(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
GOVERNMENT INVESTMENT
FUND - CLASS A, CLASS T, CLASS B
AND CLASS C
ANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 19 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 22 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 23 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 28 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 37 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 45 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 46
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
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 shares' 0.25% 12b-1
fee. If Fidelity had not reimbursed certain class expenses, the total
returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL A 9.74% 34.80% 115.88%
FIDELITY ADV GOVERNMENT INV - CL A 4.53% 28.40% 105.62%
(INCL. 4.75% SALES CHARGE)
LB GOVERNMENT BOND 11.28% 40.10% 137.83%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 33.17% 115.33%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class A's returns to those of the Lehman
Brothers Government Bond Index - an index of U.S. government and
government agency securities (other than mortgage securities) with
maturities of one year or more. To measure how Class A's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 188 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL A 9.74% 6.15% 8.00%
FIDELITY ADV GOVERNMENT INV - CL A 4.53% 5.13% 7.47%
(INCL. 4.75% SALES CHARGE)
LB GOVERNMENT BOND 11.28% 6.98% 9.05%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 5.88% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' cumulative return
and show you what would have happened if Class A shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
FA Govt Inv -CL A LB Government Bond
00265 LB003
1988/10/31 9525.00 10000.00
1988/11/30 9445.40 9881.72
1988/12/31 9439.43 9919.43
1989/01/31 9549.10 10045.55
1989/02/28 9519.50 9963.76
1989/03/31 9547.68 10024.73
1989/04/30 9702.58 10239.75
1989/05/31 9892.11 10481.22
1989/06/30 10113.06 10830.93
1989/07/31 10270.52 11059.66
1989/08/31 10165.41 10873.54
1989/09/30 10224.43 10920.31
1989/10/31 10417.48 11202.92
1989/11/30 10496.61 11311.41
1989/12/31 10548.55 11330.51
1990/01/31 10433.78 11170.10
1990/02/28 10468.15 11192.39
1990/03/31 10483.64 11189.94
1990/04/30 10389.46 11091.25
1990/05/31 10693.87 11400.55
1990/06/30 10847.91 11581.04
1990/07/31 10979.40 11729.20
1990/08/31 10909.20 11565.85
1990/09/30 10981.71 11676.79
1990/10/31 11092.04 11867.56
1990/11/30 11285.44 12130.58
1990/12/31 11431.00 12318.17
1991/01/31 11556.42 12450.41
1991/02/28 11652.64 12521.67
1991/03/31 11699.48 12585.35
1991/04/30 11796.69 12723.47
1991/05/31 11858.60 12772.93
1991/06/30 11851.87 12754.81
1991/07/31 11978.92 12906.16
1991/08/31 12164.71 13205.42
1991/09/30 12384.57 13482.39
1991/10/31 12495.21 13600.43
1991/11/30 12567.44 13736.84
1991/12/31 12968.55 14204.83
1992/01/31 12792.65 13983.69
1992/02/29 12851.49 14038.30
1992/03/31 12763.33 13956.26
1992/04/30 12838.12 14044.18
1992/05/31 13073.78 14303.28
1992/06/30 13254.76 14508.25
1992/07/31 13478.57 14873.88
1992/08/31 13594.60 15012.49
1992/09/30 13720.89 15224.81
1992/10/31 13555.46 15005.14
1992/11/30 13589.76 14979.18
1992/12/31 13809.42 15231.42
1993/01/31 14045.93 15554.93
1993/02/28 14309.51 15866.43
1993/03/31 14391.55 15919.58
1993/04/30 14499.97 16042.02
1993/05/31 14522.82 16024.39
1993/06/30 14808.68 16379.98
1993/07/31 14882.03 16479.89
1993/08/31 15124.67 16847.72
1993/09/30 15152.42 16912.13
1993/10/31 15254.05 16976.05
1993/11/30 15020.71 16789.93
1993/12/31 15101.60 16854.83
1994/01/31 15364.90 17085.52
1994/02/28 15009.06 16723.81
1994/03/31 14555.45 16347.65
1994/04/30 14410.23 16219.08
1994/05/31 14425.25 16198.27
1994/06/30 14376.12 16161.04
1994/07/31 14689.55 16458.10
1994/08/31 14680.97 16461.28
1994/09/30 14474.71 16229.37
1994/10/31 14450.23 16217.12
1994/11/30 14422.68 16187.49
1994/12/31 14520.31 16285.94
1995/01/31 14780.97 16589.12
1995/02/28 15103.97 16946.17
1995/03/31 15204.07 17052.46
1995/04/30 15384.13 17275.31
1995/05/31 15982.47 17972.03
1995/06/30 16094.65 18109.91
1995/07/31 16038.14 18043.30
1995/08/31 16220.39 18255.38
1995/09/30 16368.13 18431.21
1995/10/31 16605.34 18711.86
1995/11/30 16842.23 19003.53
1995/12/31 17083.42 19272.91
1996/01/31 17171.09 19391.19
1996/02/29 16819.09 18996.18
1996/03/31 16663.81 18837.49
1996/04/30 16556.78 18717.25
1996/05/31 16521.73 18685.90
1996/06/30 16714.06 18927.12
1996/07/31 16747.81 18973.89
1996/08/31 16708.63 18931.53
1996/09/30 16973.99 19245.73
1996/10/31 17334.82 19669.15
1996/11/30 17620.60 20011.27
1996/12/31 17432.45 19807.02
1997/01/31 17446.47 19829.06
1997/02/28 17472.44 19856.25
1997/03/31 17281.24 19646.13
1997/04/30 17536.99 19929.72
1997/05/31 17664.35 20101.63
1997/06/30 17846.72 20327.18
1997/07/31 18353.94 20904.15
1997/08/31 18174.28 20697.46
1997/09/30 18433.45 21008.72
1997/10/31 18736.77 21372.14
1997/11/30 18812.70 21481.61
1997/12/31 19003.63 21706.18
1998/01/31 19288.00 22030.91
1998/02/28 19232.17 21971.15
1998/03/31 19263.17 22033.35
1998/04/30 19330.79 22132.54
1998/05/31 19521.85 22359.80
1998/06/30 19713.04 22614.00
1998/07/31 19744.94 22649.02
1998/08/31 20159.42 23238.23
1998/09/30 20674.82 23864.67
1998/10/30 20562.17 23783.37
IMATRL PRASUN SHR__CHT 19981031 19981106 155522 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class A on
October 31, 1988, and the current 4.75% sales charge was paid. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $20,562 - a 105.62% increase on the initial investment.
For comparison, look at how the Lehman Brothers Government Bond Index
did over the same period. With dividends reinvested, the same $10,000
would have grown to $23,783 - a 137.83% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY
IS NO GUARANTEE OF HOW IT WILL
DO TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION OF INTEREST
RATES. IN TURN, THE SHARE PRICE,
RETURN AND YIELD OF A FUND THAT
INVESTS IN BONDS WILL VARY. THAT
MEANS IF YOU SELL YOUR SHARES
DURING A MARKET DOWNTURN,
YOU MIGHT LOSE MONEY. BUT IF
YOU CAN RIDE OUT THE MARKET'S
UPS AND DOWNS, YOU MAY
HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31, SEPTEMBER 3, 1996
(COMMENCEMENT
OF SALE OF
CLASS A SHARES) TO
OCTOBER 31,
1998 1997 1996
DIVIDEND RETURNS 6.12% 6.19% 0.99%
CAPITAL RETURNS 3.62% 1.90% 2.59%
TOTAL RETURNS 9.74% 8.09% 3.58%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.49(CENTS) 26.98(CENTS) 56.33(CENTS)
ANNUALIZED DIVIDEND RATE 5.26% 5.43% 5.76%
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 share price of $10.05 over the past one
month, $9.85 over the past six months and $9.78 over the past one
year, you can compare the class' income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days.
This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. Yield information will be
reported once Class A has a longer, more stable operating history.
FIDELITY ADVISOR GOVERNMENT INVESTMENT FUND - CLASS T
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL T 9.56% 34.42% 115.27%
FIDELITY ADV GOVERNMENT INV - CL T 5.73% 29.71% 107.73%
(INCL. 3.50% SALES CHARGE)
LB GOVERNMENT BOND 11.28% 40.10% 137.83%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 33.17% 115.33%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class T's returns to those of the Lehman
Brothers Government Bond Index - an index of U.S. government and
government agency securities (other than mortgage securities) with
maturities of one year or more. To measure how Class T's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 188 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL T 9.56% 6.09% 7.97%
FIDELITY ADV GOVERNMENT INV - CL T 5.73% 5.34% 7.58%
(INCL. 3.50% SALES CHARGE)
LB GOVERNMENT BOND 11.28% 6.98% 9.05%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 5.88% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class T shares' cumulative return
and show you what would have happened if Class T shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
FA Govt Inv -CL T LB Government Bond
00167 LB003
1988/10/31 9650.00 10000.00
1988/11/30 9569.36 9881.72
1988/12/31 9563.31 9919.43
1989/01/31 9674.42 10045.55
1989/02/28 9644.43 9963.76
1989/03/31 9672.98 10024.73
1989/04/30 9829.91 10239.75
1989/05/31 10021.92 10481.22
1989/06/30 10245.77 10830.93
1989/07/31 10405.30 11059.66
1989/08/31 10298.81 10873.54
1989/09/30 10358.61 10920.31
1989/10/31 10554.19 11202.92
1989/11/30 10634.36 11311.41
1989/12/31 10686.99 11330.51
1990/01/31 10570.71 11170.10
1990/02/28 10605.53 11192.39
1990/03/31 10621.22 11189.94
1990/04/30 10525.80 11091.25
1990/05/31 10834.21 11400.55
1990/06/30 10990.27 11581.04
1990/07/31 11123.49 11729.20
1990/08/31 11052.36 11565.85
1990/09/30 11125.83 11676.79
1990/10/31 11237.60 11867.56
1990/11/30 11433.54 12130.58
1990/12/31 11581.01 12318.17
1991/01/31 11708.08 12450.41
1991/02/28 11805.56 12521.67
1991/03/31 11853.01 12585.35
1991/04/30 11951.50 12723.47
1991/05/31 12014.23 12772.93
1991/06/30 12007.41 12754.81
1991/07/31 12136.12 12906.16
1991/08/31 12324.35 13205.42
1991/09/30 12547.10 13482.39
1991/10/31 12659.19 13600.43
1991/11/30 12732.37 13736.84
1991/12/31 13138.74 14204.83
1992/01/31 12960.53 13983.69
1992/02/29 13020.14 14038.30
1992/03/31 12930.83 13956.26
1992/04/30 13006.60 14044.18
1992/05/31 13245.35 14303.28
1992/06/30 13428.71 14508.25
1992/07/31 13655.45 14873.88
1992/08/31 13773.00 15012.49
1992/09/30 13900.96 15224.81
1992/10/31 13733.35 15005.14
1992/11/30 13768.10 14979.18
1992/12/31 13990.64 15231.42
1993/01/31 14230.26 15554.93
1993/02/28 14497.30 15866.43
1993/03/31 14580.42 15919.58
1993/04/30 14690.26 16042.02
1993/05/31 14713.40 16024.39
1993/06/30 15003.02 16379.98
1993/07/31 15077.33 16479.89
1993/08/31 15323.16 16847.72
1993/09/30 15351.27 16912.13
1993/10/31 15454.24 16976.05
1993/11/30 15217.83 16789.93
1993/12/31 15299.78 16854.83
1994/01/31 15566.54 17085.52
1994/02/28 15206.03 16723.81
1994/03/31 14746.46 16347.65
1994/04/30 14599.34 16219.08
1994/05/31 14614.56 16198.27
1994/06/30 14564.78 16161.04
1994/07/31 14882.32 16458.10
1994/08/31 14873.64 16461.28
1994/09/30 14664.67 16229.37
1994/10/31 14639.87 16217.12
1994/11/30 14611.96 16187.49
1994/12/31 14710.86 16285.94
1995/01/31 14974.95 16589.12
1995/02/28 15302.18 16946.17
1995/03/31 15403.60 17052.46
1995/04/30 15586.02 17275.31
1995/05/31 16192.22 17972.03
1995/06/30 16305.87 18109.91
1995/07/31 16248.61 18043.30
1995/08/31 16433.25 18255.38
1995/09/30 16582.93 18431.21
1995/10/31 16823.26 18711.86
1995/11/30 17063.25 19003.53
1995/12/31 17307.62 19272.91
1996/01/31 17396.43 19391.19
1996/02/29 17039.82 18996.18
1996/03/31 16882.50 18837.49
1996/04/30 16774.06 18717.25
1996/05/31 16738.56 18685.90
1996/06/30 16933.41 18927.12
1996/07/31 16967.59 18973.89
1996/08/31 16927.91 18931.53
1996/09/30 17195.92 19245.73
1996/10/31 17559.82 19669.15
1996/11/30 17848.02 20011.27
1996/12/31 17674.91 19807.02
1997/01/31 17667.64 19829.06
1997/02/28 17692.71 19856.25
1997/03/31 17497.57 19646.13
1997/04/30 17736.31 19929.72
1997/05/31 17882.90 20101.63
1997/06/30 18085.20 20327.18
1997/07/31 18577.76 20904.15
1997/08/31 18393.79 20697.46
1997/09/30 18654.67 21008.72
1997/10/31 18960.09 21372.14
1997/11/30 19027.39 21481.61
1997/12/31 19214.15 21706.18
1998/01/31 19500.46 22030.91
1998/02/28 19442.49 21971.15
1998/03/31 19472.20 22033.35
1998/04/30 19538.97 22132.54
1998/05/31 19730.24 22359.80
1998/06/30 19942.22 22614.00
1998/07/31 19952.45 22649.02
1998/08/31 20349.11 23238.23
1998/09/30 20888.83 23864.67
1998/10/30 20773.42 23783.37
IMATRL PRASUN SHR__CHT 19981031 19981106 160030 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class T on
October 31, 1988, and the current 3.50% sales charge was paid. As the
chart shows, by October 31, 1998 the value of the investment would
have grown to $20,773 - a 107.73% increase on the initial investment.
For comparison, look at how the Lehman Brothers Government Bond Index
did over the same period. With dividends reinvested the same $10,000
would have grown to $23,783 - a 137.83% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY
IS NO GUARANTEE OF HOW IT WILL
DO TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION OF INTEREST
RATES. IN TURN, THE SHARE PRICE,
RETURN AND YIELD OF A FUND THAT
INVESTS IN BONDS WILL VARY. THAT
MEANS IF YOU SELL YOUR SHARES
DURING A MARKET DOWNTURN,
YOU MIGHT LOSE MONEY. BUT IF
YOU CAN RIDE OUT THE MARKET'S
UPS AND DOWNS, YOU MAY
HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 5.94% 6.07% 6.24% 6.99% 5.01%
CAPITAL RETURNS 3.62% 1.90% -1.86% 7.92% -10.28%
TOTAL RETURNS 9.56% 7.97% 4.38% 14.91% -5.27%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested and exclude the effects of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.41(CENTS) 26.48(CENTS) 54.73(CENTS)
ANNUALIZED DIVIDEND RATE 5.17% 5.33% 5.60%
30-DAY ANNUALIZED YIELD 4.34% - -
DIVIDENDS per share show the income paid by the class for a set period
and do not reflect any tax reclassifications. If you annualize this
number, based on an average share price of $10.05 over the past one
month, $9.85 over the past six months and $9.78 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 3.50% sales charge.
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 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
shares' 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 shares'
contingent deferred sales charges included in the past one year, past
five years and past 10 years total return figures are 5%, 2% and 0%,
respectively. If Fidelity had not reimbursed certain class expenses,
the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL B 8.87% 30.36% 108.76%
FIDELITY ADV GOVERNMENT INV - CL B 3.87% 28.38% 108.76%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB GOVERNMENT BOND 11.28% 40.10% 137.83%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 33.17% 115.33%
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class B's returns to those of the Lehman
Brothers Government Bond Index - an index of U.S. government and
government agency securities (other than mortgage securities) with
maturities of one year or more. To measure how Class B's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 188 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL B 8.87% 5.45% 7.64%
FIDELITY ADV GOVERNMENT INV - CL B 3.87% 5.12% 7.64%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB GOVERNMENT BOND 11.28% 6.98% 9.05%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 5.88% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' cumulative return
and show you what would have happened if Class B shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
FA Govt Inv -CL B LB Government Bond
00667 LB003
1988/10/31 10000.00 10000.00
1988/11/30 9916.43 9881.72
1988/12/31 9910.16 9919.43
1989/01/31 10025.30 10045.55
1989/02/28 9994.23 9963.76
1989/03/31 10023.82 10024.73
1989/04/30 10186.44 10239.75
1989/05/31 10385.41 10481.22
1989/06/30 10617.38 10830.93
1989/07/31 10782.70 11059.66
1989/08/31 10672.34 10873.54
1989/09/30 10734.31 10920.31
1989/10/31 10936.99 11202.92
1989/11/30 11020.07 11311.41
1989/12/31 11074.60 11330.51
1990/01/31 10954.10 11170.10
1990/02/28 10990.19 11192.39
1990/03/31 11006.44 11189.94
1990/04/30 10907.56 11091.25
1990/05/31 11227.16 11400.55
1990/06/30 11388.88 11581.04
1990/07/31 11526.93 11729.20
1990/08/31 11453.23 11565.85
1990/09/30 11529.36 11676.79
1990/10/31 11645.19 11867.56
1990/11/30 11848.23 12130.58
1990/12/31 12001.05 12318.17
1991/01/31 12132.72 12450.41
1991/02/28 12233.75 12521.67
1991/03/31 12282.92 12585.35
1991/04/30 12384.98 12723.47
1991/05/31 12449.98 12772.93
1991/06/30 12442.91 12754.81
1991/07/31 12576.29 12906.16
1991/08/31 12771.35 13205.42
1991/09/30 13002.17 13482.39
1991/10/31 13118.33 13600.43
1991/11/30 13194.16 13736.84
1991/12/31 13615.28 14204.83
1992/01/31 13430.60 13983.69
1992/02/29 13492.38 14038.30
1992/03/31 13399.82 13956.26
1992/04/30 13478.34 14044.18
1992/05/31 13725.75 14303.28
1992/06/30 13915.76 14508.25
1992/07/31 14150.73 14873.88
1992/08/31 14272.54 15012.49
1992/09/30 14405.14 15224.81
1992/10/31 14231.45 15005.14
1992/11/30 14267.47 14979.18
1992/12/31 14498.08 15231.42
1993/01/31 14746.38 15554.93
1993/02/28 15023.11 15866.43
1993/03/31 15109.24 15919.58
1993/04/30 15223.07 16042.02
1993/05/31 15247.05 16024.39
1993/06/30 15547.18 16379.98
1993/07/31 15624.17 16479.89
1993/08/31 15878.92 16847.72
1993/09/30 15908.05 16912.13
1993/10/31 16014.75 16976.05
1993/11/30 15769.77 16789.93
1993/12/31 15854.70 16854.83
1994/01/31 16131.13 17085.52
1994/02/28 15757.54 16723.81
1994/03/31 15281.31 16347.65
1994/04/30 15128.85 16219.08
1994/05/31 15144.62 16198.27
1994/06/30 15093.04 16161.04
1994/07/31 15395.81 16458.10
1994/08/31 15389.78 16461.28
1994/09/30 15142.98 16229.37
1994/10/31 15107.54 16217.12
1994/11/30 15068.84 16187.49
1994/12/31 15160.69 16285.94
1995/01/31 15423.00 16589.12
1995/02/28 15753.67 16946.17
1995/03/31 15848.42 17052.46
1995/04/30 16026.06 17275.31
1995/05/31 16639.33 17972.03
1995/06/30 16745.79 18109.91
1995/07/31 16675.78 18043.30
1995/08/31 16854.68 18255.38
1995/09/30 16997.74 18431.21
1995/10/31 17250.88 18711.86
1995/11/30 17486.29 19003.53
1995/12/31 17726.58 19272.91
1996/01/31 17807.15 19391.19
1996/02/29 17433.00 18996.18
1996/03/31 17263.31 18837.49
1996/04/30 17126.02 18717.25
1996/05/31 17079.49 18685.90
1996/06/30 17287.20 18927.12
1996/07/31 17312.51 18973.89
1996/08/31 17262.06 18931.53
1996/09/30 17526.45 19245.73
1996/10/31 17887.75 19669.15
1996/11/30 18173.13 20011.27
1996/12/31 17969.74 19807.02
1997/01/31 17972.32 19829.06
1997/02/28 17969.71 19856.25
1997/03/31 17780.63 19646.13
1997/04/30 18013.74 19929.72
1997/05/31 18133.24 20101.63
1997/06/30 18328.83 20327.18
1997/07/31 18818.38 20904.15
1997/08/31 18621.59 20697.46
1997/09/30 18895.63 21008.72
1997/10/31 19174.81 21372.14
1997/11/30 19233.01 21481.61
1997/12/31 19411.39 21706.18
1998/01/31 19710.25 22030.91
1998/02/28 19621.71 21971.15
1998/03/31 19640.95 22033.35
1998/04/30 19697.85 22132.54
1998/05/31 19880.01 22359.80
1998/06/30 20083.06 22614.00
1998/07/31 20102.69 22649.02
1998/08/31 20491.41 23238.23
1998/09/30 21003.85 23864.67
1998/10/30 20876.20 23783.37
IMATRL PRASUN SHR__CHT 19981031 19981106 155646 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class B on
October 31, 1988. As the chart shows, by October 31, 1998, the value
of the investment would have grown to $20,876 - a 108.76% increase on
the initial investment. For comparison, look at how the Lehman
Brothers Government Bond Index did over the same period. With
dividends reinvested the same $10,000 would have grown to $23,783 - a
137.83% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY
IS NO GUARANTEE OF HOW IT WILL
DO TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION OF INTEREST
RATES. IN TURN, THE SHARE PRICE,
RETURN AND YIELD OF A FUND THAT
INVESTS IN BONDS WILL VARY. THAT
MEANS IF YOU SELL YOUR SHARES
DURING A MARKET DOWNTURN,
YOU MIGHT LOSE MONEY. BUT IF
YOU CAN RIDE OUT THE MARKET'S
UPS AND DOWNS, YOU MAY
HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31, JUNE 30, 1994
(COMMENCEMENT
OF SALE OF
CLASS B SHARES) TO
OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 5.25% 5.41% 5.55% 6.15% 1.75%
CAPITAL RETURNS 3.62% 1.79% -1.86% 8.04% -1.65%
TOTAL RETURNS 8.87% 7.20% 3.69% 14.19% 0.10%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested and exclude the effects of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 3.86(CENTS) 23.30(CENTS) 48.44(CENTS)
ANNUALIZED DIVIDEND RATE 4.53% 4.70% 4.95%
30-DAY ANNUALIZED YIELD 3.85% - -
DIVIDENDS per share show the income paid by the class for a set period
and do not reflect any tax reclassifications. If you annualize this
number, based on an average share price of $10.04 over the past one
month, $9.84 over the past six months, and $9.78 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 excludes the effect of Class B's
contingent deferred sales charge.
FIDELITY ADVISOR GOVERNMENT INVESTMENT FUND - CLASS C
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 C shares
took place on November 3, 1997. Class C shares bear a 1.00% 12b-1 fee.
Returns between June 30, 1994 and November 3, 1997 are those of Class
B shares and reflect Class B shares' 0.90% 12b-1 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 shares' 0.25%
12b-1 fee. Had Class C shares' 12b-1 fee been reflected, returns
between November 3, 1997 and January 1, 1996 and prior to June 30,
1994 would have been lower. Class C shares' contingent deferred sales
charge included in the past one year, past five years and past 10
years total return figures are 1%, 0%, and 0%, respectively. If
Fidelity had not reimbursed certain class expenses, the total returns
and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL C 8.73% 30.18% 108.48%
FIDELITY ADV GOVERNMENT INV - CL C 7.73% 30.18% 108.48%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB GOVERNMENT BOND 11.28% 40.10% 137.83%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 33.17% 115.33%
CUMULATIVE TOTAL RETURNS show Class C's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class C's returns to those of the Lehman
Brothers Government Bond Index - an index of U.S. government and
government agency securities (other than mortgage securities) with
maturities of one year or more. To measure how Class C's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past one year average represents a peer group of 188 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - CL C 8.73% 5.42% 7.62%
FIDELITY ADV GOVERNMENT INV - CL C 7.73% 5.42% 7.62%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB GOVERNMENT BOND 11.28% 6.98% 9.05%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 5.88% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Class C shares' cumulative return
and show you what would have happened if Class C shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
FA Govt Inv -CL C LB Government Bond
00489 LB003
1988/10/31 10000.00 10000.00
1988/11/30 9916.43 9881.72
1988/12/31 9910.16 9919.43
1989/01/31 10025.30 10045.55
1989/02/28 9994.23 9963.76
1989/03/31 10023.82 10024.73
1989/04/30 10186.44 10239.75
1989/05/31 10385.41 10481.22
1989/06/30 10617.38 10830.93
1989/07/31 10782.70 11059.66
1989/08/31 10672.34 10873.54
1989/09/30 10734.31 10920.31
1989/10/31 10936.99 11202.92
1989/11/30 11020.07 11311.41
1989/12/31 11074.60 11330.51
1990/01/31 10954.10 11170.10
1990/02/28 10990.19 11192.39
1990/03/31 11006.44 11189.94
1990/04/30 10907.56 11091.25
1990/05/31 11227.16 11400.55
1990/06/30 11388.88 11581.04
1990/07/31 11526.93 11729.20
1990/08/31 11453.23 11565.85
1990/09/30 11529.36 11676.79
1990/10/31 11645.19 11867.56
1990/11/30 11848.23 12130.58
1990/12/31 12001.05 12318.17
1991/01/31 12132.72 12450.41
1991/02/28 12233.75 12521.67
1991/03/31 12282.92 12585.35
1991/04/30 12384.98 12723.47
1991/05/31 12449.98 12772.93
1991/06/30 12442.91 12754.81
1991/07/31 12576.29 12906.16
1991/08/31 12771.35 13205.42
1991/09/30 13002.17 13482.39
1991/10/31 13118.33 13600.43
1991/11/30 13194.16 13736.84
1991/12/31 13615.28 14204.83
1992/01/31 13430.60 13983.69
1992/02/29 13492.38 14038.30
1992/03/31 13399.82 13956.26
1992/04/30 13478.34 14044.18
1992/05/31 13725.75 14303.28
1992/06/30 13915.76 14508.25
1992/07/31 14150.73 14873.88
1992/08/31 14272.54 15012.49
1992/09/30 14405.14 15224.81
1992/10/31 14231.45 15005.14
1992/11/30 14267.47 14979.18
1992/12/31 14498.08 15231.42
1993/01/31 14746.38 15554.93
1993/02/28 15023.11 15866.43
1993/03/31 15109.24 15919.58
1993/04/30 15223.07 16042.02
1993/05/31 15247.05 16024.39
1993/06/30 15547.18 16379.98
1993/07/31 15624.17 16479.89
1993/08/31 15878.92 16847.72
1993/09/30 15908.05 16912.13
1993/10/31 16014.75 16976.05
1993/11/30 15769.77 16789.93
1993/12/31 15854.70 16854.83
1994/01/31 16131.13 17085.52
1994/02/28 15757.54 16723.81
1994/03/31 15281.31 16347.65
1994/04/30 15128.85 16219.08
1994/05/31 15144.62 16198.27
1994/06/30 15093.04 16161.04
1994/07/31 15395.81 16458.10
1994/08/31 15389.78 16461.28
1994/09/30 15142.98 16229.37
1994/10/31 15107.54 16217.12
1994/11/30 15068.84 16187.49
1994/12/31 15160.69 16285.94
1995/01/31 15423.00 16589.12
1995/02/28 15753.67 16946.17
1995/03/31 15848.42 17052.46
1995/04/30 16026.06 17275.31
1995/05/31 16639.33 17972.03
1995/06/30 16745.79 18109.91
1995/07/31 16675.78 18043.30
1995/08/31 16854.68 18255.38
1995/09/30 16997.74 18431.21
1995/10/31 17250.88 18711.86
1995/11/30 17486.29 19003.53
1995/12/31 17726.58 19272.91
1996/01/31 17807.15 19391.19
1996/02/29 17433.00 18996.18
1996/03/31 17263.31 18837.49
1996/04/30 17126.02 18717.25
1996/05/31 17079.49 18685.90
1996/06/30 17287.20 18927.12
1996/07/31 17312.51 18973.89
1996/08/31 17262.06 18931.53
1996/09/30 17526.45 19245.73
1996/10/31 17887.75 19669.15
1996/11/30 18173.13 20011.27
1996/12/31 17969.74 19807.02
1997/01/31 17972.32 19829.06
1997/02/28 17969.71 19856.25
1997/03/31 17780.63 19646.13
1997/04/30 18013.74 19929.72
1997/05/31 18133.24 20101.63
1997/06/30 18328.83 20327.18
1997/07/31 18818.38 20904.15
1997/08/31 18621.59 20697.46
1997/09/30 18895.63 21008.72
1997/10/31 19174.81 21372.14
1997/11/30 19228.40 21481.61
1997/12/31 19404.23 21706.18
1998/01/31 19680.66 22030.91
1998/02/28 19609.44 21971.15
1998/03/31 19628.05 22033.35
1998/04/30 19683.18 22132.54
1998/05/31 19863.25 22359.80
1998/06/30 20064.16 22614.00
1998/07/31 20061.52 22649.02
1998/08/31 20447.19 23238.23
1998/09/30 20976.99 23864.67
1998/10/30 20847.91 23783.37
IMATRL PRASUN SHR__CHT 19981031 19981106 155851 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund - Class C on
October 31, 1988. As the chart shows, by October 31, 1998, the value
of the investment would have grown to $20,848 - a 108.48% increase on
the initial investment. For comparison, look at how the Lehman
Brothers Government Bond Index did over the same period. With
dividends reinvested the same $10,000 would have grown to $23,783 - a
137.83% 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
NOVEMBER 3, 1997
(COMMENCEMENT
OF SALE OF
CLASS C SHARES) TO
OCTOBER 31,
1998
DIVIDEND RETURNS 5.08%
CAPITAL RETURNS 3.94%
TOTAL RETURNS 9.02%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested and exclude the effects of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 LIFE OF
MONTH MONTHS CLASS
DIVIDENDS PER SHARE 3.77(CENTS) 22.73(CENTS) 46.79(CENTS)
ANNUALIZED DIVIDEND RATE 4.42% 4.58% 4.82%
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 share price of $10.05 over the past one
month, $9.85 over the past six months, and $9.78 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. Yield information will be
reported once Class C has a longer, more stable operating history.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Uncertainty in the global equity
markets, combined with two interest-
rate cuts by the Federal Reserve
Board, provided the backdrop for
strong gains in the bond market
during the 12-month period ended
October 31, 1998. The Lehman
Brothers Aggregate Bond Index -
a broad measure of the U.S. taxable
investment-grade bond market -
returned 9.34% over the past year.
Global market volatility, low
interest rates and a sharp decline
in stock prices sent U.S. Treasury
yields - which move in the
opposite direction of bond prices
- - to their lowest levels in 30 years.
While the extreme flight to quality
helped Treasuries outperform all
other sectors of the bond market,
corporate bond investors benefited
from a stable domestic economy,
low interest rates and low inflation.
The Lehman Brothers Corporate
Bond Index returned 7.99% for the
past 12 months. Despite high
refinancing activity, mortgage bonds
also performed well. The Lehman
Brothers Mortgage Backed Securities
Index posted a 12-month return of
7.30%. Late in the period, the bond
market stumbled as the Group of
Seven leading industrial nations
eased global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Advisor Government Investment Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended October 31, 1998, the fund's
Class A, Class T, Class B and Class C shares provided total returns of
9.74%, 9.56%, 8.87% and 8.73%, respectively. To get a sense of how the
fund did relative to its competitors, the general U.S. government
funds average returned 9.06% for the same 12-month period, according
to Lipper Analytical Services. Additionally, the Lehman Brothers
Government Bond Index - which tracks the types of securities in which
the fund invests - returned 11.28% for the same one-year period.
Q. WHAT FACTORS HELPED THE FUND'S PERFORMANCE DURING THE PAST YEAR?
A. Throughout a good portion of the year, the fund's holdings in
agency and mortgage securities were a plus for performance. Because
they carry higher yields than U.S. Treasury securities, agency and
mortgage securities outpaced Treasuries until about August 1998. At
that point, the environment shifted and Treasuries took leadership
over from their agency and mortgage counterparts. Mounting uncertainty
about the health of the global economy prompted growing numbers of
investors to flock to Treasuries in a classic flight to safety. This
increased demand came at a point when the supply of Treasuries had
diminished slightly because the government curtailed its borrowing in
light of a federal budget surplus. Stronger demand pushed against
weaker supply, which helped to make Treasuries the
single-best-performing securities in the investment-grade bond market
during the final three months of the period.
Q. WHY DID THE FUND LAG ITS BENCHMARK, THE LEHMAN BROTHERS GOVERNMENT
BOND INDEX, FOR THE ONE-YEAR PERIOD?
A. Throughout the year, the fund had a much smaller stake in Treasury
securities - and much larger positions in agency and mortgage
securities - than its benchmark, the Lehman Brothers Government Bond
Index. While that allocation helped give the fund an advantage over
its benchmark early on, the strong performance of Treasuries and the
fund's relatively small stake in them caused the fund to lag the
benchmark for the year that ended October 31, 1998.
Q. WHY DID MORTGAGE SECURITIES RUN INTO TROUBLE?
A. As interest rates fell, a rapidly increasing number of homeowners
refinanced their mortgage loans. Mortgage securities give investors an
interest in a pool of mortgages. Homeowners' monthly payments - which
include both interest and principal - are passed through to the
mortgage-bond holder. As mortgages were prepaid, the mortgage
securities that were made up of them were retired prior to their
maturity, potentially leaving their holders to reinvest the proceeds
at lower, prevailing interest rates. Since fewer investors wanted to
risk that potential reinvestment quandary, the mortgage market faced
some selling pressure. At the end of the period, mortgage security
prices were so attractive after having been beaten up in prior months
that I added to the fund's stake in them, focusing on securities that
have less of a likelihood of being prepaid.
Q. AGENCIES, LIKE TREASURIES, ARE BACKED BY THE U.S. GOVERNMENT. WHY
DIDN'T THEY BENEFIT FROM THE SAME FLIGHT TO SAFETY THAT TREASURIES
ENJOYED?
A. Treasuries are backed by the full faith and credit of the U.S.
government. Agency securities, on the other hand, are issued by
government-sponsored entities, including the Federal Home Loan Bank
and Fannie Mae, and, as such, are only indirectly backed by the U.S.
government. Although no federal agency has ever defaulted on its debt,
agency securities are perceived to be more risky - although only
slightly more so - than U.S. Treasuries. What's more, the Treasury
market offers a bit more liquidity, which means that securities are
more easily bought and sold.
Q. WHAT'S YOUR OUTLOOK?
A. The primary driver of the bond market's performance will be - as it
always is - the direction of interest rates. If the Federal Reserve
Board continues to cut interest rates - as the bond market seems to be
expecting it to do - the market should react favorably. If, on the
other hand, the Fed holds rates steady, the bond market could be in
for a period of readjustment. As for the fund, I'll continue to manage
it with approximately the same interest-rate sensitivity as the
government market as represented by its index. In addition, I'm likely
to continue to place a relatively large emphasis on agency securities,
because I think they offer better total return potential than mortgage
securities or Treasuries at this point in time.
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.
CURT HOLLINGSWORTH ON YIELD
SPREADS:
"WHEN ANALYZING THE
ATTRACTIVENESS OF DIFFERENT TYPES OF
BONDS, I LOOK AT THE YIELD SPREAD,
WHICH REFLECTS THE DIFFERENCE
BETWEEN THE YIELD ON TREASURIES
AND THE YIELD ON OTHER SECURITIES.
AN AGENCY SECURITY, FOR EXAMPLE,
TYPICALLY WILL HAVE A HIGHER YIELD
THAN A TREASURY SECURITY BECAUSE IT
IS PERCEIVED TO CARRY SLIGHTLY MORE
RISK. TREASURY AND AGENCY YIELDS WILL
MOVE AROUND, CAUSING THE YIELD
ADVANTAGE OFFERED BY AGENCIES TO
FLUCTUATE. THE SPREAD CAN GET
WIDER, FOR EXAMPLE, WHEN THERE IS A
RELATIVELY LARGE SUPPLY OF AGENCY
SECURITIES AVAILABLE OR A LACK OF
DEMAND FOR THEM, CAUSING THEIR
PRICES TO WEAKEN RELATIVE TO
TREASURIES AS THEIR YIELDS RISE. THE
SPREAD CAN TIGHTEN WHEN THE
SUPPLY OF AGENCY SECURITIES IS
LIMITED AND THE DEMAND FOR THEM
IS STRONG. I TRY TO BUY AGENCY
SECURITIES WHEN I THINK THAT THEIR
YIELD ADVANTAGE OVER TREASURIES
WILL DIMINISH, A PROCESS KNOWN AS
YIELD-SPREAD TIGHTENING. AS THAT
TIGHTENING OCCURS, THE
PRICE-PERFORMANCE OF AN AGENCY
SECURITY WILL BE BETTER THAN THAT OF
A TREASURY."
NOTE TO SHAREHOLDERS: EFFECTIVE
DECEMBER 7, 1998, TOM SILVIA WILL
BECOME PORTFOLIO MANAGER OF
ADVISOR GOVERNMENT INVESTMENT
FUND. MR. SILVIA JOINED FIDELITY
IN 1993.
FUND FACTS
GOAL: SEEKS A HIGH LEVEL OF
CURRENT INCOME BY INVESTING IN
U.S. GOVERNMENT SECURITIES
AND INSTRUMENTS RELATED TO
U.S. GOVERNMENT SECURITIES
START DATE: JANUARY 7, 1987
SIZE: AS OF OCTOBER 31,
1998, MORE THAN $335 MILLION
MANAGER: CURT HOLLINGSWORTH,
SINCE 1997; JOINED FIDELITY
IN 1983
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO COUPON BONDS - 13.1
5 - 5.99% 11.6 4.8
6 - 6.99% 23.8 17.1
7 - 7.99% 8.4 13.9
8 - 8.99% 28.7 24.4
9 - 9.99% 13.0 20.0
10 - 10.99% 0.4 0.9
11 - 11.99% 1.0 1.9
12% AND OVER 0.2 0.3
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING
SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 8.2 8.9
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 5.4 5.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 16.2
ROW: 1, COL: 2, VALUE: 25.5
ROW: 1, COL: 3, VALUE: 45.4
ROW: 1, COL: 4, VALUE: 12.9
ROW: 1, COL: 5, VALUE: 0.0
ROW: 1, COL: 6, VALUE: 0.0
MORTGAGE
SECURITIES 19.5%
U.S. TREASURY
OBLIGATIONS 26.0%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 50.9%
SHORT-TERM
INVESTMENTS 3.6%
MORTGAGE
SECURITIES 16.2%
U.S. TREASURY
OBLIGATIONS 25.5%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 45.4%
SHORT-TERM
INVESTMENTS 12.9%
ROW: 1, COL: 1, VALUE: 19.5
ROW: 1, COL: 2, VALUE: 26.0
ROW: 1, COL: 3, VALUE: 50.9
ROW: 1, COL: 4, VALUE: 3.6
ROW: 1, COL: 5, VALUE: 0.0
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 70.9%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 45.4%
Fannie Mae:
5.75% 4/15/03 $ 4,500,000 $ 4,688,258
6.48% 6/28/04 480,000 513,898
6.5% 7/16/07 6,000,000 6,505,320
6.59% 9/17/07 9,000,000 9,800,190
6.74% 5/13/04 630,000 677,660
8.625% 6/30/04 1,000,000 1,175,160
Federal Agricultural Mortgage Corp. 7.01% 8/10/04 500,000 550,470
Federal Farm Credit Bank 5.7% 1/18/05 3,460,000 3,573,531
Federal Home Loan Bank:
5.83% 8/25/05 8,670,000 9,076,363
6.89% 4/6/04 1,000,000 1,087,810
7.59% 3/10/05 290,000 330,148
7.87% 10/20/04 1,000,000 1,148,280
8.22% 11/17/04 4,000,000 4,735,080
Freddie Mac:
5.85% 2/21/06 1,000,000 1,046,720
6.08% 12/17/04 1,000,000 1,057,970
6.33% 9/21/05 2,800,000 3,010,000
6.505% 7/1/04 1,000,000 1,075,000
6.79% 8/26/05 2,650,000 2,919,558
6.95% 4/1/04 2,000,000 2,180,940
7.25% 4/28/04 10,000,000 11,059,400
8% 1/26/05 1,420,000 1,645,652
Government Loan Trusts (assets of Trust guaranteed by 1,032,025 1,171,566
U.S. Government through Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates (assets of Trust guaranteed
by U.S. Government through Defense Security
Assistance Agency):
Class 1-C, 9.25% 11/15/01 5,402,144 5,758,361
Class 2-E, 9.4% 5/15/02 841,523 892,940
Class T-3, 9.625% 5/15/02 476,005 504,280
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank):
Series 1993-C, 5.2% 10/15/04 254,933 256,703
Series 1993-D, 5.23% 5/15/05 281,489 283,375
Series 1994-A, 7.12% 4/15/06 6,705,237 7,244,338
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank): - continued
Series 1994-C, 6.61% 9/15/99 $ 44,955 $ 45,281
Series 1994-F, 8.187% 12/15/04 5,277,981 5,692,883
Series 1995-A, 6.28% 6/15/04 2,477,647 2,562,061
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank):
Series 1994-A, 7.39% 6/26/06 2,000,000 2,168,400
Series 1994-B, 7.5% 1/26/06 224,973 245,004
Series 1997-A, 6.104% 7/15/03 3,333,333 3,424,000
Israel Export Trust Certificates (assets of Trust guaranteed 280,588 292,064
by U.S. Government through Export-Import Bank)
Series 1994-1, 6.88% 1/26/03
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate:
Series 1994-195, 6.08% 8/15/04 (callable) 1,886,000 1,960,912
Series 1996-A1, 6.726% 9/15/10 (callable) 2,000,000 2,134,300
Private Export Funding Corp.:
secured:
5.65% 3/15/03 771,750 784,522
6.31% 9/30/04 19,500,000 20,743,710
6.86% 4/30/04 1,209,000 1,270,623
5.82% 6/15/03 (a) 7,600,000 7,837,500
8.35% 1/31/01 4,000,000 4,301,240
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
5.25% 9/15/00 10,800,000 10,891,152
6.6% 2/15/08 8,000,000 8,701,840
Tennessee Valley Authority stripped principal 6% 1,000,000 1,020,310
11/1/00
U.S. Department of Housing and Urban Development
government guaranteed participation certificates:
Series 1995-A, 8.27% 8/1/03 415,000 470,486
Series 1996-A, 6.98% 8/1/05 1,200,000 1,308,984
U.S. Trade Trust Certificates (assets of Trust guaranteed 510,000 569,721
by U.S. government through Export-Import Bank)
8.17% 1/15/07
160,393,964
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 25.5%
U.S. Treasury Bonds:
8.875% 8/15/17 $ 41,100,000 $ 58,085,807
9% 11/15/18 22,305,000 32,126,115
90,211,922
TOTAL U.S. GOVERNMENT AND 250,605,886
GOVERNMENT AGENCY OBLIGATIONS
(Cost $243,788,250)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 14.0%
FANNIE MAE - 2.9%
5.5% 7/1/09 2,522,368 2,523,377
6% 12/1/08 129,622 130,715
6.345% 3/1/99 1,004,469 1,002,585
6.5% 6/1/07 to 2/1/10 1,977,447 2,001,932
8.25% 12/1/01 672,133 752,533
8.5% 8/1/16 to 1/1/17 149,167 156,163
9% 11/1/11 416,331 437,215
9.25% 9/1/16 103,843 111,092
9.5% 11/1/06 to 5/1/20 2,447,447 2,597,232
11.5% 6/1/19 448,604 500,247
12.5% 8/1/15 20,199 23,241
10,236,332
FREDDIE MAC - 9.0%
6.5% 5/1/08 285,289 289,831
6.775% 11/15/03 4,709,291 4,994,792
8.5% 8/1/09 to 7/1/28 22,029,147 22,927,594
9% 10/1/08 to 10/1/20 1,112,204 1,177,388
9.5% 5/1/21 to 7/1/21 764,129 826,899
10.5% 1/1/16 to 12/1/20 567,205 629,239
11% 7/1/13 to 5/1/14 460,494 510,816
12.5% 2/1/10 to 6/1/19 466,788 536,640
31,893,199
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.1%
7.5% 9/15/06 to 1/15/08 2,169,056 2,248,705
9% 5/15/01 to 12/15/09 523,121 536,130
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
9.5% 11/15/09 to 11/15/20 $ 1,295,737 $ 1,396,985
10.5% 8/15/16 to 1/20/18 690,065 748,847
11% 12/15/15 to 7/15/19 556,245 615,612
11.5% 3/15/10 to 8/15/20 1,622,694 1,805,079
13.5% 7/15/11 49,862 57,704
7,409,062
TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES 49,538,593
(Cost $49,084,339)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.4%
U.S. GOVERNMENT AGENCY - 1.4%
Fannie Mae REMIC planned amortization class Series 2,730,000 2,791,958
1993-134 Class GA, 6.5% 2/25/07
Freddie Mac:
sequential pay Series 1353 Class A, 5.5% 11/15/04 5,902 5,889
Series 1535 Class PM, 7% 6/15/01 2,258,424 2,293,712
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 5,091,559
(Cost $4,960,822)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 0.8%
Fannie Mae Multifamily REMIC Trust sequential pay 2,580,273 2,680,387
Series 1996-M5 Class A1, 7.141% 7/25/10
(Cost $2,603,005)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 12.9%
MATURITY
AMOUNT
Investments in repurchase agreements (U.S. Government $ 45,388,329 45,367,000
obligations), in a joint trading account at 5.64%, dated
10/30/98 due 11/2/98
(Cost $45,367,000)
TOTAL INVESTMENT IN SECURITIES - 100% $ 353,283,425
(Cost $345,803,416)
</TABLE>
LEGEND
(a) 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 $7,837,500 or 2.3% of net assets.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate
cost of investment securities for income
tax purposes was $345,876,923. Net unrealized appreciation aggregated
$7,406,502, of which $7,871,737 related to appreciated investment
securities and $465,235 related to depreciated investment securities.
