(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
BALANCED FUND
(FORMERLY ADVISOR INCOME & GROWTH FUND) -
CLASS A, CLASS T AND CLASS B
SEMIANNUAL REPORT
APRIL 30, 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 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 42 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 50 Notes to the financial statements.
REPORT OF INDEPENDENT 58 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:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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-1fee (0.65% prior to
January 1, 1996). If Fidelity had not reimbursed certain class expenses,
the total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Balanced - Class A 9.26% 16.25% 56.67% 188.38%
Advisor Balanced - Class A 3.52% 10.15% 48.45% 173.24%
(incl. max. 5.25% sales charge)
S&P 500(registered trademark) 14.72% 25.13% 120.23% 275.42%
Lehman Brothers Aggregate Bond Index 1.70% 7.09% 42.63% 130.18%
Balanced Funds Average 6.22% 12.71% 71.26% 170.48%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years or 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 six
months average represents a peer group of 328 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Balanced - Class A 16.25% 9.39% 11.17%
Advisor Balanced - Class A 10.15% 8.22% 10.57%
(incl. max. 5.25% sales charge)
S&P 500 25.13% 17.10% 14.14%
Lehman Brothers Aggregate Bond Index 7.09% 7.36% 8.69%
Balanced Funds Average 12.71% 11.30% 10.41%
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
FA Balanced -CL A SP Standard & Poor 500 LB
Aggregate Bond
00249 SP001 LB001
1987/04/30 9475.00 10000.00
10000.00
1987/05/31 9448.68 10087.00
9960.88
1987/06/30 9676.64 10596.39
10097.97
1987/07/31 10144.15 11133.63
10090.21
1987/08/31 10355.86 11548.92
10036.21
1987/09/30 10179.75 11295.99
9822.50
1987/10/31 8385.41 8862.84
10172.33
1987/11/30 8234.40 8132.54
10253.81
1987/12/31 8594.37 8751.43
10393.48
1988/01/31 9098.87 9119.86
10758.83
1988/02/29 9477.23 9544.85
10886.55
1988/03/31 9504.26 9249.91
10784.38
1988/04/30 9668.60 9352.58
10726.18
1988/05/31 9705.12 9433.95
10654.08
1988/06/30 10107.66 9866.97
10911.12
1988/07/31 10070.67 9829.48
10853.89
1988/08/31 10033.68 9495.27
10882.34
1988/09/30 10219.47 9899.77
11128.71
1988/10/31 10369.34 10174.99
11338.23
1988/11/30 10266.30 10029.48
11200.49
1988/12/31 10389.32 10205.00
11213.10
1989/01/31 10798.05 10952.01
11374.44
1989/02/28 10836.07 10679.30
11291.99
1989/03/31 11018.44 10928.13
11340.81
1989/04/30 11461.10 11495.30
11578.13
1989/05/31 11836.40 11960.86
11882.38
1989/06/30 11999.56 11892.68
12244.17
1989/07/31 12544.55 12966.59
12504.45
1989/08/31 12739.19 13220.73
12319.18
1989/09/30 12759.07 13166.53
12382.23
1989/10/31 12562.33 12861.07
12687.12
1989/11/30 12818.10 13123.43
12808.04
1989/12/31 12944.78 13438.39
12842.32
1990/01/31 12318.59 12536.68
12689.71
1990/02/28 12350.98 12698.40
12730.77
1990/03/31 12523.85 13034.91
12740.15
1990/04/30 12359.93 12709.04
12623.43
1990/05/31 12818.92 13948.17
12997.19
1990/06/30 12873.30 13853.32
13205.73
1990/07/31 12840.12 13808.99
13388.41
1990/08/31 12054.89 12560.66
13209.61
1990/09/30 11776.66 11948.95
13318.89
1990/10/31 11664.60 11897.57
13487.99
1990/11/30 12191.25 12666.15
13778.33
1990/12/31 12563.82 13019.54
13993.02
1991/01/31 13212.50 13587.19
14165.99
1991/02/28 13986.35 14558.68
14286.92
1991/03/31 14341.59 14911.00
14385.20
1991/04/30 14617.39 14946.78
14541.05
1991/05/31 15226.45 15592.48
14626.08
1991/06/30 14914.38 14878.35
14618.64
1991/07/31 15552.24 15571.68
14821.37
1991/08/31 15946.55 15940.73
15142.10
1991/09/30 16063.96 15674.52
15448.93
1991/10/31 16531.96 15884.56
15620.94
1991/11/30 16145.86 15244.41
15764.17
1991/12/31 16896.01 16988.37
16232.34
1992/01/31 17007.17 16672.39
16011.51
1992/02/29 17365.35 16889.13
16115.62
1992/03/31 17303.70 16559.79
16024.77
1992/04/30 17440.73 17046.65
16140.52
1992/05/31 17789.55 17130.18
16445.08
1992/06/30 17627.79 16874.94
16671.41
1992/07/31 18142.56 17565.12
17011.54
1992/08/31 18142.56 17205.04
17183.87
1992/09/30 18292.66 17408.05
17387.57
1992/10/31 18229.41 17468.98
17157.04
1992/11/30 18343.26 18064.68
17160.92
1992/12/31 18450.37 18286.87
17433.80
1993/01/31 18798.49 18440.48
17768.11
1993/02/28 19200.17 18691.27
18079.15
1993/03/31 19924.84 19085.66
18154.48
1993/04/30 20491.81 18623.78
18280.90
1993/05/31 20883.28 19122.90
18304.18
1993/06/30 20748.83 19178.36
18635.91
1993/07/31 20966.52 19101.64
18741.31
1993/08/31 21728.44 19825.60
19069.81
1993/09/30 21525.30 19672.94
19122.18
1993/10/31 21813.21 20080.17
19193.64
1993/11/30 21525.30 19889.41
19030.36
1993/12/31 22076.81 20130.07
19133.50
1994/01/31 22690.45 20814.49
19391.83
1994/02/28 22290.87 20250.42
19054.93
1994/03/31 21400.63 19367.50
18585.15
1994/04/30 21228.04 19615.41
18436.74
1994/05/31 21314.34 19937.10
18434.16
1994/06/30 20909.83 19448.64
18393.42
1994/07/31 21314.16 20086.55
18758.77
1994/08/31 21574.09 20910.10
18782.05
1994/09/30 21429.92 20397.81
18505.61
1994/10/31 21227.34 20856.76
18489.12
1994/11/30 20937.94 20097.15
18448.06
1994/12/31 20952.41 20395.19
18575.45
1995/01/31 20894.05 20924.04
18943.06
1995/02/28 21258.82 21739.45
19393.45
1995/03/31 21612.03 22380.98
19512.43
1995/04/30 21847.42 23040.10
19784.99
1995/05/31 22274.07 23961.02
20550.62
1995/06/30 22541.48 24517.63
20701.28
1995/07/31 22882.57 25330.63
20655.05
1995/08/31 22941.89 25394.21
20904.33
1995/09/30 23163.54 26465.85
21107.70
1995/10/31 22894.20 26371.37
21382.20
1995/11/30 23537.63 27529.07
21702.61
1995/12/31 23898.74 28059.28
22007.18
1996/01/31 24111.72 29014.42
22153.32
1996/02/29 23716.19 29283.38
21768.24
1996/03/31 23534.74 29565.38
21616.93
1996/04/30 23504.10 30001.17
21495.36
1996/05/31 23626.67 30774.90
21451.71
1996/06/30 23765.22 30892.16
21739.79
1996/07/31 23270.76 29527.34
21799.28
1996/08/31 23456.18 30150.07
21762.75
1996/09/30 24370.09 31846.92
22142.00
1996/10/31 25009.36 32725.26
22632.48
1996/11/30 26350.26 35198.96
23020.14
1996/12/31 25883.65 34501.67
22806.10
1997/01/31 26769.64 36657.33
22875.94
1997/02/28 27180.99 36944.73
22932.85
1997/03/31 26240.42 35426.67
22678.72
1997/04/30 27324.47 37541.64
23018.20
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Balanced Fund - Class A on April 30, 1987, and the
current maximum 5.25% sales charge was paid. As the chart shows, by April
30, 1997, the value of the investment would have grown to $27,324 - a
173.24% 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 reinvested, the same $10,000 investment in the
S&P 500 would have grown to $37,542 - a 275.42% increase. If you had put
$10,000 in the bond index, it would have grown to $23,018 - a 130.18%
increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Balanced - Class T 9.37% 16.44% 56.93% 188.86%
Advisor Balanced - Class T 5.55% 12.37% 51.43% 178.75%
(incl. max. 3.50% sales charge)
S&P 500(registered trademark) 14.72% 25.13% 120.23% 275.42%
Lehman Brothers Aggregate Bond Index 1.70% 7.09% 42.63% 130.18%
Balanced Funds Average 6.22% 12.71% 71.26% 170.48%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage terms
over a set period - in this case, six months, 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 six
months average represents a peer group of 328 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Balanced - Class T 16.44% 9.43% 11.19%
Advisor Balanced - Class T 12.37% 8.65% 10.80%
(incl. max. 3.50% sales charge)
S&P 500 25.13% 17.10% 14.14%
Lehman Brothers Aggregate Bond Index 7.09% 7.36% 8.69%
Balanced Funds Average 12.71% 11.30% 10.41%
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
FA Balanced -CL T SP Standard & Poor 500 LB
Aggregate Bond
00170 SP001 LB001
1987/04/30 9650.00 10000.00
10000.00
1987/05/31 9623.19 10087.00
9960.88
1987/06/30 9855.36 10596.39
10097.97
1987/07/31 10331.51 11133.63
10090.21
1987/08/31 10547.13 11548.92
10036.21
1987/09/30 10367.76 11295.99
9822.50
1987/10/31 8540.29 8862.84
10172.33
1987/11/30 8386.49 8132.54
10253.81
1987/12/31 8753.11 8751.43
10393.48
1988/01/31 9266.92 9119.86
10758.83
1988/02/29 9652.28 9544.85
10886.55
1988/03/31 9679.80 9249.91
10784.38
1988/04/30 9847.18 9352.58
10726.18
1988/05/31 9884.37 9433.95
10654.08
1988/06/30 10294.35 9866.97
10911.12
1988/07/31 10256.67 9829.48
10853.89
1988/08/31 10219.00 9495.27
10882.34
1988/09/30 10408.22 9899.77
11128.71
1988/10/31 10560.86 10174.99
11338.23
1988/11/30 10455.92 10029.48
11200.49
1988/12/31 10581.21 10205.00
11213.10
1989/01/31 10997.49 10952.01
11374.44
1989/02/28 11036.21 10679.30
11291.99
1989/03/31 11221.94 10928.13
11340.81
1989/04/30 11672.78 11495.30
11578.13
1989/05/31 12055.01 11960.86
11882.38
1989/06/30 12221.18 11892.68
12244.17
1989/07/31 12776.24 12966.59
12504.45
1989/08/31 12974.48 13220.73
12319.18
1989/09/30 12994.73 13166.53
12382.23
1989/10/31 12794.35 12861.07
12687.12
1989/11/30 13054.84 13123.43
12808.04
1989/12/31 13183.86 13438.39
12842.32
1990/01/31 12546.11 12536.68
12689.71
1990/02/28 12579.10 12698.40
12730.77
1990/03/31 12755.17 13034.91
12740.15
1990/04/30 12588.21 12709.04
12623.43
1990/05/31 13055.68 13948.17
12997.19
1990/06/30 13111.06 13853.32
13205.73
1990/07/31 13077.27 13808.99
13388.41
1990/08/31 12277.54 12560.66
13209.61
1990/09/30 11994.17 11948.95
13318.89
1990/10/31 11880.05 11897.57
13487.99
1990/11/30 12416.42 12666.15
13778.33
1990/12/31 12795.87 13019.54
13993.02
1991/01/31 13456.53 13587.19
14165.99
1991/02/28 14244.68 14558.68
14286.92
1991/03/31 14606.48 14911.00
14385.20
1991/04/30 14887.37 14946.78
14541.05
1991/05/31 15507.68 15592.48
14626.08
1991/06/30 15189.84 14878.35
14618.64
1991/07/31 15839.48 15571.68
14821.37
1991/08/31 16241.08 15940.73
15142.10
1991/09/30 16360.66 15674.52
15448.93
1991/10/31 16837.30 15884.56
15620.94
1991/11/30 16444.07 15244.41
15764.17
1991/12/31 17208.07 16988.37
16232.34
1992/01/31 17321.29 16672.39
16011.51
1992/02/29 17686.08 16889.13
16115.62
1992/03/31 17623.29 16559.79
16024.77
1992/04/30 17762.86 17046.65
16140.52
1992/05/31 18118.11 17130.18
16445.08
1992/06/30 17953.37 16874.94
16671.41
1992/07/31 18477.65 17565.12
17011.54
1992/08/31 18477.65 17205.04
17183.87
1992/09/30 18630.52 17408.05
17387.57
1992/10/31 18566.10 17468.98
17157.04
1992/11/30 18682.05 18064.68
17160.92
1992/12/31 18791.15 18286.87
17433.80
1993/01/31 19145.70 18440.48
17768.11
1993/02/28 19554.79 18691.27
18079.15
1993/03/31 20292.85 19085.66
18154.48
1993/04/30 20870.28 18623.78
18280.90
1993/05/31 21268.99 19122.90
18304.18
1993/06/30 21132.05 19178.36
18635.91
1993/07/31 21353.76 19101.64
18741.31
1993/08/31 22129.76 19825.60
19069.81
1993/09/30 21922.86 19672.94
19122.18
1993/10/31 22216.10 20080.17
19193.64
1993/11/30 21922.86 19889.41
19030.36
1993/12/31 22484.56 20130.07
19133.50
1994/01/31 23109.54 20814.49
19391.83
1994/02/28 22702.58 20250.42
19054.93
1994/03/31 21795.89 19367.50
18585.15
1994/04/30 21620.12 19615.41
18436.74
1994/05/31 21708.00 19937.10
18434.16
1994/06/30 21296.02 19448.64
18393.42
1994/07/31 21707.83 20086.55
18758.77
1994/08/31 21972.55 20910.10
18782.05
1994/09/30 21825.72 20397.81
18505.61
1994/10/31 21619.40 20856.76
18489.12
1994/11/30 21324.66 20097.15
18448.06
1994/12/31 21339.40 20395.19
18575.45
1995/01/31 21279.96 20924.04
18943.06
1995/02/28 21651.46 21739.45
19393.45
1995/03/31 22011.20 22380.98
19512.43
1995/04/30 22250.94 23040.10
19784.99
1995/05/31 22685.47 23961.02
20550.62
1995/06/30 22957.82 24517.63
20701.28
1995/07/31 23305.21 25330.63
20655.05
1995/08/31 23365.62 25394.21
20904.33
1995/09/30 23591.36 26465.85
21107.70
1995/10/31 23317.04 26371.37
21382.20
1995/11/30 23972.36 27529.07
21702.61
1995/12/31 24340.14 28059.28
22007.18
1996/01/31 24557.05 29014.42
22153.32
1996/02/29 24154.22 29283.38
21768.24
1996/03/31 23969.42 29565.38
21616.93
1996/04/30 23938.21 30001.17
21495.36
1996/05/31 24063.05 30774.90
21451.71
1996/06/30 24204.16 30892.16
21739.79
1996/07/31 23700.56 29527.34
21799.28
1996/08/31 23889.41 30150.07
21762.75
1996/09/30 24819.75 31846.92
22142.00
1996/10/31 25485.83 32725.26
22632.48
1996/11/30 26849.73 35198.96
23020.14
1996/12/31 26391.07 34501.67
22806.10
1997/01/31 27293.33 36657.33
22875.94
1997/02/28 27712.24 36944.73
22932.85
1997/03/31 26753.84 35426.67
22678.72
1997/04/30 27874.68 37541.64
23018.20
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Balanced Fund - Class T on April 30, 1987, and the
current maximum 3.50% sales charge was paid. As the chart shows, by April
30, 1997, the value of the investment would have grown to $27,875 - a
178.75% 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 reinvested, the same $10,000 investment in the
S&P 500 would have grown to $37,542 - a 275.42% increase. If you had put
$10,000 in the bond index, it would have grown to $23,018 - a 130.18%
increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
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-1fee (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 six
months, past one year, past five years and past 10 years total return
figures are 5%, 5%, 2% and 0%, respectively. If Fidelity had not reimbursed
certain class expenses, the total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Balanced - Class B 8.99% 16.04% 56.38% 187.85%
Advisor Balanced - Class B 3.99% 11.04% 54.38% 187.85%
(incl. contingent deferred sales
charge)
S&P 500(registered trademark) 14.72% 25.13% 120.23% 275.42%
Lehman Brothers Aggregate Bond Index 1.70% 7.09% 42.63% 130.18%
Balanced Funds Average 6.22% 12.71% 71.26% 170.48%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, six months, one year, five years or 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 six
months average represents a peer group of 328 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Balanced - Class B 16.04% 9.35% 11.15%
Advisor Balanced - Class B 11.04% 9.07% 11.15%
(incl. contingent deferred sales charge)
S&P 500 25.13% 17.10% 14.14%
Lehman Brothers Aggregate Bond Index 7.09% 7.36% 8.69%
Balanced Funds Average 12.71% 11.30% 10.41%
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
FA Balanced -CL B SP Standard & Poor 500 LB
Aggregate Bond
00241 SP001 LB001
1987/04/30 10000.00 10000.00
10000.00
1987/05/31 9972.22 10087.00
9960.88
1987/06/30 10212.81 10596.39
10097.97
1987/07/31 10706.23 11133.63
10090.21
1987/08/31 10929.66 11548.92
10036.21
1987/09/30 10743.79 11295.99
9822.50
1987/10/31 8850.04 8862.84
10172.33
1987/11/30 8690.66 8132.54
10253.81
1987/12/31 9070.58 8751.43
10393.48
1988/01/31 9603.02 9119.86
10758.83
1988/02/29 10002.36 9544.85
10886.55
1988/03/31 10030.88 9249.91
10784.38
1988/04/30 10204.33 9352.58
10726.18
1988/05/31 10242.87 9433.95
10654.08
1988/06/30 10667.72 9866.97
10911.12
1988/07/31 10628.68 9829.48
10853.89
1988/08/31 10589.64 9495.27
10882.34
1988/09/30 10785.72 9899.77
11128.71
1988/10/31 10943.90 10174.99
11338.23
1988/11/30 10835.15 10029.48
11200.49
1988/12/31 10964.98 10205.00
11213.10
1989/01/31 11396.36 10952.01
11374.44
1989/02/28 11436.49 10679.30
11291.99
1989/03/31 11628.96 10928.13
11340.81
1989/04/30 12096.15 11495.30
11578.13
1989/05/31 12492.24 11960.86
11882.38
1989/06/30 12664.44 11892.68
12244.17
1989/07/31 13239.63 12966.59
12504.45
1989/08/31 13445.05 13220.73
12319.18
1989/09/30 13466.04 13166.53
12382.23
1989/10/31 13258.39 12861.07
12687.12
1989/11/30 13528.34 13123.43
12808.04
1989/12/31 13662.03 13438.39
12842.32
1990/01/31 13001.15 12536.68
12689.71
1990/02/28 13035.34 12698.40
12730.77
1990/03/31 13217.79 13034.91
12740.15
1990/04/30 13044.78 12709.04
12623.43
1990/05/31 13529.20 13948.17
12997.19
1990/06/30 13586.59 13853.32
13205.73
1990/07/31 13551.58 13808.99
13388.41
1990/08/31 12722.84 12560.66
13209.61
1990/09/30 12429.19 11948.95
13318.89
1990/10/31 12310.93 11897.57
13487.99
1990/11/30 12866.75 12666.15
13778.33
1990/12/31 13259.97 13019.54
13993.02
1991/01/31 13944.59 13587.19
14165.99
1991/02/28 14761.32 14558.68
14286.92
1991/03/31 15136.25 14911.00
14385.20
1991/04/30 15427.33 14946.78
14541.05
1991/05/31 16070.13 15592.48
14626.08
1991/06/30 15740.77 14878.35
14618.64
1991/07/31 16413.97 15571.68
14821.37
1991/08/31 16830.14 15940.73
15142.10
1991/09/30 16954.05 15674.52
15448.93
1991/10/31 17447.98 15884.56
15620.94
1991/11/30 17040.49 15244.41
15764.17
1991/12/31 17832.20 16988.37
16232.34
1992/01/31 17949.52 16672.39
16011.51
1992/02/29 18327.54 16889.13
16115.62
1992/03/31 18262.48 16559.79
16024.77
1992/04/30 18407.10 17046.65
16140.52
1992/05/31 18775.25 17130.18
16445.08
1992/06/30 18604.53 16874.94
16671.41
1992/07/31 19147.82 17565.12
17011.54
1992/08/31 19147.82 17205.04
17183.87
1992/09/30 19306.24 17408.05
17387.57
1992/10/31 19239.48 17468.98
17157.04
1992/11/30 19359.64 18064.68
17160.92
1992/12/31 19472.69 18286.87
17433.80
1993/01/31 19840.10 18440.48
17768.11
1993/02/28 20264.03 18691.27
18079.15
1993/03/31 21028.86 19085.66
18154.48
1993/04/30 21627.24 18623.78
18280.90
1993/05/31 22040.41 19122.90
18304.18
1993/06/30 21898.50 19178.36
18635.91
1993/07/31 22128.25 19101.64
18741.31
1993/08/31 22932.39 19825.60
19069.81
1993/09/30 22717.99 19672.94
19122.18
1993/10/31 23021.86 20080.17
19193.64
1993/11/30 22717.99 19889.41
19030.36
1993/12/31 23300.07 20130.07
19133.50
1994/01/31 23947.71 20814.49
19391.83
1994/02/28 23525.99 20250.42
19054.93
1994/03/31 22586.41 19367.50
18585.15
1994/04/30 22404.27 19615.41
18436.74
1994/05/31 22495.34 19937.10
18434.16
1994/06/30 22068.42 19448.64
18393.42
1994/07/31 22495.16 20086.55
18758.77
1994/08/31 22769.49 20910.10
18782.05
1994/09/30 22617.33 20397.81
18505.61
1994/10/31 22403.53 20856.76
18489.12
1994/11/30 22098.09 20097.15
18448.06
1994/12/31 22113.36 20395.19
18575.45
1995/01/31 22051.77 20924.04
18943.06
1995/02/28 22436.75 21739.45
19393.45
1995/03/31 22809.53 22380.98
19512.43
1995/04/30 23057.97 23040.10
19784.99
1995/05/31 23508.26 23961.02
20550.62
1995/06/30 23790.48 24517.63
20701.28
1995/07/31 24150.47 25330.63
20655.05
1995/08/31 24213.08 25394.21
20904.33
1995/09/30 24447.01 26465.85
21107.70
1995/10/31 24162.74 26371.37
21382.20
1995/11/30 24841.82 27529.07
21702.61
1995/12/31 25222.95 28059.28
22007.18
1996/01/31 25447.72 29014.42
22153.32
1996/02/29 25030.28 29283.38
21768.24
1996/03/31 24838.78 29565.38
21616.93
1996/04/30 24806.43 30001.17
21495.36
1996/05/31 24935.80 30774.90
21451.71
1996/06/30 25082.03 30892.16
21739.79
1996/07/31 24560.17 29527.34
21799.28
1996/08/31 24755.86 30150.07
21762.75
1996/09/30 25719.94 31846.92
22142.00
1996/10/31 26410.19 32725.26
22632.48
1996/11/30 27823.55 35198.96
23020.14
1996/12/31 27314.87 34501.67
22806.10
1997/01/31 28249.85 36657.33
22875.94
1997/02/28 28650.56 36944.73
22932.85
1997/03/31 27658.55 35426.67
22678.72
1997/04/30 28785.07 37541.64
23018.20
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Balanced Fund - Class B on April 30, 1987. As the chart
shows, by April 30, 1997, the value of the investment would have grown to
$28,785 - a 187.85% 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 reinvested, the same $10,000
investment in the S&P 500 would have grown to $37,542 - a 275.42% increase.
If you had put $10,000 in the bond index, it would have grown to $23,018 -
a 130.18% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
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
An interview with Bettina Doulton (left), Lead Portfolio Manager of
Fidelity Advisor Balanced Fund, and Kevin Grant, manager for fixed-income
investments
Q. HOW DID THE FUND PERFORM, BETTINA?
B.D. For the six months that ended April 30, 1997, the fund's Class A,
Class T and Class B shares posted total returns of 9.26%, 9.37% and 8.99%,
respectively, significantly outperforming the 6.22% return for the balanced
funds average tracked by Lipper Analytical Services. Given the structure of
the fund - namely its mix of equities and fixed-income securities -
performance typically falls between its two benchmark indexes, the Standard
& Poor's 500 Index and the Lehman Brothers Aggregate Bond Index. In this
respect, performance over the past six months was in line with my
expectations; while the fund outperformed the Lehman Brothers index, which
returned 1.70% over the six months, it underperformed the S&P 500, which
gained 14.72%. For the 12 months that ended April 30, 1997, the fund's
Class A, Class T and Class B shares returned 16.25%, 16.44% and 16.04%,
respectively, while the balanced funds average returned 12.71%, the Lehman
Brothers index returned 7.09% and the S&P 500 returned 25.13%.
Q. WHAT KEY STRATEGIES HELPED THE FUND OUTPERFORM THE LIPPER AVERAGE OVER
THE PAST SIX MONTHS?
B.D. Because the asset allocation of the fund generally will approximate
60% equities and 40% fixed-income, the strategy is to add value through
security selection within each of the asset classes. This approach clearly
benefited performance during the past six months. In fact, the equity
portion of the fund outperformed the S&P 500 over that period. Within the
equity sub-portfolio, my concentration on selected larger-capitalization
stocks within the finance, nondurables and health sectors - all of which
were among the best performing during the period - was very helpful.
Another beneficial strategy was my decision to underemphasize the large
utilities sector, which dramatically underperformed amid uncertainty
regarding the deregulation of both the electric and telecommunications
sectors.
Q. HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT DURING THE PAST SIX
MONTHS?
B.D. Looking beyond the 14.72% six-month return for the S&P 500 - which
substantially exceeded its historical average ANNUAL return of about 11% -
one of the most noticeable trends has been a dramatic rise in the stock
market's volatility. Interestingly, the bull market during much of the '90s
has been accompanied by below-average volatility; only over the past few
months has volatility reached levels last seen in 1990-1991. One of the
most significant factors responsible for the recent upswing in volatility
has been increasing uncertainty over the direction of interest rates.
Remarks by Federal Reserve Board Chairman Alan Greenspan warning of
"irrational exuberance" in the stock market - widely interpreted as an
indication that the Fed would take actions to increase short-term interest
rates - were largely responsible for a 5% correction in the S&P 500 during
December. A more significant correction, just short of 10%, followed in
March and April as interest rate concerns again became a focus of
attention. Notably, the market rebounded strongly from both corrections,
helped in part by continued strong earnings reports. At the end of April,
the S&P 500 nearly had regained the high it had reached before the more
recent correction.
Q. WHAT TYPES OF EQUITY INVESTMENTS WERE MOST ATTRACTIVE OVER THE PERIOD?
B.D. Overall, stock selection remained company-specific, focused on firms
with competitive advantages or catalysts for positive change - including
dominant market positions, cost-structure reductions or new products - and
outstanding, shareholder-friendly management. The combination of some or
all of these attributes typically translates into solid earnings and
generous free cash flow. Of course, my decision to invest in a particular
stock also is contingent on an attractive valuation. Over the past six
months, a significant proportion of companies meeting these criteria have
been large-capitalization diversified financials and "consumer growth
companies," mainly pharmaceuticals and nondurables firms. Two stocks that I
found particularly attractive during the period were BankAmerica and
Unilever. BankAmerica, the fund's fourth-largest equity position,
exemplifies many of the fund's finance investments. This bank is in the
process of aggressively reducing its cost structure, achieving improving
returns on capital and utilizing excess capital to repurchase its shares.
In addition, the firm has been the beneficiary of an improving California
economy. Unilever, the large consumer products company, is a good example
of my ongoing interest in restructuring stories. Under the direction of a
new CEO, this company has focused on improving its relatively lackluster
returns by redeploying capital away from weak businesses and into
strong-performing units, particularly those in rapidly growing emerging
markets.
Q. HOW DID SOME OF THE OTHER LARGER STOCK HOLDINGS PERFORM?
B.D. Most of the fund's top five stocks performed well during the six-month
period, including both BankAmerica and Citicorp. Their solid business
prospects shone through in the face of a rather volatile environment for
financials brought on by concerns that interest rates would be on the rise.
General Electric and Philip Morris also were positive contributors. The
upward revaluation of GE continued as investors were attracted to its
global business franchise, consistent growth prospects and stable free cash
flow. Philip Morris' underlying business prospects remained good , and the
market seemed more optimistic that there might be some resolution on the
litigation and regulatory fronts. British Petroleum proved to be the
relative laggard in the group, as softening oil prices caused most of the
energy sector to surrender some of the gains we saw in 1996.
Q. WERE THERE ANY DISAPPOINTMENTS?
B.D. Relative to the S&P 500, the fund's most significant detractor was an
underrepresentation within the very strong technology sector. However,
given the fund's conservative, income-driven objective, it's typically
difficult to justify significant technology exposure. In addition, the
fund's aerospace and defense investments were disappointing, as they
weakened early in 1997 after outperforming for most of 1996.
Q. TURNING TO YOU, KEVIN, HOW HAVE YOU STRUCTURED THE BOND PORTION OF THE
FUND?
K.G. I've maintained an interest rate posture in line with the overall bond
market as measured by the Lehman Brothers Aggregate Bond Index. And, during
the past six months, the bond portfolio outperformed the index because of
security selection. In particular, I've been attracted to corporate bonds
issued by companies that I felt wouldn't be affected by shifts in the
economy, including bonds issued by banks. Historically, bank earnings were
quite sensitive to interest rates. However, over the past several years,
banks have increased the fee-based portions of their business, making them
less sensitive to interest rates and loans. Bonds issued by energy
companies also proved to be positive performers for the fund, helped by an
upward spike in energy prices in the winter. This rise in prices helped
increase the companies' cash flow, which they used to pay down debt. In the
corporate area overall, I've focused on shorter maturities in the two- to
four-year range. These bonds offer a yield advantage over Treasuries, but
are short enough in maturity that they shouldn't markedly underperform
Treasuries if the market becomes nervous about credit risk.
Q. WERE THERE OTHER TYPES OF CORPORATE BONDS THAT INTERESTED YOU?
K.G. Yes. Bank bonds known as capital securities presented an opportunity
during the period. Because of a change brought about by the Federal Reserve
Board last fall, banks were given the ability to issue these long-term
bonds for which the interest payments are tax-deductible to the banks. A
new market was created, as banks sought to issue as many capital securities
as possible before Congress had the chance to close this tax loophole. A
flood of securities came to market very cheaply, so I added some to the
fund.
Q. LOOKING AT THE BIG PICTURE, BETTINA, WHAT'S YOUR OUTLOOK FOR THE NEXT
SIX MONTHS?
B.D. In terms of the overall U.S. economy, I believe it's likely there will
be more of the same - moderate growth and low inflation - although the
duration of the current economic expansion has already exceeded all but two
post-war expansions. Many companies that I've recently met with have
indicated that the general business climate continues to become more
competitive than ever. Given continuous pressure from shareholders to
enhance returns and an almost complete lack of pricing power, company
managements' interest in business restructurings and other self-help
measures appears to be rising again. Increasingly, market share gains,
globalization, improved productivity, capital redeployment and execution
will be the critical success factors. In addition, mergers and acquisitions
are likely to accelerate as companies seek to bolster their position and
exploit both cost-reducing and revenue-enhancing synergies. Given the
scenario I just outlined, I think it's probable that the same stocks that
have recently been market leaders - larger-capitalization financials,
pharmaceuticals and consumer nondurables - will continue to outperform.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks both income
and growth of capital by
investing in a diversified
portfolio of equity and
fixed-income securities with
income, growth of income
and capital appreciation
potential
START DATE: January 6, 1987
SIZE: as of April 30, 1997
more than $2.8 billion
MANAGER: Bettina Doulton
and Kevin Grant, since 1996;
Bettina Doulton joined
Fidelity in 1986; Kevin Grant
joined Fidelity in 1993
(checkmark)
BETTINA DOULTON ON
LARGE-CAPITALIZATION STOCKS:
"Over the past year, there has
been heated debate over why
large-cap stocks have
outperformed their small-cap
counterparts. Many
analysts have contended that
the indexing phenomenon -
a "virtuous circle" of S&P 500
index fund outperformance
begetting increasing
investments in large-cap
companies that comprise the
index, thereby driving their
stocks higher - is
responsible for this
outperformance. However,
part of the reality -
overlooked to some extent -
is that larger companies have
generated significantly better
earnings growth in recent
years. Even within the
large-cap S&P 500, there has
been a wide disparity in
earnings growth rates by
capitalization. Between 1993
and 1996, the largest 100
companies in the S&P 500
grew their operating earnings
at a rate that was
approximately 2.5 times the
rate of the index's smallest 400
companies. I believe this
earnings differential has been
at the heart of the recent
large-cap outperformance.
More importantly, I see little
on the horizon that is likely
to alter this trend.
Globalization and the
resulting need to leverage
strong market positions and
brands continue to favor
larger enterprises. In addition,
many larger firms have been
leaders in cost containment
over recent years, which is
now bearing fruit in terms of
margin expansions and rising
free cash flows."
(solid bullet)
(solid bullet)
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Citicorp 2.4 2.9
Philip Morris Companies, Inc. 2.4 2.7
British Petroleum PLC Ord. 2.3 2.0
BankAmerica Corp. 2.1 1.9
General Electric Co. 2.1 2.8
TOP FIVE BOND ISSUERS AS OF APRIL 30, 1997
(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 6.2 7.3
Federal National Mortgage Association 5.9 8.7
Federal Home Loan Mortgage Corporation 1.3 1.2
Government National Mortgage Association 1.1 1.3
Comdisco Inc. 0.6 0.4
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 20.2 19.5
Nondurables 8.8 7.5
Energy 8.1 9.0
Health 8.1 7.6
Industrial Machinery & Equipment 6.2 5.4
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
Row: 1, Col: 1, Value: 0.0
Row: 1, Col: 2, Value: 2.8
Row: 1, Col: 3, Value: 1.8
Row: 1, Col: 4, Value: 35.0
Row: 1, Col: 5, Value: 30.0
Row: 1, Col: 6, Value: 31.4
Stocks 60.8%
Bonds 34.3%
Convertible
securities 1.8%
Short-term
investments 3.1%
FOREIGN
INVESTMENTS 11.4%
Stocks 62.4%
Bonds 34.9%
Convertible
securities 0.8%
Short-term
investments 1.9%
FOREIGN
INVESTMENTS 11.2%
Row: 1, Col: 1, Value: 3.0
Row: 1, Col: 2, Value: 2.1
Row: 1, Col: 3, Value: 34.3
Row: 1, Col: 4, Value: 30.0
Row: 1, Col: 5, Value: 30.6
*
**
INVESTMENTS APRIL 30, 1997
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 61.4%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 5.5%
AEROSPACE & DEFENSE - 4.5%
AlliedSignal, Inc. 522,600 $ 37,757
Boeing Co. 167,699 16,539
Lockheed Martin Corp. 255,900 22,903
Sundstrand Corp. 201,500 9,823
Textron, Inc. 64,700 7,206
United Technologies Corp. 436,500 33,010
127,238
DEFENSE ELECTRONICS - 0.6%
Raytheon Co. 384,100 16,756
SHIP BUILDING & REPAIR - 0.4%
General Dynamics Corp. 151,900 10,823
Newport News Shipbuilding, Inc. 19,380 291
11,114
TOTAL AEROSPACE & DEFENSE 155,108
BASIC INDUSTRIES - 4.4%
CHEMICALS & PLASTICS - 3.4%
Air Products & Chemicals, Inc. 227,300 16,309
du Pont (E.I.) de Nemours & Co. 100,100 10,623
Goodrich (B.F.) Co. 50,300 2,006
Monsanto Co. 685,000 29,284
Nalco Chemical Co. 81,600 2,938
Olin Corp. 162,700 6,691
Praxair, Inc. 573,300 29,597
97,448
METALS & MINING - 0.1%
Aluminum Co. of America 58,800 4,109
PACKAGING & CONTAINERS - 0.2%
Corning, Inc. 88,200 4,256
PAPER & FOREST PRODUCTS - 0.7%
Kimberly-Clark Corp. 376,400 19,291
TOTAL BASIC INDUSTRIES 125,104
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.2%
BUILDING MATERIALS - 0.2%
Masco Corp. 130,600 $ 4,930
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES - 0.5%
Eaton Corp. 113,900 8,528
Johnson Controls, Inc. 137,900 5,292
13,820
CONSUMER DURABLES - 1.0%
Minnesota Mining & Manufacturing Co. 340,200 29,597
CONSUMER ELECTRONICS - 0.2%
Newell Co. 177,600 6,216
TOTAL DURABLES 49,633
ENERGY - 7.1%
ENERGY SERVICES - 0.8%
Halliburton Co. 65,000 4,591
Schlumberger Ltd. 157,800 17,476
22,067
OIL & GAS - 6.3%
Amoco Corp. 80,000 6,690
British Petroleum PLC:
Ord. 5,565,546 63,970
ADR 117,321 16,146
Exxon Corp. 243,600 13,794
Mobil Corp. 133,600 17,368
Royal Dutch Petroleum Co.:
Ord. 29,400 5,257
ADR 156,000 28,119
Texaco, Inc. 177,800 18,758
Total SA:
Class B 49,500 4,106
sponsored ADR 53,800 2,239
USX-Marathon Group 76,600 2,116
Unocal Corp. 55,637 2,121
180,684
TOTAL ENERGY 202,751
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - 13.2%
BANKS - 7.1%
BankAmerica Corp. 511,900 $ 59,828
BankBoston Corp. 140,700 10,236
Citicorp 611,900 68,915
National City Corp. 116,504 5,680
NationsBank Corp. 969,400 58,528
203,187
CREDIT & OTHER FINANCE - 1.9%
American Express Co. 684,800 45,111
Associates First Capital Corp. 35,000 1,794
Beneficial Corp. 88,100 5,638
52,543
FEDERAL SPONSORED CREDIT - 2.4%
Federal Home Loan Mortgage Corporation 1,304,800 41,591
Federal National Mortgage Association 626,300 25,757
67,348
INSURANCE - 1.6%
Allstate Corp. 329,100 21,556
ITT Hartford Group, Inc. 161,900 12,062
Loews Corp. 81,500 7,488
St. Paul Companies, Inc. (The) 4,200 281
Travelers Group, Inc. (The) 53,333 2,953
44,340
SAVINGS & LOANS - 0.2%
Great Western Financial Corp. 150,000 6,300
TOTAL FINANCE 373,718
HEALTH - 8.0%
DRUGS & PHARMACEUTICALS - 7.5%
American Home Products Corp. 511,800 33,907
Bristol-Myers Squibb Co. 727,740 47,667
Merck & Co., Inc. 457,200 41,377
Novartis AG (Reg.) 3,400 4,480
Pfizer, Inc. 178,260 17,113
Schering-Plough Corp. 194,900 15,592
SmithKline Beecham PLC ADR 667,200 53,793
213,929
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.5%
Baxter International, Inc. 267,100 $ 12,787
TOTAL HEALTH 226,716
HOLDING COMPANIES - 0.0%
CINergy Corp. 36,500 1,214
INDUSTRIAL MACHINERY & EQUIPMENT - 5.6%
ELECTRICAL EQUIPMENT - 2.9%
Emerson Electric Co. 305,400 15,499
General Electric Co. 533,000 59,096
General Signal Corp. 99,900 3,921
Grainger (W.W.), Inc. 25,200 1,899
Honeywell, Inc. 38,800 2,740
83,155
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
Cooper Industries, Inc. 374,629 17,233
Harnischfeger Industries, Inc. 193,900 8,071
Tyco International Ltd. 355,900 21,710
47,014
POLLUTION CONTROL - 1.0%
Browning-Ferris Industries, Inc. 669,600 19,000
WMX Technologies, Inc. 340,800 10,011
29,011
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 159,180
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.0%
Benedek Communications Corp. (warrants) (a) 10,500 21
CS Wireless Systems, Inc. (a)(e) 381 -
21
ENTERTAINMENT - 0.2%
Cedar Fair LP (depositary unit) 150,000 5,963
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.3%
McGraw-Hill, Inc. 145,100 $ 7,382
Times Mirror Co. Class A 3,500 193
7,575
TOTAL MEDIA & LEISURE 13,559
NONDURABLES - 7.8%
BEVERAGES - 0.4%
Anheuser-Busch Companies, Inc. 294,400 12,622
FOODS - 0.7%
Campbell Soup Co. 37,400 1,912
Flowers Industries, Inc. 25,000 609
General Mills, Inc. 49,600 3,075
Heinz (H.J.) Co. 246,700 10,238
Nabisco Holdings Corp. Class A 83,700 3,212
19,046
HOUSEHOLD PRODUCTS - 4.2%
Avon Products, Inc. 151,500 9,336
Clorox Co. 92,800 11,820
Procter & Gamble Co. 313,800 39,460
Renaissance Cosmetics, Inc. (warrants) (a)(e) 2,250 236
Unilever PLC Ord. 483,200 12,716
Unilever NV:
ADR 199,500 39,152
Ord. 30,000 5,837
118,557
TOBACCO - 2.5%
Philip Morris Companies, Inc. 1,694,100 66,705
RJR Nabisco Holdings Corp. 104,400 3,106
69,811
TOTAL NONDURABLES 220,036
RETAIL & WHOLESALE - 2.4%
APPAREL STORES - 0.1%
Footstar, Inc. (a) 89,076 1,848
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
DRUG STORES - 0.8%
CVS Corp. 309,400 $ 15,354
Rite Aid Corp. 214,000 9,844
25,198
GENERAL MERCHANDISE STORES - 1.3%
Dayton Hudson Corp. 66,300 2,984
Sears, Roebuck & Co. 98,400 4,723
Wal-Mart Stores, Inc. 1,036,200 29,273
36,980
GROCERY STORES - 0.2%
American Stores Co. 118,000 5,369
TOTAL RETAIL & WHOLESALE 69,395
SERVICES - 0.4%
LEASING & RENTAL - 0.0%
Hertz Corp. Class A 11,000 319
PRINTING - 0.2%
Deluxe Corp. 199,800 6,119
SERVICES - 0.2%
Block (H&R), Inc. 11,500 371
National Service Industries, Inc. 101,000 4,255
4,626
TOTAL SERVICES 11,064
TECHNOLOGY - 2.5%
COMMUNICATIONS EQUIPMENT - 0.0%
Hyperion Telecommunications, Inc. (warrants) (a)(e) 3,790 114
COMPUTERS & OFFICE EQUIPMENT - 1.7%
Exide Electronics Group, Inc. (warrants) (a)(e) 450 11
International Business Machines Corp. 72,800 11,703
Pitney Bowes, Inc. 549,400 35,161
46,875
ELECTRONICS - 0.5%
Thomas & Betts Corp. 310,400 14,084
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
PHOTOGRAPHIC EQUIPMENT - 0.3%
Eastman Kodak Co. 105,600 $ 8,818
TOTAL TECHNOLOGY 69,891
TRANSPORTATION - 0.5%
RAILROADS - 0.3%
Burlington Northern Santa Fe Corp. 108,600 8,552
TRUCKING & FREIGHT - 0.2%
CNF Transportation, Inc. 205,100 6,102
TOTAL TRANSPORTATION 14,654
UTILITIES - 1.6%
CELLULAR - 0.0%
Microcell Telecommunications, Inc. (a):
(warrants) 25,120 314
(conditional warrants) 25,120 16
330
ELECTRIC UTILITY - 0.1%
Allegheny Power System, Inc. 37,000 971
American Electric Power Co., Inc. 7,700 312
DPL, Inc. 900 21
Edison International 90,000 1,890
3,194
GAS - 0.6%
Consolidated Natural Gas Co. 80,100 4,035
El Paso Natural Gas Co. 9,011 524
Enron Corp. 1,100 41
Williams Companies, Inc. 280,300 12,298
16,898
TELEPHONE SERVICES - 0.9%
ALLTEL Corp. 38,100 1,200
Ameritech Corp. 95,000 5,808
BCE, Inc. 143,800 6,730
MCI Communications Corp. 169,900 6,477
Nextlink Communications, Inc. unit (e) 82,190 3,863
24,078
TOTAL UTILITIES 44,500
TOTAL COMMON STOCKS
(Cost $1,388,001) 1,741,453
PREFERRED STOCKS - 1.5%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.5%
ENERGY - 0.0%
OIL & GAS - 0.0%
Tosco Financing Trust $2.875 (e) 22,300 $ 1,238
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications Ltd. $3.00 (e) 85,000 4,058
Westinghouse Electric Corp. $1.30 (e) 13,200 200
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,258
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.0%
Benedek Communications Corp. 15% (a) 6,100 638
LODGING & GAMING - 0.2%
Host Marriott Financial Trust $3.375 (e) 85,000 4,824
TOTAL MEDIA & LEISURE 5,462
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E, $7.00 12,000 3,060
TOTAL CONVERTIBLE PREFERRED STOCKS 14,018
NONCONVERTIBLE PREFERRED STOCKS - 1.0%
FINANCE - 0.1%
INSURANCE - 0.0%
American Annuity Group Capital Trust II 1,000 995
SAVINGS & LOANS - 0.1%
California Federal Bank FSB 9 1/8% 61,560 1,531
California Federal Bank FSB 11 1/2% 9,200 1,038
2,569
TOTAL FINANCE 3,564
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.6%
BROADCASTING - 0.5%
American Radio System pay-in-kind 11 3/8% (e) 22,929 $ 2,264
Cablevision System Corp.:
depositary shares 11,853 1,088
Series H, $11.75 pay-in-kind 1,940 184
PanAmSat Corp. 12 3/4% pay-in-kind 420 500
Sinclair Capital 11 5/8% (e) 17,700 1,770
Time Warner, Inc., Series M, 10 1/4% pay-in-kind 8,450 9,126
14,932
PUBLISHING - 0.1%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 38 4
Series D, $200 28,400 2,783
2,787
TOTAL MEDIA & LEISURE 17,719
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Renaissance Cosmetics, Inc. 14% 2,502 2,189
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc. 13 1/2% (a) 439 4,247
COMPUTER SERVICES & SOFTWARE - 0.1%
ICG Holdings, Inc. 14 1/4% pay-in-kind 2,337 2,197
TOTAL TECHNOLOGY 6,444
TOTAL NONCONVERTIBLE PREFERRED STOCKS 29,916
TOTAL PREFERRED STOCKS
(Cost $42,728) 43,934
CORPORATE BONDS - 18.1%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.3%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 A3 $ 4,340 $ 3,744
MEDIA & LEISURE - 0.1%
LEISURE DURABLES & TOYS - 0.1%
Hasbro Corp. 6%, 11/15/98 A3 1,400 1,792
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 5%, 10/1/03 Ba3 2,460 2,884
TOTAL CONVERTIBLE BONDS 8,420
NONCONVERTIBLE BONDS - 17.8%
AEROSPACE & DEFENSE - 0.6%
AEROSPACE & DEFENSE - 0.6%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 2,217 2,411
Fairchild Corp. 12%, 10/15/01 Caa 210 213
Lockheed Martin Corp. 7.20%, 5/1/36 A3 15,000 15,160
17,784
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc. 8 1/2%, 3/1/07 (e) B1 110 109
SHIP BUILDING & REPAIR - 0.0%
Newport News Shipbuilding, Inc.:
8 5/8%, 12/1/06 Ba2 70 70
9 1/4%, 12/1/06 B1 450 460
530
TOTAL AEROSPACE & DEFENSE 18,423
BASIC INDUSTRIES - 1.2%
CHEMICALS & PLASTICS - 0.3%
Astor Corp. 10 1/2%, 10/15/06 B3 150 155
Atlantis Group, Inc. 11%, 2/15/03 B2 790 806
Foamex-JPS Automotive LP/Foamex JPS Capital
Corp. 0%, 7/1/04 (c) Caa 500 435
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
CHEMICALS & PLASTICS - CONTINUED
Foamex LP/Foamex Capital Corp.
9 1/2%, 6/1/00 B1 $ 70 $ 70
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 2,440 2,538
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 130 138
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 2,020 2,131
11 1/4%, 4/1/07 (e) B3 910 937
0%, 8/15/08 (c) Caa 360 229
7,439
IRON & STEEL - 0.1%
GS Technologies Operating, Inc.
12 1/4%, 10/1/05 B2 610 645
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa 820 750
WCI Steel, Inc. 10%, 12/1/04 B2 1,820 1,838
3,233
METALS & MINING - 0.1%
Commonwealth Aluminum Corp.
10 3/4%, 10/1/06 B2 1,160 1,201
Westmin Resources Ltd. yankee 11%, 3/15/07 (e) B3 720 720
1,921
PACKAGING & CONTAINERS - 0.2%
Crown Cork & Seal, Inc. 5 7/8%, 4/15/98 Baa1 5,000 4,980
Gaylord Container Corp.:
11 1/2%, 5/15/01 B3 140 147
12 3/4%, 5/15/05 Caa 310 333
5,460
PAPER & FOREST PRODUCTS - 0.5%
Asia Pulp & Paper Finance II Mauritius Ltd.
12%, 3/15/04 (e) B3 2,880 2,714
American Pad & Paper Co., Inc.
13%, 11/15/05 B3 820 947
Doman Industries Ltd. yankee 8 3/4%, 3/15/04 Ba3 1,720 1,591
Florida Coast Paper Co. LLC/Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 B3 320 302
Mail-Well Corp. 10 1/2%, 2/15/04 B 190 197
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B2 $ 1,445 $ 1,427
9 7/8%, 5/1/06 Caa 1,545 1,468
Repap New Brunswick, Inc. yankee
10 5/8%, 4/15/05 Caa 1,380 1,301
SD Warren Co., Series B, 12%, 12/15/04 B1 900 990
Stone Container Corp.:
9 7/8%, 2/1/01 B2 660 623
10 3/4%, 10/1/02 B1 870 870
11 7/8%, 8/1/16 B2 1,180 1,204
13,634
TOTAL BASIC INDUSTRIES 31,687
CONSTRUCTION & REAL ESTATE - 0.1%
CONSTRUCTION - 0.1%
McDermott (J Ray) SA 9 3/8%, 7/15/06 B1 1,470 1,430
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Jordan Industries, Inc. 10 3/8%, 8/1/03 B3 910 887
HOME FURNISHINGS - 0.1%
Interlake Corp. 12 1/8%, 3/1/02 B3 1,600 1,680
Knoll, Inc. 10 7/8%, 3/15/06 B3 952 1,034
2,714
TEXTILES & APPAREL - 0.3%
Dan River, Inc. 10 1/8%, 12/15/03 B3 670 690
GFSI, Inc. 9 5/8%, 3/1/07 (e) B3 40 40
Levi Strauss & Co. 6.80%, 11/1/03 (e) Baa2 5,560 5,470
Synthetic Industries, Inc. 9 1/4%, 2/15/07 (e) B2 970 974
7,174
TOTAL DURABLES 10,775
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 1.0%
ENERGY SERVICES - 0.4%
Petroliam Nasional BHD yankee (e):
6 7/8%, 7/1/03 A1 $ 1,380 $ 1,361
7 1/8%, 8/15/05 A1 11,100 11,007
12,368
OIL & GAS - 0.6%
Chesapeake Energy Corp. 8 1/2%, 3/15/12 (e) Ba2 1,060 1,007
Cross Timbers Oil Co. 9 1/4%, 4/1/07 (e) B2 1,380 1,359
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 1,150 1,190
Husky Oil Ltd. yankee 6 7/8%, 11/15/03 Baa3 1,890 1,843
Occidental Petroleum Corp.:
6.39%, 11/9/00 Baa3 1,000 981
8 1/2%, 11/9/01 Baa2 1,180 1,244
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 1,730 1,841
Ras Laffan Liquid Natural Gas Co. Ltd. yankee
8.29%, 3/15/14 (e) A3 7,160 7,263
16,728
TOTAL ENERGY 29,096
FINANCE - 6.9%
ASSET-BACKED SECURITIES - 1.5%
Airplanes Pass Through Trust 10 7/8%, 3/15/19 Ba2 1,570 1,739
Capital Equipment Receivables Trust
6.11%, 7/15/99 Aaa 14,150 14,115
Chase Manhattan Grantor Trust:
6.61%, 9/15/02 Aaa 6,451 6,456
6.76%, 9/15/02 A3 1,613 1,613
Chevy Chase Auto Receivables Trust::
6.60%, 12/15/02 Aaa 2,167 2,174
5.90%, 7/15/03 Aaa 5,840 5,777
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 1,059 1,055
Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 2,238 2,214
Sears Credit Account Master Trust II
6 1/2%, 10/15/03 Aaa 6,280 6,280
41,423
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - 3.2%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 $ 5,000 $ 4,935
Bank of New York Institutional Capital Trust A
7.78%, 10/1/26 (e) A1 10,000 9,488
BankBoston Capital Trust II 7 3/4%, 12/15/26 Baa1 8,000 7,538
BanPonce Financial Corp.:
6.88%, 6/16/00 A3 2,500 2,494
6.69%, 9/21/00 A3 2,250 2,230
6 3/4%, 8/9/01 A3 3,850 3,805
BanPonce Corp. 5 3/4%, 3/1/99 A3 880 863
Capital One Bank:
6.74%, 5/31/99 Baa3 2,630 2,620
6.42%, 11/12/99 Baa3 5,000 4,959
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 9,045 9,408
First Chicago Institutional Capital B 7 3/4%,
12/1/26 (e) A1 6,000 5,641
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa1 720 688
First USA Bank 6 1/2%, 12/23/99 Baa3 4,700 4,647
Kansallis-Osake-Pankki 10%, 5/1/02 A3 710 794
Korea Development Bank yankee:
6 1/2%, 11/15/02 A1 2,000 1,934
6 3/4%, 12/1/05 A1 8,670 8,291
Midland Bank PLC yankee
7 5/8%, 6/15/06 A1 3,200 3,253
Provident Bank 6 1/8%, 12/15/00 A3 3,420 3,332
Signet Bank 7.80%, 9/15/06 Baa1 2,500 2,543
Summit Bancorp. 8 5/8%, 12/10/02 BBB 1,250 1,332
Union Planters Corp. 6 3/4%, 11/1/05 Baa2 400 382
Wachovia Corp. 6.605%, 10/1/25 A1 7,550 7,358
88,535
CREDIT & OTHER FINANCE - 1.5%
AT&T Capital Corp.:
6%, 11/13/98 Baa3 1,000 992
6.02%, 12/4/98 Baa3 6,560 6,506
Ahmanson Capital Trust I 8.36%, 12/1/26 (e) Baa3 2,700 2,646
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Associates Corp. of North America
6 1/2%, 9/9/98 Aa3 $ 10,000 $ 10,017
CIT Group Holdings, Inc. 6 1/4%, 9/30/99 Aa3 8,440 8,370
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 4,750 4,713
First Security Capital I 8.41%, 12/15/26 A3 1,280 1,289
General Electric Capital Corp.
6.94%, 4/13/09 (d) Aaa 4,700 4,728
Imperial Credit Industries, Inc.
9 7/8%, 1/15/06 (e) B1 1,130 1,068
MCN Investment Corp. 6.03%, 2/1/01 Baa2 2,350 2,279
Olympic Financial Ltd. unit 11 1/2%, 3/15/07 B2 1,150 1,104
43,712
INSURANCE - 0.5%
Integon Capital I 10 3/4%, 2/15/07 (e) Ba3 1,700 1,615
SunAmerica, Inc. 6.20%, 10/31/99 Baa1 13,750 13,577
15,192
SAVINGS & LOANS - 0.2%
First Nationwide Holdings, Inc. 10 5/8%, 10/1/03 Ba3 1,360 1,452
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 3,940 4,334
5,786
TOTAL FINANCE 194,648
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
Wright Medical Technology, Inc.
10 3/4%, 7/1/00 B3 1,341 1,287
MEDICAL FACILITIES MANAGEMENT - 0.1%
Columbia/HCA Healthcare Corp.
6 1/2%, 3/15/99 A2 2,470 2,470
Tenet Healthcare Corp.:
8%, 1/15/05 Ba1 620 608
8 5/8%, 1/15/07 Ba3 250 247
3,325
TOTAL HEALTH 4,612
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HOLDING COMPANIES - 0.0%
Gray Communications System, Inc.
10 5/8%, 10/1/06 B3 $ 970 $ 1,014
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
L-3 Communications Corp. 10 3/8%, 5/1/07 (e) B2 80 82
Magnetek, Inc. 10 3/4%, 11/15/98 B1 2,870 2,992
Motors & Gears, Inc. 10 3/4%, 11/15/06 (e) B3 1,820 1,825
4,899
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Calmar, Inc. 11 1/2%, 8/15/05 B3 100 100
Continental Global Group, Inc. 11%, 4/1/07 (e) B2 550 567
Goss Graphic System, Inc. 12%, 10/15/06 B2 620 658
International Knife & Saw, Inc.
11 3/8% 11/15/06 B3 160 162
Mosler, Inc. 11%, 4/15/03 Caa 380 350
1,837
POLLUTION CONTROL - 0.0%
Allied Waste of North America, Inc.
10 1/4%, 12/1/06 (e) B3 350 368
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 7,104
MEDIA & LEISURE - 2.0%
BROADCASTING - 1.0%
Adelphia Communications Corp.
9 7/8%, 3/1/07 (e) - 2,140 2,022
Benedek Communications Corp. 0%, 5/15/06 (c) - 1,440 821
CapStar Broadcasting Partners, Inc.
0%, 2/1/09 (c)(e) CCC 1,470 820
CS Wireless Systems, Inc. 0%, 3/1/06 (c) Caa 1,386 374
Diamond Cable Communications PLC yankee (c):
0%, 12/15/05 B3 250 173
0%, 2/15/07 (e) - 1,680 1,000
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 60 62
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Jacor Communications Co. 9 3/4%, 12/15/06 B2 $ 130 $ 132
Lenfest Communications, Inc.:
8 3/8%, 11/1/05 Ba3 310 295
10 1/2%, 6/15/06 B2 210 216
Olympus Communciation LP/Olympus Capital
Corp. 10 5/8%, 11/15/06 (e) B1 1,310 1,330
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 330 344
TCI Communication, Inc. 6.82%, 9/15/10 (f) Ba1 4,000 3,988
Telewest PLC 0%, 10/1/07 (c) B1 1,270 859
Time Warner, Inc.:
7 3/4%, 6/15/05 Ba1 8,000 7,990
6.85%, 1/15/26 Ba1 7,120 6,936
UIH Australia/PAC, Inc., 0%, 5/15/06 (c) B2 3,310 1,622
28,984
ENTERTAINMENT - 0.2%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 (e) B2 1,080 1,067
AMF Group, Inc.:
0%, 3/15/06 (c) B2 360 242
10 7/8%, 3/15/06 B2 755 787
Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 890 881
Viacom, Inc. 8%, 7/7/06 B1 3,660 3,431
6,408
LEISURE DURABLES & TOYS - 0.1%
ICON Health and Fitness, Inc. 13%, 7/15/02 B3 1,960 2,176
ICON Fitness Corp. 0%, 11/15/06 (e) CCC 460 239
2,415
LODGING & GAMING - 0.4%
American Skiing Co. 12%, 7/15/06 B3 1,150 1,173
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 390 314
HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 2,810 2,785
HMH Properties, Inc. 9 1/2%, 5/15/05 Ba3 2,120 2,165
Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 710 726
Horseshoe Gaming LLC 12 3/4%, 9/30/00 B1 1,990 2,169
KSL Recreation Group, Inc. 10 1/4%,
5/1/07 (e) B3 80 81
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Prime Hospitality Corp. 9 3/4%, 4/1/7 (e) B1 $ 280 $ 287
Sun International Hotels Ltd. 9%, 3/15/07 (e) Ba3 1,780 1,762
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 90 97
11,559
RESTAURANTS - 0.3%
Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa1 2,700 2,463
Wendy's International, Inc. 6.35%, 12/15/05 Baa1 5,000 4,683
7,146
TOTAL MEDIA & LEISURE 56,512
NONDURABLES - 0.9%
FOODS - 0.3%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 3,600 3,578
International Home Foods, Inc.
10 3/8%, 11/01/06 B2 1,130 1,147
Nabisco, Inc. 8%, 1/15/00 Baa2 3,153 3,239
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 440 425
11 1/8%, 10/1/02 B3 660 655
9,044
HOUSEHOLD PRODUCTS - 0.2%
Renaissance Cosmetics, Inc. 11 3/4%,
2/15/04 (e) B3 1,470 1,492
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 4,795 5,023
6,515
TOBACCO - 0.4%
Philip Morris Companies, Inc. 6.95%, 6/1/06 A2 10,000 9,967
TOTAL NONDURABLES 25,526
PRECIOUS METALS - 0.0%
Royal Oak Mines, Inc. 11%, 8/15/06 B3 130 130
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 0.7%
APPAREL STORES - 0.1%
Mothers Work, Inc. 12 5/8%, 8/1/05 B3 $ 310 $ 314
Specialty Retailers, Inc. 10%, 8/15/00 B1 1,355 1,396
1,710
GENERAL MERCHANDISE STORES - 0.3%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa1 4,500 4,457
6.40%, 2/15/03 Baa1 425 408
Pantry, Inc. 12%, 11/15/00 B2 120 120
Penney (J.C.), Inc. 6.95%, 4/1/00 A2 3,250 3,262
8,247
GROCERY STORES - 0.3%
American Stores Co. 7 1/2%, 5/1/37 Baa2 4,850 4,872
Food-4-Less pay-in-kind 13 5/8%, 6/15/07 - 120 131
Pathmark Stores, Inc. 11 5/8%, 6/15/02 Caa 220 218
Pueblo Xtra International, Inc.:
9 1/2%, 8/1/03 B3 1,220 1,130
9 1/2%, 8/1/03 (e) B3 80 74
Ralph's Grocery Co. 10.45%, 6/15/04 B1 920 978
7,403
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Guitar Center Management Co., Inc.
11%, 7/1/06 B2 300 326
TOTAL RETAIL & WHOLESALE 17,686
SERVICES - 0.2%
PRINTING - 0.0%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 1,350 1,370
SERVICES - 0.2%
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 unit B2 1,605 1,605
0%, 1/15/07 unit (c) B2 5,410 2,773
Outsourcing Solutions, Inc. 11%,
11/1/06 (e) B3 420 445
4,823
TOTAL SERVICES 6,193
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - 1.1%
COMMUNICATIONS EQUIPMENT - 0.2%
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (c) Caa $ 1,190 $ 845
Echostar Communications Corp. 0%, 6/1/04 (c) B2 2,240 1,837
Hyperion Telecommunications, Inc., Series B,
0%, 4/15/03 (c) - 3,790 1,923
Intermedia Communications, Inc.
0%, 5/15/06 (c) B3 1,970 1,281
5,886
COMPUTERS & OFFICE EQUIPMENT - 0.7%
Bell & Howell Co. 0%, 3/1/05 (c) B3 2,520 1,991
Comdisco, Inc.:
6.35%, 8/7/98 Baa1 2,500 2,500
6.70%, 8/6/99 Baa1 3,000 2,999
5 3/4%, 2/15/01 Baa1 6,000 5,753
6 3/8%, 11/30/01 Baa1 4,500 4,372
Dictaphone Corp. 11 3/4%, 8/1/05 B3 900 817
Exide Electronics Group, Inc. 11 1/2%, 5/15/06 B3 450 473
Unisys Corp.:
12%, 4/15/03 B1 1,330 1,403
11 3/4%, 10/15/04 B1 80 84
20,392
ELECTRONICS - 0.2%
Fairchild Semiconductor Corp.
10 1/8%, 3/15/07 (e) B2 1,120 1,134
Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 5,370 5,384
6,518
TOTAL TECHNOLOGY 32,796
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.2%
Atlas Air, Inc. pass through trust
12 1/4%, 12/1/02 Ba3 860 942
Delta Air Lines, Inc.
