (.738)
NET ASSET VALUE, END OF PERIOD $ 9.350 $ 9.380 $ 9.470 $ 9.480 $ 10.090
TOTAL RETURN A 5.97% 5.45% 6.05% (.22)% 9.13%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 $ 351,614 $ 416,700 $ 546,546 $ 787,926 $ 654,202
OMITTED)
RATIO OF EXPENSES TO AVERAGE NET .89% .88% .89% .97% .95%
ASSETS
RATIO OF NET INVESTMENT INCOME 6.19% 6.29% 6.05% 5.91% 6.77%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 105% 124% 179% 108% 58%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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
YEARS ENDED OCTOBER 31,
1997 1996 1995 E
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.370 $ 9.470 $ 9.450
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .589 D .598 D .137
NET REALIZED AND UNREALIZED GAIN (LOSS) (.023) (.098) .067
TOTAL FROM INVESTMENT OPERATIONS .566 .500 .204
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.586) (.600) (.136)
RETURN OF CAPITAL - - (.048)
TOTAL DISTRIBUTIONS (.586) (.600) (.184)
NET ASSET VALUE, END OF PERIOD $ 9.350 $ 9.370 $ 9.470
TOTAL RETURN B, C 6.24% 5.45% 2.18%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 6,750 $ 9,200 $ 9,827
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .80% F .85% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.30% 6.37% 6.10% A
PORTFOLIO TURNOVER RATE 105% 124% 179%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
28. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Short Fixed-Income 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 T, and Institutional Class shares, each
of which has equal rights as to assets and voting privileges. Each
class has exclusive voting rights with respect to its distribution
plan. Investment income, realized and unrealized capital gains and
losses, the common expenses of the fund, and certain fund-level
expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, 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."
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.
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
and capital gain distributions are declared separately for each class.
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, capital loss carryforwards, expiring 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.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
29. 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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
30. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $404,492,398 and $456,719,310, respectively, of which U.S.
government and government agency obligations aggregated $203,659,454
and $283,482,450, respectively.
31. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .15%
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 4,666 $ 4,666
CLASS T 570,695 570,695
$ 575,361 $ 575,361
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
SALES LOAD. FDC received a front-end sales charge of up to 1.50% for
selling Class A and Class T shares of the fund.
For the period, FDC received the following sales charge amounts
related to each class, a portion of which is paid to securities,
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 15,709 $ 12,285
CLASS T 278,405 215,278
$ 294,114 $ 227,563
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
shareholders of the respective classes of the fund. FIIOC pays for
typesetting, printing and mailing of all shareholder reports. For the
period, the following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC* $ 8,496 .27%
CLASS T** FIIOC* 851,344 .22%
INSTITUTIONAL CLASS FIIOC* 12,908 .22%
$ 872,748
L FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC)
AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN TRANSFER, DIVIDEND DISBURSING, AND
SHAREHOLDER SERVICES TO FIIOC FOR WHICH FIIOC RECEIVED ITS ALLOCABLE
SHARE OF ALL SUCH FEES.
ACCOUNTING FEES. Fidelity Service Company, Inc., an affiliate of FMR,
maintains the fund's accounting records. The fee is based on the level
of average net assets for the month plus out-of-pocket expenses.
32. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each class:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 28,879
INSTITUTIONAL CLASS .75% 15,848
$ 44,727
In addition, the fund has entered into arrangements with its custodian
whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of expenses. During the period, the fund's
custodian fees were reduced by $11,549 under the custodian
arrangement.
33. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 185,833 $ 1,434
CLASS T
FROM NET INVESTMENT INCOME 23,319,675 30,327,901
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME 373,830 675,143
$ 23,879,338 $ 31,004,478
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
34. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 2,306,357 23,644 $ 21,425,255 $ 220,223
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 4,547 152 42,258 1,421
SHARES REDEEMED (214,574) (2,001) (2,004,901) (18,626)
NET INCREASE (DECREASE) 2,096,330 21,795 $ 19,462,612 $ 203,018
CLASS T 18,782,631 16,400,676 $ 175,250,208 $ 154,169,354
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 1,976,051 2,602,490 18,435,965 24,457,228
SHARES REDEEMED (27,605,815) (32,291,505) (257,378,530) (303,417,559)
NET INCREASE (DECREASE) (6,847,133) (13,288,339) $ (63,692,357) $ (124,790,977)
INSTITUTIONAL CLASS 500,009 706,911 $ 4,670,792 $ 6,663,694
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 33,143 62,772 309,411 589,181
SHARES REDEEMED (792,628) (825,831) (7,399,775) (7,749,583)
NET INCREASE (DECREASE) (259,476) (56,148) $ (2,419,572) $ (496,708)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
35. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 29,239
CLASS T 48,294
INSTITUTIONAL CLASS 17,843
$ 95,376
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 statements 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, 1997, 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 of Class
A, Class T and Institutional Class for each of the periods indicated
therein. 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, 1997, 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, 1997, 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 of Class A, Class T and Institutional Class for each of the
periods indicated therein, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
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
Robert C. Pozen, Senior Vice President
Dwight D. Churchill, Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional
Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(REGISTERED TRADEMARK)
SHORT FIXED-INCOME
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1997
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 28 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 35 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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY 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.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares
are sold to eligible investors without a sales load or 12b-1 fee.
Returns prior to July 3, 1995 are those of Class T, the original class
of the fund, and reflect Class T's 0.15% 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, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR SHORT FIXED-INCOME - 6.24% 29.42% 96.53%
INSTITUTIONAL CLASS
LEHMAN BROTHERS 1-3 YEAR 6.51% 31.92% 104.23%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.12% 30.53% 98.65%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. 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 the
performance of the Lehman Brothers 1-3 Year Government/Corporate Bond
Index - a market value weighted performance benchmark for government
and corporate fixed-rate debt issues with maturities between one and
three years. To measure how Institutional Class' performance stacked
up against its peers, you can compare it to the short investment grade
debt funds average, which reflects the performance of mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc.
The past one year average represents a peer group of 100 mutual funds.