The fund hereby designates approximately $1,045,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 353,283,425
AGREEMENTS OF $45,367,000) (COST $345,803,416) -
SEE ACCOMPANYING SCHEDULE
CASH 38,194
RECEIVABLE FOR INVESTMENTS SOLD 14,108,539
RECEIVABLE FOR FUND SHARES SOLD 1,043,706
INTEREST RECEIVABLE 4,058,202
TOTAL ASSETS 372,532,066
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 34,934,216
PAYABLE FOR FUND SHARES REDEEMED 1,558,590
DISTRIBUTIONS PAYABLE 258,649
ACCRUED MANAGEMENT FEE 128,435
DISTRIBUTION FEES PAYABLE 109,168
OTHER PAYABLES AND ACCRUED EXPENSES 116,890
TOTAL LIABILITIES 37,105,948
NET ASSETS $ 335,426,118
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 326,184,920
UNDISTRIBUTED NET INVESTMENT INCOME 789,894
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 971,295
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 7,480,009
NET ASSETS $ 335,426,118
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $10.02
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE ($7,883,558 (DIVIDED BY) 786,877 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $10.02) $10.52
CLASS T: $10.02
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE ($212,933,028 (DIVIDED BY) 21,253,007 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $10.02) $10.38
CLASS B: $10.01
NET ASSET VALUE AND OFFERING PRICE PER
SHARE ($74,073,191 (DIVIDED BY) 7,399,047 SHARES) A
CLASS C: $10.02
NET ASSET VALUE AND OFFERING PRICE PER
SHARE ($14,953,999 (DIVIDED BY) 1,492,684 SHARES) A
INSTITUTIONAL CLASS: $10.00
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE ($25,582,342 (DIVIDED BY) 2,557,972 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 14,611,715
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $928)
EXPENSES
MANAGEMENT FEE $ 964,623
TRANSFER AGENT FEES 490,593
DISTRIBUTION FEES 705,896
ACCOUNTING AND SECURITY LENDING FEES 90,466
NON-INTERESTED TRUSTEES' COMPENSATION 1,338
CUSTODIAN FEES AND EXPENSES 16,524
REGISTRATION FEES 101,993
AUDIT 33,460
LEGAL 717
INTEREST 1,804
REPORTS TO SHAREHOLDERS 24,973
MISCELLANEOUS 893
TOTAL EXPENSES BEFORE REDUCTIONS 2,433,280
EXPENSE REDUCTIONS (64,609) 2,368,671
NET INVESTMENT INCOME 12,243,044
REALIZED AND UNREALIZED GAIN (LOSS) 7,666,008
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 482,198
INVESTMENT SECURITIES
NET GAIN (LOSS) 8,148,206
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 20,391,250
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 12,243,044 $ 12,351,649
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 7,666,008 (45,568)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 482,198 2,565,980
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 20,391,250 14,872,061
OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (12,201,221) (12,220,693)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 141,557,657 (80,094,142)
TOTAL INCREASE (DECREASE) IN NET ASSETS 149,747,686 (77,442,774)
NET ASSETS
BEGINNING OF PERIOD 185,678,432 263,121,206
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 335,426,118 $ 185,678,432
INCOME OF $789,894 AND $443,959, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.670 $ 9.490 $ 9.250
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .545 .552 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) .368 .187 .241
TOTAL FROM INVESTMENT OPERATIONS .913 .739 .331
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.563) (.559) (.091)
NET ASSET VALUE, END OF PERIOD $ 10.020 $ 9.670 $ 9.490
TOTAL RETURN B, C 9.74% 8.09% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,884 $ 1,582 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.65% 5.98% 6.28% A
PORTFOLIO TURNOVER RATE 243% 136% 153%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E 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 7 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.670 $ 9.490 $ 9.670 $ 8.960 $ 10.140
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .546 C .558 C .586 C .594 .515
NET REALIZED AND UNREALIZED .351 .171 (.180) .701 (1.031)
GAIN (LOSS)
TOTAL FROM INVESTMENT .897 .729 .406 1.295 (.516)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.547) (.549) (.586) (.585) (.504)
FROM NET REALIZED GAIN - - - - (.130)
IN EXCESS OF NET REALIZED GAIN - - - - (.030)
TOTAL DISTRIBUTIONS (.547) (.549) (.586) (.585) (.664)
NET ASSET VALUE, END OF PERIOD $ 10.020 $ 9.670 $ 9.490 $ 9.670 $ 8.960
TOTAL RETURN A, B 9.56% 7.97% 4.38% 14.91% (5.27)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 212,933 $ 144,948 $ 217,883 $ 208,620 $ 114,453
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE NET 1.00% D 1.00% D 1.00% .89% D .74% D
ASSETS
RATIO OF EXPENSES TO AVERAGE NET 1.00% 1.00% .99% E .89% .74%
ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 5.59% 5.88% 6.19% 6.34% 6.18%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 243% 136% 153% 261% 313%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D 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 7 OF NOTES TO FINANCIAL STATEMENTS).
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.660 $ 9.490 $ 9.670 $ 8.950 $ 9.100
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .475 D .494 D .520 D .542 .144
NET REALIZED AND UNREALIZED .359 .166 (.177) .693 (.137)
GAIN (LOSS)
TOTAL FROM INVESTMENT .834 .660 .343 1.235 .007
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.484) (.490) (.523) (.515) (.157)
NET ASSET VALUE, END OF PERIOD $ 10.010 $ 9.660 $ 9.490 $ 9.670 $ 8.950
TOTAL RETURN B, C 8.87% 7.20% 3.69% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 74,073 $ 18,782 $ 17,355 $ 11,766 $ 2,062
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE 1.65% F 1.65% F 1.67% F 1.65% F 1.70% A, F
NET ASSETS
RATIO OF NET INVESTMENT INCOME 4.92% 5.24% 5.51% 5.58% 5.22% A
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 243% 136% 153% 261% 313%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 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 7 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS C
YEAR ENDED
OCTOBER 31,
1998 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.640
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .450
NET REALIZED AND UNREALIZED GAIN (LOSS) .398
TOTAL FROM INVESTMENT OPERATIONS .848
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.468)
NET ASSET VALUE, END OF PERIOD $ 10.020
TOTAL RETURN B, C 9.02%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 14,954
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.75% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.74% A
PORTFOLIO TURNOVER RATE 243%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE 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 NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO OCTOBER 31, 1998.
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 7 OF NOTES TO FINANCIAL STATEMENTS).
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.650 $ 9.480 $ 9.670 $ 9.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .570 D .580 D .604 D .197
NET REALIZED AND UNREALIZED GAIN (LOSS) .352 .165 (.180) .108
TOTAL FROM INVESTMENT OPERATIONS .922 .745 .424 .305
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.572) (.575) (.614) (.195)
NET ASSET VALUE, END OF PERIOD $ 10.000 $ 9.650 $ 9.480 $ 9.670
TOTAL RETURN B, C 9.86% 8.18% 4.58% 3.23%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 25,582 $ 20,366 $ 27,660 $ 14,588
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% F .75% F .75% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE 5.84% 6.12% 6.43% 6.48% A
NET ASSETS
PORTFOLIO TURNOVER RATE 243% 136% 153% 261%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 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 7 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
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, Class C, 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
matters that affect that class. The fund commenced sale of Class C
shares on November 3, 1997. Investment income, realized and unrealized
capital gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, are allocated on a pro rata
basis to each class based on the relative net assets of each class to
the total net assets of the fund. Each class of shares differs in its
respective distribution, transfer agent, and certain other
class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date. Income dividends
and capital gain distributions are declared separately for each class.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards 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 may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $640,199,034 and $523,341,935, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .43% 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. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
CLASS C 1.00%**
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
** .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 retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 4,622 $ 102
CLASS T 402,948 4,021
CLASS B 261,662 189,160
CLASS C 36,664 36,515
$ 705,896 $ 229,798
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
Under the Plans, FMR 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. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 882
CLASS T 98,475
CLASS B 8,663
CLASS C 1,726
INSTITUTIONAL CLASS 10,018
$ 119,764
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5% to 1% for Class B and 1% for Class C, 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. In addition, purchases of Class A and
Class T shares that were subject to a finder's fee bear a contingent
deferred sales charge on assets that do not remain in the fund for at
least one year. The Class A and Class T contingent deferred sales
charge is based on 0.25% 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. A
portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 41,422 $ 12,554
CLASS T 105,994 31,145
CLASS B 76,288 76,288*
CLASS C 14,911 14,911*
$ 238,615 $ 134,898
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund.
FIIOC receives account fees and asset-based fees that vary according
to the account size and type of account of the shareholders of the
respective classes of the fund. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For
the period, the following amounts were paid to FIIOC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 9,358 .30
CLASS T 363,453 .23
CLASS B 64,317 .22
CLASS C 9,341 .25*
INSTITUTIONAL CLASS 44,124 .18
$ 490,593
* ANNUALIZED
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Company, Inc.
(FSC), an affiliate of FMR, maintains the fund's accounting records
and administers the security lending program. The security lending fee
is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the
month plus out-of-pocket expenses.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan.
At period end, there were no loans outstanding.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $10,601,000. The weighted average interest rate was 6.125%.
7. 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 of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 10,437
CLASS T 1.00% 22,675
CLASS B 1.65% 12,639
CLASS C 1.75% 16,176
INSTITUTIONAL CLASS .75% 817
$ 62,744
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 $1,865 under the custodian
arrangement.
8. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
1998A 1997
FROM NET INVESTMENT INCOME
CLASS A $ 172,525 $ 42,611
CLASS T 8,994,288 9,932,617
CLASS B 1,420,172 901,652
CLASS C 168,316 -
INSTITUTIONAL CLASS 1,445,920 1,343,813
TOTAL $ 12,201,221 $ 12,220,693
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
9. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEARS ENDED YEARS ENDED
OCTOBER 31, OCTOBER 31,
1998 A 1997 1998 A 1997
CLASS A 849,297 178,436 $ 8,455,738 $ 1,694,126
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 14,303 3,776 140,529 35,859
SHARES REDEEMED (240,354) (42,060) (2,383,022) (399,267)
NET INCREASE (DECREASE) 623,246 140,152 $ 6,213,245 $ 1,330,718
CLASS T 15,886,817 7,027,367 $ 156,318,393 $ 66,447,581
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 761,626 889,673 7,462,535 8,404,098
SHARES REDEEMED (10,390,224) (15,881,447) (101,764,593) (149,782,096)
NET INCREASE (DECREASE) 6,258,219 (7,964,407) $ 62,016,335 $ (74,930,417)
CLASS B 6,584,605 604,961 $ 65,367,580 $ 5,722,117
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 109,260 71,140 1,074,687 672,141
SHARES REDEEMED (1,239,115) (560,735) (12,195,223) (5,289,699)
NET INCREASE (DECREASE) 5,454,750 115,366 $ 54,247,044 $ 1,104,559
CLASS C 1,742,987 - $ 17,267,410 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 13,959 - 138,062 -
SHARES REDEEMED (264,262) - (2,621,407) -
NET INCREASE (DECREASE) 1,492,684 - $ 14,784,065 $ -
INSTITUTIONAL CLASS 1,251,693 790,278 $ 12,156,145 $ 7,450,279
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 126,775 121,048 1,238,963 1,142,532
SHARES REDEEMED (930,969) (1,719,049) (9,098,140) (16,191,813)
NET INCREASE (DECREASE) 447,499 (807,723) $ 4,296,968 $ (7,599,002)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
10. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 8,414
CLASS T 44,866
CLASS B 17,057
CLASS C 15,377
INSTITUTIONAL CLASS 16,279
$ 101,993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Government Investment Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Government Investment Fund (a fund of Fidelity
Advisor Series II) at October 31, 1998, the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Advisor Government Investment Fund 's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
A total of 28.99% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Stanley N. Griffith, Assistant Vice President
Curtis Hollingsworth, Vice President
Thomas J. Silvia, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap 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
AGOV-ANN-1298 66826
1.538367.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
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Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
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Treasury Fund
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(FIDELITY_LOGO_GRAPHIC)(registered trademark)
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
GOVERNMENT INVESTMENT
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 16 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 25 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 33 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 34
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR GOVERNMENT INVESTMENT FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares
are sold to eligible investors without a sales load or 12b-1 fee.
Returns prior to July 3, 1995 are those of Class T, the original class
of the fund, and reflect Class T shares' 0.25% 12b-1 fee. If Fidelity
had not reimbursed certain class expenses, the total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - INST CL 9.86% 35.42% 116.87%
LB GOVERNMENT BOND 11.28% 40.10% 137.83%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 33.17% 115.33%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare Institutional Class' returns to those
of the Lehman Brothers Government Bond Index - an index of U.S.
government and government agency securities (other than mortgage
securities) with maturities of one year or more. To measure how
Institutional Class' performance stacked up against its peers, you can
compare it to the general U.S. government funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past one year average
represents a peer group of 188 mutual funds. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV GOVERNMENT INV - INST CL 9.86% 6.25% 8.05%
LB GOVERNMENT BOND 11.28% 6.98% 9.05%
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 5.88% 7.94%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' cumulative
return and show you what would have happened if Institutional Class
shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
FA Govt Inv -CL I LB Government Bond
00697 LB003
1988/10/31 10000.00 10000.00
1988/11/30 9916.43 9881.72
1988/12/31 9910.16 9919.43
1989/01/31 10025.30 10045.55
1989/02/28 9994.23 9963.76
1989/03/31 10023.82 10024.73
1989/04/30 10186.44 10239.75
1989/05/31 10385.41 10481.22
1989/06/30 10617.38 10830.93
1989/07/31 10782.70 11059.66
1989/08/31 10672.34 10873.54
1989/09/30 10734.31 10920.31
1989/10/31 10936.99 11202.92
1989/11/30 11020.07 11311.41
1989/12/31 11074.60 11330.51
1990/01/31 10954.10 11170.10
1990/02/28 10990.19 11192.39
1990/03/31 11006.44 11189.94
1990/04/30 10907.56 11091.25
1990/05/31 11227.16 11400.55
1990/06/30 11388.88 11581.04
1990/07/31 11526.93 11729.20
1990/08/31 11453.23 11565.85
1990/09/30 11529.36 11676.79
1990/10/31 11645.19 11867.56
1990/11/30 11848.23 12130.58
1990/12/31 12001.05 12318.17
1991/01/31 12132.72 12450.41
1991/02/28 12233.75 12521.67
1991/03/31 12282.92 12585.35
1991/04/30 12384.98 12723.47
1991/05/31 12449.98 12772.93
1991/06/30 12442.91 12754.81
1991/07/31 12576.29 12906.16
1991/08/31 12771.35 13205.42
1991/09/30 13002.17 13482.39
1991/10/31 13118.33 13600.43
1991/11/30 13194.16 13736.84
1991/12/31 13615.28 14204.83
1992/01/31 13430.60 13983.69
1992/02/29 13492.38 14038.30
1992/03/31 13399.82 13956.26
1992/04/30 13478.34 14044.18
1992/05/31 13725.75 14303.28
1992/06/30 13915.76 14508.25
1992/07/31 14150.73 14873.88
1992/08/31 14272.54 15012.49
1992/09/30 14405.14 15224.81
1992/10/31 14231.45 15005.14
1992/11/30 14267.47 14979.18
1992/12/31 14498.08 15231.42
1993/01/31 14746.38 15554.93
1993/02/28 15023.11 15866.43
1993/03/31 15109.24 15919.58
1993/04/30 15223.07 16042.02
1993/05/31 15247.05 16024.39
1993/06/30 15547.18 16379.98
1993/07/31 15624.17 16479.89
1993/08/31 15878.92 16847.72
1993/09/30 15908.05 16912.13
1993/10/31 16014.75 16976.05
1993/11/30 15769.77 16789.93
1993/12/31 15854.70 16854.83
1994/01/31 16131.13 17085.52
1994/02/28 15757.54 16723.81
1994/03/31 15281.31 16347.65
1994/04/30 15128.85 16219.08
1994/05/31 15144.62 16198.27
1994/06/30 15093.04 16161.04
1994/07/31 15422.10 16458.10
1994/08/31 15413.09 16461.28
1994/09/30 15196.55 16229.37
1994/10/31 15170.84 16217.12
1994/11/30 15141.92 16187.49
1994/12/31 15244.42 16285.94
1995/01/31 15518.08 16589.12
1995/02/28 15857.18 16946.17
1995/03/31 15962.28 17052.46
1995/04/30 16151.32 17275.31
1995/05/31 16779.50 17972.03
1995/06/30 16897.27 18109.91
1995/07/31 16839.24 18043.30
1995/08/31 17034.33 18255.38
1995/09/30 17195.14 18431.21
1995/10/31 17450.85 18711.86
1995/11/30 17704.73 19003.53
1995/12/31 17945.78 19272.91
1996/01/31 18043.30 19391.19
1996/02/29 17678.23 18996.18
1996/03/31 17520.94 18837.49
1996/04/30 17411.47 18717.25
1996/05/31 17377.48 18685.90
1996/06/30 17582.94 18927.12
1996/07/31 17622.04 18973.89
1996/08/31 17584.18 18931.53
1996/09/30 17866.87 19245.73
1996/10/31 18249.33 19669.15
1996/11/30 18556.60 20011.27
1996/12/31 18364.37 19807.02
1997/01/31 18379.03 19829.06
1997/02/28 18386.96 19856.25
1997/03/31 18208.09 19646.13
1997/04/30 18461.13 19929.72
1997/05/31 18598.10 20101.63
1997/06/30 18812.82 20327.18
1997/07/31 19330.38 20904.15
1997/08/31 19142.61 20697.46
1997/09/30 19438.89 21008.72
1997/10/31 19741.29 21372.14
1997/11/30 19816.31 21481.61
1997/12/31 20015.77 21706.18
1998/01/31 20339.17 22030.91
1998/02/28 20261.40 21971.15
1998/03/31 20296.75 22033.35
1998/04/30 20370.69 22132.54
1998/05/31 20574.87 22359.80
1998/06/30 20800.56 22614.00
1998/07/31 20836.90 22649.02
1998/08/31 21256.26 23238.23
1998/09/30 21803.16 23864.67
1998/10/30 21687.04 23783.37
IMATRL PRASUN SHR__CHT 19981031 19981106 160318 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Government Investment Fund -
Institutional Class on October 31, 1988. As the chart shows, by
October 31, 1998, the value of the investment would have grown to
$21,687 - a 116.87% increase on the initial investment. For
comparison, look at how the Lehman Brothers Government Bond Index did
over the same period. With dividends reinvested the same $10,000 would
have grown to $23,783 - a 137.83% 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)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31, JULY 3, 1995
(COMMENCEMENT
OF SALE OF INSTITUTIONAL
CLASS SHARES) TO
OCTOBER 31,
1998 1997 1996 1995
DIVIDEND RETURNS 6.23% 6.39% 6.54% 2.08%
CAPITAL RETURNS 3.63% 1.79% -1.96% 1.15%
TOTAL RETURNS 9.86% 8.18% 4.58% 3.23%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.62(CENTS) 27.71(CENTS) 57.18(CENTS)
ANNUALIZED DIVIDEND RATE 5.42% 5.59% 5.86%
30-DAY ANNUALIZED YIELD 4.76% - -
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 share price of $10.03 over the past one
month, $9.83 over the past six months, and $9.76 over the past one
year, you can compare the class' income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days.
This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Uncertainty in the global equity
markets, combined with two interest-
rate cuts by the Federal Reserve
Board, provided the backdrop for
strong gains in the bond market
during the 12-month period ended
October 31, 1998. The Lehman
Brothers Aggregate Bond Index -
a broad measure of the U.S. taxable
investment-grade bond market -
returned 9.34% over the past year.
Global market volatility, low
interest rates and a sharp decline
in stock prices sent U.S. Treasury
yields - which move in the
opposite direction of bond prices
- - to their lowest levels in 30 years.
While the extreme flight to quality
helped Treasuries outperform all
other sectors of the bond market,
corporate bond investors benefited
from a stable domestic economy,
low interest rates and low inflation.
The Lehman Brothers Corporate
Bond Index returned 7.99% for the
past 12 months. Despite high
refinancing activity, mortgage bonds
also performed well. The Lehman
Brothers Mortgage Backed Securities
Index posted a 12-month return of
7.30%. Late in the period, the bond
market stumbled as the Group of
Seven leading industrial nations
eased global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Advisor Government Investment Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended October 31, 1998, the fund's
Institutional Class shares provided a total return of 9.86%. To get a
sense of how the fund did relative to its competitors, the general
U.S. government funds average returned 9.06% for the same 12-month
period, according to Lipper Analytical Services. Additionally, the
Lehman Brothers Government Bond Index - which tracks the types of
securities in which the fund invests - returned 11.28% for the same
one-year period.
Q. WHAT FACTORS HELPED THE FUND'S PERFORMANCE DURING THE PAST YEAR?
A. Throughout a good portion of the year, the fund's holdings in
agency and mortgage securities were a plus for performance. Because
they carry higher yields than U.S. Treasury securities, agency and
mortgage securities outpaced Treasuries until about August 1998. At
that point, the environment shifted and Treasuries took leadership
over from their agency and mortgage counterparts. Mounting uncertainty
about the health of the global economy prompted growing numbers of
investors to flock to Treasuries in a classic flight to safety. This
increased demand came at a point when the supply of Treasuries had
diminished slightly because the government curtailed its borrowing in
light of a federal budget surplus. Stronger demand pushed against
weaker supply, which helped to make Treasuries the
single-best-performing securities in the investment-grade bond market
during the final three months of the period.
Q. WHY DID THE FUND LAG ITS BENCHMARK, THE LEHMAN BROTHERS GOVERNMENT
BOND INDEX, FOR THE ONE-YEAR PERIOD?
A. Throughout the year, the fund had a much smaller stake in Treasury
securities - and much larger positions in agency and mortgage
securities - than its benchmark, the Lehman Brothers Government Bond
Index. While that allocation helped give the fund an advantage over
its benchmark early on, the strong performance of Treasuries and the
fund's relatively small stake in them caused the fund to lag the
benchmark for the year that ended October 31, 1998.
Q. WHY DID MORTGAGE SECURITIES RUN INTO TROUBLE?
A. As interest rates fell, a rapidly increasing number of homeowners
refinanced their mortgage loans. Mortgage securities give investors an
interest in a pool of mortgages. Homeowners' monthly payments - which
include both interest and principal - are passed through to the
mortgage-bond holder. As mortgages were prepaid, the mortgage
securities that were made up of them were retired prior to their
maturity, potentially leaving their holders to reinvest the proceeds
at lower, prevailing interest rates. Since fewer investors wanted to
risk that potential reinvestment quandary, the mortgage market faced
some selling pressure. At the end of the period, mortgage security
prices were so attractive after having been beaten up in prior months
that I added to the fund's stake in them, focusing on securities that
have less of a likelihood of being prepaid.
Q. AGENCIES, LIKE TREASURIES, ARE BACKED BY THE U.S. GOVERNMENT. WHY
DIDN'T THEY BENEFIT FROM THE SAME FLIGHT TO SAFETY THAT TREASURIES
ENJOYED?
A. Treasuries are backed by the full faith and credit of the U.S.
government. Agency securities, on the other hand, are issued by
government-sponsored entities, including the Federal Home Loan Bank
and Fannie Mae, and, as such, are only indirectly backed by the U.S.
government. Although no federal agency has ever defaulted on its debt,
agency securities are perceived to be more risky - although only
slightly more so - than U.S. Treasuries. What's more, the Treasury
market offers a bit more liquidity, which means that securities are
more easily bought and sold.
Q. WHAT'S YOUR OUTLOOK?
A. The primary driver of the bond market's performance will be - as it
always is - the direction of interest rates. If the Federal Reserve
Board continues to cut interest rates - as the bond market seems to be
expecting it to do - the market should react favorably. If, on the
other hand, the Fed holds rates steady, the bond market could be in
for a period of readjustment. As for the fund, I'll continue to manage
it with approximately the same interest-rate sensitivity as the
government market as represented by its index. In addition, I'm likely
to continue to place a relatively large emphasis on agency securities,
because I think they offer better total return potential than mortgage
securities or Treasuries at this point in time.
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.
CURT HOLLINGSWORTH ON YIELD
SPREADS:
"WHEN ANALYZING THE
ATTRACTIVENESS OF DIFFERENT TYPES OF
BONDS, I LOOK AT THE YIELD SPREAD,
WHICH REFLECTS THE DIFFERENCE
BETWEEN THE YIELD ON TREASURIES
AND THE YIELD ON OTHER SECURITIES.
AN AGENCY SECURITY, FOR EXAMPLE,
TYPICALLY WILL HAVE A HIGHER YIELD
THAN A TREASURY SECURITY BECAUSE IT
IS PERCEIVED TO CARRY SLIGHTLY MORE
RISK. TREASURY AND AGENCY YIELDS WILL
MOVE AROUND, CAUSING THE YIELD
ADVANTAGE OFFERED BY AGENCIES TO
FLUCTUATE. THE SPREAD CAN GET
WIDER, FOR EXAMPLE, WHEN THERE IS A
RELATIVELY LARGE SUPPLY OF AGENCY
SECURITIES AVAILABLE OR A LACK OF
DEMAND FOR THEM, CAUSING THEIR
PRICES TO WEAKEN RELATIVE TO
TREASURIES AS THEIR YIELDS RISE. THE
SPREAD CAN TIGHTEN WHEN THE
SUPPLY OF AGENCY SECURITIES IS
LIMITED AND THE DEMAND FOR THEM
IS STRONG. I TRY TO BUY AGENCY
SECURITIES WHEN I THINK THAT THEIR
YIELD ADVANTAGE OVER TREASURIES
WILL DIMINISH, A PROCESS KNOWN AS
YIELD-SPREAD TIGHTENING. AS THAT
TIGHTENING OCCURS, THE
PRICE-PERFORMANCE OF AN AGENCY
SECURITY WILL BE BETTER THAN THAT OF
A TREASURY."
NOTE TO SHAREHOLDERS: EFFECTIVE
DECEMBER 7, 1998, TOM SILVIA WILL
BECOME PORTFOLIO MANAGER OF
ADVISOR GOVERNMENT INVESTMENT
FUND. MR. SILVIA JOINED FIDELITY
IN 1993.
FUND FACTS
GOAL: SEEKS A HIGH LEVEL OF
CURRENT INCOME BY INVESTING IN
U.S. GOVERNMENT SECURITIES
AND INSTRUMENTS RELATED TO
U.S. GOVERNMENT SECURITIES
START DATE: JANUARY 7, 1987
SIZE: AS OF OCTOBER 31,
1998, MORE THAN $335 MILLION
MANAGER: CURT HOLLINGSWORTH,
SINCE 1997; JOINED FIDELITY
IN 1983
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO COUPON BONDS - 13.1
5 - 5.99% 11.6 4.8
6 - 6.99% 23.8 17.1
7 - 7.99% 8.4 13.9
8 - 8.99% 28.7 24.4
9 - 9.99% 13.0 20.0
10 - 10.99% 0.4 0.9
11 - 11.99% 1.0 1.9
12% AND OVER 0.2 0.3
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING
SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 8.2 8.9
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 5.4 5.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 16.2
ROW: 1, COL: 2, VALUE: 25.5
ROW: 1, COL: 3, VALUE: 45.4
ROW: 1, COL: 4, VALUE: 12.9
ROW: 1, COL: 5, VALUE: 0.0
ROW: 1, COL: 6, VALUE: 0.0
MORTGAGE
SECURITIES 19.5%
U.S. TREASURY
OBLIGATIONS 26.0%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 50.9%
SHORT-TERM
INVESTMENTS 3.6%
MORTGAGE
SECURITIES 16.2%
U.S. TREASURY
OBLIGATIONS 25.5%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 45.4%
SHORT-TERM
INVESTMENTS 12.9%
ROW: 1, COL: 1, VALUE: 19.5
ROW: 1, COL: 2, VALUE: 26.0
ROW: 1, COL: 3, VALUE: 50.9
ROW: 1, COL: 4, VALUE: 3.6
ROW: 1, COL: 5, VALUE: 0.0
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 70.9%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 45.4%
Fannie Mae:
5.75% 4/15/03 $ 4,500,000 $ 4,688,258
6.48% 6/28/04 480,000 513,898
6.5% 7/16/07 6,000,000 6,505,320
6.59% 9/17/07 9,000,000 9,800,190
6.74% 5/13/04 630,000 677,660
8.625% 6/30/04 1,000,000 1,175,160
Federal Agricultural Mortgage Corp. 7.01% 8/10/04 500,000 550,470
Federal Farm Credit Bank 5.7% 1/18/05 3,460,000 3,573,531
Federal Home Loan Bank:
5.83% 8/25/05 8,670,000 9,076,363
6.89% 4/6/04 1,000,000 1,087,810
7.59% 3/10/05 290,000 330,148
7.87% 10/20/04 1,000,000 1,148,280
8.22% 11/17/04 4,000,000 4,735,080
Freddie Mac:
5.85% 2/21/06 1,000,000 1,046,720
6.08% 12/17/04 1,000,000 1,057,970
6.33% 9/21/05 2,800,000 3,010,000
6.505% 7/1/04 1,000,000 1,075,000
6.79% 8/26/05 2,650,000 2,919,558
6.95% 4/1/04 2,000,000 2,180,940
7.25% 4/28/04 10,000,000 11,059,400
8% 1/26/05 1,420,000 1,645,652
Government Loan Trusts (assets of Trust guaranteed by 1,032,025 1,171,566
U.S. Government through Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates (assets of Trust guaranteed
by U.S. Government through Defense Security
Assistance Agency):
Class 1-C, 9.25% 11/15/01 5,402,144 5,758,361
Class 2-E, 9.4% 5/15/02 841,523 892,940
Class T-3, 9.625% 5/15/02 476,005 504,280
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank):
Series 1993-C, 5.2% 10/15/04 254,933 256,703
Series 1993-D, 5.23% 5/15/05 281,489 283,375
Series 1994-A, 7.12% 4/15/06 6,705,237 7,244,338
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank): - continued
Series 1994-C, 6.61% 9/15/99 $ 44,955 $ 45,281
Series 1994-F, 8.187% 12/15/04 5,277,981 5,692,883
Series 1995-A, 6.28% 6/15/04 2,477,647 2,562,061
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank):
Series 1994-A, 7.39% 6/26/06 2,000,000 2,168,400
Series 1994-B, 7.5% 1/26/06 224,973 245,004
Series 1997-A, 6.104% 7/15/03 3,333,333 3,424,000
Israel Export Trust Certificates (assets of Trust guaranteed 280,588 292,064
by U.S. Government through Export-Import Bank)
Series 1994-1, 6.88% 1/26/03
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate:
Series 1994-195, 6.08% 8/15/04 (callable) 1,886,000 1,960,912
Series 1996-A1, 6.726% 9/15/10 (callable) 2,000,000 2,134,300
Private Export Funding Corp.:
secured:
5.65% 3/15/03 771,750 784,522
6.31% 9/30/04 19,500,000 20,743,710
6.86% 4/30/04 1,209,000 1,270,623
5.82% 6/15/03 (a) 7,600,000 7,837,500
8.35% 1/31/01 4,000,000 4,301,240
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
5.25% 9/15/00 10,800,000 10,891,152
6.6% 2/15/08 8,000,000 8,701,840
Tennessee Valley Authority stripped principal 6% 1,000,000 1,020,310
11/1/00
U.S. Department of Housing and Urban Development
government guaranteed participation certificates:
Series 1995-A, 8.27% 8/1/03 415,000 470,486
Series 1996-A, 6.98% 8/1/05 1,200,000 1,308,984
U.S. Trade Trust Certificates (assets of Trust guaranteed 510,000 569,721
by U.S. government through Export-Import Bank)
8.17% 1/15/07
160,393,964
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 25.5%
U.S. Treasury Bonds:
8.875% 8/15/17 $ 41,100,000 $ 58,085,807
9% 11/15/18 22,305,000 32,126,115
90,211,922
TOTAL U.S. GOVERNMENT AND 250,605,886
GOVERNMENT AGENCY OBLIGATIONS
(Cost $243,788,250)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 14.0%
FANNIE MAE - 2.9%
5.5% 7/1/09 2,522,368 2,523,377
6% 12/1/08 129,622 130,715
6.345% 3/1/99 1,004,469 1,002,585
6.5% 6/1/07 to 2/1/10 1,977,447 2,001,932
8.25% 12/1/01 672,133 752,533
8.5% 8/1/16 to 1/1/17 149,167 156,163
9% 11/1/11 416,331 437,215
9.25% 9/1/16 103,843 111,092
9.5% 11/1/06 to 5/1/20 2,447,447 2,597,232
11.5% 6/1/19 448,604 500,247
12.5% 8/1/15 20,199 23,241
10,236,332
FREDDIE MAC - 9.0%
6.5% 5/1/08 285,289 289,831
6.775% 11/15/03 4,709,291 4,994,792
8.5% 8/1/09 to 7/1/28 22,029,147 22,927,594
9% 10/1/08 to 10/1/20 1,112,204 1,177,388
9.5% 5/1/21 to 7/1/21 764,129 826,899
10.5% 1/1/16 to 12/1/20 567,205 629,239
11% 7/1/13 to 5/1/14 460,494 510,816
12.5% 2/1/10 to 6/1/19 466,788 536,640
31,893,199
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.1%
7.5% 9/15/06 to 1/15/08 2,169,056 2,248,705
9% 5/15/01 to 12/15/09 523,121 536,130
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
9.5% 11/15/09 to 11/15/20 $ 1,295,737 $ 1,396,985
10.5% 8/15/16 to 1/20/18 690,065 748,847
11% 12/15/15 to 7/15/19 556,245 615,612
11.5% 3/15/10 to 8/15/20 1,622,694 1,805,079
13.5% 7/15/11 49,862 57,704
7,409,062
TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES 49,538,593
(Cost $49,084,339)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.4%
U.S. GOVERNMENT AGENCY - 1.4%
Fannie Mae REMIC planned amortization class Series 2,730,000 2,791,958
1993-134 Class GA, 6.5% 2/25/07
Freddie Mac:
sequential pay Series 1353 Class A, 5.5% 11/15/04 5,902 5,889
Series 1535 Class PM, 7% 6/15/01 2,258,424 2,293,712
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 5,091,559
(Cost $4,960,822)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 0.8%
Fannie Mae Multifamily REMIC Trust sequential pay 2,580,273 2,680,387
Series 1996-M5 Class A1, 7.141% 7/25/10
(Cost $2,603,005)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 12.9%
MATURITY
AMOUNT
Investments in repurchase agreements (U.S. Government $ 45,388,329 45,367,000
obligations), in a joint trading account at 5.64%, dated
10/30/98 due 11/2/98
(Cost $45,367,000)
TOTAL INVESTMENT IN SECURITIES - 100% $ 353,283,425
(Cost $345,803,416)
</TABLE>
LEGEND
(a) 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 $7,837,500 or 2.3% of net assets.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate
cost of investment securities for income
tax purposes was $345,876,923. Net unrealized appreciation aggregated
$7,406,502, of which $7,871,737 related to appreciated investment
securities and $465,235 related to depreciated investment securities.
The fund hereby designates approximately $1,045,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 353,283,425
AGREEMENTS OF $45,367,000) (COST $345,803,416) -
SEE ACCOMPANYING SCHEDULE
CASH 38,194
RECEIVABLE FOR INVESTMENTS SOLD 14,108,539
RECEIVABLE FOR FUND SHARES SOLD 1,043,706
INTEREST RECEIVABLE 4,058,202
TOTAL ASSETS 372,532,066
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 34,934,216
PAYABLE FOR FUND SHARES REDEEMED 1,558,590
DISTRIBUTIONS PAYABLE 258,649
ACCRUED MANAGEMENT FEE 128,435
DISTRIBUTION FEES PAYABLE 109,168
OTHER PAYABLES AND ACCRUED EXPENSES 116,890
TOTAL LIABILITIES 37,105,948
NET ASSETS $ 335,426,118
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 326,184,920
UNDISTRIBUTED NET INVESTMENT INCOME 789,894
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 971,295
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 7,480,009
NET ASSETS $ 335,426,118
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $10.02
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE ($7,883,558 (DIVIDED BY) 786,877 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $10.02) $10.52
CLASS T: $10.02
NET ASSET VALUE AND REDEMPTION PRICE PER
SHARE ($212,933,028 (DIVIDED BY) 21,253,007 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $10.02) $10.38
CLASS B: $10.01
NET ASSET VALUE AND OFFERING PRICE PER
SHARE ($74,073,191 (DIVIDED BY) 7,399,047 SHARES) A
CLASS C: $10.02
NET ASSET VALUE AND OFFERING PRICE PER
SHARE ($14,953,999 (DIVIDED BY) 1,492,684 SHARES) A
INSTITUTIONAL CLASS: $10.00
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE ($25,582,342 (DIVIDED BY) 2,557,972 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 14,611,715
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $928)
EXPENSES
MANAGEMENT FEE $ 964,623
TRANSFER AGENT FEES 490,593
DISTRIBUTION FEES 705,896
ACCOUNTING AND SECURITY LENDING FEES 90,466
NON-INTERESTED TRUSTEES' COMPENSATION 1,338
CUSTODIAN FEES AND EXPENSES 16,524
REGISTRATION FEES 101,993
AUDIT 33,460
LEGAL 717
INTEREST 1,804
REPORTS TO SHAREHOLDERS 24,973
MISCELLANEOUS 893
TOTAL EXPENSES BEFORE REDUCTIONS 2,433,280
EXPENSE REDUCTIONS (64,609) 2,368,671
NET INVESTMENT INCOME 12,243,044
REALIZED AND UNREALIZED GAIN (LOSS) 7,666,008
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 482,198
INVESTMENT SECURITIES
NET GAIN (LOSS) 8,148,206
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 20,391,250
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 12,243,044 $ 12,351,649
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 7,666,008 (45,568)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 482,198 2,565,980
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 20,391,250 14,872,061
OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (12,201,221) (12,220,693)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 141,557,657 (80,094,142)
TOTAL INCREASE (DECREASE) IN NET ASSETS 149,747,686 (77,442,774)
NET ASSETS
BEGINNING OF PERIOD 185,678,432 263,121,206
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 335,426,118 $ 185,678,432
INCOME OF $789,894 AND $443,959, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.670 $ 9.490 $ 9.250
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .545 .552 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) .368 .187 .241
TOTAL FROM INVESTMENT OPERATIONS .913 .739 .331
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.563) (.559) (.091)
NET ASSET VALUE, END OF PERIOD $ 10.020 $ 9.670 $ 9.490
TOTAL RETURN B, C 9.74% 8.09% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,884 $ 1,582 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.65% 5.98% 6.28% A
PORTFOLIO TURNOVER RATE 243% 136% 153%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E 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 7 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.670 $ 9.490 $ 9.670 $ 8.960 $ 10.140
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .546 C .558 C .586 C .594 .515
NET REALIZED AND UNREALIZED .351 .171 (.180) .701 (1.031)
GAIN (LOSS)
TOTAL FROM INVESTMENT .897 .729 .406 1.295 (.516)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.547) (.549) (.586) (.585) (.504)
FROM NET REALIZED GAIN - - - - (.130)
IN EXCESS OF NET REALIZED GAIN - - - - (.030)
TOTAL DISTRIBUTIONS (.547) (.549) (.586) (.585) (.664)
NET ASSET VALUE, END OF PERIOD $ 10.020 $ 9.670 $ 9.490 $ 9.670 $ 8.960
TOTAL RETURN A, B 9.56% 7.97% 4.38% 14.91% (5.27)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 212,933 $ 144,948 $ 217,883 $ 208,620 $ 114,453
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE NET 1.00% D 1.00% D 1.00% .89% D .74% D
ASSETS
RATIO OF EXPENSES TO AVERAGE NET 1.00% 1.00% .99% E .89% .74%
ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 5.59% 5.88% 6.19% 6.34% 6.18%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 243% 136% 153% 261% 313%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D 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 7 OF NOTES TO FINANCIAL STATEMENTS).
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.660 $ 9.490 $ 9.670 $ 8.950 $ 9.100
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .475 D .494 D .520 D .542 .144
NET REALIZED AND UNREALIZED .359 .166 (.177) .693 (.137)
GAIN (LOSS)
TOTAL FROM INVESTMENT .834 .660 .343 1.235 .007
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.484) (.490) (.523) (.515) (.157)
NET ASSET VALUE, END OF PERIOD $ 10.010 $ 9.660 $ 9.490 $ 9.670 $ 8.950
TOTAL RETURN B, C 8.87% 7.20% 3.69% 14.19% 0.10%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 74,073 $ 18,782 $ 17,355 $ 11,766 $ 2,062
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE 1.65% F 1.65% F 1.67% F 1.65% F 1.70% A, F
NET ASSETS
RATIO OF NET INVESTMENT INCOME 4.92% 5.24% 5.51% 5.58% 5.22% A
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 243% 136% 153% 261% 313%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 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 7 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS C
YEAR ENDED
OCTOBER 31,
1998 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.640
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .450
NET REALIZED AND UNREALIZED GAIN (LOSS) .398
TOTAL FROM INVESTMENT OPERATIONS .848
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.468)
NET ASSET VALUE, END OF PERIOD $ 10.020
TOTAL RETURN B, C 9.02%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 14,954
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.75% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.74% A
PORTFOLIO TURNOVER RATE 243%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE 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 NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO OCTOBER 31, 1998.