8 1/4%, 12/27/07 (d) Baa3 2,600 2,867
equipment trust certificate 8.54%, 1/2/07 Baa1 765 804
4,613
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - CONTINUED
RAILROADS - 0.1%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa2 $ 4,360 $ 4,377
TOTAL TRANSPORTATION 8,990
UTILITIES - 2.0%
CELLULAR - 0.9%
Arch Communications Group, Inc. 0%,
3/15/08 (c) B3 5,670 2,622
McCaw International Ltd. 0%,
4/15/07 unit (c)(e) CCC 5,860 2,864
Microcell Telecommunications, Inc. 0%,
6/1/06 (c) B3 6,280 3,077
Millicom International Cellular SA 0%,
6/1/06 (c) B3 11,920 8,344
Mobile Telecommunications Technologies Corp.
13 1/2%, 12/15/02 B3 1,370 1,346
RSL Communications Ltd./RSL Communications
PLC 12 1/4%, 11/15/06 unit (e) - 930 930
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 6,970 6,850
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B2 390 328
26,361
ELECTRIC UTILITY - 0.1%
AES China Generating Ltd. yankee
10 1/8%, 12/15/06 Ba3 600 630
Virginia Electric & Power Co.
6.35%, 6/8/98 A3 3,000 3,004
3,634
GAS - 0.2%
Columbia Gas System, Inc. 6.61%, 11/28/02 Baa1 6,000 5,881
TELEPHONE SERVICES - 0.8%
Brooks Fiber Properties, Inc.:
0%, 3/1/06 (c) - 790 514
11 7/8%, 11/1/06 - 1,000 620
GST USA, Inc. 0%, 12/15/05 (c) - 1,800 1,044
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
MFS Communications, Inc. (c):
0%, 1/15/04 Ba3 $ 1,410 $ 1,276
0%, 1/15/06 Ba3 7,680 5,798
Mcleod, Inc. 0%, 3/1/07 (c)(e) B3 1,120 638
Pagemart, Inc. 0%, 11/1/03 (c) - 2,650 2,120
Shared Technologies Fairchild Communications
Corp. 0%, 3/1/06 (c) Caa 1,990 1,642
Teleport Communications Group, Inc. 8%, 8/1/05 B1 320 220
WorldCom, Inc. 7 3/4%, 4/1/07 Ba1 9,000 8,957
22,829
TOTAL UTILITIES 58,705
TOTAL NONCONVERTIBLE BONDS 505,327
TOTAL CORPORATE BONDS
(Cost $517,185) 513,747
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 7.9%
U.S. TREASURY OBLIGATIONS - 6.2%
7 3/4%, 12/31/99 Aaa 8,345 8,616
5 3/4%, 10/31/00 Aaa 1,245 1,217
6 5/8%, 6/30/01 Aaa 36,300 36,396
7 7/8%, 8/15/01 Aaa 2,510 2,633
10 3/4%, 5/15/03 Aaa 402 483
12 3/8%, 5/15/04 Aaa 1,315 1,729
7%, 7/15/06 Aaa 68,380 69,534
12 3/4%, 11/15/10 Aaa 30,500 42,033
13 7/8%, 5/15/11 Aaa 1,410 2,071
7 1/4%, 2/15/23 Aaa 9,883 9,971
TOTAL U.S. TREASURY OBLIGATIONS 174,683
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.7%
Federal Agricultural Mortgage Corporation
7.01%, 2/10/04 Aaa $ 1,720 $ 1,730
Federal Home Loan Bank:
7.36%, 7/1/04 Aaa 1,590 1,636
7.38%, 8/5/04 Aaa 3,790 3,892
7.56%, 9/1/04 Aaa 5,530 5,732
7.70%, 9/20/04 Aaa 1,170 1,223
Federal National Mortgage Association
8 5/8%, 6/30/04 Aaa 4,000 4,371
Financing Corp. stripped principal 0%, 6/6/02 Aaa 5,230 3,725
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 158 167
Class 2-E, 9.40%, 5/15/02 Aaa 2,135 2,254
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 425 403
Series 1993-D, 5.23%, 5/15/05 Aaa 758 717
Series 1994-A, 7.12%, 4/15/06 Aaa 683 689
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 566 580
Overseas Private Investment Corp. (U.S.
Government guaranteed participation
certificate):
Series 1994-195, 6.08%, 8/15/04 (callable) Aaa 1,840 1,786
Series 1996-A1, 6.726%, 9/15/10 - 5,000 4,890
State of Israel (guaranteed by U.S. government
through Agency for International
Development):
7 3/4%, 11/15/99 Aaa 2,660 2,732
8%, 11/15/01 Aaa 1,160 1,216
0%, 11/15/01 Aaa 2,320 1,725
6 1/8%, 3/15/03 Aaa 3,443 3,320
7 5/8%, 8/15/04 Aaa 1,650 1,700
5.89%, 8/15/05 Aaa 3,155 2,944
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban
Development Government U.S. guaranteed
participation certificates Series 1995-A,
8.24%, 8/1/04 Aaa $ 2,200 $ 2,358
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 49,790
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $229,297) 224,473
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 6.4%
Federal Home Loan Mortgage Corporation:
7%, 7/1/99 to 7/1/26 Aaa 4,725 4,742
5 1/2%, 10/1/02 to 5/1/03 Aaa 4,372 4,147
Federal National Mortgage Association:
5 1/2%, 2/1/03 to 4/1/26 Aaa 89,938 84,848
6%, 6/1/11 to 9/1/25 Aaa 18,271 16,715
6 1/2%, 2/1/24 to 4/1/26 Aaa 41,238 39,100
7 1/2%, 5/1/27 Aaa 800 794
Government National Mortgage Association:
7%, 12/1/22 to 12/15/25 Aaa 13,855 13,446
8%, 11/15/21 to 12/15/26 Aaa 16,705 16,962
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $184,451) 180,754
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.8%
First Chicago/Lennar Trust (f):
Series 1997-CHL1 Class D 8.106%, 4/1/39 - 700 660
Series 1997-CHL1 Class E 8.106%, 4/1/39 - 350 263
Federal Home Loan Mortgage Corporation:
planned amortization class Series 1645
Class ZA, 5 1/2%, 4/15/05 Aaa 10,792 10,441
planned amortization class Series 1727
Class D, 6 1/2%, 8/15/14 Aaa 8,730 8,744
Z Bond Series 1708Y Class Z, 6%, 3/15/09 Aaa 10,348 8,846
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Federal National Mortgage Association:
planned amortization class Series 1993-129
Class D, 6.10%, 6/25/05 Aaa $ 5,000 $ 4,935
Z Bond Series 1993-10 Class Z,
6 1/2%, 2/25/08 Aaa 17,667 15,818
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $50,203) 49,707
COMMERCIAL MORTGAGE SECURITIES - 0.4%
American Southwest Financial Securities
Series 1994-C2 Class B2, 12.79%,
12/25/01 (e)(f) - 700 683
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.6832%, 8/1/24 (e)(f) - 1,836 1,315
DLJ Mortgage Acceptance Corp. Series 1993-MF12
Class B-2, 10.10%, 9/18/03 (e) - 700 674
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1996-C1 Class F,
7.86%, 11/15/06 (e) Ba3 500 461
Lehman Structured Securities Corp. Series 1996-1
Class E-2, 7.995%, 6/25/26 BB 709 689
Morgan Stanley Capital One, Inc. Series 1996-MBL1
Class E, 8.661%, 5/25/21 (e) - 783 710
Mortgage Capital Funding, Inc. Series 1996-MC1
Class G, 7.15%, 7/15/28 (e) BB 1,000 872
Penn Mutual Life Insurance Co. (The) Series 1996-PML
Class K, 7.90%, 11/15/26 (e) - 1,250 743
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (e) BB 1,000 879
Series 1993-C1 Class E, 6.60%, 10/25/24 (e) B 500 185
sequential pay Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 754 753
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,482 1,502
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (e) Aaa 3,000 2,932
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $11,817) 12,398
FOREIGN GOVERNMENT OBLIGATIONS (G) - 0.6%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 $ 1,250 $ 1,291
Manitoba Province yankee 6 3/8%, 10/15/99 A1 4,780 4,756
Mexico Value recovery rights discount A (a) BB+ 1 -
Quebec Province yankee (d):
6.86%, 4/15/26 A2 8,000 7,768
7.22%, 7/22/36 A2 3,200 3,286
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $16,962) 17,101
CASH EQUIVALENTS - 1.9%
SHARES
Taxable Central Cash Fund (h)
(Cost $52,330) 52,329,614 52,330
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,492,974) $ 2,835,897
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
5. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $100,478,000 or 3.5% of net
assets.
6. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
7. 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.
8. At period end, the seven-day yield on the Taxable Central Cash Fund was
5.45%. The yield refers to the income earned by investing in the fund over
the seven-day period, expressed as an annual percentage.
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 21.9%
Baa 4.5% BBB 7.0%
Ba 2.2% BB 1.0%
B 3.9% B 3.8%
Caa 0.3% CCC 0.3%
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
both S&P and Moody's 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.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 88.8%
United Kingdom 5.4
Netherlands 2.9
Canada 1.0
Others (individually less than 1%) 1.9
TOTAL 100.0%
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $2,494,195,000. Net unrealized appreciation aggregated
$341,702,000, of which $372,789,000 related to appreciated investment
securities and $31,087,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
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AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997
ASSETS
Investment in securities, at value (cost $2,492,974) - $ 2,835,897
See accompanying schedule
Cash 187
Receivable for investments sold 9,378
Receivable for fund shares sold 2,198
Dividends receivable 3,232
Interest receivable 15,894
Other receivables 10
Prepaid expenses 20
TOTAL ASSETS 2,866,816
LIABILITIES
Payable for investments purchased $ 22,944
Payable for fund shares redeemed 6,529
Accrued management fee 1,029
Distribution fees payable 1,132
Other payables and accrued expenses 577
TOTAL LIABILITIES 32,211
NET ASSETS $ 2,834,605
Net Assets consist of:
Paid in capital $ 2,413,499
Undistributed net investment income 3,658
Accumulated undistributed net realized gain (loss) on 74,534
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 342,914
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 2,834,605
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $17.14
CLASS A:
NET ASSET VALUE and redemption price per share
($3,914 (divided by) 228.37 shares)
Maximum offering price per share (100/94.75 of $17.14) $18.09
CLASS T: $17.16
NET ASSET VALUE and redemption price per share
($2,801,708 (divided by) 163,233 shares)
Maximum offering price per share (100/96.50 of $17.16) $17.78
CLASS B: $17.12
NET ASSET VALUE and offering price per share
($3,793 (divided by) 221.53 shares) A
INSTITUTIONAL CLASS: $17.22
NET ASSET VALUE, offering price and redemption price per
share ($25,190 (divided by) 1,463 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1997
INVESTMENT INCOME $ 20,616
Dividends
Interest 39,508
TOTAL INCOME 60,124
EXPENSES
Management fee $ 6,543
Transfer agent fees 2,704
Distribution fees 7,187
Accounting fees and expenses 403
Non-interested trustees' compensation 17
Custodian fees and expenses 58
Registration fees 85
Audit 42
Legal 10
Miscellaneous 67
Total expenses before reductions 17,116
Expense reductions (85) 17,031
NET INVESTMENT INCOME 43,093
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 77,333
Foreign currency transactions 119 77,452
Change in net unrealized appreciation (depreciation) on:
Investment securities 143,507
Assets and liabilities in foreign currencies (29) 143,478
NET GAIN (LOSS) 220,930
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 264,023
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
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<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 43,093 $ 107,896
Net investment income
Net realized gain (loss) 77,452 30,925
Change in net unrealized appreciation (depreciation) 143,478 144,053
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 264,023 282,874
FROM OPERATIONS
Distributions to shareholders (49,846) (124,584)
From net investment income
From net realized gain (19,450) (6,649)
TOTAL DISTRIBUTIONS (69,296) (131,233)
Share transactions - net increase (decrease) (375,838) (578,059)
TOTAL INCREASE (DECREASE) IN NET ASSETS (181,111) (426,418)
NET ASSETS
Beginning of period 3,015,716 3,442,134
End of period (including undistributed net investment $ 2,834,605 $ 3,015,716
income of $3,658 and $10,411, respectively)
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,
1997 1996 D
SELECTED PER-SHARE DATA H
Net asset value, beginning of period $ 16.04 $ 15.22
Income from Investment Operations
Net investment income .23 .08
Net realized and unrealized gain (loss) 1.24 .88
Total from investment operations 1.47 .96
Less Distributions
From net investment income (.26) (.14)
From net realized gain (.11) -
Total distributions (.37) (.14)
Net asset value, end of period $ 17.14 $ 16.04
TOTAL RETURN B, C 9.26% 6.34%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 4 $ 1
Ratio of expenses to average net assets 1.44% A, E 1.50% A
, E
Ratio of expenses to average net assets after expense 1.44% A 1.49% A
reductions , F
Ratio of net investment income to average net assets 2.79% A 3.07% A
Portfolio turnover 75% A 223%
Average commission rate G $ .0452 $ .0106
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 FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A SHARES)
TO OCTOBER 31, 1996.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER. (SEE NOTE 5 OF THE 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.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS T
</TABLE>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 D 1993 1992
SELECTED PER-SHARE
DATA
Net asset value, $ 16.07 $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13
beginning of period
Income from Investment
Operations
Net investment income .25 G .51 G .59 .38 .48 .50
Net realized and 1.24 .88 .54 (.79) 2.18 .85
unrealized gain (loss)
Total from 1.49 1.39 1.13 (.41) 2.66 1.35
investment operations
Less Distributions (.29) (.59) (.50) (.28) (.56) (.46)
From net
investment income
In excess of net - - - (.02) - -
investment income
From net (.11) (.03) - (.49) (.60) (.61)
realized gain
Return of capital - - - (.04) - -
Total distributions (.40) (.62) (.50) (.83) (1.16) (1.07)
Net asset value, $ 17.16 $ 16.07 $ 15.30 $ 14.67 $ 15.91 $ 14.41
end of period
TOTAL RETURN B, C 9.37% 9.30% 7.85% (2.69)% 19.66% 10.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,802 $ 2,993 $ 3,441 $ 3,129 $ 1,654 $ 398
(in millions)
Ratio of expenses to 1.21% A 1.26% 1.47% 1.59% 1.52% 1.60%
average net assets
Ratio of expenses to 1.20% A, 1.25% 1.46% 1.58% 1.51% 1.60%
average net assets E E E E E
after expense
reductions
Ratio of net investment 3.03% A 3.32% 3.99% 3.79% 3.24% 3.97%
income to average
net assets
Portfolio turnover 75% A 223% 297% 202% 200% 389%
Average commission $ .0452 $ .0106
rate F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS
ENDED
APRIL 30,
1997 C
SELECTED PER-SHARE DATA G
Net asset value, beginning of period $ 16.36
Income from Investment Operations
Net investment income .10
Net realized and unrealized gain (loss) .78
Total from investment operations .88
Less Distributions
From net investment income (.12)
Net asset value, end of period $ 17.12
TOTAL RETURN B, D 5.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 4
Ratio of expenses to average net assets 2.19% A,
E
Ratio of net investment income to average net assets 1.97% A
Portfolio turnover 75% A
Average commission rate F $ .0452
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C FOR THE PERIOD DECEMBER 31, 1996 (COMMENCEMENT OF SALE OF CLASS B SHARES)
TO APRIL 30,1997.
D TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1997 1996 1995 D
<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 .28 H .54 H .25
Net realized and unrealized gain (loss) 1.26 .87 .09
Total from investment operations 1.54 1.41 .34
Less Distributions
From net investment income (.32) (.67) (.17)
From net realized gain (.11) (.03) -
Total distributions (.43) (.70) (.17)
Net asset value, end of period $ 17.22 $ 16.11 $ 15.40
TOTAL RETURN B, C 9.67% 9.41% 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 25 $ 22 $ 1
Ratio of expenses to average net assets .78% A 1.06% .92% A,
E
Ratio of expenses to average net assets after .78% A 1.03% .91% A,
expense reductions F F
Ratio of net investment income to average net assets 3.45% A 3.54% 4.54% A
Portfolio turnover 75% A 223% 297%
Average commission rate G $ .0452 $ .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 FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
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.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 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 a new Class B of 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 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.
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 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 forward 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 A and
Class B, and shares of Class A and Class B for distribution under federal
and state securities law. These expenses are borne by Class A and 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 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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, 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 affiliates. The Cash Fund seeks preservation of
capital, liquidity, and current income by investing
2. OPERATING POLICIES - CONTINUED
TAXABLE CENTRAL CASH FUND - CONTINUED
in U.S. Treasury securities and repurchase agreements for these securities.
Dividends 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 $1,050,321,000 and $1,402,345,000, respectively, of which U.S.
government and government agency obligations aggregated $329,252,000 and
$472,529,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .15%. For
the period, the management fee was equivalent to an annualized rate of .46%
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 $ 3,000 $ 3,000
CLASS T 7,179,000 7,179,000
CLASS B 5,000 1,000
$ 7,187,000 $ 7,183,000
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 5.25% for
selling Class A shares 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 $ 160,000 $ 55,000
CLASS T 542,000 398,000
CLASS B 1,000 0 *
$ 703,000 $ 453,000
* 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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. For the period, the following amounts were paid to each transfer
agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 3,000 .25
CLASS T ** FIIOC * 2,682,000 .19
CLASS B FIIOC * 1,000 .27
INSTITUTIONAL CLASS FIIOC * 18,000 .15
$ 2,704,000
* 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. FSC maintains the fund's accounting records. The fee is
based on the level of average net assets for the month plus out-of-pocket
expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $148,000 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 REIMBURSEME
EXPENSE NT
LIMITATIONS
CLASS A 1.50% $ 4,000
CLASS B 2.25% 11,000
$ 15,000
In addition, FMR agreed to reimburse certain transfer agent, registration
and other class specific expenses for Class A and Class B. For the period,
the reimbursement reduced these expenses by $1,000 and $1,000 for Class A
and Class B, 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 $65,000 under this arrangement.
5. EXPENSE REDUCTIONS - CONTINUED
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 $3,000.
6. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of approximately
22.6% of the total outstanding shares of the fund.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1996 A
1997 B
CLASS A
From net investment income $ 38 $ 4
From net realized gain 12 -
Total $ 50 $ 4
CLASS T
From net investment income $ 49,359 $ 124,292
From net realized gain 19,291 6,647
Total $ 68,650 $ 130,939
CLASS B
From net investment income $ 13 $ -
INSTITUTIONAL CLASS
From net investment income $ 436 $ 288
From net realized gain 147 2
Total $ 583 $ 290
$ 69,296 $ 131,233
1. DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
2. DISTRIBUTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO APRIL 30, 1997.
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 B 1996 A 1997 B 1996 A
CLASS A 178 79 $ 3,002 $ 1,223
Shares sold
Reinvestment of distributions 3 - 49 4
Shares redeemed (27) (5) (466) (76)
Net increase (decrease) 154 74 $ 2,585 $ 1,151
CLASS T 14,382 36,300 $ 241,499 $ 563,225
Shares sold
Reinvestment of distributions 3,913 7,921 64,825 122,603
Shares redeemed (41,259) (82,882) (690,291) (1,284,921)
Net increase (decrease) (22,964) (38,661) $ (383,967) $ (599,093)
CLASS B 236 - $ 3,980 $ -
Shares sold
Reinvestment of distributions 1 - 13 -
Shares redeemed (15) - (254) -
Net increase (decrease) 222 - $ 3,739 $ -
INSTITUTIONAL CLASS 272 1,421 $ 4,574 $ 21,932
Shares sold
Reinvestment of distributions 34 17 561 270
Shares redeemed (197) (149) (3,330) (2,319)
Net increase (decrease) 109 1,289 $ 1,805 $ 19,883
</TABLE>
1. SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
2. SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO APRIL 30, 1997.
9. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 17,000
CLASS T 47,000
CLASS B 7,000
INSTITUTIONAL CLASS 14,000
$ 85,000
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 April 30, 1997, and the related statement of operations
for the six months then ended, the statement of changes in net assets for
the six months ended April 30, 1997 and for the year ended October 31, 1996
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 April 30, 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 April 30, 1997, the results of
its operations for the six months then ended, the changes in its net assets
for the six months ended April 30, 1997 and for the year ended October 31,
1996 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
June 13, 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
J. Gary Burkhead, Senior Vice President
William S. Hayes, Vice President
Bettina E. Doulton, Vice President
Kevin Grant, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Funds
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
BALANCED FUND
(FORMERLY ADVISOR INCOME & GROWTH FUND) - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 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 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 38 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 46 Notes to the financial statements.
REPORT OF INDEPENDENT 54 The auditor's 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:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Balanced - Institutional 9.67% 16.81% 58.84% 192.37%
Class
S&P 500(registered trademark) 14.72% 25.13% 120.23% 275.42%
Lehman Brothers Aggregate Bond Index 1.70% 7.09% 42.63% 130.18%
Balanced Funds Average 6.22% 12.71% 71.26% 170.48%
</TABLE>
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years or 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 six months average represents a
peer group of 328 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Balanced - Institutional Class 16.81% 9.70% 11.33%
S&P 500 25.13% 17.10% 14.14%
Lehman Brothers Aggregate Bond Index 7.09% 7.36% 8.69%
Balanced Funds Average 12.71% 11.30% 10.41%
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
FA Balanced -CL I SP Standard & Poor 500 LB
Aggregate Bond
00642 SP001 LB001
1987/04/30 10000.00 10000.00
10000.00
1987/05/31 9972.22 10087.00
9960.88
1987/06/30 10212.81 10596.39
10097.97
1987/07/31 10706.23 11133.63
10090.21
1987/08/31 10929.66 11548.92
10036.21
1987/09/30 10743.79 11295.99
9822.50
1987/10/31 8850.04 8862.84
10172.33
1987/11/30 8690.66 8132.54
10253.81
1987/12/31 9070.58 8751.43
10393.48
1988/01/31 9603.02 9119.86
10758.83
1988/02/29 10002.36 9544.85
10886.55
1988/03/31 10030.88 9249.91
10784.38
1988/04/30 10204.33 9352.58
10726.18
1988/05/31 10242.87 9433.95
10654.08
1988/06/30 10667.72 9866.97
10911.12
1988/07/31 10628.68 9829.48
10853.89
1988/08/31 10589.64 9495.27
10882.34
1988/09/30 10785.72 9899.77
11128.71
1988/10/31 10943.90 10174.99
11338.23
1988/11/30 10835.15 10029.48
11200.49
1988/12/31 10964.98 10205.00
11213.10
1989/01/31 11396.36 10952.01
11374.44
1989/02/28 11436.49 10679.30
11291.99
1989/03/31 11628.96 10928.13
11340.81
1989/04/30 12096.15 11495.30
11578.13
1989/05/31 12492.24 11960.86
11882.38
1989/06/30 12664.44 11892.68
12244.17
1989/07/31 13239.63 12966.59
12504.45
1989/08/31 13445.05 13220.73
12319.18
1989/09/30 13466.04 13166.53
12382.23
1989/10/31 13258.39 12861.07
12687.12
1989/11/30 13528.34 13123.43
12808.04
1989/12/31 13662.03 13438.39
12842.32
1990/01/31 13001.15 12536.68
12689.71
1990/02/28 13035.34 12698.40
12730.77
1990/03/31 13217.79 13034.91
12740.15
1990/04/30 13044.78 12709.04
12623.43
1990/05/31 13529.20 13948.17
12997.19
1990/06/30 13586.59 13853.32
13205.73
1990/07/31 13551.58 13808.99
13388.41
1990/08/31 12722.84 12560.66
13209.61
1990/09/30 12429.19 11948.95
13318.89
1990/10/31 12310.93 11897.57
13487.99
1990/11/30 12866.75 12666.15
13778.33
1990/12/31 13259.97 13019.54
13993.02
1991/01/31 13944.59 13587.19
14165.99
1991/02/28 14761.32 14558.68
14286.92
1991/03/31 15136.25 14911.00
14385.20
1991/04/30 15427.33 14946.78
14541.05
1991/05/31 16070.13 15592.48
14626.08
1991/06/30 15740.77 14878.35
14618.64
1991/07/31 16413.97 15571.68
14821.37
1991/08/31 16830.14 15940.73
15142.10
1991/09/30 16954.05 15674.52
15448.93
1991/10/31 17447.98 15884.56
15620.94
1991/11/30 17040.49 15244.41
15764.17
1991/12/31 17832.20 16988.37
16232.34
1992/01/31 17949.52 16672.39
16011.51
1992/02/29 18327.54 16889.13
16115.62
1992/03/31 18262.48 16559.79
16024.77
1992/04/30 18407.10 17046.65
16140.52
1992/05/31 18775.25 17130.18
16445.08
1992/06/30 18604.53 16874.94
16671.41
1992/07/31 19147.82 17565.12
17011.54
1992/08/31 19147.82 17205.04
17183.87
1992/09/30 19306.24 17408.05
17387.57
1992/10/31 19239.48 17468.98
17157.04
1992/11/30 19359.64 18064.68
17160.92
1992/12/31 19472.69 18286.87
17433.80
1993/01/31 19840.10 18440.48
17768.11
1993/02/28 20264.03 18691.27
18079.15
1993/03/31 21028.86 19085.66
18154.48
1993/04/30 21627.24 18623.78
18280.90
1993/05/31 22040.41 19122.90
18304.18
1993/06/30 21898.50 19178.36
18635.91
1993/07/31 22128.25 19101.64
18741.31
1993/08/31 22932.39 19825.60
19069.81
1993/09/30 22717.99 19672.94
19122.18
1993/10/31 23021.86 20080.17
19193.64
1993/11/30 22717.99 19889.41
19030.36
1993/12/31 23300.07 20130.07
19133.50
1994/01/31 23947.71 20814.49
19391.83
1994/02/28 23525.99 20250.42
19054.93
1994/03/31 22586.41 19367.50
18585.15
1994/04/30 22404.27 19615.41
18436.74
1994/05/31 22495.34 19937.10
18434.16
1994/06/30 22068.42 19448.64
18393.42
1994/07/31 22495.16 20086.55
18758.77
1994/08/31 22769.49 20910.10
18782.05
1994/09/30 22617.33 20397.81
18505.61
1994/10/31 22403.53 20856.76
18489.12
1994/11/30 22098.09 20097.15
18448.06
1994/12/31 22113.36 20395.19
18575.45
1995/01/31 22051.77 20924.04
18943.06
1995/02/28 22436.75 21739.45
19393.45
1995/03/31 22809.53 22380.98
19512.43
1995/04/30 23057.97 23040.10
19784.99
1995/05/31 23508.26 23961.02
20550.62
1995/06/30 23790.48 24517.63
20701.28
1995/07/31 24150.47 25330.63
20655.05
1995/08/31 24228.73 25394.21
20904.33
1995/09/30 24478.30 26465.85
21107.70
1995/10/31 24367.54 26371.37
21382.20
1995/11/30 25032.11 27529.07
21702.61
1995/12/31 25430.22 28059.28
22007.18
1996/01/31 25639.59 29014.42
22153.32
1996/02/29 25236.96 29283.38
21768.24
1996/03/31 25045.06 29565.38
21616.93
1996/04/30 25028.82 30001.17
21495.36
1996/05/31 25158.76 30774.90
21451.71
1996/06/30 25305.95 30892.16
21739.79
1996/07/31 24780.79 29527.34
21799.28
1996/08/31 24961.32 30150.07
21762.75
1996/09/30 25964.59 31846.92
22142.00
1996/10/31 26659.63 32725.26
22632.48
1996/11/30 28099.35 35198.96
23020.14
1996/12/31 27637.63 34501.67
22806.10
1997/01/31 28596.45 36657.33
22875.94
1997/02/28 29050.63 36944.73
22932.85
1997/03/31 28065.86 35426.67
22678.72
1997/04/30 29237.40 37541.64
23018.20
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Balanced Fund - Institutional Class on April 30, 1987.
As the chart shows, by April 30, 1997, the value of the investment would
have grown to $29,237 - a 192.37% 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 reinvested, the same $10,000
investment in the S&P 500 would have grown to $37,542 - a 275.42% increase.
If you had put $10,000 in the bond index, it would have grown to $23,018 -
a 130.18% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
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
An interview with Bettina Doulton (left), Lead Portfolio Manager of
Fidelity Advisor Balanced Fund, and Kevin Grant, manager for fixed-income
investments
Q. HOW DID THE FUND PERFORM, BETTINA?
B.D. For the six months that ended April 30, 1997, the fund's Institutional
Class shares posted a total return of 9.67%, significantly outperforming
the 6.22% return for the balanced funds average tracked by Lipper
Analytical Services. Given the structure of the fund - namely its mix of
equities and fixed-income securities - performance typically falls between
its two benchmark indexes, the Standard & Poor's 500 Index and the Lehman
Brothers Aggregate Bond Index. In this respect, performance over the past
six months was in line with my expectations; while the fund outperformed
the Lehman Brothers index, which returned 1.70% over the six months, it
underperformed the S&P 500, which gained 14.72%. For the 12 months that
ended April 30, 1997, the fund's Institutional Class shares returned
16.81%, while the balanced funds average returned 12.71%, the Lehman
Brothers index returned 7.09% and the S&P 500 returned 25.13%.
Q. WHAT KEY STRATEGIES HELPED THE FUND OUTPERFORM THE LIPPER AVERAGE OVER
THE PAST SIX MONTHS?
B.D. Because the asset allocation of the fund generally will approximate
60% equities and 40% fixed-income, the strategy is to add value through
security selection within each of the asset classes. This approach clearly
benefited performance during the past six months. In fact, the equity
portion of the fund outperformed the S&P 500 over that period. Within the
equity sub-portfolio, my concentration on selected larger-capitalization
stocks within the finance, nondurables and health sectors - all of which
were among the best performing during the period - was very helpful.
Another beneficial strategy was my decision to underemphasize the large
utilities sector, which dramatically underperformed amid uncertainty
regarding the deregulation of both the electric and telecommunications
sectors.
Q. HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT DURING THE PAST SIX
MONTHS?
B.D. Looking beyond the 14.72% six-month return for the S&P 500 - which
substantially exceeded its historical average ANNUAL return of about 11% -
one of the most noticeable trends has been a dramatic rise in the stock
market's volatility. Interestingly, the bull market during much of the '90s
has been accompanied by below-average volatility; only over the past few
months has volatility reached levels last seen in 1990-1991. One of the
most significant factors responsible for the recent upswing in volatility
has been increasing uncertainty over the direction of interest rates.
Remarks by Federal Reserve Board Chairman Alan Greenspan warning of
"irrational exuberance" in the stock market - widely interpreted as an
indication that the Fed would take actions to increase short-term interest
rates - were largely responsible for a 5% correction in the S&P 500 during
December. A more significant correction, just short of 10%, followed in
March and April as interest rate concerns again became a focus of
attention. Notably, the market rebounded strongly from both corrections,
helped in part by continued strong earnings reports. At the end of April,
the S&P 500 nearly had regained the high it had reached before the more
recent correction.
Q. WHAT TYPES OF EQUITY INVESTMENTS WERE MOST ATTRACTIVE OVER THE PERIOD?
B.D. Overall, stock selection remained company-specific, focused on firms
with competitive advantages or catalysts for positive change - including
dominant market positions, cost-structure reductions or new products - and
outstanding, shareholder-friendly management. The combination of some or
all of these attributes typically translates into solid earnings and
generous free cash flow. Of course, my decision to invest in a particular
stock also is contingent on an attractive valuation. Over the past six
months, a significant proportion of companies meeting these criteria have
been large-capitalization diversified financials and "consumer growth
companies," mainly pharmaceuticals and nondurables firms. Two stocks that I
found particularly attractive during the period were BankAmerica and
Unilever. BankAmerica, the fund's fourth-largest equity position,
exemplifies many of the fund's finance investments. This bank is in the
process of aggressively reducing its cost structure, achieving improving
returns on capital and utilizing excess capital to repurchase its shares.
In addition, the firm has been the beneficiary of an improving California
economy. Unilever, the large consumer products company, is a good example
of my ongoing interest in restructuring stories. Under the direction of a
new CEO, this company has focused on improving its relatively lackluster
returns by redeploying capital away from weak businesses and into
strong-performing units, particularly those in rapidly growing emerging
markets.
Q. HOW DID SOME OF THE OTHER LARGER STOCK HOLDINGS PERFORM?
B.D. Most of the fund's top five stocks performed well during the six-month
period, including both BankAmerica and Citicorp. Their solid business
prospects shone through in the face of a rather volatile environment for
financials brought on by concerns that interest rates would be on the rise.
General Electric and Philip Morris also were positive contributors. The
upward revaluation of GE continued as investors were attracted to its
global business franchise, consistent growth prospects and stable free cash
flow. Philip Morris' underlying business prospects remained good , and the
market seemed more optimistic that there might be some resolution on the
litigation and regulatory fronts. British Petroleum proved to be the
relative laggard in the group, as softening oil prices caused most of the
energy sector to surrender some of the gains we saw in 1996.
Q. WERE THERE ANY DISAPPOINTMENTS?
B.D. Relative to the S&P 500, the fund's most significant detractor was an
underrepresentation within the very strong technology sector. However,
given the fund's conservative, income-driven objective, it's typically
difficult to justify significant technology exposure. In addition, the
fund's aerospace and defense investments were disappointing, as they
weakened early in 1997 after outperforming for most of 1996.
Q. TURNING TO YOU, KEVIN, HOW HAVE YOU STRUCTURED THE BOND PORTION OF THE
FUND?
K.G. I've maintained an interest rate posture in line with the overall bond
market as measured by the Lehman Brothers Aggregate Bond Index. And, during
the past six months, the bond portfolio outperformed the index because of
security selection. In particular, I've been attracted to corporate bonds
issued by companies that I felt wouldn't be affected by shifts in the
economy, including bonds issued by banks. Historically, bank earnings were
quite sensitive to interest rates. However, over the past several years,
banks have increased the fee-based portions of their business, making them
less sensitive to interest rates and loans. Bonds issued by energy
companies also proved to be positive performers for the fund, helped by an
upward spike in energy prices in the winter. This rise in prices helped
increase the companies' cash flow, which they used to pay down debt. In the
corporate area overall, I've focused on shorter maturities in the two- to
four-year range. These bonds offer a yield advantage over Treasuries, but
are short enough in maturity that they shouldn't markedly underperform
Treasuries if the market becomes nervous about credit risk.
Q. WERE THERE OTHER TYPES OF CORPORATE BONDS THAT INTERESTED YOU?
K.G. Yes. Bank bonds known as capital securities presented an opportunity
during the period. Because of a change brought about by the Federal Reserve
Board last fall, banks were given the ability to issue these long-term
bonds for which the interest payments are tax-deductible to the banks. A
new market was created, as banks sought to issue as many capital securities
as possible before Congress had the chance to close this tax loophole. A
flood of securities came to market very cheaply, so I added some to the
fund.
Q. LOOKING AT THE BIG PICTURE, BETTINA, WHAT'S YOUR OUTLOOK FOR THE NEXT
SIX MONTHS?
B.D. In terms of the overall U.S. economy, I believe it's likely there will
be more of the same - moderate growth and low inflation - although the
duration of the current economic expansion has already exceeded all but two
post-war expansions. Many companies that I've recently met with have
indicated that the general business climate continues to become more
competitive than ever. Given continuous pressure from shareholders to
enhance returns and an almost complete lack of pricing power, company
managements' interest in business restructurings and other self-help
measures appears to be rising again. Increasingly, market share gains,
globalization, improved productivity, capital redeployment and execution
will be the critical success factors. In addition, mergers and acquisitions
are likely to accelerate as companies seek to bolster their position and
exploit both cost-reducing and revenue-enhancing synergies. Given the
scenario I just outlined, I think it's probable that the same stocks that
have recently been market leaders - larger-capitalization financials,
pharmaceuticals and consumer nondurables - will continue to outperform.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks both income
and growth of capital by
investing in a diversified
portfolio of equity and
fixed-income securities with
income, growth of income
and capital appreciation
potential
START DATE: January 6, 1987
SIZE: as of April 30, 1997
more than $2.8 billion
MANAGER: Bettina Doulton
and Kevin Grant, since 1996;
Bettina Doulton joined
Fidelity in 1986; Kevin Grant
joined Fidelity in 1993
(checkmark)
BETTINA DOULTON ON
LARGE-CAPITALIZATION STOCKS:
"Over the past year, there has
been heated debate over why
large-cap stocks have
outperformed their small-cap
counterparts. Many
analysts have contended that
the indexing phenomenon -
a "virtuous circle" of S&P 500
index fund outperformance
begetting increasing
investments in large-cap
companies that comprise the
index, thereby driving their
stocks higher - is
responsible for this
outperformance. However,
part of the reality -
overlooked to some extent -
is that larger companies have
generated significantly better
earnings growth in recent
years. Even within the
large-cap S&P 500, there has
been a wide disparity in
earnings growth rates by
capitalization. Between 1993
and 1996, the largest 100
companies in the S&P 500
grew their operating earnings
at a rate that was
approximately 2.5 times the
rate of the index's smallest 400
companies. I believe this
earnings differential has been
at the heart of the recent
large-cap outperformance.
More importantly, I see little
on the horizon that is likely
to alter this trend.
Globalization and the
resulting need to leverage
strong market positions and
brands continue to favor
larger enterprises. In addition,
many larger firms have been
leaders in cost containment
over recent years, which is
now bearing fruit in terms of
margin expansions and rising
free cash flows."
(solid bullet)
(solid bullet)
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Citicorp 2.4 2.9
Philip Morris Companies, Inc. 2.4 2.7
British Petroleum PLC Ord. 2.3 2.0
BankAmerica Corp. 2.1 1.9
General Electric Co. 2.1 2.8
TOP FIVE BOND ISSUERS AS OF APRIL 30, 1997
(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 6.2 7.3
Federal National Mortgage Association 5.9 8.7
Federal Home Loan Mortgage Corporation 1.3 1.2
Government National Mortgage Association 1.1 1.3
Comdisco Inc. 0.6 0.4
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 20.2 19.5
Nondurables 8.8 7.5
Energy 8.1 9.0
Health 8.1 7.6
Industrial Machinery & Equipment 6.2 5.4
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
Row: 1, Col: 1, Value: 0.0
Row: 1, Col: 2, Value: 2.8
Row: 1, Col: 3, Value: 1.8
Row: 1, Col: 4, Value: 35.0
Row: 1, Col: 5, Value: 30.0
Row: 1, Col: 6, Value: 31.4
Stocks 60.8%
Bonds 34.3%
Convertible
securities 1.8%
Short-term
investments 3.1%
FOREIGN
INVESTMENTS 11.4%
Stocks 62.4%
Bonds 34.9%
Convertible
securities 0.8%
Short-term
investments 1.9%
FOREIGN
INVESTMENTS 11.2%
Row: 1, Col: 1, Value: 3.0
Row: 1, Col: 2, Value: 2.1
Row: 1, Col: 3, Value: 34.3
Row: 1, Col: 4, Value: 30.0
Row: 1, Col: 5, Value: 30.6
*
**
INVESTMENTS APRIL 30, 1997
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 61.4%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 5.5%
AEROSPACE & DEFENSE - 4.5%
AlliedSignal, Inc. 522,600 $ 37,757
Boeing Co. 167,699 16,539
Lockheed Martin Corp. 255,900 22,903
Sundstrand Corp. 201,500 9,823
Textron, Inc. 64,700 7,206
United Technologies Corp. 436,500 33,010
127,238
DEFENSE ELECTRONICS - 0.6%
Raytheon Co. 384,100 16,756
SHIP BUILDING & REPAIR - 0.4%
General Dynamics Corp. 151,900 10,823
Newport News Shipbuilding, Inc. 19,380 291
11,114
TOTAL AEROSPACE & DEFENSE 155,108
BASIC INDUSTRIES - 4.4%
CHEMICALS & PLASTICS - 3.4%
Air Products & Chemicals, Inc. 227,300 16,309
du Pont (E.I.) de Nemours & Co. 100,100 10,623
Goodrich (B.F.) Co. 50,300 2,006
Monsanto Co. 685,000 29,284
Nalco Chemical Co. 81,600 2,938
Olin Corp. 162,700 6,691
Praxair, Inc. 573,300 29,597
97,448
METALS & MINING - 0.1%
Aluminum Co. of America 58,800 4,109
PACKAGING & CONTAINERS - 0.2%
Corning, Inc. 88,200 4,256
PAPER & FOREST PRODUCTS - 0.7%
Kimberly-Clark Corp. 376,400 19,291
TOTAL BASIC INDUSTRIES 125,104
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.2%
BUILDING MATERIALS - 0.2%
Masco Corp. 130,600 $ 4,930
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES - 0.5%
Eaton Corp. 113,900 8,528
Johnson Controls, Inc. 137,900 5,292
13,820
CONSUMER DURABLES - 1.0%
Minnesota Mining & Manufacturing Co. 340,200 29,597
CONSUMER ELECTRONICS - 0.2%
Newell Co. 177,600 6,216
TOTAL DURABLES 49,633
ENERGY - 7.1%
ENERGY SERVICES - 0.8%
Halliburton Co. 65,000 4,591
Schlumberger Ltd. 157,800 17,476
22,067
OIL & GAS - 6.3%
Amoco Corp. 80,000 6,690
British Petroleum PLC:
Ord. 5,565,546 63,970
ADR 117,321 16,146
Exxon Corp. 243,600 13,794
Mobil Corp. 133,600 17,368
Royal Dutch Petroleum Co.:
Ord. 29,400 5,257
ADR 156,000 28,119
Texaco, Inc. 177,800 18,758
Total SA:
Class B 49,500 4,106
sponsored ADR 53,800 2,239
USX-Marathon Group 76,600 2,116
Unocal Corp. 55,637 2,121
180,684
TOTAL ENERGY 202,751
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - 13.2%
BANKS - 7.1%
BankAmerica Corp. 511,900 $ 59,828
BankBoston Corp. 140,700 10,236
Citicorp 611,900 68,915
National City Corp. 116,504 5,680
NationsBank Corp. 969,400 58,528
203,187
CREDIT & OTHER FINANCE - 1.9%
American Express Co. 684,800 45,111
Associates First Capital Corp. 35,000 1,794
Beneficial Corp. 88,100 5,638
52,543
FEDERAL SPONSORED CREDIT - 2.4%
Federal Home Loan Mortgage Corporation 1,304,800 41,591
Federal National Mortgage Association 626,300 25,757
67,348
INSURANCE - 1.6%
Allstate Corp. 329,100 21,556
ITT Hartford Group, Inc. 161,900 12,062
Loews Corp. 81,500 7,488
St. Paul Companies, Inc. (The) 4,200 281
Travelers Group, Inc. (The) 53,333 2,953
44,340
SAVINGS & LOANS - 0.2%
Great Western Financial Corp. 150,000 6,300
TOTAL FINANCE 373,718
HEALTH - 8.0%
DRUGS & PHARMACEUTICALS - 7.5%
American Home Products Corp. 511,800 33,907
Bristol-Myers Squibb Co. 727,740 47,667
Merck & Co., Inc. 457,200 41,377
Novartis AG (Reg.) 3,400 4,480
Pfizer, Inc. 178,260 17,113
Schering-Plough Corp. 194,900 15,592
SmithKline Beecham PLC ADR 667,200 53,793
213,929
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.5%
Baxter International, Inc. 267,100 $ 12,787
TOTAL HEALTH 226,716
HOLDING COMPANIES - 0.0%
CINergy Corp. 36,500 1,214
INDUSTRIAL MACHINERY & EQUIPMENT - 5.6%
ELECTRICAL EQUIPMENT - 2.9%
Emerson Electric Co. 305,400 15,499
General Electric Co. 533,000 59,096
General Signal Corp. 99,900 3,921
Grainger (W.W.), Inc. 25,200 1,899
Honeywell, Inc. 38,800 2,740
83,155
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
Cooper Industries, Inc. 374,629 17,233
Harnischfeger Industries, Inc. 193,900 8,071
Tyco International Ltd. 355,900 21,710
47,014
POLLUTION CONTROL - 1.0%
Browning-Ferris Industries, Inc. 669,600 19,000
WMX Technologies, Inc. 340,800 10,011
29,011
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 159,180
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.0%
Benedek Communications Corp. (warrants) (a) 10,500 21
CS Wireless Systems, Inc. (a)(e) 381 -
21
ENTERTAINMENT - 0.2%
Cedar Fair LP (depositary unit) 150,000 5,963
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.3%
McGraw-Hill, Inc. 145,100 $ 7,382
Times Mirror Co. Class A 3,500 193
7,575
TOTAL MEDIA & LEISURE 13,559
NONDURABLES - 7.8%
BEVERAGES - 0.4%
Anheuser-Busch Companies, Inc. 294,400 12,622
FOODS - 0.7%
Campbell Soup Co. 37,400 1,912
Flowers Industries, Inc. 25,000 609
General Mills, Inc. 49,600 3,075
Heinz (H.J.) Co. 246,700 10,238
Nabisco Holdings Corp. Class A 83,700 3,212
19,046
HOUSEHOLD PRODUCTS - 4.2%
Avon Products, Inc. 151,500 9,336
Clorox Co. 92,800 11,820
Procter & Gamble Co. 313,800 39,460
Renaissance Cosmetics, Inc. (warrants) (a)(e) 2,250 236
Unilever PLC Ord. 483,200 12,716
Unilever NV:
ADR 199,500 39,152
Ord. 30,000 5,837
118,557
TOBACCO - 2.5%
Philip Morris Companies, Inc. 1,694,100 66,705
RJR Nabisco Holdings Corp. 104,400 3,106
69,811
TOTAL NONDURABLES 220,036
RETAIL & WHOLESALE - 2.4%
APPAREL STORES - 0.1%
Footstar, Inc. (a) 89,076 1,848
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
DRUG STORES - 0.8%
CVS Corp. 309,400 $ 15,354
Rite Aid Corp. 214,000 9,844
25,198
GENERAL MERCHANDISE STORES - 1.3%
Dayton Hudson Corp. 66,300 2,984
Sears, Roebuck & Co. 98,400 4,723
Wal-Mart Stores, Inc. 1,036,200 29,273
36,980
GROCERY STORES - 0.2%
American Stores Co. 118,000 5,369
TOTAL RETAIL & WHOLESALE 69,395
SERVICES - 0.4%
LEASING & RENTAL - 0.0%
Hertz Corp. Class A 11,000 319
PRINTING - 0.2%
Deluxe Corp. 199,800 6,119
SERVICES - 0.2%
Block (H&R), Inc. 11,500 371
National Service Industries, Inc. 101,000 4,255
4,626
TOTAL SERVICES 11,064
TECHNOLOGY - 2.5%
COMMUNICATIONS EQUIPMENT - 0.0%
Hyperion Telecommunications, Inc. (warrants) (a)(e) 3,790 114
COMPUTERS & OFFICE EQUIPMENT - 1.7%
Exide Electronics Group, Inc. (warrants) (a)(e) 450 11
International Business Machines Corp. 72,800 11,703
Pitney Bowes, Inc. 549,400 35,161
46,875
ELECTRONICS - 0.5%
Thomas & Betts Corp. 310,400 14,084
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
PHOTOGRAPHIC EQUIPMENT - 0.3%
Eastman Kodak Co. 105,600 $ 8,818
TOTAL TECHNOLOGY 69,891
TRANSPORTATION - 0.5%
RAILROADS - 0.3%
Burlington Northern Santa Fe Corp. 108,600 8,552
TRUCKING & FREIGHT - 0.2%
CNF Transportation, Inc. 205,100 6,102
TOTAL TRANSPORTATION 14,654
UTILITIES - 1.6%
CELLULAR - 0.0%
Microcell Telecommunications, Inc. (a):
(warrants) 25,120 314
(conditional warrants) 25,120 16
330
ELECTRIC UTILITY - 0.1%
Allegheny Power System, Inc. 37,000 971
American Electric Power Co., Inc. 7,700 312
DPL, Inc. 900 21
Edison International 90,000 1,890
3,194
GAS - 0.6%
Consolidated Natural Gas Co. 80,100 4,035
El Paso Natural Gas Co. 9,011 524
Enron Corp. 1,100 41
Williams Companies, Inc. 280,300 12,298
16,898
TELEPHONE SERVICES - 0.9%
ALLTEL Corp. 38,100 1,200
Ameritech Corp. 95,000 5,808
BCE, Inc. 143,800 6,730
MCI Communications Corp. 169,900 6,477
Nextlink Communications, Inc. unit (e) 82,190 3,863
24,078
TOTAL UTILITIES 44,500
TOTAL COMMON STOCKS
(Cost $1,388,001) 1,741,453
PREFERRED STOCKS - 1.5%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.5%
ENERGY - 0.0%
OIL & GAS - 0.0%
Tosco Financing Trust $2.875 (e) 22,300 $ 1,238
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications Ltd. $3.00 (e) 85,000 4,058
Westinghouse Electric Corp. $1.30 (e) 13,200 200
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,258
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.0%
Benedek Communications Corp. 15% (a) 6,100 638
LODGING & GAMING - 0.2%
Host Marriott Financial Trust $3.375 (e) 85,000 4,824
TOTAL MEDIA & LEISURE 5,462
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E, $7.00 12,000 3,060
TOTAL CONVERTIBLE PREFERRED STOCKS 14,018
NONCONVERTIBLE PREFERRED STOCKS - 1.0%
FINANCE - 0.1%
INSURANCE - 0.0%
American Annuity Group Capital Trust II 1,000 995
SAVINGS & LOANS - 0.1%
California Federal Bank FSB 9 1/8% 61,560 1,531
California Federal Bank FSB 11 1/2% 9,200 1,038
2,569
TOTAL FINANCE 3,564
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.6%
BROADCASTING - 0.5%
American Radio System pay-in-kind 11 3/8% (e) 22,929 $ 2,264
Cablevision System Corp.:
depositary shares 11,853 1,088
Series H, $11.75 pay-in-kind 1,940 184
PanAmSat Corp. 12 3/4% pay-in-kind 420 500
Sinclair Capital 11 5/8% (e) 17,700 1,770
Time Warner, Inc., Series M, 10 1/4% pay-in-kind 8,450 9,126
14,932
PUBLISHING - 0.1%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 38 4
Series D, $200 28,400 2,783
2,787
TOTAL MEDIA & LEISURE 17,719
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Renaissance Cosmetics, Inc. 14% 2,502 2,189
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc. 13 1/2% (a) 439 4,247
COMPUTER SERVICES & SOFTWARE - 0.1%
ICG Holdings, Inc. 14 1/4% pay-in-kind 2,337 2,197
TOTAL TECHNOLOGY 6,444
TOTAL NONCONVERTIBLE PREFERRED STOCKS 29,916
TOTAL PREFERRED STOCKS
(Cost $42,728) 43,934
CORPORATE BONDS - 18.1%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.3%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 A3 $ 4,340 $ 3,744
MEDIA & LEISURE - 0.1%
LEISURE DURABLES & TOYS - 0.1%
Hasbro Corp. 6%, 11/15/98 A3 1,400 1,792
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 5%, 10/1/03 Ba3 2,460 2,884
TOTAL CONVERTIBLE BONDS 8,420
NONCONVERTIBLE BONDS - 17.8%
AEROSPACE & DEFENSE - 0.6%
AEROSPACE & DEFENSE - 0.6%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 2,217 2,411
Fairchild Corp. 12%, 10/15/01 Caa 210 213
Lockheed Martin Corp. 7.20%, 5/1/36 A3 15,000 15,160
17,784
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc. 8 1/2%, 3/1/07 (e) B1 110 109
SHIP BUILDING & REPAIR - 0.0%
Newport News Shipbuilding, Inc.:
8 5/8%, 12/1/06 Ba2 70 70
9 1/4%, 12/1/06 B1 450 460
530
TOTAL AEROSPACE & DEFENSE 18,423
BASIC INDUSTRIES - 1.2%
CHEMICALS & PLASTICS - 0.3%
Astor Corp. 10 1/2%, 10/15/06 B3 150 155
Atlantis Group, Inc. 11%, 2/15/03 B2 790 806
Foamex-JPS Automotive LP/Foamex JPS Capital
Corp. 0%, 7/1/04 (c) Caa 500 435
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
CHEMICALS & PLASTICS - CONTINUED
Foamex LP/Foamex Capital Corp.
9 1/2%, 6/1/00 B1 $ 70 $ 70
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 2,440 2,538
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 130 138
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 2,020 2,131
11 1/4%, 4/1/07 (e) B3 910 937
0%, 8/15/08 (c) Caa 360 229
7,439
IRON & STEEL - 0.1%
GS Technologies Operating, Inc.
12 1/4%, 10/1/05 B2 610 645
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa 820 750
WCI Steel, Inc. 10%, 12/1/04 B2 1,820 1,838
3,233
METALS & MINING - 0.1%
Commonwealth Aluminum Corp.
10 3/4%, 10/1/06 B2 1,160 1,201
Westmin Resources Ltd. yankee 11%, 3/15/07 (e) B3 720 720
1,921
PACKAGING & CONTAINERS - 0.2%
Crown Cork & Seal, Inc. 5 7/8%, 4/15/98 Baa1 5,000 4,980
Gaylord Container Corp.:
11 1/2%, 5/15/01 B3 140 147
12 3/4%, 5/15/05 Caa 310 333
5,460
PAPER & FOREST PRODUCTS - 0.5%
Asia Pulp & Paper Finance II Mauritius Ltd.
12%, 3/15/04 (e) B3 2,880 2,714
American Pad & Paper Co., Inc.
13%, 11/15/05 B3 820 947
Doman Industries Ltd. yankee 8 3/4%, 3/15/04 Ba3 1,720 1,591
Florida Coast Paper Co. LLC/Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 B3 320 302
Mail-Well Corp. 10 1/2%, 2/15/04 B 190 197
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B2 $ 1,445 $ 1,427
9 7/8%, 5/1/06 Caa 1,545 1,468
Repap New Brunswick, Inc. yankee
10 5/8%, 4/15/05 Caa 1,380 1,301
SD Warren Co., Series B, 12%, 12/15/04 B1 900 990
Stone Container Corp.:
9 7/8%, 2/1/01 B2 660 623
10 3/4%, 10/1/02 B1 870 870
11 7/8%, 8/1/16 B2 1,180 1,204
13,634
TOTAL BASIC INDUSTRIES 31,687
CONSTRUCTION & REAL ESTATE - 0.1%
CONSTRUCTION - 0.1%
McDermott (J Ray) SA 9 3/8%, 7/15/06 B1 1,470 1,430
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Jordan Industries, Inc. 10 3/8%, 8/1/03 B3 910 887
HOME FURNISHINGS - 0.1%
Interlake Corp. 12 1/8%, 3/1/02 B3 1,600 1,680
Knoll, Inc. 10 7/8%, 3/15/06 B3 952 1,034
2,714
TEXTILES & APPAREL - 0.3%
Dan River, Inc. 10 1/8%, 12/15/03 B3 670 690
GFSI, Inc. 9 5/8%, 3/1/07 (e) B3 40 40
Levi Strauss & Co. 6.80%, 11/1/03 (e) Baa2 5,560 5,470
Synthetic Industries, Inc. 9 1/4%, 2/15/07 (e) B2 970 974
7,174
TOTAL DURABLES 10,775
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 1.0%
ENERGY SERVICES - 0.4%
Petroliam Nasional BHD yankee (e):
6 7/8%, 7/1/03 A1 $ 1,380 $ 1,361
7 1/8%, 8/15/05 A1 11,100 11,007
12,368
OIL & GAS - 0.6%
Chesapeake Energy Corp. 8 1/2%, 3/15/12 (e) Ba2 1,060 1,007
Cross Timbers Oil Co. 9 1/4%, 4/1/07 (e) B2 1,380 1,359
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 1,150 1,190
Husky Oil Ltd. yankee 6 7/8%, 11/15/03 Baa3 1,890 1,843
Occidental Petroleum Corp.:
6.39%, 11/9/00 Baa3 1,000 981
8 1/2%, 11/9/01 Baa2 1,180 1,244
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 1,730 1,841
Ras Laffan Liquid Natural Gas Co. Ltd. yankee
8.29%, 3/15/14 (e) A3 7,160 7,263
16,728
TOTAL ENERGY 29,096
FINANCE - 6.9%
ASSET-BACKED SECURITIES - 1.5%
Airplanes Pass Through Trust 10 7/8%, 3/15/19 Ba2 1,570 1,739
Capital Equipment Receivables Trust
6.11%, 7/15/99 Aaa 14,150 14,115
Chase Manhattan Grantor Trust:
6.61%, 9/15/02 Aaa 6,451 6,456
6.76%, 9/15/02 A3 1,613 1,613
Chevy Chase Auto Receivables Trust::
6.60%, 12/15/02 Aaa 2,167 2,174
5.90%, 7/15/03 Aaa 5,840 5,777
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 1,059 1,055
Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 2,238 2,214
Sears Credit Account Master Trust II
6 1/2%, 10/15/03 Aaa 6,280 6,280
41,423
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - 3.2%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 $ 5,000 $ 4,935
Bank of New York Institutional Capital Trust A
7.78%, 10/1/26 (e) A1 10,000 9,488
BankBoston Capital Trust II 7 3/4%, 12/15/26 Baa1 8,000 7,538
BanPonce Financial Corp.:
6.88%, 6/16/00 A3 2,500 2,494
6.69%, 9/21/00 A3 2,250 2,230
6 3/4%, 8/9/01 A3 3,850 3,805
BanPonce Corp. 5 3/4%, 3/1/99 A3 880 863
Capital One Bank:
6.74%, 5/31/99 Baa3 2,630 2,620
6.42%, 11/12/99 Baa3 5,000 4,959
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 9,045 9,408
First Chicago Institutional Capital B 7 3/4%,
12/1/26 (e) A1 6,000 5,641
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa1 720 688
First USA Bank 6 1/2%, 12/23/99 Baa3 4,700 4,647
Kansallis-Osake-Pankki 10%, 5/1/02 A3 710 794
Korea Development Bank yankee:
6 1/2%, 11/15/02 A1 2,000 1,934
6 3/4%, 12/1/05 A1 8,670 8,291
Midland Bank PLC yankee
7 5/8%, 6/15/06 A1 3,200 3,253
Provident Bank 6 1/8%, 12/15/00 A3 3,420 3,332
Signet Bank 7.80%, 9/15/06 Baa1 2,500 2,543
Summit Bancorp. 8 5/8%, 12/10/02 BBB 1,250 1,332
Union Planters Corp. 6 3/4%, 11/1/05 Baa2 400 382
Wachovia Corp. 6.605%, 10/1/25 A1 7,550 7,358
88,535
CREDIT & OTHER FINANCE - 1.5%
AT&T Capital Corp.:
6%, 11/13/98 Baa3 1,000 992
6.02%, 12/4/98 Baa3 6,560 6,506
Ahmanson Capital Trust I 8.36%, 12/1/26 (e) Baa3 2,700 2,646
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Associates Corp. of North America
6 1/2%, 9/9/98 Aa3 $ 10,000 $ 10,017
CIT Group Holdings, Inc. 6 1/4%, 9/30/99 Aa3 8,440 8,370
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 4,750 4,713
First Security Capital I 8.41%, 12/15/26 A3 1,280 1,289
General Electric Capital Corp.
6.94%, 4/13/09 (d) Aaa 4,700 4,728
Imperial Credit Industries, Inc.
9 7/8%, 1/15/06 (e) B1 1,130 1,068
MCN Investment Corp. 6.03%, 2/1/01 Baa2 2,350 2,279
Olympic Financial Ltd. unit 11 1/2%, 3/15/07 B2 1,150 1,104
43,712
INSURANCE - 0.5%
Integon Capital I 10 3/4%, 2/15/07 (e) Ba3 1,700 1,615
SunAmerica, Inc. 6.20%, 10/31/99 Baa1 13,750 13,577
15,192
SAVINGS & LOANS - 0.2%
First Nationwide Holdings, Inc. 10 5/8%, 10/1/03 Ba3 1,360 1,452
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 3,940 4,334
5,786
TOTAL FINANCE 194,648
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
Wright Medical Technology, Inc.
10 3/4%, 7/1/00 B3 1,341 1,287
MEDICAL FACILITIES MANAGEMENT - 0.1%
Columbia/HCA Healthcare Corp.
6 1/2%, 3/15/99 A2 2,470 2,470
Tenet Healthcare Corp.:
8%, 1/15/05 Ba1 620 608
8 5/8%, 1/15/07 Ba3 250 247
3,325
TOTAL HEALTH 4,612
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HOLDING COMPANIES - 0.0%
Gray Communications System, Inc.
10 5/8%, 10/1/06 B3 $ 970 $ 1,014
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
L-3 Communications Corp. 10 3/8%, 5/1/07 (e) B2 80 82
Magnetek, Inc. 10 3/4%, 11/15/98 B1 2,870 2,992
Motors & Gears, Inc. 10 3/4%, 11/15/06 (e) B3 1,820 1,825
4,899
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Calmar, Inc. 11 1/2%, 8/15/05 B3 100 100
Continental Global Group, Inc. 11%, 4/1/07 (e) B2 550 567
Goss Graphic System, Inc. 12%, 10/15/06 B2 620 658
International Knife & Saw, Inc.
11 3/8% 11/15/06 B3 160 162
Mosler, Inc. 11%, 4/15/03 Caa 380 350
1,837
POLLUTION CONTROL - 0.0%
Allied Waste of North America, Inc.
10 1/4%, 12/1/06 (e) B3 350 368
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 7,104
MEDIA & LEISURE - 2.0%
BROADCASTING - 1.0%
Adelphia Communications Corp.
9 7/8%, 3/1/07 (e) - 2,140 2,022
Benedek Communications Corp. 0%, 5/15/06 (c) - 1,440 821
CapStar Broadcasting Partners, Inc.
0%, 2/1/09 (c)(e) CCC 1,470 820
CS Wireless Systems, Inc. 0%, 3/1/06 (c) Caa 1,386 374
Diamond Cable Communications PLC yankee (c):
0%, 12/15/05 B3 250 173
0%, 2/15/07 (e) - 1,680 1,000
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 60 62
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Jacor Communications Co. 9 3/4%, 12/15/06 B2 $ 130 $ 132
Lenfest Communications, Inc.:
8 3/8%, 11/1/05 Ba3 310 295
10 1/2%, 6/15/06 B2 210 216
Olympus Communciation LP/Olympus Capital
Corp. 10 5/8%, 11/15/06 (e) B1 1,310 1,330
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 330 344
TCI Communication, Inc. 6.82%, 9/15/10 (f) Ba1 4,000 3,988
Telewest PLC 0%, 10/1/07 (c) B1 1,270 859
Time Warner, Inc.:
7 3/4%, 6/15/05 Ba1 8,000 7,990
6.85%, 1/15/26 Ba1 7,120 6,936
UIH Australia/PAC, Inc., 0%, 5/15/06 (c) B2 3,310 1,622
28,984
ENTERTAINMENT - 0.2%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 (e) B2 1,080 1,067
AMF Group, Inc.:
0%, 3/15/06 (c) B2 360 242
10 7/8%, 3/15/06 B2 755 787
Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 890 881
Viacom, Inc. 8%, 7/7/06 B1 3,660 3,431
6,408
LEISURE DURABLES & TOYS - 0.1%
ICON Health and Fitness, Inc. 13%, 7/15/02 B3 1,960 2,176
ICON Fitness Corp. 0%, 11/15/06 (e) CCC 460 239
2,415
LODGING & GAMING - 0.4%
American Skiing Co. 12%, 7/15/06 B3 1,150 1,173
Casino Magic Financial Corp.
11 1/2%, 10/15/01 B1 390 314
HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 2,810 2,785
HMH Properties, Inc. 9 1/2%, 5/15/05 Ba3 2,120 2,165
Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 710 726
Horseshoe Gaming LLC 12 3/4%, 9/30/00 B1 1,990 2,169
KSL Recreation Group, Inc. 10 1/4%,
5/1/07 (e) B3 80 81
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Prime Hospitality Corp. 9 3/4%, 4/1/7 (e) B1 $ 280 $ 287
Sun International Hotels Ltd. 9%, 3/15/07 (e) Ba3 1,780 1,762
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 90 97
11,559
RESTAURANTS - 0.3%
Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa1 2,700 2,463
Wendy's International, Inc. 6.35%, 12/15/05 Baa1 5,000 4,683
7,146
TOTAL MEDIA & LEISURE 56,512
NONDURABLES - 0.9%
FOODS - 0.3%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 3,600 3,578
International Home Foods, Inc.