These benchmarks include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
ADVISOR SHORT FIXED-INCOME - 6.24% 5.29% 6.99%
INSTITUTIONAL CLASS
LEHMAN BROTHERS 1-3 YEAR 6.51% 5.70% 7.40%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.12% 5.47% 7.09%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class shares'
cumulative return and show you what would have happened if
Institutional Class shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971113 110030 S00000000000001
FA Short Fixed Inc -CL I LB 1-3 Year Govt/Corp
00643 LB013
1987/10/31 10000.00 10000.00
1987/11/30 10069.89 10066.74
1987/12/31 10130.66 10136.70
1988/01/31 10263.71 10289.44
1988/02/29 10365.43 10379.28
1988/03/31 10398.46 10402.39
1988/04/30 10411.15 10416.19
1988/05/31 10403.43 10412.01
1988/06/30 10508.81 10516.30
1988/07/31 10510.22 10523.68
1988/08/31 10553.89 10550.31
1988/09/30 10659.26 10672.57
1988/10/31 10755.65 10780.07
1988/11/30 10724.20 10754.40
1988/12/31 10757.28 10779.10
1989/01/31 10844.96 10865.74
1989/02/28 10864.12 10868.31
1989/03/31 10918.74 10912.27
1989/04/30 11037.26 11089.40
1989/05/31 11187.83 11246.95
1989/06/30 11369.91 11454.56
1989/07/31 11563.48 11625.27
1989/08/31 11480.96 11559.49
1989/09/30 11540.19 11627.52
1989/10/31 11712.06 11808.82
1989/11/30 11804.06 11914.39
1989/12/31 11866.05 11961.56
1990/01/31 11839.19 11974.07
1990/02/28 11887.05 12037.61
1990/03/31 11949.96 12075.79
1990/04/30 11960.86 12105.96
1990/05/31 12148.83 12293.03
1990/06/30 12242.82 12422.99
1990/07/31 12387.81 12573.48
1990/08/31 12367.99 12618.08
1990/09/30 12398.83 12712.75
1990/10/31 12367.18 12843.99
1990/11/30 12445.08 12969.45
1990/12/31 12562.49 13121.23
1991/01/31 12524.72 13239.96
1991/02/28 12654.66 13335.58
1991/03/31 12880.64 13432.49
1991/04/30 13068.13 13564.05
1991/05/31 13201.51 13648.76
1991/06/30 13266.04 13699.46
1991/07/31 13357.18 13819.79
1991/08/31 13581.40 14007.19
1991/09/30 13721.90 14158.00
1991/10/31 13875.06 14310.42
1991/11/30 14015.42 14455.14
1991/12/31 14242.25 14673.66
1992/01/31 14300.66 14658.58
1992/02/29 14397.06 14705.11
1992/03/31 14464.27 14701.90
1992/04/30 14558.09 14836.35
1992/05/31 14709.01 14975.29
1992/06/30 14844.20 15128.35
1992/07/31 15028.79 15305.80
1992/08/31 15156.42 15429.34
1992/09/30 15281.77 15575.34
1992/10/31 15184.79 15481.65
1992/11/30 15191.87 15459.83
1992/12/31 15325.50 15605.83
1993/01/31 15557.75 15772.37
1993/02/28 15747.03 15901.04
1993/03/31 15848.14 15952.70
1993/04/30 15928.34 16052.82
1993/05/31 15995.95 16016.24
1993/06/30 16156.57 16137.53
1993/07/31 16252.13 16174.43
1993/08/31 16411.58 16309.84
1993/09/30 16468.27 16362.47
1993/10/31 16570.80 16400.65
1993/11/30 16638.99 16405.47
1993/12/31 16780.50 16471.89
1994/01/31 16885.20 16576.82
1994/02/28 16747.41 16476.38
1994/03/31 16363.82 16391.67
1994/04/30 16277.54 16329.42
1994/05/31 16375.55 16351.56
1994/06/30 16246.67 16394.56
1994/07/31 16394.87 16543.77
1994/08/31 16527.96 16599.60
1994/09/30 16521.60 16562.70
1994/10/31 16534.21 16600.56
1994/11/30 16562.61 16530.93
1994/12/31 16215.14 16562.38
1995/01/31 16335.79 16789.89
1995/02/28 16538.20 17022.21
1995/03/31 16625.14 17118.79
1995/04/30 16760.49 17273.78
1995/05/31 17062.04 17572.84
1995/06/30 17142.39 17668.46
1995/07/31 17222.57 17739.06
1995/08/31 17327.78 17846.55
1995/09/30 17412.99 17934.80
1995/10/31 17539.92 18083.69
1995/11/30 17685.21 18239.31
1995/12/31 17818.41 18377.62
1996/01/31 17953.05 18534.85
1996/02/29 17894.26 18464.25
1996/03/31 17860.71 18450.78
1996/04/30 17862.63 18469.39
1996/05/31 17900.78 18512.07
1996/06/30 18032.07 18647.48
1996/07/31 18087.86 18720.00
1996/08/31 18143.87 18788.99
1996/09/30 18296.51 18960.98
1996/10/31 18495.71 19175.01
1996/11/30 18653.62 19318.77
1996/12/31 18653.52 19321.97
1997/01/31 18730.84 19415.35
1997/02/28 18783.10 19463.48
1997/03/31 18763.79 19448.40
1997/04/30 18901.96 19607.88
1997/05/31 19022.67 19744.90
1997/06/30 19162.35 19882.24
1997/07/31 19386.97 20103.00
1997/08/31 19384.85 20121.94
1997/09/30 19525.10 20276.92
1997/10/31 19649.83 20422.92
IMATRL PRASUN SHR__CHT 19971031 19971113 110033 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Institutional
Class on October 31, 1987, shortly after the fund started. As the
chart shows, by October 31, 1997, the value of the investment would
have grown to $19,653 - a 96.53% increase on the initial investment.