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 7 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.650 $ 9.480 $ 9.670 $ 9.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .570 D .580 D .604 D .197
NET REALIZED AND UNREALIZED GAIN (LOSS) .352 .165 (.180) .108
TOTAL FROM INVESTMENT OPERATIONS .922 .745 .424 .305
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.572) (.575) (.614) (.195)
NET ASSET VALUE, END OF PERIOD $ 10.000 $ 9.650 $ 9.480 $ 9.670
TOTAL RETURN B, C 9.86% 8.18% 4.58% 3.23%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 25,582 $ 20,366 $ 27,660 $ 14,588
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% F .75% F .75% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE 5.84% 6.12% 6.43% 6.48% A
NET ASSETS
PORTFOLIO TURNOVER RATE 243% 136% 153% 261%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 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 7 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
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, Class C, 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
matters that affect that class. The fund commenced sale of Class C
shares on November 3, 1997. Investment income, realized and unrealized
capital gains and losses, the common expenses of the fund, and certain
fund-level expense reductions, if any, are allocated on a pro rata
basis to each class based on the relative net assets of each class to
the total net assets of the fund. Each class of shares differs in its
respective distribution, transfer agent, and certain other
class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date. Income dividends
and capital gain distributions are declared separately for each class.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards 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 may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $640,199,034 and $523,341,935, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .43% 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. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
CLASS C 1.00%**
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
** .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 retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 4,622 $ 102
CLASS T 402,948 4,021
CLASS B 261,662 189,160
CLASS C 36,664 36,515
$ 705,896 $ 229,798
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
Under the Plans, FMR 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. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 882
CLASS T 98,475
CLASS B 8,663
CLASS C 1,726
INSTITUTIONAL CLASS 10,018
$ 119,764
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5% to 1% for Class B and 1% for Class C, 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. In addition, purchases of Class A and
Class T shares that were subject to a finder's fee bear a contingent
deferred sales charge on assets that do not remain in the fund for at
least one year. The Class A and Class T contingent deferred sales
charge is based on 0.25% 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. A
portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 41,422 $ 12,554
CLASS T 105,994 31,145
CLASS B 76,288 76,288*
CLASS C 14,911 14,911*
$ 238,615 $ 134,898
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc. (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund.
FIIOC receives account fees and asset-based fees that vary according
to the account size and type of account of the shareholders of the
respective classes of the fund. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For
the period, the following amounts were paid to FIIOC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 9,358 .30
CLASS T 363,453 .23
CLASS B 64,317 .22
CLASS C 9,341 .25*
INSTITUTIONAL CLASS 44,124 .18
$ 490,593
* ANNUALIZED
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Company, Inc.
(FSC), an affiliate of FMR, maintains the fund's accounting records
and administers the security lending program. The security lending fee
is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the
month plus out-of-pocket expenses.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan.
At period end, there were no loans outstanding.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $10,601,000. The weighted average interest rate was 6.125%.
7. 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 of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 10,437
CLASS T 1.00% 22,675
CLASS B 1.65% 12,639
CLASS C 1.75% 16,176
INSTITUTIONAL CLASS .75% 817
$ 62,744
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 $1,865 under the custodian
arrangement.
8. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
1998A 1997
FROM NET INVESTMENT INCOME
CLASS A $ 172,525 $ 42,611
CLASS T 8,994,288 9,932,617
CLASS B 1,420,172 901,652
CLASS C 168,316 -
INSTITUTIONAL CLASS 1,445,920 1,343,813
TOTAL $ 12,201,221 $ 12,220,693
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
9. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEARS ENDED YEARS ENDED
OCTOBER 31, OCTOBER 31,
1998 A 1997 1998 A 1997
CLASS A 849,297 178,436 $ 8,455,738 $ 1,694,126
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 14,303 3,776 140,529 35,859
SHARES REDEEMED (240,354) (42,060) (2,383,022) (399,267)
NET INCREASE (DECREASE) 623,246 140,152 $ 6,213,245 $ 1,330,718
CLASS T 15,886,817 7,027,367 $ 156,318,393 $ 66,447,581
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 761,626 889,673 7,462,535 8,404,098
SHARES REDEEMED (10,390,224) (15,881,447) (101,764,593) (149,782,096)
NET INCREASE (DECREASE) 6,258,219 (7,964,407) $ 62,016,335 $ (74,930,417)
CLASS B 6,584,605 604,961 $ 65,367,580 $ 5,722,117
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 109,260 71,140 1,074,687 672,141
SHARES REDEEMED (1,239,115) (560,735) (12,195,223) (5,289,699)
NET INCREASE (DECREASE) 5,454,750 115,366 $ 54,247,044 $ 1,104,559
CLASS C 1,742,987 - $ 17,267,410 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 13,959 - 138,062 -
SHARES REDEEMED (264,262) - (2,621,407) -
NET INCREASE (DECREASE) 1,492,684 - $ 14,784,065 $ -
INSTITUTIONAL CLASS 1,251,693 790,278 $ 12,156,145 $ 7,450,279
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 126,775 121,048 1,238,963 1,142,532
SHARES REDEEMED (930,969) (1,719,049) (9,098,140) (16,191,813)
NET INCREASE (DECREASE) 447,499 (807,723) $ 4,296,968 $ (7,599,002)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
10. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 8,414
CLASS T 44,866
CLASS B 17,057
CLASS C 15,377
INSTITUTIONAL CLASS 16,279
$ 101,993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Government Investment Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Government Investment Fund (a fund of Fidelity
Advisor Series II) at October 31, 1998, the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Advisor Government Investment Fund 's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
A total of 28.99% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Stanley N. Griffith, Assistant Vice President
Curtis Hollingsworth, Vice President
Thomas J. Silvia, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap 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
AGOVI-ANN-1298 66828
1.538370.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
HIGH YIELD
FUND - CLASS A, CLASS T, CLASS B
AND CLASS C
ANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 19 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 22 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 23 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 46 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 55 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 65 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 66
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
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 shares' 0.25% 12b-1
fee. If Fidelity had not reimbursed certain class expenses during the
periods shown, the past five years and 10 years total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL A -4.55% 46.41% 221.58%
FIDELITY ADV HIGH YIELD - CL A -9.08% 39.45% 206.30%
(INCL. 4.75% SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 49.48% 175.64%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 39.07% 134.14%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class A's returns to those of the Merrill
Lynch High Yield Master Index - a market capitalization weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how Class A's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
235 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL A -4.55% 7.92% 12.39%
FIDELITY ADV HIGH YIELD - CL A -9.08% 6.88% 11.84%
(INCL. 4.75% SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 8.37% 10.67%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% 8.81%
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
1988/10/31 9525.00 10000.00
1988/11/30 9553.03 10037.46
1988/12/31 9645.93 10079.93
1989/01/31 9907.11 10231.10
1989/02/28 9976.35 10299.85
1989/03/31 9879.02 10290.69
1989/04/30 9769.54 10321.06
1989/05/31 10016.37 10511.07
1989/06/30 10373.93 10659.98
1989/07/31 10430.58 10710.47
1989/08/31 10536.07 10763.37
1989/09/30 10226.87 10660.90
1989/10/31 9842.89 10492.28
1989/11/30 9871.59 10515.79
1989/12/31 9996.58 10506.28
1990/01/31 9851.55 10300.95
1990/02/28 9799.25 10150.93
1990/03/31 9971.87 10288.15
1990/04/30 10091.76 10340.42
1990/05/31 10430.70 10527.20
1990/06/30 10728.41 10731.15
1990/07/31 10978.01 10957.93
1990/08/31 10708.52 10538.44
1990/09/30 10437.79 10080.11
1990/10/31 10194.82 9823.59
1990/11/30 10513.12 9906.81
1990/12/31 10726.44 10049.56
1991/01/31 10973.22 10191.62
1991/02/28 11602.93 10948.08
1991/03/31 12038.21 11418.80
1991/04/30 12404.79 11825.44
1991/05/31 12536.92 11883.18
1991/06/30 12873.50 12122.23
1991/07/31 13338.55 12412.69
1991/08/31 13511.69 12673.58
1991/09/30 13694.14 12835.00
1991/10/31 14239.48 13216.40
1991/11/30 14403.86 13369.06
1991/12/31 14474.74 13524.38
1992/01/31 15138.25 13997.23
1992/02/29 15764.90 14344.86
1992/03/31 16211.78 14545.01
1992/04/30 16359.31 14650.88
1992/05/31 16537.80 14884.57
1992/06/30 16787.43 15069.50
1992/07/31 17090.11 15374.83
1992/08/31 17406.12 15578.38
1992/09/30 17592.54 15755.88
1992/10/31 17366.52 15556.88
1992/11/30 17556.29 15777.20
1992/12/31 17816.89 15980.35
1993/01/31 18293.13 16373.85
1993/02/28 18693.83 16683.78
1993/03/31 19127.59 16973.03
1993/04/30 19236.54 17094.86
1993/05/31 19498.16 17324.98
1993/06/30 19973.96 17650.47
1993/07/31 20236.21 17840.19
1993/08/31 20393.81 18010.26
1993/09/30 20432.66 18099.12
1993/10/31 20921.01 18440.06
1993/11/30 21072.60 18540.92
1993/12/31 21460.35 18726.31
1994/01/31 22076.96 19136.70
1994/02/28 21986.31 18999.08
1994/03/31 21316.03 18379.96
1994/04/30 21078.58 18165.17
1994/05/31 21209.44 18100.45
1994/06/30 21170.31 18167.07
1994/07/31 21252.24 18294.78
1994/08/31 21404.30 18421.85
1994/09/30 21513.09 18414.88
1994/10/31 21473.76 18461.68
1994/11/30 21130.26 18304.63
1994/12/31 21139.78 18508.24
1995/01/31 21321.55 18769.77
1995/02/28 22007.99 19355.41
1995/03/31 22206.09 19624.77
1995/04/30 22922.71 20084.26
1995/05/31 23436.28 20711.73
1995/06/30 23386.82 20869.93
1995/07/31 23962.77 21108.52
1995/08/31 24098.55 21236.63
1995/09/30 24388.56 21479.60
1995/10/31 24706.63 21631.86
1995/11/30 24840.57 21843.02
1995/12/31 25213.62 22193.64
1996/01/31 25806.87 22544.14
1996/02/29 26154.91 22578.09
1996/03/31 25976.23 22516.77
1996/04/30 26281.34 22526.97
1996/05/31 26479.02 22689.43
1996/06/30 26519.24 22825.73
1996/07/31 26522.99 22980.69
1996/08/31 26902.28 23218.02
1996/09/30 27793.12 23716.17
1996/10/31 27860.00 23976.08
1996/11/30 28192.84 24460.81
1996/12/31 28520.31 24649.03
1997/01/31 28799.14 24838.46
1997/02/28 29359.84 25186.89
1997/03/31 28573.87 24907.16
1997/04/30 28773.52 25190.64
1997/05/31 29621.44 25691.85
1997/06/30 30159.29 26089.56
1997/07/31 31164.55 26715.65
1997/08/31 31317.38 26655.54
1997/09/30 32421.66 27110.65
1997/10/31 32089.69 27290.57
1997/11/30 32388.12 27534.98
1997/12/31 32819.42 27810.28
1998/01/31 33700.11 28217.67
1998/02/28 34092.92 28340.94
1998/03/31 34777.59 28585.18
1998/04/30 34796.94 28720.95
1998/05/31 34554.61 28906.75
1998/06/30 34607.22 29064.14
1998/07/31 34883.32 29229.89
1998/08/31 31101.15 27968.59
1998/09/30 31243.05 28024.38
1998/10/30 30630.28 27564.00
IMATRL PRASUN SHR__CHT 19981031 19981211 144300 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class A on October 31,
1988, and the current 4.75% sales charge was paid. As the chart shows,
by October 31, 1998, the value of the investment would have grown to
$30,630 - a 206.30% increase on the initial investment. For
comparison, look at how the Merrill Lynch High Yield Master Index did
over the same period. With dividends reinvested, the same $10,000
would have grown to $27,564 - a 175.64% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED SEPTEMBER 3, 1996
OCTOBER 31, (COMMENCEMENT
OF SALE OF
CLASS A SHARES) TO
OCTOBER 31,
1998 1997 1996
DIVIDEND RETURNS 7.65% 9.54% 1.17%
CAPITAL RETURNS -12.20% 5.64% 2.41%
TOTAL RETURNS -4.55% 15.18% 3.58%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.66(CENTS) 43.34(CENTS) 104.80(CENTS)
ANNUALIZED DIVIDEND RATE 8.25% 7.03% 8.34%
30-DAY ANNUALIZED YIELD 10.25% - -
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 share price of $10.93 over the past one
month, $12.23 over the past six months and $12.57 over the past one
year, you can compare the class' income over these three periods. The
30-day annualized YIELD is a standard formula for all bond funds based
on the yields of the bonds in the fund, averaged over the past 30
days. This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. The offering share price
used in the calculation of the yield includes the effect of Class A's
current 4.75% sales charge.
FIDELITY ADVISOR HIGH YIELD FUND - CLASS T
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses during the periods shown, the past 10 years total
returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL T -4.54% 46.65% 222.12%
FIDELITY ADV HIGH YIELD - CL T -7.88% 41.52% 210.84%
(INCL. 3.50% SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 49.48% 175.64%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 39.07% 134.14%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class T's returns to those of the Merrill
Lynch High Yield Master Index - a market capitalization weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how Class T's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
235 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL T -4.54% 7.96% 12.41%
FIDELITY ADV HIGH YIELD - CL T -7.88% 7.19% 12.01%
(INCL. 3.50% SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 8.37% 10.67%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% 8.81%
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
1988/10/31 9650.00 10000.00
1988/11/30 9678.39 10037.46
1988/12/31 9772.52 10079.93
1989/01/31 10037.12 10231.10
1989/02/28 10107.27 10299.85
1989/03/31 10008.66 10290.69
1989/04/30 9897.75 10321.06
1989/05/31 10147.82 10511.07
1989/06/30 10510.07 10659.98
1989/07/31 10567.46 10710.47
1989/08/31 10674.34 10763.37
1989/09/30 10361.09 10660.90
1989/10/31 9972.06 10492.28
1989/11/30 10001.14 10515.79
1989/12/31 10127.77 10506.28
1990/01/31 9980.83 10300.95
1990/02/28 9927.85 10150.93
1990/03/31 10102.73 10288.15
1990/04/30 10224.20 10340.42
1990/05/31 10567.59 10527.20
1990/06/30 10869.21 10731.15
1990/07/31 11122.08 10957.93
1990/08/31 10849.05 10538.44
1990/09/30 10574.77 10080.11
1990/10/31 10328.61 9823.59
1990/11/30 10651.09 9906.81
1990/12/31 10867.21 10049.56
1991/01/31 11117.22 10191.62
1991/02/28 11755.20 10948.08
1991/03/31 12196.20 11418.80
1991/04/30 12567.58 11825.44
1991/05/31 12701.44 11883.18
1991/06/30 13042.45 12122.23
1991/07/31 13513.60 12412.69
1991/08/31 13689.01 12673.58
1991/09/30 13873.85 12835.00
1991/10/31 14426.35 13216.40
1991/11/30 14592.89 13369.06
1991/12/31 14664.69 13524.38
1992/01/31 15336.92 13997.23
1992/02/29 15971.79 14344.86
1992/03/31 16424.53 14545.01
1992/04/30 16574.00 14650.88
1992/05/31 16754.83 14884.57
1992/06/30 17007.73 15069.50
1992/07/31 17314.39 15374.83
1992/08/31 17634.54 15578.38
1992/09/30 17823.41 15755.88
1992/10/31 17594.43 15556.88
1992/11/30 17786.68 15777.20
1992/12/31 18050.71 15980.35
1993/01/31 18533.20 16373.85
1993/02/28 18939.16 16683.78
1993/03/31 19378.61 16973.03
1993/04/30 19488.98 17094.86
1993/05/31 19754.04 17324.98
1993/06/30 20236.09 17650.47
1993/07/31 20501.78 17840.19
1993/08/31 20661.45 18010.26
1993/09/30 20700.81 18099.12
1993/10/31 21195.56 18440.06
1993/11/30 21349.14 18540.92
1993/12/31 21741.98 18726.31
1994/01/31 22366.69 19136.70
1994/02/28 22274.84 18999.08
1994/03/31 21595.77 18379.96
1994/04/30 21355.20 18165.17
1994/05/31 21487.78 18100.45
1994/06/30 21448.13 18167.07
1994/07/31 21531.14 18294.78
1994/08/31 21685.20 18421.85
1994/09/30 21795.41 18414.88
1994/10/31 21755.57 18461.68
1994/11/30 21407.56 18304.63
1994/12/31 21417.20 18508.24
1995/01/31 21601.37 18769.77
1995/02/28 22296.81 19355.41
1995/03/31 22497.51 19624.77
1995/04/30 23223.54 20084.26
1995/05/31 23743.85 20711.73
1995/06/30 23693.73 20869.93
1995/07/31 24277.24 21108.52
1995/08/31 24414.81 21236.63
1995/09/30 24708.62 21479.60
1995/10/31 25030.86 21631.86
1995/11/30 25166.56 21843.02
1995/12/31 25544.51 22193.64
1996/01/31 26145.55 22544.14
1996/02/29 26498.15 22578.09
1996/03/31 26317.12 22516.77
1996/04/30 26626.24 22526.97
1996/05/31 26826.51 22689.43
1996/06/30 26867.26 22825.73
1996/07/31 26871.06 22980.69
1996/08/31 27255.33 23218.02
1996/09/30 28170.43 23716.17
1996/10/31 28264.70 23976.08
1996/11/30 28605.53 24460.81
1996/12/31 28932.46 24649.03
1997/01/31 29238.28 24838.46
1997/02/28 29784.66 25186.89
1997/03/31 28968.94 24907.16
1997/04/30 29199.70 25190.64
1997/05/31 30040.68 25691.85
1997/06/30 30587.13 26089.56
1997/07/31 31607.40 26715.65
1997/08/31 31787.56 26655.54
1997/09/30 32905.87 27110.65
1997/10/31 32563.57 27290.57
1997/11/30 32861.67 27534.98
1997/12/31 33297.71 27810.28
1998/01/31 34187.55 28217.67
1998/02/28 34585.35 28340.94
1998/03/31 35303.84 28585.18
1998/04/30 35320.28 28720.95
1998/05/31 35045.97 28906.75
1998/06/30 35096.07 29064.14
1998/07/31 35372.98 29229.89
1998/08/31 31537.61 27968.59
1998/09/30 31678.51 28024.38
1998/10/30 31084.32 27564.00
IMATRL PRASUN SHR__CHT 19981031 19981211 135002 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class T on October 31,
1988, and the current 3.50% sales charge was paid. As the chart shows,
by October 31, 1998, the value of the investment would have grown to
$31,084 - a 210.84% increase on the initial investment. For
comparison, look at how the Merrill Lynch High Yield Master Index did
over the same period. With dividends reinvested, the same $10,000
would have grown to $27,564 - a 175.64% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 7.57% 9.57% 9.56% 8.90% 7.15%
CAPITAL RETURNS -12.11% 5.64% 3.36% 6.15% -4.51%
TOTAL RETURNS -4.54% 15.21% 12.92% 15.05% 2.64%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.62(CENTS) 42.79(CENTS) 103.70(CENTS)
ANNUALIZED DIVIDEND RATE 8.20% 6.93% 8.24%
30-DAY ANNUALIZED YIELD 10.29% - -
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 share price of $10.94 over the past one
month, $12.24 over the past six months and $12.58 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 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 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
shares' 0.25% 12b-1 fee. Had Class B shares' 12b-1 fee been reflected,
returns prior to June 30, 1994 would have been lower. Class B shares'
contingent deferred sales charges included in the past one year, past
five years and past 10 years total return figures are 5%, 2% and 0%,
respectively. If Fidelity had not reimbursed certain class expenses
during the periods shown, the past 10 years total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL B -5.10% 41.78% 211.42%
FIDELITY ADV HIGH YIELD - CL B -9.40% 39.94% 211.42%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 49.48% 175.64%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 39.07% 134.14%
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class B's returns to those of the Merrill
Lynch High Yield Master Index - a market capitalization weighted index
of all domestic and yankee high-yield bonds. Issues included in the
index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how Class B's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past six months average represents a peer group of
235 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL B -5.10% 7.23% 12.03%
FIDELITY ADV HIGH YIELD - CL B -9.40% 6.95% 12.03%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 8.37% 10.67%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% 8.81%
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 High Yield -CL B ML High Yield Master
00665 ML002
1988/10/31 10000.00 10000.00
1988/11/30 10029.42 10037.46
1988/12/31 10126.96 10079.93
1989/01/31 10401.16 10231.10
1989/02/28 10473.86 10299.85
1989/03/31 10371.67 10290.69
1989/04/30 10256.74 10321.06
1989/05/31 10515.87 10511.07
1989/06/30 10891.27 10659.98
1989/07/31 10950.74 10710.47
1989/08/31 11061.49 10763.37
1989/09/30 10736.88 10660.90
1989/10/31 10333.74 10492.28
1989/11/30 10363.88 10515.79
1989/12/31 10495.10 10506.28
1990/01/31 10342.83 10300.95
1990/02/28 10287.93 10150.93
1990/03/31 10469.15 10288.15
1990/04/30 10595.02 10340.42
1990/05/31 10950.87 10527.20
1990/06/30 11263.43 10731.15
1990/07/31 11525.47 10957.93
1990/08/31 11242.54 10538.44
1990/09/30 10958.31 10080.11
1990/10/31 10703.22 9823.59
1990/11/30 11037.40 9906.81
1990/12/31 11261.35 10049.56
1991/01/31 11520.44 10191.62
1991/02/28 12181.56 10948.08
1991/03/31 12638.54 11418.80
1991/04/30 13023.40 11825.44
1991/05/31 13162.12 11883.18
1991/06/30 13515.49 12122.23
1991/07/31 14003.73 12412.69
1991/08/31 14185.50 12673.58
1991/09/30 14377.05 12835.00
1991/10/31 14949.58 13216.40
1991/11/30 15122.16 13369.06
1991/12/31 15196.57 13524.38
1992/01/31 15893.18 13997.23
1992/02/29 16551.08 14344.86
1992/03/31 17020.24 14545.01
1992/04/30 17175.13 14650.88
1992/05/31 17362.52 14884.57
1992/06/30 17624.60 15069.50
1992/07/31 17942.38 15374.83
1992/08/31 18274.14 15578.38
1992/09/30 18469.85 15755.88
1992/10/31 18232.57 15556.88
1992/11/30 18431.80 15777.20
1992/12/31 18705.40 15980.35
1993/01/31 19205.38 16373.85
1993/02/28 19626.07 16683.78
1993/03/31 20081.46 16973.03
1993/04/30 20195.84 17094.86
1993/05/31 20470.51 17324.98
1993/06/30 20970.04 17650.47
1993/07/31 21245.37 17840.19
1993/08/31 21410.82 18010.26
1993/09/30 21451.62 18099.12
1993/10/31 21964.31 18440.06
1993/11/30 22123.46 18540.92
1993/12/31 22530.55 18726.31
1994/01/31 23177.91 19136.70
1994/02/28 23082.74 18999.08
1994/03/31 22379.04 18379.96
1994/04/30 22129.74 18165.17
1994/05/31 22267.13 18100.45
1994/06/30 22226.04 18167.07
1994/07/31 22274.75 18294.78
1994/08/31 22414.13 18421.85
1994/09/30 22510.60 18414.88
1994/10/31 22433.86 18461.68
1994/11/30 22079.95 18304.63
1994/12/31 22054.68 18508.24
1995/01/31 22230.40 18769.77
1995/02/28 22932.51 19355.41
1995/03/31 23124.87 19624.77
1995/04/30 23836.66 20084.26
1995/05/31 24376.62 20711.73
1995/06/30 24309.38 20869.93
1995/07/31 24872.53 21108.52
1995/08/31 25020.57 21236.63
1995/09/30 25286.31 21479.60
1995/10/31 25602.25 21631.86
1995/11/30 25705.26 21843.02
1995/12/31 26098.84 22193.64
1996/01/31 26676.07 22544.14
1996/02/29 27020.46 22578.09
1996/03/31 26819.82 22516.77
1996/04/30 27121.92 22526.97
1996/05/31 27335.11 22689.43
1996/06/30 27338.35 22825.73
1996/07/31 27349.11 22980.69
1996/08/31 27702.01 23218.02
1996/09/30 28618.96 23716.17
1996/10/31 28699.92 23976.08
1996/11/30 29008.31 24460.81
1996/12/31 29349.17 24649.03
1997/01/31 29644.82 24838.46
1997/02/28 30183.80 25186.89
1997/03/31 29338.71 24907.16
1997/04/30 29556.87 25190.64
1997/05/31 30369.09 25691.85
1997/06/30 30931.28 26089.56
1997/07/31 31947.64 26715.65
1997/08/31 32088.14 26655.54
1997/09/30 33203.05 27110.65
1997/10/31 32816.54 27290.57
1997/11/30 33128.52 27534.98
1997/12/31 33551.25 27810.28
1998/01/31 34432.44 28217.67
1998/02/28 34814.99 28340.94
1998/03/31 35494.61 28585.18
1998/04/30 35491.82 28720.95
1998/05/31 35222.23 28906.75
1998/06/30 35254.16 29064.14
1998/07/31 35513.97 29229.89
1998/08/31 31660.27 27968.59
1998/09/30 31758.03 28024.38
1998/10/30 31141.89 27564.00
IMATRL PRASUN SHR__CHT 19981031 19981211 135138 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class B on October 31,
1988. As the chart shows, by October 31, 1998, the value of the
investment would have grown to $31,142 - a 211.42% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master Index did over the same period. With dividends
reinvested, the same $10,000 would have grown to 27,564 - a 175.64%
increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31, JUNE 30, 1994
(COMMENCEMENT
OF SALE OF
CLASS B SHARES) TO
OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.98% 8.85% 8.82% 8.05% 1.74%
CAPITAL RETURNS -12.08% 5.49% 3.28% 6.07% -0.80%
TOTAL RETURNS -5.10% 14.34% 12.10% 14.12% 0.94%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested and exclude the effects of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 6.96(CENTS) 38.76(CENTS) 95.56(CENTS)
ANNUALIZED DIVIDEND RATE 7.52% 6.30% 7.62%
30-DAY ANNUALIZED YIELD 10.02% - -
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 share price of $10.90 over the past one
month, $12.20 over the past six months, and $12.54 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.
FIDELITY ADVISOR HIGH YIELD FUND - CLASS C
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 C shares
took place on November 3, 1997. Class C shares bear a 1.00% 12b-1 fee.
Returns between June 30, 1994 and November 3, 1997 are those of Class
B and reflect Class B shares' 0.90% 12b-1 fee (1.00% prior to January
1, 1996). Returns prior to June 30, 1994 are those of Class T and
reflect Class T shares' 0.25% 12b-1 fee. Had Class C shares' 12b-1 fee
been reflected, returns between January 1, 1996 and November 3, 1997
and prior to June 30, 1994 would have been lower. Class C shares'
contingent deferred sales charge included in the past one year, past
five years and past 10 years total return figures are 1%, 0% and 0%,
respectively. If Fidelity had not reimbursed certain class expenses
during the period shown, the past 10 years total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL C -5.32% 41.47% 210.72%
FIDELITY ADV HIGH YIELD - CL C -6.18% 41.47% 210.72%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 49.48% 175.64%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 39.07% 134.14%
CUMULATIVE TOTAL RETURNS show Class C's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class C'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 C's
performance stacked up against its peers, you can compare it to the
high current yield funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
235 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - CL C -5.32% 7.18% 12.00%
FIDELITY ADV HIGH YIELD - CL C -6.18% 7.18% 12.00%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
ML HIGH YIELD MASTER 1.00% 8.37% 10.67%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% 8.81%
AVERAGE ANNUAL TOTAL RETURNS take Class C shares' cumulative return
and show you what would have happened if Class C 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 C ML High Yield Master
00521 ML002
1988/10/31 10000.00 10000.00
1988/11/30 10029.42 10037.46
1988/12/31 10126.96 10079.93
1989/01/31 10401.16 10231.10
1989/02/28 10473.86 10299.85
1989/03/31 10371.67 10290.69
1989/04/30 10256.74 10321.06
1989/05/31 10515.87 10511.07
1989/06/30 10891.27 10659.98
1989/07/31 10950.74 10710.47
1989/08/31 11061.49 10763.37
1989/09/30 10736.88 10660.90
1989/10/31 10333.74 10492.28
1989/11/30 10363.88 10515.79
1989/12/31 10495.10 10506.28
1990/01/31 10342.83 10300.95
1990/02/28 10287.93 10150.93
1990/03/31 10469.15 10288.15
1990/04/30 10595.02 10340.42
1990/05/31 10950.87 10527.20
1990/06/30 11263.43 10731.15
1990/07/31 11525.47 10957.93
1990/08/31 11242.54 10538.44
1990/09/30 10958.31 10080.11
1990/10/31 10703.22 9823.59
1990/11/30 11037.40 9906.81
1990/12/31 11261.35 10049.56
1991/01/31 11520.44 10191.62
1991/02/28 12181.56 10948.08
1991/03/31 12638.54 11418.80
1991/04/30 13023.40 11825.44
1991/05/31 13162.12 11883.18
1991/06/30 13515.49 12122.23
1991/07/31 14003.73 12412.69
1991/08/31 14185.50 12673.58
1991/09/30 14377.05 12835.00
1991/10/31 14949.58 13216.40
1991/11/30 15122.16 13369.06
1991/12/31 15196.57 13524.38
1992/01/31 15893.18 13997.23
1992/02/29 16551.08 14344.86
1992/03/31 17020.24 14545.01
1992/04/30 17175.13 14650.88
1992/05/31 17362.52 14884.57
1992/06/30 17624.60 15069.50
1992/07/31 17942.38 15374.83
1992/08/31 18274.14 15578.38
1992/09/30 18469.85 15755.88
1992/10/31 18232.57 15556.88
1992/11/30 18431.80 15777.20
1992/12/31 18705.40 15980.35
1993/01/31 19205.38 16373.85
1993/02/28 19626.07 16683.78
1993/03/31 20081.46 16973.03
1993/04/30 20195.84 17094.86
1993/05/31 20470.51 17324.98
1993/06/30 20970.04 17650.47
1993/07/31 21245.37 17840.19
1993/08/31 21410.82 18010.26
1993/09/30 21451.62 18099.12
1993/10/31 21964.31 18440.06
1993/11/30 22123.46 18540.92
1993/12/31 22530.55 18726.31
1994/01/31 23177.91 19136.70
1994/02/28 23082.74 18999.08
1994/03/31 22379.04 18379.96
1994/04/30 22129.74 18165.17
1994/05/31 22267.13 18100.45
1994/06/30 22226.04 18167.07
1994/07/31 22274.75 18294.78
1994/08/31 22414.13 18421.85
1994/09/30 22510.60 18414.88
1994/10/31 22433.86 18461.68
1994/11/30 22079.95 18304.63
1994/12/31 22054.68 18508.24
1995/01/31 22230.40 18769.77
1995/02/28 22932.51 19355.41
1995/03/31 23124.87 19624.77
1995/04/30 23836.66 20084.26
1995/05/31 24376.62 20711.73
1995/06/30 24309.38 20869.93
1995/07/31 24872.53 21108.52
1995/08/31 25020.57 21236.63
1995/09/30 25286.31 21479.60
1995/10/31 25602.25 21631.86
1995/11/30 25705.26 21843.02
1995/12/31 26098.84 22193.64
1996/01/31 26676.07 22544.14
1996/02/29 27020.46 22578.09
1996/03/31 26819.82 22516.77
1996/04/30 27121.92 22526.97
1996/05/31 27335.11 22689.43
1996/06/30 27338.35 22825.73
1996/07/31 27349.11 22980.69
1996/08/31 27702.01 23218.02
1996/09/30 28618.96 23716.17
1996/10/31 28699.92 23976.08
1996/11/30 29008.31 24460.81
1996/12/31 29349.17 24649.03
1997/01/31 29644.82 24838.46
1997/02/28 30183.80 25186.89
1997/03/31 29338.71 24907.16
1997/04/30 29556.87 25190.64
1997/05/31 30369.09 25691.85
1997/06/30 30931.28 26089.56
1997/07/31 31947.64 26715.65
1997/08/31 32088.14 26655.54
1997/09/30 33203.05 27110.65
1997/10/31 32816.54 27290.57
1997/11/30 33117.08 27534.98
1997/12/31 33506.08 27810.28
1998/01/31 34404.51 28217.67
1998/02/28 34758.99 28340.94
1998/03/31 35463.39 28585.18
1998/04/30 35427.99 28720.95
1998/05/31 35148.13 28906.75
1998/06/30 35176.85 29064.14
1998/07/31 35433.46 29229.89
1998/08/31 31565.74 27968.59
1998/09/30 31687.08 28024.38
1998/10/30 31071.83 27564.00
IMATRL PRASUN SHR__CHT 19981031 19981211 135351 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Class C on October 31,
1988. As the chart shows, by October 31, 1998, the value of the
investment would have grown to $31,072 - a 210.72% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master Index did over the same period. With dividends
reinvested, the same $10,000 would have grown to $27,564 - a 175.64%
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
NOVEMBER 3, 1997
(COMMENCEMENT
OF SALE OF
CLASS C SHARES) TO
OCTOBER 31,
1998
DIVIDEND RETURNS 6.74%
CAPITAL RETURNS -12.47%
TOTAL RETURNS -5.73%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 LIFE OF
MONTH MONTHS CLASS
DIVIDENDS PER SHARE 6.90(CENTS) 37.92(CENTS) 92.93(CENTS)
ANNUALIZED DIVIDEND RATE 7.44% 6.16% 7.44%
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 share price of $10.92 over the past one
month, $12.22 over the past six months and $12.56 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 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 C has a longer, more stable operating history.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The high-yield bond market, like
practically all other bond and
equity markets, experienced
significant volatility during the
12-month period that ended
October 31, 1998. For the first half
of the period, the high-yield market
was buoyed by a strong U.S.
economy and was easily able to
absorb heavy new issuance. Until
July, the yield spread between
high-yield and intermediate bonds
remained historically narrow,
helping high-yield performance to
appreciate along with the U.S.
stock market. But when the U.S.
equity market suffered its summer
correction, and Russia devalued its
currency and began to default on
its debts, investors sought
investments with a more substantial
perception of safety. Subsequently,
the high-yield market suffered
tremendously during this flight to
safety. The near collapse of
Long-Term Capital Management, a
hedge fund for wealthy investors,
also contributed to the malaise in
high-yield performance through
the summer and early fall. Recently,
however, thanks to two interest-rate
cuts by the Federal Reserve Board
and some easing of international
economic turmoil that has plagued
the world's financial markets for the
past year, the high-yield market has
shown some signs of life. For the
12-month period ending October 31,
1998, the Merrill Lynch High Yield
Master Index - a broad measure
of the high-yield market -
returned 1.00%.
An interview with Margaret Eagle, Portfolio Manager of Fidelity
Advisor High Yield Fund
Q. HOW DID THE FUND PERFORM, MARGARET?
A. For the 12-month period that ended October 31, 1998, the fund's
Class A, Class T, Class B and Class C shares provided total returns of
- -4.55%, -4.54%, -5.10% and -5.32%, respectively. To get a sense of how
the fund did relative to its competitors, the high current yield funds
average returned -3.35% for the same 12-month period, according to
Lipper Analytical Services. To gauge how the fund did relative to the
high-yield market, the Merill Lynch High Yield Master Index returned
1.00% for the year.
Q. AFTER POSTING GAINS EARLY IN THE PERIOD, THE HIGH-YIELD MARKET
SUFFERED SIGNIFICANT LOSSES IN AUGUST AND SEPTEMBER. WHAT CAUSED THE
TURNAROUND?
A. The main reason for the high-yield market's poor late summer
performance was a global flight to quality in which investors avoided
almost every type of riskier investment. The rush to less-risky
investments was set off by a barrage of unnerving events, culminating
in Russia's devaluation of its currency and the country's default on
its bonds, which are of lower credit quality. In early October, news
of large hedge fund losses caused investors to worry about how liquid
- - or how easily traded - riskier markets would be. Not that those
events had in any way altered the fundamentals, or business prospects,
of the majority of companies that issue high-yield debt. The default
rate among high-yield issuers remained below its historical average.
Rather, the market's sell-off was almost exclusively due to technical
factors - such as vastly curtailed demand, fears about liquidity and
hedge fund selling - that bordered on good old-fashioned panic. During
the final weeks of the period, however, investors poured money back
into high-yield bonds and helped the market stage a comeback.
Q. WHY DID THE FUND LAG ITS BENCHMARK, THE MERRILL LYNCH HIGH YIELD
MASTER INDEX?
A. The primary reason for the fund's lag was its relatively large
weighting in telecommunications companies, which, after leading the
high-yield market higher during the vast majority of the period, were
among its worst performers more recently. Many of the fund's
telecommunications holdings were in the form of zero coupon bonds and
preferred stocks, which don't pay a high amount of current income to
help cushion their prices in a market downturn. Furthermore, investors
initially were concerned that telecommunications companies would run
out of money if the world financial markets continued to endure a
credit crunch where borrowing was extremely difficult. After leading
the market higher during the majority of the past year, the fund's
telecommunications holdings - such as Nextel, NEXTLINK and others -
performed poorly from August through early October.
Q. WHICH HOLDINGS HELD UP AGAINST THE DIFFICULT ENVIRONMENT?
A. The fund's stake in higher-quality, Ba-rated bonds such as Niagara
Mohawk performed relatively well. The higher its credit quality, the
better a bond fared during the past few months.
Q. WHAT CHANGES HAVE YOU MADE TO THE FUND DURING THE PAST SIX MONTHS?
A. In August - prior to the high-yield market's unraveling - I sold
some holdings in order to lock in profits. I did that because I
anticipated an increased number of new deals coming to the high-yield
market, which I felt would put pressure on prices. As a result of
those sales, the fund had holdings in cash after the market's fall,
and I was able to add to or to initiate positions in bonds I liked at
very attractive prices - such as Qwest Communications, Level Three and
Global Crossing. All three rebounded in October and posted good gains
for the fund. In addition to the fund's telecommunications emphasis, I
also kept relatively large weightings in grocery store chains - such
as Pathmark Stores - and broadcasters, such as Adelphia Communications
and CBS Radio.
Q. WHAT'S YOUR OUTLOOK?
A. At the end of the period, high-yield prices still seemed to be
reflecting the worst case scenario. Spreads on the bonds - or the
amount of yield investors demanded over that of Treasuries - had
diminished somewhat, but were still quite wide when viewed on a
historical basis. At the end of the period, spreads were at wide
levels not seen since December 1991 when the rate of default among
high-yield issuers was more than 10%, compared to the current rate
which is around 2%. Even if you assume the default rate doubles,
high-yield bond prices still look attractive. That said, the
high-yield market's performance will likely depend on how investors
view its attractiveness relative to perceived risks.
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.
MARGARET EAGLE ON
POSITIONING OF THE FUND:
"For the past year or so, I've
become increasingly concerned
about economic deterioration,
primarily because of economic
depressions in emerging countries.
That's why I've positioned the fund
somewhat defensively, with little
exposure to commodity-based
companies - including chemical,
steel and paper companies - that I
believe would fare poorly in a weaker
economy. Instead, I've emphasized
telecommunications companies
because I think they will continue
to grow even if we do experience
economic softening."