10 3/8%, 11/01/06 B2 1,130 1,147
Nabisco, Inc. 8%, 1/15/00 Baa2 3,153 3,239
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 440 425
11 1/8%, 10/1/02 B3 660 655
9,044
HOUSEHOLD PRODUCTS - 0.2%
Renaissance Cosmetics, Inc. 11 3/4%,
2/15/04 (e) B3 1,470 1,492
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 4,795 5,023
6,515
TOBACCO - 0.4%
Philip Morris Companies, Inc. 6.95%, 6/1/06 A2 10,000 9,967
TOTAL NONDURABLES 25,526
PRECIOUS METALS - 0.0%
Royal Oak Mines, Inc. 11%, 8/15/06 B3 130 130
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 0.7%
APPAREL STORES - 0.1%
Mothers Work, Inc. 12 5/8%, 8/1/05 B3 $ 310 $ 314
Specialty Retailers, Inc. 10%, 8/15/00 B1 1,355 1,396
1,710
GENERAL MERCHANDISE STORES - 0.3%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa1 4,500 4,457
6.40%, 2/15/03 Baa1 425 408
Pantry, Inc. 12%, 11/15/00 B2 120 120
Penney (J.C.), Inc. 6.95%, 4/1/00 A2 3,250 3,262
8,247
GROCERY STORES - 0.3%
American Stores Co. 7 1/2%, 5/1/37 Baa2 4,850 4,872
Food-4-Less pay-in-kind 13 5/8%, 6/15/07 - 120 131
Pathmark Stores, Inc. 11 5/8%, 6/15/02 Caa 220 218
Pueblo Xtra International, Inc.:
9 1/2%, 8/1/03 B3 1,220 1,130
9 1/2%, 8/1/03 (e) B3 80 74
Ralph's Grocery Co. 10.45%, 6/15/04 B1 920 978
7,403
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Guitar Center Management Co., Inc.
11%, 7/1/06 B2 300 326
TOTAL RETAIL & WHOLESALE 17,686
SERVICES - 0.2%
PRINTING - 0.0%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 1,350 1,370
SERVICES - 0.2%
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 unit B2 1,605 1,605
0%, 1/15/07 unit (c) B2 5,410 2,773
Outsourcing Solutions, Inc. 11%,
11/1/06 (e) B3 420 445
4,823
TOTAL SERVICES 6,193
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - 1.1%
COMMUNICATIONS EQUIPMENT - 0.2%
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (c) Caa $ 1,190 $ 845
Echostar Communications Corp. 0%, 6/1/04 (c) B2 2,240 1,837
Hyperion Telecommunications, Inc., Series B,
0%, 4/15/03 (c) - 3,790 1,923
Intermedia Communications, Inc.
0%, 5/15/06 (c) B3 1,970 1,281
5,886
COMPUTERS & OFFICE EQUIPMENT - 0.7%
Bell & Howell Co. 0%, 3/1/05 (c) B3 2,520 1,991
Comdisco, Inc.:
6.35%, 8/7/98 Baa1 2,500 2,500
6.70%, 8/6/99 Baa1 3,000 2,999
5 3/4%, 2/15/01 Baa1 6,000 5,753
6 3/8%, 11/30/01 Baa1 4,500 4,372
Dictaphone Corp. 11 3/4%, 8/1/05 B3 900 817
Exide Electronics Group, Inc. 11 1/2%, 5/15/06 B3 450 473
Unisys Corp.:
12%, 4/15/03 B1 1,330 1,403
11 3/4%, 10/15/04 B1 80 84
20,392
ELECTRONICS - 0.2%
Fairchild Semiconductor Corp.
10 1/8%, 3/15/07 (e) B2 1,120 1,134
Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 5,370 5,384
6,518
TOTAL TECHNOLOGY 32,796
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.2%
Atlas Air, Inc. pass through trust
12 1/4%, 12/1/02 Ba3 860 942
Delta Air Lines, Inc.
8 1/4%, 12/27/07 (d) Baa3 2,600 2,867
equipment trust certificate 8.54%, 1/2/07 Baa1 765 804
4,613
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - CONTINUED
RAILROADS - 0.1%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa2 $ 4,360 $ 4,377
TOTAL TRANSPORTATION 8,990
UTILITIES - 2.0%
CELLULAR - 0.9%
Arch Communications Group, Inc. 0%,
3/15/08 (c) B3 5,670 2,622
McCaw International Ltd. 0%,
4/15/07 unit (c)(e) CCC 5,860 2,864
Microcell Telecommunications, Inc. 0%,
6/1/06 (c) B3 6,280 3,077
Millicom International Cellular SA 0%,
6/1/06 (c) B3 11,920 8,344
Mobile Telecommunications Technologies Corp.
13 1/2%, 12/15/02 B3 1,370 1,346
RSL Communications Ltd./RSL Communications
PLC 12 1/4%, 11/15/06 unit (e) - 930 930
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 6,970 6,850
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B2 390 328
26,361
ELECTRIC UTILITY - 0.1%
AES China Generating Ltd. yankee
10 1/8%, 12/15/06 Ba3 600 630
Virginia Electric & Power Co.
6.35%, 6/8/98 A3 3,000 3,004
3,634
GAS - 0.2%
Columbia Gas System, Inc. 6.61%, 11/28/02 Baa1 6,000 5,881
TELEPHONE SERVICES - 0.8%
Brooks Fiber Properties, Inc.:
0%, 3/1/06 (c) - 790 514
11 7/8%, 11/1/06 - 1,000 620
GST USA, Inc. 0%, 12/15/05 (c) - 1,800 1,044
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
MFS Communications, Inc. (c):
0%, 1/15/04 Ba3 $ 1,410 $ 1,276
0%, 1/15/06 Ba3 7,680 5,798
Mcleod, Inc. 0%, 3/1/07 (c)(e) B3 1,120 638
Pagemart, Inc. 0%, 11/1/03 (c) - 2,650 2,120
Shared Technologies Fairchild Communications
Corp. 0%, 3/1/06 (c) Caa 1,990 1,642
Teleport Communications Group, Inc. 8%, 8/1/05 B1 320 220
WorldCom, Inc. 7 3/4%, 4/1/07 Ba1 9,000 8,957
22,829
TOTAL UTILITIES 58,705
TOTAL NONCONVERTIBLE BONDS 505,327
TOTAL CORPORATE BONDS
(Cost $517,185) 513,747
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 7.9%
U.S. TREASURY OBLIGATIONS - 6.2%
7 3/4%, 12/31/99 Aaa 8,345 8,616
5 3/4%, 10/31/00 Aaa 1,245 1,217
6 5/8%, 6/30/01 Aaa 36,300 36,396
7 7/8%, 8/15/01 Aaa 2,510 2,633
10 3/4%, 5/15/03 Aaa 402 483
12 3/8%, 5/15/04 Aaa 1,315 1,729
7%, 7/15/06 Aaa 68,380 69,534
12 3/4%, 11/15/10 Aaa 30,500 42,033
13 7/8%, 5/15/11 Aaa 1,410 2,071
7 1/4%, 2/15/23 Aaa 9,883 9,971
TOTAL U.S. TREASURY OBLIGATIONS 174,683
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.7%
Federal Agricultural Mortgage Corporation
7.01%, 2/10/04 Aaa $ 1,720 $ 1,730
Federal Home Loan Bank:
7.36%, 7/1/04 Aaa 1,590 1,636
7.38%, 8/5/04 Aaa 3,790 3,892
7.56%, 9/1/04 Aaa 5,530 5,732
7.70%, 9/20/04 Aaa 1,170 1,223
Federal National Mortgage Association
8 5/8%, 6/30/04 Aaa 4,000 4,371
Financing Corp. stripped principal 0%, 6/6/02 Aaa 5,230 3,725
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 158 167
Class 2-E, 9.40%, 5/15/02 Aaa 2,135 2,254
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 425 403
Series 1993-D, 5.23%, 5/15/05 Aaa 758 717
Series 1994-A, 7.12%, 4/15/06 Aaa 683 689
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 566 580
Overseas Private Investment Corp. (U.S.
Government guaranteed participation
certificate):
Series 1994-195, 6.08%, 8/15/04 (callable) Aaa 1,840 1,786
Series 1996-A1, 6.726%, 9/15/10 - 5,000 4,890
State of Israel (guaranteed by U.S. government
through Agency for International
Development):
7 3/4%, 11/15/99 Aaa 2,660 2,732
8%, 11/15/01 Aaa 1,160 1,216
0%, 11/15/01 Aaa 2,320 1,725
6 1/8%, 3/15/03 Aaa 3,443 3,320
7 5/8%, 8/15/04 Aaa 1,650 1,700
5.89%, 8/15/05 Aaa 3,155 2,944
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban
Development Government U.S. guaranteed
participation certificates Series 1995-A,
8.24%, 8/1/04 Aaa $ 2,200 $ 2,358
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 49,790
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $229,297) 224,473
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 6.4%
Federal Home Loan Mortgage Corporation:
7%, 7/1/99 to 7/1/26 Aaa 4,725 4,742
5 1/2%, 10/1/02 to 5/1/03 Aaa 4,372 4,147
Federal National Mortgage Association:
5 1/2%, 2/1/03 to 4/1/26 Aaa 89,938 84,848
6%, 6/1/11 to 9/1/25 Aaa 18,271 16,715
6 1/2%, 2/1/24 to 4/1/26 Aaa 41,238 39,100
7 1/2%, 5/1/27 Aaa 800 794
Government National Mortgage Association:
7%, 12/1/22 to 12/15/25 Aaa 13,855 13,446
8%, 11/15/21 to 12/15/26 Aaa 16,705 16,962
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $184,451) 180,754
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.8%
First Chicago/Lennar Trust (f):
Series 1997-CHL1 Class D 8.106%, 4/1/39 - 700 660
Series 1997-CHL1 Class E 8.106%, 4/1/39 - 350 263
Federal Home Loan Mortgage Corporation:
planned amortization class Series 1645
Class ZA, 5 1/2%, 4/15/05 Aaa 10,792 10,441
planned amortization class Series 1727
Class D, 6 1/2%, 8/15/14 Aaa 8,730 8,744
Z Bond Series 1708Y Class Z, 6%, 3/15/09 Aaa 10,348 8,846
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Federal National Mortgage Association:
planned amortization class Series 1993-129
Class D, 6.10%, 6/25/05 Aaa $ 5,000 $ 4,935
Z Bond Series 1993-10 Class Z,
6 1/2%, 2/25/08 Aaa 17,667 15,818
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $50,203) 49,707
COMMERCIAL MORTGAGE SECURITIES - 0.4%
American Southwest Financial Securities
Series 1994-C2 Class B2, 12.79%,
12/25/01 (e)(f) - 700 683
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.6832%, 8/1/24 (e)(f) - 1,836 1,315
DLJ Mortgage Acceptance Corp. Series 1993-MF12
Class B-2, 10.10%, 9/18/03 (e) - 700 674
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1996-C1 Class F,
7.86%, 11/15/06 (e) Ba3 500 461
Lehman Structured Securities Corp. Series 1996-1
Class E-2, 7.995%, 6/25/26 BB 709 689
Morgan Stanley Capital One, Inc. Series 1996-MBL1
Class E, 8.661%, 5/25/21 (e) - 783 710
Mortgage Capital Funding, Inc. Series 1996-MC1
Class G, 7.15%, 7/15/28 (e) BB 1,000 872
Penn Mutual Life Insurance Co. (The) Series 1996-PML
Class K, 7.90%, 11/15/26 (e) - 1,250 743
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (e) BB 1,000 879
Series 1993-C1 Class E, 6.60%, 10/25/24 (e) B 500 185
sequential pay Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 754 753
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 1,482 1,502
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (e) Aaa 3,000 2,932
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $11,817) 12,398
FOREIGN GOVERNMENT OBLIGATIONS (G) - 0.6%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (000S) (000S)
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 $ 1,250 $ 1,291
Manitoba Province yankee 6 3/8%, 10/15/99 A1 4,780 4,756
Mexico Value recovery rights discount A (a) BB+ 1 -
Quebec Province yankee (d):
6.86%, 4/15/26 A2 8,000 7,768
7.22%, 7/22/36 A2 3,200 3,286
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $16,962) 17,101
CASH EQUIVALENTS - 1.9%
SHARES
Taxable Central Cash Fund (h)
(Cost $52,330) 52,329,614 52,330
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,492,974) $ 2,835,897
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
3. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
4. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
5. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $100,478,000 or 3.5% of net
assets.
6. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
7. 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.
8. At period end, the seven-day yield on the Taxable Central Cash Fund was
5.45%. The yield refers to the income earned by investing in the fund over
the seven-day period, expressed as an annual percentage.
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 21.9%
Baa 4.5% BBB 7.0%
Ba 2.2% BB 1.0%
B 3.9% B 3.8%
Caa 0.3% CCC 0.3%
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
both S&P and Moody's 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.
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 88.8%
United Kingdom 5.4
Netherlands 2.9
Canada 1.0
Others (individually less than 1%) 1.9
TOTAL 100.0%
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $2,494,195,000. Net unrealized appreciation aggregated
$341,702,000, of which $372,789,000 related to appreciated investment
securities and $31,087,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997
ASSETS
Investment in securities, at value (cost $2,492,974) - $ 2,835,897
See accompanying schedule
Cash 187
Receivable for investments sold 9,378
Receivable for fund shares sold 2,198
Dividends receivable 3,232
Interest receivable 15,894
Other receivables 10
Prepaid expenses 20
TOTAL ASSETS 2,866,816
LIABILITIES
Payable for investments purchased $ 22,944
Payable for fund shares redeemed 6,529
Accrued management fee 1,029
Distribution fees payable 1,132
Other payables and accrued expenses 577
TOTAL LIABILITIES 32,211
NET ASSETS $ 2,834,605
Net Assets consist of:
Paid in capital $ 2,413,499
Undistributed net investment income 3,658
Accumulated undistributed net realized gain (loss) on 74,534
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 342,914
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 2,834,605
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997
CALCULATION OF MAXIMUM OFFERING PRICE $17.14
CLASS A:
NET ASSET VALUE and redemption price per share
($3,914 (divided by) 228.37 shares)
Maximum offering price per share (100/94.75 of $17.14) $18.09
CLASS T: $17.16
NET ASSET VALUE and redemption price per share
($2,801,708 (divided by) 163,233 shares)
Maximum offering price per share (100/96.50 of $17.16) $17.78
CLASS B: $17.12
NET ASSET VALUE and offering price per share
($3,793 (divided by) 221.53 shares) A
INSTITUTIONAL CLASS: $17.22
NET ASSET VALUE, offering price and redemption price per
share ($25,190 (divided by) 1,463 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1997
INVESTMENT INCOME $ 20,616
Dividends
Interest 39,508
TOTAL INCOME 60,124
EXPENSES
Management fee $ 6,543
Transfer agent fees 2,704
Distribution fees 7,187
Accounting fees and expenses 403
Non-interested trustees' compensation 17
Custodian fees and expenses 58
Registration fees 85
Audit 42
Legal 10
Miscellaneous 67
Total expenses before reductions 17,116
Expense reductions (85) 17,031
NET INVESTMENT INCOME 43,093
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 77,333
Foreign currency transactions 119 77,452
Change in net unrealized appreciation (depreciation) on:
Investment securities 143,507
Assets and liabilities in foreign currencies (29) 143,478
NET GAIN (LOSS) 220,930
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 264,023
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 43,093 $ 107,896
Net investment income
Net realized gain (loss) 77,452 30,925
Change in net unrealized appreciation (depreciation) 143,478 144,053
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 264,023 282,874
FROM OPERATIONS
Distributions to shareholders (49,846) (124,584)
From net investment income
From net realized gain (19,450) (6,649)
TOTAL DISTRIBUTIONS (69,296) (131,233)
Share transactions - net increase (decrease) (375,838) (578,059)
TOTAL INCREASE (DECREASE) IN NET ASSETS (181,111) (426,418)
NET ASSETS
Beginning of period 3,015,716 3,442,134
End of period (including undistributed net investment $ 2,834,605 $ 3,015,716
income of $3,658 and $10,411, respectively)
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30,
1997 1996 D
SELECTED PER-SHARE DATA H
Net asset value, beginning of period $ 16.04 $ 15.22
Income from Investment Operations
Net investment income .23 .08
Net realized and unrealized gain (loss) 1.24 .88
Total from investment operations 1.47 .96
Less Distributions
From net investment income (.26) (.14)
From net realized gain (.11) -
Total distributions (.37) (.14)
Net asset value, end of period $ 17.14 $ 16.04
TOTAL RETURN B, C 9.26% 6.34%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 4 $ 1
Ratio of expenses to average net assets 1.44% A, E 1.50% A
, E
Ratio of expenses to average net assets after expense 1.44% A 1.49% A
reductions , F
Ratio of net investment income to average net assets 2.79% A 3.07% A
Portfolio turnover 75% A 223%
Average commission rate G $ .0452 $ .0106
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 FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A SHARES)
TO OCTOBER 31, 1996.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER. (SEE NOTE 5 OF THE 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.
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS T
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1997 1996 1995 1994 D 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value, $ 16.07 $ 15.30 $ 14.67 $ 15.91 $ 14.41 $ 14.13
beginning of period
Income from Investment
Operations
Net investment income .25 G .51 G .59 .38 .48 .50
Net realized and 1.24 .88 .54 (.79) 2.18 .85
unrealized gain (loss)
Total from 1.49 1.39 1.13 (.41) 2.66 1.35
investment operations
Less Distributions (.29) (.59) (.50) (.28) (.56) (.46)
From net
investment income
In excess of net - - - (.02) - -
investment income
From net (.11) (.03) - (.49) (.60) (.61)
realized gain
Return of capital - - - (.04) - -
Total distributions (.40) (.62) (.50) (.83) (1.16) (1.07)
Net asset value, $ 17.16 $ 16.07 $ 15.30 $ 14.67 $ 15.91 $ 14.41
end of period
TOTAL RETURN B, C 9.37% 9.30% 7.85% (2.69)% 19.66% 10.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 2,802 $ 2,993 $ 3,441 $ 3,129 $ 1,654 $ 398
(in millions)
Ratio of expenses to 1.21% A 1.26% 1.47% 1.59% 1.52% 1.60%
average net assets
Ratio of expenses to 1.20% A, 1.25% 1.46% 1.58% 1.51% 1.60%
average net assets E E E E E
after expense
reductions
Ratio of net investment 3.03% A 3.32% 3.99% 3.79% 3.24% 3.97%
income to average
net assets
Portfolio turnover 75% A 223% 297% 202% 200% 389%
Average commission $ .0452 $ .0106
rate F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1,1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS
ENDED
APRIL 30,
1997 C
SELECTED PER-SHARE DATA G
Net asset value, beginning of period $ 16.36
Income from Investment Operations
Net investment income .10
Net realized and unrealized gain (loss) .78
Total from investment operations .88
Less Distributions
From net investment income (.12)
Net asset value, end of period $ 17.12
TOTAL RETURN B, D 5.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 4
Ratio of expenses to average net assets 2.19% A,
E
Ratio of net investment income to average net assets 1.97% A
Portfolio turnover 75% A
Average commission rate F $ .0452
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C FOR THE PERIOD DECEMBER 31, 1996 (COMMENCEMENT OF SALE OF CLASS B SHARES)
TO APRIL 30,1997.
D TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
G NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1997 1996 1995 D
<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 .28 H .54 H .25
Net realized and unrealized gain (loss) 1.26 .87 .09
Total from investment operations 1.54 1.41 .34
Less Distributions
From net investment income (.32) (.67) (.17)
From net realized gain (.11) (.03) -
Total distributions (.43) (.70) (.17)
Net asset value, end of period $ 17.22 $ 16.11 $ 15.40
TOTAL RETURN B, C 9.67% 9.41% 2.22%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 25 $ 22 $ 1
Ratio of expenses to average net assets .78% A 1.06% .92% A,
E
Ratio of expenses to average net assets after .78% A 1.03% .91% A,
expense reductions F F
Ratio of net investment income to average net assets 3.45% A 3.54% 4.54% A
Portfolio turnover 75% A 223% 297%
Average commission rate G $ .0452 $ .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 FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
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.
H NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 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 a new Class B of 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 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.
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 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 forward 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 A and
Class B, and shares of Class A and Class B for distribution under federal
and state securities law. These expenses are borne by Class A and 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 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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, 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 affiliates. The Cash Fund seeks preservation of
capital, liquidity, and current income by investing
2. OPERATING POLICIES - CONTINUED
TAXABLE CENTRAL CASH FUND - CONTINUED
in U.S. Treasury securities and repurchase agreements for these securities.
Dividends 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 $1,050,321,000 and $1,402,345,000, respectively, of which U.S.
government and government agency obligations aggregated $329,252,000 and
$472,529,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .15%. For
the period, the management fee was equivalent to an annualized rate of .46%
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 $ 3,000 $ 3,000
CLASS T 7,179,000 7,179,000
CLASS B 5,000 1,000
$ 7,187,000 $ 7,183,000
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 5.25% for
selling Class A shares 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 $ 160,000 $ 55,000
CLASS T 542,000 398,000
CLASS B 1,000 0 *
$ 703,000 $ 453,000
* 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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. For the period, the following amounts were paid to each transfer
agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 3,000 .25
CLASS T ** FIIOC * 2,682,000 .19
CLASS B FIIOC * 1,000 .27
INSTITUTIONAL CLASS FIIOC * 18,000 .15
$ 2,704,000
* 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. FSC maintains the fund's accounting records. The fee is
based on the level of average net assets for the month plus out-of-pocket
expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $148,000 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 REIMBURSEME
EXPENSE NT
LIMITATIONS
CLASS A 1.50% $ 4,000
CLASS B 2.25% 11,000
$ 15,000
In addition, FMR agreed to reimburse certain transfer agent, registration
and other class specific expenses for Class A and Class B. For the period,
the reimbursement reduced these expenses by $1,000 and $1,000 for Class A
and Class B, 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 $65,000 under this arrangement.
5. EXPENSE REDUCTIONS - CONTINUED
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 $3,000.
6. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of approximately
22.6% of the total outstanding shares of the fund.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1996 A
1997 B
CLASS A
From net investment income $ 38 $ 4
From net realized gain 12 -
Total $ 50 $ 4
CLASS T
From net investment income $ 49,359 $ 124,292
From net realized gain 19,291 6,647
Total $ 68,650 $ 130,939
CLASS B
From net investment income $ 13 $ -
INSTITUTIONAL CLASS
From net investment income $ 436 $ 288
From net realized gain 147 2
Total $ 583 $ 290
$ 69,296 $ 131,233
1. DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
2. DISTRIBUTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO APRIL 30, 1997.
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 B 1996 A 1997 B 1996 A
CLASS A 178 79 $ 3,002 $ 1,223
Shares sold
Reinvestment of distributions 3 - 49 4
Shares redeemed (27) (5) (466) (76)
Net increase (decrease) 154 74 $ 2,585 $ 1,151
CLASS T 14,382 36,300 $ 241,499 $ 563,225
Shares sold
Reinvestment of distributions 3,913 7,921 64,825 122,603
Shares redeemed (41,259) (82,882) (690,291) (1,284,921)
Net increase (decrease) (22,964) (38,661) $ (383,967) $ (599,093)
CLASS B 236 - $ 3,980 $ -
Shares sold
Reinvestment of distributions 1 - 13 -
Shares redeemed (15) - (254) -
Net increase (decrease) 222 - $ 3,739 $ -
INSTITUTIONAL CLASS 272 1,421 $ 4,574 $ 21,932
Shares sold
Reinvestment of distributions 34 17 561 270
Shares redeemed (197) (149) (3,330) (2,319)
Net increase (decrease) 109 1,289 $ 1,805 $ 19,883
</TABLE>
1. SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
2. SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD DECEMBER 31, 1996
(COMMENCEMENT OF SALE OF SHARES) TO APRIL 30, 1997.
9. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 17,000
CLASS T 47,000
CLASS B 7,000
INSTITUTIONAL CLASS 14,000
$ 85,000
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 April 30, 1997, and the related statement of operations
for the six months then ended, the statement of changes in net assets for
the six months ended April 30, 1997 and for the year ended October 31, 1996
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 April 30, 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 April 30, 1997, the results of
its operations for the six months then ended, the changes in its net assets
for the six months ended April 30, 1997 and for the year ended October 31,
1996 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
June 13, 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
J. Gary Burkhead, Senior Vice President
William S. Hayes, Vice President
Bettina E. Doulton, Vice President
Kevin Grant, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
* INDEPENDENT TRUSTEES
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
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
SEMIANNUAL REPORT
APRIL 30, 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.
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:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Government Investment - Class 1.17% 5.87% 36.53% 104.61%
A
Advisor Government Investment - Class -3.13% 1.37% 30.73% 95.91%
A
(incl. max 4.25% sales charge)
Salomon Brothers Treasury/Agency Index 1.27% 6.60% 41.91% 122.97%
General U.S. Government Funds Average 1.11% 5.79% 35.54% 101.92%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years or 10
years. For example, if you invested $1,000 in a fund that had a 5% return
over the past year, the value of your investment would be $1,050. You can
compare Class A's returns to those of the Salomon Brothers Treasury/Agency
Index - a market capitalization weighted index of U.S. Treasury and U.S.
government agency securities with fixed-rate coupons and weighted average
lives of at least one year. To measure how Class A's performance stacked up
against its peers, you can compare it to the general U.S. government funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 186 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Government Investment - Class A 5.87% 6.43% 7.42%
Advisor Government Investment - Class A 1.37% 5.51% 6.96%
(incl. max. 4.25% sales charge)
Salomon Brothers Treasury/Agency Index 6.60% 7.25% 8.35%
General U.S. Government Funds Average 5.79% 6.24% 7.25%
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
FA Govt. Inv. -CL A SB Treasury/Agency
00265 SB022
1987/04/30 9575.00 10000.00
1987/05/31 9535.59 9952.70
1987/06/30 9663.86 10065.89
1987/07/31 9682.33 10037.19
1987/08/31 9627.75 9995.15
1987/09/30 9435.73 9806.78
1987/10/31 9736.74 10180.29
1987/11/30 9813.26 10228.80
1987/12/31 9899.73 10344.41
1988/01/31 10201.41 10695.69
1988/02/29 10315.49 10809.69
1988/03/31 10256.50 10701.75
1988/04/30 10195.83 10631.42
1988/05/31 10135.29 10581.70
1988/06/30 10338.85 10795.54
1988/07/31 10321.11 10726.41
1988/08/31 10315.62 10743.79
1988/09/30 10490.83 10972.59
1988/10/31 10645.97 11165.01
1988/11/30 10557.00 11042.93
1988/12/31 10550.33 11078.91
1989/01/31 10672.90 11227.67
1989/02/28 10639.82 11141.16
1989/03/31 10671.32 11207.05
1989/04/30 10844.44 11416.85
1989/05/31 11056.28 11707.09
1989/06/30 11303.23 12103.65
1989/07/31 11479.22 12355.49
1989/08/31 11361.74 12146.50
1989/09/30 11427.71 12202.28
1989/10/31 11643.48 12519.20
1989/11/30 11731.92 12637.24
1989/12/31 11789.98 12656.24
1990/01/31 11661.70 12482.01
1990/02/28 11700.11 12492.52
1990/03/31 11717.42 12505.05
1990/04/30 11612.16 12399.55
1990/05/31 11952.40 12732.64
1990/06/30 12124.57 12935.56
1990/07/31 12271.53 13107.37
1990/08/31 12193.07 12917.78
1990/09/30 12274.12 13054.01
1990/10/31 12397.43 13268.25
1990/11/30 12613.59 13552.83
1990/12/31 12776.27 13767.48
1991/01/31 12916.46 13913.41
1991/02/28 13024.00 13972.43
1991/03/31 13076.35 14048.83
1991/04/30 13185.01 14216.19
1991/05/31 13254.20 14265.91
1991/06/30 13246.68 14256.61
1991/07/31 13388.68 14436.49
1991/08/31 13596.34 14757.86
1991/09/30 13842.07 15077.21
1991/10/31 13965.73 15193.63
1991/11/30 14046.46 15351.69
1991/12/31 14494.78 15878.41
1992/01/31 14298.17 15632.63
1992/02/29 14363.94 15695.29
1992/03/31 14265.41 15600.70
1992/04/30 14349.00 15712.26
1992/05/31 14612.39 15985.53
1992/06/30 14814.67 16217.96
1992/07/31 15064.82 16620.18
1992/08/31 15194.50 16790.77
1992/09/30 15335.66 17022.80
1992/10/31 15150.76 16775.81
1992/11/30 15189.10 16745.09
1992/12/31 15434.60 17028.05
1993/01/31 15698.95 17410.06
1993/02/28 15993.55 17749.62
1993/03/31 16085.25 17797.32
1993/04/30 16206.43 17950.12
1993/05/31 16231.96 17923.03
1993/06/30 16551.47 18325.25
1993/07/31 16633.44 18438.03
1993/08/31 16904.64 18847.93
1993/09/30 16935.66 18931.20
1993/10/31 17049.25 18981.32
1993/11/30 16788.45 18772.74
1993/12/31 16878.86 18856.42
1994/01/31 17173.14 19115.53
1994/02/28 16775.43 18717.76
1994/03/31 16268.43 18282.00
1994/04/30 16106.12 18141.32
1994/05/31 16122.91 18123.94
1994/06/30 16068.00 18086.75
1994/07/31 16418.31 18402.46
1994/08/31 16408.73 18407.31
1994/09/30 16178.19 18149.41
1994/10/31 16150.83 18131.22
1994/11/30 16120.04 18091.20
1994/12/31 16229.15 18215.70
1995/01/31 16520.50 18572.64
1995/02/28 16881.50 18961.92
1995/03/31 16993.39 19074.70
1995/04/30 17194.64 19320.48
1995/05/31 17863.40 20112.78
1995/06/30 17988.78 20265.18
1995/07/31 17925.61 20194.84
1995/08/31 18129.31 20425.66
1995/09/30 18294.44 20609.99
1995/10/31 18559.57 20931.36
1995/11/30 18824.33 21270.11
1995/12/31 19093.92 21564.80
1996/01/31 19191.90 21701.43
1996/02/29 18798.48 21268.49
1996/03/31 18624.92 21081.33
1996/04/30 18505.29 20916.00
1996/05/31 18466.12 20911.15
1996/06/30 18681.09 21174.71
1996/07/31 18718.80 21222.01
1996/08/31 18675.02 21177.94
1996/09/30 18962.31 21530.03
1996/10/31 19365.41 22018.35
1996/11/30 19684.67 22385.40
1996/12/31 19474.48 22159.43
1997/01/31 19490.14 22196.22
1997/02/28 19519.16 22209.56
1997/03/31 19305.56 21993.29
1997/04/30 19591.27 22297.28
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Government Investment Fund - Class A on April 30, 1987,
and the current maximum 4.25% sales charge was paid. As the chart shows, by
April 30, 1997, the value of the investment would have grown to $19,591 - a
95.91% increase on the initial investment. For comparison, look at how the
Salomon Brothers Treasury/Agency Index did over the same period. With
dividends reinvested, the same $10,000 investment would have grown to
$22,297 - a 122.97% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 2.96% 6.20% 6.99% 5.01% 6.13% 7.03%
Capital appreciation -1.79% -1.86% 7.92% -10.28% 6.40% 1.46%
return
Total return 1.17% 4.34% 14.91% -5.27% 12.53% 8.49%
</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 APRIL 30, 1997 PAST 1 PAST 6 LIFE OF
MONTH MONTHS CLASS
Dividends per share 4.66(cents) 27.95(cents) 37.02(cents)
Annualized dividend rate 6.14% 6.00% 6.02%
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 $9.24 over the past one month, $9.40
over the past six months and $9.39 over the life of the class, you can
compare the class' income over these three periods. The 30-day annualized
YIELD is a standard formula for all funds based on the yields of the bonds
in the fund, averaged over the past 30 days. This figure shows you the
yield characteristics of the fund's investments at the end of the period.
It also helps you compare funds from different companies on an equal basis.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Government Investment - Class 1.01% 5.74% 36.36% 104.35%
T
Advisor Government Investment - Class -2.53% 2.04% 31.59% 97.20%
T
(incl. max 3.50% sales charge)
Salomon Brothers Treasury/Agency Index 1.27% 6.60% 41.91% 122.97%
General U.S. Government Funds Average 1.11% 5.79% 35.54% 101.92%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage terms
over a set period - in this case, six months, one year, five years or 10
years. For example, if you invested $1,000 in a fund that had a 5% return
over the past year, the value of your investment would be $1,050. You can
compare Class T's returns to those of the Salomon Brothers Treasury/Agency
Index - a market capitalization weighted index of U.S. Treasury and U.S.
government agency securities with fixed-rate coupons and weighted average
lives of at least one year. 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 six months
average represents a peer group of 186 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Government Investment - Class T 5.74% 6.40% 7.41%
Advisor Government Investment - Class T 2.04% 5.64% 7.03%
(incl. max. 3.50% sales charge)
Salomon Brothers Treasury/Agency Index 6.60% 7.25% 8.35%
General U.S. Government Funds Average 5.79% 6.24% 7.25%
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
FA Govt. Inv. -CL T SB Treasury/Agency
00167 SB022
1987/04/30 9650.00 10000.00
1987/05/31 9610.28 9952.70
1987/06/30 9739.56 10065.89
1987/07/31 9758.17 10037.19
1987/08/31 9703.16 9995.15
1987/09/30 9509.64 9806.78
1987/10/31 9813.01 10180.29
1987/11/30 9890.12 10228.80
1987/12/31 9977.27 10344.41
1988/01/31 10281.32 10695.69
1988/02/29 10396.29 10809.69
1988/03/31 10336.83 10701.75
1988/04/30 10275.69 10631.42
1988/05/31 10214.68 10581.70
1988/06/30 10419.84 10795.54
1988/07/31 10401.95 10726.41
1988/08/31 10396.43 10743.79
1988/09/30 10573.01 10972.59
1988/10/31 10729.36 11165.01
1988/11/30 10639.69 11042.93
1988/12/31 10632.97 11078.91
1989/01/31 10756.50 11227.67
1989/02/28 10723.16 11141.16
1989/03/31 10754.91 11207.05
1989/04/30 10929.39 11416.85
1989/05/31 11142.88 11707.09
1989/06/30 11391.76 12103.65
1989/07/31 11569.14 12355.49
1989/08/31 11450.73 12146.50
1989/09/30 11517.23 12202.28
1989/10/31 11734.68 12519.20
1989/11/30 11823.82 12637.24
1989/12/31 11882.33 12656.24
1990/01/31 11753.04 12482.01
1990/02/28 11791.76 12492.52
1990/03/31 11809.20 12505.05
1990/04/30 11703.11 12399.55
1990/05/31 12046.02 12732.64
1990/06/30 12219.54 12935.56
1990/07/31 12367.65 13107.37
1990/08/31 12288.57 12917.78
1990/09/30 12370.26 13054.01
1990/10/31 12494.53 13268.25
1990/11/30 12712.39 13552.83
1990/12/31 12876.35 13767.48
1991/01/31 13017.63 13913.41
1991/02/28 13126.02 13972.43
1991/03/31 13178.78 14048.83
1991/04/30 13288.28 14216.19
1991/05/31 13358.02 14265.91
1991/06/30 13350.44 14256.61
1991/07/31 13493.55 14436.49
1991/08/31 13702.83 14757.86
1991/09/30 13950.49 15077.21
1991/10/31 14075.12 15193.63
1991/11/30 14156.49 15351.69
1991/12/31 14608.31 15878.41
1992/01/31 14410.17 15632.63
1992/02/29 14476.45 15695.29
1992/03/31 14377.15 15600.70
1992/04/30 14461.39 15712.26
1992/05/31 14726.85 15985.53
1992/06/30 14930.71 16217.96
1992/07/31 15182.82 16620.18
1992/08/31 15313.52 16790.77
1992/09/30 15455.78 17022.80
1992/10/31 15269.43 16775.81
1992/11/30 15308.07 16745.09
1992/12/31 15555.50 17028.05
1993/01/31 15821.91 17410.06
1993/02/28 16118.83 17749.62
1993/03/31 16211.24 17797.32
1993/04/30 16333.37 17950.12
1993/05/31 16359.10 17923.03
1993/06/30 16681.12 18325.25
1993/07/31 16763.73 18438.03
1993/08/31 17037.05 18847.93
1993/09/30 17068.31 18931.20
1993/10/31 17182.80 18981.32
1993/11/30 16919.95 18772.74
1993/12/31 17011.07 18856.42
1994/01/31 17307.66 19115.53
1994/02/28 16906.83 18717.76
1994/03/31 16395.86 18282.00
1994/04/30 16232.28 18141.32
1994/05/31 16249.20 18123.94
1994/06/30 16193.86 18086.75
1994/07/31 16546.91 18402.46
1994/08/31 16537.26 18407.31
1994/09/30 16304.91 18149.41
1994/10/31 16277.34 18131.22
1994/11/30 16246.31 18091.20
1994/12/31 16356.27 18215.70
1995/01/31 16649.90 18572.64
1995/02/28 17013.73 18961.92
1995/03/31 17126.50 19074.70
1995/04/30 17329.33 19320.48
1995/05/31 18003.32 20112.78
1995/06/30 18129.69 20265.18
1995/07/31 18066.02 20194.84
1995/08/31 18271.32 20425.66
1995/09/30 18437.74 20609.99
1995/10/31 18704.95 20931.36
1995/11/30 18971.78 21270.11
1995/12/31 19243.48 21564.80
1996/01/31 19342.23 21701.43
1996/02/29 18945.73 21268.49
1996/03/31 18770.81 21081.33
1996/04/30 18650.24 20916.00
1996/05/31 18610.77 20911.15
1996/06/30 18827.41 21174.71
1996/07/31 18865.42 21222.01
1996/08/31 18821.30 21177.94
1996/09/30 19119.28 21530.03
1996/10/31 19523.89 22018.35
1996/11/30 19844.32 22385.40
1996/12/31 19651.85 22159.43
1997/01/31 19643.77 22196.22
1997/02/28 19671.64 22209.56
1997/03/31 19454.68 21993.29
1997/04/30 19720.12 22297.28
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Government Investment Fund - Class T on April 30, 1987,
and the current maximum 3.50% sales charge was paid. As the chart shows, by
April 30, 1997, the value of the investment would have grown to $19,720 - a
97.20% increase on the initial investment. For comparison, look at how the
Salomon Brothers Treasury/Agency Index did over the same period. With
dividends reinvested the same $10,000 investment would have grown to
$22,297 - a 122.97% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 2.91% 6.24% 6.99% 5.01% 6.13% 7.03%
Capital appreciation -1.90% -1.86% 7.92% -10.28% 6.40% 1.46%
return
Total return 1.01% 4.38% 14.91% -5.27% 12.53% 8.49%
</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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.59(cents) 27.46(cents) 56.38(cents)
Annualized dividend rate 6.04% 5.88% 6.02%
30-day annualized yield 5.76% - -
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 $9.24 over the past one month, or
$9.41 over the past six months or $9.37 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 5.71%.
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 six months, past
one year, past five years and past 10 years total return figures are 5%,
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Government Investment - Class 0.70% 5.18% 33.63% 100.26%
B
Advisor Government Investment - Class B -4.20% 0.20% 31.67% 100.26%
(incl. contingent deferred sales charge)
Salomon Brothers Treasury/Agency Index 1.27% 6.60% 41.91% 122.97%
General U.S. Government Funds Average 1.11% 5.79% 35.54% 101.92%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, six months, one year, five years or 10
years. For example, if you invested $1,000 in a fund that had a 5% return
over the past year, the value of your investment would be $1,050. You can
compare Class B's returns to those of the Salomon Brothers Treasury/Agency
Index - a market capitalization weighted index of U.S. Treasury and U.S.
government agency securities with fixed-rate coupons and weighted average
lives of at least one year. To measure how Class B's performance stacked up
against its peers, you can compare it to the general U.S. government funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 186 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Government Investment - Class 5.18% 5.97% 7.19%
B
Advisor Government Investment - Class B 0.20% 5.66% 7.19%
(incl. contingent deferred sales charge)
Salomon Brothers Treasury/Agency Index 6.60% 7.25% 8.35%
General U.S. Government Funds Average 5.79% 6.24% 7.25%
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. (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
FA Govt. Inv. -CL B SB Treasury/Agency
00667 SB022
1987/04/30 10000.00 10000.00
1987/05/31 9958.84 9952.70
1987/06/30 10092.81 10065.89
1987/07/31 10112.10 10037.19
1987/08/31 10055.09 9995.15
1987/09/30 9854.55 9806.78
1987/10/31 10168.92 10180.29
1987/11/30 10248.83 10228.80
1987/12/31 10339.14 10344.41
1988/01/31 10654.22 10695.69
1988/02/29 10773.36 10809.69
1988/03/31 10711.74 10701.75
1988/04/30 10648.39 10631.42
1988/05/31 10585.16 10581.70
1988/06/30 10797.76 10795.54
1988/07/31 10779.23 10726.41
1988/08/31 10773.50 10743.79
1988/09/30 10956.48 10972.59
1988/10/31 11118.50 11165.01
1988/11/30 11025.59 11042.93
1988/12/31 11018.62 11078.91
1989/01/31 11146.63 11227.67
1989/02/28 11112.08 11141.16
1989/03/31 11144.98 11207.05
1989/04/30 11325.79 11416.85
1989/05/31 11547.03 11707.09
1989/06/30 11804.94 12103.65
1989/07/31 11988.75 12355.49
1989/08/31 11866.05 12146.50
1989/09/30 11934.95 12202.28
1989/10/31 12160.29 12519.20
1989/11/30 12252.66 12637.24
1989/12/31 12313.29 12656.24
1990/01/31 12179.32 12482.01
1990/02/28 12219.44 12492.52
1990/03/31 12237.52 12505.05
1990/04/30 12127.58 12399.55
1990/05/31 12482.92 12732.64
1990/06/30 12662.73 12935.56
1990/07/31 12816.22 13107.37
1990/08/31 12734.27 12917.78
1990/09/30 12818.92 13054.01
1990/10/31 12947.70 13268.25
1990/11/30 13173.46 13552.83
1990/12/31 13343.37 13767.48
1991/01/31 13489.77 13913.41
1991/02/28 13602.09 13972.43
1991/03/31 13656.76 14048.83
1991/04/30 13770.24 14216.19
1991/05/31 13842.51 14265.91
1991/06/30 13834.65 14256.61
1991/07/31 13982.96 14436.49
1991/08/31 14199.83 14757.86
1991/09/30 14456.47 15077.21
1991/10/31 14585.62 15193.63
1991/11/30 14669.94 15351.69
1991/12/31 15138.15 15878.41
1992/01/31 14932.82 15632.63
1992/02/29 15001.50 15695.29
1992/03/31 14898.60 15600.70
1992/04/30 14985.90 15712.26
1992/05/31 15260.98 15985.53
1992/06/30 15472.24 16217.96
1992/07/31 15733.49 16620.18
1992/08/31 15868.93 16790.77
1992/09/30 16016.35 17022.80
1992/10/31 15823.25 16775.81
1992/11/30 15863.29 16745.09
1992/12/31 16119.69 17028.05
1993/01/31 16395.77 17410.06
1993/02/28 16703.45 17749.62
1993/03/31 16799.21 17797.32
1993/04/30 16925.77 17950.12
1993/05/31 16952.44 17923.03
1993/06/30 17286.13 18325.25
1993/07/31 17371.74 18438.03
1993/08/31 17654.98 18847.93
1993/09/30 17687.37 18931.20
1993/10/31 17806.01 18981.32
1993/11/30 17533.63 18772.74
1993/12/31 17628.05 18856.42
1994/01/31 17935.40 19115.53
1994/02/28 17520.03 18717.76
1994/03/31 16990.53 18282.00
1994/04/30 16821.01 18141.32
1994/05/31 16838.55 18123.94
1994/06/30 16778.74 18086.75
1994/07/31 17115.33 18402.46
1994/08/31 17108.62 18407.31
1994/09/30 16834.25 18149.41
1994/10/31 16794.86 18131.22
1994/11/30 16751.84 18091.20
1994/12/31 16853.95 18215.70
1995/01/31 17145.55 18572.64
1995/02/28 17513.16 18961.92
1995/03/31 17618.48 19074.70
1995/04/30 17815.97 19320.48
1995/05/31 18497.74 20112.78
1995/06/30 18616.08 20265.18
1995/07/31 18538.25 20194.84
1995/08/31 18737.14 20425.66
1995/09/30 18896.17 20609.99
1995/10/31 19177.59 20931.36
1995/11/30 19439.29 21270.11
1995/12/31 19706.41 21564.80
1996/01/31 19795.98 21701.43
1996/02/29 19380.05 21268.49
1996/03/31 19191.40 21081.33
1996/04/30 19038.78 20916.00
1996/05/31 18987.05 20911.15
1996/06/30 19217.96 21174.71
1996/07/31 19246.09 21222.01
1996/08/31 19190.01 21177.94
1996/09/30 19483.93 21530.03
1996/10/31 19885.59 22018.35
1996/11/30 20202.84 22385.40
1996/12/31 19976.73 22159.43
1997/01/31 19979.60 22196.22
1997/02/28 19976.70 22209.56
1997/03/31 19766.50 21993.29
1997/04/30 20025.64 22297.28
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Government Investment Fund - Class B on April 30, 1987.
As the chart shows, by April 30, 1997, the value of the investment would
have grown to $20,026 - a 100.26% increase on the initial investment. For
comparison, look at how the Salomon Brothers Treasury/Agency Index did over
the same period. With dividends reinvested the same $10,000 investment
would have grown to $22,297 - a 122.97% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 2.60% 5.55% 6.15% 4.72% 6.13% 7.03%
Capital appreciation -1.90% -1.86% 8.04% -10.38% 6.40% 1.46%
return
Total return 0.70% 3.69% 14.19% -5.66% 12.53% 8.49%
</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
PERIOD ENDED APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.10(cents) 24.63(cents) 50.43(cents)
Annualized dividend rate 5.40% 5.28% 5.39%
30-day annualized yield 5.32% - -
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 $9.24 over the past one month, $9.40
over the past six months, and $9.36 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.
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: Curt Hollingsworth became Portfolio Manager of
Fidelity Advisor Government Investment Fund on February 3, 1997.
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period ending April 30, 1997, the fund's Class A,
Class T and Class B shares had total returns of 1.17%, 1.01% and 0.70%,
respectively. For the one-year period ended April 30, 1997, the fund's
Class A, Class T and Class B shares had total returns of 5.87%, 5.74%, and
5.18%, respectively. To gauge how the fund did relative to its peer group,
the general U.S. government funds average had a total return of 1.11% for
the same six-month period, and 5.79% for the same one-year period, as
tracked by Lipper Analytical Services. The fund's benchmark, the Salomon
Brothers Treasury/Agency Index, had six- and 12-month returns of 1.27% and
6.60%, respectively, as of April 30, 1997.
Q. FOR THE FIRST TIME SINCE 1995, THE FEDERAL RESERVE BOARD RAISED
SHORT-TERM INTEREST RATES IN LATE MARCH OF THIS YEAR. DID YOU ALTER YOUR
STRATEGY IN RESPONSE TO RISING INTEREST RATES?
A. No, I didn't. The fund's duration - or interest rate sensitivity -
remained neutral; that is, the fund wasn't structured in anticipation of
interest rate moves. Instead, it was structured to match the interest rate
sensitivity of the market for 1-30 year government securities, as reflected
by the fund's index. I have
found, regardless of conventional wisdom, it is impossible to predict the
direction of interest rates with any great consistency over a long period
of time. That's why I don't try to "time the market" by structuring the
portfolio based on my view about the future direction of interest rates.
Instead, I work to add value by managing the fund's sector weights and by
focusing on individual security selection.
Q. DOES YOUR INVESTMENT STYLE DIFFER FROM THE PREVIOUS MANAGER?
A. No. I manage the fund using the same investment discipline that the
previous manager used. As a result, I expect very few significant changes
to the fund. During the past six months, the fund was underweighted in
lower-yielding Treasuries and overweighted in higher-yielding agencies and
mortgage-related securities relative to the market, as represented by the
index. At the end of the period, Treasury securities accounted for about
39% of the fund's investments, federal agency securities were about 41% and
mortgage-related securities were about 20%.
Q. WHICH AGENCY SECURITIES WERE ATTRACTIVE?
A. The fund focused on agency bonds that are non-callable - meaning the
issuer does not have the option of redeeming the bond prior to maturity.
Thus, the fund won't be faced with having to invest cash if a bond is
called during what may be an environment in which interest rates are
declining. I also emphasized higher-quality agency securities, those
directly or indirectly backed by the full faith and credit of the U.S.
government. These high-quality securities offered higher yields than
comparable Treasuries and, as such, tended to help the fund's performance.
Q. LET'S TURN TO MORTGAGE-BACKED SECURITIES. WHAT CHOICES DID YOU MAKE
THERE?
A. I focused on mortgage securities with coupons - the interest rates the
borrower promises to pay - that were either much higher or lower than
today's interest rate levels. Here's why: Mortgage-backed securities are
subject to prepayment risk or the risk that they will be paid off before
maturity as mortgage holders refinance their debt. Both rising and falling
interest rates typically set off changes in prepayment patterns, which can
dramatically affect the prices of mortgage-backed securities. The bonds
most vulnerable to prepayment activity are those that have coupons close to
current market rates. I am very careful to select mortgage securities that
I believe will allow the fund to closely track its benchmark.
Q. WHAT TYPES OF TREASURIES DID YOU CHOOSE?
A. I underweighted recently issued Treasury bonds and overweighted
Treasuries issued some time ago. Newly issued Treasuries have a "liquidity
premium" imbedded in their prices when they are first issued. The liquidity
premium signifies that investors are willing to pay more for newly issued
Treasuries because they are easily traded. However, that liquidity premium
disappears over time as newer Treasuries are subsequently issued, and I
felt that older Treasuries offered a better value.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. The fund's performance may have been even better if it had more bonds
that offered a yield advantage over Treasury securities. However, the fact
that yield spreads - which measure the difference in yields between bonds
of various credit quality - tightened made it difficult to find attractive
additions for the fund. Yield spreads are near historically tight levels
and, as a result, it was a frustrating period for finding higher-yield
opportunities.
Q. WHAT'S YOUR OUTLOOK?
A. Looking ahead, investors will likely continue to scrutinize every new
piece of economic data, looking for clues as to whether the Fed will move
to change interest rates at its meeting in July. In the meantime,
contradictory economic data may mean more volatility for the fixed-income
markets. But regardless of the
direction of interest rates, I'll focus on choosing bonds whose prices are
lower than I believe they should be and sell those that have exceeded their
fair value relative to other bonds in the marketplace. In addition, I will
look for opportunities that may arise due to price inefficiencies with the
idea of exploiting the anomalies for the benefit of the fund.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks a high level of
current income by investing
primarily in obligations
issued or guaranteed by the
U.S. government or any of its
agencies or instrumentalities
START DATE: January 7, 1987
SIZE: as of April 30, 1997,
more than $207 million
MANAGER: Curt
Hollingsworth, since
February 1997; joined
Fidelity in 1983
(checkmark)
CURT HOLLINGSWORTH ON
SECURITY SELECTION:
"While few investors welcome
volatility, it often creates
opportunities. As manager of
a government securities
mutual fund, my job is to buy
bonds that I think are cheap
and have the potential to rise
in value and to sell those
securities that I think have
reached their full value
relative to other bonds in the
marketplace. A moderate
amount of volatility can make
that task easier. Absent
volatility over much of 1996,
bonds were priced quite
efficiently. By that, I mean that
there were fewer opportunities
to find securities that I felt
were significantly underpriced
relative to their fair value. But
even a moderate amount of
volatility can create price
inefficiencies. While the
headlines may suggest
otherwise, I would not
necessarily characterize the
past six months as a very
volatile period for
fixed-income securities. Bond
yields and prices remained in
a relatively narrow range,
even though interest rates
reversed course."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
Zero 7.0 0.0
coupon
bonds
Less 0.0 0.2
than 5%
5 - 16.0 9.4
5.99%
6 - 22.1 26.5
6.99%
7 - 10.1 23.0
7.99%
8 - 38.8 28.0
8.99%
9 - 4.4 7.7
9.99%
10 - 0.5 0.4
10.99%
11 - 0.3 0.3
11.99%
12% and 0.4 2.9
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 APRIL 30, 1997
6 MONTHS AGO
Years 8.4 8.5
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF APRIL 30, 1997
6 MONTHS AGO
Years 4.8 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 APRIL 30, 1997 AS OF OCTOBER 31, 1996
Row: 1, Col: 1, Value: 1.4
Row: 1, Col: 2, Value: 39.6
Row: 1, Col: 3, Value: 39.1
Row: 1, Col: 4, Value: 19.9
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 32.0
Row: 1, Col: 3, Value: 52.4
Row: 1, Col: 4, Value: 13.6
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 13.6%
U.S. Treasury
obligations 52.8%
U.S. government
agency
obligations 32.0%
Short-term
investments 1.6%
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 79.7%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 39.1%
5 7/8%, 4/30/98 $ 18,000,000 $ 17,983,080
8 7/8%, 11/15/98 12,040,000 12,510,282
8%, 8/15/99 3,200,000 3,310,496
8 7/8%, 2/15/19 20,000,000 24,021,800
8 1/8%, 8/15/19 20,140,000 22,534,848
80,360,506
U.S. GOVERNMENT AGENCY OBLIGATIONS - 40.6%
Federal Agricultural Mortgage Corporation:
7.48%, 11/27/00 1,800,000 1,848,096
7.01%, 8/10/04 500,000 501,640
Federal Home Loan Bank:
6.37%, 6/30/03 230,000 224,609
7.36%, 7/1/04 850,000 874,438
7.38%, 8/5/04 1,580,000 1,622,455
7.46%, 9/9/04 920,000 948,465
8.09%, 12/28/04 290,000 309,621
7.59%, 3/10/05 290,000 301,464
Federal Home Loan Mortgage Corporation
8%, 1/26/05 330,000 349,490
Federal National Mortgage Association
7.16%, 5/11/05 2,350,000 2,373,124
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 1,145,531
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 2,824,911 2,977,456
Class 2-E, 9.40%, 5/15/02 1,027,861 1,085,411
Class T-3, 9 5/8%, 5/15/02 640,128 675,489
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. government through
Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 193,333 183,304
Series 1993-D, 5.23%, 5/15/05 344,043 325,496
Series 1994-A, 7.12%, 4/15/06 1,884,715 1,901,206
Series 1994-C, 6.61%, 9/15/99 143,055 143,979
Series 1994-F, 8.187%, 12/15/04 5,948,034 6,189,858
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed by U.S. government through
Export-Import Bank) Series 1994-B, 7 1/2%, 1/26/06 258,215 264,289
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) Series 1994-1, 6.88%, 1/26/03 $ 374,118 $ 375,019
Overseas Private Investment Corp. U.S. government
guaranteed participation certificate (callable):
Series 1994-195, 6.08%, 8/15/04 2,050,000 1,989,402
Series 1996-A1, 6.726%, 9/15/10 2,000,000 1,955,980
Private Export Funding Corp. secured:
5.65%, 3/15/03 1,029,000 1,001,268
6.86%, 4/30/04 1,023,750 1,024,385
State of Israel (guaranteed by U.S. government through
Agency for International Development):
6 1/8%, 8/15/99 11,000,000 10,923,220
7 1/8%, 8/15/99 2,167,000 2,196,315
0%, 11/15/00 11,140,000 8,835,245
0%, 11/15/01 7,500,000 5,574,900
8%, 11/15/01 2,140,000 2,243,961
6 1/4%, 8/15/02 696,000 681,365
6 1/8%, 3/15/03 630,000 607,522
7 5/8%, 8/15/04 480,000 494,422
5.89%, 8/15/05 8,420,000 7,857,005
6.60%, 2/15/08 4,680,000 4,497,106
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. government through Export-Import Bank)
6.69%, 1/15/09 (a) 1,100,000 1,082,246
U.S. Department of Housing & Urban Development
government guaranteed participation certificates:
Series 1995-A, 8.24%, 8/1/02 4,000,000 4,261,040
Series 1995-A, 8.27%, 8/1/03 415,000 444,502
Series 1996-A, 6.98%, 8/1/05 3,000,000 2,994,270
83,284,594
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $162,202,101) 163,645,100
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 9.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.5%
6 1/2%, 5/1/08 405,567 397,301
6.77%, 11/1/03 4,781,332 4,767,885
8 1/2%, 8/1/09 to 10/1/25 1,252,777 1,295,284
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - CONTINUED
9%, 10/1/08 to 10/1/20 $ 1,658,027 $ 1,752,615
9 1/2%, 2/1/08 to 7/1/21 1,226,880 1,325,602
10 1/2%, 1/1/16 to 12/1/20 885,039 970,637
12 1/2%, 2/1/10 to 6/1/19 627,927 721,601
11,230,925
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.2%
6%, 12/1/08 167,714 161,109
6.345%, 3/1/99 1,824,549 1,809,154
6 1/2%, 6/1/07 to 2/1/10 2,496,715 2,453,625
8 1/4%, 12/1/01 684,260 717,851
8 1/2%, 8/1/16 to 1/1/17 332,712 346,587
9 1/4%, 9/1/16 142,812 151,843
9 1/2%, 2/1/10 to 5/1/20 960,854 1,037,798
12 1/2%, 8/1/15 29,748 34,411
6,712,378
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.4%
11 1/2%, 3/15/10 to 1/15/13 609,612 685,823
13 1/2%, 7/15/11 61,561 72,976
758,799
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $18,640,221) 18,702,102
COLLATERALIZED MORTGAGE OBLIGATIONS - 10.8%
Federal Home Loan Mortgage Corporation:
planned amortization class:
Series 1511 Class D, 6%, 10/15/04 3,820,000 3,792,544
Series 1727 Class D, 6 1/2%, 8/15/14 2,700,000 2,704,219
sequential pay Series 1353 Class A, 5 1/2%, 11/15/04 50,002 49,392
Series 1535 Class PM, 7%, 6/15/01 3,394,235 3,404,969
Federal National Mortgage Association:
planned amortization class:
Series 1993-134 Class GA, 6 1/2%, 2/25/07 2,730,000 2,682,331
Series 1994-51 Class PD, 5 3/4%, 2/25/15 5,480,000 5,425,200
Series 1994-M3 Class A, 7.71%, 4/1/06 469,144 474,422
sequential pay Series 1996-M5 Class A1,
7.141%, 6/25/08 3,536,710 3,556,327
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $22,094,752) 22,089,404
CASH EQUIVALENTS - 0.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.37%, dated
4/30/97 due 5/1/97 $ 913,136 $ 913,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $203,850,074) $ 205,349,606
LEGEND
1. 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 $1,082,246 or 0.5% of net
assets.
INCOME TAX INFORMATION
At April 30, 1997 the aggregate cost of investment securities for income
tax purposes was $203,850,074. Net unrealized appreciation aggregated
$1,499,532, of which $2,622,690 related to appreciated investment
securities and $1,123,158 related to depreciated investment securities.
At October 31, 1996 the fund had a capital loss carryforward of
approximately $6,029,000 of which $3,262,000 and $2,767,000 will expire on
October 31, 2002 and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 205,349,606
agreements of $913,000) (cost $203,850,074) -
See accompanying schedule
Cash 35,955
Interest receivable 2,719,207
Prepaid expenses 6,610
TOTAL ASSETS 208,111,378
LIABILITIES
Payable for investments purchased $ 36,340
Payable for fund shares redeemed 483,091
Distributions payable 139,635
Accrued management fee 64,954
Distribution fees payable 47,713
Other payables and accrued expenses 49,172
TOTAL LIABILITIES 820,905
NET ASSETS $ 207,290,473
Net Assets consist of:
Paid in capital $ 213,282,690
Undistributed net investment income 318,809
Accumulated undistributed net realized gain (loss) (7,810,558)
on investments
Net unrealized appreciation (depreciation) on 1,499,532
investments
NET ASSETS $ 207,290,473
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
APRIL 30, 1997 (UNAUDITED)
CALCULATION OF MAXIMUM OFFERING PRICE $9.32
CLASS A:
NET ASSET VALUE and redemption price per share
($622,609 (divided by) 66,832 shares)
Maximum offering price per share (100/95.75 of $9.32) $9.73
CLASS T: $9.31
NET ASSET VALUE and redemption price per share
($169,077,199 (divided by) 18,152,348 shares)
Maximum offering price per share (100/96.50 of $9.31) $9.65
CLASS B: $9.31
NET ASSET VALUE and offering price per share
($16,990,341 (divided by) 1,825,272 shares) A
INSTITUTIONAL CLASS: $9.30
NET ASSET VALUE, offering price and redemption price per
share ($20,600,324 (divided by) 2,215,241 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 7,919,275
Interest
EXPENSES
Management fee $ 511,533
Transfer agent fees 261,768
Distribution fees 315,086
Accounting fees and expenses 48,373
Non-interested trustees' compensation 1,610
Custodian fees and expenses 7,792
Registration fees 57,131
Audit 12,235
Legal 915
Miscellaneous 3,836
Total expenses before reductions 1,220,279
Expense reductions (46,018) 1,174,261
NET INVESTMENT INCOME 6,745,014
REALIZED AND UNREALIZED GAIN (LOSS) (1,482,400)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) (2,932,299)
on investment securities
NET GAIN (LOSS) (4,414,699)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 2,330,315
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 6,745,014 $ 16,576,353
Net investment income
Net realized gain (loss) (1,482,400) (2,903,627)
Change in net unrealized appreciation (depreciation) (2,932,299) (3,481,958)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,330,315 10,190,768
FROM OPERATIONS
Distributions to shareholders from net investment income (6,721,144) (16,570,486)
Share transactions - net increase (decrease) (51,439,904) 34,526,256
TOTAL INCREASE (DECREASE) IN NET ASSETS (55,830,733) 28,146,538
NET ASSETS
Beginning of period 263,121,206 234,974,668
End of period (including undistributed net investment $ 207,290,473 $ 263,121,206
income of $318,809 and $294,939, respectively)
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1997
(UNAUDITED) 1996 F
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 9.490 $ 9.250
Income from Investment Operations
Net investment income .272 .090
Net realized and unrealized gain (loss) (.162) .241 E
Total from investment operations .110 .331
Less Distributions
From net investment income (.280) (.091)
Net asset value, end of period $ 9.320 $ 9.490
TOTAL RETURN B, C 1.17% 3.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 623 $ 223
Ratio of expenses to average net assets .90% A, .90% A,
G G
Ratio of net investment income to average net assets 5.94% A 6.28% A
Portfolio turnover rate 160% A 153%
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
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1997
(UNAUDITED) 1996 1995 1994 D 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.490 $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590
beginning of period
Income from
Investment
Operations
Net investment .276 E .586 E .594 .515 .567 .666
income
Net realized and (.181) (.180) .701 (1.031) .601 .125
unrealized gain
(loss)
Total from investment .095 .406 1.295 (.516) 1.168 .791
operations
Less Distributions
From net investment (.275) (.586) (.585) (.504) (.558) (.651)
income
From net realized gain - - - (.130) (.200) -
In excess of net - - - (.030) - -
realized gain
Total distributions (.275) (.586) (.585) (.664) (.758) (.651)
Net asset value, $ 9.310 $ 9.490 $ 9.670 $ 8.960 $ 10.140 $ 9.730
end of period
TOTAL RETURN B, C 1.01% 4.38% 14.91% (5.27) 12.53% 8.49%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 169,077 $ 217,883 $ 208,620 $ 114,453 $ 69,876 $ 23,281
period (000 omitted)
Ratio of expenses to 1.00% A 1.00% .89% .74% .68% 1.10%
average net assets , F F F F F
Ratio of expenses to 1.00% A .99% .89% .74% .68% 1.10%
average net assets G
after expense
reductions
Ratio of net investment 5.90% A 6.19% 6.34% 6.18% 6.11% 6.98%
income to average
net assets
Portfolio turnover rate 160% A 153% 261% 313% 333% 315%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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.
