FIDELITY ADVISOR SERIES II, N-30D, 1998-02-25

FIDELITY ADVISOR SERIES II
N-30D, 1998-02-25

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(2_FIDELITY_LOGOS)FIDELITY ADVISOR

(REGISTERED TRADEMARK)
STRATEGIC INCOME
FUND - CLASS A, CLASS T, CLASS B
AND CLASS C
ANNUAL REPORT
DECEMBER 31, 1997
CONTENTS

PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.

PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.

FUND TALK 19 THE MANAGERS' REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.

INVESTMENT CHANGES 23 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.

INVESTMENTS 24 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:
Although financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets throughout the fourth
quarter, the Standard & Poor's 500 Index rose more than 33% in 1997,
about three times its historical annual average. Meanwhile, bond
markets - primarily influenced by a relatively steady flow of positive
news on the inflation front - continued to post solid returns as the
year drew to a close.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
ADVISOR STRATEGIC INCOME FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE(dagger)

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 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 that is reflected in
returns after September 3, 1996. Returns prior to that date are those
of Class T, and reflect Class T shares' 0.25% 12b-1 fee. Effective
August 1, 1997, the maximum 4.25% sales charge on Class A shares was
increased to 4.75%. If Fidelity had not reimbursed certain class
expenses, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL A 9.24% 50.64%

FIDELITY ADV STRATEGIC INCOME - CL A 4.05% 43.48%
(INCL. MAX. 4.75% SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 50.64%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 45.40%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 31, 1994. 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. You can
also compare Class A's returns to those of the Fidelity Strategic
Income Composite Benchmark - a broad measure of the world fixed income
markets. To measure how Class A's performance stacked up against its
peers, you can compare it to the multi-sector income 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 81 mutual funds. These benchmarks reflect
reinvestment of dividends and capital gains, if any, and exclude the
effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL A 9.24% 13.81%

FIDELITY ADV STRATEGIC INCOME - CL A 4.05% 12.08%
(INCL. MAX. 4.75% SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 13.81%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 12.55%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

AVERAGE ANNUAL TOTAL RETURNS take Class A's cumulative return and show
you what would have happened if Class A had performed at a constant
rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19971231 19980202 152924 S00000000000001
FA Strategic Inc -CL A ML High Yield Master
FID Strategic Inc. Blend
00260 ML002
F0097
1994/10/31 9525.00 10000.00
10000.00
1994/11/30 9572.77 9914.94
9928.76
1994/12/31 9541.61 10025.22
9895.33
1995/01/31 9648.07 10166.88
9967.29
1995/02/28 9875.95 10484.10
10128.76
1995/03/31 10019.24 10630.00
10308.98
1995/04/30 10395.11 10878.89
10644.58
1995/05/31 10786.33 11218.77
11080.01
1995/06/30 10841.49 11304.46
11184.50
1995/07/31 10928.59 11433.70
11225.57
1995/08/31 10945.88 11503.09
11242.05
1995/09/30 11140.78 11634.70
11441.55
1995/10/31 11270.10 11717.17
11512.96
1995/11/30 11395.97 11831.55
11676.89
1995/12/31 11643.10 12021.46
11941.20
1996/01/31 11903.52 12211.32
12135.01
1996/02/29 11807.14 12229.71
11972.88
1996/03/31 11769.08 12196.49
11975.48
1996/04/30 11882.44 12202.02
12048.95
1996/05/31 11965.00 12290.02
12109.72
1996/06/30 12066.53 12363.84
12259.81
1996/07/31 12139.29 12447.78
12391.49
1996/08/31 12280.23 12576.33
12515.18
1996/09/30 12655.98 12846.16
12802.46
1996/10/31 12820.34 12986.95
12990.70
1996/11/30 13070.06 13249.51
13283.23
1996/12/31 13134.12 13351.46
13293.20
1997/01/31 13219.11 13454.07
13312.76
1997/02/28 13332.25 13642.80
13404.64
1997/03/31 13039.49 13491.28
13216.99
1997/04/30 13185.41 13644.83
13352.89
1997/05/31 13527.89 13916.32
13646.39
1997/06/30 13723.41 14131.74
13847.63
1997/07/31 13993.25 14470.87
14130.54
1997/08/31 13982.77 14438.31
14079.74
1997/09/30 14323.34 14684.83
14352.31
1997/10/31 14077.79 14782.28
14265.13
1997/11/30 14198.55 14914.67
14387.85
1997/12/31 14348.18 15063.79
14540.45
IMATRL PRASUN SHR__CHT 19971231 19980202 152926 R00000000000041
$10,000 OVER LIFE OF FUND(dagger): Let's say hypothetically that
$10,000 was invested in Fidelity Advisor Strategic Income Fund - Class
A on October 31, 1994, when the fund started, and the current 4.75%
sales charge was paid. As the chart shows, by December 31, 1997, the
value of the investment would have grown to $14,348 - a 43.48%
increase on the initial investment. For comparison, look at how the
Merrill Lynch High Yield Master Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $15,064 - a 50.64% increase. You also
can look at how the Fidelity Strategic Income Composite Benchmark - a
hypothetical combination of unmanaged indices that is more
representative of the fund's investable universe - did over the same
period. This index combines returns from the J.P. Morgan Emerging
Markets Bond Index Plus (15%), Merrill Lynch High Yield Master Index
(40%), Lehman Brothers Government Bond Index (30%), and Salomon
Brothers Non-U.S. Dollar World Government Bond Index (15%). With
distributions, if any, reinvested, a $10,000 investment in the index
would have grown to $14,540 - a 45.40% 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.
INVESTING IN FOREIGN MARKETS MEANS
ASSUMING GREATER RISKS THAN
INVESTING IN THE UNITED STATES.
(CHECKMARK)
TOTAL RETURN COMPONENTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31, OCTOBER 31, 1994
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

1997 1996 1995 1994

DIVIDEND RETURN 7.20% 7.65% 8.65% 0.97%

CAPITAL APPRECIATION RETURN 2.04% 5.16% 13.37% -0.80%

TOTAL RETURN 9.24% 12.81% 22.02% 0.17%

</TABLE>

TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the class. A capital appreciation return reflects both the
amount paid by the class to shareholders as capital gain distributions
and changes in the class' share price. Both returns assume the
dividends or capital gains paid by the class are reinvested, if any,
and exclude the effect of sales charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR

DIVIDENDS PER SHARE 11.82(CENTS) 41.79(CENTS) 78.97(CENTS)

ANNUALIZED DIVIDEND RATE 12.23% 7.24% 6.98%

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 $11.38 over the past one month, $11.45 over the past six months and
$11.31 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 to compare funds from different companies on an equal
basis. Yield information will be reported once Class A has a longer,
more stable, operating history.
(dagger) THE DATA USED TO CREATE THE MERRILL LYNCH HIGH YIELD MASTER
INDEX AND THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK ON THE
LINE GRAPH, ON PAGE 5, IS FROM THE CLOSE OF BUSINESS ON OCTOBER 31,
1994. THE TOTAL RETURN OF THE MERRILL LYNCH HIGH YIELD MASTER INDEX
FOR THE LIFE OF FUND CALCULATIONS ON PAGE 4 IS FROM THE OPENING OF
BUSINESS ON OCTOBER 31, 1994, COMMENCEMENT OF OPERATIONS OF THE FUND.
DATA FOR THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK IS ONLY
AVAILABLE AT THE CLOSE OF BUSINESS EACH MONTH.

ADVISOR STRATEGIC INCOME FUND - CLASS T
PERFORMANCE THE BOTTOM LINE (DAGGER)

FIDELITY ADV STRATEGIC INCOME - CL T 9.33% 50.86%

FIDELITY ADV STRATEGIC INCOME - CL T 5.50% 45.58%
(INCL. MAX. 3.50% SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 50.64%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 45.40%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 31, 1994. 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. You can
also compare Class T's returns to those of the Fidelity Strategic
Income Composite Benchmark - a broad measure of the world fixed income
markets. To measure how Class T's performance stacked up against its
peers, you can compare it to the multi-sector income 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 81 mutual funds. These benchmarks reflect
reinvestment of dividends and capital gains, if any, and exclude the
effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL T 9.33% 13.87%

FIDELITY ADV STRATEGIC INCOME - CL T 5.50% 12.59%
(INCL. MAX. 3.50% SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 13.81%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 12.55%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

AVERAGE ANNUAL TOTAL RETURNS take Class T's cumulative return and show
you what would have happened if Class T had performed at a constant
rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19971231 19980202 155323 S00000000000001
FA Strategic Inc -CL T ML High Yield Master
FID Strategic Inc. Blend
00638 ML002
F0097
1994/10/31 9650.00 10000.00
10000.00
1994/11/30 9698.40 9914.94
9928.76
1994/12/31 9666.83 10025.22
9895.33
1995/01/31 9774.68 10166.88
9967.29
1995/02/28 10005.55 10484.10
10128.76
1995/03/31 10150.73 10630.00
10308.98
1995/04/30 10531.53 10878.89
10644.58
1995/05/31 10927.88 11218.77
11080.01
1995/06/30 10983.77 11304.46
11184.50
1995/07/31 11072.01 11433.70
11225.57
1995/08/31 11089.52 11503.09
11242.05
1995/09/30 11286.98 11634.70
11441.55
1995/10/31 11418.00 11717.17
11512.96
1995/11/30 11545.52 11831.55
11676.89
1995/12/31 11795.90 12021.46
11941.20
1996/01/31 12059.74 12211.32
12135.01
1996/02/29 11962.09 12229.71
11972.88
1996/03/31 11923.53 12196.49
11975.48
1996/04/30 12038.38 12202.02
12048.95
1996/05/31 12122.02 12290.02
12109.72
1996/06/30 12224.89 12363.84
12259.81
1996/07/31 12298.60 12447.78
12391.49
1996/08/31 12441.38 12576.33
12515.18
1996/09/30 12830.13 12846.16
12802.46
1996/10/31 12997.13 12986.95
12990.70
1996/11/30 13251.26 13249.51
13283.23
1996/12/31 13315.91 13351.46
13293.20
1997/01/31 13391.70 13454.07
13312.76
1997/02/28 13518.64 13642.80
13404.64
1997/03/31 13222.75 13491.28
13216.99
1997/04/30 13371.63 13644.83
13352.89
1997/05/31 13720.32 13916.32
13646.39
1997/06/30 13919.62 14131.74
13847.63
1997/07/31 14194.54 14470.87
14130.54
1997/08/31 14185.26 14438.31
14079.74
1997/09/30 14518.67 14684.83
14352.31
1997/10/31 14282.39 14782.28
14265.13
1997/11/30 14393.11 14914.67
14387.85
1997/12/31 14558.12 15063.79
14540.45
IMATRL PRASUN SHR__CHT 19971231 19980202 155325 R00000000000041
$10,000 OVER LIFE OF FUND(dagger): Let's say hypothetically that
$10,000 was invested in Fidelity Advisor Strategic Income Fund - Class
T on October 31, 1994, when the fund started, and the current 3.50%
sales charge was paid. As the chart shows, by December 31, 1997, the
value of the investment would have grown to $14,558 - a 45.58%
increase on the initial investment. For comparison, look at how the
Merrill Lynch High Yield Master Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $15,064 - a 50.64% increase. You also
can look at how the Fidelity Strategic Income Composite Benchmark - a
hypothetical combination of unmanaged indices that is more
representative of the fund's investable universe - did over the same
period. This index combines returns from the J.P. Morgan Emerging
Markets Bond Index Plus (15%), Merrill Lynch High Yield Master Index
(40%), Lehman Brothers Government Bond Index (30%), and Salomon
Brothers Non-U.S. Dollar World Government Bond Index (15%). With
distributions, if any, reinvested, a $10,000 investment in the index
would have grown to $14,540 - a 45.40% 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.
INVESTING IN FOREIGN MARKETS MEANS
ASSUMING GREATER RISKS THAN
INVESTING IN THE UNITED STATES.
(CHECKMARK)
TOTAL RETURN COMPONENTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31, OCTOBER 31, 1994
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

1997 1996 1995 1994

DIVIDEND RETURN 7.29% 7.73% 8.65% 0.97%

CAPITAL APPRECIATION RETURN 2.04% 5.16% 13.37% -0.80%

TOTAL RETURN 9.33% 12.89% 22.02% 0.17%

</TABLE>

DIVIDENDS PER SHARE 11.87(CENTS) 42.16(CENTS) 79.84(CENTS)

ANNUALIZED DIVIDEND RATE 12.29% 7.30% 7.06%

30-DAY ANNUALIZED YIELD 6.62% - -

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 $11.37 over the past one month, $11.45 over the past six months,
and $11.31 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 to compare funds from different companies on an equal
basis. The offering share price used in the calculation of the yield
includes the effect of Class T's maximum 3.50% sales charge.
(dagger) THE DATA USED TO CREATE THE MERRILL LYNCH HIGH YIELD MASTER
INDEX AND THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK ON THE
LINE GRAPH, ON PAGE 9, IS FROM THE CLOSE OF BUSINESS ON OCTOBER 31,
1994. THE TOTAL RETURN OF THE MERRILL LYNCH HIGH YIELD MASTER INDEX
FOR THE LIFE OF FUND CALCULATIONS ON PAGES 7 AND 8 IS FROM THE OPENING
OF BUSINESS ON OCTOBER 31, 1994, COMMENCEMENT OF OPERATIONS OF THE
FUND. DATA FOR THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK IS
ONLY AVAILABLE AT THE CLOSE OF BUSINESS EACH MONTH.