FUND FACTS
GOAL: seeks a combination
of a high level of income and
potential for capital gains by
investing in income-producing
debt securities, preferred stocks
and convertible securities,
with an emphasis on
lower-quality debt securities
START DATE: January 5, 1987
SIZE: as of October 31,
1998, more than $3.6 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1998
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
ADELPHIA COMMUNICATIONS CORP. 3.7 3.1
NEXTEL COMMUNICATIONS, INC. 3.1 3.6
NTL, INC. 3.1 2.2
PATHMARK STORES INC. 2.2 1.8
CSC HOLDINGS, INC. 2.0 1.5
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
UTILITIES 31.4 29.1
MEDIA & LEISURE 30.6 30.5
TECHNOLOGY 6.8 7.5
RETAIL & WHOLESALE 5.2 5.0
BASIC INDUSTRIES 3.5 4.3
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA, AA, A 0.0 0.0
BAA 0.0 0.0
BA 9.3 5.5
B 41.1 46.4
CAA, CA, C 14.4 10.1
NOT RATED 11.5 10.3
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1998 AND APRIL 30, 1998
ACCOUNT FOR 11.5% AND 10.3% RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 * AS OF APRIL 30, 1998**
NONCONVERTIBLE
BONDS 74.9%
CONVERTIBLE BONDS,
PREFERRED STOCKS 15.0%
COMMON STOCKS 3.7%
SHORT-TERM
INVESTMENTS 5.0%
FOREIGN GOVERNMENT
OBLIGATIONS 0.0%
OTHER INVESTMENTS 1.4%
NONCONVERTIBLE
BONDS 71.1%
CONVERTIBLE BONDS,
PREFERRED STOCKS 20.7%
COMMON STOCKS 5.9%
SHORT-TERM
INVESTMENTS 1.1%
FOREIGN GOVERNMENT
OBLIGATIONS 0.4%
OTHER INVESTMENTS 0.8%
ROW: 1, COL: 1, VALUE: 74.90000000000001
ROW: 1, COL: 2, VALUE: 15.0
ROW: 1, COL: 3, VALUE: 3.7
ROW: 1, COL: 4, VALUE: 5.0
ROW: 1, COL: 5, VALUE: 0.0
ROW: 1, COL: 6, VALUE: 1.4
ROW: 1, COL: 1, VALUE: 71.09999999999999
ROW: 1, COL: 2, VALUE: 20.7
ROW: 1, COL: 3, VALUE: 5.9
ROW: 1, COL: 4, VALUE: 1.1
ROW: 1, COL: 5, VALUE: 0.4
ROW: 1, COL: 6, VALUE: 0.8
* FOREIGN
INVESTMENTS 9.9%
** FOREIGN
INVESTMENTS 10.7%
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
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CORPORATE BONDS - 74.9%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.0%
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0% - $ 110 $ 82
12/15/05 (d)(e)
NONCONVERTIBLE BONDS - 74.9%
AEROSPACE & DEFENSE - 0.1%
Compass Aerospace Corp. 10.125% Caa1 3,920 3,881
4/15/05 (e)
BASIC INDUSTRIES - 3.4%
CHEMICALS & PLASTICS - 0.3%
Huntsman Corp. 9.5% 7/1/07 (e) B2 13,210 12,682
IRON & STEEL - 0.4%
Pohang Iron & Steel Co. Ltd. yankee 6.625% Ba1 8,460 6,777
7/1/03
Republic Engineered Steels, Inc. 9.875% Caa1 9,000 8,910
12/15/01
15,687
PACKAGING & CONTAINERS - 0.6%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 13,650 9,965
9.75% 6/15/07 Caa1 6,340 4,723
9.875% 2/15/08 Caa2 14,865 6,838
21,526
PAPER & FOREST PRODUCTS - 2.1%
Advance Agro PCL 13% 11/15/07 (e) B3 13,440 8,064
APP Finance II Mauritius Ltd.:
12% 2/15/04 B3 20,190 10,095
12% 3/15/04 Caa 17,380 8,690
Container Corp. of America:
gtd.:
10.75% 5/1/02 B1 3,240 3,272
11.25% 5/1/04 B1 4,550 4,550
9.75% 4/1/03 B1 8,490 8,235
Florida Coast Paper Co. LLC Florida Coast Paper Caa1 16,980 11,037
Finance Corp. 12.75% 6/1/03
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
Indah Kiat Finance Mauritius Ltd. 10% 7/1/07 Caa1 $ 2,580 $ 1,380
Stone Container Corp. 12.58% 8/1/16 (f) B2 18,740 18,740
74,063
TOTAL BASIC INDUSTRIES 123,958
CONSTRUCTION & REAL ESTATE - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Ocwen Asset Investment Corp. 11.5% - 26,970 15,373
7/1/05 (e)
DURABLES - 2.0%
AUTOS, TIRES, & ACCESSORIES - 0.9%
Blue Bird Body Co. 10.75% 11/15/06 B2 870 861
Breed Technologies, Inc. 9.25% 4/15/08 (e) B3 33,950 26,481
Federal-Mogul Corp. 7.875% 7/1/10 Ba2 5,100 4,873
Morris Material Handling, Inc. 9.5% 4/1/08 B2 2,293 1,559
33,774
CONSUMER DURABLES - 0.2%
Corning Consumer Products Co. 9.625% B3 10,470 8,062
5/1/08
CONSUMER ELECTRONICS - 0.1%
Windmere-Durable Holdings, Inc. 10% 7/31/08 B3 2,490 2,092
HOME FURNISHINGS - 0.5%
Sealy Corp., Inc. 10% 12/18/08 pay-in-kind (h) - 11,196 10,077
Sealy Mattress Co.:
0% 12/15/07 (d) B3 5,230 2,929
9.875% 12/15/07 B3 5,550 4,995
18,001
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.3%
Polymer Group, Inc. 9% 7/1/07 B2 $ 3,610 $ 3,393
Worldtex, Inc. 9.625% 12/15/07 B1 7,880 6,304
9,697
TOTAL DURABLES 71,626
ENERGY - 1.8%
COAL - 0.5%
P&L Coal Holdings Corp. 9.625% 5/15/08 (e) B2 18,630 18,444
OIL & GAS - 1.3%
Chesapeake Energy Corp. 9.625% 5/1/05 B1 14,730 12,373
Cross Timbers Oil Co. 8.75% 11/1/09 B2 5,980 5,083
Ocean Energy, Inc.:
8.375% 7/1/08 (e) B1 5,280 5,016
8.875% 7/15/07 B1 5,010 4,935
10.375% 10/15/05 B2 590 609
Plains Resources, Inc. 10.25% 3/15/06 B2 1,070 1,059
Seven Seas Petroleum, Inc. 12.5% 5/15/05 Caa1 6,780 4,610
Snyder Oil Corp. 8.75% 6/15/07 B2 7,410 7,280
Vintage Petroleum, Inc. 9% 12/15/05 B1 1,620 1,648
YPF Sociedad Anonima 7.75% 8/27/07 Ba3 2,850 2,494
45,107
TOTAL ENERGY 63,551
FINANCE - 2.6%
CREDIT & OTHER FINANCE - 2.6%
Aames Financial Corp. 9.125% 11/1/03 B3 2,670 1,602
CEX Holdings, Inc. 9.625% 6/1/08 (e) B2 7,220 6,931
Denbury Management, Inc. 9% 3/1/08 B3 16,910 14,374
DGS International Finance Co. BV 10% 6/1/07 Caa1 7,140 4,141
Digital Television Services LLC/DTS Capital, Inc. B3 12,450 12,575
12.5% 8/1/07
GS Escrow Corp. 7.125% 8/1/05 (e) Ba1 9,700 9,472
Macsaver Financial Services, Inc. 7.6% 8/1/07 Ba1 2,440 1,757
Ocwen Capital Trust 10.875% 8/1/27 B2 3,080 2,310
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
ORBCOMM Global L.P./ORBCOMM Capital Co. B3 $ 1,090 $ 970
14% 9/15/04
Stone Container Finance Co. 11.5% 8/15/06 (e) B2 8,330 7,789
Time Warner Telecom LLC/Time Warner Telecom, B2 22,820 22,706
Inc. 9.75% 7/15/08
Transwestern Pub Co. LP/Township Capital B2 5,475 5,366
9.625% 11/15/07
Winstar Equipment II Corp. 12.5% 3/15/04 - 5,450 5,123
95,116
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP 14% 6/10/02 (e) - 48 48
TOTAL FINANCE 95,164
HEALTH - 1.9%
DRUGS & PHARMACEUTICALS - 0.6%
Global Health Sciences, Inc. 11% 5/1/08 Caa1 25,080 21,569
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
ALARIS Medical, Inc. 9.75% 12/1/06 B3 1,680 1,579
Graham-Field Health Products, Inc. 9.75% Caa1 14,270 6,707
8/15/07
8,286
MEDICAL FACILITIES MANAGEMENT - 1.1%
Fountain View, Inc. 11.25% 4/15/08 Caa1 8,630 6,731
Harborside Healthcare Corp. 0% 8/1/08 (d)(e) B3 24,000 11,520
Oxford Health Plans, Inc. 11% 5/15/05 (e) Caa1 21,050 18,314
Paracelsus Healthcare Corp. 10% 8/15/06 B3 1,930 1,737
38,302
TOTAL HEALTH 68,157
INDUSTRIAL MACHINERY & EQUIPMENT - 0.9%
ELECTRICAL EQUIPMENT - 0.4%
L-3 Communications Corp. 10.375% 5/1/07 B2 2,600 2,776
Motors & Gears, Inc. 10.75% 11/15/06 B3 11,870 11,751
14,527
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
Continental Global Group, Inc. 11% 4/1/07 B2 $ 11,980 $ 9,824
Specialty Equipment Companies, Inc. 11.375% B3 7,050 7,314
12/1/03
17,138
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 31,665
MEDIA & LEISURE - 23.6%
BROADCASTING - 18.6%
ACME Television LLC/ACME Financial Corp. 0% B3 4,742 3,509
9/30/04 (d)
Adelphia Communications Corp.:
8.375% 2/1/08 B2 15,640 15,562
9.25% 10/1/02 B2 20,200 20,806
9.5% 2/15/04 pay-in-kind B2 29,244 29,499
9.875% 3/1/07 B2 36,755 39,328
Ascent Entertainment Group, Inc. 0% B3 10,480 5,921
12/15/04 (d)
Benedek Communications Corp. 0% 5/15/06 (d) B3 6,090 4,019
CapStar Broadcasting Partners, Inc. 0% B3 9,910 7,433
2/1/09 (d)
CBS Radio, Inc. 11.375% 1/15/09 pay-in-kind - 13,861 16,079
Century Communications Corp.:
8.375% 12/15/07 Ba3 620 640
8.75% 10/1/07 Ba3 2,250 2,329
9.5% 3/1/05 Ba3 1,770 1,898
Chancellor Media Corp. 9% 10/1/08 (e) Ba3 27,475 27,544
Charter Communications LP/Charter B3 610 659
Communications Southeast Capital Corp.
11.25% 3/15/06
Citadel Broadcasting Co. 10.25% 7/1/07 B3 14,040 14,812
Classic Cable, Inc. 9.875% 8/1/09 (e) B3 2,460 2,485
Classic Communications, Inc. 0% 8/1/09 Caa1 9,500 4,940
unit (d)(e)
Comcast UK Cable Partners Ltd. 0% B2 7,370 5,749
11/15/07 (d)
CSC Holdings, Inc. 7.625% 7/16/18 Ba2 12,650 11,689
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable Communications PLC yankee 0% Caa1 $ 9,080 $ 6,628
12/15/05 (d)
EchoStar Communications Corp. 0% 6/1/04 (d) B2 5,800 5,655
Echostar DBS Corp. 12.5% 7/1/02 Caa1 28,930 29,581
Echostar Satellite Broadcasting Corp. 0% B3 55,840 48,022
3/15/04 (d)
Falcon Holdings Group LP/Falcon Funding:
0% 4/15/10 (d) B2 26,200 17,292
8.375% 4/15/10 B2 12,500 12,344
FrontierVision Holdings LP/FrontierVision Caa1 29,290 23,652
Holdings Capital Corp. 0% 9/15/07 (d)
Golden Sky Systems, Inc. 12.375% 8/1/06 (e) B3 10,670 10,563
Granite Broadcasting Corp. 8.875% 5/15/08 B3 4,800 4,152
Intermedia Capital Partners IV LP / Intermedia B2 3,868 4,235
Partners IV Capital Corp. 11.25% 8/1/06
International Cabletel, Inc. 0% 2/1/06 (d) B3 31,387 23,854
Iridium Operating LLC/Iridium Capital Corp.:
10.875% 7/15/05 B3 20,850 15,638
11.25% 7/15/05 B3 7,140 5,426
Lenfest Communications, Inc.:
8.25% 2/15/08 B2 3,440 3,449
8.375% 11/1/05 Ba3 2,830 2,950
10.5% 6/15/06 B2 820 918
LIN Holdings Corp. 0% 3/1/08 (d) B3 22,050 14,222
LIN Television Corp. 8.375% 3/1/08 B2 11,700 11,232
NTL, Inc.:
0% 4/1/08 (d)(e) B3 35,870 19,729
10% 2/15/07 B3 28,600 27,170
11.5% 10/1/08 (e) B3 35,980 37,239
Orbital Imaging Corp. 11.625% 3/1/05 - 25,730 22,642
Pegasus Communications Corp. 9.625% B3 640 582
10/15/05
Renaissance Media Group LLC/Renaissance 0% B3 24,570 15,479
4/15/08 (d)
Satelites Mexicanos SA de CV 10.125% B3 32,880 22,358
11/1/04 (e)
Telewest Communications PLC 11.25% B+ 5,360 5,628
11/1/08 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Telewest PLC:
yankee 0% 10/1/07 (d) B1 $ 42,880 $ 33,875
9.625% 10/1/06 B1 6,010 5,890
UIH Australia/Pacific, Inc.:
Series B 0% 5/15/06 (d) B2 18,170 7,086
Series D 0% 5/15/06 (d) B2 6,510 2,539
United International Holdings, Inc. 0% B3 31,050 14,594
2/15/08 (d)
669,525
ENTERTAINMENT - 3.2%
AMC Entertainment, Inc. 9.5% 3/15/09 B2 4,750 4,608
Cinemark USA, Inc. 8.5% 8/1/08 B2 10,960 10,193
Hollywood Theaters, Inc. 10.625% 8/1/07 B3 5,410 4,599
Livent, Inc. 9.375% 10/15/04 (i) B1 11,100 6,660
Premier Parks, Inc.:
0% 4/1/08 (d) B3 28,340 17,429
9.25% 4/1/06 B3 22,070 22,291
SFX Entertainment, Inc. 9.125% 2/1/08 B3 8,640 8,035
Viacom, Inc. 8% 7/7/06 Ba2 41,610 42,858
116,673
LODGING & GAMING - 1.5%
Hard Rock Hotel, Inc. 9.25% 4/1/05 B3 3,510 3,405
KSL Recreation Group, Inc. 10.25% 5/1/07 B3 11,080 10,997
Signature Resorts, Inc. 9.75% 10/1/07 B3 24,120 18,090
Sun International Hotels Ltd./Sun International
North America, Inc.:
yankee 9% 3/15/07 Ba3 2,800 2,884
8.625% 12/15/07 Ba3 17,690 17,778
53,154
PUBLISHING - 0.2%
Perry Judd, Inc. 10.625% 12/15/07 B3 2,290 2,290
Sun Media Corp.:
yankee 9.5% 2/15/07 B2 1,437 1,566
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
Sun Media Corp.: - continued
9.5% 5/15/07 B2 $ 615 $ 670
Transwestern Holding LP/Township Capital Corp. B3 1,870 1,131
0% 11/15/08 (d)
5,657
RESTAURANTS - 0.1%
AFC Enterprises, Inc. 10.25% 5/15/07 B3 740 744
Nebraska Restaurant, Inc. 10.75% 7/15/08 (e) B3 4,780 4,541
5,285
TOTAL MEDIA & LEISURE 850,294
NONDURABLES - 1.9%
FOODS - 1.1%
Aurora Foods, Inc. 8.75% 7/1/08 B1 4,780 4,923
Del Monte Corp. 12.25% 4/15/07 Caa1 11,100 11,877
Del Monte Foods Co. 0% 12/15/07 (d) Caa2 29,320 16,419
Gorges/Quik-To-Fix Foods, Inc. 11.5% 12/1/06 Caa1 22,420 6,726
39,945
HOUSEHOLD PRODUCTS - 0.7%
AKI Holding Corp. 0% 7/1/09 (d)(e) Caa1 9,660 3,671
AKI, Inc. 10.5% 7/1/08 (e) B2 3,050 2,898
Revlon Consumer Products Corp. 8.625% B3 19,280 17,545
2/1/08
24,114
TOBACCO - 0.1%
North Atlantic Trading, Inc. 11% 6/15/04 B3 4,550 4,186
TOTAL NONDURABLES 68,245
RETAIL & WHOLESALE - 4.8%
GROCERY STORES - 3.9%
Fleming Companies, Inc.:
10.5% 12/1/04 B3 3,990 3,711
10.625% 7/31/07 B3 6,240 5,663
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Jitney-Jungle Stores America, Inc. 10.375% B3 $ 31,810 $ 30,538
9/15/07
Pathmark Stores, Inc.:
9.625% 5/1/03 Caa1 24,760 24,265
11.625% 6/15/02 Caa2 46,195 44,116
12.625% 6/15/02 Caa2 10,220 9,760
Star Market Co., Inc. 13% 11/1/04 B3 13,740 14,564
Supermarkets Acquisition:
10.875% 2/9/04 B1 1,900 1,577
10.875% 2/9/04 (e) Ba3 6,970 5,785
139,979
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Amazon.com, Inc. 0% 5/1/08 (d) Caa2 42,390 24,692
U.S. Office Products Co. 9.75% 6/15/08 (e) B3 8,555 6,758
31,450
TOTAL RETAIL & WHOLESALE 171,429
SERVICES - 1.5%
LEASING & RENTAL - 0.2%
AP Holdings, Inc. 0% 3/15/08 (d) Caa2 2,360 1,062
Apcoa, Inc. 9.25% 3/15/08 Caa1 3,520 3,133
Hollywood Entertainment Corp. 10.625% B3 1,660 1,577
8/15/04
5,772
PRINTING - 0.4%
Sullivan Graphics, Inc. 12.75% 8/1/05 Caa1 15,420 15,266
SERVICES - 0.9%
Iron Mountain, Inc. 8.75% 9/30/09 B3 12,990 12,828
Medaphis Corp. 9.5% 2/15/05 B2 10,710 8,247
Spin Cycle, Inc. 0% 5/1/05 unit (d)(e) - 11,510 5,755
Young American Corp. 11.625% 2/15/06 B3 12,200 4,270
31,100
TOTAL SERVICES 52,138
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - 5.0%
COMMUNICATIONS EQUIPMENT - 0.4%
Intermedia Communications, Inc.:
8.5% 1/15/08 B2 $ 2,490 $ 2,353
8.6% 6/1/08 B2 11,320 10,726
8.875% 11/1/07 B2 2,070 1,987
15,066
COMPUTER SERVICES & SOFTWARE - 2.7%
Concentric Network Corp. 12.75% 12/15/07 - 24,120 21,829
DecisionOne Corp. 9.75% 8/1/07 B3 16,365 8,183
DecisionOne Holdings Corp. 0% 8/1/08 unit (d) Caa1 10,835 2,709
Federal Data Corp. 10.125% 8/1/05 B3 4,270 3,843
ICG Services, Inc.:
0% 2/15/08 (d) - 95,400 46,746
0% 5/1/08 (d) - 6,390 3,019
PSINet, Inc. 10% 2/15/05 B3 3,100 3,038
Verio, Inc. 10.375% 4/1/05 B3 6,520 6,096
95,463
ELECTRONIC INSTRUMENTS - 1.1%
Fisher Scientific International, Inc. 9% 2/1/08 B3 21,815 21,051
High Voltage Engineering Corp. 10.5% 8/15/04 B3 8,930 7,858
Telecommunications Techniques Co. 9.75% B3 11,980 10,183
5/15/08 (e)
39,092
ELECTRONICS - 0.8%
Communications Instruments, Inc. 10% 9/15/04 B3 610 537
Details, Inc. 10% 11/15/05 B3 9,460 8,798
Samsung Electronics America, Inc. 9.75% Ba1 8,000 6,760
5/1/03 (e)
Stellex Industries, Inc. 9.5% 11/1/07 B3 14,750 13,275
29,370
TOTAL TECHNOLOGY 178,991
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 1.6%
AIR TRANSPORTATION - 0.8%
Atlas Air, Inc. 9.25% 4/15/08 B3 $ 12,530 $ 11,590
Kitty Hawk, Inc. 9.95% 11/15/04 B1 19,270 18,499
30,089
RAILROADS - 0.3%
TFM SA de CV:
0% 6/15/09 (d) B2 9,380 4,690
10.25% 6/15/07 B2 4,610 3,895
8,585
SHIPPING - 0.5%
Amer Reefer Co. Ltd. 10.25% 3/1/08 (e) B1 6,530 4,898
International Shipholding Corp. 7.75% Ba3 5,810 5,403
10/15/07
Stena Line AB 10.625% 6/1/08 B1 9,820 8,593
18,894
TOTAL TRANSPORTATION 57,568
UTILITIES - 23.4%
CELLULAR - 4.1%
ESAT Holdings Ltd. 0% 2/1/07 (d) Caa2 15,520 9,622
McCaw International Ltd. 0% 4/15/07 (d) Caa1 37,570 16,719
Millicom International Cellular SA 0% Caa1 50,130 29,577
6/1/06 (d)
Nextel Communications, Inc.:
0% 8/15/04 (d) B2 4,160 3,827
0% 9/15/07 (d) B2 3,591 2,092
0% 2/15/08 (d) B2 30,300 16,438
12% 11/1/08 (e) B2 16,500 17,325
Orange PLC 8% 8/1/08 Ba3 13,130 12,802
Rogers Communications, Inc. 8.875% 7/15/07 B2 10,610 10,451
Telesystem International Wireless, Inc. 0% Caa1 17,770 5,686
6/30/07 (d)
Teligent, Inc.:
0% 3/1/08 (d) Caa1 15,350 6,409
11.5% 12/1/07 Caa1 18,880 15,670
146,618
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
ELECTRIC UTILITY - 1.7%
Niagara Mohawk Power Corp.:
0% 7/1/10 (d) Ba3 $ 37,410 $ 27,590
7.625% 10/1/05 Ba3 18,360 18,883
7.75% 10/1/08 Ba3 13,400 14,137
60,610
TELEPHONE SERVICES - 17.6%
Allegiance Telecom, Inc.:
0% 2/15/08 (d) - 1,650 726
12.875% 5/15/08 - 15,620 14,761
Call-Net Enterprises, Inc. 0% 8/15/08 (d) B1 9,870 5,478
Covad Communications Group, Inc. 0% - 24,200 8,470
3/15/08 (d)
Dobson Wireline Co. 12.25% 6/15/08 (e) - 17,455 14,575
DTI Holdings, Inc. 0% 3/1/08 (d) - 61,080 19,546
e.spire Communications, Inc.:
0% 11/1/05 (d) - 15,015 11,261
0% 4/1/06 (d) - 20,520 13,543
13.75% 7/15/07 - 15,200 15,808
ESAT Telecom Group PLC 0% 2/1/07 (d) Caa2 7,530 4,669
Facilicom International, Inc. 10.5% 1/15/08 - 8,260 6,443
Firstworld Communications, Inc. 0% - 21,340 5,975
4/15/08 (d)(e)
Flag Ltd. 8.25% 1/30/08 Ba3 19,880 18,141
Global Crossing Holdings Ltd. 9.625% - 32,450 31,720
5/15/08 (e)
GST Network Funding, Inc. 0% 5/1/08 (d)(e) - 35,110 15,097
GST Equipment Funding, Inc. 13.25% 5/1/07 - 13,760 13,485
GST Telecommunications, Inc. 12.75% - 18,740 15,742
11/15/07
GST USA, Inc. 0% 12/15/05 (d) - 24,990 17,118
Hermes Europe Railtel BV 11.5% 8/15/07 B3 18,200 18,928
Hyperion Telecommunications, Inc.:
0% 4/15/03 (d) B3 4,350 2,958
12.25% 9/1/04 B3 9,790 9,545
IXC Communications, Inc. 9% 4/15/08 B3 17,030 16,817
KMC Telecom Holdings, Inc. 0% 2/15/08 (d) - 36,730 16,345
Level 3 Communications, Inc. 9.125% 5/1/08 B3 46,460 43,730
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
McLeodUSA, Inc.:
8.375% 3/15/08 B2 $ 5,140 $ 4,947
9.25% 7/15/07 B2 12,240 12,362
9.5% 11/1/08 (e) B2 13,730 14,039
MetroNet Communications Corp.:
0% 11/1/07 (d) B3 11,190 6,546
0% 6/15/08 (d) B3 38,350 20,901
MGC Communications, Inc. 13% 10/1/04 Caa2 5,340 3,631
Netia Holdings BV 10.25% 11/1/07 B3 15,740 12,277
NEXTLINK Communications LLC 12.5% 4/15/06 B3 28,040 29,582
Pathnet, Inc. 12.25% 4/15/08 - 22,120 15,705
Qwest Communications International, Inc.:
0% 10/15/07 (d) Ba1 25,620 19,535
7.5% 11/1/08 (e) Ba1 12,520 12,677
10.875% 4/1/07 Ba1 15,460 17,779
Rhythms Netconnections, Inc. 0% 5/15/08 - 14,380 5,177
unit (d)(e)
RSL Communications Ltd. 12.25% 11/15/06 B3 14,575 14,284
Telegroup, Inc. 0% 11/1/04 (d) - 5,820 2,910
Transtel Pass Through Trust 12.5% 11/1/07 (e) B2 17,200 7,396
Versatel Telecom BV 13.25% 5/15/08 (e) - 7,060 6,566
Viatel, Inc.:
0% 4/15/08 (d) Caa1 24,860 12,057
11.25% 4/15/08 Caa1 28,790 25,911
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 2,560 1,869
0% 10/15/05 (d) Caa1 2,030 2,192
0% 3/15/08 (d) CCC 29,240 22,222
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.: - continued
10% 3/15/08 CCC $ 15,030 $ 12,325
Winstar Equipment Corp. 12.5% 3/15/04 B3 11,270 10,594
634,365
TOTAL UTILITIES 841,593
TOTAL NONCONVERTIBLE BONDS 2,693,633
TOTAL CORPORATE BONDS 2,693,715
(Cost $3,072,049)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 0.7%
Airplanes Pass Through Trust 10.875% 3/15/19 Ba2 23,615 24,323
(Cost $25,372)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 0.7%
Bardell Associates Note Trust 12.5%, - 1,704 1,811
11/1/08 (h)
First Chicago/Lennar Trust I Series 1997-CHL1 - 10,700 7,737
Class E, 8.1309% 2/28/11 (f)
Resolution Trust Corp. Series 1991-M2 Class Ba3 4,094 3,398
A-3, 7.2498% 9/25/20 (f)
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7.375% 9/25/24 (e) BB 4,000 3,906
Series 1996-CFL Class G, 7.75% 2/25/28 (e) - 9,260 8,107
TOTAL COMMERCIAL MORTGAGE SECURITIES 24,959
(Cost $23,457)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (C) - 0.0%
United Mexican States rights 6/30/03 - 1 0
discount D (a) (Cost $0)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 3.7%
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive LP/Foamex JPS Capital Corp. 15,350 $ 322
warrants 7/1/99 (a)
Trivest 1992 Special Fund Ltd. (a)(g) 3.0 348
670
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings Ltd. warrants 10/15/03 (a) 2,010 1
Gaylord Container Corp. Class A (a) 512,500 1,538
1,539
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well, Inc. (a)(e) 93,752 1,225
TOTAL BASIC INDUSTRIES 3,434
CONSTRUCTION & REAL ESTATE - 0.2%
CONSTRUCTION - 0.0%
Capital Pacific Holdings, Inc. warrants 5/1/02 (a)(e) 24,095 24
REAL ESTATE - 0.2%
Sunterra Corp. (a) 580,100 5,511
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Ocwen Asset Investment Corp. 164,300 657
TOTAL CONSTRUCTION & REAL ESTATE 6,192
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Breed Technologies, Inc. 397,600 3,355
TEXTILES & APPAREL - 0.0%
Arena Brands Holdings Corp. Class B 42,253 1,056
Hat Brands, Inc. (a)(h) 410,000 0
1,056
TOTAL DURABLES 4,411
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 0.1%
OIL & GAS - 0.1%
Ocean Energy, Inc. (a) 211,410 $ 2,643
Pioneer Natural Resources Co. 75,769 1,141
3,784
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (e) 900 79
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
XRC Corp. 84,961 1
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. Class A (a) 25,040 25
MEDIA & LEISURE - 1.3%
BROADCASTING - 1.3%
Adelphia Communications Corp. Class A (a) 126,800 4,771
Cablevision Systems Corp. Class A (a) 166,000 8,010
CS Wireless Systems, Inc. (a)(e) 439 0
EchoStar Communications Corp. Class A (a) 507,537 13,703
Loral Orion Network Systems, Inc.:
warrants 1/15/07 (CV ratio .47) (a) 19,560 154
warrants 1/15/07 (CV ratio .6) (a) 18,480 194
MediaOne Group, Inc. 250,000 10,578
Orbital Imaging Corp. warrants 3/1/05 (a)(e) 25,730 257
Pegasus Communications Corp. unit 6,509 6,314
Tele-Communications, Inc. (TCI Group) Series A (a) 32,200 1,356
Telewest Communications PLC sponsored ADR 75,000 1,734
UIH Australia/Pacific, Inc. warrants 5/15/06 (a) 19,690 59
47,130
ENTERTAINMENT - 0.0%
Livent, Inc. (a) 125,200 408
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc. Series I warrants 11/14/99 (a)(e) 1,460 0
TOTAL MEDIA & LEISURE 47,538
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc.:
Class A warrants 1/31/08 (a) 67,341 $ 17
Class A (a) 108,775 41
Class B warrants 1/31/08 (a) 21,602 5
63
GROCERY STORES - 0.1%
Meyer (Fred), Inc. (a) 29,700 1,583
TOTAL RETAIL & WHOLESALE 1,646
SERVICES - 0.1%
LEASING & RENTAL - 0.1%
Hollywood Entertainment Corp. (a) 160,780 2,452
SERVICES - 0.0%
Protection One, Inc. 76,400 860
TOTAL SERVICES 3,312
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc. (a) 102,200 1,891
Intermedia Communications, Inc. warrants 6/1/00 (a) 2,500 173
2,064
COMPUTER SERVICES & SOFTWARE - 0.1%
Concentric Network Corp. (a) 126,300 3,063
Concentric Network Corp. warrants 12/15/07 (a)(e) 23,340 2,031
5,094
TOTAL TECHNOLOGY 7,158
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. Class A warrants 12/15/00 (a) 5,520 0
UTILITIES - 1.5%
CELLULAR - 0.4%
McCaw International Ltd. warrants 4/15/07 (a)(e) 66,290 331
Microcell Telecommunications, Inc. warrants 6/1/06 (a)(e) 183,560 2,019
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Nextel Communications, Inc.:
Class A 425,087 $ 7,705
Series A warrants 12/15/98 (a) 5,494 0
Powertel, Inc. warrants 2/1/06 (a) 85,408 256
Telesystem International Wireless, Inc. (sub. vtg.) (a) 176,800 1,856
12,167
ELECTRIC UTILITY - 0.0%
Niagara Mohawk Power Corp. (a) 93,300 1,365
TELEPHONE SERVICES - 1.1%
Covad Communications Group, Inc. warrants 3/15/98 (a)(e) 24,200 242
DTI Holdings, Inc. warrants 3/1/08 (a)(e) 305,400 3
e.spire Communications, Inc. (a) 214,800 2,578
Firstworld Communications, Inc. warrants 4/15/08 (e) 21,340 213
GST Telecommunications, Inc. (a) 425,000 2,763
ICG Communications, Inc. (a) 452,500 9,361
IXC Communications, Inc. 205,600 7,967
KMC Telecom Holdings, Inc. warrants 2/15/08 (a)(e) 37,830 95
MCI WorldCom, Inc. (a) 125,300 6,923
McLeodUSA, Inc. Class A (a) 135,000 4,936
MGC Communications, Inc. warrants 10/1/04 (a)(e) 5,340 234
Pathnet, Inc. warrants 4/15/08 (a)(e) 22,120 221
RSL Communications Ltd. warrants 11/15/06 (a)(e) 25,710 2,160
Source Media, Inc. warrants 11/1/07 (a)(e) 48,052 327
Versatel Telecom BV warrants 5/15/08 (a)(e) 7,060 71
WinStar Communications, Inc. (a) 100,000 2,700
40,794
TOTAL UTILITIES 54,326
TOTAL COMMON STOCKS 131,906
(Cost $131,600)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PREFERRED STOCKS - 15.0%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.7%
ENERGY - 0.1%
OIL & GAS - 0.1%
Chesapeake Energy Corp. $3.50 (a)(e) 95,000 $ 1,853
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
BTI Capital Trust $3.25 (a)(e) 7,000 154
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% non-cumulative (a) 84 131
MEDIA & LEISURE - 0.2%
LODGING & GAMING - 0.2%
Host Marriott Financial Trust $3.375 QUIPS (a) 146,600 5,983
UTILITIES - 0.4%
TELEPHONE SERVICES - 0.4%
IXC Communications, Inc. $3.375 (a)(e) 179,000 6,433
NEXTLINK Communications, Inc. $3.25 (a)(e) 240,000 8,940
15,373
TOTAL CONVERTIBLE PREFERRED STOCKS 23,494
NONCONVERTIBLE PREFERRED STOCKS - 14.3%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
California Federal Preferred Capital Corp. $2.28 334,377 8,610
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd. Series 1 33,881 48
FINANCE - 0.3%
INSURANCE - 0.3%
American Annuity Group Capital Trust II 8.75% (a) 10,340 9,206
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT - 0.3%
Fresenius Medical Care Capital Trust 9% 9,847 9,955
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% non-cumulative (a) 182 $ 284
MEDIA & LEISURE - 5.5%
BROADCASTING - 4.9%
Adelphia Communications Corp. $13.00 228,536 26,339
Benedek Communications Corp. 11.5% pay-in-kind (a) 11,712 9,604
Citadel Broadcasting Co. Series B, 13.25% pay-in-kind 91,454 10,334
CSC Holdings, Inc. 165,231 18,175
Series H, 11.75% pay-in-kind
11.125% pay-in-kind 407,796 44,246
Echostar Communications Corp. 12.125% pay-in-kind 17,087 16,062
Granite Broadcasting Corp. 12.75% pay-in-kind 25,389 20,311
NTL, Inc. 13% pay-in-kind 30,253 28,740
Pegasus Communications Corp. 12.75% pay-in-kind 854 803
174,614
PUBLISHING - 0.6%
PRIMEDIA, Inc.:
$9.20 76,000 7,125
Series D, $10.00 153,157 15,124
22,249
TOTAL MEDIA & LEISURE 196,863
RETAIL & WHOLESALE - 0.3%
GROCERY STORES - 0.1%
Nebco Evans Holding Co. 11.25% pay-in-kind 3,606 162
Supermarkets General Holdings Corp. $3.52 pay-in-kind (a) 116,319 2,559
2,721
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
J. Crew Operating Corp. 14.50% pay-in-kind (h) 10,500 7,560
TOTAL RETAIL & WHOLESALE 10,281
TECHNOLOGY - 1.6%
COMMUNICATIONS EQUIPMENT - 1.5%
Intermedia Communications, Inc. 13.5% pay-in-kind 52,941 53,998
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.1%
Concentric Network Corp. 13.5% pay-in-kind 6,893 $ 5,135
TOTAL TECHNOLOGY 59,133
UTILITIES - 6.1%
CELLULAR - 1.8%
Nextel Communications, Inc.:
11.125% pay-in-kind 26,338 22,124
Series D, 13% pay-in-kind 46,289 43,975
66,099
TELEPHONE SERVICES - 4.3%
e.spire Communications, Inc.:
12.75% pay-in-kind 27,259 18,536
14.75% pay-in-kind 9,254 8,144
Hyperion Telecommunication, Inc. 12.875% pay-in-kind 25,210 15,630
ICG Holdings, Inc. 14.25% pay-in-kind 38,322 35,448
IXC Communications, Inc. 12.5% pay-in-kind 37,187 37,931
NEXTLINK Communications, Inc. 14% pay-in-kind 459,159 21,580
Source Media, Inc. 13.50% pay-in-kind 98,211 1,154
Viatel, Inc. 10% (a)(e) 26,790 1,607
WinStar Communications, Inc. 14.25% (a) 16,106 14,334
154,364
TOTAL UTILITIES 220,463
TOTAL NONCONVERTIBLE PREFERRED STOCKS 514,843
TOTAL PREFERRED STOCKS 538,337
(Cost $627,994)
</TABLE>
PURCHASED BANK DEBT - 0.0%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (B) AMOUNT (000S)
GPA Group PLC term loan 6.4% 11/19/98 - $ 1,860 1,841
(Cost $1,423)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 5.0%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investments in repurchase agreements (U.S. Treasury
obligations), in a joint trading account at:
5.39%, dated 10/30/98 due 11/2/98 179,114 $ 179,034
5.4%, dated 10/30/98 due 11/2/98 2,058 2,057
TOTAL CASH EQUIVALENTS 181,091
(Cost $181,091)
TOTAL INVESTMENT IN SECURITIES - 100% $ 3,596,172
(Cost $4,062,986)
</TABLE>
SECURITY TYPE ABBREVIATIONS
QUIPS - Quarterly Income Preferred Securities
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) For foreign government obligations not 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.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
(e) 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 $496,911,000 or 13.8% of net assets.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) Share amount represents number of units held.
(h) 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:
SECURITY ACQUISTION DATE ACQUISITION COST (000S)
Bardell Associates 4/19/94 1,732
Note Trust
12.5%, 11/1/08
Hat Brands, Inc. 2/22/94 410
J. Crew Operating 10/30/97 10,658
Corp. 14.50%
pay-in-kind
Sealy Corp., Inc. 2/23/98 - 10,317
10% 12/18/08 9/30/98
pay-in-kind
(i) Non-income producing issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.1%
Ba 9.2% BB 7.2%
B 40.9% B 44.9%
Caa 13.5% CCC 11.2%
Ca, C 0.0% CC, C 0.0%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 11.5%. FMR has determined that
unrated debt securities that are lower quality account for 11.5% of
the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $4,064,671,000. Net unrealized depreciation
aggregated $468,499,000, of which $64,199,000 related to appreciated
investment securities and $532,698,000 related to depreciated
investment securities.
The fund hereby designates approximately $71,106,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 3,596,172
AGREEMENTS OF $181,091) (COST $4,062,986) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 36,696
RECEIVABLE FOR FUND SHARES SOLD 38,013
INTEREST RECEIVABLE 59,253
OTHER RECEIVABLES 1,016
TOTAL ASSETS 3,731,150
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 107,691
PAYABLE FOR FUND SHARES REDEEMED 8,338
DISTRIBUTIONS PAYABLE 5,813
ACCRUED MANAGEMENT FEE 1,692
DISTRIBUTION FEES PAYABLE 1,251
OTHER PAYABLES AND ACCRUED EXPENSES 1,106
TOTAL LIABILITIES 125,891
NET ASSETS $ 3,605,259
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 3,939,635
UNDISTRIBUTED NET INVESTMENT INCOME 74,600
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 57,838
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (466,814)
NET ASSETS $ 3,605,259
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $11.09
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($117,172 (DIVIDED BY) 10,561 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $11.09) $11.64
CLASS T: $11.11
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,322,317 (DIVIDED BY) 209,055 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $11.11) $11.51
CLASS B: $11.07
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($923,365 (DIVIDED BY) 83,410 SHARES) A
CLASS C: $11.09
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($129,772 (DIVIDED BY) 11,703 SHARES) A
INSTITUTIONAL CLASS: $10.90
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($112,633 (DIVIDED BY) 10,336 SHARES)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 78,521
DIVIDENDS
INTEREST 278,987
TOTAL INCOME 357,508
EXPENSES
MANAGEMENT FEE $ 20,941
TRANSFER AGENT FEES 6,774
DISTRIBUTION FEES 14,444
ACCOUNTING FEES AND EXPENSES 822
NON-INTERESTED TRUSTEES' COMPENSATION 15
CUSTODIAN FEES AND EXPENSES 100
REGISTRATION FEES 579
AUDIT 68
LEGAL 22
INTEREST 2
REPORTS TO SHAREHOLDERS 372
MISCELLANEOUS 10
TOTAL EXPENSES BEFORE REDUCTIONS 44,149
EXPENSE REDUCTIONS (72) 44,077
NET INVESTMENT INCOME 313,431
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 61,433
FOREIGN CURRENCY TRANSACTIONS (7) 61,426
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (597,544)
INVESTMENT SECURITIES
NET GAIN (LOSS) (536,118)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (222,687)
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 313,431 $ 215,735
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 61,426 84,551
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (597,544) 55,881
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (222,687) 356,167
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (282,288) (210,159)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (70,360) (10,591)
TOTAL DISTRIBUTIONS (352,648) (220,750)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 1,259,000 691,063
TOTAL INCREASE (DECREASE) IN NET ASSETS 683,665 826,480
NET ASSETS
BEGINNING OF PERIOD 2,921,594 2,095,114
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 3,605,259 $ 2,921,594
INCOME OF $74,600 AND $42,691, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.930 $ 12.300 $ 12.010
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D 1.111 1.058 .163
NET REALIZED AND UNREALIZED GAIN (LOSS) (1.603) .710 .267
TOTAL FROM INVESTMENT OPERATIONS (.492) 1.768 .430
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.048) (1.078) (.140)
FROM NET REALIZED GAIN (.300) (.060) -
TOTAL DISTRIBUTIONS (1.348) (1.138) (.140)
NET ASSET VALUE, END OF PERIOD $ 11.090 $ 12.930 $ 12.300
TOTAL RETURN B, C (4.55)% 15.18% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 117 $ 44 $ 4
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.01% 1.15% 1.25% A, F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER 1.00% G 1.14% G 1.25% A
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 9.03% 8.58% 9.06% A
PORTFOLIO TURNOVER RATE 75% 105% 121%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR 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 6 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 12.940 $ 12.310 $ 11.910 $ 11.220 $ 12.010
BEGINNING OF PERIOD
INCOME FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME 1.119 C 1.086 C 1.105 C .930 C .848
NET REALIZED AND (1.612) .686 .364 .680 (.537)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS (.493) 1.772 1.469 1.610 .311
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.037) (1.082) (1.069) (.920) (.851)
FROM NET REALIZED GAIN (.300) (.060) - - (.250)
TOTAL DISTRIBUTIONS (1.337) (1.142) (1.069) (.920) (1.101)
NET ASSET VALUE, END OF PERIOD $ 11.110 $ 12.940 $ 12.310 $ 11.910 $ 11.220
TOTAL RETURN A, B (4.54)% 15.21% 12.92% 15.05% 2.64%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,322 $ 2,208 $ 1,709 $ 1,200 $ 680
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.07% 1.09% 1.12% 1.15% 1.20%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE 1.07% 1.08% D 1.11% D 1.15% 1.20%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 8.91% 8.72% 9.20% 8.32% 6.92%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 75% 105% 121% 112% 118%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 12.890 $ 12.280 $ 11.890 $ 11.210 $ 11.300
BEGINNING OF PERIOD
INCOME FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME 1.024 D .998 D 1.017 D .794 D .223
NET REALIZED AND (1.588) .674 .361 .721 (.118)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS (.564) 1.672 1.378 1.515 .105
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.956) (1.002) (.988) (.835) (.195)
FROM NET REALIZED GAIN (.300) (.060) - - -
TOTAL DISTRIBUTIONS (1.256) (1.062) (.988) (.835) (.195)
NET ASSET VALUE, END OF PERIOD $ 11.070 $ 12.890 $ 12.280 $ 11.890 $ 11.210
TOTAL RETURN B, C (5.10)% 14.34% 12.10% 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 923 $ 593 $ 344 $ 156 $ 17
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.74% 1.74% 1.79% 2.01% 2.20% A
NET ASSETS
RATIO OF NET INVESTMENT INCOME TO 8.25% 8.04% 8.52% 7.46% 5.92% A
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 75% 105% 121% 112% 118%
</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.
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS C
YEAR ENDED
OCTOBER 31,
1998 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.970
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .988
NET REALIZED AND UNREALIZED GAIN (LOSS) (1.639)
TOTAL FROM INVESTMENT OPERATIONS (.651)
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.929)
FROM NET REALIZED GAIN (.300)
TOTAL DISTRIBUTIONS (1.229)
NET ASSET VALUE, END OF PERIOD $ 11.090
TOTAL RETURN B, C (5.73)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 130
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.86% A
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 8.21% A
PORTFOLIO TURNOVER RATE 75%
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 NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO OCTOBER 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 D
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.710 $ 12.120 $ 11.760 $ 11.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME E 1.123 1.094 1.070 .390
NET REALIZED AND UNREALIZED GAIN (LOSS) (1.562) .671 .368 .193
TOTAL FROM INVESTMENT OPERATIONS (.439) 1.765 1.438 .583
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.071) (1.115) (1.078) (.383)
FROM NET REALIZED GAIN (.300) (.060) - -
TOTAL DISTRIBUTIONS (1.371) (1.175) (1.078) (.383)
NET ASSET VALUE, END OF PERIOD $ 10.900 $ 12.710 $ 12.120 $ 11.760
TOTAL RETURN B, C (4.21)% 15.42% 12.81% 5.07%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 113 $ 76 $ 38 $ 0.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS .83% .85% 1.10% .70% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .83% .85% 1.05% F .70% A
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE 9.12% 8.96% 9.26% 8.77% A
NET ASSETS
PORTFOLIO TURNOVER RATE 75% 105% 121% 112%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor High Yield Fund (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company
organized as a Massachusetts business trust.
The fund offers Class A, Class T, Class B, Class C, 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
matters that affect that class. Class B shares will automatically
convert to Class A shares after a holding period of seven years from
the initial date of purchase. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution, transfer agent, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
the U.S. dollar amount actually received, and gains and losses between
trade date and settlement on purchases and sales of securities. 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
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for partnerships, market discount 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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements 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, restricted securities (excluding 144A
issues) amounted to $19,448,000 or 0.5% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,841,000 or 0.1% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,693,965,000 and $2,512,746,000, 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. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% 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. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
the distribution of each class of shares and providing shareholder
support services. For the period, this fee was based on the following
annual rates of the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
CLASS C 1.00%**
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
** .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 retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 130,000 $ 1,000
CLASS T 6,204,000 93,000
CLASS B 7,409,000 5,354,000
CLASS C 701,000 698,000
$ 14,444,000 $ 6,146,000
Under the Plans, FMR 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. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 23,000
CLASS T 370,000
CLASS B 199,000
CLASS C 49,000
INSTITUTIONAL CLASS 13,000
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5%
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
to 1% for Class B and 1% for Class C, 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.