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 E
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 .245 D .520 D .542 .144
Net realized and unrealized gain (loss) (.179) (.177) .693 (.137)
Total from investment operations .066 .343 1.235 .007
Less Distributions
From net investment income (.246) (.523) (.515) (.157)
Net asset value, end of period $ 9.310 $ 9.490 $ 9.670 $ 8.950
TOTAL RETURN B, C 0.70% 3.69% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 16,990 $ 17,355 $ 11,766 $ 2,062
Ratio of expenses to average net assets 1.65% A, 1.67% F 1.65% F 1.70% A,
F F
Ratio of net investment income to average 5.26% A 5.51% 5.58% 5.22% A
net assets
Portfolio turnover rate 160% A 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 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 JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31, 1994.
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).
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER
ENDED APRIL 30, 31,
1997
(UNAUDITED) 1996 1995 E
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.480 $ 9.670 $ 9.560
Income from Investment Operations
Net investment income .287 D .604 D .197
Net realized and unrealized gain (loss) (.178) (.180) .108
Total from investment operations .109 .424 .305
Less Distributions
From net investment income (.289) (.614) (.195)
Net asset value, end of period $ 9.300 $ 9.480 $ 9.670
TOTAL RETURN B, C 1.16% 4.58% 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 20,600 $ 27,660 $ 14,588
Ratio of expenses to average net assets .75% A, .75% .75% A,
F F F
Ratio of net investment income to average net assets 6.14% A 6.43% 6.48% A
Portfolio turnover rate 160% A 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 5 OF NOTES TO FINANCIAL
STATEMENTS).
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 April 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Government Investment Fund (the fund) is a fund of
Fidelity Advisor Series II (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust.
The fund offers Class A, Class 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 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.
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.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying Class A and
shares of Class A for distribution under federal and state securities law.
These expenses are borne by Class A and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends 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 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.
2. OPERATING POLICIES - CONTINUED
RESTRICTED SECURITIES - CONTINUED
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 $179,953,983 and $227,239,083, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
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% *
* .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 $ 257 $ 257
CLASS T 237,941 237,941
CLASS B 76,888 21,358
$ 315,086 $ 259,556
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
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 4.25% and 3.50%
for selling Class A and 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 $ 8,666 $ 3,223
CLASS T 43,763 34,328
CLASS B 10,170 0 *
$ 62,599 $ 37,551
* 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. For the period, the
following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 1,351 .80
CLASS T** FIIOC * 220,321 .23
CLASS B FIIOC * 19,047 .22
INSTITUTIONAL CLASS FIIOC * 21,049 .18
$ 261,768
* 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. (FSC) maintains the fund's
accounting records. The fee is based on the level of average net assets for
the month plus out-of-pocket expenses.
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 REIMBURSEME
EXPENSE NT
LIMITATIONS
CLASS A .90% $ 16,255
CLASS T 1.00% 14,500
CLASS B 1.65% 9,427
INSTITUTIONAL CLASS .75% 5,711
$ 45,893
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 $125 under the custodian arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996 A
CLASS A
From net investment income $ 10,037 $ 1,602
CLASS T
From net investment income 5,534,091 14,160,622
CLASS B
From net investment income 450,698 822,494
INSTITUTIONAL CLASS
From net investment income 726,318 1,585,768
$ 6,721,144 $ 16,570,486
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 54,818 23,309 $ 513,294 $ 216,298
Shares sold
Reinvestment of distributions 916 170 8,589 1,602
Shares redeemed (12,381) - (116,837) -
Net increase (decrease) 43,353 23,479 $ 405,046 $ 217,900
CLASS T 4,065,037 16,389,663 $ 38,314,999 $ 156,392,785
Shares sold
Reinvestment of distributions 502,160 1,323,588 4,723,763 12,548,852
Shares redeemed (9,374,044) (16,317,212) (88,243,914) (154,061,866)
Net increase (decrease) (4,806,847) 1,396,039 $ (45,205,152) $ 14,879,771
CLASS B 214,149 1,364,781 $ 2,013,409 $ 13,027,776
Shares sold
Reinvestment of distributions 35,611 64,712 334,605 612,407
Shares redeemed (253,419) (817,313) (2,380,918) (7,792,379)
Net increase (decrease) (3,659) 612,180 $ (32,904) $ 5,847,804
INSTITUTIONAL CLASS 395,785 2,699,943 $ 3,719,789 $ 25,667,067
Shares sold
Reinvestment of distributions 65,247 131,515 613,235 1,241,701
Shares redeemed (1,163,987) (1,421,950) (10,939,918) (13,327,987)
Net increase (decrease) (702,955) 1,409,508 $ (6,606,894) $ 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.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 15,327
CLASS T 18,979
CLASS B 9,960
INSTITUTIONAL CLASS 12,865
$ 57,131
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GOVERNMENT INVESTMENT
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 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.
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:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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 the 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Government Investment - 1.16% 6.03% 36.95% 105.23%
Institutional Class
Salomon Brothers Treasury/Agency Index 1.27% 6.60% 41.91% 122.97%
General U.S. Government Funds Average 1.11% 5.79% 35.54% 101.92%
</TABLE>
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years, or 10 years. For example, if you invested $1,000 in a fund that
had a 5% return over the past year, the value of your investment would be
$1,050. You can compare Institutional Class' returns to those of the
Salomon Brothers Treasury/Agency Index - a market capitalization weighted
index of U.S. Treasury and U.S. government agency securities with
fixed-rate coupons and weighted average lives of at least one year. To
measure how Institutional Class' performance stacked up against its peers,
you can compare it to the general U.S. government funds average, which
reflects the performance of mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past six months average represents a
peer group of 186 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Government Investment - 6.03% 6.49% 7.45%
Institutional Class
Salomon Brothers Treasury/Agency Index 6.60% 7.25% 8.35%
General U.S. Government Funds Average 5.79% 6.24% 7.25%
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
FA Govt. Inv. -CL I SB Treasury/Agency
00697 SB022
1987/04/30 10000.00 10000.00
1987/05/31 9958.84 9952.70
1987/06/30 10092.81 10065.89
1987/07/31 10112.10 10037.19
1987/08/31 10055.09 9995.15
1987/09/30 9854.55 9806.78
1987/10/31 10168.92 10180.29
1987/11/30 10248.83 10228.80
1987/12/31 10339.14 10344.41
1988/01/31 10654.22 10695.69
1988/02/29 10773.36 10809.69
1988/03/31 10711.74 10701.75
1988/04/30 10648.39 10631.42
1988/05/31 10585.16 10581.70
1988/06/30 10797.76 10795.54
1988/07/31 10779.23 10726.41
1988/08/31 10773.50 10743.79
1988/09/30 10956.48 10972.59
1988/10/31 11118.50 11165.01
1988/11/30 11025.59 11042.93
1988/12/31 11018.62 11078.91
1989/01/31 11146.63 11227.67
1989/02/28 11112.08 11141.16
1989/03/31 11144.98 11207.05
1989/04/30 11325.79 11416.85
1989/05/31 11547.03 11707.09
1989/06/30 11804.94 12103.65
1989/07/31 11988.75 12355.49
1989/08/31 11866.05 12146.50
1989/09/30 11934.95 12202.28
1989/10/31 12160.29 12519.20
1989/11/30 12252.66 12637.24
1989/12/31 12313.29 12656.24
1990/01/31 12179.32 12482.01
1990/02/28 12219.44 12492.52
1990/03/31 12237.52 12505.05
1990/04/30 12127.58 12399.55
1990/05/31 12482.92 12732.64
1990/06/30 12662.73 12935.56
1990/07/31 12816.22 13107.37
1990/08/31 12734.27 12917.78
1990/09/30 12818.92 13054.01
1990/10/31 12947.70 13268.25
1990/11/30 13173.46 13552.83
1990/12/31 13343.37 13767.48
1991/01/31 13489.77 13913.41
1991/02/28 13602.09 13972.43
1991/03/31 13656.76 14048.83
1991/04/30 13770.24 14216.19
1991/05/31 13842.51 14265.91
1991/06/30 13834.65 14256.61
1991/07/31 13982.96 14436.49
1991/08/31 14199.83 14757.86
1991/09/30 14456.47 15077.21
1991/10/31 14585.62 15193.63
1991/11/30 14669.94 15351.69
1991/12/31 15138.15 15878.41
1992/01/31 14932.82 15632.63
1992/02/29 15001.50 15695.29
1992/03/31 14898.60 15600.70
1992/04/30 14985.90 15712.26
1992/05/31 15260.98 15985.53
1992/06/30 15472.24 16217.96
1992/07/31 15733.49 16620.18
1992/08/31 15868.93 16790.77
1992/09/30 16016.35 17022.80
1992/10/31 15823.25 16775.81
1992/11/30 15863.29 16745.09
1992/12/31 16119.69 17028.05
1993/01/31 16395.77 17410.06
1993/02/28 16703.45 17749.62
1993/03/31 16799.21 17797.32
1993/04/30 16925.77 17950.12
1993/05/31 16952.44 17923.03
1993/06/30 17286.13 18325.25
1993/07/31 17371.74 18438.03
1993/08/31 17654.98 18847.93
1993/09/30 17687.37 18931.20
1993/10/31 17806.01 18981.32
1993/11/30 17533.63 18772.74
1993/12/31 17628.05 18856.42
1994/01/31 17935.40 19115.53
1994/02/28 17520.03 18717.76
1994/03/31 16990.53 18282.00
1994/04/30 16821.01 18141.32
1994/05/31 16838.55 18123.94
1994/06/30 16781.20 18086.75
1994/07/31 17147.06 18402.46
1994/08/31 17137.05 18407.31
1994/09/30 16896.28 18149.41
1994/10/31 16867.71 18131.22
1994/11/30 16835.55 18091.20
1994/12/31 16949.51 18215.70
1995/01/31 17253.78 18572.64
1995/02/28 17630.81 18961.92
1995/03/31 17747.67 19074.70
1995/04/30 17957.85 19320.48
1995/05/31 18656.29 20112.78
1995/06/30 18787.24 20265.18
1995/07/31 18719.77 20194.84
1995/08/31 18936.65 20425.66
1995/09/30 19115.42 20609.99
1995/10/31 19399.68 20931.36
1995/11/30 19681.91 21270.11
1995/12/31 19949.88 21564.80
1996/01/31 20058.29 21701.43
1996/02/29 19652.45 21268.49
1996/03/31 19477.60 21081.33
1996/04/30 19355.90 20916.00
1996/05/31 19318.12 20911.15
1996/06/30 19546.52 21174.71
1996/07/31 19589.98 21222.01
1996/08/31 19547.91 21177.94
1996/09/30 19862.16 21530.03
1996/10/31 20287.33 22018.35
1996/11/30 20628.92 22385.40
1996/12/31 20415.22 22159.43
1997/01/31 20431.52 22196.22
1997/02/28 20440.33 22209.56
1997/03/31 20241.48 21993.29
1997/04/30 20522.79 22297.28
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor Government Investment Fund - Institutional Class on
April 30, 1987. As the chart shows, by April 30, 1997, the value of the
investment would have grown to $20,523 - a 105.23% increase on the initial
investment. For comparison, look at how the Salomon Brothers
Treasury/Agency Index did over the same period. With dividends reinvested
the same $10,000 investment would have grown to $22,297 - a 122.97%
increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 3.06% 6.54% 7.11% 5.01% 6.13% 7.03%
Capital appreciation -1.90% -1.96% 7.92% -10.28% 6.40% 1.46%
return
Total return 1.16% 4.58% 15.03% -5.27% 12.53% 8.49%
</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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.81(cents) 28.90(cents) 58.92(cents)
Annualized dividend rate 6.34% 6.21% 6.30%
30-day annualized yield 6.25% - -
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 $9.23 over the past one month, $9.39
over the past six months, and $9.35 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
NOTE TO SHAREHOLDERS: Curt Hollingsworth became Portfolio Manager of
Fidelity Advisor Government Investment Fund on February 3, 1997.
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six- and 12-month periods that ended April 30, 1997, the fund's
Institutional Class shares had total returns of 1.16% and 6.03%,
respectively. To gauge how the fund did relative to its peer group, the
general U.S. government funds average had a total return of 1.11% for the
same six-month period, and 5.79% for the same one-year period, as tracked
by Lipper Analytical Services. The fund's benchmark, the Salomon Brothers
Treasury/Agency Index, had six- and 12-month returns of 1.27% and 6.60%,
respectively, as of April 30, 1997.
Q. FOR THE FIRST TIME SINCE 1995, THE FEDERAL RESERVE BOARD RAISED
SHORT-TERM INTEREST RATES IN LATE MARCH OF THIS YEAR. DID YOU ALTER YOUR
STRATEGY IN RESPONSE TO RISING INTEREST RATES?
A. No, I didn't. The fund's duration - or interest rate sensitivity -
remained neutral; that is, the fund wasn't structured in anticipation of
interest rate moves. Instead, it was structured to match the interest rate
sensitivity of the market for 1-30 year government securities, as reflected
by the fund's index. I have
found, regardless of conventional wisdom, it is impossible to predict the
direction of interest rates with any great consistency over a long period
of time. That's why I don't try to "time the market" by structuring the
portfolio based on my view about the future direction of interest rates.
Instead, I work to add value by managing the fund's sector weights and by
focusing on individual security selection.
Q. DOES YOUR INVESTMENT STYLE DIFFER FROM THE PREVIOUS MANAGER?
A. No. I manage the fund using the same investment discipline that the
previous manager used. As a result, I expect very few significant changes
to the fund. During the past six months, the fund was underweighted in
lower-yielding Treasuries and overweighted in higher-yielding agencies and
mortgage-related securities relative to the market, as represented by the
index. At the end of the period, Treasury securities accounted for about
39% of the fund's investments, federal agency securities were about 41% and
mortgage-related securities were about 20%.
Q. WHICH AGENCY SECURITIES WERE ATTRACTIVE?
A. The fund focused on agency bonds that are non-callable - meaning the
issuer does not have the option of redeeming the bond prior to maturity.
Thus, the fund won't be faced with having to invest cash if a bond is
called during what may be an environment in which interest rates are
declining. I also emphasized higher-quality agency securities, those
directly or indirectly backed by the full faith and credit of the U.S.
government. These high-quality securities offered higher yields than
comparable Treasuries and, as such, tended to help the fund's performance.
Q. LET'S TURN TO MORTGAGE-BACKED SECURITIES. WHAT CHOICES DID YOU MAKE
THERE?
A. I focused on mortgage securities with coupons - the interest rates the
borrower promises to pay - that were either much higher or lower than
today's interest rate levels. Here's why: Mortgage-backed securities are
subject to prepayment risk or the risk that they will be paid off before
maturity as mortgage holders refinance their debt. Both rising and falling
interest rates typically set off changes in prepayment patterns, which can
dramatically affect the prices of mortgage-backed securities. The bonds
most vulnerable to prepayment activity are those that have coupons close to
current market rates. I am very careful to select mortgage securities that
I believe will allow the fund to closely track its benchmark.
Q. WHAT TYPES OF TREASURIES DID YOU CHOOSE?
A. I underweighted recently issued Treasury bonds and overweighted
Treasuries issued some time ago. Newly issued Treasuries have a "liquidity
premium" imbedded in their prices when they are first issued. The liquidity
premium signifies that investors are willing to pay more for newly issued
Treasuries because they are easily traded. However, that liquidity premium
disappears over time as newer Treasuries are subsequently issued, and I
felt that older Treasuries offered a better value.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. The fund's performance may have been even better if it had more bonds
that offered a yield advantage over Treasury securities. However, the fact
that yield spreads - which measure the difference in yields between bonds
of various credit quality - tightened made it difficult to find attractive
additions for the fund. Yield spreads are near historically tight levels
and, as a result, it was a frustrating period for finding higher-yield
opportunities.
Q. WHAT'S YOUR OUTLOOK?
A. Looking ahead, investors will likely continue to scrutinize every new
piece of economic data, looking for clues as to whether the Fed will move
to change interest rates at its meeting in July. In the meantime,
contradictory economic data may mean more volatility for the fixed-income
markets. But regardless of the
direction of interest rates, I'll focus on choosing bonds whose prices are
lower than I believe they should be and sell those that have exceeded their
fair value relative to other bonds in the marketplace. In addition, I will
look for opportunities that may arise due to price inefficiencies with the
idea of exploiting the anomalies for the benefit of the fund.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks a high level of
current income by investing
primarily in obligations
issued or guaranteed by the
U.S. government or any of its
agencies or instrumentalities
START DATE: January 7, 1987
SIZE: as of April 30, 1997,
more than $207 million
MANAGER: Curt
Hollingsworth, since
February 1997; joined
Fidelity in 1983
(checkmark)
CURT HOLLINGSWORTH ON
SECURITY SELECTION:
"While few investors welcome
volatility, it often creates
opportunities. As manager of
a government securities
mutual fund, my job is to buy
bonds that I think are cheap
and have the potential to rise
in value and to sell those
securities that I think have
reached their full value
relative to other bonds in the
marketplace. A moderate
amount of volatility can make
that task easier. Absent
volatility over much of 1996,
bonds were priced quite
efficiently. By that, I mean that
there were fewer opportunities
to find securities that I felt
were significantly underpriced
relative to their fair value. But
even a moderate amount of
volatility can create price
inefficiencies. While the
headlines may suggest
otherwise, I would not
necessarily characterize the
past six months as a very
volatile period for
fixed-income securities. Bond
yields and prices remained in
a relatively narrow range,
even though interest rates
reversed course."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
Zero 7.0 0.0
coupon
bonds
Less 0.0 0.2
than 5%
5 - 16.0 9.4
5.99%
6 - 22.1 26.5
6.99%
7 - 10.1 23.0
7.99%
8 - 38.8 28.0
8.99%
9 - 4.4 7.7
9.99%
10 - 0.5 0.4
10.99%
11 - 0.3 0.3
11.99%
12% and 0.4 2.9
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 APRIL 30, 1997
6 MONTHS AGO
Years 8.4 8.5
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF APRIL 30, 1997
6 MONTHS AGO
Years 4.8 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 APRIL 30, 1997 AS OF OCTOBER 31, 1996
Row: 1, Col: 1, Value: 1.4
Row: 1, Col: 2, Value: 39.6
Row: 1, Col: 3, Value: 39.1
Row: 1, Col: 4, Value: 19.9
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 32.0
Row: 1, Col: 3, Value: 52.4
Row: 1, Col: 4, Value: 13.6
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 13.6%
U.S. Treasury
obligations 52.8%
U.S. government
agency
obligations 32.0%
Short-term
investments 1.6%
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 79.7%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 39.1%
5 7/8%, 4/30/98 $ 18,000,000 $ 17,983,080
8 7/8%, 11/15/98 12,040,000 12,510,282
8%, 8/15/99 3,200,000 3,310,496
8 7/8%, 2/15/19 20,000,000 24,021,800
8 1/8%, 8/15/19 20,140,000 22,534,848
80,360,506
U.S. GOVERNMENT AGENCY OBLIGATIONS - 40.6%
Federal Agricultural Mortgage Corporation:
7.48%, 11/27/00 1,800,000 1,848,096
7.01%, 8/10/04 500,000 501,640
Federal Home Loan Bank:
6.37%, 6/30/03 230,000 224,609
7.36%, 7/1/04 850,000 874,438
7.38%, 8/5/04 1,580,000 1,622,455
7.46%, 9/9/04 920,000 948,465
8.09%, 12/28/04 290,000 309,621
7.59%, 3/10/05 290,000 301,464
Federal Home Loan Mortgage Corporation
8%, 1/26/05 330,000 349,490
Federal National Mortgage Association
7.16%, 5/11/05 2,350,000 2,373,124
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 1,145,531
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 2,824,911 2,977,456
Class 2-E, 9.40%, 5/15/02 1,027,861 1,085,411
Class T-3, 9 5/8%, 5/15/02 640,128 675,489
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. government through
Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 193,333 183,304
Series 1993-D, 5.23%, 5/15/05 344,043 325,496
Series 1994-A, 7.12%, 4/15/06 1,884,715 1,901,206
Series 1994-C, 6.61%, 9/15/99 143,055 143,979
Series 1994-F, 8.187%, 12/15/04 5,948,034 6,189,858
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed by U.S. government through
Export-Import Bank) Series 1994-B, 7 1/2%, 1/26/06 258,215 264,289
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) Series 1994-1, 6.88%, 1/26/03 $ 374,118 $ 375,019
Overseas Private Investment Corp. U.S. government
guaranteed participation certificate (callable):
Series 1994-195, 6.08%, 8/15/04 2,050,000 1,989,402
Series 1996-A1, 6.726%, 9/15/10 2,000,000 1,955,980
Private Export Funding Corp. secured:
5.65%, 3/15/03 1,029,000 1,001,268
6.86%, 4/30/04 1,023,750 1,024,385
State of Israel (guaranteed by U.S. government through
Agency for International Development):
6 1/8%, 8/15/99 11,000,000 10,923,220
7 1/8%, 8/15/99 2,167,000 2,196,315
0%, 11/15/00 11,140,000 8,835,245
0%, 11/15/01 7,500,000 5,574,900
8%, 11/15/01 2,140,000 2,243,961
6 1/4%, 8/15/02 696,000 681,365
6 1/8%, 3/15/03 630,000 607,522
7 5/8%, 8/15/04 480,000 494,422
5.89%, 8/15/05 8,420,000 7,857,005
6.60%, 2/15/08 4,680,000 4,497,106
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. government through Export-Import Bank)
6.69%, 1/15/09 (a) 1,100,000 1,082,246
U.S. Department of Housing & Urban Development
government guaranteed participation certificates:
Series 1995-A, 8.24%, 8/1/02 4,000,000 4,261,040
Series 1995-A, 8.27%, 8/1/03 415,000 444,502
Series 1996-A, 6.98%, 8/1/05 3,000,000 2,994,270
83,284,594
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $162,202,101) 163,645,100
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 9.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.5%
6 1/2%, 5/1/08 405,567 397,301
6.77%, 11/1/03 4,781,332 4,767,885
8 1/2%, 8/1/09 to 10/1/25 1,252,777 1,295,284
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - CONTINUED
9%, 10/1/08 to 10/1/20 $ 1,658,027 $ 1,752,615
9 1/2%, 2/1/08 to 7/1/21 1,226,880 1,325,602
10 1/2%, 1/1/16 to 12/1/20 885,039 970,637
12 1/2%, 2/1/10 to 6/1/19 627,927 721,601
11,230,925
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.2%
6%, 12/1/08 167,714 161,109
6.345%, 3/1/99 1,824,549 1,809,154
6 1/2%, 6/1/07 to 2/1/10 2,496,715 2,453,625
8 1/4%, 12/1/01 684,260 717,851
8 1/2%, 8/1/16 to 1/1/17 332,712 346,587
9 1/4%, 9/1/16 142,812 151,843
9 1/2%, 2/1/10 to 5/1/20 960,854 1,037,798
12 1/2%, 8/1/15 29,748 34,411
6,712,378
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.4%
11 1/2%, 3/15/10 to 1/15/13 609,612 685,823
13 1/2%, 7/15/11 61,561 72,976
758,799
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $18,640,221) 18,702,102
COLLATERALIZED MORTGAGE OBLIGATIONS - 10.8%
Federal Home Loan Mortgage Corporation:
planned amortization class:
Series 1511 Class D, 6%, 10/15/04 3,820,000 3,792,544
Series 1727 Class D, 6 1/2%, 8/15/14 2,700,000 2,704,219
sequential pay Series 1353 Class A, 5 1/2%, 11/15/04 50,002 49,392
Series 1535 Class PM, 7%, 6/15/01 3,394,235 3,404,969
Federal National Mortgage Association:
planned amortization class:
Series 1993-134 Class GA, 6 1/2%, 2/25/07 2,730,000 2,682,331
Series 1994-51 Class PD, 5 3/4%, 2/25/15 5,480,000 5,425,200
Series 1994-M3 Class A, 7.71%, 4/1/06 469,144 474,422
sequential pay Series 1996-M5 Class A1,
7.141%, 6/25/08 3,536,710 3,556,327
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $22,094,752) 22,089,404
CASH EQUIVALENTS - 0.4%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.37%, dated
4/30/97 due 5/1/97 $ 913,136 $ 913,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $203,850,074) $ 205,349,606
LEGEND
1. 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 $1,082,246 or 0.5% of net
assets.
INCOME TAX INFORMATION
At April 30, 1997 the aggregate cost of investment securities for income
tax purposes was $203,850,074. Net unrealized appreciation aggregated
$1,499,532, of which $2,622,690 related to appreciated investment
securities and $1,123,158 related to depreciated investment securities.
At October 31, 1996 the fund had a capital loss carryforward of
approximately $6,029,000 of which $3,262,000 and $2,767,000 will expire on
October 31, 2002 and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 205,349,606
agreements of $913,000) (cost $203,850,074) -
See accompanying schedule
Cash 35,955
Interest receivable 2,719,207
Prepaid expenses 6,610
TOTAL ASSETS 208,111,378
LIABILITIES
Payable for investments purchased $ 36,340
Payable for fund shares redeemed 483,091
Distributions payable 139,635
Accrued management fee 64,954
Distribution fees payable 47,713
Other payables and accrued expenses 49,172
TOTAL LIABILITIES 820,905
NET ASSETS $ 207,290,473
Net Assets consist of:
Paid in capital $ 213,282,690
Undistributed net investment income 318,809
Accumulated undistributed net realized gain (loss) (7,810,558)
on investments
Net unrealized appreciation (depreciation) on 1,499,532
investments
NET ASSETS $ 207,290,473
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
APRIL 30, 1997 (UNAUDITED)
CALCULATION OF MAXIMUM OFFERING PRICE $9.32
CLASS A:
NET ASSET VALUE and redemption price per share
($622,609 (divided by) 66,832 shares)
Maximum offering price per share (100/95.75 of $9.32) $9.73
CLASS T: $9.31
NET ASSET VALUE and redemption price per share
($169,077,199 (divided by) 18,152,348 shares)
Maximum offering price per share (100/96.50 of $9.31) $9.65
CLASS B: $9.31
NET ASSET VALUE and offering price per share
($16,990,341 (divided by) 1,825,272 shares) A
INSTITUTIONAL CLASS: $9.30
NET ASSET VALUE, offering price and redemption price per
share ($20,600,324 (divided by) 2,215,241 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 7,919,275
Interest
EXPENSES
Management fee $ 511,533
Transfer agent fees 261,768
Distribution fees 315,086
Accounting fees and expenses 48,373
Non-interested trustees' compensation 1,610
Custodian fees and expenses 7,792
Registration fees 57,131
Audit 12,235
Legal 915
Miscellaneous 3,836
Total expenses before reductions 1,220,279
Expense reductions (46,018) 1,174,261
NET INVESTMENT INCOME 6,745,014
REALIZED AND UNREALIZED GAIN (LOSS) (1,482,400)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) (2,932,299)
on investment securities
NET GAIN (LOSS) (4,414,699)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 2,330,315
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 6,745,014 $ 16,576,353
Net investment income
Net realized gain (loss) (1,482,400) (2,903,627)
Change in net unrealized appreciation (depreciation) (2,932,299) (3,481,958)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,330,315 10,190,768
FROM OPERATIONS
Distributions to shareholders from net investment income (6,721,144) (16,570,486)
Share transactions - net increase (decrease) (51,439,904) 34,526,256
TOTAL INCREASE (DECREASE) IN NET ASSETS (55,830,733) 28,146,538
NET ASSETS
Beginning of period 263,121,206 234,974,668
End of period (including undistributed net investment $ 207,290,473 $ 263,121,206
income of $318,809 and $294,939, respectively)
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1997
(UNAUDITED) 1996 F
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 9.490 $ 9.250
Income from Investment Operations
Net investment income .272 .090
Net realized and unrealized gain (loss) (.162) .241 E
Total from investment operations .110 .331
Less Distributions
From net investment income (.280) (.091)
Net asset value, end of period $ 9.320 $ 9.490
TOTAL RETURN B, C 1.17% 3.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 623 $ 223
Ratio of expenses to average net assets .90% A, .90% A,
G G
Ratio of net investment income to average net assets 5.94% A 6.28% A
Portfolio turnover rate 160% A 153%
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
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1997
(UNAUDITED) 1996 1995 1994 D 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.490 $ 9.670 $ 8.960 $ 10.140 $ 9.730 $ 9.590
beginning of period
Income from
Investment
Operations
Net investment .276 E .586 E .594 .515 .567 .666
income
Net realized and (.181) (.180) .701 (1.031) .601 .125
unrealized gain
(loss)
Total from investment .095 .406 1.295 (.516) 1.168 .791
operations
Less Distributions
From net investment (.275) (.586) (.585) (.504) (.558) (.651)
income
From net realized gain - - - (.130) (.200) -
In excess of net - - - (.030) - -
realized gain
Total distributions (.275) (.586) (.585) (.664) (.758) (.651)
Net asset value, $ 9.310 $ 9.490 $ 9.670 $ 8.960 $ 10.140 $ 9.730
end of period
TOTAL RETURN B, C 1.01% 4.38% 14.91% (5.27) 12.53% 8.49%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 169,077 $ 217,883 $ 208,620 $ 114,453 $ 69,876 $ 23,281
period (000 omitted)
Ratio of expenses to 1.00% A 1.00% .89% .74% .68% 1.10%
average net assets , F F F F F
Ratio of expenses to 1.00% A .99% .89% .74% .68% 1.10%
average net assets G
after expense
reductions
Ratio of net investment 5.90% A 6.19% 6.34% 6.18% 6.11% 6.98%
income to average
net assets
Portfolio turnover rate 160% A 153% 261% 313% 333% 315%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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.
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 E
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 .245 D .520 D .542 .144
Net realized and unrealized gain (loss) (.179) (.177) .693 (.137)
Total from investment operations .066 .343 1.235 .007
Less Distributions
From net investment income (.246) (.523) (.515) (.157)
Net asset value, end of period $ 9.310 $ 9.490 $ 9.670 $ 8.950
TOTAL RETURN B, C 0.70% 3.69% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 16,990 $ 17,355 $ 11,766 $ 2,062
Ratio of expenses to average net assets 1.65% A, 1.67% F 1.65% F 1.70% A,
F F
Ratio of net investment income to average 5.26% A 5.51% 5.58% 5.22% A
net assets
Portfolio turnover rate 160% A 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 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 JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31, 1994.
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).
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER
ENDED APRIL 30, 31,
1997
(UNAUDITED) 1996 1995 E
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.480 $ 9.670 $ 9.560
Income from Investment Operations
Net investment income .287 D .604 D .197
Net realized and unrealized gain (loss) (.178) (.180) .108
Total from investment operations .109 .424 .305
Less Distributions
From net investment income (.289) (.614) (.195)
Net asset value, end of period $ 9.300 $ 9.480 $ 9.670
TOTAL RETURN B, C 1.16% 4.58% 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 20,600 $ 27,660 $ 14,588
Ratio of expenses to average net assets .75% A, .75% .75% A,
F F F
Ratio of net investment income to average net assets 6.14% A 6.43% 6.48% A
Portfolio turnover rate 160% A 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 5 OF NOTES TO FINANCIAL
STATEMENTS).
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 April 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Government Investment Fund (the fund) is a fund of
Fidelity Advisor Series II (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the Investment
Company Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust.
The fund offers Class A, Class 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 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.
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.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying Class A and
shares of Class A for distribution under federal and state securities law.
These expenses are borne by Class A and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends 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 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.
2. OPERATING POLICIES - CONTINUED
RESTRICTED SECURITIES - CONTINUED
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 $179,953,983 and $227,239,083, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
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% *
* .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 $ 257 $ 257
CLASS T 237,941 237,941
CLASS B 76,888 21,358
$ 315,086 $ 259,556
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
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 4.25% and 3.50%
for selling Class A and 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 $ 8,666 $ 3,223
CLASS T 43,763 34,328
CLASS B 10,170 0 *
$ 62,599 $ 37,551
* 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. For the period, the
following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 1,351 .80
CLASS T** FIIOC * 220,321 .23
CLASS B FIIOC * 19,047 .22
INSTITUTIONAL CLASS FIIOC * 21,049 .18
$ 261,768
* 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. (FSC) maintains the fund's
accounting records. The fee is based on the level of average net assets for
the month plus out-of-pocket expenses.
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 REIMBURSEME
EXPENSE NT
LIMITATIONS
CLASS A .90% $ 16,255
CLASS T 1.00% 14,500
CLASS B 1.65% 9,427
INSTITUTIONAL CLASS .75% 5,711
$ 45,893
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 $125 under the custodian arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996 A
CLASS A
From net investment income $ 10,037 $ 1,602
CLASS T
From net investment income 5,534,091 14,160,622
CLASS B
From net investment income 450,698 822,494
INSTITUTIONAL CLASS
From net investment income 726,318 1,585,768
$ 6,721,144 $ 16,570,486
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 54,818 23,309 $ 513,294 $ 216,298
Shares sold
Reinvestment of distributions 916 170 8,589 1,602
Shares redeemed (12,381) - (116,837) -
Net increase (decrease) 43,353 23,479 $ 405,046 $ 217,900
CLASS T 4,065,037 16,389,663 $ 38,314,999 $ 156,392,785
Shares sold
Reinvestment of distributions 502,160 1,323,588 4,723,763 12,548,852
Shares redeemed (9,374,044) (16,317,212) (88,243,914) (154,061,866)
Net increase (decrease) (4,806,847) 1,396,039 $ (45,205,152) $ 14,879,771
CLASS B 214,149 1,364,781 $ 2,013,409 $ 13,027,776
Shares sold
Reinvestment of distributions 35,611 64,712 334,605 612,407
Shares redeemed (253,419) (817,313) (2,380,918) (7,792,379)
Net increase (decrease) (3,659) 612,180 $ (32,904) $ 5,847,804
INSTITUTIONAL CLASS 395,785 2,699,943 $ 3,719,789 $ 25,667,067
Shares sold
Reinvestment of distributions 65,247 131,515 613,235 1,241,701
Shares redeemed (1,163,987) (1,421,950) (10,939,918) (13,327,987)
Net increase (decrease) (702,955) 1,409,508 $ (6,606,894) $ 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.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 15,327
CLASS T 18,979
CLASS B 9,960
INSTITUTIONAL CLASS 12,865
$ 57,131
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GROWTH OPPORTUNITIES
FUND - CLASS A, CLASS T AND CLASS B
SEMIANNUAL REPORT
APRIL 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 10 The manager's 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 26 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 34 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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 GROWTH OPPORTUNITIES FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change
or the growth of a hypothetical $10,000 investment. 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). If Fidelity had not reimbursed
certain class expenses during the periods shown, the past one year, five
years, and life of fund total returns would have been lower. 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).
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Growth Opportunities - Class A 10.65% 20.37% 122.88% 494.57%
Advisor Growth Opportunities - Class A 4.84% 14.05% 111.18% 463.35%
(incl. max. 5.25% sales charge)
S&P 500(registered trademark) 14.72% 25.13% 120.23% 338.04%
Growth Funds Average 7.15% 12.48% 94.42% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on November 18, 1987. For example, if you invested $1,000
in a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare Class A's returns to the
performance of the Standard & Poor's 500 Index - a widely recognized,
unmanaged index of common stocks. To measure how Class A's performance
stacked up against its peers, you can compare it to the growth funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 799 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Class A 20.37% 17.39% 20.74%
Advisor Growth Opportunities - Class A 14.05% 16.13% 20.06%
(incl. max. 5.25% sales charge)
S&P 500 25.13% 17.10% 16.90%
Growth Funds Average 12.48% 13.87% n/a
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 LIFE OF FUND
FA Growth Opp -CL A SP Standard & Poor 500
00248 SP001
1987/11/18 9475.00 10000.00
1987/11/30 8925.45 9489.05
1987/12/31 10195.10 10211.16
1988/01/31 10630.95 10641.05
1988/02/29 11834.28 11136.92
1988/03/31 12052.20 10792.79
1988/04/30 12412.25 10912.59
1988/05/31 12298.55 11007.53
1988/06/30 13388.18 11512.78
1988/07/31 13359.75 11469.03
1988/08/31 12904.95 11079.08
1988/09/30 13426.08 11551.05
1988/10/31 13520.83 11872.17
1988/11/30 13084.98 11702.40
1988/12/31 13587.76 11907.19
1989/01/31 14751.85 12778.80
1989/02/28 14470.86 12460.61
1989/03/31 14611.36 12750.94
1989/04/30 15554.67 13412.71
1989/05/31 16598.34 13955.93
1989/06/30 15885.84 13876.38
1989/07/31 16778.98 15129.41
1989/08/31 17401.16 15425.95
1989/09/30 17230.56 15362.70
1989/10/31 16588.31 15006.29
1989/11/30 16698.69 15312.42
1989/12/31 16868.15 15679.92
1990/01/31 15653.21 14627.79
1990/02/28 16032.88 14816.49
1990/03/31 16445.09 15209.13
1990/04/30 15902.70 14828.90
1990/05/31 17801.05 16274.72
1990/06/30 17898.68 16164.05
1990/07/31 17247.82 16112.33
1990/08/31 15349.47 14655.77
1990/09/30 14156.23 13942.04
1990/10/31 14091.14 13882.08
1990/11/30 15588.12 14778.87
1990/12/31 16590.35 15191.20
1991/01/31 18576.37 15853.53
1991/02/28 20244.18 16987.06
1991/03/31 20803.77 17398.15
1991/04/30 21231.70 17439.90
1991/05/31 22394.78 18193.31
1991/06/30 20814.75 17360.05
1991/07/31 22274.08 18169.03
1991/08/31 23140.91 18599.64
1991/09/30 22614.23 18289.03
1991/10/31 22581.31 18534.10
1991/11/30 21242.67 17787.17
1991/12/31 23671.25 19822.03
1992/01/31 24353.73 19453.34
1992/02/29 25455.28 19706.23
1992/03/31 24605.17 19321.96
1992/04/30 25275.68 19890.02
1992/05/31 25634.88 19987.49
1992/06/30 25048.19 19689.67
1992/07/31 25910.27 20494.98
1992/08/31 25191.87 20074.83
1992/09/30 25263.71 20311.72
1992/10/31 25311.60 20382.81
1992/11/30 26532.88 21077.86
1992/12/31 27228.11 21337.12
1993/01/31 28058.24 21516.35
1993/02/28 28134.86 21808.97
1993/03/31 29182.10 22269.14
1993/04/30 29233.18 21730.23
1993/05/31 30050.54 22312.60
1993/06/30 30165.48 22377.30
1993/07/31 30369.82 22287.80
1993/08/31 31302.11 23132.50
1993/09/30 31417.05 22954.38
1993/10/31 32425.97 23429.54
1993/11/30 32272.72 23206.96
1993/12/31 33265.49 23487.76
1994/01/31 35106.21 24286.35
1994/02/28 34576.51 23628.19
1994/03/31 33106.57 22598.00
1994/04/30 33980.59 22887.25
1994/05/31 34165.98 23262.60
1994/06/30 33239.00 22692.67
1994/07/31 34179.23 23436.99
1994/08/31 35622.67 24397.90
1994/09/30 34550.02 23800.16
1994/10/31 35251.88 24335.66
1994/11/30 34126.26 23449.35
1994/12/31 34215.86 23797.11
1995/01/31 34482.29 24414.17
1995/02/28 35534.01 25365.59
1995/03/31 36445.50 26114.13
1995/04/30 37679.51 26883.19
1995/05/31 39250.07 27957.71
1995/06/30 40582.25 28607.17
1995/07/31 41928.45 29555.78
1995/08/31 42222.93 29629.96
1995/09/30 43022.23 30880.35
1995/10/31 43316.71 30770.11
1995/11/30 44368.43 32120.91
1995/12/31 45519.93 32739.56
1996/01/31 46239.28 33854.02
1996/02/29 46109.79 34167.84
1996/03/31 46037.86 34496.88
1996/04/30 46800.36 35005.36
1996/05/31 47749.89 35908.15
1996/06/30 48008.86 36044.96
1996/07/31 46656.49 34452.50
1996/08/31 47030.55 35179.10
1996/09/30 49246.12 37158.98
1996/10/31 50915.00 38183.82
1996/11/30 54914.53 41070.14
1996/12/31 53573.51 40256.54
1997/01/31 56228.53 42771.77
1997/02/28 56701.55 43107.10
1997/03/31 53893.94 41335.83
1997/04/30 56335.34 43803.58
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Growth Opportunities Fund - Class A on
November 18, 1987, when the fund started, and the current maximum 5.25%
sales charge was paid. As the chart shows, by April 30, 1997, the value of
the investment would have grown to $56,335 - a 463.35% increase on the
initial investment. For comparison, look at how the S&P 500 did over the
same period. With dividends reinvested, the same $10,000 investment would
have grown to $43,804 - a 338.04% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
long-term growth and
short-term volatility. In turn, the
share price and return of a fund
that invests in stocks will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FIDELITY ADVISOR GROWTH OPPORTUNITIES 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Growth Opportunities - Class T 10.56% 20.35% 122.84% 494.45%
Advisor Growth Opportunities - Class T 6.69% 16.14% 115.04% 473.64%
(incl. max. 3.50% sales charge)
S&P 500(registered trademark) 14.72% 25.13% 120.23% 338.04%
Growth Funds Average 7.15% 12.48% 94.42% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on November 18, 1987. For example, if you invested $1,000
in a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare Class T's returns to the
performance of the Standard & Poor's 500 Index - a widely recognized,
unmanaged index of common stocks. To measure how Class T's performance
stacked up against its peers, you can compare it to the growth funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 799 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Class T 20.35% 17.38% 20.74%
Advisor Growth Opportunities - Class T 16.14% 16.55% 20.29%
(incl. max. 3.50% sales charge)
S&P 500 25.13% 17.10% 16.90%
Growth Funds Average 12.48% 13.87% n/a
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 LIFE OF FUND
FA Growth Opp -CL T SP Standard & Poor 500
00168 SP001
1987/11/18 9650.00 10000.00
1987/11/30 9090.30 9489.05
1987/12/31 10383.40 10211.16
1988/01/31 10827.30 10641.05
1988/02/29 12052.85 11136.92
1988/03/31 12274.80 10792.79
1988/04/30 12641.50 10912.59
1988/05/31 12525.70 11007.53
1988/06/30 13635.45 11512.78
1988/07/31 13606.50 11469.03
1988/08/31 13143.30 11079.08
1988/09/30 13674.05 11551.05
1988/10/31 13770.55 11872.17
1988/11/30 13326.65 11702.40
1988/12/31 13838.72 11907.19
1989/01/31 15024.31 12778.80
1989/02/28 14738.14 12460.61
1989/03/31 14881.22 12750.94
1989/04/30 15841.96 13412.71
1989/05/31 16904.91 13955.93
1989/06/30 16179.24 13876.38
1989/07/31 17088.88 15129.41
1989/08/31 17722.56 15425.95
1989/09/30 17548.81 15362.70
1989/10/31 16894.69 15006.29
1989/11/30 17007.11 15312.42
1989/12/31 17179.70 15679.92
1990/01/31 15942.32 14627.79
1990/02/28 16329.00 14816.49
1990/03/31 16748.82 15209.13
1990/04/30 16196.42 14828.90
1990/05/31 18129.83 16274.72
1990/06/30 18229.26 16164.05
1990/07/31 17566.38 16112.33
1990/08/31 15632.97 14655.77
1990/09/30 14417.69 13942.04
1990/10/31 14351.40 13882.08
1990/11/30 15876.03 14778.87
1990/12/31 16896.77 15191.20
1991/01/31 18919.46 15853.53
1991/02/28 20618.08 16987.06
1991/03/31 21188.01 17398.15
1991/04/30 21623.84 17439.90
1991/05/31 22808.40 18193.31
1991/06/30 21199.19 17360.05
1991/07/31 22685.48 18169.03
1991/08/31 23568.31 18599.64
1991/09/30 23031.91 18289.03
1991/10/31 22998.38 18534.10
1991/11/30 21635.02 17787.17
1991/12/31 24108.45 19822.03
1992/01/31 24803.54 19453.34
1992/02/29 25925.43 19706.23
1992/03/31 25059.62 19321.96
1992/04/30 25742.51 19890.02
1992/05/31 26108.35 19987.49
1992/06/30 25510.82 19689.67
1992/07/31 26388.82 20494.98
1992/08/31 25657.15 20074.83
1992/09/30 25730.32 20311.72
1992/10/31 25779.10 20382.81
1992/11/30 27022.93 21077.86
1992/12/31 27731.00 21337.12
1993/01/31 28576.46 21516.35
1993/02/28 28654.50 21808.97
1993/03/31 29721.08 22269.14
1993/04/30 29773.11 21730.23
1993/05/31 30605.56 22312.60
1993/06/30 30722.62 22377.30
1993/07/31 30930.74 22287.80
1993/08/31 31880.25 23132.50
1993/09/30 31997.31 22954.38
1993/10/31 33024.87 23429.54
1993/11/30 32868.78 23206.96
1993/12/31 33879.89 23487.76
1994/01/31 35754.61 24286.35
1994/02/28 35215.12 23628.19
1994/03/31 33718.04 22598.00
1994/04/30 34608.20 22887.25
1994/05/31 34797.02 23262.60
1994/06/30 33852.91 22692.67
1994/07/31 34810.51 23436.99
1994/08/31 36280.61 24397.90
1994/09/30 35188.15 23800.16
1994/10/31 35902.97 24335.66
1994/11/30 34756.56 23449.35
1994/12/31 34847.81 23797.11
1995/01/31 35119.17 24414.17
1995/02/28 36190.31 25365.59
1995/03/31 37118.63 26114.13
1995/04/30 38375.44 26883.19
1995/05/31 39975.01 27957.71
1995/06/30 41331.79 28607.17
1995/07/31 42702.85 29555.78
1995/08/31 43002.77 29629.96
1995/09/30 43816.84 30880.35
1995/10/31 44116.76 30770.11
1995/11/30 45187.90 32120.91
1995/12/31 46360.67 32739.56
1996/01/31 47093.30 33854.02
1996/02/29 46961.43 34167.84
1996/03/31 46888.16 34496.88
1996/04/30 47664.75 35005.36
1996/05/31 48631.82 35908.15
1996/06/30 48895.56 36044.96
1996/07/31 47518.22 34452.50
1996/08/31 47899.19 35179.10
1996/09/30 50155.68 37158.98
1996/10/31 51884.68 38183.82
1996/11/30 55958.09 41070.14
1996/12/31 54581.00 40256.54
1997/01/31 57271.39 42771.77
1997/02/28 57750.72 43107.10
1997/03/31 54890.24 41335.83
1997/04/30 57364.16 43803.58
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Growth Opportunities Fund - Class T on
November 18, 1987, when the fund started, and the current maximum 3.50%
sales charge was paid. As the chart shows, by April 30, 1997, the value of
the investment would have grown to $57,364 - a 473.64% increase on the
initial investment. For comparison, look at how the S&P 500 did over the
same period. With dividends reinvested, the same $10,000 investment would
have grown to $43,804 - a 338.04% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is no
guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
long-term growth and
short-term volatility. In turn, the
share price and return of a fund
that invests in stocks will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
ADVISOR GROWTH OPPORTUNITIES 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 March 3, 1997. Returns prior to March 3, 1997 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 March 3, 1997 would have been lower. Class
B's contingent deferred sales charges included in the past six months, past
one year, past five years and life of fund total return figures are 5%, 5%,
2% and 0%, respectively.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Growth Opportunities - Class B 10.50% 20.28% 122.72% 494.13%
Advisor Growth Opportunities - Class B 5.50% 15.28% 120.72% 494.13%
(incl. contingent deferred sales charge)
S&P 500(registered trademark) 14.72% 25.13% 120.23% 338.04%
Growth Funds Average 7.15% 12.48% 94.42% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on November 18, 1987. For example, if you invested $1,000
in a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare Class B's returns to the
performance of the Standard & Poor's 500 Index - a widely recognized,
unmanaged index of common stocks. To measure how Class B's performance
stacked up against its peers, you can compare it to the growth funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 799 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - Class B 20.28% 17.37% 20.73%
Advisor Growth Opportunities - Class B 15.28% 17.16% 20.73%
(incl. contingent deferred sales charge)
S&P 500 25.13% 17.10% 16.90%
Growth Funds Average 12.48% 13.87% n/a
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 LIFE OF FUND
FA Growth Opp -CL B SP Standard & Poor 500
00278 SP001
1987/11/18 10000.00 10000.00
1987/11/30 9420.00 9489.05
1987/12/31 10760.00 10211.16
1988/01/31 11220.00 10641.05
1988/02/29 12490.00 11136.92
1988/03/31 12720.00 10792.79
1988/04/30 13100.00 10912.59
1988/05/31 12980.00 11007.53
1988/06/30 14130.00 11512.78
1988/07/31 14100.00 11469.03
1988/08/31 13620.00 11079.08
1988/09/30 14170.00 11551.05
1988/10/31 14270.00 11872.17
1988/11/30 13810.00 11702.40
1988/12/31 14340.64 11907.19
1989/01/31 15569.24 12778.80
1989/02/28 15272.68 12460.61
1989/03/31 15420.96 12750.94
1989/04/30 16416.54 13412.71
1989/05/31 17518.04 13955.93
1989/06/30 16766.06 13876.38
1989/07/31 17708.68 15129.41
1989/08/31 18365.34 15425.95
1989/09/30 18185.29 15362.70
1989/10/31 17507.45 15006.29
1989/11/30 17623.95 15312.42
1989/12/31 17802.80 15679.92
1990/01/31 16520.54 14627.79
1990/02/28 16921.24 14816.49
1990/03/31 17356.29 15209.13
1990/04/30 16783.86 14828.90
1990/05/31 18787.39 16274.72
1990/06/30 18890.43 16164.05
1990/07/31 18203.50 16112.33
1990/08/31 16199.97 14655.77
1990/09/30 14940.61 13942.04
1990/10/31 14871.92 13882.08
1990/11/30 16451.84 14778.87
1990/12/31 17509.61 15191.20
1991/01/31 19605.66 15853.53
1991/02/28 21365.89 16987.06
1991/03/31 21956.49 17398.15
1991/04/30 22408.13 17439.90
1991/05/31 23635.65 18193.31
1991/06/30 21968.07 17360.05
1991/07/31 23508.27 18169.03
1991/08/31 24423.12 18599.64
1991/09/30 23867.26 18289.03
1991/10/31 23832.52 18534.10
1991/11/30 22419.71 17787.17
1991/12/31 24982.85 19822.03
1992/01/31 25703.15 19453.34
1992/02/29 26865.73 19706.23
1992/03/31 25968.52 19321.96
1992/04/30 26676.18 19890.02
1992/05/31 27055.28 19987.49
1992/06/30 26436.08 19689.67
1992/07/31 27345.93 20494.98
1992/08/31 26587.72 20074.83
1992/09/30 26663.54 20311.72
1992/10/31 26714.09 20382.81
1992/11/30 28003.04 21077.86
1992/12/31 28736.79 21337.12
1993/01/31 29612.91 21516.35
1993/02/28 29693.79 21808.97
1993/03/31 30799.05 22269.14
1993/04/30 30852.96 21730.23
1993/05/31 31715.61 22312.60
1993/06/30 31836.92 22377.30
1993/07/31 32052.58 22287.80
1993/08/31 33036.53 23132.50
1993/09/30 33157.84 22954.38
1993/10/31 34222.66 23429.54
1993/11/30 34060.92 23206.96
1993/12/31 35108.69 23487.76
1994/01/31 37051.41 24286.35
1994/02/28 36492.36 23628.19
1994/03/31 34940.98 22598.00
1994/04/30 35863.42 22887.25
1994/05/31 36059.09 23262.60
1994/06/30 35080.74 22692.67
1994/07/31 36073.06 23436.99
1994/08/31 37596.49 24397.90
1994/09/30 36464.40 23800.16
1994/10/31 37205.15 24335.66
1994/11/30 36017.16 23449.35
1994/12/31 36111.72 23797.11
1995/01/31 36392.92 24414.17
1995/02/28 37502.91 25365.59
1995/03/31 38464.90 26114.13
1995/04/30 39767.29 26883.19
1995/05/31 41424.88 27957.71
1995/06/30 42830.87 28607.17
1995/07/31 44251.66 29555.78
1995/08/31 44562.46 29629.96
1995/09/30 45406.05 30880.35
1995/10/31 45716.85 30770.11
1995/11/30 46826.84 32120.91
1995/12/31 48042.15 32739.56
1996/01/31 48801.35 33854.02
1996/02/29 48664.69 34167.84
1996/03/31 48588.77 34496.88
1996/04/30 49393.52 35005.36
1996/05/31 50395.66 35908.15
1996/06/30 50668.98 36044.96
1996/07/31 49241.68 34452.50
1996/08/31 49636.47 35179.10
1996/09/30 51974.80 37158.98
1996/10/31 53766.51 38183.82
1996/11/30 57987.66 41070.14
1996/12/31 56560.62 40256.54
1997/01/31 59348.59 42771.77
1997/02/28 59845.30 43107.10
1997/03/31 56881.08 41335.83
1997/04/30 59412.68 43803.58
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Growth Opportunities Fund - Class B on
November 18, 1987, when the fund started. As the chart shows, by April 30,
1997, the value of the investment would have been $59,413 - a 494.13%
increase on the initial investment. For comparison, look at how the S&P 500
did over the same period. With dividends reinvested, the same $10,000
investment would have grown to $43,804 - a 338.04% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
long-term growth and
short-term volatility. In turn, the
share price and return of a fund
that invests in stocks will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with George A. Vanderheiden, Portfolio Manager of Fidelity
Advisor Growth Opportunities Fund
Q. HOW DID THE FUND PERFORM, GEORGE?
A. For the six months that ended April 30, 1997, the fund's Class A, Class
T and Class B shares returned 10.65%, 10.56% and 10.50%, respectively. The
Standard & Poor's 500 Index had a six-month return of 14.72%, while the
growth funds average - as tracked by Lipper Analytical Services - returned
7.15% over the same period. For the 12 months that ended April 30, 1997,
the fund's Class A, Class T and Class B shares returned 20.37%, 20.35% and
20.28%, respectively. The S&P 500 and peer group had 12-month returns of
25.13% and 12.48%, respectively, as of April 30, 1997.
Q. CAN YOU IDENTIFY WHY THE FUND BEAT THE PEER GROUP YET TRAILED THE S&P
500?
A. The reason the fund beat the Lipper group over the past six months was
better stock selection, specifically less exposure to many of the
smaller-cap, momentum-type stocks so heavily owned by some growth funds.
The fund's underperformance relative to the S&P 500 can be traced primarily
to asset allocation. During the period, the fund had an average of
approximately 15% of its assets in bonds and around 6% in cash. Over the
past six months, this total of 21% of assets appreciated only 0.6%.
Conversely, the other 79% in stocks was up 13%, close to the S&P 500 gain
of 14.72%.
Q. WHAT STANDS OUT IN THE INVESTING CLIMATE OF THE LAST SIX MONTHS?
A. On December 6, 1996, Federal Reserve Board chairman Greenspan warned
that he felt stock market valuations were excessive. The Fed followed up
this warning three months later with an increase of one-quarter percentage
point to the Fed Funds rate - the rate at which banks make overnight loans
to each other. The bond market subsequently declined and stocks went down a
greater amount. While the media and the investing public have rebuked the
Fed for making the warning and have largely chosen to ignore it - the Dow
Jones average is currently above the 6440 level it was at on December 6,
1996 - history tells us we should be paying attention. The two other
instances this century when the Fed chairman warned of excessive stock
prices were February 6, 1929 and June 1, 1965. Seven months after the
February 1929 warning, the Dow Jones peaked at 381 in September and
declined 89% over the next three years. Likewise, seven months following
the June 1965 warning, the market peaked in January 1966 at 995 and went
sideways for 16 years, not decisively breaking over 1000 until the latter
part of 1982.
Q. WHAT ARE THE IMPLICATIONS OF THE FED RAISING INTEREST RATES?
A. Rising interest rates are poison to high price/earnings (P/E) multiples,
and large-cap consumer growth stocks carry some of the highest P/E ratios
in the market today. These stocks have done very well over the past three
years, while smaller- to mid-cap stocks have suffered on a relative basis
and also on an absolute basis since mid-1996. I have been reallocating
assets to these smaller-cap stocks where I think there is better value.
Q. WHAT ARE YOU DOING TO PROTECT THE FUND IN CASE THE MARKET BECOMES MORE
DIFFICULT?
A. Bonds comprised around 13% of investments at the end of the period, and
they should outperform stocks in the event of a market decline.
Furthermore, I've minimized holdings in stocks with high P/E ratios and
have tried to focus on growth companies selling at reasonable valuations.
In addition, approximately 8% of the portfolio is invested overseas either
in international oil stocks, growth stocks such as Vodafone or
restructurings such as Alcatel and Credit Suisse.
Q. THE ECONOMY HAS STRENGTHENED LATELY AND YOU STILL OWN BONDS. WHY?
A. Bonds were originally purchased as a short-term tactical move to hedge
against slowing corporate earnings growth in 1996. Earnings growth did slow
as expected in 1996, but the stock market did not correct as it normally
has done in the past. With Treasury bond yields at 3 1/2 times the yield on
the S&P 500, I consider bonds a good safety cushion in an expensive market,
though I reduced the position somewhat in the past six months.
Q. WHAT IS YOUR POSITION ON TOBACCO STOCKS?
A. I own the tobacco stocks because they operate a profitable business that
has offered above-average returns to shareholders over the long-term. The
stocks provide better-than-average earnings growth, lower-than-average
P/E's and high yields. Nothing that has occurred this year has changed
that. We have determined that the tobacco stocks are selling at a
"litigation discount" far in excess of any reasonable estimate of potential
liabilities. In spite of the barrage of litigation over the past 10 years
and the occurrence of the "Marlboro Friday" price-cutting incident, Philip
Morris has appreciated by 5 1/2 fold over the past decade - versus a
fourfold increase in the S&P 500 - and has also paid a higher dividend
yield versus the market during this 10-year span.