ADVISOR STRATEGIC INCOME FUND - CLASS B
PERFORMANCE THE BOTTOM LINE (DAGGER)

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 to measure performance.
Effective January 2, 1997, Class B's contingent deferred sales charge
is based on a declining scale that ranges from 5% to 1% on Class B
shares redeemed within six years of purchase. This scale is revised
from the previous scale of 4% to 1% on shares redeemed within five
years of purchase. Class B's contingent deferred sales charge included
in the past one year and life of fund total return figures are 5% and
3%, respectively. If Fidelity had not reimbursed certain class
expenses, the life of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL B 8.60% 47.70%

FIDELITY ADV STRATEGIC INCOME - CL B 3.67% 44.70%
(INCL. CONTINGENT DEFERRED SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 50.64%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 45.40%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 31, 1994. 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. You can
also compare Class B's returns to those of the Fidelity Strategic
Income Composite Benchmark - a broad measure of the world fixed income
markets. To measure how Class B's performance stacked up against its
peers, you can compare it to the multi-sector income 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 81 mutual funds. These benchmarks reflect
reinvestment of dividends and capital gains, if any, and exclude the
effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL B 8.60% 13.11%

FIDELITY ADV STRATEGIC INCOME - CL B 3.67% 12.38%
(INCL. CONTINGENT DEFERRED SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 13.81%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 12.55%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

AVERAGE ANNUAL TOTAL RETURNS take Class B's cumulative return and show
you what would have happened if Class B had performed at a constant
rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19971231 19980202 153244 S00000000000001
FA Strategic Inc -CL B ML High Yield Master
FID Strategic Inc. Blend
00639 ML002
F0097
1994/10/31 10000.00 10000.00
10000.00
1994/11/30 10045.19 9914.94
9928.76
1994/12/31 9993.77 10025.22
9895.33
1995/01/31 10109.93 10166.88
9967.29
1995/02/28 10342.97 10484.10
10128.76
1995/03/31 10496.27 10630.00
10308.98
1995/04/30 10883.14 10878.89
10644.58
1995/05/31 11285.68 11218.77
11080.01
1995/06/30 11326.35 11304.46
11184.50
1995/07/31 11420.96 11433.70
11225.57
1995/08/31 11431.98 11503.09
11242.05
1995/09/30 11617.60 11634.70
11441.55
1995/10/31 11755.36 11717.17
11512.96
1995/11/30 11878.64 11831.55
11676.89
1995/12/31 12127.76 12021.46
11941.20
1996/01/31 12391.44 12211.32
12135.01
1996/02/29 12283.74 12229.71
11972.88
1996/03/31 12237.32 12196.49
11975.48
1996/04/30 12347.83 12202.02
12048.95
1996/05/31 12426.63 12290.02
12109.72
1996/06/30 12525.39 12363.84
12259.81
1996/07/31 12594.31 12447.78
12391.49
1996/08/31 12733.18 12576.33
12515.18
1996/09/30 13123.27 12846.16
12802.46
1996/10/31 13286.86 12986.95
12990.70
1996/11/30 13539.79 13249.51
13283.23
1996/12/31 13599.52 13351.46
13293.20
1997/01/31 13681.65 13454.07
13312.76
1997/02/28 13803.67 13642.80
13404.64
1997/03/31 13482.16 13491.28
13216.99
1997/04/30 13638.86 13644.83
13352.89
1997/05/31 13973.99 13916.32
13646.39
1997/06/30 14181.74 14131.74
13847.63
1997/07/31 14453.55 14470.87
14130.54
1997/08/31 14423.79 14438.31
14079.74
1997/09/30 14767.17 14684.83
14352.31
1997/10/31 14518.78 14782.28
14265.13
1997/11/30 14623.24 14914.67
14387.85
1997/12/31 14469.60 15063.79
14540.45
IMATRL PRASUN SHR__CHT 19971231 19980202 153247 R00000000000041
$10,000 OVER LIFE OF FUND(dagger): Let's say hypothetically that
$10,000 was invested in Fidelity Advisor Strategic Income Fund - Class
B on October 31, 1994, when the fund started. As the chart shows, by
December 31, 1997, the value of the investment, including the effect
of the contingent deferred sales charge, would have grown to $14,470 -
a 44.70% 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 $15,064 - a 50.64% increase. You also can look at how
the Fidelity Strategic Income Composite Benchmark - a hypothetical
combination of unmanaged indices that is more representative of the
fund's investable universe - did over the same period. This index
combines returns from the J.P. Morgan Emerging Markets Bond Index Plus
(15%), Merrill Lynch High Yield Master Index (40%), Lehman Brothers
Government Bond Index (30%), and Salomon Brothers Non-U.S. Dollar
World Government Bond Index (15%). With
distributions, if any, reinvested, a $10,000 investment in the index
would have grown to $14,540 - a 45.40% increase.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OCTOBER 31, 1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

1997 1996 1995 1994

DIVIDEND RETURN 6.58% 7.00% 7.78% 0.84%

CAPITAL APPRECIATION RETURN 2.02% 5.14% 13.57% -0.90%

TOTAL RETURN 8.60% 12.14% 21.35% -0.06%

</TABLE>

DIVIDENDS PER SHARE 11.25(CENTS) 38.38(CENTS) 72.42(CENTS)

ANNUALIZED DIVIDEND RATE 11.63% 6.64% 6.40%

30-DAY ANNUALIZED YIELD 6.18% - -

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 $11.39 over the past one month, $11.46 over the past six months,
and $11.32 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 to 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.
(dagger) THE DATA USED TO CREATE THE MERRILL LYNCH HIGH YIELD MASTER
INDEX AND THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK ON THE
LINE GRAPH, ON PAGE 13, IS FROM THE CLOSE OF BUSINESS ON OCTOBER 31,
1994. THE TOTAL RETURN OF THE MERRILL LYNCH HIGH YIELD MASTER INDEX
FOR THE LIFE OF FUND CALCULATIONS ON PAGES 11 AND 12 IS FROM THE
OPENING OF BUSINESS ON OCTOBER 31, 1994, COMMENCEMENT OF OPERATIONS OF
THE FUND. DATA FOR THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK
IS ONLY AVAILABLE AT THE CLOSE OF BUSINESS EACH MONTH.
ADVISOR STRATEGIC INCOME FUND - CLASS C
PERFORMANCE THE BOTTOM LINE (DAGGER)

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 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 that is reflected in returns
after November 3, 1997. Returns prior to 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). Class C's contingent deferred sales charge
included in the one year total return figure is 1%. If Fidelity had
not reimbursed certain class expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL C 8.55% 47.61%

FIDELITY ADV STRATEGIC INCOME - CL C 7.55% 47.61%
(INCL. CONTINGENT DEFERRED SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 50.64%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 45.40%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

CUMULATIVE TOTAL RETURNS show Class C's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 31, 1994. 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. You can
also compare Class C's returns to those of the Fidelity Strategic
Income Composite Benchmark - a broad measure of the world fixed income
markets. To measure how Class C's performance stacked up against its
peers, you can compare it to the multi-sector income 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 81 mutual funds. These benchmarks reflect
reinvestment of dividends and capital gains, if any, and exclude the
effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - CL C 8.55% 13.09%

FIDELITY ADV STRATEGIC INCOME - CL C 7.55% 13.09%
(INCL. CONTINGENT DEFERRED SALES CHARGE)

ML HIGH YIELD MASTER 12.82% 13.81%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 12.55%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

AVERAGE ANNUAL TOTAL RETURNS take Class C's cumulative return and show
you what would have happened if Class C had performed at a constant
rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19971231 19980202 154640 S00000000000001
FA Strategic Inc -CL C ML High Yield Master
FID Strategic Inc. Blend
00523 ML002
F0097
1994/10/31 10000.00 10000.00
10000.00
1994/11/30 10040.92 9914.94
9928.76
1994/12/31 9986.63 10025.22
9895.33
1995/01/31 10103.43 10166.88
9967.29
1995/02/28 10336.89 10484.10
10128.76
1995/03/31 10490.99 10630.00
10308.98
1995/04/30 10878.41 10878.89
10644.58
1995/05/31 11281.55 11218.77
11080.01
1995/06/30 11322.34 11304.46
11184.50
1995/07/31 11416.95 11433.70
11225.57
1995/08/31 11428.15 11503.09
11242.05
1995/09/30 11614.14 11634.70
11441.55
1995/10/31 11752.04 11717.17
11512.96
1995/11/30 11875.70 11831.55
11676.89
1995/12/31 12124.43 12021.46
11941.20
1996/01/31 12388.64 12211.32
12135.01
1996/02/29 12280.29 12229.71
11972.88
1996/03/31 12233.85 12196.49
11975.48
1996/04/30 12344.76 12202.02
12048.95
1996/05/31 12423.74 12290.02
12109.72
1996/06/30 12523.05 12363.84
12259.81
1996/07/31 12592.39 12447.78
12391.49
1996/08/31 12731.20 12576.33
12515.18
1996/09/30 13122.19 12846.16
12802.46
1996/10/31 13285.94 12986.95
12990.70
1996/11/30 13539.30 13249.51
13283.23
1996/12/31 13598.34 13351.46
13293.20
1997/01/31 13680.79 13454.07
13312.76
1997/02/28 13802.73 13642.80
13404.64
1997/03/31 13480.38 13491.28
13216.99
1997/04/30 13637.82 13644.83
13352.89
1997/05/31 13973.52 13916.32
13646.39
1997/06/30 14181.32 14131.74
13847.63
1997/07/31 14453.68 14470.87
14130.54
1997/08/31 14423.98 14438.31
14079.74
1997/09/30 14768.14 14684.83
14352.31
1997/10/31 14518.57 14782.28
14265.13
1997/11/30 14605.77 14914.67
14387.85
1997/12/31 14761.32 15063.79
14540.45
IMATRL PRASUN SHR__CHT 19971231 19980202 154642 R00000000000041
$10,000 OVER LIFE OF FUND(dagger): Let's say hypothetically that
$10,000 was invested in Fidelity Advisor Strategic Income Fund - Class
C on October 31, 1994, when the fund started. As the chart shows, by
December 31, 1997, the value of the investment, would have grown to
$14,761 - a 47.61% 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 $15,064 - a 50.64% increase. You also can look at
how the Fidelity Strategic Income Composite Benchmark - a hypothetical
combination of unmanaged indices that is more representative of the
fund's investable universe - did over the same period. This index
combines returns from the J.P. Morgan Emerging Markets Bond Index Plus
(15%), Merrill Lynch High Yield Master Index (40%), Lehman Brothers
Government Bond Index (30%), and Salomon Brothers Non-U.S. Dollar
World Government Bond Index (15%). With distributions, if any,
reinvested, a $10,000 investment in the index would have grown to
$14,540 - a 45.40% increase.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OCTOBER 31, 1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

1997 1996 1995 1994

DIVIDEND RETURN 6.69% 7.00% 7.78% 0.84%

CAPITAL APPRECIATION RETURN 1.86% 5.14% 13.57% -0.90%

TOTAL RETURN 8.55% 12.14% 21.35% -0.06%

</TABLE>

DIVIDENDS PER SHARE 10.93(CENTS) 15.23(CENTS)

ANNUALIZED DIVIDEND RATE 11.33% 8.43%

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 $11.36 over the past one month, and $11.37 over the life of class,
you can compare the class' income over these two periods. The 30-day
annualized YIELD is a standard formula for all 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 to compare funds from
different companies on an equal basis. Yield information will be
reported once Class C has a longer, more stable, operating history.
(dagger) THE DATA USED TO CREATE THE MERRILL LYNCH HIGH YIELD MASTER
INDEX AND THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK ON THE
LINE GRAPH, ON PAGE 17, IS FROM THE CLOSE OF BUSINESS ON OCTOBER 31,
1994. THE TOTAL RETURN OF THE MERRILL LYNCH HIGH YIELD MASTER INDEX
FOR THE LIFE OF FUND CALCULATIONS ON PAGES 15 AND 16 IS FROM THE
OPENING OF BUSINESS ON OCTOBER 31, 1994, COMMENCEMENT OF OPERATIONS OF
THE FUND. DATA FOR THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK
IS ONLY AVAILABLE AT THE CLOSE OF BUSINESS EACH MONTH.
FUND TALK: THE MANAGERS' OVERVIEW