In addition, purchases of Class A and Class T shares that were subject
to a finder's fee bear a contingent deferred sales charge on assets
that do not remain in the fund for at least one year. The Class A and
Class T contingent deferred sales charge is based on 0.25% 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. A portion of the sales charges paid to
FDC are paid to securities dealers, banks and other financial
institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 923,000 $ 346,000
CLASS T 2,889,000 1,263,000
CLASS B 1,774,000 1,774,000*
CLASS C 54,000 54,000*
$ 5,640,000 $ 3,437,000
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund
(collectively referred to as the transfer agent). FIIOC receives
account fees and asset-based fees that vary according to the account
size and type of account of the shareholders of the respective classes
of the fund. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements. For the period, the
following amounts were paid to FIIOC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 178,000 .20
CLASS T 4,651,000 .19
CLASS B 1,610,000 .20
CLASS C 134,000 .19*
INSTITUTIONAL CLASS 201,000 .17
$ 6,774,000
* ANNUALIZED
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $15,000 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 $8,951,000. The weighted average interest rate was 6.1%.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $58,000 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 $12,000
under the custodian arrangement, and each applicable class' expenses
were reduced as follows under the transfer agent arrangements:
TRANSFER
AGENT
CREDITS
INSTITUTIONAL CLASS $ 2,000
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
AMOUNTS IN THOUSANDS YEARS ENDED OCTOBER 31,
1998 A 1997
FROM NET INVESTMENT INCOME
CLASS A $ 6,814 $ 1,492
CLASS T 201,133 168,378
CLASS B 60,100 35,586
CLASS C 4,494 -
INSTITUTIONAL CLASS 9,747 4,703
TOTAL $ 282,288 $ 210,159
FROM NET REALIZED GAIN
CLASS A $ 1,152 $ 32
CLASS T 52,313 8,606
CLASS B 14,488 1,771
CLASS C 165 -
INSTITUTIONAL CLASS 2,242 182
TOTAL $ 70,360 $ 10,591
TOTAL $ 352,648 $ 220,750
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
AMOUNTS IN THOUSANDS 1998 A 1997 1998 A 1997
CLASS A 8,996 3,449 $ 113,312 $ 43,286
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 520 89 6,429 1,128
SHARES REDEEMED (2,377) (430) (29,080) (5,420)
NET INCREASE (DECREASE) 7,139 3,108 $ 90,661 $ 38,994
CLASS T 100,128 79,054 $ 1,257,106 $ 982,916
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 16,088 10,932 201,460 135,681
SHARES REDEEMED (77,873) (58,169) (968,795) (724,770)
NET INCREASE (DECREASE) 38,343 31,817 $ 489,771 $ 393,827
CLASS B 47,554 25,512 $ 598,852 $ 317,577
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 3,879 1,929 48,184 23,896
SHARES REDEEMED (14,038) (9,476) (172,228) (118,144)
NET INCREASE (DECREASE) 37,395 17,965 $ 474,808 $ 223,329
CLASS C 15,155 - $ 191,117 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 210 - 2,549 -
SHARES REDEEMED (3,662) - (45,190) -
NET INCREASE (DECREASE) 11,703 - $ 148,476 $ -
INSTITUTIONAL CLASS 10,756 6,258 $ 133,230 $ 76,404
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 822 342 10,139 4,195
SHARES REDEEMED (7,206) (3,741) (88,085) (45,686)
NET INCREASE (DECREASE) 4,372 2,859 $ 55,284 $ 34,913
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
9. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 24,000
CLASS T 328,000
CLASS B 149,000
CLASS C 46,000
INSTITUTIONAL CLASS 32,000
$ 579,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor High Yield Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor High Yield Fund (a fund of Fidelity Advisor Series
II) at October 31, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fidelity
Advisor High Yield Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor High Yield Fund voted to pay
to shareholders of record at the opening of business on record date,
the following distributions derived from capital gains realized from
sales of portfolio securities, and dividends derived from net
investment income:
CLASS A
PAY DATE 12/8/97 12/7/98
RECORD DATE 12/5/97 12/4/98
DIVIDENDS - -
SHORT-TERM
CAPITAL GAINS $.07 -
LONG-TERM
CAPITAL GAINS $.23 $.13
LONG-TERM
CAPITAL GAIN BREAKDOWN:
28% rate 56.72% -
20% rate 43.28% 100%
CLASS T
PAY DATE 12/8/97 12/7/98
RECORD DATE 12/5/97 12/4/98
DIVIDENDS - -
SHORT-TERM
CAPITAL GAINS $.07 -
LONG-TERM
CAPITAL GAINS $.23 $.13
LONG-TERM
CAPITAL GAIN BREAKDOWN:
28% rate 56.72% -
20% rate 43.28% 100%
CLASS B
PAY DATE 12/8/97 12/7/98
RECORD DATE 12/5/97 12/4/98
DIVIDENDS - -
SHORT-TERM
CAPITAL GAINS $.07 -
LONG-TERM
CAPITAL GAINS $.23 $.13
LONG-TERM
CAPITAL GAIN BREAKDOWN:
28% rate 56.72% -
20% rate 43.28% 100%
CLASS C
PAY DATE 12/8/97 12/7/98
RECORD DATE 12/5/97 12/4/98
DIVIDENDS - -
SHORT-TERM
CAPITAL GAINS $.07 -
LONG-TERM
CAPITAL GAINS $.23 $.13
LONG-TERM
CAPITAL GAIN BREAKDOWN:
28% rate 56.72% -
20% rate 43.28% 100%
A total of 17% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
Margaret L. Eagle, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENTS
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International
Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap 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
HY-ANN-1298 66951
1.538463.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
HIGH YIELD
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1998
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 34 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 43 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 53 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 54
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
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 shares' 0.25% 12b-1 fee. If Fidelity
had not reimbursed certain class expenses, the past 10 years total
returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - INST CL -4.21% 46.59% 221.96%
ML HIGH YIELD MASTER 1.00% 49.48% 175.64%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 39.07% 134.14%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare Institutional Class' returns to those
of the Merrill Lynch High Yield Master Index - a market capitalization
weighted index of all domestic and yankee high-yield bonds. Issues
included in the index have maturities of at least one year and have a
credit rating lower than BBB-/Baa3, but are not in default. To measure
how Institutional Class' performance stacked up against its peers, you
can compare it to the high current yield funds average, which reflects
the performance of mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past one year average represents
a peer group of 235 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV HIGH YIELD - INST CL -4.21% 7.95% 12.40%
ML HIGH YIELD MASTER 1.00% 8.37% 10.67%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% 8.81%
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
1988/10/31 10000.00 10000.00
1988/11/30 10029.42 10037.46
1988/12/31 10126.96 10079.93
1989/01/31 10401.16 10231.10
1989/02/28 10473.86 10299.85
1989/03/31 10371.67 10290.69
1989/04/30 10256.74 10321.06
1989/05/31 10515.87 10511.07
1989/06/30 10891.27 10659.98
1989/07/31 10950.74 10710.47
1989/08/31 11061.49 10763.37
1989/09/30 10736.88 10660.90
1989/10/31 10333.74 10492.28
1989/11/30 10363.88 10515.79
1989/12/31 10495.10 10506.28
1990/01/31 10342.83 10300.95
1990/02/28 10287.93 10150.93
1990/03/31 10469.15 10288.15
1990/04/30 10595.02 10340.42
1990/05/31 10950.87 10527.20
1990/06/30 11263.43 10731.15
1990/07/31 11525.47 10957.93
1990/08/31 11242.54 10538.44
1990/09/30 10958.31 10080.11
1990/10/31 10703.22 9823.59
1990/11/30 11037.40 9906.81
1990/12/31 11261.35 10049.56
1991/01/31 11520.44 10191.62
1991/02/28 12181.56 10948.08
1991/03/31 12638.54 11418.80
1991/04/30 13023.40 11825.44
1991/05/31 13162.12 11883.18
1991/06/30 13515.49 12122.23
1991/07/31 14003.73 12412.69
1991/08/31 14185.50 12673.58
1991/09/30 14377.05 12835.00
1991/10/31 14949.58 13216.40
1991/11/30 15122.16 13369.06
1991/12/31 15196.57 13524.38
1992/01/31 15893.18 13997.23
1992/02/29 16551.08 14344.86
1992/03/31 17020.24 14545.01
1992/04/30 17175.13 14650.88
1992/05/31 17362.52 14884.57
1992/06/30 17624.60 15069.50
1992/07/31 17942.38 15374.83
1992/08/31 18274.14 15578.38
1992/09/30 18469.85 15755.88
1992/10/31 18232.57 15556.88
1992/11/30 18431.80 15777.20
1992/12/31 18705.40 15980.35
1993/01/31 19205.38 16373.85
1993/02/28 19626.07 16683.78
1993/03/31 20081.46 16973.03
1993/04/30 20195.84 17094.86
1993/05/31 20470.51 17324.98
1993/06/30 20970.04 17650.47
1993/07/31 21245.37 17840.19
1993/08/31 21410.82 18010.26
1993/09/30 21451.62 18099.12
1993/10/31 21964.31 18440.06
1993/11/30 22123.46 18540.92
1993/12/31 22530.55 18726.31
1994/01/31 23177.91 19136.70
1994/02/28 23082.74 18999.08
1994/03/31 22379.04 18379.96
1994/04/30 22129.74 18165.17
1994/05/31 22267.13 18100.45
1994/06/30 22226.04 18167.07
1994/07/31 22312.06 18294.78
1994/08/31 22471.71 18421.85
1994/09/30 22585.92 18414.88
1994/10/31 22544.63 18461.68
1994/11/30 22184.00 18304.63
1994/12/31 22193.99 18508.24
1995/01/31 22384.83 18769.77
1995/02/28 23105.50 19355.41
1995/03/31 23313.48 19624.77
1995/04/30 24065.84 20084.26
1995/05/31 24605.02 20711.73
1995/06/30 24553.09 20869.93
1995/07/31 25161.38 21108.52
1995/08/31 25310.66 21236.63
1995/09/30 25620.67 21479.60
1995/10/31 25814.18 21631.86
1995/11/30 25953.63 21843.02
1995/12/31 26347.03 22193.64
1996/01/31 26973.58 22544.14
1996/02/29 27321.91 22578.09
1996/03/31 27161.22 22516.77
1996/04/30 27458.42 22526.97
1996/05/31 27644.98 22689.43
1996/06/30 27690.87 22825.73
1996/07/31 27695.07 22980.69
1996/08/31 28072.14 23218.02
1996/09/30 29029.85 23716.17
1996/10/31 29121.75 23976.08
1996/11/30 29486.62 24460.81
1996/12/31 29835.61 24649.03
1997/01/31 30138.93 24838.46
1997/02/28 30719.40 25186.89
1997/03/31 29896.61 24907.16
1997/04/30 30143.65 25190.64
1997/05/31 31004.50 25691.85
1997/06/30 31582.70 26089.56
1997/07/31 32634.01 26715.65
1997/08/31 32829.93 26655.54
1997/09/30 33985.59 27110.65
1997/10/31 33610.90 27290.57
1997/11/30 33961.25 27534.98
1997/12/31 34399.78 27810.28
1998/01/31 35344.69 28217.67
1998/02/28 35771.29 28340.94
1998/03/31 36508.12 28585.18
1998/04/30 36534.20 28720.95
1998/05/31 36279.53 28906.75
1998/06/30 36311.68 29064.14
1998/07/31 36612.28 29229.89
1998/08/31 32661.47 27968.59
1998/09/30 32787.44 28024.38
1998/10/30 32196.45 27564.00
IMATRL PRASUN SHR__CHT 19981031 19981211 135558 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor High Yield Fund - Institutional Class on
October 31, 1988. As the chart shows, by October 31, 1998, the value
of the investment would have grown to $32,196 - a 221.96% 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 $27,564 -
a 175.64% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 3, 1995
OCTOBER 31, (COMMENCEMENT
OF SALE OF
INSTITUTIONAL
CLASS SHARES) TO
OCTOBER 31,
1998 1997 1996 1995
DIVIDEND RETURNS 7.97% 10.03% 9.75% 3.34%
CAPITAL RETURNS -12.18% 5.39% 3.06% 1.73%
TOTAL RETURNS -4.21% 15.42% 12.81% 5.07%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.85(CENTS) 44.29(CENTS) 107.06(CENTS)
ANNUALIZED DIVIDEND RATE 8.61% 7.32% 8.67%
30-DAY ANNUALIZED YIELD 11.14% - -
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 share price of $10.73 over the past one
month, $12.01 over the past six months, and $12.35 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
MARKET RECAP
The high-yield bond market, like
practically all other bond and
equity markets, experienced
significant volatility during the
12-month period that ended
October 31, 1998. For the first half
of the period, the high-yield market
was buoyed by a strong U.S.
economy and was easily able to
absorb heavy new issuance. Until
July, the yield spread between
high-yield and intermediate bonds
remained historically narrow,
helping high-yield performance to
appreciate along with the U.S.
stock market. But when the U.S.
equity market suffered its summer
correction, and Russia devalued its
currency and began to default on
its debts, investors sought
investments with a more substantial
perception of safety. Subsequently,
the high-yield market suffered
tremendously during this flight to
safety. The near collapse of
Long-Term Capital Management, a
hedge fund for wealthy investors,
also contributed to the malaise in
high-yield performance through
the summer and early fall. Recently,
however, thanks to two interest-rate
cuts by the Federal Reserve Board
and some easing of international
economic turmoil that has plagued
the world's financial markets for the
past year, the high-yield market has
shown some signs of life. For the
12-month period ending October 31,
1998, the Merrill Lynch High Yield
Master Index - a broad measure
of the high-yield market -
returned 1.00%.
An interview with Margaret Eagle, Portfolio Manager of Fidelity
Advisor High Yield Fund
Q. HOW DID THE FUND PERFORM, MARGARET?
A. For the 12-month period that ended October 31, 1998, the fund's
Institutional Class shares provided a total return of -4.21%. To get a
sense of how the fund did relative to its competitors, the high
current yield funds average returned -3.35% for the same 12-month
period, according to Lipper Analytical Services. To gauge how the fund
did relative to the high-yield market, the Merill Lynch High Yield
Master Index returned 1.00% for the year.
Q. AFTER POSTING GAINS EARLY IN THE PERIOD, THE HIGH-YIELD MARKET
SUFFERED SIGNIFICANT LOSSES IN AUGUST AND SEPTEMBER. WHAT CAUSED THE
TURNAROUND?
A. The main reason for the high-yield market's poor late summer
performance was a global flight to quality in which investors avoided
almost every type of riskier investment. The rush to less-risky
investments was set off by a barrage of unnerving events, culminating
in Russia's devaluation of its currency and the country's default on
its bonds, which are of lower credit quality. In early October, news
of large hedge fund losses caused investors to worry about how liquid
- - or how easily traded - riskier markets would be. Not that those
events had in any way altered the fundamentals, or business prospects,
of the majority of companies that issue high-yield debt. The default
rate among high-yield issuers remained below its historical average.
Rather, the market's sell-off was almost exclusively due to technical
factors - such as vastly curtailed demand, fears about liquidity and
hedge fund selling - that bordered on good old-fashioned panic. During
the final weeks of the period, however, investors poured money back
into high-yield bonds and helped the market stage a comeback.
Q. WHY DID THE FUND LAG ITS BENCHMARK, THE MERRILL LYNCH HIGH YIELD
MASTER INDEX?
A. The primary reason for the fund's lag was its relatively large
weighting in telecommunications companies, which, after leading the
high-yield market higher during the vast majority of the period, were
among its worst performers more recently. Many of the fund's
telecommunications holdings were in the form of zero coupon bonds and
preferred stocks, which don't pay a high amount of current income to
help cushion their prices in a market downturn. Furthermore, investors
initially were concerned that telecommunications companies would run
out of money if the world financial markets continued to endure a
credit crunch where borrowing was extremely difficult. After leading
the market higher during the majority of the past year, the fund's
telecommunications holdings - such as Nextel, NEXTLINK and others -
performed poorly from August through early October.
Q. WHICH HOLDINGS HELD UP AGAINST THE DIFFICULT ENVIRONMENT?
A. The fund's stake in higher-quality, Ba-rated bonds such as Niagara
Mohawk performed relatively well. The higher its credit quality, the
better a bond fared during the past few months.
Q. WHAT CHANGES HAVE YOU MADE TO THE FUND DURING THE PAST SIX MONTHS?
A. In August - prior to the high-yield market's unraveling - I sold
some holdings in order to lock in profits. I did that because I
anticipated an increased number of new deals coming to the high-yield
market, which I felt would put pressure on prices. As a result of
those sales, the fund had holdings in cash after the market's fall,
and I was able to add to or to initiate positions in bonds I liked at
very attractive prices - such as Qwest Communications, Level Three and
Global Crossing. All three rebounded in October and posted good gains
for the fund. In addition to the fund's telecommunications emphasis, I
also kept relatively large weightings in grocery store chains - such
as Pathmark Stores - and broadcasters, such as Adelphia Communications
and CBS Radio.
Q. WHAT'S YOUR OUTLOOK?
A. At the end of the period, high-yield prices still seemed to be
reflecting the worst case scenario. Spreads on the bonds - or the
amount of yield investors demanded over that of Treasuries - had
diminished somewhat, but were still quite wide when viewed on a
historical basis. At the end of the period, spreads were at wide
levels not seen since December 1991 when the rate of default among
high-yield issuers was more than 10%, compared to the current rate
which is around 2%. Even if you assume the default rate doubles,
high-yield bond prices still look attractive. That said, the
high-yield market's performance will likely depend on how investors
view its attractiveness relative to perceived risks.
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.
MARGARET EAGLE ON
POSITIONING OF THE FUND:
"For the past year or so, I've
become increasingly concerned
about economic deterioration,
primarily because of economic
depressions in emerging countries.
That's why I've positioned the fund
somewhat defensively, with little
exposure to commodity-based
companies - including chemical,
steel and paper companies - that I
believe would fare poorly in a weaker
economy. Instead, I've emphasized
telecommunications companies
because I think they will continue
to grow even if we do experience
economic softening."
FUND FACTS
GOAL: seeks a combination
of a high level of income and
potential for capital gains by
investing in income-producing
debt securities, preferred stocks
and convertible securities,
with an emphasis on
lower-quality debt securities
START DATE: January 5, 1987
SIZE: as of October 31,
1998, more than $3.6 billion
MANAGER: Margaret Eagle,
since 1987; joined Fidelity
in 1980
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1998
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
ADELPHIA COMMUNICATIONS CORP. 3.7 3.1
NEXTEL COMMUNICATIONS, INC. 3.1 3.6
NTL, INC. 3.1 2.2
PATHMARK STORES INC. 2.2 1.8
CSC HOLDINGS, INC. 2.0 1.5
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
UTILITIES 31.4 29.1
MEDIA & LEISURE 30.6 30.5
TECHNOLOGY 6.8 7.5
RETAIL & WHOLESALE 5.2 5.0
BASIC INDUSTRIES 3.5 4.3
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA, AA, A 0.0 0.0
BAA 0.0 0.0
BA 9.3 5.5
B 41.1 46.4
CAA, CA, C 14.4 10.1
NOT RATED 11.5 10.3
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1998 AND APRIL 30, 1998
ACCOUNT FOR 11.5% AND 10.3% RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 * AS OF APRIL 30, 1998**
NONCONVERTIBLE
BONDS 74.9%
CONVERTIBLE BONDS,
PREFERRED STOCKS 15.0%
COMMON STOCKS 3.7%
SHORT-TERM
INVESTMENTS 5.0%
FOREIGN GOVERNMENT
OBLIGATIONS 0.0%
OTHER INVESTMENTS 1.4%
* FOREIGN
INVESTMENTS 9.9%
NONCONVERTIBLE
BONDS 71.1%
CONVERTIBLE BONDS,
PREFERRED STOCKS 20.7%
COMMON STOCKS 5.9%
SHORT-TERM
INVESTMENTS 1.1%
FOREIGN GOVERNMENT
OBLIGATIONS 0.4%
OTHER INVESTMENTS 0.8%
** FOREIGN
INVESTMENTS 10.7%
ROW: 1, COL: 1, VALUE: 74.90000000000001
ROW: 1, COL: 2, VALUE: 15.0
ROW: 1, COL: 3, VALUE: 3.7
ROW: 1, COL: 4, VALUE: 5.0
ROW: 1, COL: 5, VALUE: 0.0
ROW: 1, COL: 6, VALUE: 1.4
ROW: 1, COL: 1, VALUE: 71.09999999999999
ROW: 1, COL: 2, VALUE: 20.7
ROW: 1, COL: 3, VALUE: 5.9
ROW: 1, COL: 4, VALUE: 1.1
ROW: 1, COL: 5, VALUE: 0.4
ROW: 1, COL: 6, VALUE: 0.8
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 74.9%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 0.0%
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0% - $ 110 $ 82
12/15/05 (d)(e)
NONCONVERTIBLE BONDS - 74.9%
AEROSPACE & DEFENSE - 0.1%
Compass Aerospace Corp. 10.125% Caa1 3,920 3,881
4/15/05 (e)
BASIC INDUSTRIES - 3.4%
CHEMICALS & PLASTICS - 0.3%
Huntsman Corp. 9.5% 7/1/07 (e) B2 13,210 12,682
IRON & STEEL - 0.4%
Pohang Iron & Steel Co. Ltd. yankee 6.625% Ba1 8,460 6,777
7/1/03
Republic Engineered Steels, Inc. 9.875% Caa1 9,000 8,910
12/15/01
15,687
PACKAGING & CONTAINERS - 0.6%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 13,650 9,965
9.75% 6/15/07 Caa1 6,340 4,723
9.875% 2/15/08 Caa2 14,865 6,838
21,526
PAPER & FOREST PRODUCTS - 2.1%
Advance Agro PCL 13% 11/15/07 (e) B3 13,440 8,064
APP Finance II Mauritius Ltd.:
12% 2/15/04 B3 20,190 10,095
12% 3/15/04 Caa 17,380 8,690
Container Corp. of America:
gtd.:
10.75% 5/1/02 B1 3,240 3,272
11.25% 5/1/04 B1 4,550 4,550
9.75% 4/1/03 B1 8,490 8,235
Florida Coast Paper Co. LLC Florida Coast Paper Caa1 16,980 11,037
Finance Corp. 12.75% 6/1/03
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - CONTINUED
Indah Kiat Finance Mauritius Ltd. 10% 7/1/07 Caa1 $ 2,580 $ 1,380
Stone Container Corp. 12.58% 8/1/16 (f) B2 18,740 18,740
74,063
TOTAL BASIC INDUSTRIES 123,958
CONSTRUCTION & REAL ESTATE - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Ocwen Asset Investment Corp. 11.5% - 26,970 15,373
7/1/05 (e)
DURABLES - 2.0%
AUTOS, TIRES, & ACCESSORIES - 0.9%
Blue Bird Body Co. 10.75% 11/15/06 B2 870 861
Breed Technologies, Inc. 9.25% 4/15/08 (e) B3 33,950 26,481
Federal-Mogul Corp. 7.875% 7/1/10 Ba2 5,100 4,873
Morris Material Handling, Inc. 9.5% 4/1/08 B2 2,293 1,559
33,774
CONSUMER DURABLES - 0.2%
Corning Consumer Products Co. 9.625% B3 10,470 8,062
5/1/08
CONSUMER ELECTRONICS - 0.1%
Windmere-Durable Holdings, Inc. 10% 7/31/08 B3 2,490 2,092
HOME FURNISHINGS - 0.5%
Sealy Corp., Inc. 10% 12/18/08 pay-in-kind (h) - 11,196 10,077
Sealy Mattress Co.:
0% 12/15/07 (d) B3 5,230 2,929
9.875% 12/15/07 B3 5,550 4,995
18,001
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.3%
Polymer Group, Inc. 9% 7/1/07 B2 $ 3,610 $ 3,393
Worldtex, Inc. 9.625% 12/15/07 B1 7,880 6,304
9,697
TOTAL DURABLES 71,626
ENERGY - 1.8%
COAL - 0.5%
P&L Coal Holdings Corp. 9.625% 5/15/08 (e) B2 18,630 18,444
OIL & GAS - 1.3%
Chesapeake Energy Corp. 9.625% 5/1/05 B1 14,730 12,373
Cross Timbers Oil Co. 8.75% 11/1/09 B2 5,980 5,083
Ocean Energy, Inc.:
8.375% 7/1/08 (e) B1 5,280 5,016
8.875% 7/15/07 B1 5,010 4,935
10.375% 10/15/05 B2 590 609
Plains Resources, Inc. 10.25% 3/15/06 B2 1,070 1,059
Seven Seas Petroleum, Inc. 12.5% 5/15/05 Caa1 6,780 4,610
Snyder Oil Corp. 8.75% 6/15/07 B2 7,410 7,280
Vintage Petroleum, Inc. 9% 12/15/05 B1 1,620 1,648
YPF Sociedad Anonima 7.75% 8/27/07 Ba3 2,850 2,494
45,107
TOTAL ENERGY 63,551
FINANCE - 2.6%
CREDIT & OTHER FINANCE - 2.6%
Aames Financial Corp. 9.125% 11/1/03 B3 2,670 1,602
CEX Holdings, Inc. 9.625% 6/1/08 (e) B2 7,220 6,931
Denbury Management, Inc. 9% 3/1/08 B3 16,910 14,374
DGS International Finance Co. BV 10% 6/1/07 Caa1 7,140 4,141
Digital Television Services LLC/DTS Capital, Inc. B3 12,450 12,575
12.5% 8/1/07
GS Escrow Corp. 7.125% 8/1/05 (e) Ba1 9,700 9,472
Macsaver Financial Services, Inc. 7.6% 8/1/07 Ba1 2,440 1,757
Ocwen Capital Trust 10.875% 8/1/27 B2 3,080 2,310
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
ORBCOMM Global L.P./ORBCOMM Capital Co. B3 $ 1,090 $ 970
14% 9/15/04
Stone Container Finance Co. 11.5% 8/15/06 (e) B2 8,330 7,789
Time Warner Telecom LLC/Time Warner Telecom, B2 22,820 22,706
Inc. 9.75% 7/15/08
Transwestern Pub Co. LP/Township Capital B2 5,475 5,366
9.625% 11/15/07
Winstar Equipment II Corp. 12.5% 3/15/04 - 5,450 5,123
95,116
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP 14% 6/10/02 (e) - 48 48
TOTAL FINANCE 95,164
HEALTH - 1.9%
DRUGS & PHARMACEUTICALS - 0.6%
Global Health Sciences, Inc. 11% 5/1/08 Caa1 25,080 21,569
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
ALARIS Medical, Inc. 9.75% 12/1/06 B3 1,680 1,579
Graham-Field Health Products, Inc. 9.75% Caa1 14,270 6,707
8/15/07
8,286
MEDICAL FACILITIES MANAGEMENT - 1.1%
Fountain View, Inc. 11.25% 4/15/08 Caa1 8,630 6,731
Harborside Healthcare Corp. 0% 8/1/08 (d)(e) B3 24,000 11,520
Oxford Health Plans, Inc. 11% 5/15/05 (e) Caa1 21,050 18,314
Paracelsus Healthcare Corp. 10% 8/15/06 B3 1,930 1,737
38,302
TOTAL HEALTH 68,157
INDUSTRIAL MACHINERY & EQUIPMENT - 0.9%
ELECTRICAL EQUIPMENT - 0.4%
L-3 Communications Corp. 10.375% 5/1/07 B2 2,600 2,776
Motors & Gears, Inc. 10.75% 11/15/06 B3 11,870 11,751
14,527
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
Continental Global Group, Inc. 11% 4/1/07 B2 $ 11,980 $ 9,824
Specialty Equipment Companies, Inc. 11.375% B3 7,050 7,314
12/1/03
17,138
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 31,665
MEDIA & LEISURE - 23.6%
BROADCASTING - 18.6%
ACME Television LLC/ACME Financial Corp. 0% B3 4,742 3,509
9/30/04 (d)
Adelphia Communications Corp.:
8.375% 2/1/08 B2 15,640 15,562
9.25% 10/1/02 B2 20,200 20,806
9.5% 2/15/04 pay-in-kind B2 29,244 29,499
9.875% 3/1/07 B2 36,755 39,328
Ascent Entertainment Group, Inc. 0% B3 10,480 5,921
12/15/04 (d)
Benedek Communications Corp. 0% 5/15/06 (d) B3 6,090 4,019
CapStar Broadcasting Partners, Inc. 0% B3 9,910 7,433
2/1/09 (d)
CBS Radio, Inc. 11.375% 1/15/09 pay-in-kind - 13,861 16,079
Century Communications Corp.:
8.375% 12/15/07 Ba3 620 640
8.75% 10/1/07 Ba3 2,250 2,329
9.5% 3/1/05 Ba3 1,770 1,898
Chancellor Media Corp. 9% 10/1/08 (e) Ba3 27,475 27,544
Charter Communications LP/Charter B3 610 659
Communications Southeast Capital Corp.
11.25% 3/15/06
Citadel Broadcasting Co. 10.25% 7/1/07 B3 14,040 14,812
Classic Cable, Inc. 9.875% 8/1/09 (e) B3 2,460 2,485
Classic Communications, Inc. 0% 8/1/09 Caa1 9,500 4,940
unit (d)(e)
Comcast UK Cable Partners Ltd. 0% B2 7,370 5,749
11/15/07 (d)
CSC Holdings, Inc. 7.625% 7/16/18 Ba2 12,650 11,689
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable Communications PLC yankee 0% Caa1 $ 9,080 $ 6,628
12/15/05 (d)
EchoStar Communications Corp. 0% 6/1/04 (d) B2 5,800 5,655
Echostar DBS Corp. 12.5% 7/1/02 Caa1 28,930 29,581
Echostar Satellite Broadcasting Corp. 0% B3 55,840 48,022
3/15/04 (d)
Falcon Holdings Group LP/Falcon Funding:
0% 4/15/10 (d) B2 26,200 17,292
8.375% 4/15/10 B2 12,500 12,344
FrontierVision Holdings LP/FrontierVision Caa1 29,290 23,652
Holdings Capital Corp. 0% 9/15/07 (d)
Golden Sky Systems, Inc. 12.375% 8/1/06 (e) B3 10,670 10,563
Granite Broadcasting Corp. 8.875% 5/15/08 B3 4,800 4,152
Intermedia Capital Partners IV LP / Intermedia B2 3,868 4,235
Partners IV Capital Corp. 11.25% 8/1/06
International Cabletel, Inc. 0% 2/1/06 (d) B3 31,387 23,854
Iridium Operating LLC/Iridium Capital Corp.:
10.875% 7/15/05 B3 20,850 15,638
11.25% 7/15/05 B3 7,140 5,426
Lenfest Communications, Inc.:
8.25% 2/15/08 B2 3,440 3,449
8.375% 11/1/05 Ba3 2,830 2,950
10.5% 6/15/06 B2 820 918
LIN Holdings Corp. 0% 3/1/08 (d) B3 22,050 14,222
LIN Television Corp. 8.375% 3/1/08 B2 11,700 11,232
NTL, Inc.:
0% 4/1/08 (d)(e) B3 35,870 19,729
10% 2/15/07 B3 28,600 27,170
11.5% 10/1/08 (e) B3 35,980 37,239
Orbital Imaging Corp. 11.625% 3/1/05 - 25,730 22,642
Pegasus Communications Corp. 9.625% B3 640 582
10/15/05
Renaissance Media Group LLC/Renaissance 0% B3 24,570 15,479
4/15/08 (d)
Satelites Mexicanos SA de CV 10.125% B3 32,880 22,358
11/1/04 (e)
Telewest Communications PLC 11.25% B+ 5,360 5,628
11/1/08 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Telewest PLC:
yankee 0% 10/1/07 (d) B1 $ 42,880 $ 33,875
9.625% 10/1/06 B1 6,010 5,890
UIH Australia/Pacific, Inc.:
Series B 0% 5/15/06 (d) B2 18,170 7,086
Series D 0% 5/15/06 (d) B2 6,510 2,539
United International Holdings, Inc. 0% B3 31,050 14,594
2/15/08 (d)
669,525
ENTERTAINMENT - 3.2%
AMC Entertainment, Inc. 9.5% 3/15/09 B2 4,750 4,608
Cinemark USA, Inc. 8.5% 8/1/08 B2 10,960 10,193
Hollywood Theaters, Inc. 10.625% 8/1/07 B3 5,410 4,599
Livent, Inc. 9.375% 10/15/04 (i) B1 11,100 6,660
Premier Parks, Inc.:
0% 4/1/08 (d) B3 28,340 17,429
9.25% 4/1/06 B3 22,070 22,291
SFX Entertainment, Inc. 9.125% 2/1/08 B3 8,640 8,035
Viacom, Inc. 8% 7/7/06 Ba2 41,610 42,858
116,673
LODGING & GAMING - 1.5%
Hard Rock Hotel, Inc. 9.25% 4/1/05 B3 3,510 3,405
KSL Recreation Group, Inc. 10.25% 5/1/07 B3 11,080 10,997
Signature Resorts, Inc. 9.75% 10/1/07 B3 24,120 18,090
Sun International Hotels Ltd./Sun International
North America, Inc.:
yankee 9% 3/15/07 Ba3 2,800 2,884
8.625% 12/15/07 Ba3 17,690 17,778
53,154
PUBLISHING - 0.2%
Perry Judd, Inc. 10.625% 12/15/07 B3 2,290 2,290
Sun Media Corp.:
yankee 9.5% 2/15/07 B2 1,437 1,566
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
Sun Media Corp.: - continued
9.5% 5/15/07 B2 $ 615 $ 670
Transwestern Holding LP/Township Capital Corp. B3 1,870 1,131
0% 11/15/08 (d)
5,657
RESTAURANTS - 0.1%
AFC Enterprises, Inc. 10.25% 5/15/07 B3 740 744
Nebraska Restaurant, Inc. 10.75% 7/15/08 (e) B3 4,780 4,541
5,285
TOTAL MEDIA & LEISURE 850,294
NONDURABLES - 1.9%
FOODS - 1.1%
Aurora Foods, Inc. 8.75% 7/1/08 B1 4,780 4,923
Del Monte Corp. 12.25% 4/15/07 Caa1 11,100 11,877
Del Monte Foods Co. 0% 12/15/07 (d) Caa2 29,320 16,419
Gorges/Quik-To-Fix Foods, Inc. 11.5% 12/1/06 Caa1 22,420 6,726
39,945
HOUSEHOLD PRODUCTS - 0.7%
AKI Holding Corp. 0% 7/1/09 (d)(e) Caa1 9,660 3,671
AKI, Inc. 10.5% 7/1/08 (e) B2 3,050 2,898
Revlon Consumer Products Corp. 8.625% B3 19,280 17,545
2/1/08
24,114
TOBACCO - 0.1%
North Atlantic Trading, Inc. 11% 6/15/04 B3 4,550 4,186
TOTAL NONDURABLES 68,245
RETAIL & WHOLESALE - 4.8%
GROCERY STORES - 3.9%
Fleming Companies, Inc.:
10.5% 12/1/04 B3 3,990 3,711
10.625% 7/31/07 B3 6,240 5,663
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Jitney-Jungle Stores America, Inc. 10.375% B3 $ 31,810 $ 30,538
9/15/07
Pathmark Stores, Inc.:
9.625% 5/1/03 Caa1 24,760 24,265
11.625% 6/15/02 Caa2 46,195 44,116
12.625% 6/15/02 Caa2 10,220 9,760
Star Market Co., Inc. 13% 11/1/04 B3 13,740 14,564
Supermarkets Acquisition:
10.875% 2/9/04 B1 1,900 1,577
10.875% 2/9/04 (e) Ba3 6,970 5,785
139,979
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Amazon.com, Inc. 0% 5/1/08 (d) Caa2 42,390 24,692
U.S. Office Products Co. 9.75% 6/15/08 (e) B3 8,555 6,758
31,450
TOTAL RETAIL & WHOLESALE 171,429
SERVICES - 1.5%
LEASING & RENTAL - 0.2%
AP Holdings, Inc. 0% 3/15/08 (d) Caa2 2,360 1,062
Apcoa, Inc. 9.25% 3/15/08 Caa1 3,520 3,133
Hollywood Entertainment Corp. 10.625% B3 1,660 1,577
8/15/04
5,772
PRINTING - 0.4%
Sullivan Graphics, Inc. 12.75% 8/1/05 Caa1 15,420 15,266
SERVICES - 0.9%
Iron Mountain, Inc. 8.75% 9/30/09 B3 12,990 12,828
Medaphis Corp. 9.5% 2/15/05 B2 10,710 8,247
Spin Cycle, Inc. 0% 5/1/05 unit (d)(e) - 11,510 5,755
Young American Corp. 11.625% 2/15/06 B3 12,200 4,270
31,100
TOTAL SERVICES 52,138
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - 5.0%
COMMUNICATIONS EQUIPMENT - 0.4%
Intermedia Communications, Inc.:
8.5% 1/15/08 B2 $ 2,490 $ 2,353
8.6% 6/1/08 B2 11,320 10,726
8.875% 11/1/07 B2 2,070 1,987
15,066
COMPUTER SERVICES & SOFTWARE - 2.7%
Concentric Network Corp. 12.75% 12/15/07 - 24,120 21,829
DecisionOne Corp. 9.75% 8/1/07 B3 16,365 8,183
DecisionOne Holdings Corp. 0% 8/1/08 unit (d) Caa1 10,835 2,709
Federal Data Corp. 10.125% 8/1/05 B3 4,270 3,843
ICG Services, Inc.:
0% 2/15/08 (d) - 95,400 46,746
0% 5/1/08 (d) - 6,390 3,019
PSINet, Inc. 10% 2/15/05 B3 3,100 3,038
Verio, Inc. 10.375% 4/1/05 B3 6,520 6,096
95,463
ELECTRONIC INSTRUMENTS - 1.1%
Fisher Scientific International, Inc. 9% 2/1/08 B3 21,815 21,051
High Voltage Engineering Corp. 10.5% 8/15/04 B3 8,930 7,858
Telecommunications Techniques Co. 9.75% B3 11,980 10,183
5/15/08 (e)
39,092
ELECTRONICS - 0.8%
Communications Instruments, Inc. 10% 9/15/04 B3 610 537
Details, Inc. 10% 11/15/05 B3 9,460 8,798
Samsung Electronics America, Inc. 9.75% Ba1 8,000 6,760
5/1/03 (e)
Stellex Industries, Inc. 9.5% 11/1/07 B3 14,750 13,275
29,370
TOTAL TECHNOLOGY 178,991
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 1.6%
AIR TRANSPORTATION - 0.8%
Atlas Air, Inc. 9.25% 4/15/08 B3 $ 12,530 $ 11,590
Kitty Hawk, Inc. 9.95% 11/15/04 B1 19,270 18,499
30,089
RAILROADS - 0.3%
TFM SA de CV:
0% 6/15/09 (d) B2 9,380 4,690
10.25% 6/15/07 B2 4,610 3,895
8,585
SHIPPING - 0.5%
Amer Reefer Co. Ltd. 10.25% 3/1/08 (e) B1 6,530 4,898
International Shipholding Corp. 7.75% Ba3 5,810 5,403
10/15/07
Stena Line AB 10.625% 6/1/08 B1 9,820 8,593
18,894
TOTAL TRANSPORTATION 57,568
UTILITIES - 23.4%
CELLULAR - 4.1%
ESAT Holdings Ltd. 0% 2/1/07 (d) Caa2 15,520 9,622
McCaw International Ltd. 0% 4/15/07 (d) Caa1 37,570 16,719
Millicom International Cellular SA 0% Caa1 50,130 29,577
6/1/06 (d)
Nextel Communications, Inc.:
0% 8/15/04 (d) B2 4,160 3,827
0% 9/15/07 (d) B2 3,591 2,092
0% 2/15/08 (d) B2 30,300 16,438
12% 11/1/08 (e) B2 16,500 17,325
Orange PLC 8% 8/1/08 Ba3 13,130 12,802
Rogers Communications, Inc. 8.875% 7/15/07 B2 10,610 10,451
Telesystem International Wireless, Inc. 0% Caa1 17,770 5,686
6/30/07 (d)
Teligent, Inc.:
0% 3/1/08 (d) Caa1 15,350 6,409
11.5% 12/1/07 Caa1 18,880 15,670
146,618
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
ELECTRIC UTILITY - 1.7%
Niagara Mohawk Power Corp.:
0% 7/1/10 (d) Ba3 $ 37,410 $ 27,590
7.625% 10/1/05 Ba3 18,360 18,883
7.75% 10/1/08 Ba3 13,400 14,137
60,610
TELEPHONE SERVICES - 17.6%
Allegiance Telecom, Inc.:
0% 2/15/08 (d) - 1,650 726
12.875% 5/15/08 - 15,620 14,761
Call-Net Enterprises, Inc. 0% 8/15/08 (d) B1 9,870 5,478
Covad Communications Group, Inc. 0% - 24,200 8,470
3/15/08 (d)
Dobson Wireline Co. 12.25% 6/15/08 (e) - 17,455 14,575
DTI Holdings, Inc. 0% 3/1/08 (d) - 61,080 19,546
e.spire Communications, Inc.:
0% 11/1/05 (d) - 15,015 11,261
0% 4/1/06 (d) - 20,520 13,543
13.75% 7/15/07 - 15,200 15,808
ESAT Telecom Group PLC 0% 2/1/07 (d) Caa2 7,530 4,669
Facilicom International, Inc. 10.5% 1/15/08 - 8,260 6,443
Firstworld Communications, Inc. 0% - 21,340 5,975
4/15/08 (d)(e)
Flag Ltd. 8.25% 1/30/08 Ba3 19,880 18,141
Global Crossing Holdings Ltd. 9.625% - 32,450 31,720
5/15/08 (e)
GST Network Funding, Inc. 0% 5/1/08 (d)(e) - 35,110 15,097
GST Equipment Funding, Inc. 13.25% 5/1/07 - 13,760 13,485
GST Telecommunications, Inc. 12.75% - 18,740 15,742
11/15/07
GST USA, Inc. 0% 12/15/05 (d) - 24,990 17,118
Hermes Europe Railtel BV 11.5% 8/15/07 B3 18,200 18,928
Hyperion Telecommunications, Inc.:
0% 4/15/03 (d) B3 4,350 2,958
12.25% 9/1/04 B3 9,790 9,545
IXC Communications, Inc. 9% 4/15/08 B3 17,030 16,817
KMC Telecom Holdings, Inc. 0% 2/15/08 (d) - 36,730 16,345
Level 3 Communications, Inc. 9.125% 5/1/08 B3 46,460 43,730
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
McLeodUSA, Inc.:
8.375% 3/15/08 B2 $ 5,140 $ 4,947
9.25% 7/15/07 B2 12,240 12,362
9.5% 11/1/08 (e) B2 13,730 14,039
MetroNet Communications Corp.:
0% 11/1/07 (d) B3 11,190 6,546
0% 6/15/08 (d) B3 38,350 20,901
MGC Communications, Inc. 13% 10/1/04 Caa2 5,340 3,631
Netia Holdings BV 10.25% 11/1/07 B3 15,740 12,277
NEXTLINK Communications LLC 12.5% 4/15/06 B3 28,040 29,582
Pathnet, Inc. 12.25% 4/15/08 - 22,120 15,705
Qwest Communications International, Inc.:
0% 10/15/07 (d) Ba1 25,620 19,535
7.5% 11/1/08 (e) Ba1 12,520 12,677
10.875% 4/1/07 Ba1 15,460 17,779
Rhythms Netconnections, Inc. 0% 5/15/08 - 14,380 5,177
unit (d)(e)
RSL Communications Ltd. 12.25% 11/15/06 B3 14,575 14,284
Telegroup, Inc. 0% 11/1/04 (d) - 5,820 2,910
Transtel Pass Through Trust 12.5% 11/1/07 (e) B2 17,200 7,396
Versatel Telecom BV 13.25% 5/15/08 (e) - 7,060 6,566
Viatel, Inc.:
0% 4/15/08 (d) Caa1 24,860 12,057
11.25% 4/15/08 Caa1 28,790 25,911
WinStar Communications, Inc.:
0% 10/15/05 (d) Caa1 2,560 1,869
0% 10/15/05 (d) Caa1 2,030 2,192
0% 3/15/08 (d) CCC 29,240 22,222
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.: - continued
10% 3/15/08 CCC $ 15,030 $ 12,325
Winstar Equipment Corp. 12.5% 3/15/04 B3 11,270 10,594
634,365
TOTAL UTILITIES 841,593
TOTAL NONCONVERTIBLE BONDS 2,693,633
TOTAL CORPORATE BONDS 2,693,715
(Cost $3,072,049)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 0.7%
Airplanes Pass Through Trust 10.875% 3/15/19 Ba2 23,615 24,323
(Cost $25,372)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 0.7%
Bardell Associates Note Trust 12.5%, - 1,704 1,811
11/1/08 (h)
First Chicago/Lennar Trust I Series 1997-CHL1 - 10,700 7,737
Class E, 8.1309% 2/28/11 (f)
Resolution Trust Corp. Series 1991-M2 Class Ba3 4,094 3,398
A-3, 7.2498% 9/25/20 (f)
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7.375% 9/25/24 (e) BB 4,000 3,906
Series 1996-CFL Class G, 7.75% 2/25/28 (e) - 9,260 8,107
TOTAL COMMERCIAL MORTGAGE SECURITIES 24,959
(Cost $23,457)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (C) - 0.0%
United Mexican States rights 6/30/03 - 1 0
discount D (a) (Cost $0)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 3.7%
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive LP/Foamex JPS Capital Corp. 15,350 $ 322
warrants 7/1/99 (a)
Trivest 1992 Special Fund Ltd. (a)(g) 3.0 348
670
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings Ltd. warrants 10/15/03 (a) 2,010 1
Gaylord Container Corp. Class A (a) 512,500 1,538
1,539
PAPER & FOREST PRODUCTS - 0.0%
Mail-Well, Inc. (a)(e) 93,752 1,225
TOTAL BASIC INDUSTRIES 3,434
CONSTRUCTION & REAL ESTATE - 0.2%
CONSTRUCTION - 0.0%
Capital Pacific Holdings, Inc. warrants 5/1/02 (a)(e) 24,095 24
REAL ESTATE - 0.2%
Sunterra Corp. (a) 580,100 5,511
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Ocwen Asset Investment Corp. 164,300 657
TOTAL CONSTRUCTION & REAL ESTATE 6,192
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Breed Technologies, Inc. 397,600 3,355
TEXTILES & APPAREL - 0.0%
Arena Brands Holdings Corp. Class B 42,253 1,056
Hat Brands, Inc. (a)(h) 410,000 0
1,056
TOTAL DURABLES 4,411
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 0.1%
OIL & GAS - 0.1%
Ocean Energy, Inc. (a) 211,410 $ 2,643
Pioneer Natural Resources Co. 75,769 1,141
3,784
FINANCE - 0.0%
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (e) 900 79
HEALTH - 0.0%
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
XRC Corp. 84,961 1
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. Class A (a) 25,040 25
MEDIA & LEISURE - 1.3%
BROADCASTING - 1.3%
Adelphia Communications Corp. Class A (a) 126,800 4,771
Cablevision Systems Corp. Class A (a) 166,000 8,010
CS Wireless Systems, Inc. (a)(e) 439 0
EchoStar Communications Corp. Class A (a) 507,537 13,703
Loral Orion Network Systems, Inc.:
warrants 1/15/07 (CV ratio .47) (a) 19,560 154
warrants 1/15/07 (CV ratio .6) (a) 18,480 194
MediaOne Group, Inc. 250,000 10,578
Orbital Imaging Corp. warrants 3/1/05 (a)(e) 25,730 257
Pegasus Communications Corp. unit 6,509 6,314
Tele-Communications, Inc. (TCI Group) Series A (a) 32,200 1,356
Telewest Communications PLC sponsored ADR 75,000 1,734
UIH Australia/Pacific, Inc. warrants 5/15/06 (a) 19,690 59
47,130
ENTERTAINMENT - 0.0%
Livent, Inc. (a) 125,200 408
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc. Series I warrants 11/14/99 (a)(e) 1,460 0
TOTAL MEDIA & LEISURE 47,538
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc.:
Class A warrants 1/31/08 (a) 67,341 $ 17
Class A (a) 108,775 41
Class B warrants 1/31/08 (a) 21,602 5
63
GROCERY STORES - 0.1%
Meyer (Fred), Inc. (a) 29,700 1,583
TOTAL RETAIL & WHOLESALE 1,646
SERVICES - 0.1%
LEASING & RENTAL - 0.1%
Hollywood Entertainment Corp. (a) 160,780 2,452
SERVICES - 0.0%
Protection One, Inc. 76,400 860
TOTAL SERVICES 3,312
TECHNOLOGY - 0.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc. (a) 102,200 1,891
Intermedia Communications, Inc. warrants 6/1/00 (a) 2,500 173
2,064
COMPUTER SERVICES & SOFTWARE - 0.1%
Concentric Network Corp. (a) 126,300 3,063
Concentric Network Corp. warrants 12/15/07 (a)(e) 23,340 2,031
5,094
TOTAL TECHNOLOGY 7,158
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. Class A warrants 12/15/00 (a) 5,520 0
UTILITIES - 1.5%
CELLULAR - 0.4%
McCaw International Ltd. warrants 4/15/07 (a)(e) 66,290 331
Microcell Telecommunications, Inc. warrants 6/1/06 (a)(e) 183,560 2,019
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Nextel Communications, Inc.:
Class A 425,087 $ 7,705
Series A warrants 12/15/98 (a) 5,494 0
Powertel, Inc. warrants 2/1/06 (a) 85,408 256
Telesystem International Wireless, Inc. (sub. vtg.) (a) 176,800 1,856
12,167
ELECTRIC UTILITY - 0.0%
Niagara Mohawk Power Corp. (a) 93,300 1,365
TELEPHONE SERVICES - 1.1%
Covad Communications Group, Inc. warrants 3/15/98 (a)(e) 24,200 242
DTI Holdings, Inc. warrants 3/1/08 (a)(e) 305,400 3
e.spire Communications, Inc. (a) 214,800 2,578
Firstworld Communications, Inc. warrants 4/15/08 (e) 21,340 213
GST Telecommunications, Inc. (a) 425,000 2,763
ICG Communications, Inc. (a) 452,500 9,361
IXC Communications, Inc. 205,600 7,967
KMC Telecom Holdings, Inc. warrants 2/15/08 (a)(e) 37,830 95
MCI WorldCom, Inc. (a) 125,300 6,923
McLeodUSA, Inc. Class A (a) 135,000 4,936
MGC Communications, Inc. warrants 10/1/04 (a)(e) 5,340 234
Pathnet, Inc. warrants 4/15/08 (a)(e) 22,120 221
RSL Communications Ltd. warrants 11/15/06 (a)(e) 25,710 2,160
Source Media, Inc. warrants 11/1/07 (a)(e) 48,052 327
Versatel Telecom BV warrants 5/15/08 (a)(e) 7,060 71
WinStar Communications, Inc. (a) 100,000 2,700
40,794
TOTAL UTILITIES 54,326
TOTAL COMMON STOCKS 131,906
(Cost $131,600)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PREFERRED STOCKS - 15.0%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.7%
ENERGY - 0.1%
OIL & GAS - 0.1%
Chesapeake Energy Corp. $3.50 (a)(e) 95,000 $ 1,853
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
BTI Capital Trust $3.25 (a)(e) 7,000 154
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% non-cumulative (a) 84 131
MEDIA & LEISURE - 0.2%
LODGING & GAMING - 0.2%
Host Marriott Financial Trust $3.375 QUIPS (a) 146,600 5,983
UTILITIES - 0.4%
TELEPHONE SERVICES - 0.4%
IXC Communications, Inc. $3.375 (a)(e) 179,000 6,433
NEXTLINK Communications, Inc. $3.25 (a)(e) 240,000 8,940
15,373
TOTAL CONVERTIBLE PREFERRED STOCKS 23,494
NONCONVERTIBLE PREFERRED STOCKS - 14.3%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
California Federal Preferred Capital Corp. $2.28 334,377 8,610
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd. Series 1 33,881 48
FINANCE - 0.3%
INSURANCE - 0.3%
American Annuity Group Capital Trust II 8.75% (a) 10,340 9,206
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT - 0.3%
Fresenius Medical Care Capital Trust 9% 9,847 9,955
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% non-cumulative (a) 182 $ 284
MEDIA & LEISURE - 5.5%
BROADCASTING - 4.9%
Adelphia Communications Corp. $13.00 228,536 26,339
Benedek Communications Corp. 11.5% pay-in-kind (a) 11,712 9,604
Citadel Broadcasting Co. Series B, 13.25% pay-in-kind 91,454 10,334
CSC Holdings, Inc. 165,231 18,175
Series H, 11.75% pay-in-kind
11.125% pay-in-kind 407,796 44,246
Echostar Communications Corp. 12.125% pay-in-kind 17,087 16,062
Granite Broadcasting Corp. 12.75% pay-in-kind 25,389 20,311
NTL, Inc. 13% pay-in-kind 30,253 28,740
Pegasus Communications Corp. 12.75% pay-in-kind 854 803
174,614
PUBLISHING - 0.6%
PRIMEDIA, Inc.:
$9.20 76,000 7,125
Series D, $10.00 153,157 15,124
22,249
TOTAL MEDIA & LEISURE 196,863
RETAIL & WHOLESALE - 0.3%
GROCERY STORES - 0.1%
Nebco Evans Holding Co. 11.25% pay-in-kind 3,606 162
Supermarkets General Holdings Corp. $3.52 pay-in-kind (a) 116,319 2,559
2,721
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
J. Crew Operating Corp. 14.50% pay-in-kind (h) 10,500 7,560
TOTAL RETAIL & WHOLESALE 10,281
TECHNOLOGY - 1.6%
COMMUNICATIONS EQUIPMENT - 1.5%
Intermedia Communications, Inc. 13.5% pay-in-kind 52,941 53,998
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.1%
Concentric Network Corp. 13.5% pay-in-kind 6,893 $ 5,135
TOTAL TECHNOLOGY 59,133
UTILITIES - 6.1%
CELLULAR - 1.8%
Nextel Communications, Inc.:
11.125% pay-in-kind 26,338 22,124
Series D, 13% pay-in-kind 46,289 43,975
66,099
TELEPHONE SERVICES - 4.3%
e.spire Communications, Inc.:
12.75% pay-in-kind 27,259 18,536
14.75% pay-in-kind 9,254 8,144
Hyperion Telecommunication, Inc. 12.875% pay-in-kind 25,210 15,630
ICG Holdings, Inc. 14.25% pay-in-kind 38,322 35,448
IXC Communications, Inc. 12.5% pay-in-kind 37,187 37,931
NEXTLINK Communications, Inc. 14% pay-in-kind 459,159 21,580
Source Media, Inc. 13.50% pay-in-kind 98,211 1,154
Viatel, Inc. 10% (a)(e) 26,790 1,607
WinStar Communications, Inc. 14.25% (a) 16,106 14,334
154,364
TOTAL UTILITIES 220,463
TOTAL NONCONVERTIBLE PREFERRED STOCKS 514,843
TOTAL PREFERRED STOCKS 538,337
(Cost $627,994)
</TABLE>
PURCHASED BANK DEBT - 0.0%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (B) AMOUNT (000S)
GPA Group PLC term loan 6.4% 11/19/98 - $ 1,860 1,841
(Cost $1,423)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 5.0%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investments in repurchase agreements (U.S. Treasury
obligations), in a joint trading account at:
5.39%, dated 10/30/98 due 11/2/98 179,114 $ 179,034
5.4%, dated 10/30/98 due 11/2/98 2,058 2,057
TOTAL CASH EQUIVALENTS 181,091
(Cost $181,091)
TOTAL INVESTMENT IN SECURITIES - 100% $ 3,596,172
(Cost $4,062,986)
</TABLE>
SECURITY TYPE ABBREVIATIONS
QUIPS - Quarterly Income Preferred Securities
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) For foreign government obligations not 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.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
(e) 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 $496,911,000 or 13.8% of net assets.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) Share amount represents number of units held.