Q. WHAT'S YOUR OUTLOOK?
A. With the market continuing to advance over the past six months and Fed
policy becoming restrictive with interest rates rising, the investing
climate has become more precarious. As the period came to a close, some
sectors of the market, such as the average NASDAQ stock, were already in a
correction. This makes sense because investors typically sell off more
volatile holdings when they become anxious and hold on to the large-cap
growth stocks with which they are more familiar. Consequently, this is a
time to shift expectations downward at least for the near-term. However,
whatever the shorter term holds, the fund's shareholders have done well by
remaining focused on long-term opportunities and goals. This will continue
to be important over the next year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide capital
growth by investing primarily
in common stocks and
securities convertible into
common stocks
START DATE: November 18, 1987
SIZE: as of April 30, 1997,
more than $16.7 billion
MANAGER: George
Vanderheiden, since 1987;
joined Fidelity in 1971
(checkmark)
GEORGE VANDERHEIDEN ON
STEERING THE FUND THROUGH
DIFFICULT MARKET PHASES:
"One of the ways to protect a
portfolio of stocks going into a
difficult market is to
emphasize companies with
reliable and above-average
earnings growth rates whose
stock carries a dividend yield
equal to or better than the
market, and whose stock
valuation is lower than that of
the market. In looking at the
top 10 equity positions in the
fund approximately 80% of
the assets are in growth
companies such as Philip
Morris, Federal National
Mortgage Association, Fleet
Financial, IBM, Federal Home
Loan Mortgage Corporation,
Columbia Healthcare,
Compaq Computer and
Vodafone. This combined group
of companies has an earnings
growth rate of 14%, which is
nearly twice that of the S&P
500. The average dividend
yield of this group of
companies is 2%, similar to
that of the S&P 500. The
average P/E ratio of this
group of stocks - based on
1997 earnings - is 14, while
that of the S&P 500 is 17. I
take much comfort that at
this point in time, these
companies have better
aggregate earnings prospects
than the S&P 500, yet sell for
a lower valuation. In a rising
market, they've got superior
growth going for them and, in
a falling market, they've got
conservative valuation giving
them support."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 7.2 6.4
Federal National Mortgage Association 5.0 5.6
International Business Machines Corp. 3.5 3.0
Fleet Financial Group, Inc. 3.1 3.0
Federal Home Loan Mortgage 2.7 2.5
Corporation
General Motors Corp. 2.6 3.8
Columbia/HCA Healthcare Corp. 2.0 2.3
Royal Dutch Petroleum Co. ADR 1.6 2.3
Vodafone Group PLC sponsored ADR 1.6 1.9
Compaq Computer Corp. 1.5 3.9
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 16.5 16.8
Technology 14.4 14.0
Nondurables 8.1 7.4
Utilities 6.5 4.9
Energy 6.4 7.4
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
Row: 1, Col: 1, Value: 7.6
Row: 1, Col: 2, Value: 12.9
Row: 1, Col: 3, Value: 50.0
Row: 1, Col: 4, Value: 29.5
Row: 1, Col: 1, Value: 6.5
Row: 1, Col: 2, Value: 15.5
Row: 1, Col: 3, Value: 28.0
Row: 1, Col: 4, Value: 50.0
Stocks 79.5%
Bonds 12.9%
Short-term
investments 7.6%
FOREIGN
INVESTMENTS 8.1%
Stocks 78.0%
Bonds 15.5%
Short-term
investments 6.5%
FOREIGN
INVESTMENTS 8.9%
*
**
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 79.5%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.6%
AEROSPACE & DEFENSE - 1.1%
Boeing Co. 1,744,000 $ 172,002
Gulfstream Aerospace Corp. (a) 285,900 7,290
179,292
DEFENSE ELECTRONICS - 0.5%
Raytheon Co. 2,028,800 88,506
SHIP BUILDING & REPAIR - 0.0%
Avondale Industries, Inc. (a) 117,900 2,093
Newport News Shipbuilding, Inc. 343,600 5,154
7,247
TOTAL AEROSPACE & DEFENSE 275,045
BASIC INDUSTRIES - 3.8%
CHEMICALS & PLASTICS - 2.6%
Air Products & Chemicals, Inc. 358,300 25,708
du Pont (E.I.) de Nemours & Co. 2,289,000 242,920
Raychem Corp. 1,483,400 95,679
Union Carbide Corp. 1,467,400 73,187
437,494
IRON & STEEL - 0.0%
Inland Steel Industries, Inc. 37,200 846
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. (a) 2,347,300 63,377
Tupperware Corp. 41,500 1,380
64,757
PAPER & FOREST PRODUCTS - 0.8%
Boise Cascade Corp. 826,700 27,488
Champion International Corp. 1,096,500 50,987
International Paper Co. 603,000 25,477
Temple-Inland, Inc. 167,700 9,307
Willamette Industries, Inc. 251,900 16,059
129,318
TOTAL BASIC INDUSTRIES 632,415
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.9%
CONSTRUCTION - 0.8%
Centex Corp. 677,200 $ 24,379
D.R. Horton, Inc. 1,465,180 14,286
Fleetwood Enterprises, Inc. (c) 1,909,652 50,367
Kaufman & Broad Home Corp. 1,865,000 25,877
U.S. Home Corp. (a) 560,100 13,792
128,701
ENGINEERING - 0.1%
Fluor Corp. 467,100 25,690
TOTAL CONSTRUCTION & REAL ESTATE 154,391
DURABLES - 4.4%
AUTOS, TIRES, & ACCESSORIES - 4.1%
Circuit City Stores, Inc.- CarMax Group 99,700 1,495
Cummins Engine Co., Inc. 713,400 40,040
Dana Corp. 261,400 8,332
Discount Auto Parts, Inc. (a)(c) 947,000 15,389
Federal-Mogul Corp. 801,500 22,141
General Motors Corp. 7,455,339 431,478
Gentex Corp. (a) 187,400 3,373
Goodyear Tire & Rubber Co. 258,300 13,593
Honda Motor Co. Ltd. 969,000 30,051
Magna International, Inc. Class A 1,129,500 59,084
Superior Industries International, Inc. 1,054,700 25,049
Volvo AB Class B 1,464,600 36,863
686,888
CONSUMER ELECTRONICS - 0.1%
Newell Co. 600,900 21,032
TEXTILES & APPAREL - 0.2%
Burlington Industries, Inc. (a) 1,299,100 13,316
Liz Claiborne, Inc. 259,500 11,742
NIKE, Inc. Class B 252,200 14,186
39,244
TOTAL DURABLES 747,164
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 6.4%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 1,354,500 $ 25,058
OIL & GAS - 6.2%
Amerada Hess Corp. 545,300 26,515
Anadarko Petroleum Corp. 79,000 4,335
Atlantic Richfield Co. 871,800 118,674
British Petroleum PLC ADR 1,442,905 198,580
Burlington Resources, Inc. 1,169,100 49,541
Canada Occidental Petroleum Ltd. 748,000 14,746
Chevron Corp. 98,900 6,775
Elf Aquitaine SA sponsored ADR 287,447 13,977
Enron Oil & Gas Co. 148,000 2,756
Exxon Corp. 200,000 11,325
Kerr-McGee Corp. 183,200 11,061
Louisiana Land & Exploration Co. 1,039,900 51,995
Mobil Corp. 98,800 12,844
Noble Affiliates, Inc. 132,300 4,730
Occidental Petroleum Corp. 2,569,200 56,843
Royal Dutch Petroleum Co. ADR 1,535,300 276,738
Santa Fe Energy Resources, Inc. (a) 486,200 6,868
Sun Co., Inc. 877,600 24,024
Tosco Corp. 3,858,000 114,293
Total SA Class B 149,374 12,392
Total SA sponsored ADR 435,352 18,122
Union Pacific Resources Group, Inc. 361,000 9,792
1,046,926
TOTAL ENERGY 1,071,984
FINANCE - 16.5%
BANKS - 0.5%
BankAmerica Corp. 108,200 12,646
Credit Suisse Group (Reg.) 360,200 40,565
NationsBank Corp. 466,900 28,189
State Street Corp. 75,700 5,961
87,361
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 3.2%
Fleet Financial Group, Inc. 8,609,310 $ 525,168
Transamerica Corp. 96,000 8,136
533,304
FEDERAL SPONSORED CREDIT - 7.7%
Federal Home Loan Mortgage Corporation 14,260,900 454,566
Federal National Mortgage Association 20,487,220 842,537
1,297,103
INSURANCE - 4.5%
AFLAC, Inc. 508,650 21,872
Allmerica Financial Corp. 726,600 26,158
Allstate Corp. 3,492,382 228,751
American International Group, Inc. 1,064,450 136,782
CIGNA Corp. 62,600 9,413
Equitable of Iowa Companies 424,700 20,757
General Re Corp. 338,500 56,614
Loews Corp. 272,400 25,027
MGIC Investment Corp. 834,600 67,811
PMI Group, Inc. 191,700 9,801
Provident Companies, Inc. 110,900 6,196
Providian Corp. 1,367,200 78,956
Reliastar Financial Corp. 218,200 13,201
Torchmark Corp. 742,600 46,134
Travelers Property Casualty Corp. Class A 172,600 5,825
UNUM Corp. 67,100 5,167
758,465
SAVINGS & LOANS - 0.2%
Golden West Financial Corp. 416,040 27,043
SECURITIES INDUSTRY - 0.4%
United Asset Management Corp. 2,792,600 68,419
TOTAL FINANCE 2,771,695
HEALTH - 5.8%
DRUGS & PHARMACEUTICALS - 2.0%
American Home Products Corp. 59,700 3,955
Amgen, Inc. 1,280,200 75,372
Astra AB Class A Free shares 2,599,000 106,321
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Idexx Laboratories, Inc. 161,200 $ 2,095
Merck & Co., Inc. 99,300 8,987
Novartis AG (Reg.) 24,625 32,443
Schering-Plough Corp. 1,255,000 100,400
329,573
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Abbott Laboratories 19,800 1,208
Allegiance Corp. 152,440 3,373
Bard (C.R.), Inc. 491,600 15,608
Baxter International, Inc. 165,000 7,899
Biomet, Inc. 1,145,100 17,391
Boston Scientific Corp. 68,800 3,320
Johnson & Johnson 147,800 9,053
St. Jude Medical, Inc. (a) 1,522,000 49,465
107,317
MEDICAL FACILITIES MANAGEMENT - 3.2%
Columbia/HCA Healthcare Corp. 9,631,963 337,119
Health Management Associates, Inc. Class A (a) 75,700 2,025
Humana, Inc. (a) 2,958,700 64,352
Tenet Healthcare Corp. (a) 3,052,700 79,370
United HealthCare Corp. 1,058,700 51,479
534,345
TOTAL HEALTH 971,235
HOLDING COMPANIES - 0.1%
U.S. Industries, Inc. (a) 561,800 20,295
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
ELECTRICAL EQUIPMENT - 1.4%
Alcatel Alsthom Compagnie Generale d'Electricite
SA sponsored ADR 90,500 2,014
Alcatel Alsthom Compagnie Generale d'Electricite SA 671,900 74,742
Cherry Corp.:
Class A (a)(c) 537,300 5,642
Class B (a)(c) 368,300 4,051
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
ELECTRICAL EQUIPMENT - CONTINUED
Emerson Electric Co. 282,200 $ 14,322
General Electric Co. 844,300 93,612
Scientific-Atlanta, Inc. 718,600 11,497
Sensormatic Electronics Corp. 296,600 4,449
Westinghouse Electric Corp. 1,075,300 18,280
228,609
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
Caterpillar, Inc. 625,900 55,705
Dover Corp. 26,800 1,420
Ultratech Stepper, Inc. (a) 825,600 14,809
71,934
POLLUTION CONTROL - 0.2%
Browning-Ferris Industries, Inc. 1,547,000 43,896
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 344,439
MEDIA & LEISURE - 2.5%
BROADCASTING - 0.1%
HSN, Inc. (a) 379,905 8,928
TCI Group Class A 917,100 12,667
21,595
ENTERTAINMENT - 0.5%
Cedar Fair LP (depositary unit) 681,000 27,070
Royal Caribbean Cruises Ltd. 1,976,100 62,988
90,058
LEISURE DURABLES & TOYS - 0.6%
Nintendo Co. Ltd. Ord. 1,305,500 95,360
LODGING & GAMING - 0.6%
Circus Circus Enterprises, Inc. (a) 1,462,400 35,280
Harrah's Entertainment, Inc. 63,100 1,010
Mirage Resorts, Inc. (a) 1,786,700 35,957
Sun International Hotels Ltd. Ord. (a) 982,800 29,853
102,100
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.7%
Brinker International, Inc. (a) 361,900 $ 4,207
McDonald's Corp. 1,822,200 97,716
Papa John's International, Inc. (a) 190,800 4,913
106,836
TOTAL MEDIA & LEISURE 415,949
NONDURABLES - 8.1%
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 253,000 6,199
TOBACCO - 8.1%
Philip Morris Companies, Inc. 30,879,300 1,215,872
RJR Nabisco Holdings Corp. 4,690,760 139,550
UST, Inc. 266,100 6,952
1,362,374
TOTAL NONDURABLES 1,368,573
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 224,200 4,982
Santa Fe Pacific Gold Corp. 385,772 5,690
10,672
RETAIL & WHOLESALE - 5.4%
APPAREL STORES - 0.2%
TJX Companies, Inc. 663,400 31,346
DRUG STORES - 0.1%
CVS Corp. 179,500 8,908
GENERAL MERCHANDISE STORES - 1.6%
Federated Department Stores, Inc. (a) 929,713 31,610
Wal-Mart Stores, Inc. 8,538,200 241,204
272,814
GROCERY STORES - 0.2%
Safeway, Inc. (a) 721,800 32,210
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 3.3%
Circuit City Stores, Inc.- Circuit City Group 4,483,500 $ 177,659
Corporate Express, Inc. (a) 879,600 8,796
Home Depot, Inc. (The) 2,483,100 144,020
Lowe's Companies, Inc. 2,754,000 104,652
Officemax, Inc. (a) 2,104,225 26,040
Office Depot, Inc. (a) 315,700 4,420
Rex Stores Corp. (a) 344,500 3,488
Staples, Inc. (a) 553,600 9,965
Toys "R" Us, Inc. (a) 1,738,300 49,541
U.S. Office Products Co. (a) 738,200 18,824
Viking Office Products, Inc. (a) 996,500 13,577
560,982
TOTAL RETAIL & WHOLESALE 906,260
SERVICES - 0.1%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 153,100 8,669
LEASING & RENTAL - 0.0%
Hertz Corp. Class A 70,100 2,033
TOTAL SERVICES 10,702
TECHNOLOGY - 14.4%
COMMUNICATIONS EQUIPMENT - 0.2%
Cisco Systems, Inc. (a) 369,500 19,122
Nokia Corp. AB sponsored ADR 153,300 9,907
29,029
COMPUTER SERVICES & SOFTWARE - 2.0%
American Management Systems, Inc. (a) 118,200 2,925
Automatic Data Processing, Inc. 951,200 43,042
CUC International, Inc. (a) 240,800 5,087
Ceridian Corp. (a) 703,000 23,463
CompUSA, Inc. (a) 475,000 9,144
Electronic Data Systems Corp. 1,491,600 49,782
First Data Corp. 1,427,500 49,249
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Microsoft Corp. (a) 521,400 $ 63,350
Netscape Communications Corp. (a) 143,300 3,878
Oracle Systems Corp. (a) 651,750 25,907
Paychex, Inc. 562,000 26,309
Policy Management Systems Corp. (a) 903,000 39,281
341,417
COMPUTERS & OFFICE EQUIPMENT - 6.5%
Bay Networks, Inc. (a) 2,004,600 35,582
Compaq Computer Corp. (a) 2,960,400 252,744
Hewlett-Packard Co. 1,159,300 60,863
Ingram Micro, Inc. Class A (a) 129,400 2,944
International Business Machines Corp. 3,642,200 585,484
SCI Systems, Inc. (a)(c) 1,650,900 101,943
Seagate Technology (a) 467,800 21,460
Tech Data Corp. (a) 922,700 22,606
Wang Laboratories, Inc. (warrants) 84 -
1,083,626
ELECTRONIC INSTRUMENTS - 1.7%
Applied Materials, Inc. (a) 1,117,300 61,312
Cognex Corp. (a) 372,600 9,175
KLA Instruments Corp. (a) 222,100 9,883
Lam Research Corp. (a)(c) 2,110,500 61,205
Novellus Systems, Inc. (a)(c) 869,700 50,225
Quad Systems Corp. (a)(c) 300,100 3,001
Teradyne, Inc. (a) 908,300 29,747
Thermo Electron Corp. (a) 818,500 28,238
Varian Associates, Inc. 571,200 27,489
280,275
ELECTRONICS - 4.0%
AMP, Inc. 2,662,700 95,524
Atmel Corp. (a) 323,900 8,057
Intel Corp. 1,624,300 248,721
Methode Electronics, Inc. Class A 614,400 8,678
Microchip Technology, Inc. (a) 140,350 4,386
Molex, Inc. 409,625 11,879
Solectron Corp. (a)(c) 3,625,900 208,036
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Storage Technology Corp. (a) 392,900 $ 13,801
Texas Instruments, Inc. 808,100 72,123
Thomas & Betts Corp. 84,100 3,816
675,021
TOTAL TECHNOLOGY 2,409,368
TRANSPORTATION - 0.9%
AIR TRANSPORTATION - 0.3%
Continental Airlines, Inc. Class B (a) 217,300 6,899
Delta Air Lines, Inc. 263,400 24,266
Northwest Airlines Corp. Class A (a) 329,500 12,851
44,016
RAILROADS - 0.4%
Bombardier, Inc. Class B 571,800 11,580
Burlington Northern Santa Fe Corp. 329,700 25,964
CSX Corp. 742,600 34,624
72,168
SHIPPING - 0.1%
Stolt-Nielsen SA Class B sponsored ADR 610,000 10,370
Stolt-Nielsen SA 282,700 4,629
14,999
TRUCKING & FREIGHT - 0.1%
Roadway Express, Inc. 170,200 2,979
Yellow Corp. (a) 518,700 9,985
12,964
TOTAL TRANSPORTATION 144,147
UTILITIES - 6.5%
CELLULAR - 2.2%
AirTouch Communications, Inc. (a) 3,810,300 97,163
360 Degrees Communications Co. (a) 207,400 3,604
Vodafone Group PLC sponsored ADR 5,917,500 261,849
362,616
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - 0.2%
American Electric Power Co., Inc. 53,800 $ 2,179
Entergy Corp. 1,013,800 23,698
25,877
GAS - 0.2%
Enron Corp. 1,119,600 42,125
TELEPHONE SERVICES - 3.9%
AT&T Corp. 1,187,300 39,775
Ameritech Corp. 923,700 56,461
Bell Atlantic Corp. 539,200 36,531
BellSouth Corp. 1,422,500 63,301
Deutsche Telekom AG 442,800 9,577
MCI Communications Corp. 4,148,000 158,143
NYNEX Corp. 1,669,800 86,412
SBC Communications, Inc. 1,470,000 81,585
Sprint Corp. 2,573,800 112,925
WorldCom, Inc. (a) 412,100 9,890
654,600
TOTAL UTILITIES 1,085,218
TOTAL COMMON STOCKS
(Cost $9,798,306) 13,339,552
U.S. TREASURY OBLIGATIONS - 12.9%
PRINCIPAL
AMOUNT (000S)
stripped principal:
0%, 2/15/19 $ 392,000 83,735
0%, 8/15/19 420,000 86,688
0% 8/15/20 1,211,300 232,400
0% 8/15/21 212,000 38,024
6 1/4%, 8/15/23 240,750 218,067
8 1/8%, 8/15/19 1,229,000 1,375,140
7 5/8%, 11/15/22 125,000 133,379
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,181,414) 2,167,433
CASH EQUIVALENTS - 7.6%
SHARES VALUE (NOTE 1)
(000S)
Taxable Central Cash Fund (b)
(Cost $1,267,780) 1,267,779,907 $ 1,267,780
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $13,247,500) $ 16,774,765
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund was
5.45%. The yield refers to the income earned by investing in the fund over
the seven-day period, expressed as an annual percentage.
3. Affiliated company (see Note 9 of Notes to Financial Statements).
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $13,250,557,000. Net unrealized appreciation aggregated
$3,524,208,000, of which $3,795,843,000 related to appreciated investment
securities and $271,635,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (cost $13,247,500) - $ 16,774,765
See accompanying schedule
Receivable for investments sold 38,142
Receivable for fund shares sold 27,760
Dividends receivable 14,901
Interest receivable 33,541
Other receivables 57
Prepaid expenses 27
TOTAL ASSETS 16,889,193
LIABILITIES
Payable for investments purchased $ 65,236
Payable for fund shares redeemed 23,897
Accrued management fee 6,453
Distribution fees payable 6,597
Other payables and accrued expenses 2,962
TOTAL LIABILITIES 105,145
NET ASSETS $ 16,784,048
Net Assets consist of:
Paid in capital $ 12,709,339
Undistributed net investment income 75,399
Accumulated undistributed net realized gain (loss) on 472,115
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 3,527,195
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 16,784,048
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
CALCULATION OF MAXIMUM OFFERING PRICE $36.92
CLASS A:
NET ASSET VALUE and redemption price per share
($52,928 (divided by) 1,433.75 shares)
Maximum offering price per share (100/94.75 of $36.92) $38.97
CLASS T: $37.10
NET ASSET VALUE and redemption price per share
($16,369,762 (divided by) 441,191 shares)
Maximum offering price per share (100/96.50 of $37.10) $38.45
CLASS B: $37.08
NET ASSET VALUE and offering price per share
($70,791 (divided by) 1,909 shares) A
INSTITUTIONAL CLASS: $37.09
NET ASSET VALUE, offering price and redemption price
per share ($290,567 (divided by) 7,834 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 109,627
Dividends (including $172 received from affiliated
issuers)
Interest 108,352
TOTAL INCOME 217,979
EXPENSES
Management fee $ 48,017
Basic fee
Performance adjustment (8,115)
Transfer agent fees 14,151
Distribution fees 39,238
Accounting fees and expenses 414
Non-interested trustees' compensation 46
Custodian fees and expenses 224
Registration fees 585
Audit 53
Legal 52
Miscellaneous 370
Total expenses before reductions 95,035
Expense reductions (815) 94,220
NET INVESTMENT INCOME 123,759
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized gain (loss) of 480,873
$(4,597) on sales of investments in affiliated issuers)
Foreign currency transactions 31 480,904
Change in net unrealized appreciation (depreciation) on:
Investment securities 946,113
Assets and liabilities in foreign currencies (96) 946,017
NET GAIN (LOSS) 1,426,921
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,550,680
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 123,759 $ 234,195
Net investment income
Net realized gain (loss) 480,904 651,211
Change in net unrealized appreciation (depreciation) 946,017 1,129,840
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,550,680 2,015,246
FROM OPERATIONS
Distributions to shareholders (225,024) (136,201)
From net investment income
From net realized gain (596,507) (132,145)
TOTAL DISTRIBUTIONS (821,531) (268,346)
Share transactions - net increase (decrease) 1,479,481 3,065,574
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,208,630 4,812,474
NET ASSETS
Beginning of period 14,575,418 9,762,944
End of period (including undistributed net investment $ 16,784,048 $ 14,575,418
income of $75,399 and $193,053, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1997
(UNAUDITED) 1996 E
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 35.39 $ 32.86
Income from Investment Operations
Net investment income .29 .09
Net realized and unrealized gain (loss) 3.40 2.44
Total from investment operations 3.69 2.53
Less Distributions
From net investment income (.72) -
From net realized gain (1.44) -
Total distributions (2.16) -
Net asset value, end of period $ 36.92 $ 35.39
TOTAL RETURN B, C 10.65% 7.70%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 53 $ 10
Ratio of expenses to average net assets 1.15% A 1.48% A,
F
Ratio of expenses to average net assets after expense reductions 1.14% A, G 1.47% A,
G
Ratio of net investment income to average net assets 1.62% A 1.74% A
Portfolio turnover 38% A 33%
Average commission rate H $ .0471 $ .0401
</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.
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 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
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1997
(UNAUDITED) 1996 1995 1994 E 1993 1992
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 35.41 $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58
beginning of period
Income from Investment
Operations
Net investment income .28 D .61 D .39 .22 .08 .14
Net realized and 3.39 4.72 5.31 1.92 5.56 2.04
unrealized gain
(loss)
Total from investment 3.67 5.33 5.70 2.14 5.64 2.18
operations
Less Distributions (.54) (.41) (.27) (.07) (.13) (.09)
From net investment
income
From net realized gain (1.44) (.40) (1.16) (.84) (1.26) (1.53)
Total distributions (1.98) (.81) (1.43) (.91) (1.39) (1.62)
Net asset value, end $ 37.10 $ 35.41 $ 30.89 $ 26.62 $ 25.39 $ 21.14
of period
TOTAL RETURN B, C 10.56% 17.61% 22.88% 8.71% 28.11% 12.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 16,370 $ 14,315 $ 9,691 $ 4,599 $ 2,055 $ 581
(in millions)
Ratio of expenses to 1.22% A 1.34% 1.59% 1.63% 1.65% 1.60%
average net assets
Ratio of expenses to 1.21% A, 1.34% 1.58% 1.62% 1.64% 1.60%
average net assets F F F F
after expense
reductions
Ratio of net investment 1.57% A 1.88% 1.56% 1.12% .43% .80%
income to average
net assets
Portfolio turnover 38% A 33% 39% 43% 69% 94%
Average commission $ .0471 $ .0401
rate G
</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 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.
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.
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS B
SIX MONTHS
ENDED
APRIL 30, 1997 F
(UNAUDITED)
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 37.62
Income from Investment Operations
Net investment income .15
Net realized and unrealized gain (loss) (.69) E
Total from investment operations (.54)
Net asset value, end of period $ 37.08
TOTAL RETURN B, C (1.44)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 71
Ratio of expenses to average net assets 1.81% A
Ratio of expenses to average net assets after expense reductions 1.79% A,
G
Ratio of net investment income to average net assets .90% A
Portfolio turnover 38% A
Average commission rate H $ .0471
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS 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 THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET GAIN 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 MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
APRIL 30, 1997.
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 A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM
PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED
IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES
MAY DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1997
(UNAUDITED) 1996 1995 E
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 35.47 $ 30.97 $ 29.04
Income from Investment Operations
Net investment income .38 D .77 D .12
Net realized and unrealized gain (loss) 3.39 4.74 1.81
Total from investment operations 3.77 5.51 1.93
Less Distributions
From net investment income (.71) (.61) -
From net realized gain (1.44) (.40) -
Total distributions (2.15) (1.01) -
Net asset value, end of period $ 37.09 $ 35.47 $ 30.97
TOTAL RETURN B, C 10.86% 18.25% 6.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 291 $ 250 $ 72
Ratio of expenses to average net assets .69% A .85% .82% A
Ratio of expenses to average net assets after .68% A, F .84% F .81% A,
expense reductions F
Ratio of net investment income to average net 2.13% A 2.38% 2.33% A
assets
Portfolio turnover 38% A 33% 39%
Average commission rate G $ .0471 $ .0401
</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 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Growth Opportunities Fund (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A, 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 a new Class B of shares on March 3, 1997.
Investment income, realized and unrealized capital gains and losses, the
common expenses of the fund, and certain fund-level expense reductions 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.
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities for which exchange quotations are not readily
available (and in certain cases debt securities which trade on an exchange)
are valued primarily using dealer-supplied valuations or at their fair
value as determined in good faith under consistently applied procedures
under the general supervision of the Board of Trustees. Short-term
securities 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.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. 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 A and
Class B and shares of Class A and Class B for distribution under federal
and state securities law. These expenses are borne by Class A and 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 litigation
proceeds, foreign currency transactions, partnerships 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, 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 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. Dividends 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.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,166,243,000 and $2,755,721,000, respectively, of which U.S.
government and government agency obligations aggregated $241,224,000 and
$262,563,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
advised by FMR. The rates ranged from .2500% to .5200% for the period. In
the event that these rates were lower than the contractual rates in effect
during the period, FMR voluntarily implemented the above rates, as they
resulted in the same or a lower management fee. The annual individual fund
fee rate is .30%. The basic fee is subject to a performance adjustment (up
to a maximum of ".20% of the fund's average net assets over the performance
period) based on the investment performance of the lowest performing class
as compared to the appropriate index over a specified period of time. For
the period, the management fee was equivalent to an annualized rate of .51%
of average net assets after the performance adjustment.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
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.
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 $ 38,000 $ 38,000
CLASS T 39,148,000 39,148,000
CLASS B 52,000 13,000
$ 39,238,000 $ 39,199,000
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 5.25% for
selling Class A shares 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
six years of purchase. The Class B charge is based on declining rates which
range from 5% to 1% of the lesser of the cost of shares at the initial date
of purchase or the net asset value of the redeemed shares, excluding any
reinvested dividends and capital gains.
For the period, FDC received 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 $ 905,000 $ 771,000
CLASS T 7,804,000 5,438,000
CLASS B 8,000 0 *
$ 8,717,000 $ 6,209,000
* 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. For the period, the
following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 39,000 .26
CLASS T * * FIIOC * 13,903,000 .18
CLASS B FIIOC * 11,000 .21
INSTITUTIONAL CLASS FIIOC * 198,000 .15
$ 14,151,000
* 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. 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 $752,000 for the period.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$696,000 under this arrangement.
In addition, the fund has entered into an arrangement with 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, each
applicable class' expenses were reduced as follows under the transfer agent
arrangements:
TRANSFER
AGENT
INTEREST
CREDITS
CLASS A $ 1,000
CLASS T 110,000
INSTITUTIONAL CLASS 8,000
$ 119,000
6. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of approximately
17% of the total outstanding shares of the fund.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996
CLASS A
From net investment income $ 340,000 $ -
From net realized gain 680,000 -
Total $ 1,020,000 $ -
CLASS T
From net investment income $ 219,398,000 $ 133,926,000
From net realized gain 585,103,000 130,654,000
Total $ 804,501,000 $ 264,580,000
INSTITUTIONAL CLASS
From net investment income $ 5,286,000 $ 2,275,000
From net realized gain 10,724,000 1,491,000
Total $ 16,010,000 $ 3,766,000
$ 821,531,000 $ 268,346,000
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNTS IN THOUSANDS SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 A 1996 B 1997 A 1996 B
CLASS A 1,207 291 $ 44,048 $ 10,073
Shares sold
Reinvestment of distributions 28 - 981 -
Shares redeemed (89) (3) (3,256) (113)
Net increase (decrease) 1,146 288 $ 41,773 $ 9,960
CLASS T 62,756 152,105 $ 2,291,833 $ 4,928,926
Shares sold
Reinvestment of distributions 21,029 7,909 753,681 246,836
Shares redeemed (46,885) (69,474) (1,707,695) (2,270,466)
Net increase (decrease) 36,900 90,540 $ 1,337,819 $ 2,905,296
CLASS B 1,926 - $ 70,247 $ -
Shares sold
Shares redeemed (17) - (614) -
Net increase (decrease) 1,909 - $ 69,633 $ -
INSTITUTIONAL CLASS 3,681 7,960 $ 135,401 $ 256,839
Shares sold
Reinvestment of distributions 346 76 12,380 2,371
Shares redeemed (3,250) (3,302) (117,525) (108,892)
Net increase (decrease) 777 4,734 $ 30,256 $ 150,318
</TABLE>
A SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD MARCH 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO APRIL 30, 1997.
B 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 $ 18,000
CLASS T 537,000
CLASS B 7,000
INSTITUTIONAL CLASS 23,000
$ 585,000
10. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Beazer Homes USA, Inc. $ - $ 5,413 $ - $ -
Cherry Corp. Class A - - - 5,642
Cherry Corp. Class B - - - 4,051
Circuit City Stores, Inc. -
Circuit City Group - 1,155 172 -
Discount Auto Parts, Inc. 1,693 - - 15,389
Fleetwood Enterprises, Inc. 3,008 - - 50,367
Good Guys, Inc. - 6,371 - -
Lam Research Corp. 16,964 - - 61,205
Novellus Systems, Inc. 587 - - 50,225
Quad Systems Corp. - - - 3,001
Rex Stores Corp. - 2,541 - -
SCI Systems, Inc. 4,742 - - 101,943
Solectron Corp. 14,957 - - 208,036
TOTALS $ 41,951 $ 15,480 $ 172 $ 499,859
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.)
Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
George A. Vanderheiden, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENTS
Fidelity Investments Institutional
Operations Company, Inc.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
GROWTH OPPORTUNITIES
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 22 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 30 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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 GROWTH OPPORTUNITIES FUND - INSTITUTIONAL
CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change
or the growth of a hypothetical $10,000 investment. 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
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.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Growth Opportunities - 10.86% 20.95% 125.23% 500.82%
Institutional Class
S&P 500(registered trademark) 14.72% 25.13% 120.23% 338.04%
Growth Funds Average 7.15% 12.48% 94.42% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years or since the fund started on November 18, 1987. For example, if
you invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare Institutional
Class' returns to the performance of the Standard & Poor's 500 Index - a
widely recognized, unmanaged index of common stocks. To measure how
Institutional Class' performance stacked up against its peers, you can
compare it to the growth funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past six months average represents a peer group of 799 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Growth Opportunities - 20.95% 17.63% 20.88%
Institutional Class
S&P 500 25.13% 17.10% 16.90%
Growth Funds Average 12.48% 13.87% n/a
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 LIFE OF FUND
FA Growth Opp -CL I SP Standard & Poor 500
00688 SP001
1987/11/18 10000.00 10000.00
1987/11/30 9420.00 9489.05
1987/12/31 10760.00 10211.16
1988/01/31 11220.00 10641.05
1988/02/29 12490.00 11136.92
1988/03/31 12720.00 10792.79
1988/04/30 13100.00 10912.59
1988/05/31 12980.00 11007.53
1988/06/30 14130.00 11512.78
1988/07/31 14100.00 11469.03
1988/08/31 13620.00 11079.08
1988/09/30 14170.00 11551.05
1988/10/31 14270.00 11872.17
1988/11/30 13810.00 11702.40
1988/12/31 14340.64 11907.19
1989/01/31 15569.24 12778.80
1989/02/28 15272.68 12460.61
1989/03/31 15420.96 12750.94
1989/04/30 16416.54 13412.71
1989/05/31 17518.04 13955.93
1989/06/30 16766.06 13876.38
1989/07/31 17708.68 15129.41
1989/08/31 18365.34 15425.95
1989/09/30 18185.29 15362.70
1989/10/31 17507.45 15006.29
1989/11/30 17623.95 15312.42
1989/12/31 17802.80 15679.92
1990/01/31 16520.54 14627.79
1990/02/28 16921.24 14816.49
1990/03/31 17356.29 15209.13
1990/04/30 16783.86 14828.90
1990/05/31 18787.39 16274.72
1990/06/30 18890.43 16164.05
1990/07/31 18203.50 16112.33
1990/08/31 16199.97 14655.77
1990/09/30 14940.61 13942.04
1990/10/31 14871.92 13882.08
1990/11/30 16451.84 14778.87
1990/12/31 17509.61 15191.20
1991/01/31 19605.66 15853.53
1991/02/28 21365.89 16987.06
1991/03/31 21956.49 17398.15
1991/04/30 22408.13 17439.90
1991/05/31 23635.65 18193.31
1991/06/30 21968.07 17360.05
1991/07/31 23508.27 18169.03
1991/08/31 24423.12 18599.64
1991/09/30 23867.26 18289.03
1991/10/31 23832.52 18534.10
1991/11/30 22419.71 17787.17
1991/12/31 24982.85 19822.03
1992/01/31 25703.15 19453.34
1992/02/29 26865.73 19706.23
1992/03/31 25968.52 19321.96
1992/04/30 26676.18 19890.02
1992/05/31 27055.28 19987.49
1992/06/30 26436.08 19689.67
1992/07/31 27345.93 20494.98
1992/08/31 26587.72 20074.83
1992/09/30 26663.54 20311.72
1992/10/31 26714.09 20382.81
1992/11/30 28003.04 21077.86
1992/12/31 28736.79 21337.12
1993/01/31 29612.91 21516.35
1993/02/28 29693.79 21808.97
1993/03/31 30799.05 22269.14
1993/04/30 30852.96 21730.23
1993/05/31 31715.61 22312.60
1993/06/30 31836.92 22377.30
1993/07/31 32052.58 22287.80
1993/08/31 33036.53 23132.50
1993/09/30 33157.84 22954.38
1993/10/31 34222.66 23429.54
1993/11/30 34060.92 23206.96
1993/12/31 35108.69 23487.76
1994/01/31 37051.41 24286.35
1994/02/28 36492.36 23628.19
1994/03/31 34940.98 22598.00
1994/04/30 35863.42 22887.25
1994/05/31 36059.09 23262.60
1994/06/30 35080.74 22692.67
1994/07/31 36073.06 23436.99
1994/08/31 37596.49 24397.90
1994/09/30 36464.40 23800.16
1994/10/31 37205.15 24335.66
1994/11/30 36017.16 23449.35
1994/12/31 36111.72 23797.11
1995/01/31 36392.92 24414.17
1995/02/28 37502.91 25365.59
1995/03/31 38464.90 26114.13
1995/04/30 39767.29 26883.19
1995/05/31 41424.88 27957.71
1995/06/30 42830.87 28607.17
1995/07/31 44296.06 29555.78
1995/08/31 44621.66 29629.96
1995/09/30 45494.85 30880.35
1995/10/31 45835.25 30770.11
1995/11/30 46989.64 32120.91
1995/12/31 48239.16 32739.56
1996/01/31 49018.44 33854.02
1996/02/29 48896.20 34167.84
1996/03/31 48835.08 34496.88
1996/04/30 49675.48 35005.36
1996/05/31 50714.53 35908.15
1996/06/30 50974.29 36044.96
1996/07/31 49568.52 34452.50
1996/08/31 49981.08 35179.10
1996/09/30 52364.77 37158.98
1996/10/31 54198.38 38183.82
1996/11/30 58476.80 41070.14
1996/12/31 57069.09 40256.54
1997/01/31 59903.91 42771.77
1997/02/28 60422.28 43107.10
1997/03/31 57457.86 41335.83
1997/04/30 60082.10 43803.58
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Growth Opportunities Fund - Institutional
Class on November 18, 1987, when the fund started. As the chart shows, by
April 30, 1997, the value of the investment would have grown to $60,082 - a
500.82% increase on the initial investment. For comparison, look at how the
S&P 500 did over the same period. With dividends reinvested, the same
$10,000 investment would have grown to $43,804 - a 338.04% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
long-term growth and
short-term volatility. In turn,
the share price and return of a
fund that invests in stocks will
vary. That means if you sell
your shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with George A. Vanderheiden, Portfolio Manager of Fidelity
Advisor Growth Opportunities Fund
Q. HOW DID THE FUND PERFORM, GEORGE?
A. For the six months that ended April 30, 1997, the fund's Institutional
Class shares returned 10.86%. The Standard & Poor's 500 Index had a
six-month return of 14.72%, while the growth funds average - as tracked by
Lipper Analytical Services - returned 7.15% over the same period. For the
12 months that ended April 30, 1997, the fund's Institutional Class shares
returned 20.95%. The S&P 500 and peer group had 12-month returns of 25.13%
and 12.48%, respectively, as of April 30, 1997.
Q. CAN YOU IDENTIFY WHY THE FUND BEAT THE PEER GROUP YET TRAILED THE S&P
500?
A. The reason the fund beat the Lipper group over the past six months was
better stock selection, specifically less exposure to many of the
smaller-cap, momentum-type stocks so heavily owned by some growth funds.
The fund's underperformance relative to the S&P 500 can be traced primarily
to asset allocation. During the period, the fund had an average of
approximately 15% of its assets in bonds and around 6% in cash. Over the
past six months, this total of 21% of assets appreciated only 0.6%.
Conversely, the other 79% in stocks was up 13%, close to the S&P 500 gain
of 14.72%.
Q. WHAT STANDS OUT IN THE INVESTING CLIMATE OF THE LAST SIX MONTHS?
A. On December 6, 1996, Federal Reserve Board chairman Greenspan warned
that he felt stock market valuations were excessive. The Fed followed up
this warning three months later with an increase of one-quarter percentage
point to the Fed Funds rate - the rate at which banks make overnight loans
to each other. The bond market subsequently declined and stocks went down a
greater amount. While the media and the investing public have rebuked the
Fed for making the warning and have largely chosen to ignore it - the Dow
Jones average is currently above the 6440 level it was at on December 6,
1996 - history tells us we should be paying attention. The two other
instances this century when the Fed chairman warned of excessive stock
prices were February 6, 1929 and June 1, 1965. Seven months after the
February 1929 warning, the Dow Jones peaked at 381 in September and
declined 89% over the next three years. Likewise, seven months following
the June 1965 warning, the market peaked in January 1966 at 995 and went
sideways for 16 years, not decisively breaking over 1000 until the latter
part of 1982.
Q. WHAT ARE THE IMPLICATIONS OF THE FED RAISING INTEREST RATES?
A. Rising interest rates are poison to high price/earnings (P/E) multiples,
and large-cap consumer growth stocks carry some of the highest P/E ratios
in the market today. These stocks have done very well over the past three
years, while smaller- to mid-cap stocks have suffered on a relative basis
and also on an absolute basis since mid-1996. I have been reallocating
assets to these smaller-cap stocks where I think there is better value.
Q. WHAT ARE YOU DOING TO PROTECT THE FUND IN CASE THE MARKET BECOMES MORE
DIFFICULT?
A. Bonds comprised around 13% of investments at the end of the period, and
they should outperform stocks in the event of a market decline.
Furthermore, I've minimized holdings in stocks with high P/E ratios and
have tried to focus on growth companies selling at reasonable valuations.
In addition, approximately 8% of the portfolio is invested overseas either
in international oil stocks, growth stocks such as Vodafone or
restructurings such as Alcatel and Credit Suisse.
Q. THE ECONOMY HAS STRENGTHENED LATELY AND YOU STILL OWN BONDS. WHY?
A. Bonds were originally purchased as a short-term tactical move to hedge
against slowing corporate earnings growth in 1996. Earnings growth did slow
as expected in 1996, but the stock market did not correct as it normally
has done in the past. With Treasury bond yields at 3 1/2 times the yield on
the S&P 500, I consider bonds a good safety cushion in an expensive market,
though I reduced the position somewhat in the past six months.
Q. WHAT IS YOUR POSITION ON TOBACCO STOCKS?
A. I own the tobacco stocks because they operate a profitable business that
has offered above-average returns to shareholders over the long-term. The
stocks provide better-than-average earnings growth, lower-than-average
P/E's and high yields. Nothing that has occurred this year has changed
that. We have determined that the tobacco stocks are selling at a
"litigation discount" far in excess of any reasonable estimate of potential
liabilities. In spite of the barrage of litigation over the past 10 years
and the occurrence of the "Marlboro Friday" price-cutting incident, Philip
Morris has appreciated by 5 1/2 fold over the past decade - versus a
fourfold increase in the S&P 500 - and has also paid a higher dividend
yield versus the market during this 10-year span.
Q. WHAT'S YOUR OUTLOOK?
A. With the market continuing to advance over the past six months and Fed
policy becoming restrictive with interest rates rising, the investing
climate has become more precarious. As the period came to a close, some
sectors of the market, such as the average NASDAQ stock, were already in a
correction. This makes sense because investors typically sell off more
volatile holdings when they become anxious and hold on to the large-cap
growth stocks with which they are more familiar. Consequently, this is a
time to shift expectations downward at least for the near-term. However,
whatever the shorter term holds, the fund's shareholders have done well by
remaining focused on long-term opportunities and goals. This will continue
to be important over the next year.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide capital
growth by investing primarily
in common stocks and
securities convertible into
common stocks
START DATE: November 18, 1987
SIZE: as of April 30, 1997,
more than $16.7 billion
MANAGER: George
Vanderheiden, since 1987;
joined Fidelity in 1971
(checkmark)
GEORGE VANDERHEIDEN ON
STEERING THE FUND THROUGH
DIFFICULT MARKET PHASES:
"One of the ways to protect a
portfolio of stocks going into a
difficult market is to
emphasize companies with
reliable and above-average
earnings growth rates whose
stock carries a dividend yield
equal to or better than the
market, and whose stock
valuation is lower than that of
the market. In looking at the
top 10 equity positions in the
fund approximately 80% of
the assets are in growth
companies such as Philip
Morris, Federal National
Mortgage Association, Fleet
Financial, IBM, Federal Home
Loan Mortgage Corporation,
Columbia Healthcare,
Compaq Computer and
Vodafone. This combined group
of companies has an earnings
growth rate of 14%, which is
nearly twice that of the S&P
500. The average dividend
yield of this group of
companies is 2%, similar to
that of the S&P 500. The
average P/E ratio of this
group of stocks - based on
1997 earnings - is 14, while
that of the S&P 500 is 17. I
take much comfort that at
this point in time, these
companies have better
aggregate earnings prospects
than the S&P 500, yet sell for
a lower valuation. In a rising
market, they've got superior
growth going for them and, in
a falling market, they've got
conservative valuation giving
them support."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 7.2 6.4
Federal National Mortgage Association 5.0 5.6
International Business Machines Corp. 3.5 3.0
Fleet Financial Group, Inc. 3.1 3.0
Federal Home Loan Mortgage 2.7 2.5
Corporation
General Motors Corp. 2.6 3.8
Columbia/HCA Healthcare Corp. 2.0 2.3
Royal Dutch Petroleum Co. ADR 1.6 2.3
Vodafone Group PLC sponsored ADR 1.6 1.9
Compaq Computer Corp. 1.5 3.9
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 16.5 16.8
Technology 14.4 14.0
Nondurables 8.1 7.4
Utilities 6.5 4.9
Energy 6.4 7.4
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
Row: 1, Col: 1, Value: 7.6
Row: 1, Col: 2, Value: 12.9
Row: 1, Col: 3, Value: 50.0
Row: 1, Col: 4, Value: 29.5
Row: 1, Col: 1, Value: 6.5
Row: 1, Col: 2, Value: 15.5
Row: 1, Col: 3, Value: 28.0
Row: 1, Col: 4, Value: 50.0
Stocks 79.5%
Bonds 12.9%
Short-term
investments 7.6%
FOREIGN
INVESTMENTS 8.1%
Stocks 78.0%
Bonds 15.5%
Short-term
investments 6.5%
FOREIGN
INVESTMENTS 8.9%
*
**
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 79.5%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.6%
AEROSPACE & DEFENSE - 1.1%
Boeing Co. 1,744,000 $ 172,002
Gulfstream Aerospace Corp. (a) 285,900 7,290
179,292
DEFENSE ELECTRONICS - 0.5%
Raytheon Co. 2,028,800 88,506
SHIP BUILDING & REPAIR - 0.0%
Avondale Industries, Inc. (a) 117,900 2,093
Newport News Shipbuilding, Inc. 343,600 5,154
7,247
TOTAL AEROSPACE & DEFENSE 275,045
BASIC INDUSTRIES - 3.8%
CHEMICALS & PLASTICS - 2.6%
Air Products & Chemicals, Inc. 358,300 25,708
du Pont (E.I.) de Nemours & Co. 2,289,000 242,920
Raychem Corp. 1,483,400 95,679
Union Carbide Corp. 1,467,400 73,187
437,494
IRON & STEEL - 0.0%
Inland Steel Industries, Inc. 37,200 846
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. (a) 2,347,300 63,377
Tupperware Corp. 41,500 1,380
64,757
PAPER & FOREST PRODUCTS - 0.8%
Boise Cascade Corp. 826,700 27,488
Champion International Corp. 1,096,500 50,987
International Paper Co. 603,000 25,477
Temple-Inland, Inc. 167,700 9,307
Willamette Industries, Inc. 251,900 16,059
129,318
TOTAL BASIC INDUSTRIES 632,415
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.9%
CONSTRUCTION - 0.8%
Centex Corp. 677,200 $ 24,379
D.R. Horton, Inc. 1,465,180 14,286
Fleetwood Enterprises, Inc. (c) 1,909,652 50,367
Kaufman & Broad Home Corp. 1,865,000 25,877
U.S. Home Corp. (a) 560,100 13,792
128,701
ENGINEERING - 0.1%
Fluor Corp. 467,100 25,690
TOTAL CONSTRUCTION & REAL ESTATE 154,391
DURABLES - 4.4%
AUTOS, TIRES, & ACCESSORIES - 4.1%
Circuit City Stores, Inc.- CarMax Group 99,700 1,495
Cummins Engine Co., Inc. 713,400 40,040
Dana Corp. 261,400 8,332
Discount Auto Parts, Inc. (a)(c) 947,000 15,389
Federal-Mogul Corp. 801,500 22,141
General Motors Corp. 7,455,339 431,478
Gentex Corp. (a) 187,400 3,373
Goodyear Tire & Rubber Co. 258,300 13,593
Honda Motor Co. Ltd. 969,000 30,051
Magna International, Inc. Class A 1,129,500 59,084
Superior Industries International, Inc. 1,054,700 25,049
Volvo AB Class B 1,464,600 36,863
686,888
CONSUMER ELECTRONICS - 0.1%
Newell Co. 600,900 21,032
TEXTILES & APPAREL - 0.2%
Burlington Industries, Inc. (a) 1,299,100 13,316
Liz Claiborne, Inc. 259,500 11,742
NIKE, Inc. Class B 252,200 14,186
39,244
TOTAL DURABLES 747,164
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 6.4%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 1,354,500 $ 25,058
OIL & GAS - 6.2%
Amerada Hess Corp. 545,300 26,515
Anadarko Petroleum Corp. 79,000 4,335
Atlantic Richfield Co. 871,800 118,674
British Petroleum PLC ADR 1,442,905 198,580
Burlington Resources, Inc. 1,169,100 49,541
Canada Occidental Petroleum Ltd. 748,000 14,746
Chevron Corp. 98,900 6,775
Elf Aquitaine SA sponsored ADR 287,447 13,977
Enron Oil & Gas Co. 148,000 2,756
Exxon Corp. 200,000 11,325
Kerr-McGee Corp. 183,200 11,061
Louisiana Land & Exploration Co. 1,039,900 51,995
Mobil Corp. 98,800 12,844
Noble Affiliates, Inc. 132,300 4,730
Occidental Petroleum Corp. 2,569,200 56,843
Royal Dutch Petroleum Co. ADR 1,535,300 276,738
Santa Fe Energy Resources, Inc. (a) 486,200 6,868
Sun Co., Inc. 877,600 24,024
Tosco Corp. 3,858,000 114,293
Total SA Class B 149,374 12,392
Total SA sponsored ADR 435,352 18,122
Union Pacific Resources Group, Inc. 361,000 9,792
1,046,926
TOTAL ENERGY 1,071,984
FINANCE - 16.5%
BANKS - 0.5%
BankAmerica Corp. 108,200 12,646
Credit Suisse Group (Reg.) 360,200 40,565
NationsBank Corp. 466,900 28,189
State Street Corp. 75,700 5,961
87,361
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 3.2%
Fleet Financial Group, Inc. 8,609,310 $ 525,168
Transamerica Corp. 96,000 8,136
533,304
FEDERAL SPONSORED CREDIT - 7.7%
Federal Home Loan Mortgage Corporation 14,260,900 454,566
Federal National Mortgage Association 20,487,220 842,537
1,297,103
INSURANCE - 4.5%
AFLAC, Inc. 508,650 21,872
Allmerica Financial Corp. 726,600 26,158
Allstate Corp. 3,492,382 228,751
American International Group, Inc. 1,064,450 136,782
CIGNA Corp. 62,600 9,413
Equitable of Iowa Companies 424,700 20,757
General Re Corp. 338,500 56,614
Loews Corp. 272,400 25,027
MGIC Investment Corp. 834,600 67,811
PMI Group, Inc. 191,700 9,801
Provident Companies, Inc. 110,900 6,196
Providian Corp. 1,367,200 78,956
Reliastar Financial Corp. 218,200 13,201
Torchmark Corp. 742,600 46,134
Travelers Property Casualty Corp. Class A 172,600 5,825
UNUM Corp. 67,100 5,167
758,465
SAVINGS & LOANS - 0.2%
Golden West Financial Corp. 416,040 27,043
SECURITIES INDUSTRY - 0.4%
United Asset Management Corp. 2,792,600 68,419
TOTAL FINANCE 2,771,695
HEALTH - 5.8%
DRUGS & PHARMACEUTICALS - 2.0%
American Home Products Corp. 59,700 3,955
Amgen, Inc. 1,280,200 75,372
Astra AB Class A Free shares 2,599,000 106,321
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Idexx Laboratories, Inc. 161,200 $ 2,095
Merck & Co., Inc. 99,300 8,987
Novartis AG (Reg.) 24,625 32,443
Schering-Plough Corp. 1,255,000 100,400
329,573
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Abbott Laboratories 19,800 1,208
Allegiance Corp. 152,440 3,373
Bard (C.R.), Inc. 491,600 15,608
Baxter International, Inc. 165,000 7,899
Biomet, Inc. 1,145,100 17,391
Boston Scientific Corp. 68,800 3,320
Johnson & Johnson 147,800 9,053
St. Jude Medical, Inc. (a) 1,522,000 49,465
107,317
MEDICAL FACILITIES MANAGEMENT - 3.2%
Columbia/HCA Healthcare Corp. 9,631,963 337,119
Health Management Associates, Inc. Class A (a) 75,700 2,025
Humana, Inc. (a) 2,958,700 64,352
Tenet Healthcare Corp. (a) 3,052,700 79,370
United HealthCare Corp. 1,058,700 51,479
534,345
TOTAL HEALTH 971,235
HOLDING COMPANIES - 0.1%
U.S. Industries, Inc. (a) 561,800 20,295
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
ELECTRICAL EQUIPMENT - 1.4%
Alcatel Alsthom Compagnie Generale d'Electricite
SA sponsored ADR 90,500 2,014
Alcatel Alsthom Compagnie Generale d'Electricite SA 671,900 74,742
Cherry Corp.:
Class A (a)(c) 537,300 5,642
Class B (a)(c) 368,300 4,051
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
ELECTRICAL EQUIPMENT - CONTINUED
Emerson Electric Co. 282,200 $ 14,322
General Electric Co. 844,300 93,612
Scientific-Atlanta, Inc. 718,600 11,497
Sensormatic Electronics Corp. 296,600 4,449
Westinghouse Electric Corp. 1,075,300 18,280
228,609
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
Caterpillar, Inc. 625,900 55,705
Dover Corp. 26,800 1,420
Ultratech Stepper, Inc. (a) 825,600 14,809
71,934
POLLUTION CONTROL - 0.2%
Browning-Ferris Industries, Inc. 1,547,000 43,896
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 344,439
MEDIA & LEISURE - 2.5%
BROADCASTING - 0.1%
HSN, Inc. (a) 379,905 8,928
TCI Group Class A 917,100 12,667
21,595
ENTERTAINMENT - 0.5%
Cedar Fair LP (depositary unit) 681,000 27,070
Royal Caribbean Cruises Ltd. 1,976,100 62,988
90,058
LEISURE DURABLES & TOYS - 0.6%
Nintendo Co. Ltd. Ord. 1,305,500 95,360
LODGING & GAMING - 0.6%
Circus Circus Enterprises, Inc. (a) 1,462,400 35,280
Harrah's Entertainment, Inc. 63,100 1,010
Mirage Resorts, Inc. (a) 1,786,700 35,957
Sun International Hotels Ltd. Ord. (a) 982,800 29,853
102,100
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.7%
Brinker International, Inc. (a) 361,900 $ 4,207
McDonald's Corp. 1,822,200 97,716
Papa John's International, Inc. (a) 190,800 4,913
106,836
TOTAL MEDIA & LEISURE 415,949
NONDURABLES - 8.1%
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 253,000 6,199
TOBACCO - 8.1%
Philip Morris Companies, Inc. 30,879,300 1,215,872
RJR Nabisco Holdings Corp. 4,690,760 139,550
UST, Inc. 266,100 6,952
1,362,374
TOTAL NONDURABLES 1,368,573
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 224,200 4,982
Santa Fe Pacific Gold Corp. 385,772 5,690
10,672
RETAIL & WHOLESALE - 5.4%
APPAREL STORES - 0.2%
TJX Companies, Inc. 663,400 31,346
DRUG STORES - 0.1%
CVS Corp. 179,500 8,908
GENERAL MERCHANDISE STORES - 1.6%
Federated Department Stores, Inc. (a) 929,713 31,610
Wal-Mart Stores, Inc. 8,538,200 241,204
272,814
GROCERY STORES - 0.2%
Safeway, Inc. (a) 721,800 32,210
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 3.3%
Circuit City Stores, Inc.- Circuit City Group 4,483,500 $ 177,659
Corporate Express, Inc. (a) 879,600 8,796
Home Depot, Inc. (The) 2,483,100 144,020
Lowe's Companies, Inc. 2,754,000 104,652
Officemax, Inc. (a) 2,104,225 26,040
Office Depot, Inc. (a) 315,700 4,420
Rex Stores Corp. (a) 344,500 3,488
Staples, Inc. (a) 553,600 9,965
Toys "R" Us, Inc. (a) 1,738,300 49,541
U.S. Office Products Co. (a) 738,200 18,824
Viking Office Products, Inc. (a) 996,500 13,577
560,982
TOTAL RETAIL & WHOLESALE 906,260
SERVICES - 0.1%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 153,100 8,669
LEASING & RENTAL - 0.0%
Hertz Corp. Class A 70,100 2,033
TOTAL SERVICES 10,702
TECHNOLOGY - 14.4%
COMMUNICATIONS EQUIPMENT - 0.2%
Cisco Systems, Inc. (a) 369,500 19,122
Nokia Corp. AB sponsored ADR 153,300 9,907
29,029
COMPUTER SERVICES & SOFTWARE - 2.0%
American Management Systems, Inc. (a) 118,200 2,925
Automatic Data Processing, Inc. 951,200 43,042
CUC International, Inc. (a) 240,800 5,087
Ceridian Corp. (a) 703,000 23,463
CompUSA, Inc. (a) 475,000 9,144
Electronic Data Systems Corp. 1,491,600 49,782
First Data Corp. 1,427,500 49,249
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Microsoft Corp. (a) 521,400 $ 63,350
Netscape Communications Corp. (a) 143,300 3,878
Oracle Systems Corp. (a) 651,750 25,907
Paychex, Inc. 562,000 26,309
Policy Management Systems Corp. (a) 903,000 39,281
341,417
COMPUTERS & OFFICE EQUIPMENT - 6.5%
Bay Networks, Inc. (a) 2,004,600 35,582
Compaq Computer Corp. (a) 2,960,400 252,744
Hewlett-Packard Co. 1,159,300 60,863
Ingram Micro, Inc. Class A (a) 129,400 2,944
International Business Machines Corp. 3,642,200 585,484
SCI Systems, Inc. (a)(c) 1,650,900 101,943
Seagate Technology (a) 467,800 21,460
Tech Data Corp. (a) 922,700 22,606
Wang Laboratories, Inc. (warrants) 84 -
1,083,626
ELECTRONIC INSTRUMENTS - 1.7%
Applied Materials, Inc. (a) 1,117,300 61,312
Cognex Corp. (a) 372,600 9,175
KLA Instruments Corp. (a) 222,100 9,883
Lam Research Corp. (a)(c) 2,110,500 61,205
Novellus Systems, Inc. (a)(c) 869,700 50,225
Quad Systems Corp. (a)(c) 300,100 3,001
Teradyne, Inc. (a) 908,300 29,747
Thermo Electron Corp. (a) 818,500 28,238
Varian Associates, Inc. 571,200 27,489
280,275
ELECTRONICS - 4.0%
AMP, Inc. 2,662,700 95,524
Atmel Corp. (a) 323,900 8,057
Intel Corp. 1,624,300 248,721
Methode Electronics, Inc. Class A 614,400 8,678
Microchip Technology, Inc. (a) 140,350 4,386
Molex, Inc. 409,625 11,879
Solectron Corp. (a)(c) 3,625,900 208,036
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Storage Technology Corp. (a) 392,900 $ 13,801
Texas Instruments, Inc. 808,100 72,123
Thomas & Betts Corp. 84,100 3,816
675,021
TOTAL TECHNOLOGY 2,409,368
TRANSPORTATION - 0.9%
AIR TRANSPORTATION - 0.3%
Continental Airlines, Inc. Class B (a) 217,300 6,899
Delta Air Lines, Inc. 263,400 24,266
Northwest Airlines Corp. Class A (a) 329,500 12,851
44,016
RAILROADS - 0.4%
Bombardier, Inc. Class B 571,800 11,580
Burlington Northern Santa Fe Corp. 329,700 25,964
CSX Corp. 742,600 34,624
72,168
SHIPPING - 0.1%
Stolt-Nielsen SA Class B sponsored ADR 610,000 10,370
Stolt-Nielsen SA 282,700 4,629
14,999
TRUCKING & FREIGHT - 0.1%
Roadway Express, Inc. 170,200 2,979
Yellow Corp. (a) 518,700 9,985
12,964
TOTAL TRANSPORTATION 144,147
UTILITIES - 6.5%
CELLULAR - 2.2%
AirTouch Communications, Inc. (a) 3,810,300 97,163
360 Degrees Communications Co. (a) 207,400 3,604
Vodafone Group PLC sponsored ADR 5,917,500 261,849
362,616
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - 0.2%
American Electric Power Co., Inc. 53,800 $ 2,179
Entergy Corp. 1,013,800 23,698
25,877
GAS - 0.2%
Enron Corp. 1,119,600 42,125
TELEPHONE SERVICES - 3.9%
AT&T Corp. 1,187,300 39,775
Ameritech Corp. 923,700 56,461
Bell Atlantic Corp. 539,200 36,531
BellSouth Corp. 1,422,500 63,301
Deutsche Telekom AG 442,800 9,577
MCI Communications Corp. 4,148,000 158,143
NYNEX Corp. 1,669,800 86,412
SBC Communications, Inc. 1,470,000 81,585
Sprint Corp. 2,573,800 112,925
WorldCom, Inc. (a) 412,100 9,890
654,600
TOTAL UTILITIES 1,085,218
TOTAL COMMON STOCKS
(Cost $9,798,306) 13,339,552
U.S. TREASURY OBLIGATIONS - 12.9%
PRINCIPAL
AMOUNT (000S)
stripped principal:
0%, 2/15/19 $ 392,000 83,735
0%, 8/15/19 420,000 86,688
0% 8/15/20 1,211,300 232,400
0% 8/15/21 212,000 38,024
6 1/4%, 8/15/23 240,750 218,067
8 1/8%, 8/15/19 1,229,000 1,375,140
7 5/8%, 11/15/22 125,000 133,379
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $2,181,414) 2,167,433
CASH EQUIVALENTS - 7.6%
SHARES VALUE (NOTE 1)
(000S)
Taxable Central Cash Fund (b)
(Cost $1,267,780) 1,267,779,907 $ 1,267,780
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $13,247,500) $ 16,774,765
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund was
5.45%. The yield refers to the income earned by investing in the fund over
the seven-day period, expressed as an annual percentage.
3. Affiliated company (see Note 9 of Notes to Financial Statements).
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $13,250,557,000. Net unrealized appreciation aggregated
$3,524,208,000, of which $3,795,843,000 related to appreciated investment
securities and $271,635,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (cost $13,247,500) - $ 16,774,765
See accompanying schedule
Receivable for investments sold 38,142
Receivable for fund shares sold 27,760
Dividends receivable 14,901
Interest receivable 33,541
Other receivables 57
Prepaid expenses 27
TOTAL ASSETS 16,889,193
LIABILITIES
Payable for investments purchased $ 65,236
Payable for fund shares redeemed 23,897
Accrued management fee 6,453
Distribution fees payable 6,597
Other payables and accrued expenses 2,962
TOTAL LIABILITIES 105,145
NET ASSETS $ 16,784,048
Net Assets consist of:
Paid in capital $ 12,709,339
Undistributed net investment income 75,399
Accumulated undistributed net realized gain (loss) on 472,115
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 3,527,195
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 16,784,048
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
CALCULATION OF MAXIMUM OFFERING PRICE $36.92
CLASS A:
NET ASSET VALUE and redemption price per share
($52,928 (divided by) 1,433.75 shares)
Maximum offering price per share (100/94.75 of $36.92) $38.97
CLASS T: $37.10
NET ASSET VALUE and redemption price per share
($16,369,762 (divided by) 441,191 shares)
Maximum offering price per share (100/96.50 of $37.10) $38.45
CLASS B: $37.08
NET ASSET VALUE and offering price per share
($70,791 (divided by) 1,909 shares) A
INSTITUTIONAL CLASS: $37.09
NET ASSET VALUE, offering price and redemption price
per share ($290,567 (divided by) 7,834 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 109,627
Dividends (including $172 received from affiliated
issuers)
Interest 108,352
TOTAL INCOME 217,979
EXPENSES
Management fee $ 48,017
Basic fee
Performance adjustment (8,115)
Transfer agent fees 14,151
Distribution fees 39,238
Accounting fees and expenses 414
Non-interested trustees' compensation 46
Custodian fees and expenses 224
Registration fees 585
Audit 53
Legal 52
Miscellaneous 370
Total expenses before reductions 95,035
Expense reductions (815) 94,220
NET INVESTMENT INCOME 123,759
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized gain (loss) of 480,873
$(4,597) on sales of investments in affiliated issuers)
Foreign currency transactions 31 480,904
Change in net unrealized appreciation (depreciation) on:
Investment securities 946,113
Assets and liabilities in foreign currencies (96) 946,017
NET GAIN (LOSS) 1,426,921
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,550,680
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 123,759 $ 234,195
Net investment income
Net realized gain (loss) 480,904 651,211
Change in net unrealized appreciation (depreciation) 946,017 1,129,840
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,550,680 2,015,246
FROM OPERATIONS
Distributions to shareholders (225,024) (136,201)
From net investment income
From net realized gain (596,507) (132,145)
TOTAL DISTRIBUTIONS (821,531) (268,346)
Share transactions - net increase (decrease) 1,479,481 3,065,574
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,208,630 4,812,474
NET ASSETS
Beginning of period 14,575,418 9,762,944
End of period (including undistributed net investment $ 16,784,048 $ 14,575,418
income of $75,399 and $193,053, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31,
APRIL 30, 1997
(UNAUDITED) 1996 E
<TABLE>
<CAPTION>
<S> <C> <C>
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 35.39 $ 32.86
Income from Investment Operations
Net investment income .29 .09
Net realized and unrealized gain (loss) 3.40 2.44
Total from investment operations 3.69 2.53
Less Distributions
From net investment income (.72) -
From net realized gain (1.44) -
Total distributions (2.16) -
Net asset value, end of period $ 36.92 $ 35.39
TOTAL RETURN B, C 10.65% 7.70%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 53 $ 10
Ratio of expenses to average net assets 1.15% A 1.48% A,
F
Ratio of expenses to average net assets after expense reductions 1.14% A, G 1.47% A,
G
Ratio of net investment income to average net assets 1.62% A 1.74% A
Portfolio turnover 38% A 33%
Average commission rate H $ .0471 $ .0401
</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.
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 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>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1997
(UNAUDITED) 1996 1995 1994 E 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 35.41 $ 30.89 $ 26.62 $ 25.39 $ 21.14 $ 20.58
beginning of period
Income from Investment
Operations
Net investment income .28 D .61 D .39 .22 .08 .14
Net realized and 3.39 4.72 5.31 1.92 5.56 2.04
unrealized gain
(loss)
Total from investment 3.67 5.33 5.70 2.14 5.64 2.18
operations
Less Distributions (.54) (.41) (.27) (.07) (.13) (.09)
From net investment
income
From net realized gain (1.44) (.40) (1.16) (.84) (1.26) (1.53)
Total distributions (1.98) (.81) (1.43) (.91) (1.39) (1.62)
Net asset value, end $ 37.10 $ 35.41 $ 30.89 $ 26.62 $ 25.39 $ 21.14
of period
TOTAL RETURN B, C 10.56% 17.61% 22.88% 8.71% 28.11% 12.09%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 16,370 $ 14,315 $ 9,691 $ 4,599 $ 2,055 $ 581
(in millions)
Ratio of expenses to 1.22% A 1.34% 1.59% 1.63% 1.65% 1.60%
average net assets
Ratio of expenses to 1.21% A, 1.34% 1.58% 1.62% 1.64% 1.60%
average net assets F F F F
after expense
reductions
Ratio of net investment 1.57% A 1.88% 1.56% 1.12% .43% .80%
income to average
net assets
Portfolio turnover 38% A 33% 39% 43% 69% 94%
Average commission $ .0471 $ .0401
rate G
</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 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.
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 - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED
APRIL 30, 1997 F
(UNAUDITED)
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 37.62
Income from Investment Operations
Net investment income .15
Net realized and unrealized gain (loss) (.69) E
Total from investment operations (.54)
Net asset value, end of period $ 37.08
TOTAL RETURN B, C (1.44)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 71
Ratio of expenses to average net assets 1.81% A
Ratio of expenses to average net assets after expense reductions 1.79% A,
G
Ratio of net investment income to average net assets .90% A
Portfolio turnover 38% A
Average commission rate H $ .0471
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS 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 THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET GAIN 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 MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
APRIL 30, 1997.
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 A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM
PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED
IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES
MAY DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30, 1997
(UNAUDITED) 1996 1995 E
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 35.47 $ 30.97 $ 29.04
Income from Investment Operations
Net investment income .38 D .77 D .12
Net realized and unrealized gain (loss) 3.39 4.74 1.81
Total from investment operations 3.77 5.51 1.93
Less Distributions
From net investment income (.71) (.61) -
From net realized gain (1.44) (.40) -
Total distributions (2.15) (1.01) -
Net asset value, end of period $ 37.09 $ 35.47 $ 30.97
TOTAL RETURN B, C 10.86% 18.25% 6.65%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 291 $ 250 $ 72
Ratio of expenses to average net assets .69% A .85% .82% A
Ratio of expenses to average net assets after .68% A, F .84% F .81% A,
expense reductions F
Ratio of net investment income to average net 2.13% A 2.38% 2.33% A
assets
Portfolio turnover 38% A 33% 39%
Average commission rate G $ .0471 $ .0401
</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 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Growth Opportunities Fund (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust.
The fund offers Class A, 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 a new Class B of shares on March 3, 1997.
Investment income, realized and unrealized capital gains and losses, the
common expenses of the fund, and certain fund-level expense reductions 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.