MARKET RECAP
The year that ended December 31,
1997, displayed the complexity and
variety of the world's financial
markets. The serenity of low interest
rates and subdued inflation that had
boosted a number of markets was
rudely interrupted in late October
when Asian markets stumbled
dramatically. Developed-market
government bonds benefited from this
crisis, as investors sought the
perceived safety of high-quality issues.
A strong U.S. dollar, however,
undermined gains for U.S.-based
investors in the Japanese and most
European markets. The Salomon
Brothers World Government Bond
Index, Unhedged - a measure of
government bond market
performance in developed nations -
returned just 0.23% for the period.
Inflation was well-controlled
throughout Europe, and bond prices in
countries such as Spain and Italy were
buoyed by steady progress toward
meeting the requirements for
membership in the European
Monetary Union (EMU). Unlike other
European currencies, the pound
sterling maintained its strength,
helping boost bond performance in
the United Kingdom. The Asian
volatility staggered emerging bond
markets in October and left lingering
concerns as the new year began. The
J.P. Morgan Emerging Markets Bond
Index returned 16.15% for the period.
Most of these gains were posted
during the first three quarters of the
year, boosted by low interest rates and
positive government reforms. A lack of
inflation, declining interest rates and
the late-year flight to quality boosted
bonds in the U.S., with the Lehman
Brothers Aggregate Bond Index
returning 9.65% in 1997.
NOTE TO SHAREHOLDERS: The following is an interview with John Carlson
(top), lead Portfolio Manager of Fidelity Advisor Strategic Income
Fund, with additional comments from co-managers Curt Hollingsworth
(top left) on U.S. government securities; Margaret Eagle (top right)
on high-yield securities; Jonathan Kelly (bottom left) on foreign
developed-market securities; and Brian Hogan (bottom right) on
emerging-market investments.
Q. HOW DID THE FUND PERFORM, JOHN?
J.C. For the 12 months that ended December 31, 1997, the fund's Class
A, Class T, Class B and Class C shares posted returns of 9.24%, 9.33%,
8.60% and 8.55%, respectively. The multi-sector income funds average,
as tracked by Lipper Analytical Services, returned 8.77% during the
period. The Merrill Lynch High Yield Master Index returned 12.82%.
Q. BRIAN, WHAT WAS THE CLIMATE LIKE FOR EMERGING-MARKET DEBT AND HOW
DID THE FUND'S EMERGING-MARKET POSITIONS FARE?
B.H. From January through October, we saw the same favorable
characteristics that buoyed these markets in 1996: continued economic
reform, low interest rates and favorable credit spreads, which measure
the premiums investors pay for global risk. While the fund typically
has not had high exposures to Asian debt, the Asian currency crisis
that peaked in late October also spread to both Latin America and
Eastern Europe. Several Asian countries were forced to devalue their
currencies and pressure was placed on large countries such as Brazil
and Russia. The results of this crisis were largely negative, as
global risk premiums went up. In terms of my strategy, I reduced some
of the fund's corporate bond positions and added Brady bonds, which
are dollar-denominated and issued by foreign governments. I also added
to the fund's holdings in higher-quality countries such as Panama and
Argentina. Relative to the index, the fund's underweighting in Brazil
and overweighting in Mexico during the latter months of the period
helped. Overweighted positions in Bulgaria and Ecuador, however,
proved disappointing. The months ahead could be quite volatile. I'm
concerned about Asia and will likely favor Brady bonds which are
collateralized by U.S. government securities. Presidential elections
in several countries will also be important and global economic growth
should slow.
Q. TURNING TO YOU, CURT, HOW WOULD YOU CHARACTERIZE THE PERFORMANCE OF
THE U.S. BOND MARKET OVER THE PAST 12 MONTHS?
C.H. Due mostly to falling interest rates, low inflation and moderate
economic growth, the bond market had a good run in 1997. An
interest-rate hike in March by the Federal Reserve Board proved to be
one of the few obstacles to the bond market. Inflation - which has a
negative effect on the bond market - was also nonexistent. From April
through mid-September, encouraging economic data and the Fed's
reluctance to raise rates further spurred a rally. The yield on the
30-year Treasury bond actually fell below the 6% mark in November and
the bond market attracted some equity investors who had become
concerned about Asian-related ramifications. Through the first half of
1997, the fund's mortgage-backed bonds performed well as low yield
volatility, tightening credit spreads and low prepayment activity
helped. In the second half of the year, I reduced the fund's
mortgage-related positions, a strategy that helped as prepayment
activity increased. When a mortgage holder prepays, he or she pays off
the principal and interest of the mortgage before its actual due date.
U.S. Treasuries were among the best performers toward the end of the
period.
Q. HIGH-YIELD SECURITIES HAD A STRONG YEAR, MARGARET. WHAT FACTORS
CONTRIBUTED TO THEIR PERFORMANCE?
M.E. A number of positive trends played a role. First, continued
credit strength translated into very low default rates. The
supply/demand scenario also was beneficial, as a record amount of new
issuance hit this market and demand was more than strong enough to
absorb the new supply. Assets came into the high-yield market from a
variety of sources, including mutual funds and pension plans. Managers
of collateralized bond obligations - which are structured pools of
high-yield bonds - were also voracious buyers. Interwoven within this
backdrop were two other themes: a solid economy and increased merger
and acquisition activity. Much of this positive consolidation involved
lower-quality companies being bought by higher-quality companies. The
fund's telecommunications investments - notably Brooks Fiber and
PanAmSat - were positive contributors to overall performance.
Supermarket-related bonds also played a key role. Ralph's Grocery Co.
and Smith Foods - the latter of which the fund no longer held at the
end of the period - both performed well after being acquired. Pathmark
Stores, however, was an exception as the chain ran into some
competitive problems. Going forward, with the expectation that U.S.
economic growth will slow, I've positioned the fund to avoid
economically sensitive groups such as paper and chemicals. As long as
default rates remain relatively low, the high-yield market should
maintain its attractiveness.
Q. JONATHAN, WHAT WAS THE STORY WITH THE DEVELOPED, GLOBAL BOND
MARKETS?
J.K. In Europe, the drive toward a common currency benefited some of
the high-yielding countries - such as Italy and Spain - as it became
increasingly likely that they would be included in the first round of
the European Monetary Union process. The U.K. was one of the
better-performing markets due mostly to a relatively tight monetary
policy and a strong currency. Canadian bonds also fared well as
interest rates fell and the Canadian dollar only depreciated modestly
against the U.S. dollar. As for the disappointments, France, Germany
and Japan all suffered losses due to weak currencies. Going forward,
I'm fairly cautious. Yields are quite low around the world, which
means that the returns from this portion of the portfolio will be
largely determined by currency movements. The dollar's strength will
be a key performance factor: Continued strength would be a drag on
performance, while weakness would be beneficial.
Q. TURNING BACK TO YOU, JOHN, WHAT'S YOUR OUTLOOK?
J.C. With all that has gone on in recent months, I'm certainly
concerned. While global volatility has been alarming, one bright spot
may be that the dislocation, or downward re-pricing of certain
emerging-market debt securities, may present ample opportunities.
Shareholders should expect a continuation of the same disciplined
investment approach that helped the fund weather the last quarter of
1997. I'll keep a close eye on risk, credit spreads and interest
rates as they relate to the portfolio.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.

JOHN CARLSON EXPLORES THE
"CONTAGION EFFECT":
"With the Southeast Asian turmoil
we've witnessed recently, the phrase
`contagion' has become part of the
markets' daily language. Contagion
refers to both the real and
psychological effects that impact
investor behavior within or across
markets. There are a number of catchy
phrases that describe this link
between markets, such as `when the
U.S. economy sneezes, Mexico catches
a cold.'
"Asian contagion - beginning last year
as a currency crisis in Thailand - is
another example. As speculation
against the sustainability of Thailand's
currency regime increased, Thai
authorities devalued the country's
currency. Pressure spilled over to other
Southeast Asian countries, resulting in
a wave of competitive currency
devaluations in Indonesia, the
Philippines and Singapore. Investors
wondered where it would stop, and
this uncertainty spread to both Brazil
and Russia.
"But the contagion wasn't limited to
currency pressures. Investors suffering
losses in Southeast Asian markets took
profits in equity positions in other
regions. This compounded the
downward pressure on many
currencies, resulting in additional
selling of exposure. Stock markets in
emerging countries - such as
Argentina - suffered major losses, as
did those in Hong Kong. The effects of
such developments will be slower global
economic growth, which has led to
concerns about U.S. and other
developed-country growth rates in the
year ahead."
FUND FACTS
GOAL: seeks a high level of
current income by investing
primarily in debt securities;
as a secondary objective, the
fund may also seek capital
appreciation
START DATE: October 31, 1994
SIZE: as of December 31,
1997, more than $184 million
MANAGERS: John Carlson, lead
manager, since 1996; Curtis
Hollingsworth, U.S. government
investments, since February
1997; Margaret Eagle,
high-yield investments, since
1996; Jonathan Kelly,
developed foreign market
investments, since 1996; and
Brian Hogan, emerging
market investments, since
September 1997
(checkmark)
INVESTMENT CHANGES

TOP FIVE HOLDINGS AS OF DECEMBER 31, 1997

<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO

FANNIE MAE 7.7 5.4

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 5.9 7.5

U.S. TREASURY 5.3 11.7

FREDDIE MAC 4.1 0.4

GOVERNMENT TRUST CERTIFICATES 3.2 0.2

</TABLE>

TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO

MEDIA & LEISURE 12.6 12.3

UTILITIES 12.1 6.1

FINANCE 4.0 4.9

RETAIL & WHOLESALE 2.8 4.0

TECHNOLOGY 2.4 1.5

QUALITY DIVERSIFICATION AS OF DECEMBER 31, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S

AAA, AA, A 4 40.8
2
.
3

BA 8 7.3
.
9

B 2 27.9
7
.
7

CAA, CA, C 3 3.9
.
7

NOT RATED 4 7.1
.
2

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 DECEMBER 31,1997 AND JUNE 30, 1997
ACCOUNT FOR 4.2% AND 7.1%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF DECEMBER 31, 1997 * AS OF JUNE 30, 1997 **

CORPORATE BONDS 33.7%
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS 28.7%
FOREIGN GOVERNMENT
OBLIGATIONS 21.6%
STOCKS 9.9%
OTHER 2.8%
SHORT-TERM
INVESTMENTS 3.3%
CORPORATE BONDS 35.2%
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS 26.7%
FOREIGN GOVERNMENT
OBLIGATIONS 21.6%
STOCKS 5.6%
OTHER 3.5%
SHORT-TERM
INVESTMENTS 7.4%
ROW: 1, COL: 1, VALUE: 3.3
ROW: 1, COL: 2, VALUE: 2.8
ROW: 1, COL: 3, VALUE: 9.9
ROW: 1, COL: 4, VALUE: 21.6
ROW: 1, COL: 5, VALUE: 28.7
ROW: 1, COL: 6, VALUE: 33.7
ROW: 1, COL: 1, VALUE: 7.4
ROW: 1, COL: 2, VALUE: 3.5
ROW: 1, COL: 3, VALUE: 5.6
ROW: 1, COL: 4, VALUE: 21.6
ROW: 1, COL: 5, VALUE: 26.7
ROW: 1, COL: 6, VALUE: 35.2
* FOREIGN
INVESTMENTS 30.1%
** FOREIGN
INVESTMENTS 29.9%
INVESTMENTS DECEMBER 31, 1997

SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES

CORPORATE BONDS - 33.7%
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
CONVERTIBLE BONDS - 0.1%
TECHNOLOGY - 0.1%
COMPUTER SERVICES & SOFTWARE - 0.1%
Tecnomatix Technologies Ltd.
5 1/4%, 8/15/04 (f) - $ 250,000 $ 252,813
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. 0%,
12/15/05 (d)(f) - 10,000 9,600
TOTAL CONVERTIBLE BONDS 262,413
NONCONVERTIBLE BONDS - 33.6%
AEROSPACE & DEFENSE - 0.6%
Argo-Tech Corp. 8 5/8%, 10/1/07 (f) B3 80,000 80,000
K&F Industries, Inc. 9 1/4%, 10/15/07 (f) B3 90,000 92,925
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 750,000 750,000
Wyman-Gordon Co. 8%, 12/15/07 Ba2 90,000 90,675
1,013,600
BASIC INDUSTRIES - 1.4%
CHEMICALS & PLASTICS - 0.3%
Plastic Specialties & Technologies, Inc.
11 1/4%, 12/1/03 B3 20,000 21,725
Koppers Industries, Inc. 9 7/8%, 12/1/07 (f) B2 260,000 267,475
Sterling Chemicals Holdings, Inc.
11 3/4%, 8/15/06 B3 190,000 193,800
483,000
IRON & STEEL - 0.1%
Republic Engineered Steels, Inc.
9 7/8%, 12/15/01 Caa 140,000 134,400
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical Corp.
12 3/4%, 2/1/03 B2 70,000 74,550
PACKAGING & CONTAINERS - 0.0%
Fonda Group, Inc. 9 1/2%, 3/1/07 B3 60,000 57,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.9%
APP Finance II Mauritius Ltd. euro 12%, 3/15/04 B3 $ 350,000 $
301,000
APP Finance II Mauritius Ltd. 12%, 3/15/04 B3 500,000 430,000
Container Corp. of America:
gtd. 9 3/4%, 4/1/03 B1 210,000 224,175
gtd. 11 1/4%, 5/1/04 B1 50,000 54,625
10 3/4%, 5/1/02 B1 70,000 76,125
Florida Coast Paper Co. LLC\Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 Caa 170,000 180,200
PEN-TAB Industries, Inc. 10 7/8%, 2/1/07 B3 330,000 318,450
Stone Container Corp. 11 7/8%, 8/1/16 B2 110,000 117,700
1,702,275
TOTAL BASIC INDUSTRIES 2,451,225
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE - 0.0%
Pierce Leahy Corp. 11 1/8%, 7/15/06 B3 33,000 37,455
DURABLES - 0.7%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Safelite Glass Corp. 9 7/8%, 12/15/06 (f) B3 150,000 158,250
CONSUMER ELECTRONICS - 0.1%
Sharp do Brazil Industry Equipment Electric
9 5/8%, 10/30/05 (Reg.) - 250,000 215,000
HOME FURNISHINGS - 0.0%
Sealy Mattress Co.:
0%, 12/15/07 (d)(f) B3 70,000 42,350
9 7/8%, 12/15/07 (f) B3 60,000 61,500
103,850
TEXTILES & APPAREL - 0.5%
Consoltex Group, Inc./Consoltex USA, Inc. gtd.
11%, 10/1/03 B3 370,000 389,425
Polymer Group, Inc. 9%, 7/1/07 B2 220,000 220,000
Worldtex, Inc. 9 5/8%, 12/15/07 (f) B1 210,000 215,250
824,675
TOTAL DURABLES 1,301,775
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 0.8%
OIL & GAS - 0.8%
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 $ 340,000 $ 373,150
KCS Energy, Inc. 11%, 1/15/03 B1 240,000 262,800
Petroleos Mexicanos 9 1/2%, 9/15/27 BB 150,000 149,250
Southwest Royalties, Inc. 10 1/2%,
10/15/04 (f) B3 70,000 69,300
United Meridian Corp. 10 3/8%, 10/15/05 B2 300,000 328,500
Vintage Petroleum, Inc. 9%, 12/15/05 B1 320,000 336,800
1,519,800
FINANCE - 3.8%
ASSET-BACKED SECURITIES - 0.7%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 970,000 1,083,975
Premier Auto Trust 4.90%, 12/15/98 Aaa 15,476 15,433
Sears Credit Account Master Trust II
7%, 1/15/04 Aaa 200,000 202,874
Standard Credit Card Master Trust I
7.65%, 2/15/00 A2 30,000 30,047
1,332,329
BANKS - 2.0%
Deutsche Bank Finance NV
4 1/8%, 11/15/99 (i) Aa1 JPY 100,000 814,704
European Investment Bank euro
6 3/4%, 5/10/01 (i) Aaa JPY 55,000 501,020
Export-Import Bank of Japan euro
4 3/8%, 10/1/03 (i) Aaa JPY 250,000 2,216,663
Lloyds Bank PLC 7 3/8%, 3/11/04 Aa2 GBP 75,000 125,835
3,658,222
CREDIT & OTHER FINANCE - 0.7%
Aames Financial Corp. 9 1/8%, 11/1/03 Ba3 110,000 108,350
Digital Television Services LLC/DTS Capital, Inc.
12 1/2%, 8/1/07 (f) B3 360,000 403,200
General Electric Capital Corp. 6 1/2%, 2/8/99 Aaa SEK 500,000 63,693
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Netia Holdings BV 0%, 11/1/07 (f) B3 $ 290,000 $ 165,300
Ocwen Capital Trust 10 7/8%, 8/1/27 B2 90,000 98,100
Trench Electric SA/Trench, Inc.
10 1/4%, 12/15/07 (f) B3 200,000 203,500
Winstar Equipment II Corp.
12 1/2%, 3/15/4 (f) - 145,000 161,675
1,203,818
SAVINGS & LOANS - 0.4%
First Nationwide:
Holdings, Inc. 10 5/8%, 10/1/03 Ba3 480,000 536,400
Parent Holdings Ltd. 12 1/2%, 4/15/03 B3 70,000 79,625
616,025
TOTAL FINANCE 6,810,394
HEALTH - 1.3%
DRUGS & PHARMACEUTICALS - 0.2%
Glaxo Wellcome PLC euro 8 3/4%, 12/1/05 Aa3 GBP 25,000 45,718
Leiner Health Products, Inc. 9 5/8%, 7/1/07 B3 50,000 53,250
Pharmaceutical Fine Chemical SA
9 3/4%, 11/15/07 (f) B3 190,000 192,850
291,818
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (f) B3 280,000 294,000
MEDICAL FACILITIES MANAGEMENT - 0.9%
Integrated Health Services, Inc.:
9 1/2%, 9/15/07 (f) B2 305,000 321,775
9 1/4%, 1/15/08 (f) B2 320,000 326,400
Mariner Health Group, Inc. 9 1/2%, 4/1/06 B2 50,000 51,625
Paracelsus Healthcare Corp. 10%, 8/15/06 B3 120,000 122,700
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - CONTINUED
Tenet Healthcare Corp.:
8%, 1/15/05 Ba1 $ 170,000 $ 172,975
8 5/8%, 1/15/07 Ba3 540,000 556,200
Vencor, Inc. 8 5/8%, 7/15/07 B1 110,000 109,725
1,661,400
TOTAL HEALTH 2,247,218
INDUSTRIAL MACHINERY & EQUIPMENT - 2.2%
ELECTRICAL EQUIPMENT - 0.7%
Amphenol Corp. 9 7/8%, 5/15/07 B2 80,000 84,400
Echostar Communications Corp. secured discount
0%, 6/1/04 (d) B2 320,000 292,800
L-3 Communications Corp. 10 3/8%, 5/1/07 B2 80,000 86,800
Motors & Gears, Inc.:
10 3/4%, 11/15/06 B3 150,000 159,000
10 3/4%, 11/15/06 (f) B3 260,000 276,250
Omnipoint Corp., Series A 11 5/8%, 8/15/06 B3 320,000 338,400
Rayovac Corp. 10 1/4%, 11/1/06 B3 90,000 98,100
1,335,750
INDUSTRIAL MACHINERY & EQUIPMENT - 1.1%
Continental Global Group, Inc. 11%, 4/1/07 B2 510,000 543,150
Goss Graphic System, Inc. 12%, 10/15/06 B2 710,000 802,300
International Knife & Saw, Inc.
11 3/8%, 11/15/06 B3 80,000 86,600
Specialty Equipment Companies, Inc.
11 3/8%, 12/1/03 B3 500,000 541,250
1,973,300
POLLUTION CONTROL - 0.4%
Allied Waste North America 10 1/4%, 12/1/06 B2 590,000 647,525
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,956,575
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - 7.0%
BROADCASTING - 5.1%
Adelphia Communications Corp.:
9 1/4%, 10/1/02 B3 $ 280,000 $ 285,950
9 1/2%, 2/15/04 B3 1,226,328 1,202,938
9 7/8%, 3/1/07 B3 450,000 475,875
Benedek Communications Corp. 0%,
5/15/06 (d) B3 140,000 106,400
Capstar Broadcasting Partners, Inc.
9 1/4%, 7/1/07 B2 180,000 185,175
Chancellor Media Corp. 8 3/4%,
6/15/07 (Los Angeles) B3 20,000 20,350
Charter Communications LP/Charter
Communications Southeast Capital
Corp. 11 1/4%, 3/15/06 B3 25,000 27,500
Citadel Broadcasting Co. 10 1/4%, 7/1/07 (f) B3 380,000 411,350
Diamond Cable Communications PLC yankee
0%, 12/15/05 (d) B3 680,000 530,400
Echostar Satellite Broadcasting Corp. 0%,
3/15/04 (d) B3 540,000 454,950
Echostar DBS Corp. 12 1/2%, 7/1/02 Caa 450,000 488,250
Frontier Vision Holdings LP/Frontier Vision
Holdings Capital Corp. 0%, 9/15/07 (d) Caa 100,000 71,750
Grupo Televisa SA de CV yankee 0%,
5/15/08 (d) Ba2 425,000 318,750
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 520,000 577,850
International Cabletel, Inc. 0%, 2/1/06 (d) B3 280,000 218,400
Lenfest Communications, Inc. 8 3/8%, 11/1/05 Ba3 90,000 92,813
NTL, Inc. 10%, 2/15/07 B3 700,000 736,750
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 B2 480,000 542,400
0%, 1/15/07 (d) B2 230,000 170,775
Pegasus Communications Corp. 9 5/8%,
10/15/05 (f) B3 20,000 20,400
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 510,000 561,000
TCI Communications Financing III
9.65%, 3/31/27 Ba3 290,000 334,588
Telewest PLC 0%, 10/1/07 (d) B1 1,240,000 961,000
UIH Australia/Pacific, Inc.:
Series B, 0%, 5/15/06 (d) B2 480,000 316,800
0%, 5/15/06 (d)(f) B2 170,000 112,200
9,224,614
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.8%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 $ 130,000 $ 134,875
Cobblestone Golf Group, Inc. 11 1/2%, 6/1/03 B2 500,000 542,500
Hollywood Theaters, Inc. 10 5/8%, 8/1/07 (f) B3 190,000 201,875
Livent, Inc. 9 3/8%, 10/15/04 (f) B1 50,000 50,000
Regal Cinemas, Inc. 8 1/2%, 10/1/07 B1 60,000 60,450
Viacom, Inc. 8%, 7/7/06 B1 494,000 495,853
1,485,553
LEISURE DURABLES & TOYS - 0.2%
E&S Holdings Corp. 10 3/8%, 10/1/06 Caa 290,000 266,075
Leslie's Poolmart, Inc. 10 3/8%, 7/15/04 B2 90,000 93,150
359,225
LODGING & GAMING - 0.5%
American Skiing Co. 12%, 7/15/06 B3 30,000 33,225
HMH Properties, Inc. 8 7/8%, 7/15/07 Ba3 320,000 335,200
KSL Recreation Group, Inc. 10 1/4%, 5/1/07 B3 410,000 438,700
Sun International Hotels Ltd./Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 30,000 30,900
838,025
PUBLISHING - 0.2%
ITT Publimedia BV 9 3/8%, 9/15/07 (f) B3 110,000 115,500
Perry Judds, Inc. 10 5/8%, 12/15/07 (f) B3 60,000 62,100
Sun Media Corp. yankee:
9 1/2%, 2/15/07 B3 70,000 75,250
9 1/2%, 5/15/07 B3 40,000 43,000
Transwestern Holdings LP/TWP Capital Corp.
0%, 11/15/08 (d)(f) B3 50,000 30,000
Transwestern Publishing Co. LP/TWP Capital
Corp. 9 5/8%, 11/15/07 (f) B2 70,000 72,800
398,650
RESTAURANTS - 0.2%
SC International Services, Inc. 9 1/4%,
9/1/07 (f) B2 300,000 309,000
TOTAL MEDIA & LEISURE 12,615,067
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
NONDURABLES - 1.0%
FOODS - 0.9%
Del Monte Foods Co. 0%, 12/15/07 (f) Caa $ 190,000 $ 108,775
Fresh Del Monte Produce NV 10%, 5/1/03 B2 148,000 154,660
Gorges/Quik-To-Fix Foods, Inc.
11 1/2%, 12/1/06 B3 1,300,000 1,355,250
1,618,685
TOBACCO - 0.1%
North Atlantic Trading, Inc. 11%, 6/15/04 B3 200,000 208,500
TOTAL NONDURABLES 1,827,185
RETAIL & WHOLESALE - 2.7%
GENERAL MERCHANDISE STORES - 0.1%
Jitney-Jungle Stores America, Inc.
10 3/8%, 9/15/07 B3 140,000 144,900
GROCERY STORES - 2.4%
Fleming Companies, Inc.:
10 1/2%, 12/1/04 (f) B3 110,000 115,225
10 5/8%, 7/31/07 (f) B3 160,000 168,800
Food 4 Less Holdings, Inc. 13 5/8%, 6/15/07 - 909,082 1,071,753
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 Caa 890,000 727,575
12 5/8%, 6/15/02 Caa 20,000 16,350
9 5/8%, 5/1/03 Caa 330,000 304,013
Ralph's Grocery Co. 11%, 6/15/05 B3 1,210,000 1,376,375
Star Markets, Inc. 13%, 11/1/04 B3 320,000 362,400
Supermercados Norte:
10 7/8%, 2/9/04 (f) B1 150,000 142,125
10 7/8%, 2/9/04 B1 100,000 94,750
4,379,366
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Color Spot Nurseries, Inc. 10 1/2%,
12/15/07 (f) Caa 150,000 151,688
J Crew Operating Corp. 10 3/8%,
10/15/07 (f) B3 180,000 156,600
308,288
TOTAL RETAIL & WHOLESALE 4,832,554
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - 0.8%
GOVERNMENT SERVICES - 0.2%
Queensland Treasury Corp. 8%, 5/14/03 Aaa AUD 550,000 $ 390,729
LEASING & RENTAL - 0.2%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 B3 400,000 390,000
PRINTING - 0.4%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 710,000 717,100
TOTAL SERVICES 1,497,829
TECHNOLOGY - 1.8%
COMMUNICATIONS EQUIPMENT - 0.3%
Intermedia Communications, Inc.
8 1/2%, 1/15/08 (f) B2 300,000 300,000
Jordan Telecommunication Products, Inc.
9 7/8%, 8/1/07 B3 200,000 203,250
503,250
COMPUTER SERVICES & SOFTWARE - 0.5%
Concentric Network Corp. 12 3/4%,
12/15/07 unit (f) - 490,000 503,475
DecisionOne Corp. 9 3/4%, 8/1/07 B3 300,000 307,500
DecisionOne Holdings Corp. 0%,
8/1/08 unit (d) Caa 200,000 128,000
938,975
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Dictaphone Corp. 11 3/4%, 8/1/05 Caa 190,000 182,400
ELECTRONIC INSTRUMENTS - 0.3%
High Voltage Engineering Corp. 10 1/2%,
8/15/04 (f) B3 240,000 250,200
Therma-Wave 10 5/8%, 5/15/04 B2 300,000 303,000
553,200
ELECTRONICS - 0.6%
Communications Instruments, Inc. 10%, 9/15/04 (f) B3 110,000
112,200
Details Holdings Corp. 0%, 11/15/07 (d)(f) Caa 260,000 152,100
Details, Inc. 10%, 11/15/05 (f) B3 240,000 246,600
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Stellex Industries, Inc. 9 1/2%, 11/1/07 (f) B3 $ 400,000 $ 404,000
ViaSystems, Inc. 9 3/4%, 6/1/07 B3 150,000 154,875
1,069,775
TOTAL TECHNOLOGY 3,247,600
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Kitty Hawk, Inc. 9.95%, 11/15/04 (f) B1 310,000 319,300
UTILITIES - 9.3%
CELLULAR - 4.0%
Dial Call Communications, Inc. 0%,
4/15/04 (d) B3 480,000 458,400
Fonorola, Inc. 12 1/2%, 8/15/02 B2 1,020,000 1,134,750
Globalstar LP/Globalstar Capital C Corp.:
11 3/8%, 2/15/04 B3 100,000 101,000
11 1/4%, 6/15/04 B3 330,000 330,825
10 3/4%, 11/1/04 (f) B3 400,000 389,000
McCaw International Ltd. 0%, 4/15/07 (d) CCC 1,753,000 1,016,740
Metrocall, Inc. 9 3/4%, 11/1/07 (f) B3 110,000 108,900
Microcell Telecommunications, Inc. 0%,
6/1/06 (d) B3 120,000 81,000
Millicom International Cellular SA 0%,
6/1/06 (d) B3 1,170,000 854,100
Nextel Communications, Inc.:
0%, 9/1/03 (d) B3 1,190,000 1,178,100
0%, 9/15/07 (d)(f) B3 513,000 324,473
0%, 10/31/07 (d)(f) B3 370,000 224,313
Pagemart Nationwide, Inc. 0%, 2/1/05 (d) - 130,000 111,150
Teligent, Inc. 11 1/2%, 12/1/07 Caa 260,000 260,650
Telesystem International Wireless, Inc.:
0%, 6/30/07 (d)(f) Caa 780,000 487,500
0%, 11/1/07 (d)(f) Caa 120,000 66,600
7,127,501
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 5.3%
American Communications Services, Inc.:
0%, 11/1/05 (d) - $ 280,000 $ 221,200
0%, 4/1/06 (d) - 450,000 345,375
13 3/4%, 7/15/07 (f) - 280,000 331,100
Brooks Fiber Properties, Inc.:
0%, 11/1/06 (d) - 310,000 248,000
10%, 6/1/07 - 110,000 125,950
GCI, Inc. 9 3/4%, 8/1/07 B2 100,000 104,000
GST Equipment Funding, Inc. 13 1/4%, 5/1/07 - 400,000 456,000
GST Telecommunications, Inc.
12 3/4%, 11/15/07 - 370,000 386,650
GST USA, Inc. 0%, 12/15/05 (d) - 70,000 53,550
Hermes Europe Railtel BV 11 1/2%,
8/15/07 (f) B3 170,000 188,700
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) B 360,000 261,000
12 1/4%, 9/1/04 B 260,000 285,350
ITC Deltacom, Inc. 11%, 6/1/07 B2 240,000 261,000
Interamericas Communications Corp. 14%,
10/27/07 unit (f) - 230,000 230,000
McLeodUSA, Inc. 9 1/4%, 7/15/07 (f) B3 310,000 323,175
Netia Holdings BV 10 1/4%, 11/1/07 (f) B3 290,000 278,400
NEXTlink Communications, Inc.:
12 1/2%, 4/15/06 B3 1,210,000 1,379,400
9 5/8%, 10/1/07 B3 150,000 154,500
Qwest Communications, International, Inc.:
10 7/8%, 4/1/07 B2 370,000 418,100
0%, 10/15/07 (d)(f) B2 620,000 421,600