For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index did over the same period. With
dividends, and capital gains, if any, reinvested, the same $10,000
would have grown to $20,423 - a 104.23% 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,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.45% 6.51% 6.21% A 5.82% A 7.72%
CAPITAL APPRECIATION RETURN -0.21% -1.06% -0.11% -6.04% 1.41%
TOTAL RETURN 6.24% 5.45% 6.10% -0.22% 9.13%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid by the class are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.97(CENTS) 29.27(CENTS) 58.61(CENTS)
ANNUALIZED DIVIDEND RATE 6.27% 6.23% 6.28%
30-DAY ANNUALIZED YIELD 5.77% - -
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 $9.34 over the past one month, $9.32 over the past six
months, and $9.33 over the past one 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.
A DIVIDENDS PAID ARE BASED ON THE CLASS' INVESTMENT INCOME AND DO NOT
REFLECT CURRENCY RELATED LOSSES. AS A RESULT OF CURRENCY LOSSES,
INSTITUTIONAL CLASS DIVIDENDS PAID DURING 1995 OF APPROXIMATELY
4.8(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF CAPITAL. CLASS T
(THE ORIGINAL CLASS OF THE FUND) DIVIDENDS PAID DURING 1994 OF
APPROXIMATELY 8.0(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF
CAPITAL.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's primary
nemesis - rising inflation -
remained in check throughout
most of the 12 months that ended
October 31, 1997, translating into
a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 8.89% during
the period. Through the first half of
the period, bonds suffered from the
perception of an accelerating
economy and, in turn, that
inflation would make an
appearance. The Federal Reserve
Board raised a key short-term
interest rate in March, in an
attempt to curb any potential hints of
inflation. For the most part, though,
investors had been anticipating this
hike. Spurred on by encouraging
economic data, as well as the Fed's
reluctance to raise rates further,
bond markets rallied from April
through July. While some of these
gains evaporated in August - as
inflation fears cropped up again -
a strong September and October
helped ease the pain. The bond
market attracted wary stock
investors in October, as the U.S.
equity market stumbled due to
overseas developments. Treasuries,
in particular, performed well
toward the end of the period.
Relative interest-rate stability
provided a fairly positive backdrop
for mortgage-backed securities, as
the Salomon Brothers Mortgage
Index returned 8.91% over the
12-month period. Sustained
economic growth and demand for
higher yields helped corporate
bonds, as the Lehman Brothers
Corporate Bond Index returned
9.25% over the same period.
An interview with Andrew Dudley, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the 12 months that ended October 31, 1997, the fund's
Institutional Class shares returned 6.24%. During the same period, the
Lehman Brothers 1-3 Year Government/Corporate Bond Index had a return
of 6.51%. The short investment grade debt funds average, as tracked by
Lipper Analytical Services, returned 6.12% during the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The fund benefited from maintaining overweighted positions,
relative to the index, in corporate bonds, asset-backed securities and
commercial mortgage-backed securities (CMBS) - three sectors that
offered yield advantages over comparable Treasuries during the period.
Asset-backed securities are bonds backed by a pool of loans such as
credit cards, while CMBS issues are bonds backed by loans on
commercial property such as office buildings or retail malls.
Selecting strong securities and issuers in the corporate sector also
helped the fund perform reasonably well.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED DURING THE PERIOD?
A. Corporate bonds, including asset-backed securities, continued to
represent a large portion of the fund - about 68% at the end of the
period. Roughly one-third of the fund was invested in corporate
securities with ratings below single-A because I felt the companies I
selected had the most potential for credit improvement. As the rating
of a bond improves, its price increases and its yield decreases
relative to Treasuries. This is known as spread tightening, as the
yield moves closer to the yield offered by comparable Treasuries,
providing the fund and the investor a return advantage.
Q. DID YOU TARGET ANY PARTICULAR SECTORS IN THE CORPORATE BOND MARKET?
A. I focused the fund's exposure to securities with three- to
five-year maturities in the cable, telecommunications and media
industries. In fact, a large component of the fund's return came from
those areas of the corporate bond market, as the companies improved
their credit profiles and consequently benefited from increased
valuations relative to comparable Treasuries. Generally,
longer-maturity bonds - in the case of this fund, bonds with
maturities greater than three years - enjoy more price appreciation
from spread tightening than shorter-maturity bonds do. In the
shorter-maturity areas, I focused on banks and finance companies. In
combination with the longer-maturity corporate securities, these
shorter-maturity issues helped me maintain an average maturity below
three years, keeping the volatility of the fund relatively low versus
the overall bond market.
Q. HOW DID ASSET-BACKED AND MORTGAGE-BACKED SECURITIES PERFORM?
A. The fund's investments in asset-backed securities have remained
relatively stable, at about 18% of the portfolio. The bulk of the
position in this sector was invested in very high-quality securities -
mostly Aaa-rated. These asset-backed bonds - which are classified as
corporate bonds under the finance industry - were a stable component
of the fund's returns. Within the mortgage sector, I primarily focused
on CMBS bonds. The market for these securities gained considerable
acceptance among investors, leading to better returns for the issues.
At the end of the period, about 7% of the fund was invested in
mortgage-backed securities, with a majority of those assets invested
in CMBS issues.
Q. WHAT'S YOUR OUTLOOK FOR THE OVERALL BOND MARKET?
A. I think caution will be the name of the game going into the next 12
months. Given the solid performance of many of the spread sectors -
meaning segments of the fixed-income market that can offer yield
advantages, or spreads, over comparable Treasuries - I think there's
less room for them to do much better in the near future. In light of
this, I take comfort in the fact that more than 61% of the fund was
invested in securities that are A-rated or better. Going forward, I
intend to be more cautious with the fund's core corporate holdings by
targeting the higher-quality issues. This is particularly true in a
period where yield advantages offered by non-Treasury securities are
so narrow.
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.
JOHN AVERY'S INVESTMENT
PHILOSOPHY ON . . .
COMPANIES. "When I'm looking for
a good buying opportunity, my main
consideration is whether a company
has the potential to improve its
earnings growth. Companies that
are restructuring themselves -
either through cost-cutting, selling
non-profitable subdivisions or
making logical acquisitions - are
frequently good candidates. I also
like companies that have
competitive market positions that
allow for pricing stability and
economies of scale. This can
reduce expenses, while
improving the bottom line to the
shareholder."
