FIDELITY ADVISOR
STRATEGIC INCOME
FUND - CLASS A, CLASS T, CLASS B
AND CLASS C
ANNUAL REPORT
DECEMBER 31, 1998
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
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 49 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 58 Notes to the financial
statements.
REPORT OF INDEPENDENT 69 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 70
OF SPECIAL NOTE 71
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
Resurgent stock market performance in the fourth quarter helped the
Dow Jones Industrial Average post a double-digit return for the fourth
year in a row - a first in the Dow's 100-plus year history. Three
interest-rate cuts made late in the year by the Federal Reserve Board
helped spark the equity rally. Meanwhile, while the majority of bonds
posted positive performance, most bond returns for 1998 trailed their
gains from 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR STRATEGIC INCOME FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income 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. 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, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 2.38% 54.31%
- - CL A
FIDELITY ADV STRATEGIC INCOME -2.48% 46.98%
- - CL A (INCL. 4.75% SALES
CHARGE)
Fidelity Strategic Inc 5.43% 52.64%
Composite
JP EMBI Plus -14.35% 59.71%
LB Government Bond 9.85% 47.03%
ML High Yield Master 3.66% 56.16%
SB Non-US Dollar World Govt 17.79% 37.57%
Bond
Multi-Sector Income Funds 1.30% n/a
Average
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 Fidelity Strategic Income Composite Index - a hypothetical
combination of unmanaged indices. The composite index combines the
total returns of the JP Morgan Emerging Markets Bond Index Plus, the
Lehman Brothers Government Bond Index, the Merrill Lynch High Yield
Master Index and the Salomon Brothers Non-U.S. Dollar World Government
Bond Index weighted according to the fund's neutral mix. 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 Inc. The past one year average represents a peer group of 93
mutual funds. The benchmarks listed in the table above include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 2.38% 10.97%
- - CL A
FIDELITY ADV STRATEGIC INCOME -2.48% 9.68%
- - CL A (INCL. 4.75% SALES
CHARGE)
Fidelity Strategic Inc 5.43% 10.68%
Composite
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$10,000 OVER LIFE OF FUND
FA Strategic Inc -CL A FID Strategic Inc Comp. ML High Yield Master
00260 F0086 ML002
1994/10/31 9525.00 10000.00 10000.00
1994/11/30 9572.77 9921.26 9914.94
1994/12/31 9541.61 9887.56 10025.22
1995/01/31 9648.07 9962.57 10166.88
1995/02/28 9875.95 10125.61 10484.10
1995/03/31 10019.24 10301.07 10630.00
1995/04/30 10395.11 10634.09 10878.89
1995/05/31 10786.33 11037.19 11218.77
1995/06/30 10841.49 11135.32 11304.46
1995/07/31 10928.59 11192.91 11433.70
1995/08/31 10945.88 11198.60 11503.09
1995/09/30 11140.78 11390.44 11634.70
1995/10/31 11270.10 11444.44 11717.17
1995/11/30 11395.97 11595.55 11831.55
1995/12/31 11643.10 11847.24 12021.46
1996/01/31 11903.52 12046.81 12211.32
1996/02/29 11807.14 11927.06 12229.71
1996/03/31 11769.08 11944.14 12196.49
1996/04/30 11882.44 12025.48 12202.02
1996/05/31 11965.00 12090.46 12290.02
1996/06/30 12066.53 12234.53 12363.84
1996/07/31 12139.29 12369.42 12447.78
1996/08/31 12280.23 12504.03 12576.33
1996/09/30 12663.01 12784.11 12846.16
1996/10/31 12827.47 12956.74 12986.95
1996/11/30 13077.33 13230.23 13249.51
1996/12/31 13141.42 13261.40 13351.46
1997/01/31 13226.46 13301.40 13454.07
1997/02/28 13339.67 13391.81 13642.80
1997/03/31 13046.74 13220.01 13491.28
1997/04/30 13192.75 13350.18 13644.83
1997/05/31 13535.42 13643.22 13916.32
1997/06/30 13731.04 13839.71 14131.74
1997/07/31 14001.03 14081.77 14470.87
1997/08/31 13990.54 14060.71 14438.31
1997/09/30 14331.31 14317.94 14684.83
1997/10/31 14085.62 14204.77 14782.28
1997/11/30 14206.44 14326.98 14914.67
1997/12/31 14356.16 14478.93 15063.79
1998/01/31 14615.36 14640.74 15284.46
1998/02/28 14724.36 14746.85 15351.23
1998/03/31 14853.96 14828.66 15483.52
1998/04/30 14903.22 14931.13 15557.07