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities for which exchange quotations are not readily
available (and in certain cases debt securities which trade on an exchange)
are valued primarily using dealer-supplied valuations or at their fair
value as determined in good faith under consistently applied procedures
under the general supervision of the Board of Trustees. Short-term
securities 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.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. 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 A and
Class B and shares of Class A and Class B for distribution under federal
and state securities law. These expenses are borne by Class A and 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 litigation
proceeds, foreign currency transactions, partnerships 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, 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 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. Dividends 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.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,166,243,000 and $2,755,721,000, respectively, of which U.S.
government and government agency obligations aggregated $241,224,000 and
$262,563,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
advised by FMR. The rates ranged from .2500% to .5200% for the period. In
the event that these rates were lower than the contractual rates in effect
during the period, FMR voluntarily implemented the above rates, as they
resulted in the same or a lower management fee. The annual individual fund
fee rate is .30%. The basic fee is subject to a performance adjustment (up
to a maximum of ".20% of the fund's average net assets over the performance
period) based on the investment performance of the lowest performing class
as compared to the appropriate index over a specified period of time. For
the period, the management fee was equivalent to an annualized rate of .51%
of average net assets after the performance adjustment.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
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.
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 $ 38,000 $ 38,000
CLASS T 39,148,000 39,148,000
CLASS B 52,000 13,000
$ 39,238,000 $ 39,199,000
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 5.25% for
selling Class A shares 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
six years of purchase. The Class B charge is based on declining rates which
range from 5% to 1% of the lesser of the cost of shares at the initial date
of purchase or the net asset value of the redeemed shares, excluding any
reinvested dividends and capital gains.
For the period, FDC received 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 $ 905,000 $ 771,000
CLASS T 7,804,000 5,438,000
CLASS B 8,000 0 *
$ 8,717,000 $ 6,209,000
* 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. For the period, the
following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 39,000 .26
CLASS T * * FIIOC * 13,903,000 .18
CLASS B FIIOC * 11,000 .21
INSTITUTIONAL CLASS FIIOC * 198,000 .15
$ 14,151,000
* 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. 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 $752,000 for the period.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$696,000 under this arrangement.
In addition, the fund has entered into an arrangement with 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, each
applicable class' expenses were reduced as follows under the transfer agent
arrangements:
TRANSFER
AGENT
INTEREST
CREDITS
CLASS A $ 1,000
CLASS T 110,000
INSTITUTIONAL CLASS 8,000
$ 119,000
6. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of approximately
17% of the total outstanding shares of the fund.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996
CLASS A
From net investment income $ 340,000 $ -
From net realized gain 680,000 -
Total $ 1,020,000 $ -
CLASS T
From net investment income $ 219,398,000 $ 133,926,000
From net realized gain 585,103,000 130,654,000
Total $ 804,501,000 $ 264,580,000
INSTITUTIONAL CLASS
From net investment income $ 5,286,000 $ 2,275,000
From net realized gain 10,724,000 1,491,000
Total $ 16,010,000 $ 3,766,000
$ 821,531,000 $ 268,346,000
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMOUNTS IN THOUSANDS SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 A 1996 B 1997 A 1996 B
CLASS A 1,207 291 $ 44,048 $ 10,073
Shares sold
Reinvestment of distributions 28 - 981 -
Shares redeemed (89) (3) (3,256) (113)
Net increase (decrease) 1,146 288 $ 41,773 $ 9,960
CLASS T 62,756 152,105 $ 2,291,833 $ 4,928,926
Shares sold
Reinvestment of distributions 21,029 7,909 753,681 246,836
Shares redeemed (46,885) (69,474) (1,707,695) (2,270,466)
Net increase (decrease) 36,900 90,540 $ 1,337,819 $ 2,905,296
CLASS B 1,926 - $ 70,247 $ -
Shares sold
Shares redeemed (17) - (614) -
Net increase (decrease) 1,909 - $ 69,633 $ -
INSTITUTIONAL CLASS 3,681 7,960 $ 135,401 $ 256,839
Shares sold
Reinvestment of distributions 346 76 12,380 2,371
Shares redeemed (3,250) (3,302) (117,525) (108,892)
Net increase (decrease) 777 4,734 $ 30,256 $ 150,318
</TABLE>
A SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD MARCH 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO APRIL 30, 1997.
B 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 $ 18,000
CLASS T 537,000
CLASS B 7,000
INSTITUTIONAL CLASS 23,000
$ 585,000
10. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Beazer Homes USA, Inc. $ - $ 5,413 $ - $ -
Cherry Corp. Class A - - - 5,642
Cherry Corp. Class B - - - 4,051
Circuit City Stores, Inc. -
Circuit City Group - 1,155 172 -
Discount Auto Parts, Inc. 1,693 - - 15,389
Fleetwood Enterprises, Inc. 3,008 - - 50,367
Good Guys, Inc. - 6,371 - -
Lam Research Corp. 16,964 - - 61,205
Novellus Systems, Inc. 587 - - 50,225
Quad Systems Corp. - - - 3,001
Rex Stores Corp. - 2,541 - -
SCI Systems, Inc. 4,742 - - 101,943
Solectron Corp. 14,957 - - 208,036
TOTALS $ 41,951 $ 15,480 $ 172 $ 499,859
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.)
Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
George A. Vanderheiden, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENTS
Fidelity Investments Institutional
Operations Company, Inc.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
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
SEMIANNUAL REPORT
APRIL 30, 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 38 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 46 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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. If Fidelity had not reimbursed certain class expenses during the
periods shown, the total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor High Yield - Class A 3.28% 9.42% 75.78% 246.74%
Advisor High Yield - Class A -1.11% 4.77% 68.31% 232.00%
(incl. max. 4.25% sales charge)
Merrill Lynch High Yield Master Index 5.07% 11.82% 71.94% 187.12%
High Current Yield Funds Average 4.69% 11.26% 65.89% 144.33%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years or 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 six months average represents a
peer group of 174 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor High Yield - Class A 9.42% 11.94% 13.24%
Advisor High Yield - Class A 4.77% 10.97% 12.75%
(incl. max. 4.25% sales charge)
Merrill Lynch High Yield Master Index 11.82% 11.45% 11.12%
High Current Yield Funds Average 11.26% 10.63% 9.25%
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
FA High Yield -CL A ML High Yield Master
00258 ML002
1987/04/30 9575.00 10000.00
1987/05/31 9472.15 9954.94
1987/06/30 9622.97 10092.55
1987/07/31 9655.95 10147.47
1987/08/31 9751.68 10249.15
1987/09/30 9397.26 10013.33
1987/10/31 9003.37 9745.79
1987/11/30 9331.58 9992.25
1987/12/31 9498.71 10124.94
1988/01/31 9996.17 10402.00
1988/02/29 10316.71 10684.25
1988/03/31 10249.77 10666.58
1988/04/30 10220.52 10697.39
1988/05/31 10253.65 10753.22
1988/06/30 10659.53 10958.82
1988/07/31 10813.31 11074.63
1988/08/31 10760.49 11111.02
1988/09/30 10874.42 11223.01
1988/10/31 10997.14 11397.87
1988/11/30 11029.49 11440.56
1988/12/31 11136.75 11488.97
1989/01/31 11438.30 11661.27
1989/02/28 11518.24 11739.63
1989/03/31 11405.87 11729.19
1989/04/30 11279.47 11763.81
1989/05/31 11564.45 11980.37
1989/06/30 11977.28 12150.11
1989/07/31 12042.68 12207.65
1989/08/31 12164.47 12267.95
1989/09/30 11807.49 12151.16
1989/10/31 11364.16 11958.96
1989/11/30 11397.30 11985.76
1989/12/31 11541.60 11974.92
1990/01/31 11374.15 11740.88
1990/02/28 11313.77 11569.90
1990/03/31 11513.07 11726.30
1990/04/30 11651.49 11785.88
1990/05/31 12042.82 11998.77
1990/06/30 12386.54 12231.23
1990/07/31 12674.72 12489.70
1990/08/31 12363.57 12011.57
1990/09/30 12051.00 11489.17
1990/10/31 11770.47 11196.80
1990/11/30 12137.97 11291.65
1990/12/31 12384.26 11454.36
1991/01/31 12669.18 11616.27
1991/02/28 13396.22 12478.47
1991/03/31 13898.78 13015.00
1991/04/30 14322.01 13478.48
1991/05/31 14474.56 13544.30
1991/06/30 14863.16 13816.76
1991/07/31 15400.09 14147.82
1991/08/31 15599.99 14445.18
1991/09/30 15810.64 14629.17
1991/10/31 16440.26 15063.88
1991/11/30 16630.05 15237.88
1991/12/31 16711.88 15414.91
1992/01/31 17477.94 15953.86
1992/02/29 18201.45 16350.08
1992/03/31 18717.39 16578.21
1992/04/30 18887.72 16698.87
1992/05/31 19093.79 16965.23
1992/06/30 19382.01 17176.02
1992/07/31 19731.47 17524.02
1992/08/31 20096.32 17756.03
1992/09/30 20311.55 17958.34
1992/10/31 20050.61 17731.53
1992/11/30 20269.70 17982.65
1992/12/31 20570.58 18214.19
1993/01/31 21120.42 18662.69
1993/02/28 21583.05 19015.96
1993/03/31 22083.85 19345.63
1993/04/30 22209.64 19484.49
1993/05/31 22511.69 19746.78
1993/06/30 23061.03 20117.78
1993/07/31 23363.82 20334.01
1993/08/31 23545.77 20527.85
1993/09/30 23590.63 20629.14
1993/10/31 24154.45 21017.74
1993/11/30 24329.47 21132.69
1993/12/31 24777.15 21344.01
1994/01/31 25489.07 21811.76
1994/02/28 25384.40 21654.90
1994/03/31 24610.53 20949.23
1994/04/30 24336.38 20704.42
1994/05/31 24487.46 20630.65
1994/06/30 24442.28 20706.59
1994/07/31 24536.88 20852.15
1994/08/31 24712.44 20996.99
1994/09/30 24838.04 20989.04
1994/10/31 24792.63 21042.37
1994/11/30 24396.05 20863.38
1994/12/31 24407.03 21095.45
1995/01/31 24616.91 21393.53
1995/02/28 25409.43 22061.04
1995/03/31 25638.15 22368.05
1995/04/30 26465.53 22891.77
1995/05/31 27058.48 23606.96
1995/06/30 27001.37 23787.27
1995/07/31 27666.33 24059.21
1995/08/31 27823.10 24205.23
1995/09/30 28157.93 24482.16
1995/10/31 28525.16 24655.71
1995/11/30 28679.80 24896.38
1995/12/31 29110.51 25296.01
1996/01/31 29795.45 25695.52
1996/02/29 30197.28 25734.21
1996/03/31 29990.98 25664.32
1996/04/30 30343.25 25675.94
1996/05/31 30571.48 25861.11
1996/06/30 30617.92 26016.46
1996/07/31 30622.24 26193.09
1996/08/31 31060.16 26463.59
1996/09/30 32069.09 27031.38
1996/10/31 32146.25 27327.62
1996/11/30 32530.29 27880.11
1996/12/31 32908.15 28094.64
1997/01/31 33229.88 28310.55
1997/02/28 33876.84 28707.69
1997/03/31 32969.95 28388.85
1997/04/30 33200.32 28711.96
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor High Yield Fund - Class A on April 30, 1987, and the
current maximum 4.25% sales charge was paid. As the chart shows, by April
30, 1997, the value of the investment would have grown to $33,200 - a
232.00% 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
$28,712 - a 187.12% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 5.24% 9.42% 8.90% 7.15% 9.66% 12.57%
Capital appreciation -1.96% 3.27% 6.15% -4.51% 10.81% 9.39%
return
Total return 3.28% 12.69% 15.05% 2.64% 20.47% 21.96%
</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 APRIL 30, 1997 PAST 1 PAST 6 LIFE OF
MONTH MONTHS CLASS
Dividends per share 7.38(cents) 63.88(cents) 77.90(cents)
Annualized dividend rate 7.53% 10.53% 9.72%
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 $11.93 over the past one month, or
$12.23 over the past six months and $12.24 over the life of the class, 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. Yield information will be reported once Class A has a
longer, more stable, operating history.
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
five years and past 10 year total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor High Yield - Class T 3.31% 9.67% 76.18% 247.53%
Advisor High Yield - Class T -0.31% 5.83% 70.01% 235.37%
(incl. max. 3.50% sales charge)
Merrill Lynch High Yield Master Index 5.07% 11.82% 71.94% 187.12%
High Current Yield Funds Average 4.69% 11.26% 65.89% 144.33%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage terms
over a set period - in this case, six months, 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 six months average represents a
peer group of 174 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor High Yield - Class T 9.67% 11.99% 13.27%
Advisor High Yield - Class T 5.83% 11.20% 12.86%
(incl. max. 3.50% sales charge)
Merrill Lynch High Yield Master Index 11.82% 11.45% 11.12%
High Current Yield Funds Average 11.26% 10.63% 9.25%
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
FA High Yield -CL T ML High Yield Master
00165 ML002
1987/04/30 9650.00 10000.00
1987/05/31 9546.35 9954.94
1987/06/30 9698.34 10092.55
1987/07/31 9731.59 10147.47
1987/08/31 9828.06 10249.15
1987/09/30 9470.86 10013.33
1987/10/31 9073.89 9745.79
1987/11/30 9404.68 9992.25
1987/12/31 9573.12 10124.94
1988/01/31 10074.47 10402.00
1988/02/29 10397.52 10684.25
1988/03/31 10330.05 10666.58
1988/04/30 10300.58 10697.39
1988/05/31 10333.96 10753.22
1988/06/30 10743.02 10958.82
1988/07/31 10898.01 11074.63
1988/08/31 10844.78 11111.02
1988/09/30 10959.59 11223.01
1988/10/31 11083.27 11397.87
1988/11/30 11115.89 11440.56
1988/12/31 11223.99 11488.97
1989/01/31 11527.89 11661.27
1989/02/28 11608.46 11739.63
1989/03/31 11495.21 11729.19
1989/04/30 11367.82 11763.81
1989/05/31 11655.03 11980.37
1989/06/30 12071.09 12150.11
1989/07/31 12137.01 12207.65
1989/08/31 12259.76 12267.95
1989/09/30 11899.98 12151.16
1989/10/31 11453.17 11958.96
1989/11/30 11486.57 11985.76
1989/12/31 11632.00 11974.92
1990/01/31 11463.25 11740.88
1990/02/28 11402.39 11569.90
1990/03/31 11603.25 11726.30
1990/04/30 11742.76 11785.88
1990/05/31 12137.15 11998.77
1990/06/30 12483.56 12231.23
1990/07/31 12774.00 12489.70
1990/08/31 12460.42 12011.57
1990/09/30 12145.40 11489.17
1990/10/31 11862.67 11196.80
1990/11/30 12233.05 11291.65
1990/12/31 12481.27 11454.36
1991/01/31 12768.42 11616.27
1991/02/28 13501.15 12478.47
1991/03/31 14007.65 13015.00
1991/04/30 14434.19 13478.48
1991/05/31 14587.94 13544.30
1991/06/30 14979.59 13816.76
1991/07/31 15520.72 14147.82
1991/08/31 15722.18 14445.18
1991/09/30 15934.48 14629.17
1991/10/31 16569.03 15063.88
1991/11/30 16760.31 15237.88
1991/12/31 16842.78 15414.91
1992/01/31 17614.85 15953.86
1992/02/29 18344.02 16350.08
1992/03/31 18864.00 16578.21
1992/04/30 19035.66 16698.87
1992/05/31 19243.35 16965.23
1992/06/30 19533.82 17176.02
1992/07/31 19886.03 17524.02
1992/08/31 20253.73 17756.03
1992/09/30 20470.65 17958.34
1992/10/31 20207.66 17731.53
1992/11/30 20428.47 17982.65
1992/12/31 20731.71 18214.19
1993/01/31 21285.86 18662.69
1993/02/28 21752.11 19015.96
1993/03/31 22256.83 19345.63
1993/04/30 22383.60 19484.49
1993/05/31 22688.02 19746.78
1993/06/30 23241.67 20117.78
1993/07/31 23546.83 20334.01
1993/08/31 23730.21 20527.85
1993/09/30 23775.42 20629.14
1993/10/31 24343.65 21017.74
1993/11/30 24520.04 21132.69
1993/12/31 24971.23 21344.01
1994/01/31 25688.72 21811.76
1994/02/28 25583.23 21654.90
1994/03/31 24803.30 20949.23
1994/04/30 24527.00 20704.42
1994/05/31 24679.27 20630.65
1994/06/30 24633.73 20706.59
1994/07/31 24729.07 20852.15
1994/08/31 24906.01 20996.99
1994/09/30 25032.60 20989.04
1994/10/31 24986.83 21042.37
1994/11/30 24587.14 20863.38
1994/12/31 24598.21 21095.45
1995/01/31 24809.73 21393.53
1995/02/28 25608.46 22061.04
1995/03/31 25838.97 22368.05
1995/04/30 26672.83 22891.77
1995/05/31 27270.42 23606.96
1995/06/30 27212.87 23787.27
1995/07/31 27883.04 24059.21
1995/08/31 28041.04 24205.23
1995/09/30 28378.49 24482.16
1995/10/31 28748.59 24655.71
1995/11/30 28904.45 24896.38
1995/12/31 29338.53 25296.01
1996/01/31 30028.84 25695.52
1996/02/29 30433.81 25734.21
1996/03/31 30225.90 25664.32
1996/04/30 30580.93 25675.94
1996/05/31 30810.95 25861.11
1996/06/30 30857.75 26016.46
1996/07/31 30862.10 26193.09
1996/08/31 31303.45 26463.59
1996/09/30 32354.47 27031.38
1996/10/31 32462.74 27327.62
1996/11/30 32854.19 27880.11
1996/12/31 33229.68 28094.64
1997/01/31 33580.93 28310.55
1997/02/28 34208.46 28707.69
1997/03/31 33271.58 28388.85
1997/04/30 33536.61 28711.96
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor High Yield Fund - Class T on April 30, 1987, and the
current maximum 3.50% sales charge was paid. As the chart shows, by April
30, 1997, the value of the investment would have grown to $33,537 - a
235.37% 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
$28,712 - a 187.12% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 5.27% 9.56% 8.90% 7.15% 9.66% 12.57%
Capital appreciation -1.96% 3.36% 6.15% -4.51% 10.81% 9.39%
return
Total return 3.31% 12.92% 15.05% 2.64% 20.47% 21.96%
</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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 7.55(cents) 64.25(cents) 111.88(cents)
Annualized dividend rate 7.69% 10.59% 9.20%
30-day annualized yield 7.65% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $11.94 over the past one month,
$12.24 over the past six months and $12.16 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 six months, past
one year, past five years and past 10 years total return figures are 5%,
5%, 2% and 0%, respectively. If Fidelity had not reimbursed certain class
expenses during the periods shown, the past five years and past 10 years
total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTH YEAR YEARS YEARS
S
Advisor High Yield - Class B 2.99% 8.98% 72.06% 239.41%
Advisor High Yield - Class B -1.89% 4.00% 70.06% 239.41%
(incl. contingent deferred sales
charge)
Merrill Lynch High Yield Master Index 5.07% 11.82% 71.94% 187.12%
High Current Yield Funds Average 4.69% 11.26% 65.89% 144.33%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage terms
over a set period - in this case, six months, one year, five years or 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 six months average represents a
peer group of 174 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor High Yield - Class B 8.98% 11.46% 13.00%
Advisor High Yield - Class B 4.00% 11.20% 13.00%
(incl. contingent deferred sales charge)
Merrill Lynch High Yield Master Index 11.82% 11.45% 11.12%
High Current Yield Funds Average 11.26% 10.63% 9.25%
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
FA High Yield -CL B ML High Yield Master
00665 ML002
1987/04/30 10000.00 10000.00
1987/05/31 9892.59 9954.94
1987/06/30 10050.10 10092.55
1987/07/31 10084.55 10147.47
1987/08/31 10184.52 10249.15
1987/09/30 9814.37 10013.33
1987/10/31 9403.00 9745.79
1987/11/30 9745.78 9992.25
1987/12/31 9920.33 10124.94
1988/01/31 10439.86 10402.00
1988/02/29 10774.64 10684.25
1988/03/31 10704.72 10666.58
1988/04/30 10674.17 10697.39
1988/05/31 10708.77 10753.22
1988/06/30 11132.66 10958.82
1988/07/31 11293.28 11074.63
1988/08/31 11238.11 11111.02
1988/09/30 11357.09 11223.01
1988/10/31 11485.26 11397.87
1988/11/30 11519.05 11440.56
1988/12/31 11631.08 11488.97
1989/01/31 11946.00 11661.27
1989/02/28 12029.50 11739.63
1989/03/31 11912.13 11729.19
1989/04/30 11780.13 11763.81
1989/05/31 12077.75 11980.37
1989/06/30 12508.90 12150.11
1989/07/31 12577.21 12207.65
1989/08/31 12704.41 12267.95
1989/09/30 12331.58 12151.16
1989/10/31 11868.57 11958.96
1989/11/30 11903.18 11985.76
1989/12/31 12053.89 11974.92
1990/01/31 11879.01 11740.88
1990/02/28 11815.95 11569.90
1990/03/31 12024.09 11726.30
1990/04/30 12168.66 11785.88
1990/05/31 12577.36 11998.77
1990/06/30 12936.34 12231.23
1990/07/31 13237.31 12489.70
1990/08/31 12912.35 12011.57
1990/09/30 12585.90 11489.17
1990/10/31 12292.92 11196.80
1990/11/30 12676.73 11291.65
1990/12/31 12933.96 11454.36
1991/01/31 13231.52 11616.27
1991/02/28 13990.83 12478.47
1991/03/31 14515.70 13015.00
1991/04/30 14957.71 13478.48
1991/05/31 15117.03 13544.30
1991/06/30 15522.89 13816.76
1991/07/31 16083.65 14147.82
1991/08/31 16292.42 14445.18
1991/09/30 16512.41 14629.17
1991/10/31 17169.98 15063.88
1991/11/30 17368.20 15237.88
1991/12/31 17453.66 15414.91
1992/01/31 18253.73 15953.86
1992/02/29 19009.35 16350.08
1992/03/31 19548.19 16578.21
1992/04/30 19726.08 16698.87
1992/05/31 19941.30 16965.23
1992/06/30 20242.30 17176.02
1992/07/31 20607.28 17524.02
1992/08/31 20988.32 17756.03
1992/09/30 21213.10 17958.34
1992/10/31 20940.58 17731.53
1992/11/30 21169.39 17982.65
1992/12/31 21483.63 18214.19
1993/01/31 22057.88 18662.69
1993/02/28 22541.05 19015.96
1993/03/31 23064.07 19345.63
1993/04/30 23195.44 19484.49
1993/05/31 23510.91 19746.78
1993/06/30 24084.63 20117.78
1993/07/31 24400.85 20334.01
1993/08/31 24590.89 20527.85
1993/09/30 24637.74 20629.14
1993/10/31 25226.58 21017.74
1993/11/30 25409.37 21132.69
1993/12/31 25876.92 21344.01
1994/01/31 26620.44 21811.76
1994/02/28 26511.12 21654.90
1994/03/31 25702.90 20949.23
1994/04/30 25416.58 20704.42
1994/05/31 25574.37 20630.65
1994/06/30 25522.43 20706.59
1994/07/31 25578.36 20852.15
1994/08/31 25738.42 20996.99
1994/09/30 25849.20 20989.04
1994/10/31 25761.07 21042.37
1994/11/30 25354.67 20863.38
1994/12/31 25325.65 21095.45
1995/01/31 25527.44 21393.53
1995/02/28 26333.67 22061.04
1995/03/31 26554.57 22368.05
1995/04/30 27371.92 22891.77
1995/05/31 27991.97 23606.96
1995/06/30 27914.75 23787.27
1995/07/31 28561.43 24059.21
1995/08/31 28731.42 24205.23
1995/09/30 29036.57 24482.16
1995/10/31 29399.37 24655.71
1995/11/30 29517.66 24896.38
1995/12/31 29969.61 25296.01
1996/01/31 30632.45 25695.52
1996/02/29 31027.91 25734.21
1996/03/31 30797.52 25664.32
1996/04/30 31144.43 25675.94
1996/05/31 31389.23 25861.11
1996/06/30 31392.95 26016.46
1996/07/31 31405.30 26193.09
1996/08/31 31810.55 26463.59
1996/09/30 32863.49 27031.38
1996/10/31 32956.47 27327.62
1996/11/30 33310.59 27880.11
1996/12/31 33702.00 28094.64
1997/01/31 34041.50 28310.55
1997/02/28 34660.42 28707.69
1997/03/31 33689.99 28388.85
1997/04/30 33940.50 28711.96
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor High Yield Fund - Class B on April 30, 1987. As the
chart shows, by April 30, 1997, the value of the investment would have
grown to $33,941 - a 239.41% 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 $28,712 - a 187.12% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 4.95% 8.82% 8.05% 6.73% 9.66% 12.57%
Capital appreciation -1.96% 3.28% 6.07% -4.59% 10.81% 9.39%
return
Total return 2.99% 12.10% 14.12% 2.14% 20.47% 21.96%
</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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 6.89(cents) 60.32(cents) 103.93(cents)
Annualized dividend rate 7.04% 9.96% 8.57%
30-day annualized yield 7.28% - -
DIVIDENDS per share show the income paid by the class for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $11.91 over the past one month,
$12.21 over the past six months, and $12.13 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
An interview with Margaret Eagle, Portfolio Manager of Fidelity Advisor
High Yield Fund
Q. HOW HAS THE FUND PERFORMED, MARGARET?
A. For the six months ended April 30, 1997, the fund's Class A, Class T and
Class B shares had total returns of 3.28%, 3.31% and 2.99%, respectively.
For the same six-month period, the high current yield funds average
returned 4.69%, as tracked by Lipper Analytical Services, and the Merrill
Lynch High Yield Master Index returned 5.07%. For the 12-month period ended
April 30, 1997, the fund's Class A, Class T and Class B shares had total
returns of 9.42%, 9.67% and 8.98%, respectively. For the same 12-month
period, the high current yield funds average returned 11.26%, again as
tracked by Lipper Analytical Services, and the Merrill Lynch High Yield
Master Index returned 11.82%.
Q. WHAT WAS THE INVESTING ENVIRONMENT LIKE FOR THE HIGH-YIELD MARKET OVER
THE PAST SIX MONTHS?
A. It was a fairly strong period for the high-yield market. One positive
was that default rates - a measure of how many high-yield companies are
unable or unwilling to pay back their debt - continued at levels well below
historical norms. Second, many companies that have issued high-yield bonds
continued to benefit from a healthy domestic economy. Third, both
individual and institutional investors continued to pour money into
high-yield mutual funds because of their attractive yields and five-year
risk adjusted returns. Finally, except for the month of March, the past six
months were characterized by a relatively benign interest rate environment
and an exceptionally strong stock market, both of which helped the
high-yield bond market.
Q. WHY DID THE FUND LAG ITS COMPETITORS OVER THE PAST SIX MONTHS?
A. The fund's investments in wireless cable companies didn't keep pace with
the overall high-yield market and were a main reason for the fund's lag.
Nearly all companies in this sector were hurt because investors expected
the industry to consolidate much more quickly than it actually has. What's
more, many of the fund's wireless cable holdings were zero coupon bonds,
which didn't perform as well as interest-bearing bonds when interest rates
rose during the last several months of the period. Zeros make no periodic
interest payments, but instead are sold at a deep discount from their
value. I would also point to other zero coupon bonds issued by alternative
local telephone companies, including Nextlink, and zeros issued by U.K.
cable companies, which also acted as a drag on performance because of
rising interest rates late in the period.
Q. WHAT WERE SOME OF THE WINNERS DURING THE MOST RECENT SIX-MONTH PERIOD?
A. Several of the fund's large holdings - including Revlon, PanAmSat and
Time Warner - performed well. Revlon saw its zero coupon bonds get defeased
- - meaning their risk was greatly reduced because they were backed by
Treasury bonds - as a part of a large recapitalization plan. The preferred
stock of satellite company PanAmSat posted impressive gains when the
company was acquired by GM Hughes. I continued to hold onto PanAmSat
because the company's credit rating - which is a measure of its ability to
pay back debt - was recently upgraded to investment grade and the holding
provides a very attractive yield to the fund. Time Warner preferred stock
rose, thanks to strong operating results from its vast media operations.
Q. YOU MENTIONED THAT THE FUND'S HOLDINGS IN ALTERNATIVE LOCAL TELEPHONE
COMPANIES AND U.K. CABLE COMPANIES DIDN'T PERFORM WELL BECAUSE THEY WERE
ZERO COUPON BONDS. WHY DID YOU CONTINUE TO HOLD ONTO THEM?
A. First of all, it's important to point out that the majority of these
industries' high-yield debt issuance comes in the form of zero coupon
bonds. Granted, zeros are more sensitive to rising interest rates, but I
felt that both industries continued to post attractive growth rates and the
potential for strong returns. Additionally, many of the fund's holdings in
these two sectors offered extremely attractive yields, as much as five
percentage points more than U.S. Treasury bonds with comparable maturities.
Alternative local telephone companies, which provide local telephone
networks to serve businesses, are quickly adding phone lines and customers,
their revenues are growing and some have even shown improvements in
generating cash flow. U.K. cable companies also are turning the corner on
their cash flows, and their business plans are beginning to work, thanks
primarily to gains in providing telephone service. What's more, there has
been a lot of consolidation going on in the U.K. cable sector. Further, I
believe that changing regulations that will allow foreign ownership
possibilities in 1998 should favor the trend toward consolidation and help
the industry.
Q. WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET?
A. In my view, there are two things that could upset the high-yield
market's advance. The first is a bear market for stocks, which would likely
spill over into the high-yield market. The second is a recession, because
it would tend to diminish company earnings and curtail their ability to pay
back debt. But barring those two events, which I don't think anyone can
accurately predict if or when they will occur, I'm cautiously optimistic.
From a technical standpoint, the market is quite strong. Demand for
high-yield bonds has been quite good, while supply, although somewhat heavy
recently, has been easily digested by investors seeking out high yields on
fixed-income investments. I believe that as long as those technical factors
remain in place and there isn't a dramatic sell-off in the stock market or
an economic slowdown, the high-yield market could continue to perform well.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks a combination
of a high level of income and
potential for capital gains by
investing in a diversified
portfolio consisting primarily
of high-yielding, fixed-income
and zero coupon securities,
such as bonds, debentures
and notes, convertible
securities and preferred
stocks
START DATE: January 5, 1987
SIZE: as of April 30, 1997,
more than $2.3 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
MARGARET EAGLE ON WHAT'S
AHEAD FOR THE FUND:
"I'll most likely keep a good
portion of the fund invested in
the relatively higher-quality
investments within the
high-yield sector. While these
can be more sensitive to
changing interest rates and, as
such, can be hurt more than
lower-quality bonds when
interest rates rise, I think that
they offer the best risk/reward
payoff. In my view, the default
rate - which measures the
rate at which companies refuse
or are unable to pay off their
debt - could pick up over the
next couple years from the
currently very benign rate of
about 2% to 3% annually. But
as always, I look for
opportunities where strong
credit improvements - even
with lower-quality bonds -
can provide capital
appreciation and relatively
high yields."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF APRIL 30, 1997
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE HOLDINGS
6 MONTHS AGO
Time Warner, Inc. 3.3 2.1
Repap New Brunswick, Inc. 3.2 1.0
PanAmSat Corp. 2.7 3.4
Pathmark Stores, Inc. 2.5 1.0
Echostar Communications Corp. 1.8 1.8
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 20.5 21.2
Basic Industries 14.7 10.2
Utilities 13.1 9.4
Technology 7.1 6.7
Retail & Wholesale 6.2 5.7
QUALITY DIVERSIFICATION AS OF APRIL 30, 1997
(MOODY'S RATINGS) % % OF FUND'S
O INVESTMENTS
F 6 MONTHS AGO
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
Aaa, Aa, A 0 0.0
.
0
Baa 0 0.0
.
0
Ba 5 8.0
.
2
B 4 50.2
7
.
7
Caa, Ca, C 1 9.3
4
.
7
Not Rated 6 6.1
.
1
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 APRIL 30, 1997 AND OCTOBER 31, 1996 ACCOUNT
FOR 6.1% AND 6.1%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
Nonconvertible
bonds 72.3%
Convertible bonds,
preferred stocks 13.3%
Common stocks 3.4%
Foreign government
obligations 0.0%
Short-term
investments 9.6%
Other investments 1.4%
Nonconvertible
bonds 70.6%
Convertible bonds,
preferred stocks 12.4%
Common stocks 3.0%
Foreign government
obligations 0.9%
Short-term
investments 11.4%
Other investments 1.7%
Row: 1, Col: 1, Value: 1.4
Row: 1, Col: 2, Value: 9.6
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 3.4
Row: 1, Col: 5, Value: 13.3
Row: 1, Col: 6, Value: 72.3
Row: 1, Col: 1, Value: 1.7
Row: 1, Col: 2, Value: 11.4
Row: 1, Col: 3, Value: 1.5
Row: 1, Col: 4, Value: 3.0
Row: 1, Col: 5, Value: 12.4
Row: 1, Col: 6, Value: 70.0
* FOREIGN
INVESTMENTS 5.9%
** FOREIGN
INVESTMENTS 6.5%
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 72.3%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.0%
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0%,
12/15/05 (d)(f) - $ 110 $ 70
NONCONVERTIBLE BONDS - 72.3%
AEROSPACE & DEFENSE - 2.2%
AEROSPACE & DEFENSE - 1.3%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 7,920 8,613
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 7,875 7,875
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 2,290 2,519
Wyman-Gordon Co. 10 3/4%, 3/15/03 Ba3 9,460 10,099
29,106
DEFENSE ELECTRONICS - 0.1%
Tracor, Inc. 8 1/2%, 3/1/07 (f) B1 3,260 3,211
SHIP BUILDING & REPAIR - 0.8%
Newport News Shipbuilding, Inc.:
8 5/8%, 12/1/06 Ba2 4,880 4,892
9 1/4%, 12/1/06 B1 14,340 14,662
19,554
TOTAL AEROSPACE & DEFENSE 51,871
BASIC INDUSTRIES - 14.6%
CHEMICALS & PLASTICS - 5.7%
American Pacific Corp. 11%, 2/21/02 (f) - 338 321
Astor Corp. 10 1/2%, 10/15/06 B3 13,290 13,689
Foamex-JPS Automotive LP/Foamex JPS
Capital Corp. 0%, 7/1/04 (d) Caa 20,300 17,661
Foamex LP/Foamex Capital Corp.:
9 1/2%, 6/1/00 B1 570 581
11 1/4%, 10/1/02 B1 8,240 8,693
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 6,420 6,677
Key Plastics, Inc. 10 1/4% 3/15/07 (f) B3 2,070 2,101
NL Industries, Inc. 11 3/4%, 10/15/03 B1 800 854
Pioneer Americas Acquisition Corp. 1st Mtg.
13 3/8%, 4/1/05 B2 14,210 15,915
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
CHEMICALS & PLASTICS - CONTINUED
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 $ 12,670 $ 13,430
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 18,580 19,602
0%, 8/15/08 (d) Caa 43,330 27,515
Texas Petrochemicals Corp. 11 1/8%, 7/1/06 B3 4,830 5,047
132,086
METALS & MINING - 1.0%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 22,140 24,133
PACKAGING & CONTAINERS - 1.2%
Crown Packaging Holdings Ltd. 0%, 11/1/03 (d) Ca 2,010 623
Fonda Group, Inc. Inc. 9 1/2%, 3/01/07 (f) B3 2,350 2,221
Gaylord Container Corp. 12 3/4%, 5/15/05 Caa 23,760 25,364
28,208
PAPER & FOREST PRODUCTS - 6.7%
Asia Pulp & Paper Finance II Mauritius Ltd.
12%, 3/15/04 (f) B3 12,000 11,310
American Pad & Paper Co., Inc. 13%, 11/15/05 B3 4,418 5,103
Container Corp. of America:
10 3/4%, 5/1/02 B1 1,870 1,999
9 3/4%, 4/1/03 B1 16,470 17,026
11 1/4%, 5/1/04 B1 5,370 5,746
Florida Coast Paper Co. LLC\Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 B3 5,000 4,725
Ivex Packaging Corp. 12 1/2%, 12/15/02 B3 6,700 7,136
Repap New Brunswick, Inc. yankee:
9 1/8%, 7/15/00 (g) B2 2,090 2,048
9 7/8%, 7/15/00 B2 13,800 13,697
10 5/8%, 4/15/05 Caa 62,840 59,226
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B2 14,540 14,358
9 7/8%, 5/1/06 Caa 9,460 8,987
SD Warren Co., Series B, 12%, 12/15/04 B1 3,380 3,718
155,079
TOTAL BASIC INDUSTRIES 339,506
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Aftermarket Technology Corp. 12%, 8/1/04 B3 $ 4,120 $ 4,522
Safelite Glass Corp. 9 7/8%, 12/15/06 (f) B3 4,430 4,496
9,018
TEXTILES & APPAREL - 1.3%
Consoltex Group, Inc./Consoltex USA, Inc. gtd.
11%, 10/1/03 B3 16,790 17,125
Dan River, Inc. 10 1/8%, 12/15/03 B3 10,680 11,000
GFSI, Inc. 9 5/8%, 3/1/07 (f) B3 1,880 1,861
Hat Brands, Inc. (b):
Series B, 12 5/8%, 9/15/02 - 710 391
Series D, 12 5/8%, 9/15/02 - 820 451
30,828
TOTAL DURABLES 39,846
ENERGY - 4.9%
ENERGY SERVICES - 0.8%
Cliffs Drilling Co. 10 1/4%, 5/15/03 B1 15,080 15,683
Parker Drilling Co. 9 3/4%, 11/15/06 B1 2,550 2,627
18,310
OIL & GAS - 4.1%
Chesapeake Energy Corp.:
10 1/2%, 6/1/02 Ba2 5,960 6,470
9 1/8%, 4/15/06 Ba2 2,800 2,864
Deeptech International, Inc. 12%, 12/15/00 Caa 6,690 7,025
Flores & Rucks, Inc.:
13 1/2%, 12/1/04 B1 13,900 16,159
9 3/4%, 10/1/06 B3 8,865 9,175
Forcenergy, Inc.:
9 1/2%, 11/1/06 B2 2,720 2,747
8 1/2%, 2/15/07 (f) B2 10,360 9,842
Forest Oil Corp. 11 1/4%, 9/1/03 B2 6,650 7,082
HS Resources, Inc. 9 1/4%, 11/15/06 B2 1,610 1,566
KCS Energy, Inc. 11%, 1/15/03 B1 13,090 13,974
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Lomak Petroleum, Inc. 8 3/4%, 1/15/07 B1 $ 7,210 $ 6,885
Mesa Operating Co. 10 5/8%, 7/1/06 B2 2,930 3,194
United Meridian Corp. 10 3/8%, 10/15/05 B2 7,400 7,918
94,901
TOTAL ENERGY 113,211
FINANCE - 3.5%
ASSET-BACKED SECURITIES - 1.2%
Airplanes Pass Through Trust Class D,
10 7/8%, 3/15/19 Ba2 26,015 28,812
CREDIT & OTHER FINANCE - 0.1%
Homeside, Inc. 11 1/8%, 5/15/03 Ba1 2,890 3,280
INSURANCE - 0.5%
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 10,000 10,400
SAVINGS & LOANS - 1.7%
First Nationwide Holdings, Inc.:
12 1/4%, 5/15/01 Ba2 6,850 7,551
10 5/8%, 10/01/03 Ba3 18,520 19,770
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 10,730 11,803
39,124
SECURITIES INDUSTRY - 0.0%
ECM Corp. extendible 14%, 6/1/02 (f) - 86 95
TOTAL FINANCE 81,711
HEALTH - 0.9%
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Dade International, Inc. 11 1/8%, 5/1/06 B3 11,700 12,812
IMED Corp. 9 3/4%, 12/1/06 (f) B3 2,660 2,653
15,465
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - 0.3%
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 $ 6,800 $ 6,715
TOTAL HEALTH 22,180
HOLDING COMPANIES - 0.4%
BPC Holdings Corp. 12 1/2%, 6/15/06 Caa 9,160 9,618
INDUSTRIAL MACHINERY & EQUIPMENT - 5.5%
ELECTRICAL EQUIPMENT - 1.1%
L-3 Communications Corp.
10 3/8%, 5/1/07 (f) B2 2,600 2,678
Motors & Gears, Inc. 10 3/4%, 11/15/06 (f) B3 6,190 6,205
Omnipoint Corp.:
11 5/8%, 8/15/06 B2 9,270 7,231
11 3/8%, 8/15/06 B3 12,200 9,516
25,630
INDUSTRIAL MACHINERY & EQUIPMENT - 3.4%
Calmar, Inc. Series B, 11 1/2%, 8/15/05 B3 15,050 15,125
Continental Global Group, Inc.
11%, 4/1/07 (f) B2 7,900 8,137
Goss Graphic System, Inc. 12%, 10/15/06 B2 1,410 1,498
International Knife & Saw, Inc.
11.375%,11/15/06 B3 3,440 3,492
MVE, Inc. 12 1/2%, 2/15/02 B3 8,240 8,240
Mosler, Inc. 11%, 4/15/03 Caa 13,350 12,282
Rayovac Corp. 10 1/4%, 11/01/06 B3 13,560 14,102
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 7,050 7,464
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B1 565 585
10 3/4%, 11/1/03 B3 1,938 2,011
UCAR Global Enterprises, Inc. 12%, 1/15/05 B1 5,000 5,613
78,549
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 1.0%
Allied Waste of North America, Inc.
10 1/4%, 12/1/06 (f) B3 $ 22,710 $ 23,846
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 128,025
MEDIA & LEISURE - 9.7%
BROADCASTING - 4.9%
Adelphia Communications Corp.:
12 1/2%, 5/15/02 B3 3,760 3,939
9 7/8%, 3/1/07 (f) - 20,000 18,900
CS Wireless Systems, Inc. 0%, 3/1/06 (d) Caa 4,820 1,301
CapStar Broadcasting Partners, Inc.
0%, 2/1/09 (d)(f) CCC 4,810 2,682
Chancellor Radio Broadcasting Co.
12 1/2%, 10/01/04 B3 4,345 4,812
Diamond Cable Communications PLC yankee (d):
0%, 9/30/04 B3 21,300 17,519
0%, 12/15/05 B3 5,005 3,460
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 790 812
International Cabletel, Inc.:
0%, 2/1/06 (d) B3 12,720 8,300
10%, 2/15/07 (f) 18,800 18,377
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 23,690 24,697
Spanish Broadcasting System, Inc.
7 1/2%, 6/15/02 B3 5,270 5,665
Telewest PLC 0%, 10/1/07 (d) B1 5,620 3,801
114,265
ENTERTAINMENT - 2.3%
AMF Group, Inc., Series B, 10 7/8%, 3/15/06 B2 10,000 10,425
Cobblestone Golf Group, Inc. 11 1/2%, 6/1/03 B2 10,170 10,577
Premier Parks, Inc. 9 3/4%, 1/15/07 B2 3,590 3,662
Viacom, Inc. 8%, 7/7/06 B1 31,350 29,391
54,055
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.5%
ICON Health and Fitness, Inc. 13%, 7/15/02 B3 $ 4,260 $ 4,729
ICON Fitness Corp. 0%, 11/15/06 (f) CCC 14,020 7,290
12,019
LODGING & GAMING - 1.0%
KSL Recreation Group, Inc.
10 1/4%, 5/1/07 (f) B3 10,750 10,858
Horseshoe Gaming LLC 12 3/4%, 9/30/00 B1 8,630 9,407
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 2,750 2,970
23,235
RESTAURANTS - 1.0%
SC International Services, Inc. 13%, 10/1/05 B3 20,730 23,218
TOTAL MEDIA & LEISURE 226,792
NONDURABLES - 2.8%
FOODS - 2.3%
Fresh Del Monte Produce NV 10%, 5/1/03 Caa 33,690 32,679
Gorges/Quik 11 1/2%, 12/01/06 B3 12,000 12,150
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 7,745 7,474
11 1/8%, 10/1/02 B3 1,470 1,459
53,762
HOUSEHOLD PRODUCTS - 0.5%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 10,570 11,072
TOTAL NONDURABLES 64,834
RETAIL & WHOLESALE - 6.1%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(f) - 2,201 88
Specialty Retailers, Inc. 10%, 8/15/00 B1 770 793
881
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 0.4%
K mart Corp.:
8.70%, 8/1/97 Ba2 $ 2,500 $ 2,506
9.55%, 6/30/98 Ba2 6,175 6,268
8,774
GROCERY STORES - 5.6%
Food 4 Less Holdings, Inc.
0%, 7/15/05 (d) Caa 9,120 6,566
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa 45,035 44,585
12 5/8%, 6/15/02 Caa 4,410 4,465
9 5/8%, 5/1/03 B3 11,090 10,314
Pueblo Xtra International, Inc. 9 1/2%, 8/1/03 B3 9,790 9,068
Ralph's Grocery Co.:
10.45%, 6/15/04 B1 3,880 4,123
11%, 6/15/05 B3 20,270 21,638
Smith's Food & Drug Centers, Inc.
11 1/4%, 5/15/07 B3 12,710 14,172
Star Markets, Inc. 13%, 11/1/04 B3 13,740 15,183
130,114
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Guitar Center Management Co., Inc.
11%, 7/1/06 B2 2,818 3,058
TOTAL RETAIL & WHOLESALE 142,827
SERVICES - 2.3%
LEASING & RENTAL - 0.4%
GPA:
9.12%, 2/24/99 750 761
9%, 8/16/99 - 3,250 3,307
GPA Delaware, Inc. gtd. 8 3/4%, 12/15/98 1,570 1,590
GPA Holland 8.94%, 2/16/99 - 4,500 4,601
10,259
PRINTING - 0.7%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 15,370 15,601
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
SERVICES - 1.2%
Orion Network Systems, Inc. :
11 1/4%, 1/15/07 unit B2 $ 18,480 $ 18,480
0%, 1/15/07 unit (d) B2 11,810 6,053
Pierce Leahy Corp. 11 1/8%, 7/15/06 B3 2,860 3,117
27,650
TOTAL SERVICES 53,510
TECHNOLOGY - 5.8%
COMMUNICATIONS EQUIPMENT - 3.8%
Echostar Communications Corp.
0%, 6/1/04 (d) B2 51,728 42,417
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa 48,240 34,250
Hyperion Telecommunications, Inc.,
Series B, 0%, 4/15/03 (d) - 15,680 7,958
Intermedia Communications Florida, Inc.,
Series B, 13 1/2%, 6/1/05 B3 2,500 2,750
87,375
COMPUTERS & OFFICE EQUIPMENT - 1.3%
Dictaphone Corp. 11 3/4%, 8/1/05 B3 13,390 12,151
Exide Electronics Group, Inc.
11 1/2%, 5/15/06 B3 14,055 14,758
Unisys Corp. 11 3/4%, 10/15/04 B1 3,660 3,852
30,761
ELECTRONIC INSTRUMENTS - 0.3%
Packard Bioscience, Inc.
9 3/8%, 3/1/07 (f) B3 7,640 7,545
ELECTRONICS - 0.4%
Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 7,794 8,515
TOTAL TECHNOLOGY 134,196
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 11.9%
CELLULAR - 7.2%
Comcast Cellular Corp.:
Series A, 0%, 3/5/00 B2 $ 22,370 $ 16,498
Series B, 0%, 3/5/00 B2 14,970 11,040
Dial Call Communications, Inc.
0%, 12 3/4%, 4/15/04 (d) B3 11,540 9,001
Fonorola, Inc. 12 1/2%, 8/15/02 B2 7,180 7,754
McCaw International Ltd. unit
0%, 4/15/07 (d)(f) CCC 52,360 25,591
Microcell Telecommunications, Inc.
0%, 6/1/06 (d) B3 45,890 22,486
Millicom International Cellular SA
0%, 6/1/06 (d) B3 13,450 9,415
Mobile Telecommunications Technologies Corp.
13 1/2%, 12/15/02 B3 8,850 8,695
Nextel Communications, Inc (d):
0%, 9/1/03 B3 32,150 26,443
0%, 8/15/04 B3 10,210 7,377
Pagemart Nationwide, Inc. 0%, 2/1/05 (d) - 4,600 3,128
RSL Communications Ltd./RSL Communications
PLC unit 12 1/4%, 11/15/06 (f) - 15,650 15,650
Sprint Spectrum LP/Sprint Spectrum
Finance Corp. 11%, 8/15/06 B2 3,970 4,307
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B2 980 823
168,208
TELEPHONE SERVICES - 4.7%
Brooks Fiber Properties, Inc. (d):
0%, 3/1/06 - 4,690 3,049
0%, 11/1/06 - 7,120 4,414
Call-Net Enterprises, Inc. yankee
0%, 12/1/04 (d) B2 10,990 9,259
GST USA, Inc. 0%, 12/15/05 (d) - 18,380 10,660
Mcleod, Inc. 0%, 3/1/07 (d)(f) B3 21,530 12,272
Nextlink Communications, Inc.
12 1/2%, 4/15/06 - 28,040 28,601
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Pagemart, Inc. 0%, 11/1/03 (d) - $ 1,920 $ 1,536
Qwest Communications International, Inc.
10 7/8%, 4/01/07 (f) B2 17,170 17,470
Teleport Communications Group, Inc.:
8%, 8/1/05 B1 18,800 12,925
9 7/8%, 7/1/06 B1 7,680 7,967
108,153
TOTAL UTILITIES 276,361
TOTAL NONCONVERTIBLE BONDS 1,684,488
TOTAL CORPORATE BONDS
(Cost $1,674,288) 1,684,558
COMMERCIAL MORTGAGE SECURITIES - 1.3%
Bardell Associates Note Trust 12 1/2%, 11/1/08 (e) - 1,822 1,936
CBA Mortgage Corp. Series 1993-C1 Class E,
7.76%, 12/25/03 (f)(g) Ba2 3,000 2,881
First Chicago/Lennar Trust I Series 1997 CHL1
Class E, 8.106%, 4/1/39 (g) 7,600 5,700
Merrill Lynch Mortgage Investments, Inc.
Series 1994 Class M 1-E, 8.1288%,
6/25/22 (f)(g) Ba2 4,370 4,275
Resolution Trust Corp. Series 1995-C2 Class F,
7%, 5/25/27 B1 1,929 1,791
SML, Inc. Series 1994-C1 Class C,
9.20%, 9/18/99 (e) - 2,950 1,962
Structured Asset Securities Corp.:
Series 1995-C1
Class E, 7 3/8%, 9/25/24 (f) BB 4,000 3,516
Series 1996-CFL
Class G, 7 3/4%, 2/25/28 (f) - 8,060 6,798
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $25,878) 28,859
FOREIGN GOVERNMENT OBLIGATIONS - 0.0%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
Mexico Value recovery rights discount D - $ 1 $ -
COMMON STOCKS - 3.4%
SHARES
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
American Azide (warrants) (a)(e) 54 -
American Pacific Corp. (warrants) (a)(e) 32,143 8
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 79
Foamex International, Inc. (a) 96,500 1,387
Foamex-JPS Automotive LP/Foamex JPS
Capital Corp. (warrants) (a) 15,350 430
Sterling Chemical Holdings (warrants) (a) 8,460 296
Trivest 1992 Special Fund Ltd. (h) 3.0 318
2,518
PACKAGING & CONTAINERS - 0.0%
Crown Packaging Holdings Ltd. (warrants) (a) 2,010 -
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(f) 31,251 855
TOTAL BASIC INDUSTRIES 3,373
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Capital Pacific Holdings, Inc. (warrants) (a)(f) 24,095 13
DURABLES - 0.0%
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(e) 7,229 23
HM/Hat Brands Trust Class I Unit (a)(e) 410,000 254
TOTAL DURABLES 277
ENERGY - 0.5%
ENERGY SERVICES - 0.1%
Cliffs Drilling Co. (a) 37,900 2,312
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - 0.4%
Flores & Rucks, Inc. (a) 191,500 $ 8,354
Mesa, Inc. 341,000 1,748
10,102
TOTAL ENERGY 12,414
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 900 90
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
XRC Corp. (a) 84,961 2
HOLDING COMPANIES - 0.1%
HOLDING COMPANIES - 0.1%
SDW Holdings Corp. (a):
(warrants) 190,970 955
Series B (warrants) 18,280 311
TOTAL HOLDING COMPANIES 1,266
INDUSTRIAL MACHINERY & EQUIPMENT --0.3%
ELECTRICAL EQUIPMENT - 0.2%
Echostar Communications Corp. Class A (a) 233,337 3,529
Telex Communications Group (warrants) (a)(e) 160 88
3,617
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Thermadyne Holdings Corp. (a) 14,085 382
POLLUTION CONTROL - 0.1%
Allied Waste Industries, Inc. 215,800 2,401
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 6,400
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.9%
CS Wireless Systems, Inc. (a)(f) 1,764 $ -
Chancellor Broadcasting Co. Class A (a) 109,200 3,058
Jacor Communications, Inc. Class A (a) 241,400 6,789
PanAmSat Corp. (a) 226,300 6,619
SFX Broadcasting, Inc. (a) 92,000 2,898
Telemundo Group, Inc. Class A (a) 40,000 1,050
20,414
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I (warrants) (a)(f) 1,460 80
TOTAL MEDIA & LEISURE 20,494
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 3
Lamonts Apparel, Inc. (warrants) (a) 66,214 -
TOTAL RETAIL & WHOLESALE 3
SERVICES - 0.2%
Protection One, Inc. (a) 518,600 5,251
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.0%
Hyperion Telecommunications, Inc. (warrants) (a)(f) 15,680 470
Intermedia Communications, Inc. (warrants) (a) 2,500 50
520
COMPUTER SERVICES & SOFTWARE - 0.1%
ICG Communications Inc. (a) 149,600 1,571
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Exide Electronics Group, Inc. (warrants) (a)(f) 9,705 243
ELECTRONIC INSTRUMENTS - 0.0%
Berg Electronics Corp. (a) 6,248 187
TOTAL TECHNOLOGY 2,521
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 5,520 $ -
UTILITIES - 1.2%
CELLULAR - 0.3%
Intercel, Inc. (warrants) (a) 85,408 342
Microcell Telecommunications, Inc.:
(conditional warrants) (a) 183,560 115
(warrants) (a) 183,560 2,295
Nextel Communications, Inc.:
Class A (a) 238,900 3,150
(warrants) (a) 5,494 -
5,902
ELECTRIC UTILITY - 0.0%
El Paso Electric Co. (a) 45,300 286
TELEPHONE SERVICES - 0.9%
Brooks Fiber Properties, Inc. 200,000 4,350
Nextlink Communications, Inc. unit (f) 228,451 10,737
WorldCom, Inc. (a) 275,300 6,607
21,694
TOTAL UTILITIES 27,882
TOTAL COMMON STOCKS
(Cost $79,685) 79,986
PREFERRED STOCKS - 13.3%
CONVERTIBLE PREFERRED STOCKS - 0.7%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Prime Retail, Inc., Series B, 2 1/8% 160,000 3,640
ENERGY - 0.3%
OIL & GAS - 0.3%
Mesa, Inc. Series A, pay-in-kind 8% 1,301,479 8,297
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
SFX Broadcasting, Inc. 6 1/2% 45,000 $ 2,025
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. pay-in-kind $3.52 (a) 116,319 2,399
TOTAL CONVERTIBLE PREFERRED STOCKS 16,361
NONCONVERTIBLE PREFERRED STOCKS - 12.6%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd., Series 1, adj. rate 262,269 751
FINANCE - 1.2%
BANKS - 1.2%
California Federal Bank:
9 1/8% 752,910 18,729
11 1/2% 77,826 8,775
TOTAL FINANCE 27,504
HOLDING COMPANIES - 0.3%
SDW Holdings Corp. 15% (f) 182,800 6,398
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% (e) 584 454
MEDIA & LEISURE - 9.8%
BROADCASTING - 9.1%
American Radio System pay-in-kind 11 3/8%, (f) 68,485 6,763
Cablevision System Corp.:
depositary shares 146,687 13,459
Series H, $11.75 pay-in-kind 141,070 13,366
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Chancellor Radio Broadcasting Co.:
Series A 160,700 $ 18,159
12% pay-in-kind (f) 70,000 6,895
NTL, Inc. 13%, pay-in-kind (f) 9,900 9,603
PanAmSat Corp. 12 3/4% pay-in-kind 52,999 63,069
SFX Broadcasting, Inc. 12 5/8% 48,278 4,804
Time Warner, Inc., Series M, 10 1/4% pay-in-kind 70,580 76,226
212,344
PUBLISHING - 0.7%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 40,324 4,385
Series D 130,400 12,779
17,164
TOTAL MEDIA & LEISURE 229,508
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Revlon Group, Inc., Series B, 14 7/8% 23,243 2,324
TECHNOLOGY - 1.2%
COMMUNICATIONS EQUIPMENT - 0.6%
Intermedia Communications, Inc. 13 1/2% 1,504 14,551
COMPUTER SERVICES & SOFTWARE - 0.6%
ICG Holdings, Inc. 14 1/4% pay-in-kind 13,303 12,505
TOTAL TECHNOLOGY 27,056
TOTAL NONCONVERTIBLE PREFERRED STOCKS 293,995
TOTAL PREFERRED STOCKS
(Cost $297,749) 310,356
PURCHASED BANK DEBT - 0.1%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $1,423) $ 1,860 $ 1,767
CASH EQUIVALENTS - 9.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.37%, dated
4/30/97 due 5/1/97 $ 223,965 223,965
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,302,988) $ 2,329,491
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
SECURITY DATE COST (000S)
American Azide
(warrants) 2/5/92 $ -
American Pacific Corp.
(warrants) 2/5/92 $ 8
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 $ 1,887
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
HM/Hat Brands Trust
Class I unit 2/22/94 $ 410
Hat Brands, Inc. 9/2/92
(warrants) to 2/23/94 $ -
SML, Inc.
Series 1994-C1
Class C, 9.20%,
9/18/99 8/11/94 $ 1,918
Telex Communications
Group (warrants) 4/15/92 $ 3
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 $275,387,000 or 11.6% 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.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 5.0% BB 6.2%
B 47.6% B 46.8%
Caa 13.2% CCC 8.3%
Ca, C 0.3% CC, C 2.9%
D 0.0%
The percentage not rated by both S&P and Moody's amounted to 6.1%. FMR has
determined that unrated debt securities that are lower quality account for
6.1% of the total value of investment in securities.
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $2,303,078,000. Net unrealized appreciation aggregated
$26,413,000, of which $81,420,000 related to appreciated investment
securities and $55,007,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 2,329,491
agreements of $223,965) (cost $2,302,988) -
See accompanying schedule
Cash 8,814
Receivable for investments sold 15,309
Dividends receivable 964
Interest receivable 37,147
Other receivables 17
Prepaid expenses 7
TOTAL ASSETS 2,391,749
LIABILITIES
Payable for investments purchased $ 10,369
Distributions payable 3,426
Accrued management fee 1,130
Distribution fees payable 692
Other payables and accrued expenses 453
TOTAL LIABILITIES 16,070
NET ASSETS $ 2,375,679
Net Assets consist of:
Paid in capital $ 2,321,633
Undistributed net investment income 9,256
Accumulated undistributed net realized gain (loss) on 18,287
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 26,503
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 2,375,679
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
CALCULATION OF MAXIMUM OFFERING PRICE $12.00
CLASS A:
NET ASSET VALUE and redemption price per share
($16,787 (divided by) 1,398.4 shares)
Maximum offering price per share (100/95.75 of $12.00) $12.53
CLASS T: $12.01
NET ASSET VALUE and redemption price per share
($1,881,451 (divided by) 156,635 shares)
Maximum offering price per share (100/96.50 of $12.01) $12.45
CLASS B: $11.98
NET ASSET VALUE and offering price per share
($426,322 (divided by) 35,595 shares) A
INSTITUTIONAL CLASS: $11.82
NET ASSET VALUE, offering price and redemption price
per share ($51,119 (divided by) 4,326 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 12,890
Dividends
Interest 99,163
TOTAL INCOME 112,053
EXPENSES
Management fee $ 6,753
Transfer agent fees 2,153
Distribution fees 4,068
Accounting fees and expenses 411
Non-interested trustees' compensation 10
Custodian fees and expenses 46
Registration fees 106
Audit 57
Legal 11
Interest 2
Miscellaneous 34
Total expenses before reductions 13,651
Expense reductions (56) 13,595
NET INVESTMENT INCOME 98,458
REALIZED AND UNREALIZED GAIN (LOSS) 21,074
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on:
Investment securities (48,301)
Assets and liabilities in foreign currencies (45) (48,346)
NET GAIN (LOSS) (27,272)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 71,186
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED APRIL OCTOBER 31,
30,1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 98,458 $ 155,775
Net investment income
Net realized gain (loss) 21,074 25,944
Change in net unrealized appreciation (depreciation) (48,346) 25,347
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 71,186 207,066
FROM OPERATIONS
Distributions to shareholders (117,347) (147,602)
From net investment income
From net realized gain (10,591) -
TOTAL DISTRIBUTIONS (127,938) (147,602)
Share transactions - net increase (decrease) 337,317 679,298
TOTAL INCREASE (DECREASE) IN NET ASSETS 280,565 738,762
NET ASSETS
Beginning of period 2,095,114 1,356,352
End of period (including undistributed net investment $ 2,375,679 $ 2,095,114
income of $9,256 and $28,145, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997
(UNAUDITED) 1996 E
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 12.300 $ 12.010
Income from Investment Operations
Net investment income .516 .163
Net realized and unrealized gain (loss) (.117) .267
Total from investment operations .399 .430
Less Distributions
From net interest income (.639) (.140)
From net realized gain (.060) -
Total distributions (.699) (.140)
Net asset value, end of period $ 12.000 $ 12.300
TOTAL RETURN B, C 3.28% 3.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 16,787 $ 3,860
Ratio of expenses to average net assets 1.25% A, 1.25% A,
F F
Ratio of net interest income to average net assets 8.62% A 9.06% A
Portfolio turnover rate 94% A 121%
Average commission rate G $ .0369 $ .0388
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 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).
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 - CLASS T
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 F 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 12.310 $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120
beginning of period
Income from Investment
Operations
Net investment income .535 D 1.105 D .930 D .848 .980 1.146
Net realized and (.132) .364 .680 (.537) 1.153 .975
unrealized gain
(loss)
Total from investment .403 1.469 1.610 .311 2.133 2.121
operations
Less Distributions
From net interest (.643) (1.069) (.920) (.851) (.963) (1.171)
income
From net realized gain (.060) - - (.250) (.230) -
Total distributions (.703) (1.069) (.920) (1.101) (1.193) (1.171)
Net asset value, $ 12.010 $ 12.310 $ 11.910 $ 11.220 $ 12.010 $ 11.070
end of period
TOTAL RETURN B, C 3.31% 12.92% 15.05% 2.64% 20.47% 21.96%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,881,451 $ 1,709,294 $ 1,200,495 $ 679,623 $ 485,559 $ 136,316
(000 omitted)
Ratio of expenses to 1.10% A 1.12% 1.15% 1.20% 1.11% 1.10%
average net assets E
Ratio of expenses to 1.09% A 1.11% 1.15% 1.20% 1.11% 1.10%
average net assets , G G
after expense
reductions
Ratio of net interest 8.81% A 9.20% 8.32% 6.92% 8.09% 9.95%
income to average net
assets
Portfolio turnover rate 94% A 121% 112% 118% 79% 100%
Average commission $ .0369 $ .0388
rate H
</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 FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
G FMR 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).
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 B
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 E
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 .492 D 1.017 D .794 D .223
Net realized and unrealized gain (loss) (.129) .361 .721 (.118)
Total from investment operations .363 1.378 1.515 .105
Less Distributions
From net interest income (.603) (.988) (.835) (.195)
From net realized gain (.060) - - -
Total distributions (.663) (.988) (.835) (.195)
Net asset value, end of period $ 11.980 $ 12.280 $ 11.890 $ 11.210
TOTAL RETURN B, C 2.99% 12.10% 14.12% .94%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 426,322 $ 344,328 $ 155,730 $ 16,959
Ratio of expenses to average net assets 1.76% A 1.79% 2.01% 2.20%
A
Ratio of expenses to average net assets 1.75% A, 1.79% 2.01% 2.20%
after expense reductions F
Ratio of net interest income to average 8.14% A 8.52% 7.46% 5.92%
net assets A
Portfolio turnover rate 94% A 121% 112% 118%
Average commission rate G $ .0369 $ .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 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 JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31, 1994.