(h) 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:
SECURITY ACQUISTION DATE ACQUISITION COST (000S)
Bardell Associates 4/19/94 1,732
Note Trust
12.5%, 11/1/08
Hat Brands, Inc. 2/22/94 410
J. Crew Operating 10/30/97 10,658
Corp. 14.50%
pay-in-kind
Sealy Corp., Inc. 2/23/98 - 10,317
10% 12/18/08 9/30/98
pay-in-kind
(i) Non-income producing issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.1%
Ba 9.2% BB 7.2%
B 40.9% B 44.9%
Caa 13.5% CCC 11.2%
Ca, C 0.0% CC, C 0.0%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 11.5%. FMR has determined that
unrated debt securities that are lower quality account for 11.5% of
the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $4,064,671,000. Net unrealized depreciation
aggregated $468,499,000, of which $64,199,000 related to appreciated
investment securities and $532,698,000 related to depreciated
investment securities.
The fund hereby designates approximately $71,106,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 3,596,172
AGREEMENTS OF $181,091) (COST $4,062,986) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 36,696
RECEIVABLE FOR FUND SHARES SOLD 38,013
INTEREST RECEIVABLE 59,253
OTHER RECEIVABLES 1,016
TOTAL ASSETS 3,731,150
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 107,691
PAYABLE FOR FUND SHARES REDEEMED 8,338
DISTRIBUTIONS PAYABLE 5,813
ACCRUED MANAGEMENT FEE 1,692
DISTRIBUTION FEES PAYABLE 1,251
OTHER PAYABLES AND ACCRUED EXPENSES 1,106
TOTAL LIABILITIES 125,891
NET ASSETS $ 3,605,259
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 3,939,635
UNDISTRIBUTED NET INVESTMENT INCOME 74,600
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 57,838
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (466,814)
NET ASSETS $ 3,605,259
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $11.09
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($117,172 (DIVIDED BY) 10,561 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $11.09) $11.64
CLASS T: $11.11
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($2,322,317 (DIVIDED BY) 209,055 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $11.11) $11.51
CLASS B: $11.07
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($923,365 (DIVIDED BY) 83,410 SHARES) A
CLASS C: $11.09
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($129,772 (DIVIDED BY) 11,703 SHARES) A
INSTITUTIONAL CLASS: $10.90
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($112,633 (DIVIDED BY) 10,336 SHARES)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 78,521
DIVIDENDS
INTEREST 278,987
TOTAL INCOME 357,508
EXPENSES
MANAGEMENT FEE $ 20,941
TRANSFER AGENT FEES 6,774
DISTRIBUTION FEES 14,444
ACCOUNTING FEES AND EXPENSES 822
NON-INTERESTED TRUSTEES' COMPENSATION 15
CUSTODIAN FEES AND EXPENSES 100
REGISTRATION FEES 579
AUDIT 68
LEGAL 22
INTEREST 2
REPORTS TO SHAREHOLDERS 372
MISCELLANEOUS 10
TOTAL EXPENSES BEFORE REDUCTIONS 44,149
EXPENSE REDUCTIONS (72) 44,077
NET INVESTMENT INCOME 313,431
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 61,433
FOREIGN CURRENCY TRANSACTIONS (7) 61,426
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (597,544)
INVESTMENT SECURITIES
NET GAIN (LOSS) (536,118)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (222,687)
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 313,431 $ 215,735
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 61,426 84,551
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (597,544) 55,881
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (222,687) 356,167
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (282,288) (210,159)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (70,360) (10,591)
TOTAL DISTRIBUTIONS (352,648) (220,750)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) 1,259,000 691,063
TOTAL INCREASE (DECREASE) IN NET ASSETS 683,665 826,480
NET ASSETS
BEGINNING OF PERIOD 2,921,594 2,095,114
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 3,605,259 $ 2,921,594
INCOME OF $74,600 AND $42,691, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.930 $ 12.300 $ 12.010
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D 1.111 1.058 .163
NET REALIZED AND UNREALIZED GAIN (LOSS) (1.603) .710 .267
TOTAL FROM INVESTMENT OPERATIONS (.492) 1.768 .430
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.048) (1.078) (.140)
FROM NET REALIZED GAIN (.300) (.060) -
TOTAL DISTRIBUTIONS (1.348) (1.138) (.140)
NET ASSET VALUE, END OF PERIOD $ 11.090 $ 12.930 $ 12.300
TOTAL RETURN B, C (4.55)% 15.18% 3.58%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 117 $ 44 $ 4
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.01% 1.15% 1.25% A, F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER 1.00% G 1.14% G 1.25% A
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 9.03% 8.58% 9.06% A
PORTFOLIO TURNOVER RATE 75% 105% 121%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR 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 6 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 12.940 $ 12.310 $ 11.910 $ 11.220 $ 12.010
BEGINNING OF PERIOD
INCOME FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME 1.119 C 1.086 C 1.105 C .930 C .848
NET REALIZED AND (1.612) .686 .364 .680 (.537)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS (.493) 1.772 1.469 1.610 .311
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.037) (1.082) (1.069) (.920) (.851)
FROM NET REALIZED GAIN (.300) (.060) - - (.250)
TOTAL DISTRIBUTIONS (1.337) (1.142) (1.069) (.920) (1.101)
NET ASSET VALUE, END OF PERIOD $ 11.110 $ 12.940 $ 12.310 $ 11.910 $ 11.220
TOTAL RETURN A, B (4.54)% 15.21% 12.92% 15.05% 2.64%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,322 $ 2,208 $ 1,709 $ 1,200 $ 680
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.07% 1.09% 1.12% 1.15% 1.20%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE 1.07% 1.08% D 1.11% D 1.15% 1.20%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 8.91% 8.72% 9.20% 8.32% 6.92%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 75% 105% 121% 112% 118%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 12.890 $ 12.280 $ 11.890 $ 11.210 $ 11.300
BEGINNING OF PERIOD
INCOME FROM
INVESTMENT OPERATIONS
NET INVESTMENT INCOME 1.024 D .998 D 1.017 D .794 D .223
NET REALIZED AND (1.588) .674 .361 .721 (.118)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS (.564) 1.672 1.378 1.515 .105
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.956) (1.002) (.988) (.835) (.195)
FROM NET REALIZED GAIN (.300) (.060) - - -
TOTAL DISTRIBUTIONS (1.256) (1.062) (.988) (.835) (.195)
NET ASSET VALUE, END OF PERIOD $ 11.070 $ 12.890 $ 12.280 $ 11.890 $ 11.210
TOTAL RETURN B, C (5.10)% 14.34% 12.10% 14.12% .93%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 923 $ 593 $ 344 $ 156 $ 17
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE 1.74% 1.74% 1.79% 2.01% 2.20% A
NET ASSETS
RATIO OF NET INVESTMENT INCOME TO 8.25% 8.04% 8.52% 7.46% 5.92% A
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 75% 105% 121% 112% 118%
</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.
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS C
YEAR ENDED
OCTOBER 31,
1998 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.970
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .988
NET REALIZED AND UNREALIZED GAIN (LOSS) (1.639)
TOTAL FROM INVESTMENT OPERATIONS (.651)
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.929)
FROM NET REALIZED GAIN (.300)
TOTAL DISTRIBUTIONS (1.229)
NET ASSET VALUE, END OF PERIOD $ 11.090
TOTAL RETURN B, C (5.73)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 130
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.86% A
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 8.21% A
PORTFOLIO TURNOVER RATE 75%
</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 NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO OCTOBER 31, 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 D
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.710 $ 12.120 $ 11.760 $ 11.560
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME E 1.123 1.094 1.070 .390
NET REALIZED AND UNREALIZED GAIN (LOSS) (1.562) .671 .368 .193
TOTAL FROM INVESTMENT OPERATIONS (.439) 1.765 1.438 .583
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.071) (1.115) (1.078) (.383)
FROM NET REALIZED GAIN (.300) (.060) - -
TOTAL DISTRIBUTIONS (1.371) (1.175) (1.078) (.383)
NET ASSET VALUE, END OF PERIOD $ 10.900 $ 12.710 $ 12.120 $ 11.760
TOTAL RETURN B, C (4.21)% 15.42% 12.81% 5.07%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (IN MILLIONS) $ 113 $ 76 $ 38 $ 0.1
RATIO OF EXPENSES TO AVERAGE NET ASSETS .83% .85% 1.10% .70% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .83% .85% 1.05% F .70% A
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE 9.12% 8.96% 9.26% 8.77% A
NET ASSETS
PORTFOLIO TURNOVER RATE 75% 105% 121% 112%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
D FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor High Yield Fund (the fund) is a fund of Fidelity
Advisor Series II (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company
organized as a Massachusetts business trust.
The fund offers Class A, Class T, Class B, Class C, 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
matters that affect that class. Class B shares will automatically
convert to Class A shares after a holding period of seven years from
the initial date of purchase. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution, transfer agent, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
the U.S. dollar amount actually received, and gains and losses between
trade date and settlement on purchases and sales of securities. 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
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for partnerships, market discount 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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements 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, restricted securities (excluding 144A
issues) amounted to $19,448,000 or 0.5% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,841,000 or 0.1% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,693,965,000 and $2,512,746,000, 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. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% 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. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
the distribution of each class of shares and providing shareholder
support services. For the period, this fee was based on the following
annual rates of the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
CLASS C 1.00%**
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
** .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 retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 130,000 $ 1,000
CLASS T 6,204,000 93,000
CLASS B 7,409,000 5,354,000
CLASS C 701,000 698,000
$ 14,444,000 $ 6,146,000
Under the Plans, FMR 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. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 23,000
CLASS T 370,000
CLASS B 199,000
CLASS C 49,000
INSTITUTIONAL CLASS 13,000
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5%
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
to 1% for Class B and 1% for Class C, 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.
In addition, purchases of Class A and Class T shares that were subject
to a finder's fee bear a contingent deferred sales charge on assets
that do not remain in the fund for at least one year. The Class A and
Class T contingent deferred sales charge is based on 0.25% 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. A portion of the sales charges paid to
FDC are paid to securities dealers, banks and other financial
institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 923,000 $ 346,000
CLASS T 2,889,000 1,263,000
CLASS B 1,774,000 1,774,000*
CLASS C 54,000 54,000*
$ 5,640,000 $ 3,437,000
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund
(collectively referred to as the transfer agent). FIIOC receives
account fees and asset-based fees that vary according to the account
size and type of account of the shareholders of the respective classes
of the fund. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements. For the period, the
following amounts were paid to FIIOC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 178,000 .20
CLASS T 4,651,000 .19
CLASS B 1,610,000 .20
CLASS C 134,000 .19*
INSTITUTIONAL CLASS 201,000 .17
$ 6,774,000
* ANNUALIZED
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $15,000 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 $8,951,000. The weighted average interest rate was 6.1%.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $58,000 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 $12,000
under the custodian arrangement, and each applicable class' expenses
were reduced as follows under the transfer agent arrangements:
TRANSFER
AGENT
CREDITS
INSTITUTIONAL CLASS $ 2,000
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
AMOUNTS IN THOUSANDS YEARS ENDED OCTOBER 31,
1998 A 1997
FROM NET INVESTMENT INCOME
CLASS A $ 6,814 $ 1,492
CLASS T 201,133 168,378
CLASS B 60,100 35,586
CLASS C 4,494 -
INSTITUTIONAL CLASS 9,747 4,703
TOTAL $ 282,288 $ 210,159
FROM NET REALIZED GAIN
CLASS A $ 1,152 $ 32
CLASS T 52,313 8,606
CLASS B 14,488 1,771
CLASS C 165 -
INSTITUTIONAL CLASS 2,242 182
TOTAL $ 70,360 $ 10,591
TOTAL $ 352,648 $ 220,750
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
8. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
AMOUNTS IN THOUSANDS 1998 A 1997 1998 A 1997
CLASS A 8,996 3,449 $ 113,312 $ 43,286
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 520 89 6,429 1,128
SHARES REDEEMED (2,377) (430) (29,080) (5,420)
NET INCREASE (DECREASE) 7,139 3,108 $ 90,661 $ 38,994
CLASS T 100,128 79,054 $ 1,257,106 $ 982,916
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 16,088 10,932 201,460 135,681
SHARES REDEEMED (77,873) (58,169) (968,795) (724,770)
NET INCREASE (DECREASE) 38,343 31,817 $ 489,771 $ 393,827
CLASS B 47,554 25,512 $ 598,852 $ 317,577
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 3,879 1,929 48,184 23,896
SHARES REDEEMED (14,038) (9,476) (172,228) (118,144)
NET INCREASE (DECREASE) 37,395 17,965 $ 474,808 $ 223,329
CLASS C 15,155 - $ 191,117 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 210 - 2,549 -
SHARES REDEEMED (3,662) - (45,190) -
NET INCREASE (DECREASE) 11,703 - $ 148,476 $ -
INSTITUTIONAL CLASS 10,756 6,258 $ 133,230 $ 76,404
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 822 342 10,139 4,195
SHARES REDEEMED (7,206) (3,741) (88,085) (45,686)
NET INCREASE (DECREASE) 4,372 2,859 $ 55,284 $ 34,913
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
9. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 24,000
CLASS T 328,000
CLASS B 149,000
CLASS C 46,000
INSTITUTIONAL CLASS 32,000
$ 579,000
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor High Yield Fund:
In our opinion, the accompanying statements of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor High Yield Fund (a fund of Fidelity Advisor Series
II) at October 31, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fidelity
Advisor High Yield Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at October
31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor High Yield Fund voted to pay
to shareholders of record at the opening of business on record date,
the following distributions derived from capital gains realized from
sales of portfolio securities, and dividends derived from net
investment income:
INSTITUTIONAL CLASS
PAY DATE 12/8/97 12/7/98
RECORD DATE 12/5/97 12/4/98
DIVIDENDS - -
SHORT-TERM
CAPITAL GAINS $.07 -
LONG-TERM
CAPITAL GAINS $.23 $.13
LONG-TERM
CAPITAL GAIN BREAKDOWN:
28% rate 56.72% -
20% rate 43.28% 100%
A total of 17% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
Margaret L. Eagle, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International
Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap 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
HYI-ANN-1298 66952
1.538465.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
SHORT FIXED-INCOME
FUND - CLASS A, CLASS T AND CLASS C
ANNUAL REPORT
OCTOBER 31, 1998
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 32 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 40 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 47 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 48
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
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 shares' 0.15% 12b-1
fee. If Fidelity had not reimbursed certain class expenses, the total
returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - CL A 6.58% 25.50% 93.35%
FIDELITY ADV SHORT FIXED-INCOME - CL A 4.98% 23.61% 90.45%
(INCL. 1.50% SALES CHARGE)
LB 1-3 YEAR GOVT/CORP 7.56% 33.94% 103.77%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 29.85% 96.80%
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class A's returns to the performance of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index - a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues with maturities between one and three years. To
measure how Class A's performance stacked up against its peers, you
can compare it to the short investment grade debt funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past one year average
represents a peer group of 101 mutual funds. These benchmarks include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - CL A 6.58% 4.65% 6.82%
FIDELITY ADV SHORT FIXED-INCOME - CL A 4.98% 4.33% 6.65%
(INCL. 1.50% SALES CHARGE)
LB 1-3 YEAR GOVT/CORP 7.56% 6.02% 7.38%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 5.36% 6.99%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' cumulative return
and show you what would have happened if Class A shares had performed
at a constant rate each year.
$10,000 OVER 10 YEARS
FA Short Fixed-Inc -CL A LB 1-3 Year Govt/Corp
00263 LB013
1988/10/31 9850.00 10000.00
1988/11/30 9821.20 9976.19
1988/12/31 9851.50 9999.11
1989/01/31 9931.79 10079.48
1989/02/28 9949.34 10081.86
1989/03/31 9999.36 10122.64
1989/04/30 10107.90 10286.95
1989/05/31 10245.80 10433.10
1989/06/30 10412.54 10625.69
1989/07/31 10589.81 10784.05
1989/08/31 10514.24 10723.02
1989/09/30 10568.49 10786.13
1989/10/31 10725.88 10954.31
1989/11/30 10810.13 11052.24
1989/12/31 10866.91 11096.00
1990/01/31 10842.31 11107.61
1990/02/28 10886.14 11166.54
1990/03/31 10943.75 11201.96
1990/04/30 10953.73 11229.94
1990/05/31 11125.88 11403.48
1990/06/30 11211.96 11524.04
1990/07/31 11344.74 11663.64
1990/08/31 11326.58 11705.02
1990/09/30 11354.82 11792.83
1990/10/31 11325.84 11914.57
1990/11/30 11397.18 12030.96
1990/12/31 11504.70 12171.75
1991/01/31 11470.11 12281.89
1991/02/28 11589.11 12370.59
1991/03/31 11796.06 12460.49
1991/04/30 11967.77 12582.53
1991/05/31 12089.91 12661.11
1991/06/30 12149.01 12708.14
1991/07/31 12232.48 12819.76
1991/08/31 12437.82 12993.60
1991/09/30 12566.49 13133.50
1991/10/31 12706.76 13274.89
1991/11/30 12835.29 13409.14
1991/12/31 13043.02 13611.85
1992/01/31 13096.51 13597.86
1992/02/29 13184.80 13641.02
1992/03/31 13246.35 13638.04
1992/04/30 13332.27 13762.76
1992/05/31 13470.48 13891.65
1992/06/30 13594.29 14033.64
1992/07/31 13763.34 14198.24
1992/08/31 13880.22 14312.84
1992/09/30 13995.02 14448.28
1992/10/31 13906.20 14361.36
1992/11/30 13912.68 14341.12
1992/12/31 14035.06 14476.56
1993/01/31 14247.76 14631.05
1993/02/28 14421.10 14750.41
1993/03/31 14513.70 14798.33
1993/04/30 14587.15 14891.20
1993/05/31 14649.06 14857.27
1993/06/30 14796.16 14969.79
1993/07/31 14883.67 15004.02
1993/08/31 15029.69 15129.63
1993/09/30 15081.61 15178.45
1993/10/31 15175.50 15213.87
1993/11/30 15237.95 15218.34
1993/12/31 15367.55 15279.95
1994/01/31 15463.44 15377.29
1994/02/28 15337.25 15284.12
1994/03/31 14985.95 15205.54
1994/04/30 14906.94 15147.79
1994/05/31 14996.70 15168.33
1994/06/30 14878.67 15208.22
1994/07/31 15014.39 15346.63
1994/08/31 15136.28 15398.42
1994/09/30 15130.45 15364.19
1994/10/31 15142.00 15399.32
1994/11/30 15168.00 15334.72
1994/12/31 14849.80 15363.89
1995/01/31 14960.28 15574.94
1995/02/28 15145.65 15790.45
1995/03/31 15225.27 15880.04
1995/04/30 15349.22 16023.81
1995/05/31 15625.39 16301.24
1995/06/30 15698.96 16389.94
1995/07/31 15756.79 16455.42
1995/08/31 15850.38 16555.14
1995/09/30 15926.45 16637.00
1995/10/31 16057.96 16775.12
1995/11/30 16188.23 16919.48
1995/12/31 16307.30 17047.77
1996/01/31 16427.33 17193.63
1996/02/29 16370.49 17128.14
1996/03/31 16339.94 17115.64
1996/04/30 16341.93 17132.91
1996/05/31 16377.61 17172.50
1996/06/30 16497.40 17298.11
1996/07/31 16548.37 17365.38
1996/08/31 16600.02 17429.38
1996/09/30 16737.33 17588.93
1996/10/31 16915.75 17787.47
1996/11/30 17037.86 17920.82
1996/12/31 16980.30 17923.80
1997/01/31 17051.08 18010.42
1997/02/28 17096.99 18055.07
1997/03/31 17077.08 18041.08
1997/04/30 17219.62 18189.02
1997/05/31 17327.76 18316.12
1997/06/30 17434.39 18443.52
1997/07/31 17637.46 18648.31
1997/08/31 17652.13 18665.87
1997/09/30 17777.64 18809.64
1997/10/31 17869.56 18945.08
1997/11/30 17923.47 18992.71
1997/12/31 18036.71 19118.02
1998/01/31 18263.23 19302.57
1998/02/28 18283.78 19321.92
1998/03/31 18349.17 19397.23
1998/04/30 18412.69 19493.38
1998/05/31 18518.81 19599.35
1998/06/30 18599.64 19700.55
1998/07/31 18686.74 19792.23
1998/08/31 18813.57 20019.94
1998/09/30 19038.86 20289.33
1998/10/30 19044.67 20289.33
IMATRL PRASUN SHR__CHT 19981031 19981110 112229 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class A on
October 31, 1988, and the current 1.50% sales charge was paid. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $19,045 - a 90.45% increase on the initial investment.
For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $20,377 - a 103.77% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE MONEY.
BUT IF YOU CAN RIDE OUT THE
MARKET'S UPS AND DOWNS, YOU
MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31, SEPTEMBER 3, 1996
(COMMENCEMENT
OF SALE OF
CLASS A SHARES) TO
OCTOBER 31,
1998 1997 1996
DIVIDEND RETURNS 5.83% 6.28% 0.99%
CAPITAL RETURNS 0.75% -0.64% 0.86%
TOTAL RETURNS 6.58% 5.64% 1.85%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.29(CENTS) 25.63(CENTS) 52.61(CENTS)
ANNUALIZED DIVIDEND RATE 5.37% 5.44% 5.63%
30-DAY ANNUALIZED YIELD 4.69% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $9.40 over the past one month, $9.35 over the past six months, and
$9.34 over the past one year, you can compare the class' income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days.
This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. The offering share price
used in the calculation of the yield includes the effect of Class A's
current 1.50% sales charge.
FIDELITY ADVISOR SHORT FIXED-INCOME FUND - CLASS T
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses, the past 10 years total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - CL T 6.32% 25.72% 93.69%
FIDELITY ADV SHORT FIXED-INCOME - CL T 4.72% 23.83% 90.79%
(INCL. 1.50% SALES CHARGE)
LB 1-3 YEAR GOVT/CORP 7.56% 33.94% 103.77%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 29.85% 96.80%
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class T's returns to the performance of the
Lehman Brothers 1-3 Year Government/Corporate Bond Index - a market
value weighted performance benchmark for government and corporate
fixed-rate debt issues with
maturities between one and three years. To measure how Class T's
performance stacked up against its peers, you can compare it to the
short investment grade debt funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 101 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - CL T 6.32% 4.68% 6.83%
FIDELITY ADV SHORT FIXED-INCOME - CL T 4.72% 4.37% 6.67%
(INCL. 1.50% SALES CHARGE)
LB 1-3 YEAR GOVT/CORP 7.56% 6.02% 7.38%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 5.36% 6.99%
AVERAGE ANNUAL TOTAL RETURNS take Class T shares' cumulative return
and show you what would have happened
if Class T shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
FA Short Fixed-Inc -CL T LB 1-3 Year Govt/Corp
00173 LB013
1988/10/31 9850.00 10000.00
1988/11/30 9821.20 9976.19
1988/12/31 9851.50 9999.11
1989/01/31 9931.79 10079.48
1989/02/28 9949.34 10081.86
1989/03/31 9999.36 10122.64
1989/04/30 10107.90 10286.95
1989/05/31 10245.80 10433.10
1989/06/30 10412.54 10625.69
1989/07/31 10589.81 10784.05
1989/08/31 10514.24 10723.02
1989/09/30 10568.49 10786.13
1989/10/31 10725.88 10954.31
1989/11/30 10810.13 11052.24
1989/12/31 10866.91 11096.00
1990/01/31 10842.31 11107.61
1990/02/28 10886.14 11166.54
1990/03/31 10943.75 11201.96
1990/04/30 10953.73 11229.94
1990/05/31 11125.88 11403.48
1990/06/30 11211.96 11524.04
1990/07/31 11344.74 11663.64
1990/08/31 11326.58 11705.02
1990/09/30 11354.82 11792.83
1990/10/31 11325.84 11914.57
1990/11/30 11397.18 12030.96
1990/12/31 11504.70 12171.75
1991/01/31 11470.11 12281.89
1991/02/28 11589.11 12370.59
1991/03/31 11796.06 12460.49
1991/04/30 11967.77 12582.53
1991/05/31 12089.91 12661.11
1991/06/30 12149.01 12708.14
1991/07/31 12232.48 12819.76
1991/08/31 12437.82 12993.60
1991/09/30 12566.49 13133.50
1991/10/31 12706.76 13274.89
1991/11/30 12835.29 13409.14
1991/12/31 13043.02 13611.85
1992/01/31 13096.51 13597.86
1992/02/29 13184.80 13641.02
1992/03/31 13246.35 13638.04
1992/04/30 13332.27 13762.76
1992/05/31 13470.48 13891.65
1992/06/30 13594.29 14033.64
1992/07/31 13763.34 14198.24
1992/08/31 13880.22 14312.84
1992/09/30 13995.02 14448.28
1992/10/31 13906.20 14361.36
1992/11/30 13912.68 14341.12
1992/12/31 14035.06 14476.56
1993/01/31 14247.76 14631.05
1993/02/28 14421.10 14750.41
1993/03/31 14513.70 14798.33
1993/04/30 14587.15 14891.20
1993/05/31 14649.06 14857.27
1993/06/30 14796.16 14969.79
1993/07/31 14883.67 15004.02
1993/08/31 15029.69 15129.63
1993/09/30 15081.61 15178.45
1993/10/31 15175.50 15213.87
1993/11/30 15237.95 15218.34
1993/12/31 15367.55 15279.95
1994/01/31 15463.44 15377.29
1994/02/28 15337.25 15284.12
1994/03/31 14985.95 15205.54
1994/04/30 14906.94 15147.79
1994/05/31 14996.70 15168.33
1994/06/30 14878.67 15208.22
1994/07/31 15014.39 15346.63
1994/08/31 15136.28 15398.42
1994/09/30 15130.45 15364.19
1994/10/31 15142.00 15399.32
1994/11/30 15168.00 15334.72
1994/12/31 14849.80 15363.89
1995/01/31 14960.28 15574.94
1995/02/28 15145.65 15790.45
1995/03/31 15225.27 15880.04
1995/04/30 15349.22 16023.81
1995/05/31 15625.39 16301.24
1995/06/30 15698.96 16389.94
1995/07/31 15756.79 16455.42
1995/08/31 15850.38 16555.14
1995/09/30 15926.45 16637.00
1995/10/31 16057.96 16775.12
1995/11/30 16188.23 16919.48
1995/12/31 16307.30 17047.77
1996/01/31 16427.33 17193.63
1996/02/29 16370.49 17128.14
1996/03/31 16339.94 17115.64
1996/04/30 16341.93 17132.91
1996/05/31 16377.61 17172.50
1996/06/30 16497.40 17298.11
1996/07/31 16548.37 17365.38
1996/08/31 16600.02 17429.38
1996/09/30 16755.41 17588.93
1996/10/31 16933.89 17787.47
1996/11/30 17055.94 17920.82
1996/12/31 17053.31 17923.80
1997/01/31 17124.19 18010.42
1997/02/28 17170.05 18055.07
1997/03/31 17150.30 18041.08
1997/04/30 17292.98 18189.02
1997/05/31 17401.45 18316.12
1997/06/30 17508.12 18443.52
1997/07/31 17712.07 18648.31
1997/08/31 17727.79 18665.87
1997/09/30 17834.52 18809.64
1997/10/31 17944.84 18945.08
1997/11/30 17995.46 18992.71
1997/12/31 18106.56 19118.02
1998/01/31 18275.91 19302.57
1998/02/28 18300.00 19321.92
1998/03/31 18353.89 19397.23
1998/04/30 18443.45 19493.38
1998/05/31 18556.58 19599.35
1998/06/30 18625.60 19700.55
1998/07/31 18716.05 19792.23
1998/08/31 18844.60 20019.94
1998/09/30 19071.57 20289.33
1998/10/30 19078.74 20289.33
IMATRL PRASUN SHR__CHT 19981031 19981110 111542 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class T on
October 31, 1988, and the current 1.50% sales charge was paid. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $19,079 - a 90.79% increase on the initial investment.
For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index did over the same period. With
dividends, and capital gains, if any, reinvested, the same $10,000
would have grown to $20,377 - a 103.77% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE MONEY.
BUT IF YOU CAN RIDE OUT THE
MARKET'S UPS AND DOWNS, YOU
MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.00% 6.29% 6.40% 6.16% 5.82%
CAPITAL RETURNS 0.32% -0.32% -0.95% -0.11% -6.04%
TOTAL RETURNS 6.32% 5.97% 5.45% 6.05% -0.22%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.35(CENTS) 26.75(CENTS) 54.43(CENTS)
ANNUALIZED DIVIDEND RATE 5.44% 5.67% 5.82%
30-DAY ANNUALIZED YIELD 4.75% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $9.41 over the past one month, $9.36 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. The offering share price used
in the calculation of the yield includes the effect of Class T's
current 1.50% sales charge.
FIDELITY ADVISOR SHORT FIXED-INCOME FUND - CLASS C
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 C shares
took place on November 3, 1997. Class C shares bear a 1.00% 12b-1 fee.
Returns prior to November 3, 1997 are those of Class T, the original
class of the fund, and reflect Class T shares' 0.15% 12b-1 fee. Had
Class C shares' 12b-1 fee been reflected, returns prior to November 3,
1997 would have been lower. Class C shares' contingent deferred sales
charge included in the past one year, past five year and past 10 year
total return figures are 1%, 0% and 0%, respectively. If Fidelity had
not reimbursed certain class expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - CL C 5.41% 24.65% 92.04%
FIDELITY ADV SHORT FIXED-INCOME - CL C 4.41% 24.65% 92.04%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB 1-3 YEAR GOVT/CORP 7.56% 33.94% 103.77%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 29.85% 96.80%
CUMULATIVE TOTAL RETURNS show Class C's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare Class C'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 C's
performance stacked up against its peers, you can compare it to the
short investment grade debt funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 101 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - CL C 5.41% 4.51% 6.74%
FIDELITY ADV SHORT FIXED-INCOME - CL C 4.41% 4.51% 6.74%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB 1-3 YEAR GOVT/CORP 7.56% 6.02% 7.38%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 5.36% 6.99%
AVERAGE ANNUAL TOTAL RETURNS take Class C shares' cumulative return
and show you what would have happened
if Class C shares had performed at a constant rate each year.
$10,000 OVER 10 YEARS
FA Short Fixed-Inc -CL C LB 1-3 Year Govt/Corp
00526 LB013
1988/10/31 10000.00 10000.00
1988/11/30 9970.76 9976.19
1988/12/31 10001.52 9999.11
1989/01/31 10083.04 10079.48
1989/02/28 10100.85 10081.86
1989/03/31 10151.63 10122.64
1989/04/30 10261.83 10286.95
1989/05/31 10401.82 10433.10
1989/06/30 10571.11 10625.69
1989/07/31 10751.08 10784.05
1989/08/31 10674.35 10723.02
1989/09/30 10729.43 10786.13
1989/10/31 10889.22 10954.31
1989/11/30 10974.75 11052.24
1989/12/31 11032.40 11096.00
1990/01/31 11007.42 11107.61
1990/02/28 11051.92 11166.54
1990/03/31 11110.41 11201.96
1990/04/30 11120.54 11229.94
1990/05/31 11295.31 11403.48
1990/06/30 11382.70 11524.04
1990/07/31 11517.50 11663.64
1990/08/31 11499.07 11705.02
1990/09/30 11527.74 11792.83
1990/10/31 11498.32 11914.57
1990/11/30 11570.74 12030.96
1990/12/31 11679.90 12171.75
1991/01/31 11644.79 12281.89
1991/02/28 11765.59 12370.59
1991/03/31 11975.70 12460.49
1991/04/30 12150.02 12582.53
1991/05/31 12274.02 12661.11
1991/06/30 12334.02 12708.14
1991/07/31 12418.76 12819.76
1991/08/31 12627.22 12993.60
1991/09/30 12757.85 13133.50
1991/10/31 12900.26 13274.89
1991/11/30 13030.75 13409.14
1991/12/31 13241.65 13611.85
1992/01/31 13295.95 13597.86
1992/02/29 13385.59 13641.02
1992/03/31 13448.07 13638.04
1992/04/30 13535.30 13762.76
1992/05/31 13675.62 13891.65
1992/06/30 13801.31 14033.64
1992/07/31 13972.94 14198.24
1992/08/31 14091.59 14312.84
1992/09/30 14208.14 14448.28
1992/10/31 14117.97 14361.36
1992/11/30 14124.55 14341.12
1992/12/31 14248.79 14476.56
1993/01/31 14464.73 14631.05
1993/02/28 14640.71 14750.41
1993/03/31 14734.72 14798.33
1993/04/30 14809.29 14891.20
1993/05/31 14872.14 14857.27
1993/06/30 15021.48 14969.79
1993/07/31 15110.33 15004.02
1993/08/31 15258.57 15129.63
1993/09/30 15311.28 15178.45
1993/10/31 15406.60 15213.87
1993/11/30 15470.00 15218.34
1993/12/31 15601.58 15279.95
1994/01/31 15698.92 15377.29
1994/02/28 15570.81 15284.12
1994/03/31 15214.16 15205.54
1994/04/30 15133.95 15147.79
1994/05/31 15225.07 15168.33
1994/06/30 15105.25 15208.22
1994/07/31 15243.03 15346.63
1994/08/31 15366.78 15398.42
1994/09/30 15360.87 15364.19
1994/10/31 15372.59 15399.32
1994/11/30 15398.99 15334.72
1994/12/31 15075.94 15363.89
1995/01/31 15188.10 15574.94
1995/02/28 15376.30 15790.45
1995/03/31 15457.12 15880.04
1995/04/30 15582.97 16023.81
1995/05/31 15863.34 16301.24
1995/06/30 15938.03 16389.94
1995/07/31 15996.74 16455.42
1995/08/31 16091.75 16555.14
1995/09/30 16168.98 16637.00
1995/10/31 16302.49 16775.12
1995/11/30 16434.75 16919.48
1995/12/31 16555.64 17047.77
1996/01/31 16677.49 17193.63
1996/02/29 16619.78 17128.14
1996/03/31 16588.77 17115.64
1996/04/30 16590.79 17132.91
1996/05/31 16627.02 17172.50
1996/06/30 16748.63 17298.11
1996/07/31 16800.38 17365.38
1996/08/31 16852.81 17429.38
1996/09/30 17010.56 17588.93
1996/10/31 17191.77 17787.47
1996/11/30 17315.68 17920.82
1996/12/31 17313.00 17923.80
1997/01/31 17384.96 18010.42
1997/02/28 17431.52 18055.07
1997/03/31 17411.47 18041.08
1997/04/30 17556.32 18189.02
1997/05/31 17666.45 18316.12
1997/06/30 17774.74 18443.52
1997/07/31 17981.80 18648.31
1997/08/31 17997.76 18665.87
1997/09/30 18106.11 18809.64
1997/10/31 18218.11 18945.08
1997/11/30 18235.21 18992.71
1997/12/31 18354.03 19118.02
1998/01/31 18512.30 19302.57
1998/02/28 18526.50 19321.92
1998/03/31 18585.80 19397.23
1998/04/30 18662.99 19493.38
1998/05/31 18744.01 19599.35
1998/06/30 18821.34 19700.55
1998/07/31 18878.90 19792.23
1998/08/31 19015.76 20019.94
1998/09/30 19211.16 20289.33
1998/10/30 19204.03 20289.33
IMATRL PRASUN SHR__CHT 19981031 19981110 112100 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Class C on
October 31, 1988. As the chart shows, by October 31, 1998, the value
of the investment would have grown to $19,204 - a 92.04% increase on
the initial investment. For comparison, look at how the Lehman
Brothers 1-3 Year Government/Corporate Bond Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 would have grown to $20,377 - a 103.77% 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
NOVEMBER 3, 1997
(COMMENCEMENT
OF SALE OF
CLASS C SHARES) TO
OCTOBER 31,
1998
DIVIDEND RETURNS 5.06%
CAPITAL RETURNS 0.43%
TOTAL RETURNS 5.49%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested, and exclude the effects of
sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 LIFE OF
MONTH MONTHS CLASS
DIVIDENDS PER SHARE 3.65(CENTS) 22.80(CENTS) 46.09(CENTS)
ANNUALIZED DIVIDEND RATE 4.57% 4.83% 4.97%
30-DAY ANNUALIZED YIELD N/A - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $9.41 over the past one month, $9.36 over the past six months and
$9.35 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. Yield information will be reported once
Class C has a longer, more stable operating history.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Uncertainty in the global equity
markets, combined with two
interest-rate cuts by the Federal
Reserve Board, provided the
backdrop for strong gains in the
bond market during the 12-month
period ended October 31, 1998.