1998/05/31 14832.89 14938.88 15657.71
1998/06/30 14791.03 14946.72 15742.96
1998/07/31 14883.79 15005.68 15832.74
1998/08/31 13741.00 14278.51 15149.54
1998/09/30 14183.23 14755.55 15179.76
1998/10/31 14213.37 14886.61 14926.53
1998/11/30 14708.36 15245.10 15610.38
1998/12/31 14698.49 15264.49 15615.57
</TABLE>
IMATRL PRASUN SHR__CHT 19981231 19990129 145851 R00000000000053
$10,000 OVER LIFE OF FUND: 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, 1998, the value
of the investment would have grown to $14,698 - a 46.98% increase on
the initial investment. For comparison, look at how the Merrill Lynch
High Yield Master Index - a market value-weighted index of all
domestic and yankee high-yield bonds, did over the same period. Issues
included in the index have maturities of one year or more and have a
credit rating lower than BBB-/Baa3, but are not in default. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $15,616 - a 56.16% increase. You can
also look at how the Fidelity Strategic Income Composite Index - 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 (+59.71%), Lehman Brothers Government Bond
Index (+47.03%), Merrill Lynch High Yield Master Index (+56.16%), and
Salomon Brothers Non-U.S. Dollar World Government Bond Index
(+37.57%), according to the fund's neutral mix *, and assumes monthly
rebalancing of the mix. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,264 -
a 52.64% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. 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.
* 40% HIGH YIELD, 30% U.S. GOVERNMENT AND INVESTMENT GRADE, 15%
EMERGING MARKETS, AND 15% FOREIGN DEVELOPED MARKETS.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SEPTEMBER 3, 1996
YEARS ENDED DECEMBER 31, (COMMENCEMENT OF SALE OF
CLASS A SHARES) TO DECEMBER
31,
1998 1997 1996
Dividend returns 6.59% 7.20% 2.56%
Capital returns -4.21% 2.04% 4.39%
Total returns 2.38% 9.24% 6.95%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 8.28(cents) 38.32(cents) 72.90(cents)
Annualized dividend rate 9.17% 7.16% 6.68%
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 $10.63 over the past one month, $10.61 over the past six months and
$10.92 over the past one year, you can compare the class' income over
these three periods. The past month dividends per share include
additional distributions required by federal tax regulations. These
distributions may not be reflected in future monthly dividends. 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.
FIDELITY ADVISOR STRATEGIC INCOME FUND - CLASS T
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. If Fidelity had not reimbursed certain
class expenses, the life of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 2.26% 54.28%
- - CL T
FIDELITY ADV STRATEGIC INCOME -1.31% 48.88%
- - CL T (INCL. 3.50% SALES
CHARGE)
Fidelity Strategic Inc 5.43% 52.64%
Composite
JP EMBI Plus -14.35% 59.71%
LB Government Bond 9.85% 47.03%
ML High Yield Master 3.66% 56.16%
SB Non-US Dollar World Govt 17.79% 37.57%
Bond
Multi-Sector Income Funds 1.30% n/a
Average
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 Fidelity Strategic Income Composite Index - a hypothetical
combination of unmanaged indices. The composite index combines the
total returns of the J.P. Morgan Emerging Markets Bond Index Plus, the
Lehman Brothers Government Bond Index, the Merrill Lynch High Yield
Master Index and the Salomon Brothers Non-U.S. Dollar World Government
Bond Index weighted according to the fund's neutral mix. 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 Inc. The past one year average represents a peer group of 93
mutual funds. The benchmarks listed in the table above include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 2.26% 10.97%
- - CL T
FIDELITY ADV STRATEGIC INCOME -1.31% 10.02%
- - CL T (INCL. 3.50% SALES
CHARGE)
Fidelity Strategic Inc 5.43% 10.68%
Composite
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$10,000 OVER LIFE OF FUND
FA Strategic Inc -CL T FID Strategic Inc Comp. ML High Yield Master
00638 F0086 ML002
1994/10/31 9650.00 10000.00 10000.00
1994/11/30 9698.40 9921.26 9914.94