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 FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER
ENDED APRIL 30, 31,
1997
(UNAUDITED) 1996 1995 D
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 12.120 $ 11.760 $ 11.560
Income from Investment Operations
Net investment income .537 1.070 .390
Net realized and unrealized gain (loss) (.117) .368 .193
Total from investment operations .420 1.438 .583
Less Distributions
From net interest income (.660) (1.078) (.383)
From net realized gain (.060) - -
Total distributions (.720) (1.078) (.383)
Net asset value, end of period $ 11.820 $ 12.120 $ 11.760
TOTAL RETURN B, C 3.51% 12.81% 5.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 51,119 $ 37,632 $ 126
Ratio of expenses to average net assets .88% A 1.10% .70%
A
Ratio of expenses to average net assets after .87% A, 1.05% .70%
expense reductions E E A
Ratio of net interest income to average net assets 9.02% A 9.26% 8.77%
A
Portfolio turnover rate 94% A 121% 112%
Average commission rate F $ .0369 $ .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 FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor High Yield (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 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.
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which 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 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 forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
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.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying Class A and
shares of Class A for distribution under federal and state securities law.
These expenses are borne by Class A and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends 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, defaulted bonds, market discount,
partnerships, non-taxable dividends, capital loss carryforwards, and
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 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.
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying securities
is fixed at the time the transaction is negotiated. With respect to
purchase commitments, the fund identifies securities as segregated in its
custodial records with a value at least equal to the amount of the
commitment. The
2. OPERATING POLICIES - CONTINUED
WHEN-ISSUED SECURITIES - CONTINUED
payables and receivables associated with the purchases and sales of
when-issued securities having the same settlement date and broker are
offset. When-issued securities that have been purchased from and sold to
different brokers are reflected as both payables and receivables in the
statement of assets and liabilities under the caption "Delayed delivery."
Losses may arise due to changes in the market value of the underlying
securities, if the counterparty does not perform under the contract, or if
the issuer does not issue the securities due to political, economic, or
other factors.
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 $4,804,000 or
0.2% 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 $1,767,000 or 0.1% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,226,523,000 and $973,621,000, 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 .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .45%. For
the period, the management fee was equivalent to an annualized rate of .60%
of average net assets.
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 .25%
CLASS B .90% *
* .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 $ 7,000 $ 7,000
CLASS T 2,297,000 2,297,000
CLASS B 1,764,000 490,000
$ 4,068,000 $ 2,794,000
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 4.25% and 3.50%
for selling Class A and 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 $ 144,000 $ 93,000
CLASS T 1,817,000 1,305,000
CLASS B 437,000 0 *
$ 2,398,000 $ 1,398,000
* 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. For the period, the
following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 11,000 .23
CLASS T** FIIOC * 1,733,000 .19
CLASS B FIIOC * 373,000 .19
INSTITUTIONAL CLASS FIIOC * 36,000 .17
$ 2,153,000
* 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. 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 $7,000 for the period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
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 $12,788,000. The weighted average
interest rate was 5.88%.
6. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above an annual
rate of 1.25% of average net assets for Class A. For the period, the
reimbursement reduced expenses by $5,000.
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 $7,000 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 $31,000 under the
custodian arrangement, and each applicable class' expenses were reduced as
follows under the transfer agent arrangements:
TRANSFER AGENT
INTEREST CREDITS
CLASS T $ 11,000
CLASS B 1,000
INSTITUTIONAL CLASS 1,000
$ 13,000
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER
1997 31,1996A
CLASS A
From net investment income $ 490,000 $ 21,000
From net realized gain 32,000 -
Total $ 522,000 $ 21,000
CLASS T
From net investment income $ 95,544,000 $ 126,490,000
From net realized gain 8,606,000 -
Total $ 104,150,000 $ 124,490,000
CLASS B
From net investment income $ 18,995,000 $ 19,788,000
From net realized gain 1,771,000 -
Total $ 20,766,000 $ 19,788,000
INSTITUTIONAL CLASS
From net investment income $ 2,318,000 $ 1,303,000
From net realized gain 182,000 -
Total $ 2,500,000 $ 1,303,000
$ 127,938,000 $ 147,602,000
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>
AMOUNTS IN THOUSANDS SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 1,156 320 $ 14,111 $ 3,920
Shares sold
Reinvestment of distributions 31 1 372 14
Shares redeemed (103) (7) (1,252) (86)
Net increase (decrease) 1,084 314 $ 13,231 $ 3,848
CLASS T 42,271 91,099 $ 516,836 $ 1,097,837
Shares sold
Reinvestment of distributions 6,544 7,820 79,875 94,206
Shares redeemed (31,075) (60,831) (379,463) (733,452)
Net increase (decrease) 17,740 38,088 $ 217,248 $ 458,591
CLASS B 10,696 21,079 $ 130,370 $ 255,498
Shares sold
Reinvestment of distributions 1,135 1,065 13,823 12,810
Shares redeemed (4,286) (7,197) (51,918) (88,123)
Net increase (decrease) 7,545 14,947 $ 92,275 $ 180,185
INSTITUTIONAL CLASS 3,593 5,514 $ 43,204 $ 65,404
Shares sold
Reinvestment of distributions 184 94 2,188 1,124
Shares redeemed (2,556) (2,514) (30,829) (29,854)
Net increase (decrease) 1,221 3,094 $ 14,563 $ 36,674
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 30, 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 $ 19,000
CLASS T 53,000
CLASS B 20,000
INSTITUTIONAL CLASS 14,000
$ 106,000
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Robert A. Lawrence, Vice President
Margaret L. Eagle, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
HIGH YIELD
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 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 30 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 38 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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
life of class total returns would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor High Yield - Institutional Class 3.51% 9.78% 75.47% 246.14%
Merrill Lynch High Yield Master Index 5.07% 11.82% 71.94% 187.12%
High Current Yield Funds Average 4.69% 11.26% 65.89% 144.33%
</TABLE>
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years or 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 six months average represents a peer group of 174 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 APRIL 30, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor High Yield - Institutional Class 9.78% 11.90% 13.22%
Merrill Lynch High Yield Master Index 11.82% 11.45% 11.12%
High Current Yield Funds Average 11.26% 10.63% 9.25%
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
FA High Yield -CL I ML High Yield Master
00644 ML002
1987/04/30 10000.00 10000.00
1987/05/31 9892.59 9954.94
1987/06/30 10050.10 10092.55
1987/07/31 10084.55 10147.47
1987/08/31 10184.52 10249.15
1987/09/30 9814.37 10013.33
1987/10/31 9403.00 9745.79
1987/11/30 9745.78 9992.25
1987/12/31 9920.33 10124.94
1988/01/31 10439.86 10402.00
1988/02/29 10774.64 10684.25
1988/03/31 10704.72 10666.58
1988/04/30 10674.17 10697.39
1988/05/31 10708.77 10753.22
1988/06/30 11132.66 10958.82
1988/07/31 11293.28 11074.63
1988/08/31 11238.11 11111.02
1988/09/30 11357.09 11223.01
1988/10/31 11485.26 11397.87
1988/11/30 11519.05 11440.56
1988/12/31 11631.08 11488.97
1989/01/31 11946.00 11661.27
1989/02/28 12029.50 11739.63
1989/03/31 11912.13 11729.19
1989/04/30 11780.13 11763.81
1989/05/31 12077.75 11980.37
1989/06/30 12508.90 12150.11
1989/07/31 12577.21 12207.65
1989/08/31 12704.41 12267.95
1989/09/30 12331.58 12151.16
1989/10/31 11868.57 11958.96
1989/11/30 11903.18 11985.76
1989/12/31 12053.89 11974.92
1990/01/31 11879.01 11740.88
1990/02/28 11815.95 11569.90
1990/03/31 12024.09 11726.30
1990/04/30 12168.66 11785.88
1990/05/31 12577.36 11998.77
1990/06/30 12936.34 12231.23
1990/07/31 13237.31 12489.70
1990/08/31 12912.35 12011.57
1990/09/30 12585.90 11489.17
1990/10/31 12292.92 11196.80
1990/11/30 12676.73 11291.65
1990/12/31 12933.96 11454.36
1991/01/31 13231.52 11616.27
1991/02/28 13990.83 12478.47
1991/03/31 14515.70 13015.00
1991/04/30 14957.71 13478.48
1991/05/31 15117.03 13544.30
1991/06/30 15522.89 13816.76
1991/07/31 16083.65 14147.82
1991/08/31 16292.42 14445.18
1991/09/30 16512.41 14629.17
1991/10/31 17169.98 15063.88
1991/11/30 17368.20 15237.88
1991/12/31 17453.66 15414.91
1992/01/31 18253.73 15953.86
1992/02/29 19009.35 16350.08
1992/03/31 19548.19 16578.21
1992/04/30 19726.08 16698.87
1992/05/31 19941.30 16965.23
1992/06/30 20242.30 17176.02
1992/07/31 20607.28 17524.02
1992/08/31 20988.32 17756.03
1992/09/30 21213.10 17958.34
1992/10/31 20940.58 17731.53
1992/11/30 21169.39 17982.65
1992/12/31 21483.63 18214.19
1993/01/31 22057.88 18662.69
1993/02/28 22541.05 19015.96
1993/03/31 23064.07 19345.63
1993/04/30 23195.44 19484.49
1993/05/31 23510.91 19746.78
1993/06/30 24084.63 20117.78
1993/07/31 24400.85 20334.01
1993/08/31 24590.89 20527.85
1993/09/30 24637.74 20629.14
1993/10/31 25226.58 21017.74
1993/11/30 25409.37 21132.69
1993/12/31 25876.92 21344.01
1994/01/31 26620.44 21811.76
1994/02/28 26511.12 21654.90
1994/03/31 25702.90 20949.23
1994/04/30 25416.58 20704.42
1994/05/31 25574.37 20630.65
1994/06/30 25527.19 20706.59
1994/07/31 25625.98 20852.15
1994/08/31 25809.34 20996.99
1994/09/30 25940.52 20989.04
1994/10/31 25893.09 21042.37
1994/11/30 25478.90 20863.38
1994/12/31 25490.37 21095.45
1995/01/31 25709.56 21393.53
1995/02/28 26537.26 22061.04
1995/03/31 26776.13 22368.05
1995/04/30 27640.24 22891.77
1995/05/31 28259.51 23606.96
1995/06/30 28199.86 23787.27
1995/07/31 28893.04 24059.21
1995/08/31 29064.46 24205.23
1995/09/30 29420.45 24482.16
1995/10/31 29642.66 24655.71
1995/11/30 29802.79 24896.38
1995/12/31 30254.53 25296.01
1996/01/31 30974.01 25695.52
1996/02/29 31374.00 25734.21
1996/03/31 31189.48 25664.32
1996/04/30 31530.75 25675.94
1996/05/31 31744.98 25861.11
1996/06/30 31797.68 26016.46
1996/07/31 31802.50 26193.09
1996/08/31 32235.50 26463.59
1996/09/30 33335.24 27031.38
1996/10/31 33440.77 27327.62
1996/11/30 33859.75 27880.11
1996/12/31 34260.51 28094.64
1997/01/31 34608.81 28310.55
1997/02/28 35275.37 28707.69
1997/03/31 34330.54 28388.85
1997/04/30 34614.23 28711.96
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Advisor High Yield Fund - Institutional Class on April 30,
1987. As the chart shows, by April 30, 1997, the value of the investment
would have grown to $34,614 - a 246.14% 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 $28,712 - a 187.12% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED OCTOBER 31,
MONTHS
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 5.50% 9.75% 9.69% 7.15% 9.66% 12.57%
Capital appreciation -1.99% 3.06% 4.81% -4.51% 10.81% 9.39%
return
Total return 3.51% 12.81% 14.50% 2.64% 20.47% 21.96%
</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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 7.75(cents) 65.99(cents) 114.48(cents)
Annualized dividend rate 8.02% 11.04% 9.56%
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 $11.75 over the past one month,
$12.05 over the past six months, and $11.98 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
An interview with Margaret Eagle, Portfolio Manager of Fidelity Advisor
High Yield Fund
Q. HOW HAS THE FUND PERFORMED, MARGARET?
A. For the six months ended April 30, 1997, the fund's Institutional Class
shares had a total return of 3.51%. For the same six-month period, the high
current yield funds average returned 4.69%, as tracked by Lipper Analytical
Services, and the Merrill Lynch High Yield Master Index returned 5.07%. For
the 12-month period ended April 30, 1997, the fund's Institutional Class
shares had a total return of 9.78%, while the high current yield funds
average returned 11.26%, as tracked by Lipper Analytical Services, and the
Merrill Lynch High Yield Master Index returned 11.82%.
Q. WHAT WAS THE INVESTING ENVIRONMENT LIKE FOR THE HIGH-YIELD MARKET OVER
THE PAST SIX MONTHS?
A. It was a fairly strong period for the high-yield market. One positive
was that default rates - a measure of how many high-yield companies are
unable or unwilling to pay back their debt - continued at levels well below
historical norms. Second, many companies that have issued high-yield bonds
continued to benefit from a healthy domestic economy. Third, both
individual and institutional investors continued to pour money into
high-yield mutual funds because of their attractive yields and five-year
risk adjusted returns. Finally, except for the month of March, the past six
months were characterized by a relatively benign interest rate environment
and an exceptionally strong stock market, both of which helped the
high-yield bond market.
Q. WHY DID THE FUND LAG ITS COMPETITORS OVER THE PAST SIX MONTHS?
A. The fund's investments in wireless cable companies didn't keep pace with
the overall high-yield market and were a main reason for the fund's lag.
Nearly all companies in this sector were hurt because investors expected
the industry to consolidate much more quickly than it actually has. What's
more, many of the fund's wireless cable holdings were zero coupon bonds,
which didn't perform as well as interest-bearing bonds when interest rates
rose during the last several months of the period. Zeros make no periodic
interest payments, but instead are sold at a deep discount from their
value. I would also point to other zero coupon bonds issued by alternative
local telephone companies, including Nextlink, and zeros issued by U.K.
cable companies, which also acted as a drag on performance because of
rising interest rates late in the period.
Q. WHAT WERE SOME OF THE WINNERS DURING THE MOST RECENT SIX-MONTH PERIOD?
A. Several of the fund's large holdings - including Revlon, PanAmSat and
Time Warner - performed well. Revlon saw its zero coupon bonds get defeased
- - meaning their risk was greatly reduced because they were backed by
Treasury bonds - as a part of a large recapitalization plan. The preferred
stock of satellite company PanAmSat posted impressive gains when the
company was acquired by GM Hughes. I continued to hold onto PanAmSat
because the company's credit rating - which is a measure of its ability to
pay back debt - was recently upgraded to investment grade and the holding
provides a very attractive yield to the fund. Time Warner preferred stock
rose, thanks to strong operating results from its vast media operations.
Q. YOU MENTIONED THAT THE FUND'S HOLDINGS IN ALTERNATIVE LOCAL TELEPHONE
COMPANIES AND U.K. CABLE COMPANIES DIDN'T PERFORM WELL BECAUSE THEY WERE
ZERO COUPON BONDS. WHY DID YOU CONTINUE TO HOLD ONTO THEM?
A. First of all, it's important to point out that the majority of these
industries' high-yield debt issuance comes in the form of zero coupon
bonds. Granted, zeros are more sensitive to rising interest rates, but I
felt that both industries continued to post attractive growth rates and the
potential for strong returns. Additionally, many of the fund's holdings in
these two sectors offered extremely attractive yields, as much as five
percentage points more than U.S. Treasury bonds with comparable maturities.
Alternative local telephone companies, which provide local telephone
networks to serve businesses, are quickly adding phone lines and customers,
their revenues are growing and some have even shown improvements in
generating cash flow. U.K. cable companies also are turning the corner on
their cash flows, and their business plans are beginning to work, thanks
primarily to gains in providing telephone service. What's more, there has
been a lot of consolidation going on in the U.K. cable sector. Further, I
believe that changing regulations that will allow foreign ownership
possibilities in 1998 should favor the trend toward consolidation and help
the industry.
Q. WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET?
A. In my view, there are two things that could upset the high-yield
market's advance. The first is a bear market for stocks, which would likely
spill over into the high-yield market. The second is a recession, because
it would tend to diminish company earnings and curtail their ability to pay
back debt. But barring those two events, which I don't think anyone can
accurately predict if or when they will occur, I'm cautiously optimistic.
From a technical standpoint, the market is quite strong. Demand for
high-yield bonds has been quite good, while supply, although somewhat heavy
recently, has been easily digested by investors seeking out high yields on
fixed-income investments. I believe that as long as those technical factors
remain in place and there isn't a dramatic sell-off in the stock market or
an economic slowdown, the high-yield market could continue to perform well.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks a combination
of a high level of income and
potential for capital gains by
investing in a diversified
portfolio consisting primarily
of high-yielding, fixed-income
and zero coupon securities,
such as bonds, debentures
and notes, convertible
securities and preferred
stocks
START DATE: January 5, 1987
SIZE: as of April 30, 1997,
more than $2.3 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
MARGARET EAGLE ON WHAT'S
AHEAD FOR THE FUND:
"I'll most likely keep a good
portion of the fund invested in
the relatively higher-quality
investments within the
high-yield sector. While these
can be more sensitive to
changing interest rates and, as
such, can be hurt more than
lower-quality bonds when
interest rates rise, I think that
they offer the best risk/reward
payoff. In my view, the default
rate - which measures the
rate at which companies refuse
or are unable to pay off their
debt - could pick up over the
next couple years from the
currently very benign rate of
about 2% to 3% annually. But
as always, I look for
opportunities where strong
credit improvements - even
with lower-quality bonds -
can provide capital
appreciation and relatively
high yields."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF APRIL 30, 1997
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE HOLDINGS
6 MONTHS AGO
Time Warner, Inc. 3.3 2.1
Repap New Brunswick, Inc. 3.2 1.0
PanAmSat Corp. 2.7 3.4
Pathmark Stores, Inc. 2.5 1.0
Echostar Communications Corp. 1.8 1.8
TOP FIVE MARKET SECTORS AS OF APRIL 30, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 20.5 21.2
Basic Industries 14.7 10.2
Utilities 13.1 9.4
Technology 7.1 6.7
Retail & Wholesale 6.2 5.7
QUALITY DIVERSIFICATION AS OF APRIL 30, 1997
(MOODY'S RATINGS) % % OF FUND'S
O INVESTMENTS
F 6 MONTHS AGO
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
Aaa, Aa, A 0 0.0
.
0
Baa 0 0.0
.
0
Ba 5 8.0
.
2
B 4 50.2
7
.
7
Caa, Ca, C 1 9.3
4
.
7
Not Rated 6 6.1
.
1
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 APRIL 30, 1997 AND OCTOBER 31, 1996 ACCOUNT
FOR 6.1% AND 6.1%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
Nonconvertible
bonds 72.3%
Convertible bonds,
preferred stocks 13.3%
Common stocks 3.4%
Foreign government
obligations 0.0%
Short-term
investments 9.6%
Other investments 1.4%
Nonconvertible
bonds 70.6%
Convertible bonds,
preferred stocks 12.4%
Common stocks 3.0%
Foreign government
obligations 0.9%
Short-term
investments 11.4%
Other investments 1.7%
Row: 1, Col: 1, Value: 1.4
Row: 1, Col: 2, Value: 9.6
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 3.4
Row: 1, Col: 5, Value: 13.3
Row: 1, Col: 6, Value: 72.3
Row: 1, Col: 1, Value: 1.7
Row: 1, Col: 2, Value: 11.4
Row: 1, Col: 3, Value: 1.5
Row: 1, Col: 4, Value: 3.0
Row: 1, Col: 5, Value: 12.4
Row: 1, Col: 6, Value: 70.0
* FOREIGN
INVESTMENTS 5.9%
** FOREIGN
INVESTMENTS 6.5%
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 72.3%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.0%
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0%,
12/15/05 (d)(f) - $ 110 $ 70
NONCONVERTIBLE BONDS - 72.3%
AEROSPACE & DEFENSE - 2.2%
AEROSPACE & DEFENSE - 1.3%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 7,920 8,613
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 7,875 7,875
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 2,290 2,519
Wyman-Gordon Co. 10 3/4%, 3/15/03 Ba3 9,460 10,099
29,106
DEFENSE ELECTRONICS - 0.1%
Tracor, Inc. 8 1/2%, 3/1/07 (f) B1 3,260 3,211
SHIP BUILDING & REPAIR - 0.8%
Newport News Shipbuilding, Inc.:
8 5/8%, 12/1/06 Ba2 4,880 4,892
9 1/4%, 12/1/06 B1 14,340 14,662
19,554
TOTAL AEROSPACE & DEFENSE 51,871
BASIC INDUSTRIES - 14.6%
CHEMICALS & PLASTICS - 5.7%
American Pacific Corp. 11%, 2/21/02 (f) - 338 321
Astor Corp. 10 1/2%, 10/15/06 B3 13,290 13,689
Foamex-JPS Automotive LP/Foamex JPS
Capital Corp. 0%, 7/1/04 (d) Caa 20,300 17,661
Foamex LP/Foamex Capital Corp.:
9 1/2%, 6/1/00 B1 570 581
11 1/4%, 10/1/02 B1 8,240 8,693
Freedom Chemical Co. 10 5/8%, 10/15/06 B3 6,420 6,677
Key Plastics, Inc. 10 1/4% 3/15/07 (f) B3 2,070 2,101
NL Industries, Inc. 11 3/4%, 10/15/03 B1 800 854
Pioneer Americas Acquisition Corp. 1st Mtg.
13 3/8%, 4/1/05 B2 14,210 15,915
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
CHEMICALS & PLASTICS - CONTINUED
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 $ 12,670 $ 13,430
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 18,580 19,602
0%, 8/15/08 (d) Caa 43,330 27,515
Texas Petrochemicals Corp. 11 1/8%, 7/1/06 B3 4,830 5,047
132,086
METALS & MINING - 1.0%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 22,140 24,133
PACKAGING & CONTAINERS - 1.2%
Crown Packaging Holdings Ltd. 0%, 11/1/03 (d) Ca 2,010 623
Fonda Group, Inc. Inc. 9 1/2%, 3/01/07 (f) B3 2,350 2,221
Gaylord Container Corp. 12 3/4%, 5/15/05 Caa 23,760 25,364
28,208
PAPER & FOREST PRODUCTS - 6.7%
Asia Pulp & Paper Finance II Mauritius Ltd.
12%, 3/15/04 (f) B3 12,000 11,310
American Pad & Paper Co., Inc. 13%, 11/15/05 B3 4,418 5,103
Container Corp. of America:
10 3/4%, 5/1/02 B1 1,870 1,999
9 3/4%, 4/1/03 B1 16,470 17,026
11 1/4%, 5/1/04 B1 5,370 5,746
Florida Coast Paper Co. LLC\Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 B3 5,000 4,725
Ivex Packaging Corp. 12 1/2%, 12/15/02 B3 6,700 7,136
Repap New Brunswick, Inc. yankee:
9 1/8%, 7/15/00 (g) B2 2,090 2,048
9 7/8%, 7/15/00 B2 13,800 13,697
10 5/8%, 4/15/05 Caa 62,840 59,226
Repap Wisconsin, Inc.:
9 1/4%, 2/1/02 B2 14,540 14,358
9 7/8%, 5/1/06 Caa 9,460 8,987
SD Warren Co., Series B, 12%, 12/15/04 B1 3,380 3,718
155,079
TOTAL BASIC INDUSTRIES 339,506
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - 1.7%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Aftermarket Technology Corp. 12%, 8/1/04 B3 $ 4,120 $ 4,522
Safelite Glass Corp. 9 7/8%, 12/15/06 (f) B3 4,430 4,496
9,018
TEXTILES & APPAREL - 1.3%
Consoltex Group, Inc./Consoltex USA, Inc. gtd.
11%, 10/1/03 B3 16,790 17,125
Dan River, Inc. 10 1/8%, 12/15/03 B3 10,680 11,000
GFSI, Inc. 9 5/8%, 3/1/07 (f) B3 1,880 1,861
Hat Brands, Inc. (b):
Series B, 12 5/8%, 9/15/02 - 710 391
Series D, 12 5/8%, 9/15/02 - 820 451
30,828
TOTAL DURABLES 39,846
ENERGY - 4.9%
ENERGY SERVICES - 0.8%
Cliffs Drilling Co. 10 1/4%, 5/15/03 B1 15,080 15,683
Parker Drilling Co. 9 3/4%, 11/15/06 B1 2,550 2,627
18,310
OIL & GAS - 4.1%
Chesapeake Energy Corp.:
10 1/2%, 6/1/02 Ba2 5,960 6,470
9 1/8%, 4/15/06 Ba2 2,800 2,864
Deeptech International, Inc. 12%, 12/15/00 Caa 6,690 7,025
Flores & Rucks, Inc.:
13 1/2%, 12/1/04 B1 13,900 16,159
9 3/4%, 10/1/06 B3 8,865 9,175
Forcenergy, Inc.:
9 1/2%, 11/1/06 B2 2,720 2,747
8 1/2%, 2/15/07 (f) B2 10,360 9,842
Forest Oil Corp. 11 1/4%, 9/1/03 B2 6,650 7,082
HS Resources, Inc. 9 1/4%, 11/15/06 B2 1,610 1,566
KCS Energy, Inc. 11%, 1/15/03 B1 13,090 13,974
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Lomak Petroleum, Inc. 8 3/4%, 1/15/07 B1 $ 7,210 $ 6,885
Mesa Operating Co. 10 5/8%, 7/1/06 B2 2,930 3,194
United Meridian Corp. 10 3/8%, 10/15/05 B2 7,400 7,918
94,901
TOTAL ENERGY 113,211
FINANCE - 3.5%
ASSET-BACKED SECURITIES - 1.2%
Airplanes Pass Through Trust Class D,
10 7/8%, 3/15/19 Ba2 26,015 28,812
CREDIT & OTHER FINANCE - 0.1%
Homeside, Inc. 11 1/8%, 5/15/03 Ba1 2,890 3,280
INSURANCE - 0.5%
Penncorp Financial Group, Inc.
9 1/4%, 12/15/03 B1 10,000 10,400
SAVINGS & LOANS - 1.7%
First Nationwide Holdings, Inc.:
12 1/4%, 5/15/01 Ba2 6,850 7,551
10 5/8%, 10/01/03 Ba3 18,520 19,770
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 10,730 11,803
39,124
SECURITIES INDUSTRY - 0.0%
ECM Corp. extendible 14%, 6/1/02 (f) - 86 95
TOTAL FINANCE 81,711
HEALTH - 0.9%
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Dade International, Inc. 11 1/8%, 5/1/06 B3 11,700 12,812
IMED Corp. 9 3/4%, 12/1/06 (f) B3 2,660 2,653
15,465
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - 0.3%
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 $ 6,800 $ 6,715
TOTAL HEALTH 22,180
HOLDING COMPANIES - 0.4%
BPC Holdings Corp. 12 1/2%, 6/15/06 Caa 9,160 9,618
INDUSTRIAL MACHINERY & EQUIPMENT - 5.5%
ELECTRICAL EQUIPMENT - 1.1%
L-3 Communications Corp.
10 3/8%, 5/1/07 (f) B2 2,600 2,678
Motors & Gears, Inc. 10 3/4%, 11/15/06 (f) B3 6,190 6,205
Omnipoint Corp.:
11 5/8%, 8/15/06 B2 9,270 7,231
11 3/8%, 8/15/06 B3 12,200 9,516
25,630
INDUSTRIAL MACHINERY & EQUIPMENT - 3.4%
Calmar, Inc. Series B, 11 1/2%, 8/15/05 B3 15,050 15,125
Continental Global Group, Inc.
11%, 4/1/07 (f) B2 7,900 8,137
Goss Graphic System, Inc. 12%, 10/15/06 B2 1,410 1,498
International Knife & Saw, Inc.
11.375%,11/15/06 B3 3,440 3,492
MVE, Inc. 12 1/2%, 2/15/02 B3 8,240 8,240
Mosler, Inc. 11%, 4/15/03 Caa 13,350 12,282
Rayovac Corp. 10 1/4%, 11/01/06 B3 13,560 14,102
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 7,050 7,464
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B1 565 585
10 3/4%, 11/1/03 B3 1,938 2,011
UCAR Global Enterprises, Inc. 12%, 1/15/05 B1 5,000 5,613
78,549
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 1.0%
Allied Waste of North America, Inc.
10 1/4%, 12/1/06 (f) B3 $ 22,710 $ 23,846
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 128,025
MEDIA & LEISURE - 9.7%
BROADCASTING - 4.9%
Adelphia Communications Corp.:
12 1/2%, 5/15/02 B3 3,760 3,939
9 7/8%, 3/1/07 (f) - 20,000 18,900
CS Wireless Systems, Inc. 0%, 3/1/06 (d) Caa 4,820 1,301
CapStar Broadcasting Partners, Inc.
0%, 2/1/09 (d)(f) CCC 4,810 2,682
Chancellor Radio Broadcasting Co.
12 1/2%, 10/01/04 B3 4,345 4,812
Diamond Cable Communications PLC yankee (d):
0%, 9/30/04 B3 21,300 17,519
0%, 12/15/05 B3 5,005 3,460
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 790 812
International Cabletel, Inc.:
0%, 2/1/06 (d) B3 12,720 8,300
10%, 2/15/07 (f) 18,800 18,377
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 23,690 24,697
Spanish Broadcasting System, Inc.
7 1/2%, 6/15/02 B3 5,270 5,665
Telewest PLC 0%, 10/1/07 (d) B1 5,620 3,801
114,265
ENTERTAINMENT - 2.3%
AMF Group, Inc., Series B, 10 7/8%, 3/15/06 B2 10,000 10,425
Cobblestone Golf Group, Inc. 11 1/2%, 6/1/03 B2 10,170 10,577
Premier Parks, Inc. 9 3/4%, 1/15/07 B2 3,590 3,662
Viacom, Inc. 8%, 7/7/06 B1 31,350 29,391
54,055
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.5%
ICON Health and Fitness, Inc. 13%, 7/15/02 B3 $ 4,260 $ 4,729
ICON Fitness Corp. 0%, 11/15/06 (f) CCC 14,020 7,290
12,019
LODGING & GAMING - 1.0%
KSL Recreation Group, Inc.
10 1/4%, 5/1/07 (f) B3 10,750 10,858
Horseshoe Gaming LLC 12 3/4%, 9/30/00 B1 8,630 9,407
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 2,750 2,970
23,235
RESTAURANTS - 1.0%
SC International Services, Inc. 13%, 10/1/05 B3 20,730 23,218
TOTAL MEDIA & LEISURE 226,792
NONDURABLES - 2.8%
FOODS - 2.3%
Fresh Del Monte Produce NV 10%, 5/1/03 Caa 33,690 32,679
Gorges/Quik 11 1/2%, 12/01/06 B3 12,000 12,150
Specialty Foods Corp.:
10 1/4%, 8/15/01 B3 7,745 7,474
11 1/8%, 10/1/02 B3 1,470 1,459
53,762
HOUSEHOLD PRODUCTS - 0.5%
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 10,570 11,072
TOTAL NONDURABLES 64,834
RETAIL & WHOLESALE - 6.1%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(f) - 2,201 88
Specialty Retailers, Inc. 10%, 8/15/00 B1 770 793
881
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 0.4%
K mart Corp.:
8.70%, 8/1/97 Ba2 $ 2,500 $ 2,506
9.55%, 6/30/98 Ba2 6,175 6,268
8,774
GROCERY STORES - 5.6%
Food 4 Less Holdings, Inc.
0%, 7/15/05 (d) Caa 9,120 6,566
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa 45,035 44,585
12 5/8%, 6/15/02 Caa 4,410 4,465
9 5/8%, 5/1/03 B3 11,090 10,314
Pueblo Xtra International, Inc. 9 1/2%, 8/1/03 B3 9,790 9,068
Ralph's Grocery Co.:
10.45%, 6/15/04 B1 3,880 4,123
11%, 6/15/05 B3 20,270 21,638
Smith's Food & Drug Centers, Inc.
11 1/4%, 5/15/07 B3 12,710 14,172
Star Markets, Inc. 13%, 11/1/04 B3 13,740 15,183
130,114
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Guitar Center Management Co., Inc.
11%, 7/1/06 B2 2,818 3,058
TOTAL RETAIL & WHOLESALE 142,827
SERVICES - 2.3%
LEASING & RENTAL - 0.4%
GPA:
9.12%, 2/24/99 750 761
9%, 8/16/99 - 3,250 3,307
GPA Delaware, Inc. gtd. 8 3/4%, 12/15/98 1,570 1,590
GPA Holland 8.94%, 2/16/99 - 4,500 4,601
10,259
PRINTING - 0.7%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 15,370 15,601
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
SERVICES - 1.2%
Orion Network Systems, Inc. :
11 1/4%, 1/15/07 unit B2 $ 18,480 $ 18,480
0%, 1/15/07 unit (d) B2 11,810 6,053
Pierce Leahy Corp. 11 1/8%, 7/15/06 B3 2,860 3,117
27,650
TOTAL SERVICES 53,510
TECHNOLOGY - 5.8%
COMMUNICATIONS EQUIPMENT - 3.8%
Echostar Communications Corp.
0%, 6/1/04 (d) B2 51,728 42,417
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa 48,240 34,250
Hyperion Telecommunications, Inc.,
Series B, 0%, 4/15/03 (d) - 15,680 7,958
Intermedia Communications Florida, Inc.,
Series B, 13 1/2%, 6/1/05 B3 2,500 2,750
87,375
COMPUTERS & OFFICE EQUIPMENT - 1.3%
Dictaphone Corp. 11 3/4%, 8/1/05 B3 13,390 12,151
Exide Electronics Group, Inc.
11 1/2%, 5/15/06 B3 14,055 14,758
Unisys Corp. 11 3/4%, 10/15/04 B1 3,660 3,852
30,761
ELECTRONIC INSTRUMENTS - 0.3%
Packard Bioscience, Inc.
9 3/8%, 3/1/07 (f) B3 7,640 7,545
ELECTRONICS - 0.4%
Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 7,794 8,515
TOTAL TECHNOLOGY 134,196
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 11.9%
CELLULAR - 7.2%
Comcast Cellular Corp.:
Series A, 0%, 3/5/00 B2 $ 22,370 $ 16,498
Series B, 0%, 3/5/00 B2 14,970 11,040
Dial Call Communications, Inc.
0%, 12 3/4%, 4/15/04 (d) B3 11,540 9,001
Fonorola, Inc. 12 1/2%, 8/15/02 B2 7,180 7,754
McCaw International Ltd. unit
0%, 4/15/07 (d)(f) CCC 52,360 25,591
Microcell Telecommunications, Inc.
0%, 6/1/06 (d) B3 45,890 22,486
Millicom International Cellular SA
0%, 6/1/06 (d) B3 13,450 9,415
Mobile Telecommunications Technologies Corp.
13 1/2%, 12/15/02 B3 8,850 8,695
Nextel Communications, Inc (d):
0%, 9/1/03 B3 32,150 26,443
0%, 8/15/04 B3 10,210 7,377
Pagemart Nationwide, Inc. 0%, 2/1/05 (d) - 4,600 3,128
RSL Communications Ltd./RSL Communications
PLC unit 12 1/4%, 11/15/06 (f) - 15,650 15,650
Sprint Spectrum LP/Sprint Spectrum
Finance Corp. 11%, 8/15/06 B2 3,970 4,307
USA Mobile Communications, Inc. II
9 1/2%, 2/1/04 B2 980 823
168,208
TELEPHONE SERVICES - 4.7%
Brooks Fiber Properties, Inc. (d):
0%, 3/1/06 - 4,690 3,049
0%, 11/1/06 - 7,120 4,414
Call-Net Enterprises, Inc. yankee
0%, 12/1/04 (d) B2 10,990 9,259
GST USA, Inc. 0%, 12/15/05 (d) - 18,380 10,660
Mcleod, Inc. 0%, 3/1/07 (d)(f) B3 21,530 12,272
Nextlink Communications, Inc.
12 1/2%, 4/15/06 - 28,040 28,601
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Pagemart, Inc. 0%, 11/1/03 (d) - $ 1,920 $ 1,536
Qwest Communications International, Inc.
10 7/8%, 4/01/07 (f) B2 17,170 17,470
Teleport Communications Group, Inc.:
8%, 8/1/05 B1 18,800 12,925
9 7/8%, 7/1/06 B1 7,680 7,967
108,153
TOTAL UTILITIES 276,361
TOTAL NONCONVERTIBLE BONDS 1,684,488
TOTAL CORPORATE BONDS
(Cost $1,674,288) 1,684,558
COMMERCIAL MORTGAGE SECURITIES - 1.3%
Bardell Associates Note Trust 12 1/2%, 11/1/08 (e) - 1,822 1,936
CBA Mortgage Corp. Series 1993-C1 Class E,
7.76%, 12/25/03 (f)(g) Ba2 3,000 2,881
First Chicago/Lennar Trust I Series 1997 CHL1
Class E, 8.106%, 4/1/39 (g) 7,600 5,700
Merrill Lynch Mortgage Investments, Inc.
Series 1994 Class M 1-E, 8.1288%,
6/25/22 (f)(g) Ba2 4,370 4,275
Resolution Trust Corp. Series 1995-C2 Class F,
7%, 5/25/27 B1 1,929 1,791
SML, Inc. Series 1994-C1 Class C,
9.20%, 9/18/99 (e) - 2,950 1,962
Structured Asset Securities Corp.:
Series 1995-C1
Class E, 7 3/8%, 9/25/24 (f) BB 4,000 3,516
Series 1996-CFL
Class G, 7 3/4%, 2/25/28 (f) - 8,060 6,798
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $25,878) 28,859
FOREIGN GOVERNMENT OBLIGATIONS - 0.0%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (C) AMOUNT (000S) (000S)
Mexico Value recovery rights discount D - $ 1 $ -
COMMON STOCKS - 3.4%
SHARES
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
American Azide (warrants) (a)(e) 54 -
American Pacific Corp. (warrants) (a)(e) 32,143 8
Atlantis Group, Inc. (Trivest/Winston) (a)(e) 8,825 79
Foamex International, Inc. (a) 96,500 1,387
Foamex-JPS Automotive LP/Foamex JPS
Capital Corp. (warrants) (a) 15,350 430
Sterling Chemical Holdings (warrants) (a) 8,460 296
Trivest 1992 Special Fund Ltd. (h) 3.0 318
2,518
PACKAGING & CONTAINERS - 0.0%
Crown Packaging Holdings Ltd. (warrants) (a) 2,010 -
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well Holdings, Inc. (a)(f) 31,251 855
TOTAL BASIC INDUSTRIES 3,373
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
Capital Pacific Holdings, Inc. (warrants) (a)(f) 24,095 13
DURABLES - 0.0%
TEXTILES & APPAREL - 0.0%
Hat Brands, Inc. (warrants) (a)(e) 7,229 23
HM/Hat Brands Trust Class I Unit (a)(e) 410,000 254
TOTAL DURABLES 277
ENERGY - 0.5%
ENERGY SERVICES - 0.1%
Cliffs Drilling Co. (a) 37,900 2,312
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
OIL & GAS - 0.4%
Flores & Rucks, Inc. (a) 191,500 $ 8,354
Mesa, Inc. 341,000 1,748
10,102
TOTAL ENERGY 12,414
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (f) 900 90
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
XRC Corp. (a) 84,961 2
HOLDING COMPANIES - 0.1%
HOLDING COMPANIES - 0.1%
SDW Holdings Corp. (a):
(warrants) 190,970 955
Series B (warrants) 18,280 311
TOTAL HOLDING COMPANIES 1,266
INDUSTRIAL MACHINERY & EQUIPMENT --0.3%
ELECTRICAL EQUIPMENT - 0.2%
Echostar Communications Corp. Class A (a) 233,337 3,529
Telex Communications Group (warrants) (a)(e) 160 88
3,617
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
Thermadyne Holdings Corp. (a) 14,085 382
POLLUTION CONTROL - 0.1%
Allied Waste Industries, Inc. 215,800 2,401
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 6,400
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.9%
CS Wireless Systems, Inc. (a)(f) 1,764 $ -
Chancellor Broadcasting Co. Class A (a) 109,200 3,058
Jacor Communications, Inc. Class A (a) 241,400 6,789
PanAmSat Corp. (a) 226,300 6,619
SFX Broadcasting, Inc. (a) 92,000 2,898
Telemundo Group, Inc. Class A (a) 40,000 1,050
20,414
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I (warrants) (a)(f) 1,460 80
TOTAL MEDIA & LEISURE 20,494
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 35,870 3
Lamonts Apparel, Inc. (warrants) (a) 66,214 -
TOTAL RETAIL & WHOLESALE 3
SERVICES - 0.2%
Protection One, Inc. (a) 518,600 5,251
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.0%
Hyperion Telecommunications, Inc. (warrants) (a)(f) 15,680 470
Intermedia Communications, Inc. (warrants) (a) 2,500 50
520
COMPUTER SERVICES & SOFTWARE - 0.1%
ICG Communications Inc. (a) 149,600 1,571
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Exide Electronics Group, Inc. (warrants) (a)(f) 9,705 243
ELECTRONIC INSTRUMENTS - 0.0%
Berg Electronics Corp. (a) 6,248 187
TOTAL TECHNOLOGY 2,521
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 5,520 $ -
UTILITIES - 1.2%
CELLULAR - 0.3%
Intercel, Inc. (warrants) (a) 85,408 342
Microcell Telecommunications, Inc.:
(conditional warrants) (a) 183,560 115
(warrants) (a) 183,560 2,295
Nextel Communications, Inc.:
Class A (a) 238,900 3,150
(warrants) (a) 5,494 -
5,902
ELECTRIC UTILITY - 0.0%
El Paso Electric Co. (a) 45,300 286
TELEPHONE SERVICES - 0.9%
Brooks Fiber Properties, Inc. 200,000 4,350
Nextlink Communications, Inc. unit (f) 228,451 10,737
WorldCom, Inc. (a) 275,300 6,607
21,694
TOTAL UTILITIES 27,882
TOTAL COMMON STOCKS
(Cost $79,685) 79,986
PREFERRED STOCKS - 13.3%
CONVERTIBLE PREFERRED STOCKS - 0.7%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Prime Retail, Inc., Series B, 2 1/8% 160,000 3,640
ENERGY - 0.3%
OIL & GAS - 0.3%
Mesa, Inc. Series A, pay-in-kind 8% 1,301,479 8,297
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
SFX Broadcasting, Inc. 6 1/2% 45,000 $ 2,025
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. pay-in-kind $3.52 (a) 116,319 2,399
TOTAL CONVERTIBLE PREFERRED STOCKS 16,361
NONCONVERTIBLE PREFERRED STOCKS - 12.6%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd., Series 1, adj. rate 262,269 751
FINANCE - 1.2%
BANKS - 1.2%
California Federal Bank:
9 1/8% 752,910 18,729
11 1/2% 77,826 8,775
TOTAL FINANCE 27,504
HOLDING COMPANIES - 0.3%
SDW Holdings Corp. 15% (f) 182,800 6,398
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% (e) 584 454
MEDIA & LEISURE - 9.8%
BROADCASTING - 9.1%
American Radio System pay-in-kind 11 3/8%, (f) 68,485 6,763
Cablevision System Corp.:
depositary shares 146,687 13,459
Series H, $11.75 pay-in-kind 141,070 13,366
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Chancellor Radio Broadcasting Co.:
Series A 160,700 $ 18,159
12% pay-in-kind (f) 70,000 6,895
NTL, Inc. 13%, pay-in-kind (f) 9,900 9,603
PanAmSat Corp. 12 3/4% pay-in-kind 52,999 63,069
SFX Broadcasting, Inc. 12 5/8% 48,278 4,804
Time Warner, Inc., Series M, 10 1/4% pay-in-kind 70,580 76,226
212,344
PUBLISHING - 0.7%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 40,324 4,385
Series D 130,400 12,779
17,164
TOTAL MEDIA & LEISURE 229,508
NONDURABLES - 0.1%
HOUSEHOLD PRODUCTS - 0.1%
Revlon Group, Inc., Series B, 14 7/8% 23,243 2,324
TECHNOLOGY - 1.2%
COMMUNICATIONS EQUIPMENT - 0.6%
Intermedia Communications, Inc. 13 1/2% 1,504 14,551
COMPUTER SERVICES & SOFTWARE - 0.6%
ICG Holdings, Inc. 14 1/4% pay-in-kind 13,303 12,505
TOTAL TECHNOLOGY 27,056
TOTAL NONCONVERTIBLE PREFERRED STOCKS 293,995
TOTAL PREFERRED STOCKS
(Cost $297,749) 310,356
PURCHASED BANK DEBT - 0.1%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $1,423) $ 1,860 $ 1,767
CASH EQUIVALENTS - 9.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.37%, dated
4/30/97 due 5/1/97 $ 223,965 223,965
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,302,988) $ 2,329,491
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
SECURITY DATE COST (000S)
American Azide
(warrants) 2/5/92 $ -
American Pacific Corp.
(warrants) 2/5/92 $ 8
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 $ 1,887
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
HM/Hat Brands Trust
Class I unit 2/22/94 $ 410
Hat Brands, Inc. 9/2/92
(warrants) to 2/23/94 $ -
SML, Inc.
Series 1994-C1
Class C, 9.20%,
9/18/99 8/11/94 $ 1,918
Telex Communications
Group (warrants) 4/15/92 $ 3
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 $275,387,000 or 11.6% 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.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 5.0% BB 6.2%
B 47.6% B 46.8%
Caa 13.2% CCC 8.3%
Ca, C 0.3% CC, C 2.9%
D 0.0%
The percentage not rated by both S&P and Moody's amounted to 6.1%. FMR has
determined that unrated debt securities that are lower quality account for
6.1% of the total value of investment in securities.
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $2,303,078,000. Net unrealized appreciation aggregated
$26,413,000, of which $81,420,000 related to appreciated investment
securities and $55,007,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 2,329,491
agreements of $223,965) (cost $2,302,988) -
See accompanying schedule
Cash 8,814
Receivable for investments sold 15,309
Dividends receivable 964
Interest receivable 37,147
Other receivables 17
Prepaid expenses 7
TOTAL ASSETS 2,391,749
LIABILITIES
Payable for investments purchased $ 10,369
Distributions payable 3,426
Accrued management fee 1,130
Distribution fees payable 692
Other payables and accrued expenses 453
TOTAL LIABILITIES 16,070
NET ASSETS $ 2,375,679
Net Assets consist of:
Paid in capital $ 2,321,633
Undistributed net investment income 9,256
Accumulated undistributed net realized gain (loss) on 18,287
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 26,503
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 2,375,679
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) APRIL 30, 1997 (UNAUDITED)
CALCULATION OF MAXIMUM OFFERING PRICE $12.00
CLASS A:
NET ASSET VALUE and redemption price per share
($16,787 (divided by) 1,398.4 shares)
Maximum offering price per share (100/95.75 of $12.00) $12.53
CLASS T: $12.01
NET ASSET VALUE and redemption price per share
($1,881,451 (divided by) 156,635 shares)
Maximum offering price per share (100/96.50 of $12.01) $12.45
CLASS B: $11.98
NET ASSET VALUE and offering price per share
($426,322 (divided by) 35,595 shares) A
INSTITUTIONAL CLASS: $11.82
NET ASSET VALUE, offering price and redemption price
per share ($51,119 (divided by) 4,326 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 12,890
Dividends
Interest 99,163
TOTAL INCOME 112,053
EXPENSES
Management fee $ 6,753
Transfer agent fees 2,153
Distribution fees 4,068
Accounting fees and expenses 411
Non-interested trustees' compensation 10
Custodian fees and expenses 46
Registration fees 106
Audit 57
Legal 11
Interest 2
Miscellaneous 34
Total expenses before reductions 13,651
Expense reductions (56) 13,595
NET INVESTMENT INCOME 98,458
REALIZED AND UNREALIZED GAIN (LOSS) 21,074
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on:
Investment securities (48,301)
Assets and liabilities in foreign currencies (45) (48,346)
NET GAIN (LOSS) (27,272)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 71,186
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED APRIL OCTOBER 31,
30,1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 98,458 $ 155,775
Net investment income
Net realized gain (loss) 21,074 25,944
Change in net unrealized appreciation (depreciation) (48,346) 25,347
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 71,186 207,066
FROM OPERATIONS
Distributions to shareholders (117,347) (147,602)
From net investment income
From net realized gain (10,591) -
TOTAL DISTRIBUTIONS (127,938) (147,602)
Share transactions - net increase (decrease) 337,317 679,298
TOTAL INCREASE (DECREASE) IN NET ASSETS 280,565 738,762
NET ASSETS
Beginning of period 2,095,114 1,356,352
End of period (including undistributed net investment $ 2,375,679 $ 2,095,114
income of $9,256 and $28,145, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997
(UNAUDITED) 1996 E
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 12.300 $ 12.010
Income from Investment Operations
Net investment income .516 .163
Net realized and unrealized gain (loss) (.117) .267
Total from investment operations .399 .430
Less Distributions
From net interest income (.639) (.140)
From net realized gain (.060) -
Total distributions (.699) (.140)
Net asset value, end of period $ 12.000 $ 12.300
TOTAL RETURN B, C 3.28% 3.58%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 16,787 $ 3,860
Ratio of expenses to average net assets 1.25% A, 1.25% A,
F F
Ratio of net interest income to average net assets 8.62% A 9.06% A
Portfolio turnover rate 94% A 121%
Average commission rate G $ .0369 $ .0388
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 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).
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 - CLASS T
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 F 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 12.310 $ 11.910 $ 11.220 $ 12.010 $ 11.070 $ 10.120
beginning of period
Income from Investment
Operations
Net investment income .535 D 1.105 D .930 D .848 .980 1.146
Net realized and (.132) .364 .680 (.537) 1.153 .975
unrealized gain
(loss)
Total from investment .403 1.469 1.610 .311 2.133 2.121
operations
Less Distributions
From net interest (.643) (1.069) (.920) (.851) (.963) (1.171)
income
From net realized gain (.060) - - (.250) (.230) -
Total distributions (.703) (1.069) (.920) (1.101) (1.193) (1.171)
Net asset value, $ 12.010 $ 12.310 $ 11.910 $ 11.220 $ 12.010 $ 11.070
end of period
TOTAL RETURN B, C 3.31% 12.92% 15.05% 2.64% 20.47% 21.96%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,881,451 $ 1,709,294 $ 1,200,495 $ 679,623 $ 485,559 $ 136,316
(000 omitted)
Ratio of expenses to 1.10% A 1.12% 1.15% 1.20% 1.11% 1.10%
average net assets E
Ratio of expenses to 1.09% A 1.11% 1.15% 1.20% 1.11% 1.10%
average net assets , G G
after expense
reductions
Ratio of net interest 8.81% A 9.20% 8.32% 6.92% 8.09% 9.95%
income to average net
assets
Portfolio turnover rate 94% A 121% 112% 118% 79% 100%
Average commission $ .0369 $ .0388
rate H
</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 FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD HAVE
BEEN HIGHER.
F EFFECTIVE NOVEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
G FMR 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).
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 B
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 E
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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 .492 D 1.017 D .794 D .223
Net realized and unrealized gain (loss) (.129) .361 .721 (.118)
Total from investment operations .363 1.378 1.515 .105
Less Distributions
From net interest income (.603) (.988) (.835) (.195)
From net realized gain (.060) - - -
Total distributions (.663) (.988) (.835) (.195)
Net asset value, end of period $ 11.980 $ 12.280 $ 11.890 $ 11.210
TOTAL RETURN B, C 2.99% 12.10% 14.12% .94%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 426,322 $ 344,328 $ 155,730 $ 16,959
Ratio of expenses to average net assets 1.76% A 1.79% 2.01% 2.20%
A
Ratio of expenses to average net assets 1.75% A, 1.79% 2.01% 2.20%
after expense reductions F
Ratio of net interest income to average 8.14% A 8.52% 7.46% 5.92%
net assets A
Portfolio turnover rate 94% A 121% 112% 118%
Average commission rate G $ .0369 $ .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 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 JUNE 30, 1994 (COMMENCEMENT OF SALE OF CLASS B SHARES) TO
OCTOBER 31, 1994.
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 FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER
ENDED APRIL 30, 31,
1997
(UNAUDITED) 1996 1995 D
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 12.120 $ 11.760 $ 11.560
Income from Investment Operations
Net investment income .537 1.070 .390
Net realized and unrealized gain (loss) (.117) .368 .193
Total from investment operations .420 1.438 .583
Less Distributions
From net interest income (.660) (1.078) (.383)
From net realized gain (.060) - -
Total distributions (.720) (1.078) (.383)
Net asset value, end of period $ 11.820 $ 12.120 $ 11.760
TOTAL RETURN B, C 3.51% 12.81% 5.07%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 51,119 $ 37,632 $ 126
Ratio of expenses to average net assets .88% A 1.10% .70%
A
Ratio of expenses to average net assets after .87% A, 1.05% .70%
expense reductions E E A
Ratio of net interest income to average net assets 9.02% A 9.26% 8.77%
A
Portfolio turnover rate 94% A 121% 112%
Average commission rate F $ .0369 $ .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 FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL CLASS
SHARES) TO OCTOBER 31, 1995.
E FMR 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.
NOTES TO FINANCIAL STATEMENTS
For the period ended April 30, 1997 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor High Yield (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 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.
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which 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 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 forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
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.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying Class A and
shares of Class A for distribution under federal and state securities law.
These expenses are borne by Class A and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends 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, defaulted bonds, market discount,
partnerships, non-taxable dividends, capital loss carryforwards, and
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 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.
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying securities
is fixed at the time the transaction is negotiated. With respect to
purchase commitments, the fund identifies securities as segregated in its
custodial records with a value at least equal to the amount of the
commitment. The
2. OPERATING POLICIES - CONTINUED
WHEN-ISSUED SECURITIES - CONTINUED
payables and receivables associated with the purchases and sales of
when-issued securities having the same settlement date and broker are
offset. When-issued securities that have been purchased from and sold to
different brokers are reflected as both payables and receivables in the
statement of assets and liabilities under the caption "Delayed delivery."
Losses may arise due to changes in the market value of the underlying
securities, if the counterparty does not perform under the contract, or if
the issuer does not issue the securities due to political, economic, or
other factors.
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 $4,804,000 or
0.2% 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 $1,767,000 or 0.1% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,226,523,000 and $973,621,000, 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 .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .45%. For
the period, the management fee was equivalent to an annualized rate of .60%
of average net assets.
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 .25%
CLASS B .90% *
* .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 $ 7,000 $ 7,000
CLASS T 2,297,000 2,297,000
CLASS B 1,764,000 490,000
$ 4,068,000 $ 2,794,000
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 4.25% and 3.50%
for selling Class A and 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 $ 144,000 $ 93,000
CLASS T 1,817,000 1,305,000
CLASS B 437,000 0 *
$ 2,398,000 $ 1,398,000
* 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. For the period, the
following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 11,000 .23
CLASS T** FIIOC * 1,733,000 .19
CLASS B FIIOC * 373,000 .19
INSTITUTIONAL CLASS FIIOC * 36,000 .17
$ 2,153,000
* 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. 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 $7,000 for the period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
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 $12,788,000. The weighted average
interest rate was 5.88%.
6. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above an annual
rate of 1.25% of average net assets for Class A. For the period, the
reimbursement reduced expenses by $5,000.
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 $7,000 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 $31,000 under the
custodian arrangement, and each applicable class' expenses were reduced as
follows under the transfer agent arrangements:
TRANSFER AGENT
INTEREST CREDITS
CLASS T $ 11,000
CLASS B 1,000
INSTITUTIONAL CLASS 1,000
$ 13,000
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER
1997 31,1996A
CLASS A
From net investment income $ 490,000 $ 21,000
From net realized gain 32,000 -
Total $ 522,000 $ 21,000
CLASS T
From net investment income $ 95,544,000 $ 126,490,000
From net realized gain 8,606,000 -
Total $ 104,150,000 $ 124,490,000
CLASS B
From net investment income $ 18,995,000 $ 19,788,000
From net realized gain 1,771,000 -
Total $ 20,766,000 $ 19,788,000
INSTITUTIONAL CLASS
From net investment income $ 2,318,000 $ 1,303,000
From net realized gain 182,000 -
Total $ 2,500,000 $ 1,303,000
$ 127,938,000 $ 147,602,000
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>
AMOUNTS IN THOUSANDS SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 1,156 320 $ 14,111 $ 3,920
Shares sold
Reinvestment of distributions 31 1 372 14
Shares redeemed (103) (7) (1,252) (86)
Net increase (decrease) 1,084 314 $ 13,231 $ 3,848
CLASS T 42,271 91,099 $ 516,836 $ 1,097,837
Shares sold
Reinvestment of distributions 6,544 7,820 79,875 94,206
Shares redeemed (31,075) (60,831) (379,463) (733,452)
Net increase (decrease) 17,740 38,088 $ 217,248 $ 458,591
CLASS B 10,696 21,079 $ 130,370 $ 255,498
Shares sold
Reinvestment of distributions 1,135 1,065 13,823 12,810
Shares redeemed (4,286) (7,197) (51,918) (88,123)
Net increase (decrease) 7,545 14,947 $ 92,275 $ 180,185
INSTITUTIONAL CLASS 3,593 5,514 $ 43,204 $ 65,404
Shares sold
Reinvestment of distributions 184 94 2,188 1,124
Shares redeemed (2,556) (2,514) (30,829) (29,854)
Net increase (decrease) 1,221 3,094 $ 14,563 $ 36,674
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 30, 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 $ 19,000
CLASS T 53,000
CLASS B 20,000
INSTITUTIONAL CLASS 14,000
$ 106,000
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Robert A. Lawrence, Vice President
Margaret L. Eagle, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
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
SEMIANNUAL REPORT
APRIL 30, 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 26 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 32 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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 during the
periods shown, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTH YEAR YEARS FUND
S
Advisor Short Fixed-Income - Class A 1.80% 5.32% 29.09% 90.96%
Advisor Short Fixed-Income - Class A 0.27% 3.74% 27.16% 88.10%
(incl. max. 1.50% sales charge)
Lehman Brothers 1-3 Year 2.26% 6.16% 32.16% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds 2.19% 5.80% 30.40% n/a
Average
</TABLE>
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on September 16, 1987. For example, if you 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 six months average represents a
peer group of 105 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Class A 5.32% 5.24% 6.95%
Advisor Short Fixed-Income - Class A 3.74% 4.92% 6.78%
(incl. max. 1.50% sales charge)
Lehman Brothers 1-3 Year 6.16% 5.74% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds Average 5.80% 5.45% n/a
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 LIFE OF FUND
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class A on September
30, 1987, shortly after the fund started, and the current maximum 1.50%
sales charge was paid. As the chart shows, by April 30, 1997, the value of
the investment would have grown to $18,792 - an 87.92% 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 reinvested, the same $10,000 investment would have grown to
$19,996 - a 99.96% 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>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 3.08% 6.35% 6.16% A 5.82% A 7.72% 8.63%
Capital appreciation -1.28% -1.06% -0.11% -6.04% 1.41% 0.81%
return
Total return 1.80% 5.29% 6.05% -0.22% 9.13% 9.44%
</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 APRIL 30, 1997 PAST 1 PAST 6 LIFE OF
MONTH MONTHS CLASS
Dividends per share 4.70(cents) 28.59(cents) 37.74(cents)
Annualized dividend rate 6.20% 6.20% 6.17%
30-day annualized yield 5.84% - -
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 $9.22
over the past one month, $9.30 over the past six months, and $9.31 over the
life of class, you can compare the class' income over these three periods.
The 30-day annualized YIELD is a standard formula for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis. The offering share price used in the calculation of the
yield includes the effect of Class A's current maximum 1.50% sales charge.
If Fidelity had not reimbursed certain class expenses during the periods
shown, the yield would have been 2.20%.
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 five years and life of fund
total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIODS ENDED APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTH YEAR YEARS FUND
S
Advisor Short Fixed-Income - Class T 2.12% 5.82% 29.71% 91.87%
Advisor Short Fixed-Income - Class T 0.59% 4.23% 27.76% 88.99%
(incl. max. 1.50% sales charge)
Lehman Brothers 1-3 Year 2.26% 6.16% 32.16% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds 2.19% 5.80% 30.40% n/a
Average
</TABLE>
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on September 16, 1987. For example, if you 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 six months average represents a peer
group of 105 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - Class T 5.82% 5.34% 7.00%
Advisor Short Fixed-Income - Class T 4.23% 5.02% 6.83%
(incl. max. 1.50% sales charge)
Lehman Brothers 1-3 Year 6.16% 5.74% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds Average 5.80% 5.45% n/a
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 LIFE OF FUND
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class T on September
30, 1987, shortly after the fund started, and the current maximum 1.50%
sales charge was paid. As the chart shows, by April 30, 1997, the value of
the investment would have grown to $18,882 - an 88.82% 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 reinvested, the same $10,000 investment would have grown to
$19,996 - a 99.96% 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>
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 3.08% 6.40% 6.16% A 5.82% A 7.72% 8.63%
Capital appreciation -0.96% -0.95% -0.11% -6.04% 1.41% 0.81%
return
Total return 2.12% 5.45% 6.05% -0.22% 9.13% 9.44%
</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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.70(cents) 28.63(cents) 57.90(cents)
Annualized dividend rate 6.18% 6.19% 6.21%
30-day annualized yield 5.83% - -
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 $9.26
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
NOTE TO SHAREHOLDERS: Andrew Dudley became Portfolio Manager of Fidelity
Advisor Short Fixed-Income Fund on February 3, 1997.
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six months that ended April 30, 1997, the fund's Class A and
Class T shares had returns of 1.80% and 2.12%, respectively. The Lehman
Brothers 1-3 Year Government/Corporate Bond Index had a return of 2.26%
over the same period. The short investment grade debt funds average, as
tracked by Lipper Analytical Services, had a six-month return of 2.19% as
of April 30, 1997. For the 12 months that ended April 30, 1997, the fund's
Class A and Class T shares returned 5.32% and 5.82%, respectively. The
Lehman Brothers index and Lipper peer group returned 6.16% and 5.80%,
respectively, over the same period.
Q. CAN YOU DISCUSS THE INVESTMENT CLIMATE OVER THE PAST SIX MONTHS?
A. The bond market saw several shifts in sentiment during the period, due
mostly to uncertainty concerning the direction of the economy. In late
March 1997, the Federal Reserve Board raised interest rates by a quarter of
a percentage point. This cooled the market down some, but as the period
came to a close, the market was showing signs of bouncing back. Fidelity's
approach of de-emphasizing interest rate anticipation strategies is most
effective in this type of choppy environment.
Q. WHAT ARE SPREAD SECTORS AND HOW DID THEY CONTRIBUTE TO THE FUND'S
PERFORMANCE?
A. Spread sectors are segments of the fixed-income market that can offer
attractive yield spreads, or yield advantages, over comparable Treasury
securities. The spread sectors I monitor most closely include corporate
bonds, mortgage-backed bonds and asset-backed bonds. Corporates continued
to be the biggest position in the fund and performed well thanks to a
beneficial economic climate of moderate growth and low inflation.
Asset-backed bonds also performed well under these conditions. In the
mortgage area, the fund's emphasis on commercial mortgage-backed securities
and seasoned mortgage pass-throughs worked out favorably. Commercial
mortgages in particular have gained broader acceptance in the marketplace.
Q. WHAT SORT OF ALLOCATION STRATEGY DID YOU FOLLOW?
A. Corporate issues - not including asset-backed securities - accounted for
approximately 47% of the fund at the end of the period, while asset-backed
and mortgage securities made up around 19% and 11%, respectively. The
remainder of the fund's investments were in Treasuries and agencies. The
fund's significant position in corporate bonds reflects the fact that
economic fundamentals remained stable despite the potential for Fed-induced
market volatility; I continued to find attractive opportunities amidst the
market's turbulence. Unless we see a severe economic downturn, this
allocation most likely will remain consistent for the foreseeable future.
Q. AT THE END OF THE PERIOD, 7% OF THE FUND'S INVESTMENTS WERE RATED BA BY
MOODY'S. CAN YOU COMMENT ON THE FUND'S QUALITY DISTRIBUTION?