EARNINGS. "I want to buy
companies that are doing proactive
things to boost their earnings. If I
know that steel prices are going to
be down for three consecutive
quarters, and that steel company
earnings will be down for that time
as well, that's not something I'm
attracted to. If a pharmaceutical
company, however, has a promising
product in its pipeline that I feel
will enhance future earnings, that
company becomes a possibility."
SECTORS. "Two areas that are
well-represented among the fund's
top holdings are the finance and
health care groups. Many banks
have been utilizing the proactive
approaches I described above, while
the health care sector remains
exciting. Pharmaceutical
companies have impressive
pipelines of products and
demographics - the aging of
America - could ensure that
demand meets supply."
FUND FACTS
GOAL: seeks both income and
growth of capital by investing
in a diversified portfolio of
equity and fixed-income
securities with income, growth
of income and capital
appreciation potential
START DATE: January 6, 1987
SIZE: as of October 31, 1997,
more than $2.9 billion
MANAGER: Bettina Doulton,
since 1996; joined Fidelity
in 1986
(checkmark)
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA 3 40.7
8
.
9
AA 7 5.3
.
2
A 1 16.7
5
.
1
BAA 2 26.1
7
.
1
BA 8 7.0
.
1
NOT RATED 0 1.4
.
9
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW
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, 1997
6 MONTHS AGO
YEARS 2.2 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, 1997
6 MONTHS AGO
YEARS 1.7 1.7
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 (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997 **
CORPORATE BONDS 68.8%
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS 18.9%
MORTGAGE-BACKED
SECURITIES 6.9%
FOREIGN GOVERNMENT
OBLIGATIONS 1.6%
SHORT-TERM
INVESTMENTS 2.7%
OTHER 1.1%
CORPORATE BONDS 67.1%
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS 16.4%
MORTGAGE-BACKED
SECURITIES 11.3%
FOREIGN GOVERNMENT
OBLIGATIONS 1.3%
SHORT-TERM
INVESTMENTS 2.8%
OTHER 1.1%
ROW: 1, COL: 1, VALUE: 2.1
ROW: 1, COL: 2, VALUE: 3.7
ROW: 1, COL: 3, VALUE: 2.6
ROW: 1, COL: 4, VALUE: 6.9
ROW: 1, COL: 5, VALUE: 17.9
ROW: 1, COL: 6, VALUE: 66.8
ROW: 1, COL: 1, VALUE: 2.1
ROW: 1, COL: 2, VALUE: 3.8
ROW: 1, COL: 3, VALUE: 2.3
ROW: 1, COL: 4, VALUE: 10.3
ROW: 1, COL: 5, VALUE: 15.4
ROW: 1, COL: 6, VALUE: 65.09999999999999
* FOREIGN
INVESTMENTS 4.8%
** FOREIGN
INVESTMENTS 3.8%
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 68.8%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,760,000 $ 3,975,260
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,360,000 1,494,001
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa 700,000 699,531
Pennzoil Co. 9 5/8%, 11/15/99 Baa 830,000 885,361
Tosco Corp. 7%, 7/15/00 Baa 3,150,000 3,213,567
USX Corp. 6 3/8%, 7/15/98 Baa 651,000 652,341
5,450,800
FINANCE - 38.0%
ASSET-BACKED SECURITIES - 18.3%
Capital Equipment Receivables Trust 6.57%,
3/15/01 Aa3 1,020,000 1,031,342
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 4,646,968 4,680,333
6.45%, 9/15/02 A3 1,400,000 1,389,500
5.85%, 2/15/03 A3 800,000 791,600
Caterpillar Financial Asset Trust 6.55%, 5/22/02 A3 480,000 484,350
Chase Manhattan Corp. 6.45%, 3/29/01 Aaa 2,020,000 2,026,313
Chevy Chase Auto Receivables Trust
6.20%, 3/20/04 Aaa 1,270,750 1,273,728
Contimortgage Home Equity Loan Trust 6.26%,
7/15/12 Aaa 3,750,000 3,753,516
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 634,679 639,439
Discover Card Trust 7 1/2%, 6/16/00 A2 650,000 654,264
Fidelity Funding Auto Trust 6.99%, 11/15/02 (c) Aaa 712,224 717,788
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 2,178,529 2,181,252
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 1,360,403 1,368,471
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 275,061 273,771
5.80%, 2/15/27 Aaa 2,702,023 2,697,781
6.10%, 4/15/27 Aaa 2,269,905 2,270,609
6.45%, 5/15/27 Aaa 1,550,000 1,555,317
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Green Tree Financial Corp.: - continued
6 1/2%, 6/15/27 Aaa $ 980,000 $ 984,586
6.65%, 7/15/27 Aaa 1,889,017 1,894,910
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 132,498 132,140
Norwest Automobile Trust 6.30%, 5/15/03 A2 1,424,000 1,430,675
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,710,000 1,702,742
6 1/8%, 11/15/04 Aaa 1,042,549 1,057,436
Onyx Acceptance Grantor Trust 6.20%, 6/15/03 Aaa 2,135,136
2,139,791
Petroleum Enhanced Trust Receivables
Offering Petroleum Trust 6.1875%, 2/5/03 (c) Baa 2,709,527
2,709,527
Premier Auto Trust:
4.95%, 2/2/99 A2 321,257 320,152
8.05%, 4/4/00 Aaa 6,200,000 6,269,774
6%, 5/6/00 Aaa 1,240,000 1,240,769
6.35%, 7/6/00 A3 1,980,000 1,984,950