1994/12/31 9666.83 9887.56 10025.22
1995/01/31 9774.68 9962.57 10166.88
1995/02/28 10005.55 10125.61 10484.10
1995/03/31 10150.73 10301.07 10630.00
1995/04/30 10531.53 10634.09 10878.89
1995/05/31 10927.88 11037.19 11218.77
1995/06/30 10983.77 11135.32 11304.46
1995/07/31 11072.01 11192.91 11433.70
1995/08/31 11089.52 11198.60 11503.09
1995/09/30 11286.98 11390.44 11634.70
1995/10/31 11418.00 11444.44 11717.17
1995/11/30 11545.52 11595.55 11831.55
1995/12/31 11795.90 11847.24 12021.46
1996/01/31 12059.74 12046.81 12211.32
1996/02/29 11962.09 11927.06 12229.71
1996/03/31 11923.53 11944.14 12196.49
1996/04/30 12038.38 12025.48 12202.02
1996/05/31 12122.02 12090.46 12290.02
1996/06/30 12224.89 12234.53 12363.84
1996/07/31 12298.60 12369.42 12447.78
1996/08/31 12441.38 12504.03 12576.33
1996/09/30 12830.13 12784.11 12846.16
1996/10/31 12997.13 12956.74 12986.95
1996/11/30 13251.26 13230.23 13249.51
1996/12/31 13315.91 13261.40 13351.46
1997/01/31 13391.70 13301.40 13454.07
1997/02/28 13518.64 13391.81 13642.80
1997/03/31 13222.75 13220.01 13491.28
1997/04/30 13371.63 13350.18 13644.83
1997/05/31 13720.32 13643.22 13916.32
1997/06/30 13919.62 13839.71 14131.74
1997/07/31 14194.54 14081.77 14470.87
1997/08/31 14185.26 14060.71 14438.31
1997/09/30 14518.67 14317.94 14684.83
1997/10/31 14282.39 14204.77 14782.28
1997/11/30 14393.11 14326.98 14914.67
1997/12/31 14558.12 14478.93 15063.79
1998/01/31 14805.33 14640.74 15284.46
1998/02/28 14927.20 14746.85 15351.23
1998/03/31 15058.21 14828.66 15483.52
1998/04/30 15105.82 14931.13 15557.07
1998/05/31 15036.26 14938.88 15657.71
1998/06/30 14994.41 14946.72 15742.96
1998/07/31 15088.85 15005.68 15832.74
1998/08/31 13918.00 14278.51 15149.54
1998/09/30 14367.82 14755.55 15179.76
1998/10/31 14397.26 14886.61 14926.53
1998/11/30 14912.03 15245.10 15610.38
1998/12/31 14887.81 15264.49 15615.57
</TABLE>
IMATRL PRASUN SHR__CHT 19981231 19990129 150736 R00000000000053
$10,000 OVER LIFE OF FUND: 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, 1998, the value
of the investment would have grown to $14,888 - a 48.88% increase on
the initial investment. For comparison, look at how the Merrill Lynch
High Yield Master Index - a market value- weighted index of all
domestic and yankee high-yield bonds, did over the same period. Issues
included in the index have maturities of one year or more, and have a
credit rating lower than BBB-/Baa3, but are not in default. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $15,616 - a 56.16% increase. You can
also look at how the Fidelity Strategic Income Composite Index - 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 (+59.71%), Lehman Brothers Government Bond
Index (+47.03%), Merrill Lynch High Yield Master Index (+56.16%), and
Salomon Brothers Non-U.S. Dollar World Government Bond Index
(+37.57%), according to the fund's neutral mix *, and assumes monthly
rebalancing of the mix. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,264 -
a 52.64% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. 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.
* 40% HIGH YIELD, 30% U.S. GOVERNMENT AND INVESTMENT GRADE, 15%
EMERGING MARKETS, AND 15% FOREIGN DEVELOPED MARKETS.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31, OCTOBER 31, 1994
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31,
1998 1997 1996 1995 1994
Dividend returns 6.56% 7.29% 7.73% 8.65% 0.97%
Capital returns -4.30% 2.04% 5.16% 13.37% -0.80%
Total returns 2.26% 9.33% 12.89% 22.02% 0.17%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 8.26(cents) 38.38(cents) 72.60(cents)
Annualized dividend rate 9.16% 7.18% 6.65%
30-day annualized yield 6.88% - -
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 $10.62 over the past one month, $10.61 over the past six months,
and $10.91 over the past one year, you can compare the class' income
over these three periods. The past month dividends per share include
additional distributions required by federal tax regulations. These
distributions may not be reflected in future monthly dividends. 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 3.50% sales charge.