A. Those securities in the portfolio rated below investment-grade by
Moody's have, at a minimum, a higher BBB investment-grade rating from at
least one of the other three major rating agencies. We would agree with the
higher-rated assessment. In terms of the fund's quality distribution, I
have continued to maintain an overall emphasis on higher quality.
Approximately two-thirds of the securities in the portfolio are rated A or
better.
Q. THE FUND'S FOREIGN INVESTMENTS HAVE RISEN FROM 1.1% TO 3.8% IN THE LAST
SIX MONTHS. CAN YOU DESCRIBE THE NATURE OF THESE INVESTMENTS?
A. These securities are better known as "yankee" and "Euro" bonds. They are
dollar-denominated, so there is no direct currency risk, but they are
backed by foreign issuers. Typically, these securities offer a yield
advantage versus comparably rated domestic securities. I increased the
exposure to this sector as its relative attractiveness improved. It's
important to remember that foreign investments may entail greater risks
than U.S.-based investments. However, these securities provide a very good
way of diversifying the risk within the fund's corporate bond holdings.
Q. WHAT'S YOUR OUTLOOK?
A. The bond market may show its vulnerability in the near-term. While these
difficulties could continue, depending largely on how aggressively the Fed
chooses to set monetary policy, I'll continue to scour the spread sectors
for opportunities. I think our research capabilities at Fidelity will allow
us to continue to uncover some good buys.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks to obtain a high
level of current income,
consistent with preservation
of capital, by investing
primarily in a broad range of
investment-grade,
fixed-income securities
START DATE: September 16,
1987
SIZE: as of April 30, 1997,
more than $377 million
MANAGER: Andrew Dudley,
since February 1997; joined
Fidelity in 1996
(checkmark)
ANDY DUDLEY DISCUSSES THE
IMPACT OF RISING INTEREST RATES
ON CERTAIN SPREAD SECTORS:
"A tightening in monetary
policy historically has resulted
in rising interest rates and can
ripple through to the spread
sectors. If we get a situation
like we had in 1994 where we
saw several successive
moves by the Fed, there will
be more volatility in each
sector. MORTGAGES are the
most susceptible to an
unexpected increase in
volatility. They may still
outperform Treasuries over
longer periods of time, but
you may see more short
periods of underperformance
as the market adjusts to a
new level of interest rates. As
for CORPORATE BONDS, their
relative performance will be
driven as much by credit
fundamentals as by market
turbulence. Like mortgages,
corporates may show signs
of weakness at first, then
settle down. Fed tightening
occurs due to
stronger-than-expected
economic growth. Corporates
may be able to weather the
storm because a strong
economy typically reflects
strong corporate earnings.
The last piece of the puzzle,
ASSET-BACKEDS, tends to be
of higher quality than
corporates. While I think
asset-backed bonds should
parallel the direction of
corporates in a rising rate
environment, their overall
spread volatility may be
lower."
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF APRIL 30, 1997
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS
6 MONTHS AGO
Aaa 40.7 58.4
Aa 5.3 2.4
A 16.7 12.4
Baa 26.1 19.9
Ba 7.0 4.7
Not rated 1.4 2.0
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 APRIL 30, 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 APRIL 30, 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 APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
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 investments 1.1%
FOREIGN INVESTMENTS 3.8%
Corporate bonds 50.7%
U.S. government
and government
agency obligations 35.9%
Mortgage-backed
securities 12.3%
Foreign government
obligations 0.1%
Short-term
investments 0.2%
Other investments 0.8%
FOREIGN INVESTMENTS 1.1%
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: 11.3
Row: 1, Col: 5, Value: 16.4
Row: 1, Col: 6, Value: 64.09999999999999
Row: 1, Col: 1, Value: 2.3
Row: 1, Col: 2, Value: 1.5
Row: 1, Col: 3, Value: 1.3
Row: 1, Col: 4, Value: 12.0
Row: 1, Col: 5, Value: 35.0
Row: 1, Col: 6, Value: 51.0
*
**
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 67.1%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,760,000 $ 3,991,616
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,360,000 1,477,558
ENERGY - 2.6%
OIL & GAS - 2.6%
Occidental Petroleum Corp.:
5.85%, 11/9/98 Baa3 1,200,000 1,187,412
5.90%, 11/9/98 Baa3 960,000 950,611
6.09%, 11/29/99 Baa3 700,000 687,253
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 830,000 883,228
Ras Laffan Liquid Natural Gas Co. Ltd. yankee
7.628%, 9/15/06 (c) A3 1,950,000 1,944,384
Tosco Corp. 7%, 7/15/00 Baa2 3,150,000 3,155,261
USX Corp.:
8 7/8%, 9/15/97 Baa3 460,000 464,600
6 3/8%, 7/15/98 Baa3 651,000 650,024
9,922,773
FINANCE - 39.9%
ASSET-BACKED SECURITIES - 19.5%
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 637,200
Capita Equipment Receivables Trust
6.57%, 3/15/01 Aa3 1,020,000 1,013,944
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 6,449,552 6,487,798
6.45%, 9/15/02 A3 1,400,000 1,388,618
5.85%, 2/15/03 A3 800,000 778,160
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 480,000 478,500
Chase Manhattan Grantor Trust
5.90%, 11/15/01 Aaa 2,686,096 2,676,856
Chevy Chase Auto Receivables Trust
5.80%, 6/15/02 Aaa 1,712,249 1,702,350
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 777,481 778,453
Discover Card Trust 7 1/2%, 6/16/00 A2 650,000 655,889
Discover Card Master Trust I 6.90%, 2/16/00 A2 1,888,000 1,895,080
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Fidelity Funding Auto Trust
6.99%, 11/15/02 (c) Aaa $ 860,000 $ 861,654
Ford Credit Grantor Trust
5.90%, 10/15/00 Aaa 2,954,363 2,942,823
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 2,078,626 2,094,860
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 362,699 357,596
5.80%, 2/15/27 Aaa 3,500,000 3,475,920
6.10%, 4/15/27 Aaa 2,893,364 2,862,608
6.45%, 5/15/27 Aaa 1,550,000 1,545,629
6 1/2%, 6/15/27 Aaa 980,000 977,236
6.65%, 7/15/27 Aaa 2,110,000 2,117,913
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 209,430 208,530
Norwest Automobile Trust 6.30%, 5/15/03 A2 1,424,000 1,404,643
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,710,000 1,708,087
6 1/8%, 11/15/04 Aaa 1,200,000 1,205,885
Onyx Acceptance Grantor Trust
6.20%, 6/15/03 Aaa 2,636,308 2,623,126
Premier Auto Trust:
4.95%, 2/2/99 A2 560,581 556,814
8.05%, 4/4/00 Aaa 6,200,000 6,303,656
6%, 5/6/00 Aaa 1,240,000 1,235,350
6.35%, 7/6/00 A3 1,980,000 1,965,764
Reliance Auto Receivables Corp., Inc.
6.10%, 7/15/02 (c) Aaa 1,655,780 1,646,984
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 22,199 22,171
Standard Credit Card Master Trust I :
7.65%, 2/15/00 A2 800,000 813,750
6 3/4%, 6/7/00 Aaa 4,830,000 4,854,150
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 651,127 647,871
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 382,643 381,089
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 258,845 259,088
7.275%, 10/10/00 Baa2 259,445 261,148
8.20%, 1/10/01 Baa2 281,110 284,712
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
WFS Financial Owner Trust:
6.05%, 6/1/00 Aaa $ 3,460,000 $ 3,454,509
7.05%, 11/20/03 Aaa 3,160,000 3,154,405
6.90%, 12/20/03 Aaa 1,990,000 1,990,920
Western Financial Grantor Trust:
6.20%, 2/1/02 Aaa 964,442 958,776
5 7/8%, 3/1/02 Aaa 2,216,836 2,222,822
73,893,337
BANKS - 9.8%
Banc One Corp. 6.70%, 3/24/00 Aa3 1,600,000 1,599,680
Bank South Corp. 10.20%, 6/1/99 A3 2,000,000 2,132,620
Banponce Financial Corp.:
6.34%, 3/29/99 A3 740,000 735,012
7.65%, 5/3/00 A3 1,260,000 1,272,802
6.88%, 6/16/00 A3 650,000 648,440
BanPonce Corp.:
5 3/4%, 3/1/99 A3 990,000 971,378
6.378%, 4/8/99 A3 1,100,000 1,089,242
6.488%, 3/3/00 A3 1,000,000 989,120
Capital One Bank:
6.66%, 8/17/98 Baa3 2,850,000 2,855,045
8 1/8% 3/01/00 Baa3 2,500,000 2,575,900
Corporacion Andina De Fomento yankee
7 3/8%, 7/21/00 Baa2 900,000 910,782
First Fidelity Bancorp. 8 1/2%, 4/1/98 A2 1,010,000 1,027,958
First USA Bank:
6 1/8%, 10/30/97 Baa3 1,670,000 1,668,664
5 3/4%, 1/15/99 Baa3 3,955,000 3,891,562
6 1/2%, 12/23/99 Baa3 2,200,000 2,175,382
Kansallis-Osake-Pankki yankee
9 3/4%, 12/15/98 A3 1,000,000 1,046,940
Key Bank NA 6%, 10/7/98 Aa3 1,500,000 1,494,810
Korea Development Bank yankee
6 1/4%, 5/1/00 A1 3,085,000 3,038,108
Signet Banking Corp. 5.6289%, 5/15/97 (d) Baa2 2,430,000 2,429,004
Union Planters National Bank:
6.29%, 8/20/98 A3 2,210,000 2,204,475
6.53%, 8/20/99 A3 2,400,000 2,397,000
37,153,924
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 10.5%
AT&T Capital Corp.:
6.02%, 12/4/98 Baa3 $ 3,050,000 $ 3,024,990
6.16%, 12/3/99 Baa3 2,370,000 2,331,748
Aristar, Inc. 7 1/2%, 7/1/99 Baa1 2,540,000 2,582,647
Associates Corp. of North America:
6 1/2%, 9/9/98 Aa3 4,980,000 4,987,370
6 3/8%, 8/15/99 Aa3 1,500,000 1,489,860
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 2,300,000 2,282,037
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa1 2,653,215 2,625,542
Finova Capital Corp. 6.14%, 11/2/98 Baa1 1,730,000 1,721,679
General Motors Acceptance Corp.:
5 3/8%, 3/9/98 A3 5,840,000 5,797,076
5.45%, 3/1/99 A3 3,650,000 3,574,920
6 3/8%, 4/26/99 A3 900,000 896,580
Greyhound Financial Corp. 6.94%, 1/28/98 Baa2 3,000,000 3,011,850
MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,640,000 1,620,927
North American Mortgage Co.
5.80%, 11/2/98 Baa2 1,000,000 991,130
Sears, Roebuck Acceptance Corp.
6.17%, 1/29/99 A2 2,500,000 2,486,600
Union Acceptance Corp.
7.075%, 7/10/02 Baa2 397,933 396,811
39,821,767
SAVINGS & LOANS - 0.1%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 300,000 300,300
TOTAL FINANCE 151,169,328
MEDIA & LEISURE - 3.9%
BROADCASTING - 3.6%
Tele-Communications, Inc. 7 3/8%, 2/15/00 Ba1 2,750,000 2,758,333
Time Warner, Inc.:
7.45%, 2/1/98 Ba1 2,240,000 2,252,477
7.95%, 2/1/00 Ba1 8,340,000 8,542,829
13,553,639
LEISURE DURABLES & TOYS - 0.3%
Mattel, Inc. 6 7/8%, 8/1/97 A3 1,250,000 1,253,425
TOTAL MEDIA & LEISURE 14,807,064
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONDURABLES - 3.4%
FOODS - 1.8%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa3 $ 2,250,000 $ 2,237,895
Nabisco, Inc. 8%, 1/15/00 Baa2 4,600,000 4,725,442
6,963,337
TOBACCO - 1.6%
Philip Morris Companies, Inc.:
7 3/8%, 2/15/99 A2 850,000 859,656
7 1/8%, 12/1/99 A2 2,000,000 2,012,720
7 1/4%, 9/15/01 A2 1,900,000 1,898,005
RJR Nabisco, Inc. 8%, 1/15/00 Baa3 1,320,000 1,335,774
6,106,155
TOTAL NONDURABLES 13,069,492
RETAIL & WHOLESALE - 1.4%
APPAREL STORES - 0.4%
Limited, Inc. 9 1/8%, 2/1/01 Baa2 1,520,000 1,599,253
GENERAL MERCHANDISE STORES - 0.8%
Dayton Hudson Corp. 10%, 12/1/00 Baa1 1,070,000 1,167,948
Penney (J.C.), Inc. 6.95%, 4/1/00 A2 1,350,000 1,355,090
Sears, Roebuck & Co. 5.83%, 7/27/98 A2 470,000 467,584
2,990,622
GROCERY STORES - 0.2%
American Stores Co.:
8 1/4%, 4/21/98 Baa3 300,000 304,428
8.44%, 4/24/98 Baa3 300,000 305,001
609,429
TOTAL RETAIL & WHOLESALE 5,199,304
TECHNOLOGY - 3.5%
COMPUTERS & OFFICE EQUIPMENT - 3.5%
Comdisco, Inc.:
7 1/4%, 4/15/98 Baa1 1,630,000 1,643,545
6.70%, 7/01/98 Baa1 1,580,000 1,586,936
6.59%, 9/01/98 Baa1 1,740,000 1,744,019
6.29%, 10/22/98 Baa1 1,230,000 1,227,811
5 3/4%, 1/19/99 Baa2 2,010,000 1,984,151
6.86%, 7/29/99 Baa1 5,210,000 5,218,232
13,404,694
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - 4.0%
AIR TRANSPORTATION - 4.0%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 $ 6,810,000 $ 6,858,828
9 1/2%, 7/15/98 Baa3 1,540,000 1,593,592
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa3 3,370,000 3,448,622
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 3,430,000 3,434,185
15,335,227
UTILITIES - 6.9%
CELLULAR - 0.7%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 2,770,000 2,722,245
ELECTRIC UTILITY - 1.1%
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa1 2,500,000 2,463,000
Ohio Edison Co. 8 3/4%, 2/15/98 Baa2 1,190,000 1,212,110
United Illuminating Co. 7 3/8%, 1/15/98 Baa3 450,000 453,636
4,128,746
GAS - 3.1%
Arkla, Inc.:
8.60%, 9/15/98 Ba2 500,000 511,565
8.43%, 9/17/98 Ba1 560,000 571,771
8 7/8%, 7/15/99 Baa3 7,000,000 7,311,360
Florida Gas Transmission Co.
7 3/4%, 11/1/97 (c) Baa2 1,630,000 1,642,095
Mitchell Energy & Development Corp.
8%, 7/15/99 Ba3 1,580,000 1,612,516
11,649,307
TELEPHONE SERVICES - 2.0%
MFS Communications, Inc.:
0%, 1/15/04 (b) Ba3 1,843,000 1,667,915
0%, 1/15/06 (b) Ba3 1,100,000 830,500
WorldCom, Inc. 7.55%, 4/1/04 Ba1 5,000,000 4,991,000
7,489,415
TOTAL UTILITIES 25,989,713
TOTAL NONCONVERTIBLE BONDS
(Cost $255,700,499) 254,366,769
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 16.4%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 13.0%
5 7/8%, 4/30/98 Aaa $ 2,900,000 $ 2,897,274
9%, 5/15/98 Aaa 12,270,000 12,636,137
9 1/4%, 8/15/98 Aaa 11,200,000 11,630,528
7 3/4%, 12/31/99 Aaa 9,299,000 9,601,218
6 7/8%, 3/31/00 Aaa 9,987,000 10,102,450
5 3/4% 10/31/00 Aaa 2,515,000 2,458,010
49,325,617
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.4%
Federal National Mortgage Association
4.95% 9/30/98 Aaa 4,000,000 3,932,480
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 428,728 431,497
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 2,066,146 2,177,718
Class T-3, 9 5/8%, 5/15/02 Aaa 608,740 642,367
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 847,059 849,100
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,431,000 1,431,887
State of Israel (guaranteed by U.S. Government
through Agency for International Development)
7 3/4%, 11/15/99 Aaa 3,124,000 3,208,442
12,673,491
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $63,186,284) 61,999,108
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.6%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.7%
7%, 9/1/99 to 8/1/01 Aaa $ 2,269,001 $ 2,276,856
12%, 11/1/19 Aaa 192,550 218,043
2,494,899
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 649,578 730,295
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.7%
11%, 12/15/09 to 2/15/16 Aaa 3,612,206 4,008,557
11 1/2%, 7/15/13 to 11/15/15 Aaa 995,131 1,127,138
12%, 2/15/16 Aaa 1,202,209 1,382,505
6,518,200
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $9,844,422) 9,743,394
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
PRIVATE SPONSOR - 0.2%
GE Capital Mortgage Services, Inc.
planned amortization class Series 1994-2
Class A-4, 6%, 1/25/09 Aaa 930,000 908,639
U.S. GOVERNMENT AGENCY - 0.4%
Federal National Mortgage Association:
planned amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 461,364 458,481
Series 1994-M3 Class A, 7.71%, 4/1/06 Aaa 1,046,553 1,058,327
1,516,808
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,434,388) 2,425,447
COMMERCIAL MORTGAGE SECURITIES - 8.1%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Blackrock Capital Funding LLC Series 1996
Class C2, 7.5134%, 11/16/26 (c)(d) AAA $ 421,788 $ 426,138
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 2/25/43 (c)(d) AA 2,380,000 2,385,206
CBM Funding Corp. sequential pay:
Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 197,080 199,544
Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 980,000 980,153
CS First Boston Mortgage Securities Corp.:
Series 1995-AEWI Class A-1,
6.665%, 11/25/27 AAA 918,704 917,269
floater Series 1994-CFB1 Class A-1,
5.9239%, 1/25/28 (d) Aaa 843,018 842,491
Equitable Life Assurance Society of the United States
floater Series 174 Class D-2, 6.7375%,
5/15/03 (c)(d) Baa2 1,200,000 1,200,000
Federal Deposit Insurance Corp. sequential pay:
Series 1994-C1 Class II-A2,
7.85%, 9/25/25 Aaa 1,639,729 1,657,664
Series 1996-C1 Class 1A,
6 3/4%, 5/25/26 Aaa 3,280,504 3,267,415
Kidder Peabody Acceptance Corp.
sequential pay, Series 1993-M1
Class A-2, 7.15%, 4/25/25 Aa2 1,006,056 1,003,541
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 124,674 124,518
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6,
6.9525%, 7/4/03 (d) - 1,232,929 1,244,488
Oregon Commercial Mortgage, Inc. Series 1995-1
Class A, 7.15%, 6/25/23 (c) AAA 2,316,070 2,315,708
Resolution Trust Corp.:
floater Series 1993-C2 Class A-2,
6.62% 3/25/25 (d) AAA 2,218,068 2,222,920
floater Series 1994-C1 Class A-3,
6.30%, 6/25/26 (d) AAA 2,033,263 2,035,805
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 414,587 414,069
Series 1995-C2 Class A-1B,
6 1/4%, 5/25/27 Aaa 1,475,139 1,468,224
SC Finance Corp. floater
7.2375%, 8/1/04 (c)(d) - 4,100,000 4,089,750
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Structured Asset Securities Corp. sequential pay:
Series 1993-C1 Class A-1A,
6.60%, 10/25/24 AA+ $ 318,676 $ 317,680
Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 808,166 807,156
Series 1996 Class A-1B,
5.751%, 2/25/28 AAA 211,901 210,875
Series 1996 Class A-1C,
5.944%, 2/25/28 AAA 1,627,000 1,603,103
Series 1996-C3 Class A,
6 3/4%, 6/25/30 (c)(d) AAA 986,602 979,819
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $30,824,542) 30,713,536
FOREIGN GOVERNMENT OBLIGATIONS (E) - 1.3%
Israeli State euro 6 3/8%, 12/19/01 A3 2,000,000 1,940,000
Ontario Province yankee 15 1/4%, 8/31/12 Aa3 450,000 488,682
Slovenian Republic euro 7%, 8/6/01 A3 2,400,000 2,399,280
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $4,897,303) 4,827,962
CERTIFICATES OF DEPOSIT - 1.1%
Canadian Imperial Bank (New York Branch) yankee
6.475%, 1/24/00
(Cost $4,205,544) Aa3 4,200,000 4,173,204
CASH EQUIVALENTS - 2.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.37%, dated
4/30/97 due 5/1/97 $ 10,501,566 10,500,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $381,592,982) $ 378,749,420
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
3. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $20,117,280 or 5.3% of net
assets.
4. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
5. 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:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 57.6% AAA, AA, A 56.0%
Baa 26.1% BBB 31.9%
Ba 7.0% BB 5.0%
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
both S&P and Moody's amounted to 1.4%.
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $381,592,982. Net unrealized depreciation aggregated
$2,843,562, of which $627,694 related to appreciated investment securities
and $3,471,256 related to depreciated investment securities.
At October 31, 1996, the fund had a capital loss carryforward of
approximately $40,265,000 of which $128,000, $63,000, $286,000, $38,000,
$336,000, $17,692,000, $19,457,000 and $2,265,000 will expire on October
31, 1997, 1998, 1999, 2000, 2001, 2002, 2003, and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 378,749,420
agreements of $10,500,000) (cost $381,592,982) -
See accompanying schedule
Cash 49,848
Receivable for investments sold 2,545,362
Interest receivable 5,215,107
Other receivables 16
Prepaid expenses 6,708
TOTAL ASSETS 386,566,461
LIABILITIES
Payable for investments purchased $ 7,303,855
Payable for fund shares redeemed 1,099,120
Distributions payable 330,091
Accrued management fee 131,389
Distribution fees payable 47,254
Other payables and accrued expenses 119,179
TOTAL LIABILITIES 9,030,888
NET ASSETS $ 377,535,573
Net Assets consist of:
Paid in capital $ 423,205,080
Distributions in excess of net investment income (501,304)
Accumulated undistributed net realized gain (loss) on (42,324,641)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (2,843,562)
investments
NET ASSETS $ 377,535,573
CALCULATION OF MAXIMUM OFFERING PRICE $9.25
CLASS A:
NET ASSET VALUE and redemption price per share
($693,465 (divided by) 74,988 shares)
Maximum offering price per share (100/98.50 of $9.25) $9.39
CLASS T: $9.29
NET ASSET VALUE and redemption price per share
($372,238,173 (divided by) 40,084,808 shares)
Maximum offering price per share (100/98.50 of $9.29) $9.43
INSTITUTIONAL CLASS: $9.28
NET ASSET VALUE, offering price and redemption price
per share ($4,603,935 (divided by) 495,928 shares)
STATEMENT OF OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 14,504,492
Interest
EXPENSES
Management fee $ 909,582
Transfer agent fees 451,506
Distribution fees 303,726
Accounting fees and expenses 84,563
Non-interested trustees' compensation 5,619
Custodian fees and expenses 14,474
Registration fees 46,074
Audit 24,339
Legal 1,516
Miscellaneous 4,882
Total expenses before reductions 1,846,281
Expense reductions (34,230) 1,812,051
NET INVESTMENT INCOME 12,692,441
REALIZED AND UNREALIZED GAIN (LOSS) (1,932,469)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (2,182,170)
investment securities
NET GAIN (LOSS) (4,114,639)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 8,577,802
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED APRIL OCTOBER 31,
30,1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 12,692,441 $ 31,079,263
Net investment income
Net realized gain (loss) (1,932,469) (66,135)
Change in net unrealized appreciation (depreciation) (2,182,170) (5,191,796)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 8,577,802 25,821,332
FROM OPERATIONS
Distributions to shareholders from net investment income (12,602,511) (31,004,478)
Share transactions - net increase (decrease) (44,544,338) (125,084,667)
TOTAL INCREASE (DECREASE) IN NET ASSETS (48,569,047) (130,267,813)
NET ASSETS
Beginning of period 426,104,620 556,372,433
End of period (including distributions in excess $ 377,535,573 $ 426,104,620
of net investment income of $501,304 and
$591,234, respectively)
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997
(UNAUDITED) 1996 F
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 9.370 $ 9.290
Income from Investment Operations
Net investment income .276 .090
Net realized and unrealized gain (loss) (.110) .081 E
Total from investment operations .166 .171
Less Distributions
From net investment income (.286) (.091)
Net asset value, end of period $ 9.250 $ 9.370
TOTAL RETURN B, C 1.80% 1.85%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 693 $ 204
Ratio of expenses to average net assets .90% A, G .90% A, G
Ratio of net investment income to average net assets 6.03% A 6.27% A
Portfolio turnover rate 107% A 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
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 E 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value, $ 9.380 $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870
beginning of period
Income from Investment
Operations
Net investment income .288 D .594 D .403 .479 .732 .830
Net realized and (.092) (.094) .148 (.501) .146 .071
unrealized gain
(loss)
Total from investment .196 .500 .551 (.022) .878 .901
operations
Less Distributions
From net investment (.286) (.590) (.407) (.464) (.738) (.821)
income
In excess of net - - - (.044) - -
investment income
Return of capital - - (.154) (.080) - -
Total distributions (.286) (.590) (.561) (.588) (.738) (.821)
Net asset value, $ 9.290 $ 9.380 $ 9.470 $ 9.480 $ 10.090 $ 9.950
end of period
TOTAL RETURN B, C 2.12% 5.45% 6.05% (0.22) 9.13% 9.44%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 372,238 $ 416,700 $ 546,546 $ 787,926 $ 654,202 $ 170,558
(000 omitted)
Ratio of expenses to .89% .88% .89% .97% .95% .90%
average net assets A F
Ratio of net investment 6.22% 6.29% 6.05% 5.91% 6.77% 7.59%
income to average A
net assets
Portfolio turnover rate 107% 124% 179% 108% 58% 57%
A
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E 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.
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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.370 $ 9.470 $ 9.450
Income from Investment Operations
Net investment income .293 D .598 D .137
Net realized and unrealized gain (loss) (.090) (.098) .067
Total from investment operations .203 .500 .204
Less Distributions
From net investment income (.293) (.600) (.136)
Return of capital - - (.048)
Total distributions (.293) (.600) (.184)
Net asset value, end of period $ 9.280 $ 9.370 $ 9.470
TOTAL RETURN B, C 2.20% 5.45% 2.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 4,604 $ 9,200 $ 9,827
Ratio of expenses to average net assets .75% A, .80% F .85% A,
F F
Ratio of net investment income to average net 6.30% A 6.37% 6.10% A
assets
Portfolio turnover rate 107% A 124% 179%
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 April 30, 1997 (Unaudited)
</TABLE>
1. 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 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.
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.
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.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying Class A and
shares of Class A for distribution under federal and state securities law.
These expenses are borne by Class A and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends 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 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
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS - CONTINUED
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 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 securities, other than short-term securities,
aggregated $214,620,787 and $261,461,497, respectively, of which U.S.
government and government agency obligations aggregated $107,130,363 and
$192,711,341, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annualized rate of .45%
of average net assets.
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 $ 409 $ 409
CLASS T 303,317 303,317
$ 303,726 $ 303,726
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 $ 4,013 $ 2,944
CLASS T 172,072 129,278
$ 176,085 $ 132,222
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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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. For
the period, the following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 1,522 .56
CLASS T ** FIIOC * 443,048 .22
INSTITUTIONAL CLASS FIIOC * 6,936 .21
$ 451,506
* FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY (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., maintains the fund's
accounting records. The fee is based on the level of average net assets for
the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates or range of annual rates of average net assets for
each class:
FMR REIMBURSEME
EXPENSE NT
LIMITATIONS
CLASS A 0.90% $ 15,557
INSTITUTIONAL CLASS 0.75% 12,146
$ 27,703
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 $6,275 under the
custodian arrangement, and each applicable class' expenses were reduced as
follows under the transfer agent arrangements:
TRANSFER
AGENT
INTEREST
CREDITS
CLASS T $ 252
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996 A
CLASS A
From net investment income $ 16,067 $ 1,434
CLASS T
From net investment income 12,381,568 30,327,901
INSTITUTIONAL CLASS
From net investment income 204,876 675,143
$ 12,602,511 $ 31,004,478
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 249,988 23,644 $ 2,340,947 $ 220,223
Shares sold
Reinvestment of 1,206 152 11,197 1,421
distributions
Shares redeemed (198,001) (2,001) (1,850,863) (18,626)
Net increase (decrease) 53,193 21,795 $ 501,281 $ 203,018
CLASS T 11,037,274 16,400,676 $ 102,999,644 $ 154,169,354
Shares sold
Reinvestment of 1,055,571 2,602,490 9,845,121 24,457,228
distributions
Shares redeemed (16,453,322) (32,291,505) (153,358,450) (303,417,559)
Net increase (decrease) (4,360,477) (13,288,339) $ (40,513,685) $ (124,790,977)
INSTITUTIONAL CLASS 95,544 706,911 $ 891,891 $ 6,663,694
Shares sold
Reinvestment of 18,545 62,772 173,190 589,181
distributions
Shares redeemed (599,523) (825,831) (5,597,015) (7,749,583)
Net increase (decrease) (485,434) (56,148) $ (4,531,934) $ (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.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 14,897
CLASS T 18,210
INSTITUTIONAL CLASS 12,967
$ 46,074
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
SHORT FIXED-INCOME
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
APRIL 30, 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 22 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 28 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Through the first four months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them from time to time.
After climbing steadily upward for more than two years, stock prices saw a
sharp correction in late March and early April. Returns in the bond market
were essentially stagnant as the Federal Reserve Board implemented a
long-expected increase in short-term interest rates at the end of March.
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 the 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 APRIL 30, 1997 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Advisor Short Fixed-Income - 2.20% 5.82% 29.84% 92.06%
Institutional Class
Lehman Brothers 1-3 Year 2.26% 6.16% 32.16% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds 2.19% 5.80% 30.40% n/a
Average
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one year,
five years or since the fund started on September 16, 1987. For example, if
you 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 six months average represents a peer group of 105 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 APRIL 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Advisor Short Fixed-Income - 5.82% 5.36% 7.01%
Institutional Class
Lehman Brothers 1-3 Year 6.16% 5.74% n/a
Government/Corporate Bond Index
Short Investment Grade Debt Funds Average 5.80% 5.45% n/a
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 LIFE OF FUND
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Institutional Class
on September 30, 1987, shortly after the fund started. As the chart shows,
by April 30, 1997, the value of the investment would have grown to $19,189
- - a 91.89% 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 reinvested, the same $10,000 investment would
have grown to $19,996 - a 99.96% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return and yield of
a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED
APRIL 30,
1997 1996 1995 1994 1993 1992
Dividend return 3.16% 6.51% 6.21% A 5.82% A 7.72% 8.63%
Capital appreciation -0.96% -1.06% -0.11% -6.04% 1.41% 0.81%
return
Total return 2.20% 5.45% 6.10% -0.22% 9.13% 9.44%
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 APRIL 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.82(cents) 29.34(cents) 58.89(cents)
Annualized dividend rate 6.33% 6.34% 6.31%
30-day annualized yield 6.08% - -
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 $9.26
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. If Fidelity had not reimbursed certain class expenses
during the periods shown, the yield would have been 5.80%.
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
NOTE TO SHAREHOLDERS: Andrew Dudley became Portfolio Manager of Fidelity
Advisor Short Fixed-Income Fund on February 3, 1997.
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six months that ended April 30, 1997, the fund's Institutional
Class shares returned 2.20%. The Lehman Brothers 1-3 Year
Government/Corporate Bond Index had a return of 2.26% over the same period.
The short investment grade debt funds average, as tracked by Lipper
Analytical Services, had a six-month return of 2.19% as of April 30, 1997.
For the 12 months that ended April 30, 1997, the fund's Institutional Class
shares returned 5.82%. The Lehman Brothers index and Lipper peer group
returned 6.16% and 5.80%, respectively, over the same period.
Q. CAN YOU DISCUSS THE INVESTMENT CLIMATE OVER THE PAST SIX MONTHS?
A. The bond market saw several shifts in sentiment during the period, due
mostly to uncertainty concerning the direction of the economy. In late
March 1997, the Federal Reserve Board raised interest rates by a quarter of
a percentage point. This cooled the market down some, but as the period
came to a close, the market was showing signs of bouncing back. Fidelity's
approach of de-emphasizing interest rate anticipation strategies is most
effective in this type of choppy environment.
Q. WHAT ARE SPREAD SECTORS AND HOW DID THEY CONTRIBUTE TO THE FUND'S
PERFORMANCE?
A. Spread sectors are segments of the fixed-income market that can offer
attractive yield spreads, or yield advantages, over comparable Treasury
securities. The spread sectors I monitor most closely include corporate
bonds, mortgage-backed bonds and asset-backed bonds. Corporates continued
to be the biggest position in the fund and performed well thanks to a
beneficial economic climate of moderate growth and low inflation.
Asset-backed bonds also performed well under these conditions. In the
mortgage area, the fund's emphasis on commercial mortgage-backed securities
and seasoned mortgage pass-throughs worked out favorably. Commercial
mortgages in particular have gained broader acceptance in the marketplace.
Q. WHAT SORT OF ALLOCATION STRATEGY DID YOU FOLLOW?
A. Corporate issues - not including asset-backed securities - accounted for
approximately 47% of the fund at the end of the period, while asset-backed
and mortgage securities made up around 19% and 11%, respectively. The
remainder of the fund's investments were in Treasuries and agencies. The
fund's significant position in corporate bonds reflects the fact that
economic fundamentals remained stable despite the potential for Fed-induced
market volatility; I continued to find attractive opportunities amidst the
market's turbulence. Unless we see a severe economic downturn, this
allocation most likely will remain consistent for the foreseeable future.
Q. AT THE END OF THE PERIOD, 7% OF THE FUND'S INVESTMENTS WERE RATED BA BY
MOODY'S. CAN YOU COMMENT ON THE FUND'S QUALITY DISTRIBUTION?
A. Those securities in the portfolio rated below investment-grade by
Moody's have, at a minimum, a higher BBB investment-grade rating from at
least one of the other three major rating agencies. We would agree with the
higher-rated assessment. In terms of the fund's quality distribution, I
have continued to maintain an overall emphasis on higher quality.
Approximately two-thirds of the securities in the portfolio are rated A or
better.
Q. THE FUND'S FOREIGN INVESTMENTS HAVE RISEN FROM 1.1% TO 3.8% IN THE LAST
SIX MONTHS. CAN YOU DESCRIBE THE NATURE OF THESE INVESTMENTS?
A. These securities are better known as "yankee" and "Euro" bonds. They are
dollar-denominated, so there is no direct currency risk, but they are
backed by foreign issuers. Typically, these securities offer a yield
advantage versus comparably rated domestic securities. I increased the
exposure to this sector as its relative attractiveness improved. It's
important to remember that foreign investments may entail greater risks
than U.S.-based investments. However, these securities provide a very good
way of diversifying the risk within the fund's corporate bond holdings.
Q. WHAT'S YOUR OUTLOOK?
A. The bond market may show its vulnerability in the near-term. While these
difficulties could continue, depending largely on how aggressively the Fed
chooses to set monetary policy, I'll continue to scour the spread sectors
for opportunities. I think our research capabilities at Fidelity will allow
us to continue to uncover some good buys.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks to obtain a high
level of current income,
consistent with preservation
of capital, by investing
primarily in a broad range of
investment-grade,
fixed-income securities
START DATE: September 16,
1987
SIZE: as of April 30, 1997,
more than $377 million
MANAGER: Andrew Dudley,
since February 1997; joined
Fidelity in 1996
(checkmark)
ANDY DUDLEY DISCUSSES THE
IMPACT OF RISING INTEREST RATES
ON CERTAIN SPREAD SECTORS:
"A tightening in monetary
policy historically has resulted
in rising interest rates and can
ripple through to the spread
sectors. If we get a situation
like we had in 1994 where we
saw several successive
moves by the Fed, there will
be more volatility in each
sector. MORTGAGES are the
most susceptible to an
unexpected increase in
volatility. They may still
outperform Treasuries over
longer periods of time, but
you may see more short
periods of underperformance
as the market adjusts to a
new level of interest rates. As
for CORPORATE BONDS, their
relative performance will be
driven as much by credit
fundamentals as by market
turbulence. Like mortgages,
corporates may show signs
of weakness at first, then
settle down. Fed tightening
occurs due to
stronger-than-expected
economic growth. Corporates
may be able to weather the
storm because a strong
economy typically reflects
strong corporate earnings.
The last piece of the puzzle,
ASSET-BACKEDS, tends to be
of higher quality than
corporates. While I think
asset-backed bonds should
parallel the direction of
corporates in a rising rate
environment, their overall
spread volatility may be
lower."
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF APRIL 30, 1997
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS
6 MONTHS AGO
Aaa 40.7 58.4
Aa 5.3 2.4
A 16.7 12.4
Baa 26.1 19.9
Ba 7.0 4.7
Not rated 1.4 2.0
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 APRIL 30, 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 APRIL 30, 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 APRIL 30, 1997 * AS OF OCTOBER 31, 1996 **
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 investments 1.1%
FOREIGN INVESTMENTS 3.8%
Corporate bonds 50.7%
U.S. government
and government
agency obligations 35.9%
Mortgage-backed
securities 12.3%
Foreign government
obligations 0.1%
Short-term
investments 0.2%
Other investments 0.8%
FOREIGN INVESTMENTS 1.1%
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: 11.3
Row: 1, Col: 5, Value: 16.4
Row: 1, Col: 6, Value: 64.09999999999999
Row: 1, Col: 1, Value: 2.3
Row: 1, Col: 2, Value: 1.5
Row: 1, Col: 3, Value: 1.3
Row: 1, Col: 4, Value: 12.0
Row: 1, Col: 5, Value: 35.0
Row: 1, Col: 6, Value: 51.0
*
**
INVESTMENTS APRIL 30, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 67.1%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,760,000 $ 3,991,616
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,360,000 1,477,558
ENERGY - 2.6%
OIL & GAS - 2.6%
Occidental Petroleum Corp.:
5.85%, 11/9/98 Baa3 1,200,000 1,187,412
5.90%, 11/9/98 Baa3 960,000 950,611
6.09%, 11/29/99 Baa3 700,000 687,253
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 830,000 883,228
Ras Laffan Liquid Natural Gas Co. Ltd. yankee
7.628%, 9/15/06 (c) A3 1,950,000 1,944,384
Tosco Corp. 7%, 7/15/00 Baa2 3,150,000 3,155,261
USX Corp.:
8 7/8%, 9/15/97 Baa3 460,000 464,600
6 3/8%, 7/15/98 Baa3 651,000 650,024
9,922,773
FINANCE - 39.9%
ASSET-BACKED SECURITIES - 19.5%
Boatmens Auto Trust 6.35%, 10/15/01 A2 640,000 637,200
Capita Equipment Receivables Trust
6.57%, 3/15/01 Aa3 1,020,000 1,013,944
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 6,449,552 6,487,798
6.45%, 9/15/02 A3 1,400,000 1,388,618
5.85%, 2/15/03 A3 800,000 778,160
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 480,000 478,500
Chase Manhattan Grantor Trust
5.90%, 11/15/01 Aaa 2,686,096 2,676,856
Chevy Chase Auto Receivables Trust
5.80%, 6/15/02 Aaa 1,712,249 1,702,350
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 777,481 778,453
Discover Card Trust 7 1/2%, 6/16/00 A2 650,000 655,889
Discover Card Master Trust I 6.90%, 2/16/00 A2 1,888,000 1,895,080
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Fidelity Funding Auto Trust
6.99%, 11/15/02 (c) Aaa $ 860,000 $ 861,654
Ford Credit Grantor Trust
5.90%, 10/15/00 Aaa 2,954,363 2,942,823
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 2,078,626 2,094,860
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 362,699 357,596
5.80%, 2/15/27 Aaa 3,500,000 3,475,920
6.10%, 4/15/27 Aaa 2,893,364 2,862,608
6.45%, 5/15/27 Aaa 1,550,000 1,545,629
6 1/2%, 6/15/27 Aaa 980,000 977,236
6.65%, 7/15/27 Aaa 2,110,000 2,117,913
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 209,430 208,530
Norwest Automobile Trust 6.30%, 5/15/03 A2 1,424,000 1,404,643
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,710,000 1,708,087
6 1/8%, 11/15/04 Aaa 1,200,000 1,205,885
Onyx Acceptance Grantor Trust
6.20%, 6/15/03 Aaa 2,636,308 2,623,126
Premier Auto Trust:
4.95%, 2/2/99 A2 560,581 556,814
8.05%, 4/4/00 Aaa 6,200,000 6,303,656
6%, 5/6/00 Aaa 1,240,000 1,235,350
6.35%, 7/6/00 A3 1,980,000 1,965,764
Reliance Auto Receivables Corp., Inc.
6.10%, 7/15/02 (c) Aaa 1,655,780 1,646,984
SCFC Recreational Vehicle Loan Trust
7 1/4%, 9/15/06 Aaa 22,199 22,171
Standard Credit Card Master Trust I :
7.65%, 2/15/00 A2 800,000 813,750
6 3/4%, 6/7/00 Aaa 4,830,000 4,854,150
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 651,127 647,871
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 382,643 381,089
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 258,845 259,088
7.275%, 10/10/00 Baa2 259,445 261,148
8.20%, 1/10/01 Baa2 281,110 284,712
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
WFS Financial Owner Trust:
6.05%, 6/1/00 Aaa $ 3,460,000 $ 3,454,509
7.05%, 11/20/03 Aaa 3,160,000 3,154,405
6.90%, 12/20/03 Aaa 1,990,000 1,990,920
Western Financial Grantor Trust:
6.20%, 2/1/02 Aaa 964,442 958,776
5 7/8%, 3/1/02 Aaa 2,216,836 2,222,822
73,893,337
BANKS - 9.8%
Banc One Corp. 6.70%, 3/24/00 Aa3 1,600,000 1,599,680
Bank South Corp. 10.20%, 6/1/99 A3 2,000,000 2,132,620
Banponce Financial Corp.:
6.34%, 3/29/99 A3 740,000 735,012
7.65%, 5/3/00 A3 1,260,000 1,272,802
6.88%, 6/16/00 A3 650,000 648,440
BanPonce Corp.:
5 3/4%, 3/1/99 A3 990,000 971,378
6.378%, 4/8/99 A3 1,100,000 1,089,242
6.488%, 3/3/00 A3 1,000,000 989,120
Capital One Bank:
6.66%, 8/17/98 Baa3 2,850,000 2,855,045
8 1/8% 3/01/00 Baa3 2,500,000 2,575,900
Corporacion Andina De Fomento yankee
7 3/8%, 7/21/00 Baa2 900,000 910,782
First Fidelity Bancorp. 8 1/2%, 4/1/98 A2 1,010,000 1,027,958
First USA Bank:
6 1/8%, 10/30/97 Baa3 1,670,000 1,668,664
5 3/4%, 1/15/99 Baa3 3,955,000 3,891,562
6 1/2%, 12/23/99 Baa3 2,200,000 2,175,382
Kansallis-Osake-Pankki yankee
9 3/4%, 12/15/98 A3 1,000,000 1,046,940
Key Bank NA 6%, 10/7/98 Aa3 1,500,000 1,494,810
Korea Development Bank yankee
6 1/4%, 5/1/00 A1 3,085,000 3,038,108
Signet Banking Corp. 5.6289%, 5/15/97 (d) Baa2 2,430,000 2,429,004
Union Planters National Bank:
6.29%, 8/20/98 A3 2,210,000 2,204,475
6.53%, 8/20/99 A3 2,400,000 2,397,000
37,153,924
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 10.5%
AT&T Capital Corp.:
6.02%, 12/4/98 Baa3 $ 3,050,000 $ 3,024,990
6.16%, 12/3/99 Baa3 2,370,000 2,331,748
Aristar, Inc. 7 1/2%, 7/1/99 Baa1 2,540,000 2,582,647
Associates Corp. of North America:
6 1/2%, 9/9/98 Aa3 4,980,000 4,987,370
6 3/8%, 8/15/99 Aa3 1,500,000 1,489,860
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 2,300,000 2,282,037
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa1 2,653,215 2,625,542
Finova Capital Corp. 6.14%, 11/2/98 Baa1 1,730,000 1,721,679
General Motors Acceptance Corp.:
5 3/8%, 3/9/98 A3 5,840,000 5,797,076
5.45%, 3/1/99 A3 3,650,000 3,574,920
6 3/8%, 4/26/99 A3 900,000 896,580
Greyhound Financial Corp. 6.94%, 1/28/98 Baa2 3,000,000 3,011,850
MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,640,000 1,620,927
North American Mortgage Co.
5.80%, 11/2/98 Baa2 1,000,000 991,130
Sears, Roebuck Acceptance Corp.
6.17%, 1/29/99 A2 2,500,000 2,486,600
Union Acceptance Corp.
7.075%, 7/10/02 Baa2 397,933 396,811
39,821,767
SAVINGS & LOANS - 0.1%
Golden West Financial Corp.
10 1/4%, 5/15/97 A3 300,000 300,300
TOTAL FINANCE 151,169,328
MEDIA & LEISURE - 3.9%
BROADCASTING - 3.6%
Tele-Communications, Inc. 7 3/8%, 2/15/00 Ba1 2,750,000 2,758,333
Time Warner, Inc.:
7.45%, 2/1/98 Ba1 2,240,000 2,252,477
7.95%, 2/1/00 Ba1 8,340,000 8,542,829
13,553,639
LEISURE DURABLES & TOYS - 0.3%
Mattel, Inc. 6 7/8%, 8/1/97 A3 1,250,000 1,253,425
TOTAL MEDIA & LEISURE 14,807,064
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NONDURABLES - 3.4%
FOODS - 1.8%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa3 $ 2,250,000 $ 2,237,895
Nabisco, Inc. 8%, 1/15/00 Baa2 4,600,000 4,725,442
6,963,337
TOBACCO - 1.6%
Philip Morris Companies, Inc.:
7 3/8%, 2/15/99 A2 850,000 859,656
7 1/8%, 12/1/99 A2 2,000,000 2,012,720
7 1/4%, 9/15/01 A2 1,900,000 1,898,005
RJR Nabisco, Inc. 8%, 1/15/00 Baa3 1,320,000 1,335,774
6,106,155
TOTAL NONDURABLES 13,069,492
RETAIL & WHOLESALE - 1.4%
APPAREL STORES - 0.4%
Limited, Inc. 9 1/8%, 2/1/01 Baa2 1,520,000 1,599,253
GENERAL MERCHANDISE STORES - 0.8%
Dayton Hudson Corp. 10%, 12/1/00 Baa1 1,070,000 1,167,948
Penney (J.C.), Inc. 6.95%, 4/1/00 A2 1,350,000 1,355,090
Sears, Roebuck & Co. 5.83%, 7/27/98 A2 470,000 467,584
2,990,622
GROCERY STORES - 0.2%
American Stores Co.:
8 1/4%, 4/21/98 Baa3 300,000 304,428
8.44%, 4/24/98 Baa3 300,000 305,001
609,429
TOTAL RETAIL & WHOLESALE 5,199,304
TECHNOLOGY - 3.5%
COMPUTERS & OFFICE EQUIPMENT - 3.5%
Comdisco, Inc.:
7 1/4%, 4/15/98 Baa1 1,630,000 1,643,545
6.70%, 7/01/98 Baa1 1,580,000 1,586,936
6.59%, 9/01/98 Baa1 1,740,000 1,744,019
6.29%, 10/22/98 Baa1 1,230,000 1,227,811
5 3/4%, 1/19/99 Baa2 2,010,000 1,984,151
6.86%, 7/29/99 Baa1 5,210,000 5,218,232
13,404,694
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TRANSPORTATION - 4.0%
AIR TRANSPORTATION - 4.0%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 $ 6,810,000 $ 6,858,828
9 1/2%, 7/15/98 Baa3 1,540,000 1,593,592
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa3 3,370,000 3,448,622
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 3,430,000 3,434,185
15,335,227
UTILITIES - 6.9%
CELLULAR - 0.7%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 2,770,000 2,722,245
ELECTRIC UTILITY - 1.1%
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa1 2,500,000 2,463,000
Ohio Edison Co. 8 3/4%, 2/15/98 Baa2 1,190,000 1,212,110
United Illuminating Co. 7 3/8%, 1/15/98 Baa3 450,000 453,636
4,128,746
GAS - 3.1%
Arkla, Inc.:
8.60%, 9/15/98 Ba2 500,000 511,565
8.43%, 9/17/98 Ba1 560,000 571,771
8 7/8%, 7/15/99 Baa3 7,000,000 7,311,360
Florida Gas Transmission Co.
7 3/4%, 11/1/97 (c) Baa2 1,630,000 1,642,095
Mitchell Energy & Development Corp.
8%, 7/15/99 Ba3 1,580,000 1,612,516
11,649,307
TELEPHONE SERVICES - 2.0%
MFS Communications, Inc.:
0%, 1/15/04 (b) Ba3 1,843,000 1,667,915
0%, 1/15/06 (b) Ba3 1,100,000 830,500
WorldCom, Inc. 7.55%, 4/1/04 Ba1 5,000,000 4,991,000
7,489,415
TOTAL UTILITIES 25,989,713
TOTAL NONCONVERTIBLE BONDS
(Cost $255,700,499) 254,366,769
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 16.4%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 13.0%
5 7/8%, 4/30/98 Aaa $ 2,900,000 $ 2,897,274
9%, 5/15/98 Aaa 12,270,000 12,636,137
9 1/4%, 8/15/98 Aaa 11,200,000 11,630,528
7 3/4%, 12/31/99 Aaa 9,299,000 9,601,218
6 7/8%, 3/31/00 Aaa 9,987,000 10,102,450
5 3/4% 10/31/00 Aaa 2,515,000 2,458,010
49,325,617
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.4%
Federal National Mortgage Association
4.95% 9/30/98 Aaa 4,000,000 3,932,480
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 428,728 431,497
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 2,066,146 2,177,718
Class T-3, 9 5/8%, 5/15/02 Aaa 608,740 642,367
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 847,059 849,100
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,431,000 1,431,887
State of Israel (guaranteed by U.S. Government
through Agency for International Development)
7 3/4%, 11/15/99 Aaa 3,124,000 3,208,442
12,673,491
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $63,186,284) 61,999,108
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.6%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.7%
7%, 9/1/99 to 8/1/01 Aaa $ 2,269,001 $ 2,276,856
12%, 11/1/19 Aaa 192,550 218,043
2,494,899
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 649,578 730,295
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.7%
11%, 12/15/09 to 2/15/16 Aaa 3,612,206 4,008,557
11 1/2%, 7/15/13 to 11/15/15 Aaa 995,131 1,127,138
12%, 2/15/16 Aaa 1,202,209 1,382,505
6,518,200
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $9,844,422) 9,743,394
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6%
PRIVATE SPONSOR - 0.2%
GE Capital Mortgage Services, Inc.
planned amortization class Series 1994-2
Class A-4, 6%, 1/25/09 Aaa 930,000 908,639
U.S. GOVERNMENT AGENCY - 0.4%
Federal National Mortgage Association:
planned amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 461,364 458,481
Series 1994-M3 Class A, 7.71%, 4/1/06 Aaa 1,046,553 1,058,327
1,516,808
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,434,388) 2,425,447
COMMERCIAL MORTGAGE SECURITIES - 8.1%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Blackrock Capital Funding LLC Series 1996
Class C2, 7.5134%, 11/16/26 (c)(d) AAA $ 421,788 $ 426,138
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 2/25/43 (c)(d) AA 2,380,000 2,385,206
CBM Funding Corp. sequential pay:
Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 197,080 199,544
Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 980,000 980,153
CS First Boston Mortgage Securities Corp.:
Series 1995-AEWI Class A-1,
6.665%, 11/25/27 AAA 918,704 917,269
floater Series 1994-CFB1 Class A-1,
5.9239%, 1/25/28 (d) Aaa 843,018 842,491
Equitable Life Assurance Society of the United States
floater Series 174 Class D-2, 6.7375%,
5/15/03 (c)(d) Baa2 1,200,000 1,200,000
Federal Deposit Insurance Corp. sequential pay:
Series 1994-C1 Class II-A2,
7.85%, 9/25/25 Aaa 1,639,729 1,657,664
Series 1996-C1 Class 1A,
6 3/4%, 5/25/26 Aaa 3,280,504 3,267,415
Kidder Peabody Acceptance Corp.
sequential pay, Series 1993-M1
Class A-2, 7.15%, 4/25/25 Aa2 1,006,056 1,003,541
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 124,674 124,518
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6,
6.9525%, 7/4/03 (d) - 1,232,929 1,244,488
Oregon Commercial Mortgage, Inc. Series 1995-1
Class A, 7.15%, 6/25/23 (c) AAA 2,316,070 2,315,708
Resolution Trust Corp.:
floater Series 1993-C2 Class A-2,
6.62% 3/25/25 (d) AAA 2,218,068 2,222,920
floater Series 1994-C1 Class A-3,
6.30%, 6/25/26 (d) AAA 2,033,263 2,035,805
Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 414,587 414,069
Series 1995-C2 Class A-1B,
6 1/4%, 5/25/27 Aaa 1,475,139 1,468,224
SC Finance Corp. floater
7.2375%, 8/1/04 (c)(d) - 4,100,000 4,089,750
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Structured Asset Securities Corp. sequential pay:
Series 1993-C1 Class A-1A,
6.60%, 10/25/24 AA+ $ 318,676 $ 317,680
Series 1995-C4 Class A-1A,
6.90%, 6/25/26 AAA 808,166 807,156
Series 1996 Class A-1B,
5.751%, 2/25/28 AAA 211,901 210,875
Series 1996 Class A-1C,
5.944%, 2/25/28 AAA 1,627,000 1,603,103
Series 1996-C3 Class A,
6 3/4%, 6/25/30 (c)(d) AAA 986,602 979,819
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $30,824,542) 30,713,536
FOREIGN GOVERNMENT OBLIGATIONS (E) - 1.3%
Israeli State euro 6 3/8%, 12/19/01 A3 2,000,000 1,940,000
Ontario Province yankee 15 1/4%, 8/31/12 Aa3 450,000 488,682
Slovenian Republic euro 7%, 8/6/01 A3 2,400,000 2,399,280
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $4,897,303) 4,827,962
CERTIFICATES OF DEPOSIT - 1.1%
Canadian Imperial Bank (New York Branch) yankee
6.475%, 1/24/00
(Cost $4,205,544) Aa3 4,200,000 4,173,204
CASH EQUIVALENTS - 2.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.37%, dated
4/30/97 due 5/1/97 $ 10,501,566 10,500,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $381,592,982) $ 378,749,420
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
3. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $20,117,280 or 5.3% of net
assets.
4. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
5. 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:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 57.6% AAA, AA, A 56.0%
Baa 26.1% BBB 31.9%
Ba 7.0% BB 5.0%
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
both S&P and Moody's amounted to 1.4%.
INCOME TAX INFORMATION
At April 30, 1997, the aggregate cost of investment securities for income
tax purposes was $381,592,982. Net unrealized depreciation aggregated
$2,843,562, of which $627,694 related to appreciated investment securities
and $3,471,256 related to depreciated investment securities.
At October 31, 1996, the fund had a capital loss carryforward of
approximately $40,265,000 of which $128,000, $63,000, $286,000, $38,000,
$336,000, $17,692,000, $19,457,000 and $2,265,000 will expire on October
31, 1997, 1998, 1999, 2000, 2001, 2002, 2003, and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
APRIL 30, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 378,749,420
agreements of $10,500,000) (cost $381,592,982) -
See accompanying schedule
Cash 49,848
Receivable for investments sold 2,545,362
Interest receivable 5,215,107
Other receivables 16
Prepaid expenses 6,708
TOTAL ASSETS 386,566,461
LIABILITIES
Payable for investments purchased $ 7,303,855
Payable for fund shares redeemed 1,099,120
Distributions payable 330,091
Accrued management fee 131,389
Distribution fees payable 47,254
Other payables and accrued expenses 119,179
TOTAL LIABILITIES 9,030,888
NET ASSETS $ 377,535,573
Net Assets consist of:
Paid in capital $ 423,205,080
Distributions in excess of net investment income (501,304)
Accumulated undistributed net realized gain (loss) on (42,324,641)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (2,843,562)
investments
NET ASSETS $ 377,535,573
</TABLE>
CALCULATION OF MAXIMUM OFFERING PRICE $9.25
CLASS A:
NET ASSET VALUE and redemption price per share
($693,465 (divided by) 74,988 shares)
Maximum offering price per share (100/98.50 of $9.25) $9.39
CLASS T: $9.29
NET ASSET VALUE and redemption price per share
($372,238,173 (divided by) 40,084,808 shares)
Maximum offering price per share (100/98.50 of $9.29) $9.43
INSTITUTIONAL CLASS: $9.28
NET ASSET VALUE, offering price and redemption price
per share ($4,603,935 (divided by) 495,928 shares)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
INVESTMENT INCOME $ 14,504,492
Interest
EXPENSES
Management fee $ 909,582
Transfer agent fees 451,506
Distribution fees 303,726
Accounting fees and expenses 84,563
Non-interested trustees' compensation 5,619
Custodian fees and expenses 14,474
Registration fees 46,074
Audit 24,339
Legal 1,516
Miscellaneous 4,882
Total expenses before reductions 1,846,281
Expense reductions (34,230) 1,812,051
NET INVESTMENT INCOME 12,692,441
REALIZED AND UNREALIZED GAIN (LOSS) (1,932,469)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (2,182,170)
investment securities
NET GAIN (LOSS) (4,114,639)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 8,577,802
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED APRIL OCTOBER 31,
30,1997 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 12,692,441 $ 31,079,263
Net investment income
Net realized gain (loss) (1,932,469) (66,135)
Change in net unrealized appreciation (depreciation) (2,182,170) (5,191,796)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 8,577,802 25,821,332
FROM OPERATIONS
Distributions to shareholders from net investment income (12,602,511) (31,004,478)
Share transactions - net increase (decrease) (44,544,338) (125,084,667)
TOTAL INCREASE (DECREASE) IN NET ASSETS (48,569,047) (130,267,813)
NET ASSETS
Beginning of period 426,104,620 556,372,433
End of period (including distributions in excess $ 377,535,573 $ 426,104,620
of net investment income of $501,304 and
$591,234, respectively)
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997
(UNAUDITED) 1996 F
SELECTED PER-SHARE DATA D
Net asset value, beginning of period $ 9.370 $ 9.290
Income from Investment Operations
Net investment income .276 .090
Net realized and unrealized gain (loss) (.110) .081 E
Total from investment operations .166 .171
Less Distributions
From net investment income (.286) (.091)
Net asset value, end of period $ 9.250 $ 9.370
TOTAL RETURN B, C 1.80% 1.85%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 693 $ 204
Ratio of expenses to average net assets .90% A, G .90% A, G
Ratio of net investment income to average net assets 6.03% A 6.27% A
Portfolio turnover rate 107% A 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
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 1994 E 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value, $ 9.380 $ 9.470 $ 9.480 $ 10.090 $ 9.950 $ 9.870
beginning of period
Income from Investment
Operations
Net investment income .288 D .594 D .403 .479 .732 .830
Net realized and (.092) (.094) .148 (.501) .146 .071
unrealized gain
(loss)
Total from investment .196 .500 .551 (.022) .878 .901
operations
Less Distributions
From net investment (.286) (.590) (.407) (.464) (.738) (.821)
income
In excess of net - - - (.044) - -
investment income
Return of capital - - (.154) (.080) - -
Total distributions (.286) (.590) (.561) (.588) (.738) (.821)
Net asset value, $ 9.290 $ 9.380 $ 9.470 $ 9.480 $ 10.090 $ 9.950
end of period
TOTAL RETURN B, C 2.12% 5.45% 6.05% (0.22) 9.13% 9.44%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 372,238 $ 416,700 $ 546,546 $ 787,926 $ 654,202 $ 170,558
(000 omitted)
Ratio of expenses to .89% .88% .89% .97% .95% .90%
average net assets A F
Ratio of net investment 6.22% 6.29% 6.05% 5.91% 6.77% 7.59%
income to average A
net assets
Portfolio turnover rate 107% 124% 179% 108% 58% 57%
A
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E 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.
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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED OCTOBER 31,
ENDED APRIL 30,
1997
(UNAUDITED) 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.370 $ 9.470 $ 9.450
Income from Investment Operations
Net investment income .293 D .598 D .137
Net realized and unrealized gain (loss) (.090) (.098) .067
Total from investment operations .203 .500 .204
Less Distributions
From net investment income (.293) (.600) (.136)
Return of capital - - (.048)
Total distributions (.293) (.600) (.184)
Net asset value, end of period $ 9.280 $ 9.370 $ 9.470
TOTAL RETURN B, C 2.20% 5.45% 2.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 4,604 $ 9,200 $ 9,827
Ratio of expenses to average net assets .75% A, .80% F .85% A,
F F
Ratio of net investment income to average net 6.30% A 6.37% 6.10% A
assets
Portfolio turnover rate 107% A 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 April 30, 1997 (Unaudited)
1. 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 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.
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.
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.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears all
organizational expenses except for registering and qualifying Class A and
shares of Class A for distribution under federal and state securities law.
These expenses are borne by Class A and amortized over one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Income dividends 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 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
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS - CONTINUED
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 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 securities, other than short-term securities,
aggregated $214,620,787 and $261,461,497, respectively, of which U.S.
government and government agency obligations aggregated $107,130,363 and
$192,711,341, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annualized rate of .45%
of average net assets.
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 $ 409 $ 409
CLASS T 303,317 303,317
$ 303,726 $ 303,726
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 $ 4,013 $ 2,944
CLASS T 172,072 129,278
$ 176,085 $ 132,222
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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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. For
the period, the following amounts were paid to each transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS
CLASS A FIIOC * $ 1,522 .56
CLASS T ** FIIOC * 443,048 .22
INSTITUTIONAL CLASS FIIOC * 6,936 .21
$ 451,506
* FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY (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., maintains the fund's
accounting records. The fee is based on the level of average net assets for
the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above the
following annual rates or range of annual rates of average net assets for
each class:
FMR REIMBURSEME
EXPENSE NT
LIMITATIONS
CLASS A 0.90% $ 15,557
INSTITUTIONAL CLASS 0.75% 12,146
$ 27,703
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 $6,275 under the
custodian arrangement, and each applicable class' expenses were reduced as
follows under the transfer agent arrangements:
TRANSFER
AGENT
INTEREST
CREDITS
CLASS T $ 252
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
1997 1996 A
CLASS A
From net investment income $ 16,067 $ 1,434
CLASS T
From net investment income 12,381,568 30,327,901
INSTITUTIONAL CLASS
From net investment income 204,876 675,143
$ 12,602,511 $ 31,004,478
A DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1996.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED
ENDED APRIL 30, OCTOBER 31, ENDED APRIL 30, OCTOBER 31,
1997 1996 A 1997 1996 A
CLASS A 249,988 23,644 $ 2,340,947 $ 220,223
Shares sold
Reinvestment of 1,206 152 11,197 1,421
distributions
Shares redeemed (198,001) (2,001) (1,850,863) (18,626)
Net increase (decrease) 53,193 21,795 $ 501,281 $ 203,018
CLASS T 11,037,274 16,400,676 $ 102,999,644 $ 154,169,354
Shares sold
Reinvestment of 1,055,571 2,602,490 9,845,121 24,457,228
distributions
Shares redeemed (16,453,322) (32,291,505) (153,358,450) (303,417,559)
Net increase (decrease) (4,360,477) (13,288,339) $ (40,513,685) $ (124,790,977)
INSTITUTIONAL CLASS 95,544 706,911 $ 891,891 $ 6,663,694
Shares sold
Reinvestment of 18,545 62,772 173,190 589,181
distributions
Shares redeemed (599,523) (825,831) (5,597,015) (7,749,583)
Net increase (decrease) (485,434) (56,148) $ (4,531,934) $ (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.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 14,897
CLASS T 18,210
INSTITUTIONAL CLASS 12,967
$ 46,074
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
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 *
Thomas R. Williams *
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 Overseas Fund
Fidelity Advisor TechnoQuant(trademark)
Growth Fund
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 High Income
Municipal Fund
Fidelity Advisor Municipal Bond Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
STATE MUNICIPAL FUNDS
Fidelity Advisor California Municipal Income Fund
Fidelity Advisor New York Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(REGISTERED TRADEMARK)