Reliance Auto Receivables Corp., Inc. 6.10%,
7/15/02 (c) Aaa 1,154,345 1,154,345
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 18,741 18,724
Standard Credit Card Master Trust I:
7.65%, 2/15/00 A2 800,000 803,750
6 3/4%, 6/7/00 Aaa 4,830,000 4,851,107
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 457,164 457,450
Toyota Auto Receivables Grantor Trust 6.15%,
1/15/99 Baa 248,506 248,157
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa 179,588 180,093
7.275%, 10/10/00 Baa 186,374 187,161
8.20%, 1/10/01 Baa 204,892 207,742
Western Financial Grantor Trust:
6.20%, 2/1/02 Aaa 716,501 720,576
5 7/8%, 3/1/02 Aaa 1,672,230 1,695,780
WFS Financial Owner Trust:
6.40%, 7/20/02 Aaa 3,460,000 3,462,163
7.05%, 11/20/03 Aaa 3,160,000 3,218,594
6.90%, 12/20/03 Aaa 1,990,000 2,039,528
68,901,996
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - 8.1%
Banc One Corp. 6.70%, 3/24/00 Aa3 $ 1,600,000 $ 1,621,664
Banco Latinoamericano Exportaciones
SA euro:
6.45%, 9/13/99 (c) Baa 1,190,000 1,200,079
6.90%, 12/4/99 (c) Baa 700,000 708,316
Bank South Corp. 10.20%, 6/1/99 A3 2,000,000 2,124,600
BanPonce Corp.:
6.378%, 4/8/99 A3 1,100,000 1,101,540
6.488%, 3/3/00 A3 1,000,000 1,009,060
BanPonce Financial Corp.:
6.642%, 4/8/99 A3 1,730,000 1,748,892
7.65%, 5/3/00 A3 1,260,000 1,295,280
6.88%, 6/16/00 A3 650,000 661,999
Capital One Bank 8 1/8%, 3/1/00 Baa 2,589,000 2,695,253
First Fidelity Bancorp. 9 5/8%, 8/15/99 A2 970,000 1,029,015
First USA Bank:
5 3/4%, 1/15/99 Aa2 5,600,000 5,588,968
6 1/2%, 12/23/99 Aa2 2,200,000 2,218,568
Kansallis-Osake-Pankki 10%, 5/1/02 A3 1,000,000 1,140,440
KeyCorp. 7.45%, 4/5/00 A- 1,500,000 1,539,750
Union Planters National Bank:
6.29%, 8/20/98 A3 2,210,000 2,215,525
6.53%, 8/20/99 A3 2,400,000 2,412,000
30,310,949
CREDIT & OTHER FINANCE - 11.3%
AT&T Capital Corp.:
6.65%, 4/30/99 Baa 3,050,000 3,080,470
6.16%, 12/3/99 Baa 2,370,000 2,371,683
Aristar, Inc. 7 1/2%, 7/1/99 Baa 2,540,000 2,595,880
Associates Corp. of North America:
6 1/2%, 9/9/98 Aa3 1,380,000 1,387,687
7.35%, 7/6/99 Aa3 3,600,000 3,687,660
6 3/8%, 8/15/99 Aa3 1,500,000 1,507,500
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 642,700
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 2,300,000 2,310,350
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa 2,506,442 2,538,524
Finova Capital Corp.:
6.38%, 4/15/99 Baa 3,000,000 3,022,230
6.27%, 9/29/00 Baa 1,730,000 1,737,612
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
General Motors Acceptance Corp.:
5.45%, 3/1/99 A3 $ 3,650,000 $ 3,623,684
6.55%, 4/23/99 A3 5,840,000 5,890,808
6 3/8%, 4/26/99 A3 900,000 905,652
MCN Investment Corp. 5.84%, 2/1/99 Baa 1,640,000 1,643,772
North American Mortgage Co. 5.80%, 11/2/98 Baa 1,000,000 996,730
Salton Sea Funding Corp. 7.02%, 5/30/00 Baa 1,740,000 1,753,972
Sears, Roebuck Acceptance Corp.
6.17%, 1/29/99 A2 2,500,000 2,512,525
Union Acceptance Corp. 7.075%, 7/10/02 Baa 302,935 304,828
42,514,267
SAVINGS & LOANS - 0.3%
Long Island Savings Bank FSB Melville NY
7%, 6/13/02 Baa 970,000 972,425
TOTAL FINANCE 142,699,637
MEDIA & LEISURE - 6.8%
BROADCASTING - 6.8%
Bell Cablemedia PLC yankee:
0%, 7/15/04 (b) Baa 1,180,000 1,097,400
0%, 9/15/05 (b) Baa 1,000,000 865,000
Continental Cablevision, Inc. 8 1/2%, 9/15/01 Baa 2,960,000
3,143,106
TCI Communications, Inc.:
6 3/8%, 9/15/99 Ba1 6,000,000 6,001,140
7 3/8%, 2/15/00 Ba1 2,465,000 2,514,793
Tele-Communications, Inc. 9%, 1/2/02 Ba1 970,000 1,050,520
Time Warner, Inc.:
7.45%, 2/1/98 Ba1 2,240,000 2,246,384
7.95%, 2/1/00 Ba1 8,340,000 8,617,138
25,535,481
NONDURABLES - 3.5%
FOODS - 1.9%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa 2,250,000 2,281,298
Nabisco, Inc. 8%, 1/15/00 Baa 4,600,000 4,763,714
7,045,012
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONDURABLES - CONTINUED
TOBACCO - 1.6%
Philip Morris Companies, Inc.:
7 3/8%, 2/15/99 A2 $ 850,000 $ 862,495
7 1/8%, 12/1/99 A2 2,000,000 2,034,820
7 1/4%, 9/15/01 A2 1,900,000 1,956,145
RJR Nabisco, Inc. 8%, 1/15/00 Baa 1,320,000 1,345,806
6,199,266
TOTAL NONDURABLES 13,244,278
RETAIL & WHOLESALE - 2.6%
GENERAL MERCHANDISE STORES - 2.4%
Dayton Hudson Corp.:
10%, 12/1/00 Baa 1,070,000 1,176,786
6.80%, 10/1/01 Baa 1,950,000 1,991,828
Federated Department Stores, Inc.:
10%, 2/15/01 Baa 2,350,000 2,609,323
8 1/8%, 10/15/02 Baa 1,860,000 1,997,975
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,350,000 1,372,856
9,148,768
GROCERY STORES - 0.2%
American Stores Co.:
8 1/4%, 4/21/98 Baa 300,000 302,757
8.44%, 4/24/98 Baa 300,000 303,090
605,847
TOTAL RETAIL & WHOLESALE 9,754,615
TECHNOLOGY - 3.5%
COMPUTERS & OFFICE EQUIPMENT - 3.5%
Comdisco, Inc.:
5 3/4%, 1/19/99 Baa 2,010,000 2,009,477
6.18%, 2/12/99 Baa 1,740,000 1,748,248