FIDELITY ADVISOR STRATEGIC INCOME FUND - CLASS B
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield to measure performance. Class B shares' 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, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 1.69% 50.19%
- - CL B
FIDELITY ADV STRATEGIC INCOME -3.07% 48.19%
- - CL B (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Inc 5.43% 52.64%
Composite
JP EMBI Plus -14.35% 59.71%
LB Government Bond 9.85% 47.03%
ML High Yield Master 3.66% 56.16%
SB Non-US Dollar World Govt 17.79% 37.57%
Bond
Multi-Sector Income Funds 1.30% n/a
Average
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 Fidelity Strategic Income Composite Index - a hypothetical
combination of unmanaged indices. The composite index combines the
total returns of the JP Morgan Emerging Markets Bond Index Plus, the
Lehman Brothers Government Bond Index, the Merrill Lynch High Yield
Master Index and the Salomon Brothers Non-U.S. Dollar World Government
Bond Index weighted according to the fund's neutral mix. 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 Inc. The past one year average represents a peer group of 93
mutual funds. The benchmarks listed in the table above include
reinvested dividends and capital gains, if any, and exclude the effect
of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 1.69% 10.25%
- - CL B
FIDELITY ADV STRATEGIC INCOME -3.07% 9.90%
- - CL B (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Inc 5.43% 10.68%
Composite
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$10,000 OVER LIFE OF FUND
FA Strategic Inc -CL B FID Strategic Inc Comp. ML High Yield Master
00639 F0086 ML002
1994/10/31 10000.00 10000.00 10000.00
1994/11/30 10045.19 9921.26 9914.94
1994/12/31 9993.77 9887.56 10025.22
1995/01/31 10109.93 9962.57 10166.88
1995/02/28 10342.97 10125.61 10484.10
1995/03/31 10496.27 10301.07 10630.00
1995/04/30 10883.14 10634.09 10878.89
1995/05/31 11285.68 11037.19 11218.77
1995/06/30 11326.35 11135.32 11304.46
1995/07/31 11420.96 11192.91 11433.70
1995/08/31 11431.98 11198.60 11503.09
1995/09/30 11617.60 11390.44 11634.70
1995/10/31 11755.36 11444.44 11717.17
1995/11/30 11878.64 11595.55 11831.55
1995/12/31 12127.76 11847.24 12021.46
1996/01/31 12391.44 12046.81 12211.32
1996/02/29 12283.74 11927.06 12229.71
1996/03/31 12237.32 11944.14 12196.49
1996/04/30 12347.83 12025.48 12202.02
1996/05/31 12426.63 12090.46 12290.02
1996/06/30 12525.39 12234.53 12363.84
1996/07/31 12594.31 12369.42 12447.78
1996/08/31 12733.18 12504.03 12576.33
1996/09/30 13123.27 12784.11 12846.16
1996/10/31 13286.86 12956.74 12986.95
1996/11/30 13539.79 13230.23 13249.51
1996/12/31 13599.52 13261.40 13351.46
1997/01/31 13681.65 13301.40 13454.07
1997/02/28 13803.67 13391.81 13642.80
1997/03/31 13482.16 13220.01 13491.28
1997/04/30 13638.86 13350.18 13644.83
1997/05/31 13973.99 13643.22 13916.32
1997/06/30 14181.74 13839.71 14131.74
1997/07/31 14453.55 14081.77 14470.87
1997/08/31 14423.79 14060.71 14438.31
1997/09/30 14767.17 14317.94 14684.83
1997/10/31 14518.78 14204.77 14782.28
1997/11/30 14623.24 14326.98 14914.67
1997/12/31 14769.60 14478.93 15063.79
1998/01/31 15025.93 14640.74 15284.46
1998/02/28 15128.43 14746.85 15351.23
1998/03/31 15266.11 14828.66 15483.52
1998/04/30 15306.75 14931.13 15557.07
1998/05/31 15227.35 14938.88 15657.71
1998/06/30 15175.85 14946.72 15742.96
1998/07/31 15263.44 15005.68 15832.74
1998/08/31 14073.13 14278.51 15149.54
1998/09/30 14519.06 14755.55 15179.76
1998/10/31 14526.86 14886.61 14926.53
1998/11/30 15051.23 15245.10 15610.38
1998/12/31 14819.00 15264.49 15615.57
</TABLE>
IMATRL PRASUN SHR__CHT 19981231 19990129 161209 R00000000000053
$10,000 OVER LIFE OF FUND: 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, 1998, the value of the investment, including the effect
of the contingent deferred sales charge, would have grown to $14,819 -
a 48.19% increase on the initial investment. For comparison, look at
how the Merrill Lynch High Yield Master Index - a market
value-weighted index of all domestic and yankee high-yield bonds, did
over the same period. Issues included in the index have maturities of
one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,616 -
a 56.16% increase. You can also look at how the Fidelity Strategic
Income Composite Index - 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 (+59.71%), Lehman Brothers
Government Bond Index (+47.03%), Merrill Lynch High Yield Master Index
(+56.16%), and Salomon Brothers Non-U.S. Dollar World Government Bond
Index (+37.57%), according to the fund's neutral mix *, and assumes
monthly rebalancing of the mix. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$15,264 - a 52.64% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. 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.