RSL Communications Ltd./RSL Communications PLC
12 1/4%, 11/15/06 Caa 510,000 548,250
Source Media, Inc. 12%, 11/1/04 (f) B3 110,000 110,000
Teleport Communications Group, Inc.:
9 7/8%, 7/1/06 B1 110,000 123,750
0%, 7/1/07 (d) B1 1,210,000 992,200
Transtel SA 12 1/2%, 11/1/07 (f) B2 100,000 94,750
Tricom SA 11 3/8%, 9/1/04 (f) B2 125,000 121,250
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Winstar Communications, Inc.:
0%, 10/15/05 (d) Caa $ 160,000 $ 125,600
14 1/2%, 10/15/05 Caa 440,000 580,800
Winstar Equipment 12 1/2%, 3/15/04 B3 310,000 347,975
9,517,625
TOTAL UTILITIES 16,645,126
TOTAL NONCONVERTIBLE BONDS 60,322,703
TOTAL CORPORATE BONDS
(Cost $59,300,136) 60,585,116
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 17.5%
U.S. TREASURY OBLIGATIONS - 5.3%
9%, 11/15/18 Aaa 4,420,000 5,971,155
7 5/8%, 2/15/25 Aaa 2,850,000 3,458,732
9,429,887
U.S. GOVERNMENT AGENCY OBLIGATIONS - 12.2%
Fannie Mae 5.80%, 12/10/03 Aaa 5,000,000 4,960,150
Federal Farm Credit System Financial
Assistance Corp. 6.66%, 12/26/06 Aaa 1,000,000 1,039,370
Freddie Mac:
6 3/4%, 4/5/04 Aaa 870,000 905,209
7.70%, 9/20/04 Aaa 800,000 872,248
5.825%, 2/09/06 Aaa 5,000,000 4,930,450
Government Loan Trusts (assets of Trust guaranteed
by U.S. Government through Agency for
International Development) 8 1/2%, 4/1/06 Aaa 200,000 220,628
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 5,062,511 5,387,321
Class 2-E, 9.40%, 5/15/02 Aaa 187,394 199,063
Class 3-T, 9 5/8%, 5/15/02 Aaa 80,625 85,606
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Trade Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank) Series 1997-A,
6.104%, 7/15/03 Aaa $ 1,100,000 $ 1,100,990
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 741,000 758,034
State of Israel (guaranteed by U.S.
Government through Agency
for International Development):
7 1/8%, 8/15/99 Aaa 151,000 154,094
0%, 11/15/01 Aaa 1,335,000 1,067,637
U.S. Department of Housing and Urban
Development Government guaranteed
participation certificates
Series 1995-A, 8.27%, 8/1/03 Aaa 210,000 231,836
21,912,636
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $31,037,099) 31,342,523
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 11.2%
FREDDIE MAC - 0.4%
8 1/2%, 3/1/20 Aaa 506,425 534,259
6%, 12/1/07 . Aaa 99,026 98,491
632,750
FANNIE MAE - 4.9%
5 1/2%, 5/1/11 to 8/1/11 Aaa 909,554 880,374
6%, 4/1/01 to 1/1/26 Aaa 3,619,512 3,572,605
6 1/2%, 5/1/08 to 2/1/26 Aaa 2,446,073 2,426,839
7 1/2%, 8/1/27 Aaa 951,085 973,369
8%, 1/1/28 Aaa 1,000,000 1,035,625
8,888,812
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.9%
6%, 1/15/09 to 5/15/09 Aaa 1,185,936 1,179,176
6 1/2%, 4/15/26 to 5/15/26 Aaa 956,907 947,033
7%, 9/15/25 to 11/15/27 Aaa 1,954,398 1,970,291
7 1/2%, 2/15/22 to 2/15/27 Aaa 4,366,683 4,476,805
8%, 3/15/27 Aaa 992,774 1,029,070
11%, 2/15/16 to 10/15/18 Aaa 756,492 863,508
11 1/2%, 3/15/10 Aaa 113,780 129,417
10,595,300
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $19,664,416) 20,116,862
COMMERCIAL MORTGAGE SECURITIES - 0.0%
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 (Cost $1,902) Baa3 $ 1,888 $ 1,888
FOREIGN GOVERNMENT OBLIGATIONS (J) - 21.6%
Argentinian Republic:
Bote 11 3/8%, 4/3/00 Ba3 2,145 742
Brady:
discount euro 6 5/8%, 3/31/23 (h) Ba3 800,000 662,500
par euro 5 1/2%, 3/31/23 (e) Ba3 2,390,000 1,752,169
global bond:
11 3/8%, 1/30/17 Ba3 275,000 300,850
11 3/8%, 1/30/17 Ba3 220,000 240,680
9 3/4%, 9/19/27 Ba3 499,000 478,104
11 3/4%, 2/12/07 Ba3 ARS 130,000 122,223
11 3/4%, 2/12/07 (f) Ba3 ARS 250,000 235,045
Austrian Republic euro 4 1/2 %, 9/28/05 (i) Aaa JPY 120,000
1,100,333
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank)
interest notes 6.7188%, 12/15/15 (f)(g) Ba2 1,280,333 901,034
Belgian Kingdom:
8 3/4%, 6/25/02 (i) Aa1 BEF 24,000 746,300
7 1/2%, 7/29/08 (i) Aa1 BEF 3,000 93,619
Brazilian Federative Republic:
Brady:
capitalization bond 8%, 4/15/14 B1 2,326,128 1,828,918
debt conversion bond euro
6 3/4%, 4/15/12 (h) B1 1,550,000 1,178,000
discount euro 6 5/8%, 4/15/24 (h) B1 250,000 204,063
par 5 1/4%, 4/15/24 (e) B1 300,000 216,188
global bond 10 1/8%, 5/15/27 B1 327,000 306,563
IDU euro 6 5/8%, 1/1/01 (h) B1 157,000 149,386
Bulgarian Republic:
Brady discount 6 7/8%, 7/28/24 (h) B2 775,000 596,750
FLIRB A 2 1/4%, 7/28/12 (h) B2 1,725,000 1,050,094
6.0625%, 7/28/11 B2 325,000 237,656
Canadian Government 9%, 12/1/04 Aa1 CAD 1,550,000 1,294,820
City of Buenos Aires:
euro 10 1/2%, 5/28/04 B1 200,000 173,033
11 1/4%, 4/11/07 (f) B1 250,000 258,750
Danish Kingdom Bullet:
6%, 12/10/99 Aaa DKK 700,000 104,940
9%, 11/15/00 Aaa DKK 400,000 64,795
8%, 5 /15/03 Aaa DKK 2,700,000 445,447
FOREIGN GOVERNMENT OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
Dutch Government:
8 3/4%, 5/1/00 AAA NLG 800,000 $ 431,364
5 3/4%, 1/15/04 AAA NLG 1,100,000 562,457
7%, 6/15 /05 AAA NLG 260,000 142,362
Ecuador Republic:
Brady par euro 3 1/2%, 2/28/25 (e) B1 825,000 454,781
Brady past due interest euro 6.6875%,
2/28/15 (bearer)(h) B1 694,412 453,972
11 1/4%, 4/25/02 (f) B1 455,000 470,925
French Government:
OAT 9 1/2%, 1/25/01 Aaa FRF 9,700,000 1,834,538
8 1/2%, 12/26/12 Aaa FRF 3,600,000 773,610
German Federal Republic:
7 3/4%, 2/21/00 Aaa DEM 1,050,000 624,220
8 3/8%, 5/21/01 Aaa DEM 2,100,000 1,302,269
Italian Government:
12 1/2%, 1/1/98 (i) Aa3 ITL 1,500,000 841,977
12%, 1/1/03 (i) Aa ITL 1,200,000 873,824
Italian Republic 9 1/2%, 1/1/05 (i) Aa3 ITL 1,200,000 832,379
Kazakhstan Republic 8 3/8%, 10/2/02 Ba3 300,000 267,750
Mexico Value recovery rights 6/30/03:
discount A - 729,000 -
discount B - 967,000 -
Panamanian Republic Brady:
interest reduction bond euro
3 3/4%, 7/17/14 (h) Ba1 250,000 191,406
past due interest euro
6.5625%, 7/17/19 (d) Ba1 1,129,843 920,822
Peruvian Republic:
Brady FLIRB:
3 1/4%, 3/7/17 (f) (h) B2 500,000 296,563
3 1/4%, 3/7/17 (h) B2 965,000 572,366
past due interest 4%, 3/7/17 (f) (h) B2 490,000 320,338
Russian Government:
euro 10%, 6/26/07 Ba2 200,000 184,750
9 1/4%, 11/27/01 Ba2 310,000 295,275
Spanish Kingdom:
11.45%, 8/30/98 (i) Aa2 ESP 15,000 102,513
10 1/4%, 11/30/98 (i) Aa2 ESP 40,000 275,257
10.90%, 8/30/03 (i) Aa2 ESP 90,000 750,645
Swedish Kingdom 10 1/4%, 5/5 /03 Aa1 SEK 4,700,000 713,533
Treuhandstalt 7 3/8%, 12/2/02 Aaa DEM 2,700,000 1,660,234
FOREIGN GOVERNMENT OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
United Kingdom, Great Britain & Northern Ireland:
10%, 2/26/01 Aaa GBP 400,000 $ 718,568
9 3/4%, 8/2 7/02 Aaa GBP 150,000 277,668
8 1/2%, 7/16/07 Aaa GBP 700,000 1,326,417
United Mexican States:
Brady:
discount A, 6 1/4%, 12/31/19 (h) Ba2 475,000 439,078
discount B, 6 1/4%, 12/31/19 (h) Ba2 630,000 582,356
par A 6 1/4%, 12/31/19 unit Ba2 600,000 500,250
6 1/4%, 12/31/19 unit Ba2 700,000 583,625
global bond 11 1/2%, 5/15/26 Ba2 1,205,000 1,427,925
Venezuelan Republic:
Brady debt conversion bond
6.8125%, 12/18/07 (h) Ba2 952,381 851,786
Brady discount A 6 3/4%, 3/31/20 (h) Ba2 800,000 717,000
Oil recovery rights 3/31/20 - 7,790 -
9 1/4%, 9/15/27 Ba2 567,000 508,032
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $39,928,705) 38,825,837
SUPRANATIONAL OBLIGATIONS - 1.2%
InterAmerica Development Bank euro
6%, 10/30/01 (i) (Cost $2,620,391) Aaa JPY 235,000 2,129,083
COMMON STOCKS - 0.2%
SHARES
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a) 260 6,240
Sterling Chemical Holdings warrants 8/15/08 (a) 120 3,600
9,840
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. (a)(f) 10 -
Orion Network Systems, Inc.:
warrants 1/15/07 (a) 480 6,240
warrants 1/15/07 (a) 230 2,530
UIH Australia/Pacific, Inc. warrants 5/15/06 (a) 570 6,840
15,610
COMMON STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
MEDIA & LEISURE - CONTINUED
DURABLES & TOYS - 0.0%
IHF Capital, Inc., Series I warrants 11/14/99 (a)(f) 270 $ 16,200
TOTAL MEDIA & LEISURE 31,810
UTILITIES - 0.2%
CELLULAR - 0.1%
McCaw International Ltd. warrants 4/15/07 (a)(f) 1,753 4,383
Microcell Telecommunications, Inc. warrants 6/1/06 (a)(f) 2,520
34,902
Nextel Communications, Inc. Class A (a) 1,997 51,922
Pagemart Nationwide, Inc. (non-vtg.) (a) 2,100 19,163
Powertel, Inc. warrants 2/1/06 (a) 3,328 29,952
140,322
TELEPHONE SERVICES - 0.1%
RSL Communications Ltd./RSL Communications
PLC warrants 11/15/06 (a) 630 57,960
Source Media, Inc. unit (a)(f) 3 75,000
132,960
TOTAL UTILITIES 273,282
TOTAL COMMON STOCKS
(Cost $148,679) 314,932
PREFERRED STOCKS - 9.7%
CONVERTIBLE PREFERRED STOCKS - 0.1%
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
Benedek Communications Corp. 15% (a) 1,996 258,482
NONCONVERTIBLE PREFERRED STOCKS - 9.6%
FINANCE - 0.2%
INSURANCE - 0.2%
American Annuity Group Capital Trust II 8 3/4% 240 259,259
PREFERRED STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT - 0.2%
Fresenius Medical Care Capital Trust 9% 251 $ 264,805
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Echostar Communications Corp.
12 1/8%, pay-in-kind (f) 247 254,410
MEDIA & LEISURE - 5.5%
BROADCASTING - 5.1%
Adelphia Communications Corp. $13 4,783 566,786
American Radio Systems Corp. 11 3/8%, pay-in-kind 1,683 188,496
Cablevision Systems Corp.:
Series H, $11.75 pay-in-kind 5,974 707,919
11 1/8%, depositary shares pay-in-kind 8,249 952,760
CapStar Broadcasting Partners, Inc. pay-in-kind 12% 3,840 417,120
Chancellor Media Corp. 12%, pay-in-kind (f) 5,510 628,140
Citadel Brodcasting Co. 13 1/4%, pay-in-kind (f) 813 93,089
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 317 351,870
NTL, Inc. 13%, pay-in-kind 321 370,755
SFX Broadcasting, Inc. 12 5/8% 5,071 580,630
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 3,806 4,272,235
9,129,800
PUBLISHING - 0.4%
Primedia, Inc.:
Series D, $10 5,733 599,099
Series E, $9.20 (f) 1,600 161,600
760,699
TOTAL MEDIA & LEISURE 9,890,499
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Supermarkets General Holdings Corp. $3.52 pay-in-kind 12,725
152,700
PREFERRED STOCKS - CONTINUED
SHARES VALUE
(NOTE 1)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SERVICES - 0.3%
PRINTING - 0.3%
Von Hoffman Corp. pay-in-kind 13 1/2%,
5/15/09 (f) 20,000 $ 602,500
TECHNOLOGY - 0.6%
COMMUNICATIONS EQUIPMENT - 0.6%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 911 1,115,975
UTILITIES - 2.6%
CELLULAR - 0.6%
Nextel Communications, Inc., Series D, 13%, pay-in-kind 950
1,083,000
TELEPHONE SERVICES - 2.0%
American Communications Services, Inc.:
12 3/4%, pay-in-kind (f) 409 412,068
14 3/4%, pay-in-kind (g) 96 108,480
Hyperion Telecommunications, Inc. 12 7/8%, 10/15/07
pay-in-kind (Reg.) 518 521,885
ICG Holdings, Inc. 14 1/4%, pay-in-kind 368 431,480
IXC Communications, Inc. 12 1/2%, pay-in-kind (f) 867 1,014,390
NEXTLINK Communications, Inc. 14%, pay-in-kind 8,955 559,688
Winstar Communications, Inc. 14 1/2% (a)(f) 474 495,330
3,543,321
TOTAL UTILITIES 4,626,321
TOTAL NONCONVERTIBLE PREFERRED STOCKS 17,166,469
TOTAL PREFERRED STOCKS
(Cost $16,616,235) 17,424,951
PURCHASED BANK DEBT - 0.2%
MOODY'S RATINGS (C) PRINCIPAL
(UNAUDITED) AMOUNT (B)
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) loan under 1997
restructuring agreement 6.7188%,
12/15/20 (Cost $213,864) - $ 490,000 303,188
SOVEREIGN LOAN PARTICIPATIONS - 1.4%
MOODY'S RATINGS (C) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (B) (NOTE 1)
Bank for Foreign Economic Affairs of Russia
(Vnesheconmbank) loan participation
restructured under 1997 agreement:
- The Chase Manhattan Bank 6.7188%,
12/15/20 (g)(h) - $ 2,100,000 $ 1,299,375
- ING Bank NV 6.7188%, 12/15/20 (h) - 250,000 154,688
- Morgan (J.P.) Securities, Inc.
6.7188%, 12/15/20 (h) - 250,000 154,688
Ivory Coast restructured loan (a):
- - The Chase Manhattan Bank - 300,000 129,750
- Morgan (J.P.) Securities, Inc. - 500,000 216,250
- Paribas Capital Markets - 700,000 302,750
Moroccan Kingdom loan participation:
- ING Bank NV 6.6563%, 1/1/09 (h) - 250,000 215,313
Series A
- Morgan Guaranty Trust Company of
New York, 6.6563%, 1/1/09 - 125,000 107,656
TOTAL SOVEREIGN LOAN PARTICIPATIONS
(Cost $2,229,439) 2,580,470
CASH EQUIVALENTS - 3.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 6.40%, dated
12/31/97 due 1/2/98 (Cost $5,977,000) $ 5,979,126 5,977,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $177,737,866) $ 179,601,850
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest Reduction
Bonds
CURRENCY ABBREVIATIONS
ARS - Argentine peso
AUD - Australian dollar
BEF - Belgian franc
GBP - British pound
CAD - Canadian dollar
DKK - Danish krone
NLG - Dutch guilder
FRF - French franc
DEM - German deutsche mark
ITL - Italian lira
JPY - Japanese yen
ESP - Spanish peseta
SEK - Swedish krona
LEGEND
1. Non-income producing
2. Principal amount is stated in United States dollars unless
otherwise noted.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date. The rate shown is the
rate at period end.
5. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
6. Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At the
period end, the value of these securities amounted to $18,085,154 or
9.8% of net assets.
7. Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
8. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
9. Principal amount in thousands.
10. For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 41.6% AAA, AA, A 41.4%
Baa 0.0% BBB 0.2%
Ba 8.8% BB 10.3%
B 27.4% B 23.0%
Caa 3.2% CCC 3.8%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings
of the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 4.2%. FMR has determined that
unrated debt securities that are lower quality account for 4.0% of the
total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 69.9%
Argentina 2.5
Germany 2.5
Brazil 2.3
Mexico 2.2
United Kingdom 2.2
Russia 1.8
Canada 1.5
Supranational 1.5
France 1.5
Italy 1.4
Japan 1.2
Venezuela 1.2
Bulgaria 1.1
Others (individually less than 1%) 7.2
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31,1997, the aggregate cost of investment securities for
income tax purposes was $177,971,988. Net unrealized appreciation
aggregated $1,629,862, of which $5,875,653 related to appreciated
investment securities and $4,245,791 related to depreciated investment
securities.
The fund hereby designates approximately $863,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1997