6 1/2%, 4/30/99 Baa 4,250,000 4,269,465
6.86%, 7/29/99 Baa 5,210,000 5,273,562
13,300,752
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
TRANSPORTATION - 4.0%
AIR TRANSPORTATION - 4.0%
AMR Corp.:
7 3/4%, 12/1/97 Baa $ 6,810,000 $ 6,818,376
9 1/2%, 7/15/98 Baa 1,540,000 1,578,438
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa 3,370,000 3,390,355
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa 3,430,000 3,431,612
15,218,781
UTILITIES - 7.4%
CELLULAR - 0.8%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 2,770,000 2,804,487
ELECTRIC UTILITY - 1.7%
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa 2,500,000 2,508,300
Ohio Edison Co.:
8 3/4%, 2/15/98 Baa 1,190,000 1,199,115
7 3/8%, 9/15/02 Baa 1,200,000 1,243,512
Texas Utilities Electric Co. 7 3/8%, 11/1/99 Baa 1,100,000
1,126,642
United Illuminating Co. 7 3/8%, 1/15/98 Baa 450,000 451,422
6,528,991
GAS - 2.7%
Arkla, Inc.:
8.60%, 9/15/98 Ba2 500,000 508,495
8.43%, 9/17/98 Ba1 560,000 568,792
8 7/8%, 7/15/99 Baa 7,000,000 7,319,130
Florida Gas Transmission Co. 7 3/4%,
11/1/97 (c) BBB 1,630,000 1,630,000
10,026,417
TELEPHONE SERVICES - 2.2%
Brooks Fiber Properties, Inc.
11 7/8%, 11/1/06 - 2,555,000 1,999,288
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,606,000 1,710,486
7.55%, 4/1/04 Ba1 3,580,000 3,710,849
8 7/8%, 1/15/06 Ba1 811,000 884,566
8,305,189
TOTAL UTILITIES 27,665,084
TOTAL NONCONVERTIBLE BONDS
(Cost $257,766,742) 258,338,689
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 18.9%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 14.5%
5 1/2%, 11/15/98 Aaa $ 2,870,000 $ 2,866,872
5 7/8%, 1/31/99 Aaa 10,780,000 10,812,017
8 7/8%, 2/15/99 Aaa 8,130,000 8,452,680
7 3/4%, 12/31/99 Aaa 12,307,000 12,822,294
6 7/8%, 3/31/00 Aaa 2,987,000 3,065,409
5 3/4%, 10/31/00 Aaa 6,305,000 6,308,909
7 7/8%, 8/15/01 Aaa 5,270,000 5,643,011
10 3/4%, 5/15/03 Aaa 3,785,000 4,657,329
54,628,521
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.4%
Federal National Mortgage Association
4.95%, 9/30/98 Aaa 4,000,000 3,973,120
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 5,883,248 6,249,480
Class T-3, 9 5/8%, 5/15/02 Aaa 538,917 571,203
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. Government through
Export-Import Bank) Series 1994-C,
6.61%, 9/15/99 Aaa 330,728 332,936
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank) Series 1994-1,
6.88%, 1/26/03 Aaa 776,471 792,155
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,240,200 1,268,899
State of Israel (guaranteed by U.S. Government
through Agency for International Development)
7 3/4%, 11/15/99 Aaa 3,124,000 3,238,001
16,425,794
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $70,854,660) 71,054,315
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.3%
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.6%
7%, 9/1/99 to 8/1/01 Aaa $ 2,077,871 $ 2,105,207
12%, 11/1/19 Aaa 163,399 187,783
2,292,990
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 605,205 686,847
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.5%
11%, 12/15/09 to 2/15/16 Aaa 3,130,719 3,519,775
11 1/2%, 8/15/13 to 11/15/15 Aaa 867,763 1,000,866
12%, 2/15/16 Aaa 1,011,383 1,183,338
5,703,979
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $8,658,207) 8,683,816
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.4%
PRIVATE SPONSOR - 0.2%
GE Capital Mortgage Services, Inc. planned
amortization class Series 1994-2 Class A-4,
6%, 1/25/09 Aaa 930,000 924,914
U.S. GOVERNMENT AGENCY - 0.2%
Federal National Mortgage Association
Series 1994-M3 Class A, 7.71%, 4/1/06 Aaa 698,156 702,519
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,624,030) 1,627,433
COMMERCIAL MORTGAGE SECURITIES - 4.2%
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 2/25/43 (c)(d) AA 2,380,000 2,387,809
Blackrock Capital Funding LLC Series 1996
Class C2, 7.5444%, 11/16/26 (c) Aaa 258,273 260,210
CBM Funding Corp. sequential pay:
Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 154,708 156,811
Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 980,000 1,000,519
Equitable Life Assurance Society of the United
States floater Series 174 Class D-2,
6.675%, 5/15/03 (c)(d) Baa 1,200,000 1,202,628
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Federal Deposit Insurance Corp. sequential pay:
Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa $ 977,158 $ 980,823
Series 1996-C1 Class 1A, 6 3/4%, 5/25/26 Aaa 2,829,249 2,833,832
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 791,155 793,627
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa 102,017 101,889
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6,
6.9213%, 7/4/03 (d) - 1,232,929 1,239,287
Oregon Commercial Mortgage, Inc.