The Lehman Brothers Aggregate
Bond Index - a broad measure of
the U.S. taxable investment-grade
bond market - returned 9.34%
over the past year. Global market
volatility, low interest rates and a
sharp decline in stock prices sent
U.S. Treasury yields - which move
in the opposite direction of bond
prices - to their lowest levels in
30 years. While the extreme flight
to quality helped Treasuries
outperform all other sectors of the
bond market, corporate bond
investors benefited from a stable
domestic economy, low interest
rates and low inflation. The Lehman
Brothers Corporate Bond Index
returned 7.99% for the past 12
months. Despite high refinancing
activity, mortgage bonds also
performed well. The Lehman Brothers
Mortgage Backed Securities Index
posted a 12-month return of 7.30%.
Late in the period, the bond market
stumbled as the Group of Seven
leading industrial nations eased
global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Andrew Dudley, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. HOW DID THE FUND PERFORM, ANDY ?
A. For the 12 months that ended October 31, 1998, the fund's Class A,
Class T and Class C shares returned 6.58%, 6.32% and 5.41%,
respectively. By comparison, the short investment grade debt funds
average tracked by Lipper Analytical Services returned 6.02% and the
Lehman Brothers 1-3 Year Government/Corporate Bond Index returned
7.56% for the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE? WHY DID THE
FUND UNDERPERFORM THE LEHMAN BROTHERS INDEX?
A. During most of the period, the performance of the Treasury market
was solid due to a widespread flight to quality from stocks and
riskier bond investments. At the same time, the broader bond market
was stricken by growing concerns of economic slowdown and a subsequent
extremely negative supply/demand environment. Essentially, rumors
began that a number of highly leveraged hedge funds were already, or
were going to be, forced sellers of certain bonds. This potential
deluge of supply created a huge dislocation in bond markets - creating
a collapse in liquidity in both corporate and mortgage securities -
pushing the yield spreads relative to Treasuries to much wider levels.
In the pursuit of high current income, the fund has historically taken
on a higher level of exposure to the non-Treasury sectors than the
Lehman Brothers 1-3 Year Government/Corporate Index. Since the fund
was underweighted in government securities relative to the index, the
extreme flight to quality into Treasuries caused the fund to
underperform the Lehman Brothers index. The recent performance of much
of the short-term bond fund universe - as represented by the Lipper
peer group - suggests that many managers faced similar issues.
Q. HOW HAS THE FEDERAL RESERVE BOARD'S RECENT BIAS TO EASE INTEREST
RATES AFFECTED THE MARKETS?
A. Following two interest-rate cuts, the market seemed to feel much
better. The extreme flight to quality we saw earlier in the period
subsided and investors started to look more closely at valuations and
credit quality. Moreover, the Fed can now move a bit slower as the
markets have returned to more normal liquidity conditions. Clearly, a
central bank that is biased toward easing rates is positive for bonds.
While prices for corporate bonds didn't rebound overnight, it had the
effect of reassuring the markets, allowing for new issues, improving
liquidity and allowing corporate bonds to recover relative to
Treasuries. While the corporate bond market did not respond to the
interest-rate cuts as dramatically as the equity markets, corporate
bonds may experience similar enthusiasm over the longer term, which
can create opportunities and benefit the fund.
Q. HOW WERE THE FUND'S INVESTMENTS ALLOCATED?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards - accounted for
approximately 40% and 17%, respectively, of the fund's investments
during the period. Asset-backed securities performed better on average
than their corporate counterparts. Most of the fund's holdings in
asset-backed securities were rated Aaa, the highest quality, and thus
suffered to a lesser extent relative to corporate bonds. By
comparison, corporate bonds suffered more severely relative to
Treasuries. There were some bright spots within our corporate holdings
that outperformed the general corporate market: namely, our cable,
telecommunications and media holdings. Mortgage securities accounted
for 18% of the fund's allocation. Similar to corporate bonds, mortgage
securities were hurt relative to U.S. government bonds during the
extreme flight to quality, along with the increasing fear of a new
refinancing and prepayment wave.
Q. WHAT OTHER SECTORS CONTRIBUTED TO PERFORMANCE?
A. The remaining investments in the fund - around 25% - were mostly in
U.S. government and agency obligations. U.S. Treasuries and agency
bonds performed the best of all the bond sectors. Unfortunately, the
fund suffered relative to the index due to its underweighted position
in this sector.
Q. WHAT'S YOUR OUTLOOK, ANDY?
A. I remain comfortable with our current holdings and feel that there
will be more opportunities over time. In the short term, I'm somewhat
cautious. Over the longer term, however, the non-Treasury sectors
should stabilize or rebound to the fund's benefit. Within the
corporate bond sector, I feel the best issues are going to be
less-cyclical, domestically focused businesses that have improving
credit profiles as the market continues to focus on high-quality,
non-cyclical corporate debt in the face of global market turmoil.
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.
ANDREW DUDLEY ON THE FUND'S
BENCHMARK INDEX - THE
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX - AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"THE LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX PLAYS AN IMPORTANT ROLE IN
THE MANAGEMENT OF THE FUND. IT'S
THE FUND'S BENCHMARK INDEX AND
INCLUDES MOST OF THE UNIVERSE OF
INVESTMENT-GRADE BONDS WITH
MATURITIES BETWEEN ONE AND THREE
YEARS. I USE THE INDEX AS A
GUIDELINE FOR THE STRUCTURE OF THE
OVERALL BOND MARKET, AND MANAGE
THE FUND TO BE GENERALLY AS
SENSITIVE TO CHANGES IN INTEREST
RATES AS THE INDEX. IN ADDITION, I
REFER TO THE INDEX WHEN DECIDING
HOW TO ALLOCATE ASSETS AMONG
DIFFERENT MATURITIES AND MARKET
SECTORS - SUCH AS CORPORATE OR
GOVERNMENT SECURITIES - BASED
ON MY VIEW OF THE RELATIVE VALUE OF
EACH MATURITY OR SECTOR."
FUND FACTS
GOAL: HIGH 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 OCTOBER 31, 1998,
MORE THAN $357 MILLION
MANAGER: ANDREW DUDLEY, SINCE
1997; JOINED FIDELITY IN 1996
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
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QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA 40.8 37.2
AA 8.3 9.8
A 13.2 14.1
BAA 29.8 30.0
BA AND BELOW 1.6 5.0
NOT RATED 1.0 1.4
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS BA OR BELOW
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING
AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF
ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.4 2.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 1.8 1.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 * AS OF APRIL 30, 1998 **
CORPORATE BONDS 57.1%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 16.2%
MORTGAGE
SECURITIES 18.0%
FOREIGN GOVERNMENT
OBLIGATIONS 0.7%
OTHER 2.7%
SHORT-TERM
INVESTMENTS 5.3%
* FOREIGN
INVESTMENTS 6.9%
CORPORATE BONDS 67.4%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 13.6%
MORTGAGE
SECURITIES 12.3%
FOREIGN GOVERNMENT
OBLIGATIONS 1.0%
OTHER 3.2%
SHORT-TERM
INVESTMENTS 2.5%
** FOREIGN
INVESTMENTS 6.7%
ROW: 1, COL: 1, VALUE: 5.3
ROW: 1, COL: 2, VALUE: 2.7
ROW: 1, COL: 3, VALUE: 1.2
ROW: 1, COL: 4, VALUE: 18.0
ROW: 1, COL: 5, VALUE: 16.2
ROW: 1, COL: 6, VALUE: 56.6
ROW: 1, COL: 1, VALUE: 2.5
ROW: 1, COL: 2, VALUE: 3.2
ROW: 1, COL: 3, VALUE: 1.4
ROW: 1, COL: 4, VALUE: 12.3
ROW: 1, COL: 5, VALUE: 13.6
ROW: 1, COL: 6, VALUE: 67.0
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 39.9%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 1.5%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8.875% 11/15/01 A2 $ 3,760,000 $ 3,877,650
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. 7.15% 5/15/05 Ba1 1,430,000 1,422,615
TOTAL BASIC INDUSTRIES 5,300,265
CONSTRUCTION & REAL ESTATE - 1.7%
REAL ESTATE INVESTMENT TRUSTS - 1.7%
Camden Property Trust 6.625% 2/15/01 Baa2 2,700,000 2,667,762
CenterPoint Properties Trust 6.75% 4/1/05 Baa2 470,000 449,720
EOP Operating LP:
6.375% 2/15/03 Baa1 1,200,000 1,178,964
6.376% 2/15/02 Baa1 900,000 888,939
Weeks Realty LP 6.875% 3/15/05 Baa2 1,200,000 1,118,400
6,303,785
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp. 6.09% 11/29/99 Baa3 700,000 707,728
Oryx Energy Co.:
8.125% 10/15/05 Ba1 140,000 150,206
8.375% 7/15/04 Ba1 350,000 372,372
1,230,306
FINANCE - 15.4%
BANKS - 7.4%
Banc One Corp. 6.7% 3/24/00 Aa3 1,600,000 1,627,840
Banco Latinoamericano Exportaciones SA euro:
6.45% 9/13/99 (b) Baa2 1,190,000 1,213,800
6.9% 12/4/99 (b) Baa2 700,000 704,813
BanPonce Corp. 6.488% 3/3/00 A3 1,480,000 1,505,116
BanPonce Financial Corp.:
6.88% 6/16/00 A3 650,000 666,283
7.65% 5/3/00 A3 1,660,000 1,721,320
Barclays Bank PLC yankee 5.875% 7/15/00 A1 2,500,000 2,526,050
Capital One Bank:
7.35% 6/20/00 Baa3 2,475,000 2,513,437
8.125% 3/1/00 Baa3 2,589,000 2,645,026
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
First USA Bank 6.5% 12/23/99 Aa2 $ 2,200,000 $ 2,227,654
KeyCorp. 7.45% 4/5/00 A1 1,500,000 1,550,850
NationsBank Corp. 5.75% 3/15/01 Aa2 3,000,000 3,045,938
Popular, Inc. 6.4% 8/25/00 A3 1,730,000 1,734,636
Providian National Bank:
6.25% 5/7/01 Baa3 1,400,000 1,413,622
6.7% 3/15/03 Baa3 2,200,000 2,205,742
27,302,127
CREDIT & OTHER FINANCE - 7.0%
Abbey National PLC 6.69% 10/17/05 Aa3 2,200,000 2,266,374
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 2,370,000 2,402,848
6.25% 5/15/01 Baa3 3,050,000 3,026,393
Chrysler Financial Corp. 5.25% 5/4/01 A2 2,600,000 2,597,452
Chrysler Financial LLC 6.375% 1/28/00 A2 2,300,000 2,328,060
Edison Mission Energy Funding Corp. 6.77% Baa1 2,151,089 2,228,206
9/15/03 (b)
ERP Operating LP 6.55% 11/15/01 A3 300,000 300,051
Ford Motor Credit Co. 5.125% 10/15/01 A1 1,300,000 1,291,680
General Motors Acceptance Corp. 5.85% A2 800,000 807,872
4/20/00
GS Escrow Corp. 6.75% 8/1/01 (b) Ba1 2,200,000 2,153,690
Heller Financial, Inc. 6.25% 3/1/01 A3 1,800,000 1,810,890
MCN Investment Corp. 5.84% 2/1/99 Baa3 1,640,000 1,640,804
Money Store, Inc. 7.3% 12/1/02 A2 800,000 848,500
North American Mortgage Co. 5.8% 11/2/98 Baa2 1,000,000 998,800
Salton Sea Funding Corp. 7.02% 5/30/00 Baa2 858,187 866,382
25,568,002
SAVINGS & LOANS - 0.7%
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 1,350,000 1,348,529
7% 6/13/02 Baa3 1,250,000 1,280,563
2,629,092
SECURITIES INDUSTRY - 0.3%
Amvescap PLC yankee 6.375% 5/15/03 A3 1,150,000 1,177,899
TOTAL FINANCE 56,677,120
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Tyco International Group SA yankee 6.125% Baa1 $ 2,250,000 $ 2,295,495
6/15/01
MEDIA & LEISURE - 6.2%
BROADCASTING - 3.6%
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 360,000 394,790
8.5% 9/15/01 Baa3 2,320,000 2,462,889
TCI Communications, Inc.:
6.375% 9/15/99 Baa3 4,250,000 4,287,570
8.25% 1/15/03 Baa3 300,000 331,263
9% 1/2/02 Ba1 970,000 1,073,072
Time Warner, Inc.:
7.95% 2/1/00 Baa3 3,690,000 3,792,287
7.975% 8/15/04 Baa3 675,000 746,618
13,088,489
ENTERTAINMENT - 1.9%
Paramount Communications, Inc. 7.5% Baa3 1,125,000 1,176,986
1/15/02
Viacom, Inc.:
6.75% 1/15/03 Baa3 3,785,000 3,902,297
7.75% 6/1/05 Baa3 1,750,000 1,886,203
6,965,486
PUBLISHING - 0.7%
News America Holdings, Inc. 8.5% 2/15/05 Baa3 1,600,000 1,757,344
Time Warner Entertainment Co. LP 9.625% Baa2 775,000 868,674
5/1/02
2,626,018
TOTAL MEDIA & LEISURE 22,679,993
NONDURABLES - 1.8%
FOODS - 0.7%
Dole Food, Inc. 6.75% 7/15/00 Baa2 2,590,000 2,607,483
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
NONDURABLES - CONTINUED
TOBACCO - 1.1%
Philip Morris Companies, Inc.:
7.125% 12/1/99 A2 $ 2,850,000 $ 2,902,982
7.25% 9/15/01 A2 1,125,000 1,173,341
4,076,323
TOTAL NONDURABLES 6,683,806
RETAIL & WHOLESALE - 1.8%
GENERAL MERCHANDISE STORES - 1.8%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 1,950,000 2,019,420
9.75% 7/1/02 A3 1,240,000 1,409,979
10% 12/1/00 A3 1,070,000 1,166,354
Federated Department Stores, Inc. 8.125% Baa2 1,860,000 1,987,112
10/15/02
6,582,865
TECHNOLOGY - 3.2%
COMPUTER SERVICES & SOFTWARE - 0.2%
Computer Associates International, Inc. 6.25% Baa1 760,000 758,153
4/15/03
COMPUTERS & OFFICE EQUIPMENT - 3.0%
Comdisco, Inc.:
5.86% 4/7/00 Baa1 2,010,000 2,028,844
6.1% 6/5/01 Baa1 7,210,000 7,373,379
6.55% 2/4/00 Baa1 1,500,000 1,529,640
10,931,863
TOTAL TECHNOLOGY 11,690,016
TRANSPORTATION - 1.7%
AIR TRANSPORTATION - 0.5%
Continental Airlines, Inc. Pass Through Trust Baa1 1,250,000 1,252,939
Certificates 7.08% 11/1/04
Delta Air Lines, Inc. 9.875% 5/15/00 Baa3 475,000 503,158
1,756,097
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
TRANSPORTATION - CONTINUED
RAILROADS - 1.2%
CSX Corp.:
7.05% 5/1/02 Baa2 $ 1,600,000 $ 1,665,184
9.5% 8/1/00 Baa2 1,800,000 1,916,550
Norfolk Southern Corp. 6.95% 5/1/02 Baa1 900,000 939,753
4,521,487
TOTAL TRANSPORTATION 6,277,584
UTILITIES - 5.7%
ELECTRIC UTILITY - 2.3%
Avon Energy Partners Holdings yankee 6.73% Baa2 1,200,000 1,243,476
12/11/02 (b)
Indiana Michigan Power Co. 6.4% 3/1/00 Baa1 2,500,000 2,547,400
Niagara Mohawk Power Corp. 6.875% Ba1 800,000 822,240
3/1/01
Ohio Edison Co. 7.375% 9/15/02 Baa2 1,200,000 1,262,388
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 960,000 964,877
6.5% 5/1/03 Baa1 600,000 624,642
Texas Utilities Electric Co. 7.375% 11/1/99 Baa1 1,100,000 1,123,177
8,588,200
GAS - 2.0%
Arkla, Inc. 8.875% 7/15/99 Baa1 7,000,000 7,200,550
TELEPHONE SERVICES - 1.4%
MCI WorldCom, Inc.:
6.125% 8/15/01 Baa2 2,700,000 2,760,804
8.875% 1/15/06 Baa2 811,000 888,759
9.375% 1/15/04 Baa2 1,606,000 1,670,931
5,320,494
TOTAL UTILITIES 21,109,244
TOTAL NONCONVERTIBLE BONDS 146,830,479
(Cost $146,244,243)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 16.2%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.2%
Government Trust Certificates (assets of Trust Aaa $ 399,271 $ 422,987
guaranteed by U.S. Government through
Defense Security Assistance Agency) Class T-3,
9.625% 5/15/02
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 134,728 135,705
Series 1995-A, 6.28% 6/15/04 Aaa 2,117,647 2,189,795
Israel Export Trust Certificates (assets of Trust Aaa 635,294 661,278
guaranteed by U.S. Government through
Export-Import Bank) Series 1994-1, 6.88%
1/26/03
Private Export Funding Corp. secured 6.86% Aaa 1,049,400 1,102,888
4/30/04
4,512,653
U.S. TREASURY OBLIGATIONS - 15.0%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 16,750,000 17,126,875
5.5% 3/31/00 Aaa 19,800,000 20,093,824
5.625% 11/30/99 Aaa 2,310,000 2,339,245
5.75% 10/31/00 Aaa 1,300,000 1,335,139
5.875% 2/15/00 Aaa 1,305,000 1,328,647
5.875% 7/31/99 Aaa 1,540,000 1,555,656
6.25% 2/28/02 Aaa 2,625,000 2,773,470
6.875% 3/31/00 Aaa 8,252,000 8,529,185
55,082,041
TOTAL U.S. GOVERNMENT AND 59,594,694
GOVERNMENT AGENCY OBLIGATIONS
(Cost $59,441,737)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 9.0%
FANNIE MAE - 5.0%
6.5% 10/1/11 to 3/1/13 Aaa 7,006,368 7,109,222
6.5% 11/1/28 (c) Aaa 5,600,000 5,643,750
7% 11/1/28 (c) Aaa 5,000,000 5,109,375
11.5% 11/1/15 Aaa 492,347 547,973
18,410,320
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
FREDDIE MAC - 0.8%
7% 9/1/99 to 8/1/01 Aaa $ 1,102,691 $ 1,113,024
8.5% 7/1/26 to 6/1/27 Aaa 1,819,998 1,894,071
12% 11/1/19 Aaa 122,985 140,659
3,147,754
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.2%
7.5% 11/15/22 to 8/15/28 (d) Aaa 5,658,921 5,827,388
9.5% 9/15/16 to 10/15/20 Aaa 1,849,587 1,995,868
11% 12/15/09 to 1/15/16 Aaa 2,176,994 2,389,509
11.5% 8/15/13 to 11/15/15 Aaa 685,760 764,917
12% 2/15/16 Aaa 733,196 824,406
11,802,088
TOTAL U.S. GOVERNMENT AGENCY - 33,360,162
MORTGAGE SECURITIES
(Cost $33,398,658)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 17.2%
Arcadia Automobile Receivables Trust 5.67% Aaa 1,300,000 1,305,230
1/15/04
Boatmens Auto Trust 6.35% 10/15/01 A2 640,000 641,000
Capital Equipment Receivables Trust:
6.45% 8/15/02 Aa3 2,200,000 2,268,728
6.57% 3/15/01 Aa3 1,020,000 1,039,043
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 800,000 797,781
6.15% 9/15/02 Aaa 1,770,982 1,782,051
6.45% 9/15/02 Aaa 1,400,000 1,437,618
Caterpillar Financial Asset Trust 6.55% 5/25/02 A3 404,941 406,713
Chase Manhattan Marine Owner Trust 6.25% Aaa 2,020,000 2,061,067
4/16/07
Chevy Chase Auto Receivables Trust:
5.97% 10/20/04 Aaa 1,963,657 1,978,078
6.2% 3/20/04 Aaa 835,996 843,441
Citibank Credit Card Master Trust I 5.75% Aaa 1,800,000 1,825,313
1/15/03
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Contimortgage Home Equity Loan Trust:
6.26% 7/15/12 Aaa $ 3,750,000 $ 3,750,000
6.3% 7/15/12 Aaa 1,600,000 1,610,000
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 1,024,492 1,026,413
6.7% 2/15/02 Aaa 365,910 368,082
CS First Boston Mortgage Securities Corp. 7% Aaa 1,000,000 1,015,313
3/15/27
Discover Card Master Trust I 6.0006% A2 5,250,000 5,208,984
7/18/05 (e)
Fidelity Funding Auto Trust 6.99% 11/15/02 (b) Aaa 449,155 457,647
Ford Credit Auto Owner Trust 6.15% 9/15/02 A2 1,800,000 1,804,500
Ford Credit Grantor Trust 5.9% 10/15/00 Aaa 995,681 998,326
General Motors Acceptance Corp. Grantor Trust Aaa 450,391 450,670
7.15% 3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 Aaa 49,616 49,601
6.1% 4/15/27 Aaa 880,640 881,186
6.45% 5/15/27 Aaa 621,980 622,951
6.5% 6/15/27 Aaa 413,028 413,284
Key Auto Finance Trust 6.65% 10/15/03 Baa3 346,259 351,507
KeyCorp Auto Grantor Trust 5.8% 7/15/00 A3 41,561 41,556
Newcourt Equipment Trust Securities sequential Aaa 2,050,000 2,047,438
pay Series 1998-1 Class A3, 5.24%
12/20/02
Norwest Automobile Trust 6.3% 5/15/03 A2 1,424,000 1,437,128
Olympic Automobile Receivables Trust:
6.125% 11/15/04 Aaa 678,458 692,452
6.4% 9/15/01 Aaa 1,710,000 1,737,253
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 Aaa 2,317,482 2,336,300
6.2% 6/15/03 Aaa 1,242,352 1,252,439
Petroleum Enhanced Trust Receivables Offering Baa2 2,105,286 2,102,655
Petroleum Trust 6.125% 2/5/03 (b)(e)
Premier Auto Trust:
5.7% 10/6/02 Aaa 4,000,000 4,042,480
6% 5/6/00 Aaa 440,747 441,157
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Premier Auto Trust: - continued
6.35% 7/6/00 A3 $ 1,980,000 $ 1,985,564
Reliance Auto Receivables Corp., Inc. 6.1% Aaa 488,612 488,917
7/15/02 (b)
SCFC Recreational Vehicle Loan Trust 7.25% Aaa 12,827 12,738
9/15/06
Sears Credit Account Master Trust II 6.2% Aaa 1,600,000 1,629,488
2/16/06
TMS Auto Grantor Trust 5.9% 9/15/02 Aaa 216,413 217,427
Tranex Auto Receivables Owner Trust 6.334% Aaa 1,130,581 1,146,833
8/15/03 (b)
UFSB Grantor Trust 8.2% 1/10/01 Baa2 101,184 101,247
Union Acceptance Corp. 7.075% 7/10/02 Baa2 164,743 165,257
Western Financial Grantor Trust 5.875% Aaa 871,086 884,424
3/1/02
WFS Financial Owner Trust:
6.9% 12/20/03 Aaa 1,990,000 2,072,088
7.05% 11/20/03 Aaa 3,160,000 3,290,350
TOTAL ASSET-BACKED SECURITIES 63,519,718
(Cost $62,889,392)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.7%
PRIVATE SPONSOR - 1.0%
GE Capital Mortgage Services, Inc. planned Aaa 863,854 866,958
amortization class Series 1994-2 Class A-4,
6% 1/25/09
Residential Funding Mortgage Securities I, Inc. Aa1 2,842,387 2,870,811
planned amortization class Series 1994-S12
Class A-2, 6.5% 4/25/09
3,737,769
U.S. GOVERNMENT AGENCY - 0.7%
Fannie Mae ACES sequential pay Series 1995 - Aaa 2,464,146 2,514,969
M1 Class A, 6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 6,252,738
(Cost $6,188,380)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 7.3%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Allied Capital Commercial Mortgage Trust Aaa $ 1,709,020 $ 1,706,082
sequential pay Series 1998-1 Class A, 6.31%
9/25/03 (b)
Bankers Trust Remic Trust 1988-1 floater Series Baa2 2,780,000 2,714,844
1998-S1A Class D, 6.5023% 11/28/02 (b)(e)
BKB Commercial Mortgage Trust Series 1997 AA 665,126 663,255
C1, Class B, 7.218% 2/25/43 (b)(e)
CBM Funding Corp. sequential pay Series
1996-1:
Class A 1, 7.55% 7/1/99 AA 65,061 65,417
Class A-2, 6.88% 7/1/02 AA 980,000 1,005,878
CS First Boston Mortgage Securities Corp.:
sequential pay Series 1997-SPICE Class A, - 2,827,352 2,830,887
6.653% 8/20/36 (b)
Series 1998 FLI Class E, 6.1938% Baa2 2,700,000 2,624,906
1/10/13 (b)(e)
DLJ Commercial Mortgage Corp. floater Series A2 1,170,000 1,164,150
1998-STFA Class A-3, 6.0075% 1/8/11 (b)(e)
Equitable Life Assurance Society of the United
States (The):
floater Series 174 Class D-2, 6.7063% Baa2 1,200,000 1,178,250
5/15/03 (b)(e)
sequential pay Series 174 Class A1, 7.24% Aaa 1,000,000 1,069,380
5/15/06 (b)
Federal Deposit Insurance Corp. Remic Trust:
sequential pay Series 1994-C1 Class II-A2, Aaa 473,845 474,289
7.85% 9/25/25
sequential pay Series 1996-C1 Class 1A, Aaa 1,822,435 1,827,561
6.75% 7/25/26
FMAC Loan Receivables Trust 1998-C sequential Aaa 515,281 520,756
pay Series 1998-C Class A1 Notes, 5.99%
9/15/20 (b)
Franchise Loan Trust 1998-1 sequential pay Aaa 1,466,321 1,482,359
Series 1998-I Class A1 Notes, 6.24%
7/15/20 (b)
Kidder Peabody Acceptance Corp. I sequential Aa2 394,149 393,287
pay Series 1993-M1 Class A-2, 7.15%
4/25/25
Nomura Asset Securities Corp. floater Series - 881,017 881,292
1994-MD-II Class A-6, 6.9095% 7/7/03 (e)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Nomura Depositor Trust floater Series Baa2 $ 2,290,000 $ 2,152,600
1998-ST1A Class A-4, 6.4898%
2/15/34 (b)(e)
Resolution Trust Corp.:
floater Series 1994-C1 Class A-3, 5.8625% AAA 198,465 198,465
6/25/26 (e)
sequential pay Series 1995 C-1 Class A2C, Aaa 1,253,430 1,251,863
6.9% 2/25/27
Structured Asset Securities Corp.:
floater Series 1998-C2A Class C, 5.6494% A3 2,222,430 2,216,874
1/25/13 (b)(e)
Series 1996-C3 Class A, 6.75% AAA 449,187 446,941
6/25/30 (b)(e)
TOTAL COMMERCIAL MORTGAGE SECURITIES 26,869,336
(Cost $27,149,023)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 0.7%
Ontario Province:
euro global 6.125% 6/28/00 (f) Aa3 1,200,000 1,226,628
5.75% 11/7/00 (f) Aa3 1,180,000 1,193,110
TOTAL FOREIGN GOVERNMENT AND 2,419,738
GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,379,437)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUPRANATIONAL OBLIGATIONS - 1.9%
African Development Bank:
7.75% 12/15/01 Aa1 2,240,000 2,392,544
9.3% 7/1/00 Aa1 4,320,000 4,583,477
TOTAL SUPRANATIONAL OBLIGATIONS 6,976,021
(Cost $7,001,936)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 0.8%
Canadian Imperial Bank of Commerce, New Aa3 2,950,000 2,998,085
York yankee 6.2% 8/1/00
(Cost $2,956,343)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 5.3%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements $ 19,559,191 $ 19,550,000
(U.S. Government obligations), in a joint
trading account at 5.64%, dated
10/30/98 due 11/2/98
TOTAL INVESTMENT IN SECURITIES - 100% $ 368,370,971
(Cost $367,199,149)
</TABLE>
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) 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 $32,511,321 or 9.1% of net assets.
(c) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(d) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) 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 investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 61.6% AAA, AA, A 57.1%
Baa 29.8% BBB 30.7%
Ba 1.6% BB 1.1%
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
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 1.0%. FMR has determined that
unrated debt securities that are lower quality account for 0.0% of the
total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $367,211,970. Net unrealized appreciation
aggregated $1,159,001, of which $2,764,162 related to appreciated
investment securities and $1,605,161 related to depreciated investment
securities.
At October 31, 1998, the fund had a capital loss carryforward of
approximately $43,066,000 of which $130,000, $38,000, $336,000,
$17,691,000, $19,457,000, $2,265,000 and $3,149,000 will expire on
October 31, 1999, 2000, 2001, 2002, 2003, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 368,370,971
AGREEMENTS OF $19,550,000) (COST $367,199,149) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (5,766,250)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 5,776,750 10,500
RECEIVABLE FOR INVESTMENTS SOLD ON A REGULAR DELIVERY BASIS 3,664,248
CASH 140
RECEIVABLE FOR FUND SHARES SOLD 846,574
INTEREST RECEIVABLE 3,962,865
TOTAL ASSETS 376,855,298
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 7,352,438
REGULAR DELIVERY
DELAYED DELIVERY 10,706,629
PAYABLE FOR FUND SHARES REDEEMED 847,739
DISTRIBUTIONS PAYABLE 259,174
ACCRUED MANAGEMENT FEE 126,132
DISTRIBUTION FEES PAYABLE 49,527
OTHER PAYABLES AND ACCRUED EXPENSES 117,696
TOTAL LIABILITIES 19,459,335
NET ASSETS $ 357,395,963
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 399,358,866
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (56,261)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (43,088,964)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 1,182,322
NET ASSETS $ 357,395,963
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $9.38
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($5,523,807 (DIVIDED BY) 589,024 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.38) $9.52
CLASS T: $9.38
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($333,050,001 (DIVIDED BY) 35,509,700 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.38) $9.52
CLASS C: $9.38
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($11,795,250 (DIVIDED BY) 1,256,955 SHARES) A
INSTITUTIONAL CLASS: $9.38
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE ($7,026,905 (DIVIDED BY) 749,258 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 23,993,758
INTEREST
EXPENSES
MANAGEMENT FEE $ 1,531,459
TRANSFER AGENT FEES 766,487
DISTRIBUTION FEES 534,811
ACCOUNTING FEES AND EXPENSES 142,365
NON-INTERESTED TRUSTEES' COMPENSATION 735
CUSTODIAN FEES AND EXPENSES 23,691
REGISTRATION FEES 70,446
AUDIT 51,786
LEGAL 2,124
REPORTS TO SHAREHOLDERS 41,310
MISCELLANEOUS 1,422
TOTAL EXPENSES BEFORE REDUCTIONS 3,166,636
EXPENSE REDUCTIONS (35,127) 3,131,509
NET INVESTMENT INCOME 20,862,249
REALIZED AND UNREALIZED GAIN (LOSS) 173,470
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 411,056
DELAYED DELIVERY COMMITMENTS 10,500 421,556
NET GAIN (LOSS) 595,026
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 21,457,275
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 20,862,249 $ 24,105,096
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 173,470 (3,013,450)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 421,556 1,422,158
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 21,457,275 22,513,804
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (20,556,957) (23,879,338)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (21,594,124) (46,649,317)
TOTAL INCREASE (DECREASE) IN NET ASSETS (20,693,806) (48,014,851)
NET ASSETS
BEGINNING OF PERIOD 378,089,769 426,104,620
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 357,395,963 $ 378,089,769
OF NET INVESTMENT INCOME OF $56,261 AND
$289,348, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.310 $ 9.370 $ 9.290
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .572 .532 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) .024 (.021) .081
TOTAL FROM INVESTMENT OPERATIONS .596 .511 .171
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.526) (.571) (.091)
NET ASSET VALUE, END OF PERIOD $ 9.380 $ 9.310 $ 9.370
TOTAL RETURN B, C 6.58% 5.64% 1.85%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 5,524 $ 19,726 $ 204
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.03% 6.00% 6.27% A
PORTFOLIO TURNOVER RATE 124% 105% 124%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.350 $ 9.380 $ 9.470 $ 9.480 $ 10.090
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .555 B .578 B .594 B .403 .479
NET REALIZED AND UNREALIZED .019 (.036) (.094) .148 (.501)
GAIN (LOSS)
TOTAL FROM INVESTMENT .574 .542 .500 .551 (.022)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.544) (.572) (.590) (.407) (.464)
IN EXCESS OF NET INVESTMENT - - - - (.044)
INCOME
RETURN OF CAPITAL - - - (.154) (.080)
TOTAL DISTRIBUTIONS (.544) (.572) (.590) (.561) (.588)
NET ASSET VALUE, END OF PERIOD $ 9.380 $ 9.350 $ 9.380 $ 9.470 $ 9.480
TOTAL RETURN A 6.32% 5.97% 5.45% 6.05% (.22)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 333,050 $ 351,614 $ 416,700 $ 546,546 $ 787,926
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE .89% .89% .88% .89% .97%
NET ASSETS
RATIO OF NET INVESTMENT INCOME 5.93% 6.19% 6.29% 6.05% 5.91%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 124% 105% 124% 179% 108%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS C
YEAR ENDED
OCTOBER 31,
1998 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.340
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .437
NET REALIZED AND UNREALIZED GAIN (LOSS) .064
TOTAL FROM INVESTMENT OPERATIONS .501
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.461)
NET ASSET VALUE, END OF PERIOD $ 9.380
TOTAL RETURN B, C 5.49%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 11,795
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.75% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.92% A
PORTFOLIO TURNOVER RATE 124%
</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 NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO OCTOBER 31, 1998.
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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.350 $ 9.370 $ 9.470 $ 9.450
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .566 D .589 D .598 D .137
NET REALIZED AND UNREALIZED GAIN (LOSS) .021 (.023) (.098) .067
TOTAL FROM INVESTMENT OPERATIONS .587 .566 .500 .204
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.557) (.586) (.600) (.136)
RETURN OF CAPITAL - - - (.048)
TOTAL DISTRIBUTIONS (.557) (.586) (.600) (.184)
NET ASSET VALUE, END OF PERIOD $ 9.380 $ 9.350 $ 9.370 $ 9.470
TOTAL RETURN B, C 6.47% 6.24% 5.45% 2.18%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,027 $ 6,750 $ 9,200 $ 9,827
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% F .80% F .85% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE 6.06% 6.30% 6.37% 6.10% A
NET ASSETS
PORTFOLIO TURNOVER RATE 124% 105% 124% 179%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
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, Class C, 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
matters that affect that class. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution, transfer agent, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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
among the funds in the trust.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
forgone in the purchase of a delayed delivery security. 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. Losses may arise due to changes in the market value of
the underlying securities or if the counterparty does not perform
under the contract.
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 $426,963,043 and $450,154,941, respectively, of which U.S.
government and government agency obligations aggregated $245,058,487
and $226,240,284, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets .
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .15%
CLASS C 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 retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 9,763 $ 239
CLASS T 505,426 4,489
CLASS C 19,622 19,478
$ 534,811 $ 24,206
Under the Plans, FMR 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. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 1,475
CLASS T 103,634
CLASS C 2,229
INSTITUTIONAL CLASS 1,707
$ 109,045
SALES LOAD. FDC receives a front-end sales charge of up to 1.50% for
selling Class A and Class T shares of the fund and the proceeds of a
contingent deferred sales charge levied on Class C share redemptions
occurring within one year of purchase. The Class C charge is 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. A portion of the sales charges paid to
FDC are paid to securities dealers, banks and other financial
institutions.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 30,218 $ 7,274
CLASS T 221,684 43,309
CLASS C 6,373 6,373*
$ 258,275 $ 56,956
* WHEN CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund
(collectively referred to as the transfer agent). FIIOC receives
account fees and asset-based fees that vary according to the account
size and type of account of the shareholders of the respective classes
of the fund. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements. For the period, the
following amounts were paid to FIIOC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 13,797 .21
CLASS T 732,701 .22
CLASS C 5,648 .29 *
INSTITUTIONAL CLASS 14,341 .22
$ 766,487
* ANNUALIZED
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
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 of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 2,604
CLASS C 1.75% 14,981
INSTITUTIONAL CLASS .75% 11,363
$ 28,948
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 $6,179 under the custodian
arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
1998 A 1997
FROM NET INVESTMENT INCOME
CLASS A $ 388,579 $ 185,833
CLASS T 19,688,772 23,319,675
CLASS C 94,836 -
INSTITUTIONAL CLASS 384,770 373,830
TOTAL $ 20,556,957 $ 23,879,338
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 A 1997 1998 A 1997
CLASS A 592,781 2,306,357 $ 5,547,089 $ 21,425,255
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 15,963 4,547 149,204 42,258
SHARES REDEEMED (2,137,845) (214,574) (20,007,107) (2,004,901)
NET INCREASE (DECREASE) (1,529,101) 2,096,330 $ (14,310,814) $ 19,462,612
CLASS T 18,467,587 18,782,631 $ 172,851,708 $ 175,250,208
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 1,675,946 1,976,051 15,669,989 18,435,965
SHARES REDEEMED (22,231,985) (27,605,815) (207,892,792) (257,378,530)
NET INCREASE (DECREASE) (2,088,452) (6,847,133) $ (19,371,095) $ (63,692,357)
CLASS C 1,458,611 - $ 13,712,358 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 6,695 - 62,751 -
SHARES REDEEMED (208,351) - (1,947,580) -
NET INCREASE (DECREASE) 1,256,955 - $ 11,827,529 $ -
INSTITUTIONAL CLASS 733,154 500,009 $ 6,860,400 $ 4,670,792
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 33,202 33,143 310,406 309,411
SHARES REDEEMED (738,984) (792,628) (6,910,550) (7,399,775)
NET INCREASE (DECREASE) 27,372 (259,476) $ 260,256 $ (2,419,572)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 5,065
CLASS T 38,773
CLASS C 14,062
INSTITUTIONAL CLASS 12,546
$ 70,446
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Short Fixed-Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Short Fixed-Income Fund (a fund of Fidelity Advisor
Series II) at October 31, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Advisor Short Fixed-Income Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included
confirmation of securities at October 31, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
A total of 13.01% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional
Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap 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
SFI-ANN-1298 66837
1.538430.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
SHORT FIXED-INCOME
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1998
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 24 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 32 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 39 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 40
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR SHORT FIXED-INCOME FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change, or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Institutional
Class shares took place on July 3, 1995. Institutional Class shares
are sold to eligible investors without a sales load or 12b-1 fee.
Returns prior to July 3, 1995 are those of Class T, the original class
of the fund, and reflect Class T shares' 0.15% 12b-1 fee. If Fidelity
had not reimbursed certain class expenses, the total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - INST CL 6.47% 26.27% 94.54%
LB 1-3 YEAR GOVT/CORP 7.56% 33.94% 103.77%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 29.85% 96.80%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare Institutional Class' returns to the
performance of the Lehman Brothers 1-3 Year Government/Corporate Bond
Index - a market value weighted performance benchmark for government
and corporate fixed-rate debt issues with maturities between one and
three years. To measure how Institutional Class' performance stacked
up against its peers, you can compare it to the short investment grade
debt funds average, which reflects the performance of mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc.
The past one year average represents a peer group of 101 mutual funds.
These benchmarks include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV SHORT FIXED-INCOME - INST CL 6.47% 4.78% 6.88%
LB 1-3 YEAR GOVT/CORP 7.56% 6.02% 7.38%
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.02% 5.36% 6.99%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class shares'
cumulative return and show you what would have
happened if Institutional Class shares had performed at a constant
rate each year.