11.ASSETS 12. 13.

14.INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE 15. $ 179,601,850
AGREEMENTS OF $5,977,000) (COST $177,737,866) -
SEE ACCOMPANYING SCHEDULE

16.RECEIVABLE FOR INVESTMENTS SOLD 17. 1,070,112
REGULAR DELIVERY

18. DELAYED DELIVERY 264,873

19.RECEIVABLE FOR FUND SHARES SOLD 20. 3,866,607

21.DIVIDENDS RECEIVABLE 22. 157,700

23.INTEREST RECEIVABLE 24. 2,627,721

25.OTHER RECEIVABLES 26. 5,914

27.PREPAID EXPENSES 28. 11,094

29. 30.TOTAL ASSETS 31. 187,605,871

32.LIABILITIES 33. 34.

35.PAYABLE TO CUSTODIAN BANK $ 122,567 36.

37.PAYABLE FOR INVESTMENTS PURCHASED 1,758,660 38.
REGULAR DELIVERY

39. DELAYED DELIVERY 874,313 40.

41.DISTRIBUTIONS PAYABLE 519,693 42.

43.ACCRUED MANAGEMENT FEE 81,277 44.

45.DISTRIBUTION FEES PAYABLE 65,069 46.

47.OTHER PAYABLES AND ACCRUED EXPENSES 89,771 48.

49. 50.TOTAL LIABILITIES 51. 3,511,350

52.53.NET ASSETS 54. $ 184,094,521

55.NET ASSETS CONSIST OF: 56. 57.

58.PAID IN CAPITAL 59. $ 181,184,938

60.UNDISTRIBUTED NET INVESTMENT INCOME 61. 570,865

62.ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 63. 506,419
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

64.NET UNREALIZED APPRECIATION (DEPRECIATION) ON 65. 1,832,299
INVESTMENTS AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES

66.67.NET ASSETS 68. $ 184,094,521

</TABLE>

STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1997

69.CALCULATION OF MAXIMUM OFFERING PRICE 72. $11.09
70.CLASS A:
71.NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($3,379,453 (DIVIDED BY) 304,860 SHARES)

73.MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF 74. $11.64
$11.09)

75.CLASS T: 77. $11.09
76.NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($119,204,295 (DIVIDED BY) 10,744,680 SHARES)

78.MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF 79. $11.49
$11.09)

80.CLASS B: 82. $11.10
81.NET ASSET VALUE AND OFFERING PRICE PER SHARE
($54,562,045 (DIVIDED BY) 4,913,989 SHARES) A

83.84.CLASS C: 87. $11.08
85.86.NET ASSET VALUE, AND OFFERING PRICE PER SHARE
($659,421 (DIVIDED BY) 59,511 SHARES) A

88.INSTITUTIONAL CLASS: 90. $11.14
89.NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER
SHARE ($6,289,307 (DIVIDED BY) 564,607 SHARES)

A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997

91.INVESTMENT INCOME 93. $ 1,063,379
92.DIVIDENDS

94.INTEREST 95. 12,726,817

96. 97.TOTAL INCOME 98. 13,790,196

99.EXPENSES 100. 101.

102.MANAGEMENT FEE $ 967,126 103.

104.TRANSFER AGENT FEES 344,884 105.

106.DISTRIBUTION FEES 689,002 107.

108.ACCOUNTING FEES AND EXPENSES 66,910 109.

110.NON-INTERESTED TRUSTEES' COMPENSATION 643 111.

112.CUSTODIAN FEES AND EXPENSES 34,830 113.

114.REGISTRATION FEES 104,162 115.

116.AUDIT 35,732 117.

118.LEGAL 12,256 119.

120.REPORTS TO SHAREHOLDERS 52,202 121.

122.MISCELLANEOUS 689 123.

124. TOTAL EXPENSES BEFORE REDUCTIONS 2,308,436 125.

126. EXPENSE REDUCTIONS (53,783) 2,254,653

127.128.NET INVESTMENT INCOME 129. 11,535,543

130.REALIZED AND UNREALIZED GAIN (LOSS) 132. 133.
131.NET REALIZED GAIN (LOSS) ON:

134. INVESTMENT SECURITIES 5,614,556 135.

136. FOREIGN CURRENCY TRANSACTIONS (66,228) 5,548,328

137.CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 138. 139.
ON:

140. INVESTMENT SECURITIES (2,638,910) 141.

142. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (28,402) (2,667,312)

143.144.NET GAIN (LOSS) 145. 2,881,016

146.147.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 148. $ 14,416,559
FROM OPERATIONS

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996

149.INCREASE (DECREASE) IN NET ASSETS

150.OPERATIONS $ 11,535,543 $ 7,731,150
NET INVESTMENT INCOME

151. NET REALIZED GAIN (LOSS) 5,548,328 4,348,998

152. CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (2,667,312) 1,497,971

153. 14,416,559 13,578,119
154.NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS

155.DISTRIBUTIONS TO SHAREHOLDERS (11,341,743) (7,701,001)
FROM NET INVESTMENT INCOME

156. FROM NET REALIZED GAIN (5,678,734) (3,422,517)

157. 158.TOTAL DISTRIBUTIONS (17,020,477) (11,123,518)

159.SHARE TRANSACTIONS - NET INCREASE (DECREASE) 43,274,917 61,581,370

160. 40,670,999 64,035,971
161.TOTAL INCREASE (DECREASE) IN NET ASSETS

162.NET ASSETS 163. 164.

165. BEGINNING OF PERIOD 143,423,522 79,387,551

166. $ 184,094,521 $ 143,423,522
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $570,865 AND $39,713, RESPECTIVELY)

</TABLE>

FINANCIAL HIGHLIGHTS - CLASS A
167. YEARS ENDED DECEMBER 31,

168. 1997 1996 E

<TABLE>
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169.SELECTED PER-SHARE DATA D

170.NET ASSET VALUE, BEGINNING OF PERIOD $ 11.250 $ 11.010

171.INCOME FROM INVESTMENT OPERATIONS

172. NET INVESTMENT INCOME .802 .267

173. NET REALIZED AND UNREALIZED GAIN (LOSS) .198 .493

174. TOTAL FROM INVESTMENT OPERATIONS 1.000 .760

175.LESS DISTRIBUTIONS

176. FROM NET INVESTMENT INCOME (.790) (.280)

177. FROM NET REALIZED GAIN (.370) (.240)

178. TOTAL DISTRIBUTIONS (1.160) (.520)

179.NET ASSET VALUE, END OF PERIOD $ 11.090 $ 11.250

180.TOTAL RETURN B, C 9.24% 6.95%

181.RATIOS AND SUPPLEMENTAL DATA

182.NET ASSETS, END OF PERIOD (000 OMITTED) $ 3,379 $ 587

183.RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.25% F 1.25% A, F

184.RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 1.24% G 1.25% A

185.RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 7.16% 7.32% A

186.PORTFOLIO TURNOVER RATE 140% 119%

</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 DECEMBER 31, 1996.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS T

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

1997 1996 1995 1994 E

SELECTED PER-SHARE DATA

NET ASSET VALUE, BEGINNING OF PERIOD $ 11.250 $ 11.000 $ 9.920 $ 10.000

INCOME FROM INVESTMENT OPERATIONS

NET INVESTMENT INCOME .814 D .813 D .885 .064 D

NET REALIZED AND UNREALIZED GAIN (LOSS) .194 .542 1.231 (.046)

TOTAL FROM INVESTMENT OPERATIONS 1.008 1.355 2.116 .018

LESS DISTRIBUTIONS

FROM NET INVESTMENT INCOME (.798) (.805) (.806) (.098)

FROM NET REALIZED GAIN (.370) (.300) (.230) -

TOTAL DISTRIBUTIONS (1.168) (1.105) (1.036) (.098)

NET ASSET VALUE, END OF PERIOD $ 11.090 $ 11.250 $ 11.000 $ 9.920

TOTAL RETURNS B, C 9.33% 12.89% 22.02% .17%

RATIOS AND SUPPLEMENTAL DATA

NET ASSETS, END OF PERIOD (000 OMITTED) $ 119,204 $ 99,327 $ 52,626 $ 10,687

RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.20% 1.23% 1.35% F 1.35% A, F

RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.19% G 1.22% G 1.35% 1.35% A
AFTER EXPENSE REDUCTIONS

RATIO OF NET INVESTMENT INCOME TO AVERAGE 7.21% 7.34% 7.28% 5.80% A
NET ASSETS

PORTFOLIO TURNOVER RATE 140% 119% 193% 104% A

</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 OCTOBER 31, 1994 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 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.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS B

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
187. YEARS ENDED DECEMBER 31,

188. 1997 1996 1995 1994 E

189.SELECTED PER-SHARE DATA

190.NET ASSET VALUE, BEGINNING OF PERIOD $ 11.260 $ 11.010 $ 9.910 $ 10.000

191.INCOME FROM INVESTMENT OPERATIONS

192. NET INVESTMENT INCOME .740 D .743 D .820 .072 D

193. NET REALIZED AND UNREALIZED GAIN .194 .538 1.237 (.078)
(LOSS)

194. TOTAL FROM INVESTMENT OPERATIONS .934 1.281 2.057 (.006)

195.LESS DISTRIBUTIONS

196. FROM NET INVESTMENT INCOME (.724) (.731) (.727) (.084)

197. FROM NET REALIZED GAIN (.370) (.300) (.230) -

198. TOTAL DISTRIBUTIONS (1.094) (1.031) (.957) (.084)

199.NET ASSET VALUE, END OF PERIOD $ 11.100 $ 11.260 $ 11.010 $ 9.910

200.TOTAL RETURN B, C 8.60% 12.14% 21.35% (.06)%

201.RATIOS AND SUPPLEMENTAL DATA

202.NET ASSETS, END OF PERIOD (000 $ 54,562 $ 37,403 $ 26,654 $ 9,379
OMITTED)

203.RATIO OF EXPENSES TO AVERAGE NET 1.86% 1.88% 2.10% F 2.10% A, F
ASSETS

204.RATIO OF EXPENSES TO AVERAGE NET 1.85% G 1.87% G 2.10% 2.10% A
ASSETS
AFTER EXPENSE REDUCTIONS

205.RATIO OF NET INVESTMENT INCOME TO 6.55% 6.69% 6.53% 5.06% A
AVERAGE
NET ASSETS

206.PORTFOLIO TURNOVER RATE 140% 119% 193% 104% A

</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 OCTOBER 31, 1994 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 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.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - CLASS C
207. YEAR ENDED
DECEMBER 31,