Series 1995-1 Class A, 7.15%, 6/25/26 (c) Aaa 1,259,850 1,263,788
Resolution Trust Corp.:
floater Series 1993-C2 Class A-2,
6.5575%, 3/25/25 (d) Aaa 687,383 688,671
floater Series 1994-C1 Class A-3,
6.2375%, 6/25/26 (d) Aaa 1,452,791 1,451,883
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 24,366 24,336
Structured Asset Securities Corp. sequential pay:
Series 1993-C1 Class A-1A, 6.60%, 10/25/24 AA+ 187,646 187,616
Series 1995-C4 Class A-1A, 6.90%, 6/25/26 Aaa 225,526 224,715
Series 1996-C3 Class A, 6 3/4%, 6/25/30 (c) Aaa 853,122 857,121
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $15,659,141) 15,655,565
FOREIGN GOVERNMENT OBLIGATIONS (E) - 1.6%
Ontario Province global bond 6 1/8%, 6/28/00 Aa3 1,200,000
1,205,304
Slovenian Republic euro 7%, 8/6/01 A3 4,750,000 4,714,375
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,949,021) 5,919,679
CERTIFICATES OF DEPOSIT - 1.1%
Canadian Imperial Bank of Commerce
(NY Branch) yankee 6.20%, 8/1/00
(Cost $4,209,030) Aa3 4,200,000 4,202,100
CASH EQUIVALENTS - 2.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.68%, dated
10/31/97 due 11/3/97 $ 10,314,813 $ 10,310,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $375,030,831) $ 375,791,597
LEGEND
15. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
16. Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
17. 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
$16,630,135 or 4.4% of net assets.
18. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
19. For foreign government obligations not 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 58.5% AAA, AA, A 55.9%
Baa 27.1% BBB 36.2%
Ba 8.2% BB 3.0%
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 Moody's or S&P amounted to 0.9%.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $375,058,843. Net unrealized appreciation
aggregated $732,754, of which $1,995,968 related to appreciated
investment securities and $1,263,214 related to depreciated investment
securities.
At October 31, 1997, the fund had a capital loss carryforward of
approximately $42,980,000 of which $63,000, $286,000, $38,000,
$336,000, $17,692,000, $19,457,000, $2,265,000 and $2,843,000 will
expire on October 31, 1998, 1999, 2000, 2001, 2002, 2003, 2004 and
2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 375,791,597
AGREEMENTS OF $10,310,000) (COST $375,030,831) -
SEE ACCOMPANYING SCHEDULE
CASH 50
RECEIVABLE FOR INVESTMENTS SOLD 1,132,861
INTEREST RECEIVABLE 5,498,051
TOTAL ASSETS 382,422,559
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 2,739,539
PAYABLE FOR FUND SHARES REDEEMED 890,608
DISTRIBUTIONS PAYABLE 401,171
ACCRUED MANAGEMENT FEE 135,761
DISTRIBUTION FEES PAYABLE 45,731
OTHER PAYABLES AND ACCRUED EXPENSES 119,980
TOTAL LIABILITIES 4,332,790
NET ASSETS $ 378,089,769
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 420,952,974
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (289,348)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (43,334,623)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 760,766
NET ASSETS $ 378,089,769
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS OCTOBER 31, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $9.31
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($19,725,547 (DIVIDED BY) 2,118,125 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.31) $9.45
CLASS T: $9.35
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($351,614,335 (DIVIDED BY) 37,598,152 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.35) $9.49
INSTITUTIONAL CLASS: $9.35
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE
($6,749,887 (DIVIDED BY) 721,886 SHARES)
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 27,552,087
INTEREST
EXPENSES
MANAGEMENT FEE $ 1,715,958
TRANSFER AGENT FEES 872,748
DISTRIBUTION FEES 575,361
ACCOUNTING FEES AND EXPENSES 159,567
NON-INTERESTED TRUSTEES' COMPENSATION 6,570
CUSTODIAN FEES AND EXPENSES 21,635
REGISTRATION FEES 95,376
AUDIT 42,000
LEGAL 2,373
MISCELLANEOUS 11,679
TOTAL EXPENSES BEFORE REDUCTIONS 3,503,267
EXPENSE REDUCTIONS (56,276) 3,446,991
NET INVESTMENT INCOME 24,105,096
REALIZED AND UNREALIZED GAIN (LOSS) (3,013,450)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,422,158
ON INVESTMENT SECURITIES
NET GAIN (LOSS) (1,591,292)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 22,513,804
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 24,105,096 $ 31,079,263
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (3,013,450) (66,135)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,422,158 (5,191,796)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 22,513,804 25,821,332
OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (23,879,338) (31,004,478)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (46,649,317) (125,084,667)
TOTAL INCREASE (DECREASE) IN NET ASSETS (48,014,851) (130,267,813)
NET ASSETS
BEGINNING OF PERIOD 426,104,620 556,372,433
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 378,089,769 $ 426,104,620
OF NET INVESTMENT INCOME OF $289,348 AND
$591,234, RESPECTIVELY)
</TABLE>
FINANCIAL HIGHLIGHTS CLASS A
YEARS ENDED OCTOBER 31,
1997 1996 F
SELECTED PER-SHARE DATA D
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.370 $ 9.290
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .532 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) (.021) .081 E
TOTAL FROM INVESTMENT OPERATIONS .511 .171
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.571) (.091)
NET ASSET VALUE, END OF PERIOD $ 9.310 $ 9.370
TOTAL RETURN B, C 5.64% 1.85%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 19,726 $ 204
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% G .90% A,
G
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.00% 6.27% A
PORTFOLIO TURNOVER RATE 105% 124%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD DUE TO THE TIMING
OF SALES AND REPURCHASES OF CLASS SHARES IN RELATION TO FLUCTUATING
MARKET VALUES OF THE INVESTMENTS OF THE FUND.
F FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
G FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS CLASS T
YEARS ENDED OCTOBER 31,
1997 1996 1995 1994 C 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.380 $ 9.470 $ 9.480 $ 10.090 $ 9.950
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .578 B .594 B .403 .479 .732
NET REALIZED AND UNREALIZED (.036) (.094) .148 (.501) .146
GAIN (LOSS)
TOTAL FROM INVESTMENT .542 .500 .551 (.022) .878
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.572) (.590) (.407) (.464) (.738)
IN EXCESS OF NET - - - (.044) -
INVESTMENT INCOME
RETURN OF CAPITAL - - (.154) (.080) -
TOTAL DISTRIBUTIONS (.572) (.590) (.561) (.588) (.738)
NET ASSET VALUE, END OF PERIOD $ 9.350 $ 9.380 $ 9.470 $ 9.480 $ 10.090
TOTAL RETURN A 5.97% 5.45% 6.05% (.22)% 9.13%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 $ 351,614 $ 416,700 $ 546,546 $ 787,926 $ 654,202
OMITTED)
RATIO OF EXPENSES TO AVERAGE NET .89% .88% .89% .97% .95%
ASSETS
RATIO OF NET INVESTMENT INCOME 6.19% 6.29% 6.05% 5.91% 6.77%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 105% 124% 179% 108% 58%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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
YEARS ENDED OCTOBER 31,
1997 1996 1995 E
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.370 $ 9.470 $ 9.450
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .589 D .598 D .137
NET REALIZED AND UNREALIZED GAIN (LOSS) (.023) (.098) .067
TOTAL FROM INVESTMENT OPERATIONS .566 .500 .204
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.586) (.600) (.136)
RETURN OF CAPITAL - - (.048)
TOTAL DISTRIBUTIONS (.586) (.600) (.184)
NET ASSET VALUE, END OF PERIOD $ 9.350 $ 9.370 $ 9.470
TOTAL RETURN B, C 6.24% 5.45% 2.18%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 6,750 $ 9,200 $ 9,827
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .80% F .85% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.30% 6.37% 6.10% A
PORTFOLIO TURNOVER RATE 105% 124% 179%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
36. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Short Fixed-Income 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 T, and Institutional Class shares, each
of which has equal rights as to assets and voting privileges. Each
class has exclusive voting rights with respect to its distribution
plan. Investment income, realized and unrealized capital gains and
losses, the common expenses of the fund, and certain fund-level
expense reductions, if any, 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, expenses, and expense reductions.
In June 1997, the Board of Trustees approved the creation of an
additional class of shares, Class C shares. Offering of the new class
commenced on November 3, 1997. Class C shares are subject to an annual
distribution and service fee of 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
class' average net assets, and a 1.00% contingent deferred sales
charge levied on Class C share redemptions made within one year of
purchase.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, 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."
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.
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
and capital gain distributions are declared separately for each class.
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, capital loss carryforwards, expiring 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.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
37. 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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
38. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $404,492,398 and $456,719,310, respectively, of which U.S.
government and government agency obligations aggregated $203,659,454
and $283,482,450, respectively.
39. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .15%
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 4,666 $ 4,666
CLASS T 570,695 570,695
$ 575,361 $ 575,361
Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services.
SALES LOAD. FDC received a front-end sales charge of up to 1.50% for
selling Class A and Class T shares of the fund.
For the period, FDC received the following sales charge amounts
related to each class, a portion of which is paid to securities,
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION
CLASS A $ 15,709 $ 12,285
CLASS T 278,405 215,278
$ 294,114 $ 227,563
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
shareholders of the respective classes of the fund. FIIOC pays for
typesetting, printing and mailing of all shareholder reports. For the
period, the following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC* $ 8,496 .27%
CLASS T** FIIOC* 851,344 .22%
INSTITUTIONAL CLASS FIIOC* 12,908 .22%
$ 872,748
B FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC. (FIIOC)
AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN TRANSFER, DIVIDEND DISBURSING, AND
SHAREHOLDER SERVICES TO FIIOC FOR WHICH FIIOC RECEIVED ITS ALLOCABLE
SHARE OF ALL SUCH FEES.
ACCOUNTING FEES. Fidelity Service Company, Inc., an affiliate of FMR,
maintains the fund's accounting records. The fee is based on the level
of average net assets for the month plus out-of-pocket expenses.
40. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each class:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 28,879
INSTITUTIONAL CLASS .75% 15,848
$ 44,727
In addition, the fund has entered into arrangements with its custodian
whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of expenses. During the period, the fund's
custodian fees were reduced by $11,549 under the custodian
arrangement.
41. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 A
CLASS A
FROM NET INVESTMENT INCOME $ 185,833 $ 1,434
CLASS T
FROM NET INVESTMENT INCOME 23,319,675 30,327,901
INSTITUTIONAL CLASS
FROM NET INVESTMENT INCOME 373,830 675,143
$ 23,879,338 $ 31,004,478
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
42. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 2,306,357 23,644 $ 21,425,255 $ 220,223
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 4,547 152 42,258 1,421
SHARES REDEEMED (214,574) (2,001) (2,004,901) (18,626)
NET INCREASE (DECREASE) 2,096,330 21,795 $ 19,462,612 $ 203,018
CLASS T 18,782,631 16,400,676 $ 175,250,208 $ 154,169,354
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 1,976,051 2,602,490 18,435,965 24,457,228
SHARES REDEEMED (27,605,815) (32,291,505) (257,378,530) (303,417,559)
NET INCREASE (DECREASE) (6,847,133) (13,288,339) $ (63,692,357) $ (124,790,977)
INSTITUTIONAL CLASS 500,009 706,911 $ 4,670,792 $ 6,663,694
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 33,143 62,772 309,411 589,181
SHARES REDEEMED (792,628) (825,831) (7,399,775) (7,749,583)
NET INCREASE (DECREASE) (259,476) (56,148) $ (2,419,572) $ (496,708)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
43. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 29,239
CLASS T 48,294
INSTITUTIONAL CLASS 17,843
$ 95,376
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 statements 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, 1997, 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 of Class
A, Class T and Institutional Class for each of the periods indicated
therein. 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, 1997, 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, 1997, 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 of Class A, Class T and Institutional Class for each of the
periods indicated therein, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 12, 1997
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
Robert C. Pozen, Senior Vice President
Dwight D. Churchill, Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O.McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