$10,000 OVER 10 YEARS
FA Short Fixed-Inc -CL I LB 1-3 Year Govt/Corp
00643 LB013
1988/10/31 10000.00 10000.00
1988/11/30 9970.76 9976.19
1988/12/31 10001.52 9999.11
1989/01/31 10083.04 10079.48
1989/02/28 10100.85 10081.86
1989/03/31 10151.63 10122.64
1989/04/30 10261.83 10286.95
1989/05/31 10401.82 10433.10
1989/06/30 10571.11 10625.69
1989/07/31 10751.08 10784.05
1989/08/31 10674.35 10723.02
1989/09/30 10729.43 10786.13
1989/10/31 10889.22 10954.31
1989/11/30 10974.75 11052.24
1989/12/31 11032.40 11096.00
1990/01/31 11007.42 11107.61
1990/02/28 11051.92 11166.54
1990/03/31 11110.41 11201.96
1990/04/30 11120.54 11229.94
1990/05/31 11295.31 11403.48
1990/06/30 11382.70 11524.04
1990/07/31 11517.50 11663.64
1990/08/31 11499.07 11705.02
1990/09/30 11527.74 11792.83
1990/10/31 11498.32 11914.57
1990/11/30 11570.74 12030.96
1990/12/31 11679.90 12171.75
1991/01/31 11644.79 12281.89
1991/02/28 11765.59 12370.59
1991/03/31 11975.70 12460.49
1991/04/30 12150.02 12582.53
1991/05/31 12274.02 12661.11
1991/06/30 12334.02 12708.14
1991/07/31 12418.76 12819.76
1991/08/31 12627.22 12993.60
1991/09/30 12757.85 13133.50
1991/10/31 12900.26 13274.89
1991/11/30 13030.75 13409.14
1991/12/31 13241.65 13611.85
1992/01/31 13295.95 13597.86
1992/02/29 13385.59 13641.02
1992/03/31 13448.07 13638.04
1992/04/30 13535.30 13762.76
1992/05/31 13675.62 13891.65
1992/06/30 13801.31 14033.64
1992/07/31 13972.94 14198.24
1992/08/31 14091.59 14312.84
1992/09/30 14208.14 14448.28
1992/10/31 14117.97 14361.36
1992/11/30 14124.55 14341.12
1992/12/31 14248.79 14476.56
1993/01/31 14464.73 14631.05
1993/02/28 14640.71 14750.41
1993/03/31 14734.72 14798.33
1993/04/30 14809.29 14891.20
1993/05/31 14872.14 14857.27
1993/06/30 15021.48 14969.79
1993/07/31 15110.33 15004.02
1993/08/31 15258.57 15129.63
1993/09/30 15311.28 15178.45
1993/10/31 15406.60 15213.87
1993/11/30 15470.00 15218.34
1993/12/31 15601.58 15279.95
1994/01/31 15698.92 15377.29
1994/02/28 15570.81 15284.12
1994/03/31 15214.16 15205.54
1994/04/30 15133.95 15147.79
1994/05/31 15225.07 15168.33
1994/06/30 15105.25 15208.22
1994/07/31 15243.03 15346.63
1994/08/31 15366.78 15398.42
1994/09/30 15360.87 15364.19
1994/10/31 15372.59 15399.32
1994/11/30 15398.99 15334.72
1994/12/31 15075.94 15363.89
1995/01/31 15188.10 15574.94
1995/02/28 15376.30 15790.45
1995/03/31 15457.12 15880.04
1995/04/30 15582.97 16023.81
1995/05/31 15863.34 16301.24
1995/06/30 15938.03 16389.94
1995/07/31 16015.04 16455.42
1995/08/31 16112.87 16555.14
1995/09/30 16192.11 16637.00
1995/10/31 16310.13 16775.12
1995/11/30 16445.23 16919.48
1995/12/31 16569.10 17047.77
1996/01/31 16694.30 17193.63
1996/02/29 16639.63 17128.14
1996/03/31 16608.43 17115.64
1996/04/30 16610.22 17132.91
1996/05/31 16645.70 17172.50
1996/06/30 16767.78 17298.11
1996/07/31 16819.66 17365.38
1996/08/31 16871.74 17429.38
1996/09/30 17013.67 17588.93
1996/10/31 17198.91 17787.47
1996/11/30 17345.75 17920.82
1996/12/31 17345.66 17923.80
1997/01/31 17417.55 18010.42
1997/02/28 17466.15 18055.07
1997/03/31 17448.19 18041.08
1997/04/30 17576.68 18189.02
1997/05/31 17688.92 18316.12
1997/06/30 17818.81 18443.52
1997/07/31 18027.68 18648.31
1997/08/31 18025.71 18665.87
1997/09/30 18156.13 18809.64
1997/10/31 18272.12 18945.08
1997/11/30 18328.28 18992.71
1997/12/31 18443.77 19118.02
1998/01/31 18617.02 19302.57
1998/02/28 18643.40 19321.92
1998/03/31 18700.02 19397.23
1998/04/30 18793.21 19493.38
1998/05/31 18890.80 19599.35
1998/06/30 18983.77 19700.55
1998/07/31 19078.29 19792.23
1998/08/31 19211.65 20019.94
1998/09/30 19445.22 20289.33
1998/10/30 19453.72 20289.33
IMATRL PRASUN SHR__CHT 19981031 19981110 111852 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Short Fixed-Income Fund - Institutional
Class on October 31, 1988. As the chart shows, by October 31, 1998,
the value of the investment would have grown to $19,454 - a 94.54%
increase on the initial investment. For comparison, look at how the
Lehman Brothers 1-3 Year Government/Corporate Bond Index did over the
same period. With dividends, and capital gains, if any, reinvested,
the same $10,000 would have grown to $20,377 - a 103.77% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE MONEY.
BUT IF YOU CAN RIDE OUT THE
MARKET'S UPS AND DOWNS, YOU
MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED OCTOBER 31, JULY 3, 1995
(COMMENCEMENT
OF SALE OF
INSTITUTIONAL
CLASS SHARES)
TO OCTOBER 31,
1998 1997 1996 1995
DIVIDEND RETURNS 6.15% 6.45% 6.51% 1.97%
CAPITAL RETURNS 0.32% -0.21% -1.06% 0.21%
TOTAL RETURNS 6.47% 6.24% 5.45% 2.18%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital 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, if
any, paid by the class are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.41(CENTS) 27.39(CENTS) 55.73(CENTS)
ANNUALIZED DIVIDEND RATE 5.52% 5.81% 5.96%
30-DAY ANNUALIZED YIELD 4.89% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $9.40 over the past one month, $9.35 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
MARKET RECAP
Uncertainty in the global equity
markets, combined with two
interest-rate cuts by the Federal
Reserve Board, provided the
backdrop for strong gains in the
bond market during the 12-month
period ended October 31, 1998.
The Lehman Brothers Aggregate
Bond Index - a broad measure of
the U.S. taxable investment-grade
bond market - returned 9.34%
over the past year. Global market
volatility, low interest rates and a
sharp decline in stock prices sent
U.S. Treasury yields - which move
in the opposite direction of bond
prices - to their lowest levels in
30 years. While the extreme flight
to quality helped Treasuries
outperform all other sectors of the
bond market, corporate bond
investors benefited from a stable
domestic economy, low interest
rates and low inflation. The Lehman
Brothers Corporate Bond Index
returned 7.99% for the past 12
months. Despite high refinancing
activity, mortgage bonds also
performed well. The Lehman Brothers
Mortgage Backed Securities Index
posted a 12-month return of 7.30%.
Late in the period, the bond market
stumbled as the Group of Seven
leading industrial nations eased
global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Andrew Dudley, Portfolio Manager of Fidelity Advisor
Short Fixed-Income Fund
Q. HOW DID THE FUND PERFORM, ANDY ?
A. For the 12 months that ended October 31, 1998, the fund's
Institutional Class shares posted a total return of 6.47%. The fund
outperformed the 6.02% return of the short investment grade debt funds
average, as tracked by Lipper Analytical Services. The fund lagged the
7.56% return of the Lehman Brothers 1-3 Year Government/Corporate Bond
Index for the 12-month period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE? WHY DID THE
FUND UNDERPERFORM THE LEHMAN BROTHERS INDEX?
A. During most of the period, the performance of the Treasury market
was solid due to a widespread flight to quality from stocks and
riskier bond investments. At the same time, the broader bond market
was stricken by growing concerns of economic slowdown and a subsequent
extremely negative supply/demand environment. Essentially, rumors
began that a number of highly leveraged hedge funds were already, or
were going to be, forced sellers of certain bonds. This potential
deluge of supply created a huge dislocation in bond markets - creating
a collapse in liquidity in both corporate and mortgage securities -
pushing the yield spreads relative to Treasuries to much wider levels.
In the pursuit of high current income, the fund has historically taken
on a higher level of exposure to the non-Treasury sectors than the
Lehman Brothers 1-3 Year Government/Corporate Index. Since the fund
was underweighted in government securities relative to the index, the
extreme flight to quality into Treasuries caused the fund to
underperform the Lehman Brothers index. The recent performance of much
of the short-term bond fund universe - as represented by the Lipper
peer group - suggests that many managers faced similar issues.
Q. HOW HAS THE FEDERAL RESERVE BOARD'S RECENT BIAS TO EASE INTEREST
RATES AFFECTED THE MARKETS?
A. Following two interest-rate cuts, the market seemed to feel much
better. The extreme flight to quality we saw earlier in the period
subsided and investors started to look more closely at valuations and
credit quality. Moreover, the Fed can now move a bit slower as the
markets have returned to more normal liquidity conditions. Clearly, a
central bank that is biased toward easing rates is positive for bonds.
While prices for corporate bonds didn't rebound overnight, it had the
effect of reassuring the markets, allowing for new issues, improving
liquidity and allowing corporate bonds to recover relative to
Treasuries. While the corporate bond market did not respond to the
interest-rate cuts as dramatically as the equity markets, corporate
bonds may experience similar enthusiasm over the longer term, which
can create opportunities and benefit the fund.
Q. HOW WERE THE FUND'S INVESTMENTS ALLOCATED?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards - accounted for
approximately 40% and 17%, respectively, of the fund's investments
during the period. Asset-backed securities performed better on average
than their corporate counterparts. Most of the fund's holdings in
asset-backed securities were rated Aaa, the highest quality, and thus
suffered to a lesser extent relative to corporate bonds. By
comparison, corporate bonds suffered more severely relative to
Treasuries. There were some bright spots within our corporate holdings
that outperformed the general corporate market: namely, our cable,
telecommunications and media holdings. Mortgage securities accounted
for 18% of the fund's allocation. Similar to corporate bonds, mortgage
securities were hurt relative to U.S. government bonds during the
extreme flight to quality, along with the increasing fear of a new
refinancing and prepayment wave.
Q. WHAT OTHER SECTORS CONTRIBUTED TO PERFORMANCE?
A. The remaining investments in the fund - around 25% - were mostly in
U.S. government and agency obligations. U.S. Treasuries and agency
bonds performed the best of all the bond sectors. Unfortunately, the
fund suffered relative to the index due to its underweighted position
in this sector.
Q. WHAT'S YOUR OUTLOOK, ANDY?
A. I remain comfortable with our current holdings and feel that there
will be more opportunities over time. In the short term, I'm somewhat
cautious. Over the longer term, however, the non-Treasury sectors
should stabilize or rebound to the fund's benefit. Within the
corporate bond sector, I feel the best issues are going to be
less-cyclical, domestically focused businesses that have improving
credit profiles as the market continues to focus on high-quality,
non-cyclical corporate debt in the face of global market turmoil.
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.
ANDREW DUDLEY ON THE FUND'S
BENCHMARK INDEX - THE
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX - AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"THE LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX PLAYS AN IMPORTANT ROLE IN
THE MANAGEMENT OF THE FUND. IT'S
THE FUND'S BENCHMARK INDEX AND
INCLUDES MOST OF THE UNIVERSE OF
INVESTMENT-GRADE BONDS WITH
MATURITIES BETWEEN ONE AND THREE
YEARS. I USE THE INDEX AS A
GUIDELINE FOR THE STRUCTURE OF THE
OVERALL BOND MARKET, AND MANAGE
THE FUND TO BE GENERALLY AS
SENSITIVE TO CHANGES IN INTEREST
RATES AS THE INDEX. IN ADDITION, I
REFER TO THE INDEX WHEN DECIDING
HOW TO ALLOCATE ASSETS AMONG
DIFFERENT MATURITIES AND MARKET
SECTORS - SUCH AS CORPORATE OR
GOVERNMENT SECURITIES - BASED
ON MY VIEW OF THE RELATIVE VALUE OF
EACH MATURITY OR SECTOR."
FUND FACTS
GOAL: HIGH 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 OCTOBER 31, 1998,
MORE THAN $357 MILLION
MANAGER: ANDREW DUDLEY, SINCE
1997; JOINED FIDELITY IN 1996
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
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QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA 40.8 37.2
AA 8.3 9.8
A 13.2 14.1
BAA 29.8 30.0
BA AND BELOW 1.6 5.0
NOT RATED 1.0 1.4
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS BA OR BELOW
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING
AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF
ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.4 2.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 1.8 1.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 * AS OF APRIL 30, 1998 **
CORPORATE BONDS 57.1%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 16.2%
MORTGAGE
SECURITIES 18.0%
FOREIGN GOVERNMENT
OBLIGATIONS 0.7%
OTHER 2.7%
SHORT-TERM
INVESTMENTS 5.3%
* FOREIGN
INVESTMENTS 6.9%
CORPORATE BONDS 67.4%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 13.6%
MORTGAGE
SECURITIES 12.3%
FOREIGN GOVERNMENT
OBLIGATIONS 1.0%
OTHER 3.2%
SHORT-TERM
INVESTMENTS 2.5%
** FOREIGN
INVESTMENTS 6.7%
ROW: 1, COL: 1, VALUE: 5.3
ROW: 1, COL: 2, VALUE: 2.7
ROW: 1, COL: 3, VALUE: 1.2
ROW: 1, COL: 4, VALUE: 18.0
ROW: 1, COL: 5, VALUE: 16.2
ROW: 1, COL: 6, VALUE: 56.6
ROW: 1, COL: 1, VALUE: 2.5
ROW: 1, COL: 2, VALUE: 3.2
ROW: 1, COL: 3, VALUE: 1.4
ROW: 1, COL: 4, VALUE: 12.3
ROW: 1, COL: 5, VALUE: 13.6
ROW: 1, COL: 6, VALUE: 67.0
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 39.9%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 1.5%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8.875% 11/15/01 A2 $ 3,760,000 $ 3,877,650
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. 7.15% 5/15/05 Ba1 1,430,000 1,422,615
TOTAL BASIC INDUSTRIES 5,300,265
CONSTRUCTION & REAL ESTATE - 1.7%
REAL ESTATE INVESTMENT TRUSTS - 1.7%
Camden Property Trust 6.625% 2/15/01 Baa2 2,700,000 2,667,762
CenterPoint Properties Trust 6.75% 4/1/05 Baa2 470,000 449,720
EOP Operating LP:
6.375% 2/15/03 Baa1 1,200,000 1,178,964
6.376% 2/15/02 Baa1 900,000 888,939
Weeks Realty LP 6.875% 3/15/05 Baa2 1,200,000 1,118,400
6,303,785
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp. 6.09% 11/29/99 Baa3 700,000 707,728
Oryx Energy Co.:
8.125% 10/15/05 Ba1 140,000 150,206
8.375% 7/15/04 Ba1 350,000 372,372
1,230,306
FINANCE - 15.4%
BANKS - 7.4%
Banc One Corp. 6.7% 3/24/00 Aa3 1,600,000 1,627,840
Banco Latinoamericano Exportaciones SA euro:
6.45% 9/13/99 (b) Baa2 1,190,000 1,213,800
6.9% 12/4/99 (b) Baa2 700,000 704,813
BanPonce Corp. 6.488% 3/3/00 A3 1,480,000 1,505,116
BanPonce Financial Corp.:
6.88% 6/16/00 A3 650,000 666,283
7.65% 5/3/00 A3 1,660,000 1,721,320
Barclays Bank PLC yankee 5.875% 7/15/00 A1 2,500,000 2,526,050
Capital One Bank:
7.35% 6/20/00 Baa3 2,475,000 2,513,437
8.125% 3/1/00 Baa3 2,589,000 2,645,026
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
First USA Bank 6.5% 12/23/99 Aa2 $ 2,200,000 $ 2,227,654
KeyCorp. 7.45% 4/5/00 A1 1,500,000 1,550,850
NationsBank Corp. 5.75% 3/15/01 Aa2 3,000,000 3,045,938
Popular, Inc. 6.4% 8/25/00 A3 1,730,000 1,734,636
Providian National Bank:
6.25% 5/7/01 Baa3 1,400,000 1,413,622
6.7% 3/15/03 Baa3 2,200,000 2,205,742
27,302,127
CREDIT & OTHER FINANCE - 7.0%
Abbey National PLC 6.69% 10/17/05 Aa3 2,200,000 2,266,374
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 2,370,000 2,402,848
6.25% 5/15/01 Baa3 3,050,000 3,026,393
Chrysler Financial Corp. 5.25% 5/4/01 A2 2,600,000 2,597,452
Chrysler Financial LLC 6.375% 1/28/00 A2 2,300,000 2,328,060
Edison Mission Energy Funding Corp. 6.77% Baa1 2,151,089 2,228,206
9/15/03 (b)
ERP Operating LP 6.55% 11/15/01 A3 300,000 300,051
Ford Motor Credit Co. 5.125% 10/15/01 A1 1,300,000 1,291,680
General Motors Acceptance Corp. 5.85% A2 800,000 807,872
4/20/00
GS Escrow Corp. 6.75% 8/1/01 (b) Ba1 2,200,000 2,153,690
Heller Financial, Inc. 6.25% 3/1/01 A3 1,800,000 1,810,890
MCN Investment Corp. 5.84% 2/1/99 Baa3 1,640,000 1,640,804
Money Store, Inc. 7.3% 12/1/02 A2 800,000 848,500
North American Mortgage Co. 5.8% 11/2/98 Baa2 1,000,000 998,800
Salton Sea Funding Corp. 7.02% 5/30/00 Baa2 858,187 866,382
25,568,002
SAVINGS & LOANS - 0.7%
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 1,350,000 1,348,529
7% 6/13/02 Baa3 1,250,000 1,280,563
2,629,092
SECURITIES INDUSTRY - 0.3%
Amvescap PLC yankee 6.375% 5/15/03 A3 1,150,000 1,177,899
TOTAL FINANCE 56,677,120
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Tyco International Group SA yankee 6.125% Baa1 $ 2,250,000 $ 2,295,495
6/15/01
MEDIA & LEISURE - 6.2%
BROADCASTING - 3.6%
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 360,000 394,790
8.5% 9/15/01 Baa3 2,320,000 2,462,889
TCI Communications, Inc.:
6.375% 9/15/99 Baa3 4,250,000 4,287,570
8.25% 1/15/03 Baa3 300,000 331,263
9% 1/2/02 Ba1 970,000 1,073,072
Time Warner, Inc.:
7.95% 2/1/00 Baa3 3,690,000 3,792,287
7.975% 8/15/04 Baa3 675,000 746,618
13,088,489
ENTERTAINMENT - 1.9%
Paramount Communications, Inc. 7.5% Baa3 1,125,000 1,176,986
1/15/02
Viacom, Inc.:
6.75% 1/15/03 Baa3 3,785,000 3,902,297
7.75% 6/1/05 Baa3 1,750,000 1,886,203
6,965,486
PUBLISHING - 0.7%
News America Holdings, Inc. 8.5% 2/15/05 Baa3 1,600,000 1,757,344
Time Warner Entertainment Co. LP 9.625% Baa2 775,000 868,674
5/1/02
2,626,018
TOTAL MEDIA & LEISURE 22,679,993
NONDURABLES - 1.8%
FOODS - 0.7%
Dole Food, Inc. 6.75% 7/15/00 Baa2 2,590,000 2,607,483
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
NONDURABLES - CONTINUED
TOBACCO - 1.1%
Philip Morris Companies, Inc.:
7.125% 12/1/99 A2 $ 2,850,000 $ 2,902,982
7.25% 9/15/01 A2 1,125,000 1,173,341
4,076,323
TOTAL NONDURABLES 6,683,806
RETAIL & WHOLESALE - 1.8%
GENERAL MERCHANDISE STORES - 1.8%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 1,950,000 2,019,420
9.75% 7/1/02 A3 1,240,000 1,409,979
10% 12/1/00 A3 1,070,000 1,166,354
Federated Department Stores, Inc. 8.125% Baa2 1,860,000 1,987,112
10/15/02
6,582,865
TECHNOLOGY - 3.2%
COMPUTER SERVICES & SOFTWARE - 0.2%
Computer Associates International, Inc. 6.25% Baa1 760,000 758,153
4/15/03
COMPUTERS & OFFICE EQUIPMENT - 3.0%
Comdisco, Inc.:
5.86% 4/7/00 Baa1 2,010,000 2,028,844
6.1% 6/5/01 Baa1 7,210,000 7,373,379
6.55% 2/4/00 Baa1 1,500,000 1,529,640
10,931,863
TOTAL TECHNOLOGY 11,690,016
TRANSPORTATION - 1.7%
AIR TRANSPORTATION - 0.5%
Continental Airlines, Inc. Pass Through Trust Baa1 1,250,000 1,252,939
Certificates 7.08% 11/1/04
Delta Air Lines, Inc. 9.875% 5/15/00 Baa3 475,000 503,158
1,756,097
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
TRANSPORTATION - CONTINUED
RAILROADS - 1.2%
CSX Corp.:
7.05% 5/1/02 Baa2 $ 1,600,000 $ 1,665,184
9.5% 8/1/00 Baa2 1,800,000 1,916,550
Norfolk Southern Corp. 6.95% 5/1/02 Baa1 900,000 939,753
4,521,487
TOTAL TRANSPORTATION 6,277,584
UTILITIES - 5.7%
ELECTRIC UTILITY - 2.3%
Avon Energy Partners Holdings yankee 6.73% Baa2 1,200,000 1,243,476
12/11/02 (b)
Indiana Michigan Power Co. 6.4% 3/1/00 Baa1 2,500,000 2,547,400
Niagara Mohawk Power Corp. 6.875% Ba1 800,000 822,240
3/1/01
Ohio Edison Co. 7.375% 9/15/02 Baa2 1,200,000 1,262,388
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 960,000 964,877
6.5% 5/1/03 Baa1 600,000 624,642
Texas Utilities Electric Co. 7.375% 11/1/99 Baa1 1,100,000 1,123,177
8,588,200
GAS - 2.0%
Arkla, Inc. 8.875% 7/15/99 Baa1 7,000,000 7,200,550
TELEPHONE SERVICES - 1.4%
MCI WorldCom, Inc.:
6.125% 8/15/01 Baa2 2,700,000 2,760,804
8.875% 1/15/06 Baa2 811,000 888,759
9.375% 1/15/04 Baa2 1,606,000 1,670,931
5,320,494
TOTAL UTILITIES 21,109,244
TOTAL NONCONVERTIBLE BONDS 146,830,479
(Cost $146,244,243)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 16.2%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.2%
Government Trust Certificates (assets of Trust Aaa $ 399,271 $ 422,987
guaranteed by U.S. Government through
Defense Security Assistance Agency) Class T-3,
9.625% 5/15/02
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 134,728 135,705
Series 1995-A, 6.28% 6/15/04 Aaa 2,117,647 2,189,795
Israel Export Trust Certificates (assets of Trust Aaa 635,294 661,278
guaranteed by U.S. Government through
Export-Import Bank) Series 1994-1, 6.88%
1/26/03
Private Export Funding Corp. secured 6.86% Aaa 1,049,400 1,102,888
4/30/04
4,512,653
U.S. TREASURY OBLIGATIONS - 15.0%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 16,750,000 17,126,875
5.5% 3/31/00 Aaa 19,800,000 20,093,824
5.625% 11/30/99 Aaa 2,310,000 2,339,245
5.75% 10/31/00 Aaa 1,300,000 1,335,139
5.875% 2/15/00 Aaa 1,305,000 1,328,647
5.875% 7/31/99 Aaa 1,540,000 1,555,656
6.25% 2/28/02 Aaa 2,625,000 2,773,470
6.875% 3/31/00 Aaa 8,252,000 8,529,185
55,082,041
TOTAL U.S. GOVERNMENT AND 59,594,694
GOVERNMENT AGENCY OBLIGATIONS
(Cost $59,441,737)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 9.0%
FANNIE MAE - 5.0%
6.5% 10/1/11 to 3/1/13 Aaa 7,006,368 7,109,222
6.5% 11/1/28 (c) Aaa 5,600,000 5,643,750
7% 11/1/28 (c) Aaa 5,000,000 5,109,375
11.5% 11/1/15 Aaa 492,347 547,973
18,410,320
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
FREDDIE MAC - 0.8%
7% 9/1/99 to 8/1/01 Aaa $ 1,102,691 $ 1,113,024
8.5% 7/1/26 to 6/1/27 Aaa 1,819,998 1,894,071
12% 11/1/19 Aaa 122,985 140,659
3,147,754
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.2%
7.5% 11/15/22 to 8/15/28 (d) Aaa 5,658,921 5,827,388
9.5% 9/15/16 to 10/15/20 Aaa 1,849,587 1,995,868
11% 12/15/09 to 1/15/16 Aaa 2,176,994 2,389,509
11.5% 8/15/13 to 11/15/15 Aaa 685,760 764,917
12% 2/15/16 Aaa 733,196 824,406
11,802,088
TOTAL U.S. GOVERNMENT AGENCY - 33,360,162
MORTGAGE SECURITIES
(Cost $33,398,658)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 17.2%
Arcadia Automobile Receivables Trust 5.67% Aaa 1,300,000 1,305,230
1/15/04
Boatmens Auto Trust 6.35% 10/15/01 A2 640,000 641,000
Capital Equipment Receivables Trust:
6.45% 8/15/02 Aa3 2,200,000 2,268,728
6.57% 3/15/01 Aa3 1,020,000 1,039,043
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 800,000 797,781
6.15% 9/15/02 Aaa 1,770,982 1,782,051
6.45% 9/15/02 Aaa 1,400,000 1,437,618
Caterpillar Financial Asset Trust 6.55% 5/25/02 A3 404,941 406,713
Chase Manhattan Marine Owner Trust 6.25% Aaa 2,020,000 2,061,067
4/16/07
Chevy Chase Auto Receivables Trust:
5.97% 10/20/04 Aaa 1,963,657 1,978,078
6.2% 3/20/04 Aaa 835,996 843,441
Citibank Credit Card Master Trust I 5.75% Aaa 1,800,000 1,825,313
1/15/03
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Contimortgage Home Equity Loan Trust:
6.26% 7/15/12 Aaa $ 3,750,000 $ 3,750,000
6.3% 7/15/12 Aaa 1,600,000 1,610,000
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 1,024,492 1,026,413
6.7% 2/15/02 Aaa 365,910 368,082
CS First Boston Mortgage Securities Corp. 7% Aaa 1,000,000 1,015,313
3/15/27
Discover Card Master Trust I 6.0006% A2 5,250,000 5,208,984
7/18/05 (e)
Fidelity Funding Auto Trust 6.99% 11/15/02 (b) Aaa 449,155 457,647
Ford Credit Auto Owner Trust 6.15% 9/15/02 A2 1,800,000 1,804,500
Ford Credit Grantor Trust 5.9% 10/15/00 Aaa 995,681 998,326
General Motors Acceptance Corp. Grantor Trust Aaa 450,391 450,670
7.15% 3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 Aaa 49,616 49,601
6.1% 4/15/27 Aaa 880,640 881,186
6.45% 5/15/27 Aaa 621,980 622,951
6.5% 6/15/27 Aaa 413,028 413,284
Key Auto Finance Trust 6.65% 10/15/03 Baa3 346,259 351,507
KeyCorp Auto Grantor Trust 5.8% 7/15/00 A3 41,561 41,556
Newcourt Equipment Trust Securities sequential Aaa 2,050,000 2,047,438
pay Series 1998-1 Class A3, 5.24%
12/20/02
Norwest Automobile Trust 6.3% 5/15/03 A2 1,424,000 1,437,128
Olympic Automobile Receivables Trust:
6.125% 11/15/04 Aaa 678,458 692,452
6.4% 9/15/01 Aaa 1,710,000 1,737,253
Onyx Acceptance Grantor Trust:
5.95% 7/15/04 Aaa 2,317,482 2,336,300
6.2% 6/15/03 Aaa 1,242,352 1,252,439
Petroleum Enhanced Trust Receivables Offering Baa2 2,105,286 2,102,655
Petroleum Trust 6.125% 2/5/03 (b)(e)
Premier Auto Trust:
5.7% 10/6/02 Aaa 4,000,000 4,042,480
6% 5/6/00 Aaa 440,747 441,157
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Premier Auto Trust: - continued
6.35% 7/6/00 A3 $ 1,980,000 $ 1,985,564
Reliance Auto Receivables Corp., Inc. 6.1% Aaa 488,612 488,917
7/15/02 (b)
SCFC Recreational Vehicle Loan Trust 7.25% Aaa 12,827 12,738
9/15/06
Sears Credit Account Master Trust II 6.2% Aaa 1,600,000 1,629,488
2/16/06
TMS Auto Grantor Trust 5.9% 9/15/02 Aaa 216,413 217,427
Tranex Auto Receivables Owner Trust 6.334% Aaa 1,130,581 1,146,833
8/15/03 (b)
UFSB Grantor Trust 8.2% 1/10/01 Baa2 101,184 101,247
Union Acceptance Corp. 7.075% 7/10/02 Baa2 164,743 165,257
Western Financial Grantor Trust 5.875% Aaa 871,086 884,424
3/1/02
WFS Financial Owner Trust:
6.9% 12/20/03 Aaa 1,990,000 2,072,088
7.05% 11/20/03 Aaa 3,160,000 3,290,350
TOTAL ASSET-BACKED SECURITIES 63,519,718
(Cost $62,889,392)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.7%
PRIVATE SPONSOR - 1.0%
GE Capital Mortgage Services, Inc. planned Aaa 863,854 866,958
amortization class Series 1994-2 Class A-4,
6% 1/25/09
Residential Funding Mortgage Securities I, Inc. Aa1 2,842,387 2,870,811
planned amortization class Series 1994-S12
Class A-2, 6.5% 4/25/09
3,737,769
U.S. GOVERNMENT AGENCY - 0.7%
Fannie Mae ACES sequential pay Series 1995 - Aaa 2,464,146 2,514,969
M1 Class A, 6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 6,252,738
(Cost $6,188,380)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 7.3%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Allied Capital Commercial Mortgage Trust Aaa $ 1,709,020 $ 1,706,082
sequential pay Series 1998-1 Class A, 6.31%
9/25/03 (b)
Bankers Trust Remic Trust 1988-1 floater Series Baa2 2,780,000 2,714,844
1998-S1A Class D, 6.5023% 11/28/02 (b)(e)
BKB Commercial Mortgage Trust Series 1997 AA 665,126 663,255
C1, Class B, 7.218% 2/25/43 (b)(e)
CBM Funding Corp. sequential pay Series
1996-1:
Class A 1, 7.55% 7/1/99 AA 65,061 65,417
Class A-2, 6.88% 7/1/02 AA 980,000 1,005,878
CS First Boston Mortgage Securities Corp.:
sequential pay Series 1997-SPICE Class A, - 2,827,352 2,830,887
6.653% 8/20/36 (b)
Series 1998 FLI Class E, 6.1938% Baa2 2,700,000 2,624,906
1/10/13 (b)(e)
DLJ Commercial Mortgage Corp. floater Series A2 1,170,000 1,164,150
1998-STFA Class A-3, 6.0075% 1/8/11 (b)(e)
Equitable Life Assurance Society of the United
States (The):
floater Series 174 Class D-2, 6.7063% Baa2 1,200,000 1,178,250
5/15/03 (b)(e)
sequential pay Series 174 Class A1, 7.24% Aaa 1,000,000 1,069,380
5/15/06 (b)
Federal Deposit Insurance Corp. Remic Trust:
sequential pay Series 1994-C1 Class II-A2, Aaa 473,845 474,289
7.85% 9/25/25
sequential pay Series 1996-C1 Class 1A, Aaa 1,822,435 1,827,561
6.75% 7/25/26
FMAC Loan Receivables Trust 1998-C sequential Aaa 515,281 520,756
pay Series 1998-C Class A1 Notes, 5.99%
9/15/20 (b)
Franchise Loan Trust 1998-1 sequential pay Aaa 1,466,321 1,482,359
Series 1998-I Class A1 Notes, 6.24%
7/15/20 (b)
Kidder Peabody Acceptance Corp. I sequential Aa2 394,149 393,287
pay Series 1993-M1 Class A-2, 7.15%
4/25/25
Nomura Asset Securities Corp. floater Series - 881,017 881,292
1994-MD-II Class A-6, 6.9095% 7/7/03 (e)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Nomura Depositor Trust floater Series Baa2 $ 2,290,000 $ 2,152,600
1998-ST1A Class A-4, 6.4898%
2/15/34 (b)(e)
Resolution Trust Corp.:
floater Series 1994-C1 Class A-3, 5.8625% AAA 198,465 198,465
6/25/26 (e)
sequential pay Series 1995 C-1 Class A2C, Aaa 1,253,430 1,251,863
6.9% 2/25/27
Structured Asset Securities Corp.:
floater Series 1998-C2A Class C, 5.6494% A3 2,222,430 2,216,874
1/25/13 (b)(e)
Series 1996-C3 Class A, 6.75% AAA 449,187 446,941
6/25/30 (b)(e)
TOTAL COMMERCIAL MORTGAGE SECURITIES 26,869,336
(Cost $27,149,023)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 0.7%
Ontario Province:
euro global 6.125% 6/28/00 (f) Aa3 1,200,000 1,226,628
5.75% 11/7/00 (f) Aa3 1,180,000 1,193,110
TOTAL FOREIGN GOVERNMENT AND 2,419,738
GOVERNMENT AGENCY OBLIGATIONS
(Cost $2,379,437)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUPRANATIONAL OBLIGATIONS - 1.9%
African Development Bank:
7.75% 12/15/01 Aa1 2,240,000 2,392,544
9.3% 7/1/00 Aa1 4,320,000 4,583,477
TOTAL SUPRANATIONAL OBLIGATIONS 6,976,021
(Cost $7,001,936)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CERTIFICATES OF DEPOSIT - 0.8%
Canadian Imperial Bank of Commerce, New Aa3 2,950,000 2,998,085
York yankee 6.2% 8/1/00
(Cost $2,956,343)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 5.3%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements $ 19,559,191 $ 19,550,000
(U.S. Government obligations), in a joint
trading account at 5.64%, dated
10/30/98 due 11/2/98
TOTAL INVESTMENT IN SECURITIES - 100% $ 368,370,971
(Cost $367,199,149)
</TABLE>
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) 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 $32,511,321 or 9.1% of net assets.
(c) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(d) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) 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 investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 61.6% AAA, AA, A 57.1%
Baa 29.8% BBB 30.7%
Ba 1.6% BB 1.1%
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
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 1.0%. FMR has determined that
unrated debt securities that are lower quality account for 0.0% of the
total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $367,211,970. Net unrealized appreciation
aggregated $1,159,001, of which $2,764,162 related to appreciated
investment securities and $1,605,161 related to depreciated investment
securities.
At October 31, 1998, the fund had a capital loss carryforward of
approximately $43,066,000 of which $130,000, $38,000, $336,000,
$17,691,000, $19,457,000, $2,265,000 and $3,149,000 will expire on
October 31, 1999, 2000, 2001, 2002, 2003, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 368,370,971
AGREEMENTS OF $19,550,000) (COST $367,199,149) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (5,766,250)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 5,776,750 10,500
RECEIVABLE FOR INVESTMENTS SOLD ON A REGULAR DELIVERY BASIS 3,664,248
CASH 140
RECEIVABLE FOR FUND SHARES SOLD 846,574
INTEREST RECEIVABLE 3,962,865
TOTAL ASSETS 376,855,298
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 7,352,438
REGULAR DELIVERY
DELAYED DELIVERY 10,706,629
PAYABLE FOR FUND SHARES REDEEMED 847,739
DISTRIBUTIONS PAYABLE 259,174
ACCRUED MANAGEMENT FEE 126,132
DISTRIBUTION FEES PAYABLE 49,527
OTHER PAYABLES AND ACCRUED EXPENSES 117,696
TOTAL LIABILITIES 19,459,335
NET ASSETS $ 357,395,963
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 399,358,866
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (56,261)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (43,088,964)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 1,182,322
NET ASSETS $ 357,395,963
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $9.38
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($5,523,807 (DIVIDED BY) 589,024 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.38) $9.52
CLASS T: $9.38
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($333,050,001 (DIVIDED BY) 35,509,700 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/98.50 OF $9.38) $9.52
CLASS C: $9.38
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($11,795,250 (DIVIDED BY) 1,256,955 SHARES) A
INSTITUTIONAL CLASS: $9.38
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE ($7,026,905 (DIVIDED BY) 749,258 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 23,993,758
INTEREST
EXPENSES
MANAGEMENT FEE $ 1,531,459
TRANSFER AGENT FEES 766,487
DISTRIBUTION FEES 534,811
ACCOUNTING FEES AND EXPENSES 142,365
NON-INTERESTED TRUSTEES' COMPENSATION 735
CUSTODIAN FEES AND EXPENSES 23,691
REGISTRATION FEES 70,446
AUDIT 51,786
LEGAL 2,124
REPORTS TO SHAREHOLDERS 41,310
MISCELLANEOUS 1,422
TOTAL EXPENSES BEFORE REDUCTIONS 3,166,636
EXPENSE REDUCTIONS (35,127) 3,131,509
NET INVESTMENT INCOME 20,862,249
REALIZED AND UNREALIZED GAIN (LOSS) 173,470
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 411,056
DELAYED DELIVERY COMMITMENTS 10,500 421,556
NET GAIN (LOSS) 595,026
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 21,457,275
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 20,862,249 $ 24,105,096
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 173,470 (3,013,450)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 421,556 1,422,158
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 21,457,275 22,513,804
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (20,556,957) (23,879,338)
SHARE TRANSACTIONS - NET INCREASE (DECREASE) (21,594,124) (46,649,317)
TOTAL INCREASE (DECREASE) IN NET ASSETS (20,693,806) (48,014,851)
NET ASSETS
BEGINNING OF PERIOD 378,089,769 426,104,620
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 357,395,963 $ 378,089,769
OF NET INVESTMENT INCOME OF $56,261 AND
$289,348, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED OCTOBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.310 $ 9.370 $ 9.290
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .572 .532 .090
NET REALIZED AND UNREALIZED GAIN (LOSS) .024 (.021) .081
TOTAL FROM INVESTMENT OPERATIONS .596 .511 .171
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.526) (.571) (.091)
NET ASSET VALUE, END OF PERIOD $ 9.380 $ 9.310 $ 9.370
TOTAL RETURN B, C 6.58% 5.64% 1.85%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 5,524 $ 19,726 $ 204
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.03% 6.00% 6.27% A
PORTFOLIO TURNOVER RATE 124% 105% 124%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD SEPTEMBER 3, 1996 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO OCTOBER 31, 1996.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.350 $ 9.380 $ 9.470 $ 9.480 $ 10.090
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .555 B .578 B .594 B .403 .479
NET REALIZED AND UNREALIZED .019 (.036) (.094) .148 (.501)
GAIN (LOSS)
TOTAL FROM INVESTMENT .574 .542 .500 .551 (.022)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.544) (.572) (.590) (.407) (.464)
IN EXCESS OF NET INVESTMENT - - - - (.044)
INCOME
RETURN OF CAPITAL - - - (.154) (.080)
TOTAL DISTRIBUTIONS (.544) (.572) (.590) (.561) (.588)
NET ASSET VALUE, END OF PERIOD $ 9.380 $ 9.350 $ 9.380 $ 9.470 $ 9.480
TOTAL RETURN A 6.32% 5.97% 5.45% 6.05% (.22)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 333,050 $ 351,614 $ 416,700 $ 546,546 $ 787,926
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE .89% .89% .88% .89% .97%
NET ASSETS
RATIO OF NET INVESTMENT INCOME 5.93% 6.19% 6.29% 6.05% 5.91%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 124% 105% 124% 179% 108%
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS - CLASS C
YEAR ENDED
OCTOBER 31,
1998 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.340
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .437
NET REALIZED AND UNREALIZED GAIN (LOSS) .064
TOTAL FROM INVESTMENT OPERATIONS .501
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.461)
NET ASSET VALUE, END OF PERIOD $ 9.380
TOTAL RETURN B, C 5.49%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 11,795
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.75% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.92% A
PORTFOLIO TURNOVER RATE 124%
</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 NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO OCTOBER 31, 1998.
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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED OCTOBER 31,
1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.350 $ 9.370 $ 9.470 $ 9.450
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME .566 D .589 D .598 D .137
NET REALIZED AND UNREALIZED GAIN (LOSS) .021 (.023) (.098) .067
TOTAL FROM INVESTMENT OPERATIONS .587 .566 .500 .204
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.557) (.586) (.600) (.136)
RETURN OF CAPITAL - - - (.048)
TOTAL DISTRIBUTIONS (.557) (.586) (.600) (.184)
NET ASSET VALUE, END OF PERIOD $ 9.380 $ 9.350 $ 9.370 $ 9.470
TOTAL RETURN B, C 6.47% 6.24% 5.45% 2.18%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,027 $ 6,750 $ 9,200 $ 9,827
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% F .80% F .85% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE 6.06% 6.30% 6.37% 6.10% A
NET ASSETS
PORTFOLIO TURNOVER RATE 124% 105% 124% 179%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO OCTOBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
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, Class C, 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
matters that affect that class. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution, transfer agent, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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
among the funds in the trust.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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.
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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
forgone in the purchase of a delayed delivery security. 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. Losses may arise due to changes in the market value of
the underlying securities or if the counterparty does not perform
under the contract.
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 $426,963,043 and $450,154,941, respectively, of which U.S.
government and government agency obligations aggregated $245,058,487
and $226,240,284, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets .
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .15%
CLASS C 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 retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 9,763 $ 239
CLASS T 505,426 4,489
CLASS C 19,622 19,478
$ 534,811 $ 24,206
Under the Plans, FMR 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. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 1,475
CLASS T 103,634
CLASS C 2,229
INSTITUTIONAL CLASS 1,707
$ 109,045
SALES LOAD. FDC receives a front-end sales charge of up to 1.50% for
selling Class A and Class T shares of the fund and the proceeds of a
contingent deferred sales charge levied on Class C share redemptions
occurring within one year of purchase. The Class C charge is 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. A portion of the sales charges paid to
FDC are paid to securities dealers, banks and other financial
institutions.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 30,218 $ 7,274
CLASS T 221,684 43,309
CLASS C 6,373 6,373*
$ 258,275 $ 56,956
* WHEN CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund
(collectively referred to as the transfer agent). FIIOC receives
account fees and asset-based fees that vary according to the account
size and type of account of the shareholders of the respective classes
of the fund. FIIOC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements. For the period, the
following amounts were paid to FIIOC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 13,797 .21
CLASS T 732,701 .22
CLASS C 5,648 .29 *
INSTITUTIONAL CLASS 14,341 .22
$ 766,487
* ANNUALIZED
ACCOUNTING FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, maintains the fund's accounting records. The fee is based on the
level of average net assets for the month plus out-of-pocket expenses.
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 of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 2,604
CLASS C 1.75% 14,981
INSTITUTIONAL CLASS .75% 11,363
$ 28,948
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 $6,179 under the custodian
arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED OCTOBER 31,
1998 A 1997
FROM NET INVESTMENT INCOME
CLASS A $ 388,579 $ 185,833
CLASS T 19,688,772 23,319,675
CLASS C 94,836 -
INSTITUTIONAL CLASS 384,770 373,830
TOTAL $ 20,556,957 $ 23,879,338
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 A 1997 1998 A 1997
CLASS A 592,781 2,306,357 $ 5,547,089 $ 21,425,255
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 15,963 4,547 149,204 42,258
SHARES REDEEMED (2,137,845) (214,574) (20,007,107) (2,004,901)
NET INCREASE (DECREASE) (1,529,101) 2,096,330 $ (14,310,814) $ 19,462,612
CLASS T 18,467,587 18,782,631 $ 172,851,708 $ 175,250,208
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 1,675,946 1,976,051 15,669,989 18,435,965
SHARES REDEEMED (22,231,985) (27,605,815) (207,892,792) (257,378,530)
NET INCREASE (DECREASE) (2,088,452) (6,847,133) $ (19,371,095) $ (63,692,357)
CLASS C 1,458,611 - $ 13,712,358 $ -
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 6,695 - 62,751 -
SHARES REDEEMED (208,351) - (1,947,580) -
NET INCREASE (DECREASE) 1,256,955 - $ 11,827,529 $ -
INSTITUTIONAL CLASS 733,154 500,009 $ 6,860,400 $ 4,670,792
SHARES SOLD
REINVESTMENT OF DISTRIBUTIONS 33,202 33,143 310,406 309,411
SHARES REDEEMED (738,984) (792,628) (6,910,550) (7,399,775)
NET INCREASE (DECREASE) 27,372 (259,476) $ 260,256 $ (2,419,572)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO OCTOBER 31, 1998.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 5,065
CLASS T 38,773
CLASS C 14,062
INSTITUTIONAL CLASS 12,546
$ 70,446
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Short Fixed-Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Short Fixed-Income Fund (a fund of Fidelity Advisor
Series II) at October 31, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Advisor Short Fixed-Income Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included
confirmation of securities at October 31, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
A total of 13.01% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O.McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap 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
SFII-ANN-1298 66839
1.538432.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