208. 1997 E

209.SELECTED PER-SHARE DATA D

210.NET ASSET VALUE, BEGINNING OF PERIOD $ 11.400

211.INCOME FROM INVESTMENT OPERATIONS

212. NET INVESTMENT INCOME .105

213. NET REALIZED AND UNREALIZED GAIN (LOSS) .037

214. TOTAL FROM INVESTMENT OPERATIONS .142

215.LESS DISTRIBUTIONS

216. FROM NET INVESTMENT INCOME (.152)

217. FROM NET REALIZED GAIN (.310)

218. TOTAL DISTRIBUTIONS (.462)

219.NET ASSET VALUE, END OF PERIOD $ 11.080

220.TOTAL RETURN B, C 1.27%

221.RATIOS AND SUPPLEMENTAL DATA

222.NET ASSETS, END OF PERIOD (000 OMITTED) $ 659

223.RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.10% A, F

224.RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.30% A

225.PORTFOLIO TURNOVER RATE 140%

A ANNUALIZED
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS 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 DECEMBER 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS

<TABLE>
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<S> <C> <C> <C>
226. YEARS ENDED DECEMBER 31,

227. 1997 1996 1995 E

228.SELECTED PER-SHARE DATA

229.NET ASSET VALUE, BEGINNING OF PERIOD $ 11.300 $ 11.030 $ 10.890

230.INCOME FROM INVESTMENT OPERATIONS

231. NET INVESTMENT INCOME .830 D .826 D .456

232. NET REALIZED AND UNREALIZED GAIN (LOSS) .186 .548 .340

233. TOTAL FROM INVESTMENT OPERATIONS 1.016 1.374 .796

234.LESS DISTRIBUTIONS

235. FROM NET INVESTMENT INCOME (.806) (.804) (.426)

236. FROM NET REALIZED GAIN (.370) (.300) (.230)

237. TOTAL DISTRIBUTIONS (1.176) (1.104) (.656)

238.NET ASSET VALUE, END OF PERIOD $ 11.140 $ 11.300 $ 11.030

239.TOTAL RETURN B, C 9.36% 13.04% 7.47%

240.RATIOS AND SUPPLEMENTAL DATA

241.NET ASSETS, END OF PERIOD (000 OMITTED) $ 6,289 $ 6,107 $ 107

242.RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.10% F 1.10% F 1.10% A, F

243.RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER 1.09% G 1.10% 1.10% A
EXPENSE REDUCTIONS

244.RATIO OF NET INVESTMENT INCOME TO AVERAGE NET 7.31% 7.47% 7.53% A
ASSETS

245.PORTFOLIO TURNOVER RATE 140% 119% 193%

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO DECEMBER 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).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1997

1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Strategic Income Fund(the fund) is a fund of Fidelity
Advisor Series II (the trust) (formerly a fund of Fidelity Advisor
Series VIII) 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 its
distribution plan. 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, registration, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to
make certain estimates and assumptions at the date of the financial
statements. At a special meeting of the shareholders of the fund held
on June 18, 1997, shareholders approved an Agreement and Plan of
Reorganization, providing for the reorganization of the fund into
Fidelity Advisor Series II, effective on October 31, 1997. 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 (sales prices if the
principal market is an exchange) in the principal market in which such
securities are normally traded. Securities for which market quotations
are not readily available (and in certain cases debt securities which
trade on an exchange) are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
and the U.S. dollar amount actually received. The effects of changes
in foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund accrues such taxes as applicable. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears
all organizational expenses except for registering and qualifying
Class C and shares of Class C for distribution under federal and state
securities law. These expenses are borne by Class C and amortized over
one year.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date. Income dividends
and capital gain distributions are declared separately for each class.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into
one or more joint trading accounts. These balances are invested in one
or more repurchase agreements for U.S. Treasury or Federal Agency
obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
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. 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.
2. OPERATING POLICIES - CONTINUED
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying
securities is fixed at the time the transaction is negotiated. The
market values of the securities purchased on a when-issued or forward
commitment basis are identified as such in the fund's schedule of
investments. The fund may receive compensation for interest forgone in
the purchase of a when-issued 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. The payables and receivables associated with the purchases
and sales of when-issued securities having the same settlement date
and broker are offset. When-issued securities that have been purchased
from and sold to different brokers are reflected as both payables and
receivables in the statement of assets and liabilities under the
caption "Delayed delivery." Losses may arise due to changes in the
market value of the underlying securities, if the counterparty does
not perform under the contract, or if the issuer does not issue the
securities due to political, economic, or other factors.
OPTIONS. The fund may use options to manage its exposure to the bond
market and to fluctuations in interest rates. Writing puts and buying
calls tend to increase the fund's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the fund's
exposure to the underlying instrument, or hedge other fund
investments. Losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparties do not perform under the
contracts' terms. Gains and losses are realized upon the expiration or
closing of the options. Realized gains (losses) on purchased options
are included in realized gains (losses) on investment securities.
Exchange-traded options are valued using the last sale price or, in
the absence of a sale, the last offering price. Options traded
over-the-counter are valued using dealer-supplied valuations.
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).
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 $2,580,470 or 1.4% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $248,908,247 and $217,961,904, respectively, of which U.S.
government and government agency obligations aggregated $71,517,643
and $69,762,382, 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 .59% of average net assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., Fidelity International
Investment Advisors (FIIA), and Fidelity Investment Japan Ltd. (FIJ)
In addition, FIIA entered into a sub-advisory agreement with its
subsidiary, Fidelity International Investment Advisors (U.K.) Limited
(FIIA (U.K.) L). Under the sub-advisory arrangements, FMR may receive
investment advice and research services and may grant the sub-advisers
investment management authority to buy and sell securities. FMR pays
its sub-advisers either a portion of its management fee or a fee based
on costs incurred for these services. FIIA pays FIIA (U.K.) L a fee
based on costs incurred for either service.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. This fee is based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%

CLASS T .25%

CLASS B .90%*

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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
For the period, each class paid FDC the following amounts, a portion
of which was paid to securities dealers, banks and other financial
institutions for the distribution of each class' applicable shares,
and providing shareholder support services:
PAID TO DEALERS'
FDC PORTION

CLASS A $ 2,600 $ 2,600

CLASS T 276,410 276,410

CLASS B 409,520 113,756

CLASS C 472 -

$ 689,002 $ 392,766

Under the Plans, FMR or FDC may use its resources to pay
administrative and promotional expenses related to the sale of each
class' shares. The Plans also authorize payments to third parties that
assist in the sale of each class' shares or render shareholder support
services. For the period, the following amounts were paid to third
parties under the Plans:
CLASS A $ 1,115

CLASS T 10,348

CLASS C 486

SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares (4.25% prior to August 1, 1997), and 3.50% for
selling Class T shares of the fund, respectively. FDC receives the
proceeds of contingent deferred sales charges levied on Class B share
redemptions occurring within six years of purchase (five years prior
to January 2, 1997) 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%(4% to 1% prior to January 2,
1997) 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.
For the period, FDC received the following sales charge amounts
related to each class, a portion of which is paid to securities
dealers, banks, and other financial institutions:
PAID TO DEALERS'
FDC PORTION

CLASS A $ 56,247 $ 46,325

CLASS T 275,540 197,966

CLASS B 89,199 0*

CLASS C 0 0*

$ 420,986 $ 244,291

* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO DEALERS
THROUGH WHICH THE SALES ARE MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Each class of the fund has entered into a
separate transfer, dividend disbursing, and shareholder servicing
agent (collectively referred to as the Transfer Agents) contract with
respect to its shares. The Transfer Agents receive account fees and
asset-based fees that vary according to the account size and type of
account of the shareholders of the respective classes of the fund.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports. For the period, the following amounts were paid to each
transfer agent:
TRANSFER AMOUNT % OF
AGENT AVERAGE
NET ASSETS

CLASS A FIIOC * $ 6,445 .37

CLASS T** FIIOC * 234,829 .21

CLASS B FIIOC * 92,218 .20

CLASS C FIIOC * 90 .19 ***

INSTITUTIONAL CLASS FIIOC * 11,302 .18

$ 344,884

* FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY, INC.
(FIIOC),AN AFFILIATE OF FMR.
** PRIOR TO JANUARY 1, 1997 STATE STREET BANK AND TRUST COMPANY WAS
THE TRANSFER AGENT FOR THE FUND'S CLASS T SHARES. STATE STREET,
HOWEVER, HAD DELEGATED CERTAIN
TRANSFER, DIVIDEND DISBURSING, AND SHAREHOLDER SERVICES TO FIIOC FOR
WHICH FIIOC RECEIVED ITS ALLOCABLE SHARE OF ALL SUCH FEES.
*** ANNUALIZED
ACCOUNTING FEES. Fidelity Service Company, Inc., an affiliate of FMR,
maintains the fund's accounting records. The fee is based on the level
of average net assets for the month plus out-of-pocket expenses.
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 1.25% $ 28,438

CLASS C 2.10% 6,727

INSTITUTIONAL CLASS 1.10% 6,632

$ 41,797

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 $11,986 under the custodian
arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED DECEMBER 31,

1997 A 1996 B

CLASS A

FROM NET INVESTMENT INCOME $ 128,164 $ 8,336

FROM NET REALIZED GAIN 93,953 11,477

TOTAL $ 222,117 $ 19,813

CLASS T

FROM NET INVESTMENT INCOME $ 7,824,627 $ 5,439,021

FROM NET REALIZED GAIN 3,695,167 2,365,241

TOTAL $ 11,519,794 $ 7,804,262

CLASS B

FROM NET INVESTMENT INCOME $ 2,941,590 $ 2,018,483

FROM NET REALIZED GAIN 1,668,813 918,814

TOTAL $ 4,610,403 $ 2,937,297

CLASS C

FROM NET INVESTMENT INCOME $ 5,711 $ -

FROM NET REALIZED GAIN 16,228 -

TOTAL $ 21,939 $ -

INSTITUTIONAL CLASS

FROM NET INVESTMENT INCOME $ 441,651 $ 235,161

FROM NET REALIZED GAIN 204,573 126,985

TOTAL $ 646,224 $ 362,146

$ 17,020,477 $ 11,123,518

A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1997.
B DISTRIBUTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1996.
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
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,

1997 A 1996 B 1997 A 1996 B

CLASS A 265,146 50,970 $ 3,006,773 $ 576,976
SHARES SOLD

REINVESTMENT OF DISTRIBUTIONS 17,057 1,518 191,271 17,135

SHARES REDEEMED (29,534) (297) (335,583) (3,402)

NET INCREASE (DECREASE) 252,669 52,191 $ 2,862,461 $ 590,709

CLASS T 4,933,967 5,716,371 $ 55,635,680 $ 63,555,043
SHARES SOLD

REINVESTMENT OF DISTRIBUTIONS 837,190 576,193 9,389,799 6,422,573

SHARES REDEEMED (3,857,473) (2,244,243) (43,554,684) (24,923,904)

NET INCREASE (DECREASE) 1,913,684 4,048,321 $ 21,470,795 $ 45,053,712

CLASS B 1,951,957 1,224,871 $ 22,125,314 $ 13,679,656
SHARES SOLD

REINVESTMENT OF DISTRIBUTIONS 332,029 224,151 3,727,875 2,516,519

SHARES REDEEMED (691,264) (548,526) (7,851,913) (6,111,458)

NET INCREASE (DECREASE) 1,592,722 900,496 $ 18,001,276 $ 10,084,717

CLASS C 75,453 - $ 858,758 $ -
SHARES SOLD

REINVESTMENT OF DISTRIBUTIONS 1,548 - 17,203 -

SHARES REDEEMED (17,490) - (199,505) -

NET INCREASE (DECREASE) 59,511 - $ 676,456 $ -

INSTITUTIONAL CLASS 146,268 525,446 $ 1,658,979 $ 5,792,940
SHARES SOLD

REINVESTMENT OF DISTRIBUTIONS 53,502 31,439 603,021 353,974

SHARES REDEEMED (175,667) (26,121) (1,998,071) (294,682)

NET INCREASE (DECREASE) 24,103 530,764 $ 263,929 $ 5,852,232

</TABLE>

A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1997.
B SHARE TRANSACTIONS FOR CLASS A ARE FOR THE PERIOD SEPTEMBER 3, 1996
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1996.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES

CLASS A $ 28,383

CLASS T 34,078

CLASS B 15,756

CLASS C 6,843

INSTITUTIONAL CLASS 19,102

$ 104,162

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities
of Fidelity Advisor Series II: Fidelity Advisor Strategic Income Fund,
including the schedule of portfolio investments, as of December 31,
1997, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights of Class A, Class
T, Class B, Class C, and Institutional Class for each of the periods
indicated therein. These financial statements and financial highlights
are the responsibility of the fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Advisor Series II: Fidelity Advisor
Strategic Income Fund as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial
highlights of Class A, Class T, Class B, Class C, and Institutional
Class for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 13, 1998
DISTRIBUTIONS

The Board of Trustees of Fidelity Advisor Strategic Income 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 2/10/97 1/2/98
Record Date 2/7/97 12/26/97
Dividends $ - $ -
Short-Term
Capital Gains $.05 $.21
Long-Term
Capital Gains $.01 $.10
Long-Term
Capital Gain Breakdown:
28% rate 100% 53.40%
20% rate 0% 46.60%

CLASS B
Pay Date 2/10/97 1/2/98
Record Date 2/7/97 12/26/97
Dividends $ - $ -
Short-Term
Capital Gains $.05 $.21
Long-Term
Capital Gains $.01 $.10
Long-Term
Capital Gain Breakdown:
28% rate 100% 53.40%
20% rate 0% 46.60%

The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
CLASS T
Pay Date 2/10/97 1/2/98
Record Date 2/7/97 12/26/97
Dividends $ - $ -
Short-Term
Capital Gains $.05 $.21
Long-Term
Capital Gains $.01 $.10
Long-Term
Capital Gain Breakdown:
28% rate 100% 53.40%
20% rate 0% 46.60%

CLASS C
Pay Date 1/2/98
Record Date 12/26/97
Dividends $ -
Short-Term
Capital Gains $.21
Long-Term
Capital Gains $.10
Long-Term
Capital Gain Breakdown:
28% rate 53.40%
20% rate 46.60%

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
Fidelity International Investment Advisors, Pembroke, Bermuda
Fidelity International Investment Advisors (U.K.) Limited
London, England
Fidelity Investments Japan Limited,
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
John H. Carlson, Vice President
Curt Hollingsworth, 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
Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuant
Growth Fund
SM
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
Fidelity Advisor Short-Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund

(REGISTERED TRADEMARK)

(2_FIDELITY_LOGOS)FIDELITY ADVISOR

(REGISTERED TRADEMARK)
STRATEGIC INCOME
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
DECEMBER 31, 1997
CONTENTS

PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.

PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.

FUND TALK 7 THE MANAGERS' REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.

INVESTMENT CHANGES 11 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.

INVESTMENTS 12 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

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. 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, 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 DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - INST CL 9.36% 51.55%

ML HIGH YIELD MASTER 12.82% 50.64%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 45.40%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year or since
the fund started on October 31, 1994. 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. You can also compare Institutional Class' returns to
those of the Fidelity Strategic Income Composite Benchmark - a broad
measure of the world fixed income markets. To measure how
Institutional Class' performance stacked up against its peers, you can
compare it to the multi-sector income 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 81 mutual funds. These benchmarks reflect
reinvestments of dividends and capital gains, if any, and exclude the
effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF
YEAR FUND

FIDELITY ADV STRATEGIC INCOME - INST CL 9.36% 14.03%

ML HIGH YIELD MASTER 12.82% 13.81%

FIDELITY STRATEGIC INCOME COMPOSITE 9.38% 12.55%

MULTI-SECTOR INCOME FUNDS AVERAGE 8.77% N/A

AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' cumulative
return and show you what would have happened if Institutional Class
had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19971231 19980202 155021 S00000000000001
FA Strategic Inc -CL I ML High Yield Master
FID Strategic Inc. Blend
00648 ML002
F0097
1994/10/31 10000.00 10000.00
10000.00
1994/11/30 10050.16 9914.94
9928.76
1994/12/31 10017.44 10025.22
9895.33
1995/01/31 10129.20 10166.88
9967.29
1995/02/28 10368.45 10484.10
10128.76
1995/03/31 10518.89 10630.00
10308.98
1995/04/30 10913.50 10878.89
10644.58
1995/05/31 11324.23 11218.77
11080.01
1995/06/30 11382.14 11304.46
11184.50
1995/07/31 11493.76 11433.70
11225.57
1995/08/31 11513.63 11503.09
11242.05
1995/09/30 11719.90 11634.70
11441.55
1995/10/31 11856.52 11717.17
11512.96
1995/11/30 11989.37 11831.55
11676.89
1995/12/31 12259.67 12021.46
11941.20
1996/01/31 12533.28 12211.32
12135.01
1996/02/29 12432.43 12229.71
11972.88
1996/03/31 12404.15 12196.49
11975.48
1996/04/30 12520.67 12202.02
12048.95
1996/05/31 12605.37 12290.02
12109.72
1996/06/30 12711.84 12363.84
12259.81
1996/07/31 12788.72 12447.78
12391.49
1996/08/31 12935.81 12576.33
12515.18
1996/09/30 13339.06 12846.16
12802.46
1996/10/31 13512.61 12986.95
12990.70
1996/11/30 13776.79 13249.51
13283.23
1996/12/31 13857.85 13351.46
13293.20
1997/01/31 13939.84 13454.07
13312.76
1997/02/28 14073.62 13642.80
13404.64
1997/03/31 13765.07 13491.28
13216.99
1997/04/30 13919.24 13644.83
13352.89
1997/05/31 14280.02 13916.32
13646.39
1997/06/30 14487.16 14131.74
13847.63
1997/07/31 14772.45 14470.87
14130.54
1997/08/31 14763.32 14438.31
14079.74
1997/09/30 15123.09 14684.83
14352.31
1997/10/31 14879.84 14782.28
14265.13
1997/11/30 14995.58 14914.67
14387.85
1997/12/31 15154.88 15063.79
14540.45
IMATRL PRASUN SHR__CHT 19971231 19980202 155022 R00000000000041
$10,000 OVER LIFE OF FUND(dagger): Let's say hypothetically that
$10,000 was invested in Fidelity Advisor Strategic Income Fund -
Institutional Class on October 31, 1994, when the fund started. As the
chart shows, by December 31, 1997, the value of the investment would
have grown to $15,155 - a 51.55% increase on the initial investment.
For comparison, look at how the Merrill Lynch High Yield Master Index
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,064 -
a 50.64% increase. You also can look at how the Fidelity Strategic
Income Composite Benchmark - a hypothetical combination of unmanaged
indices that is more representative of the fund's investable universe
- - did over the same period. This index combines returns from the J.P.
Morgan Emerging Markets Bond Index Plus (15%), Merrill Lynch High
Yield Master Index (40%), Lehman Brothers Government Bond Index (30%),
and Salomon Brothers Non-U.S. Dollar World Government Bond Index
(15%). With distributions, if any, reinvested, a $10,000 investment in
the index would have grown to $14,540 - a 45.40% increase.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OCTOBER 31, 1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

1997 1996 1995 1994

DIVIDEND RETURN 7.33% 7.70% 8.74% 0.97%

CAPITAL APPRECIATION RETURN 2.03% 5.34% 13.67% -0.80%

TOTAL RETURN 9.36% 13.04% 22.41% 0.17%

</TABLE>

TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the class. A capital appreciation return reflects both the
amount paid by the class to shareholders as capital gain distributions
and changes in the class' share price. Both returns assume the
dividends or capital gains paid by the class are reinvested, if any,
and exclude the effect of sales charges.
DIVIDENDS AND YIELD
PERIOD ENDED DECEMBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR

DIVIDENDS PER SHARE 11.97(CENTS) 42.64(CENTS) 80.63(CENTS)

ANNUALIZED DIVIDEND RATE 12.33% 7.36% 7.10%

30-DAY ANNUALIZED YIELD 7.01% - -

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 $11.43 over the past one month, $11.50 over the past six months,
and $11.36 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 to compare funds from different companies on an equal
basis.
(dagger) THE DATA USED TO CREATE THE MERRILL LYNCH HIGH YIELD MASTER
INDEX AND THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK ON THE
LINE GRAPH, ON PAGE 5, IS FROM THE CLOSE OF BUSINESS ON OCTOBER 31,
1994. THE TOTAL RETURN OF THE MERRILL LYNCH HIGH YIELD MASTER INDEX
FOR THE LIFE OF FUND CALCULATIONS ON PAGE 4 IS FROM THE OPENING OF
BUSINESS ON OCTOBER 31, 1994, COMMENCEMENT OF OPERATIONS OF THE FUND.
DATA FOR THE FIDELITY STRATEGIC INCOME COMPOSITE BENCHMARK IS ONLY
AVAILABLE AT THE CLOSE OF BUSINESS EACH MONTH.
FUND TALK: THE MANAGERS' OVERVIEW

MARKET RECAP
The year that ended December 31,
1997, displayed the complexity and
variety of the world's financial
markets. The serenity of low interest
rates and subdued inflation that had
boosted a number of markets was
rudely interrupted in late October
when Asian markets stumbled
dramatically. Developed-market
government bonds benefited from this
crisis, as investors sought the
perceived safety of high-quality issues.
A strong U.S. dollar, however,
undermined gains for U.S.-based
investors in the Japanese and most
European markets. The Salomon
Brothers World Government Bond
Index, Unhedged - a measure of
government bond market
performance in developed nations -
returned just 0.23% for the period.
Inflation was well-controlled
throughout Europe, and bond prices in
countries such as Spain and Italy were
buoyed by steady progress toward
meeting the requirements for
membership in the European
Monetary Union (EMU). Unlike other
European currencies, the pound
sterling maintained its strength,
helping boost bond performance in
the United Kingdom. The Asian
volatility staggered emerging bond
markets in October and left lingering
concerns as the new year began. The
J.P. Morgan Emerging Markets Bond
Index returned 16.15% for the period.
Most of these gains were posted
during the first three quarters of the
year, boosted by low interest rates and
positive government reforms. A lack of
inflation, declining interest rates and
the late-year flight to quality boosted
bonds in the U.S., with the Lehman
Brothers Aggregate Bond Index
returning 9.65% in 1997.
NOTE TO SHAREHOLDERS: The following is an interview with John Carlson
(top), lead Portfolio Manager of Fidelity Advisor Strategic Income
Fund, with additional comments from co-managers Curt Hollingsworth
(top left) on U.S. government securities; Margaret Eagle (top right)
on high-yield securities; Jonathan Kelly (bottom left) on foreign
developed-market securities; and Brian Hogan (bottom right) on
emerging-market investments.
Q. HOW DID THE FUND PERFORM, JOHN?
J.C. For the 12 months that ended December 31, 1997, the fund's
Institutional Class shares returned 9.36%. The multi-sector income
funds average, as tracked by Lipper Analytical Services, returned
8.77% during the period. The Merrill Lynch High Yield Master Index
returned 12.82%.
Q. BRIAN, WHAT WAS THE CLIMATE LIKE FOR EMERGING-MARKET DEBT AND HOW
DID THE FUND'S EMERGING-MARKET POSITIONS FARE?
B.H. From January through October, we saw the same favorable
characteristics that buoyed these markets in 1996: continued economic
reform, low interest rates and favorable credit spreads, which measure
the premiums investors pay for global risk. While the fund typically
has not had high exposures to Asian debt, the Asian currency crisis
that peaked in late October also spread to both Latin America and
Eastern Europe. Several Asian countries were forced to devalue their
currencies and pressure was placed on large countries such as Brazil
and Russia. The results of this crisis were largely negative, as
global risk premiums went up. In terms of my strategy, I reduced some
of the fund's corporate bond positions and added Brady bonds, which
are dollar-denominated and issued by foreign governments. I also added
to the fund's holdings in higher-quality countries such as Panama and
Argentina. Relative to the index, the fund's underweighting in Brazil
and overweighting in Mexico during the latter months of the period
helped. Overweighted positions in Bulgaria and Ecuador, however,
proved disappointing. The months ahead could be quite volatile. I'm
concerned about Asia and will likely favor Brady bonds which are
collateralized by U.S. government securities. Presidential elections
in several countries will also be important and global economic growth
should slow.
Q. TURNING TO YOU, CURT, HOW WOULD YOU CHARACTERIZE THE PERFORMANCE OF
THE U.S. BOND MARKET OVER THE PAST 12 MONTHS?
C.H. Due mostly to falling interest rates, low inflation and moderate
economic growth, the bond market had a good run in 1997. An
interest-rate hike in March by the Federal Reserve Board proved to be
one of the few obstacles to the bond market. Inflation - which has a
negative effect on the bond market - was also nonexistent. From April
through mid-September, encouraging economic data and the Fed's
reluctance to raise rates further spurred a rally. The yield on the
30-year Treasury bond actually fell below the 6% mark in November and
the bond market attracted some equity investors who had become
concerned about Asian-related ramifications. Through the first half of
1997, the fund's mortgage-backed bonds performed well as low yield
volatility, tightening credit spreads and low prepayment activity
helped. In the second half of the year, I reduced the fund's
mortgage-related positions, a strategy that helped as prepayment
activity increased. When a mortgage holder prepays, he or she pays off
the principal and interest of the mortgage before its actual due date.
U.S. Treasuries were among the best performers toward the end of the
period.
Q. HIGH-YIELD SECURITIES HAD A STRONG YEAR, MARGARET. WHAT FACTORS
CONTRIBUTED TO THEIR PERFORMANCE?
M.E. A number of positive trends played a role. First, continued
credit strength translated into very low default rates. The
supply/demand scenario also was beneficial, as a record amount of new
issuance hit this market and demand was more than strong enough to
absorb the new supply. Assets came into the high-yield market from a
variety of sources, including mutual funds and pension plans. Managers
of collateralized bond obligations - which are structured pools of
high-yield bonds - were also voracious buyers. Interwoven within this
backdrop were two other themes: a solid economy and increased merger
and acquisition activity. Much of this positive consolidation involved
lower-quality companies being bought by higher-quality companies. The
fund's telecommunications investments - notably Brooks Fiber and
PanAmSat - were positive contributors to overall performance.
Supermarket-related bonds also played a key role. Ralph's Grocery Co.
and Smith Foods - the latter of which the fund no longer held at the
end of the period - both performed well after being acquired. Pathmark
Stores, however, was an exception as the chain ran into some
competitive problems. Going forward, with the expectation that U.S.
economic growth will slow, I've positioned the fund to avoid
economically sensitive groups such as paper and chemicals. As long as
default rates remain relatively low, the high-yield market should
maintain its attractiveness.
Q. JONATHAN, WHAT WAS THE STORY WITH THE DEVELOPED, GLOBAL BOND
MARKETS?
J.K. In Europe, the drive toward a common currency benefited some of
the high-yielding countries - such as Italy and Spain - as it became
increasingly likely that they would be included in the first round of
the European Monetary Union process. The U.K. was one of the
better-performing markets due mostly to a relatively tight monetary
policy and a strong currency. Canadian bonds also fared well as
interest rates fell and the Canadian dollar only depreciated modestly
against the U.S. dollar. As for the disappointments, France, Germany
and Japan all suffered losses due to weak currencies. Going forward,
I'm fairly cautious. Yields are quite low around the world, which
means that the returns from this portion of the portfolio will be
largely determined by currency movements. The dollar's strength will
be a key performance factor: Continued strength would be a drag on
performance, while weakness would be beneficial.
Q. TURNING BACK TO YOU, JOHN, WHAT'S YOUR OUTLOOK?
J.C. With all that has gone on in recent months, I'm certainly
concerned. While global volatility has been alarming, one bright spot
may be that the dislocation, or downward re-pricing of certain
emerging-market debt securities, may present ample opportunities.
Shareholders should expect a continuation of the same disciplined
investment approach that helped the fund weather the last quarter of
1997. I'll keep a close eye on risk, credit spreads and interest
rates as they relate to the portfolio.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.