* 40% HIGH YIELD, 30% U.S. GOVERNMENT AND INVESTMENT GRADE, 15%
EMERGING MARKETS, AND 15% FOREIGN DEVELOPED MARKETS.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OCTOBER 31, 1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31,
1998 1997 1996 1995 1994
Dividend returns 5.89% 6.58% 7.00% 7.78% 0.84%
Capital returns -4.20% 2.02% 5.14% 13.57% -0.90%
Total returns 1.69% 8.60% 12.14% 21.35% -0.06%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 7.70(cents) 34.89(cents) 65.45(cents)
Annualized dividend rate 8.52% 6.51% 5.99%
30-day annualized yield 6.48% - -
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 $10.64 over the past one month, $10.63 over the past six months,
and $10.93 over the past one year, you can compare the class' income
over these three periods. The past month dividends per share include
additional distributions required by federal tax regulations. These
distributions may not be reflected in future monthly dividends. 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.
FIDELITY ADVISOR STRATEGIC INCOME FUND - CLASS C
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income 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). If Class C shares 12b-1 fee had been
reflected, returns between January 1, 1996 and November 3, 1997 would
have been lower. Class C shares' contingent deferred sales charge
included in the past one year and life of fund total return figures
are 1% and 0%, respectively. If Fidelity had not reimbursed certain
class expenses, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 1.42% 49.70%
- - CL C
FIDELITY ADV STRATEGIC INCOME 0.46% 49.70%
- - CL C (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Inc 5.43% 52.64%
Composite
JP EMBI Plus -14.35% 59.71%
LB Government Bond 9.85% 47.03%
ML High Yield Master 3.66% 56.16%
SB Non-US Dollar World Govt 17.79% 37.57%
Bond
Multi-Sector Income Funds 1.30% n/a
Average
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 Fidelity Strategic Income Composite Index - a hypothetical
combination of unmanaged indices. The composite index combines the
total returns of the JP Morgan Emerging Markets Bond Index Plus, the
Lehman Brothers Government Bond Index, the Merrill Lynch High Yield
Master Index and the Salomon Brothers Non-U.S. Dollar World
Government. Bond Index weighted according to the fund's neutral mix.
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 Inc. The past one year average represents a peer
group of 93 mutual funds. The benchmarks listed in the table above
include reinvested dividends and capital gains, if any, and exclude
the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 1.42% 10.17%
- - CL C
FIDELITY ADV STRATEGIC INCOME 0.46% 10.17%
- - CL C (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Inc 5.43% 10.68%
Composite
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$10,000 OVER LIFE OF FUND
FA Strategic Inc -CL C FID Strategic Inc Comp. ML High Yield Master
00523 F0086 ML002
1994/10/31 10000.00 10000.00 10000.00
1994/11/30 10045.19 9921.26 9914.94
1994/12/31 9993.77 9887.56 10025.22
1995/01/31 10109.93 9962.57 10166.88
1995/02/28 10342.97 10125.61 10484.10
1995/03/31 10496.27 10301.07 10630.00
1995/04/30 10883.14 10634.09 10878.89
1995/05/31 11285.68 11037.19 11218.77
1995/06/30 11326.35 11135.32 11304.46
1995/07/31 11420.96 11192.91 11433.70
1995/08/31 11431.98 11198.60 11503.09
1995/09/30 11617.60 11390.44 11634.70
1995/10/31 11755.36 11444.44 11717.17
1995/11/30 11878.64 11595.55 11831.55
1995/12/31 12127.76 11847.24 12021.46
1996/01/31 12391.44 12046.81 12211.32
1996/02/29 12283.74 11927.06 12229.71
1996/03/31 12237.32 11944.14 12196.49
1996/04/30 12347.83 12025.48 12202.02
1996/05/31 12426.63 12090.46 12290.02
1996/06/30 12525.39 12234.53 12363.84
1996/07/31 12594.31 12369.42 12447.78
1996/08/31 12733.18 12504.03 12576.33
1996/09/30 13123.27 12784.11 12846.16
1996/10/31 13286.86 12956.74 12986.95
1996/11/30 13539.79 13230.23 13249.51
1996/12/31 13599.52 13261.40 13351.46
1997/01/31 13681.65 13301.40 13454.07
1997/02/28 13803.67 13391.81 13642.80
1997/03/31 13482.16 13220.01 13491.28
1997/04/30 13638.86 13350.18 13644.83
1997/05/31 13973.99 13643.22 13916.32
1997/06/30 14181.74 13839.71 14131.74
1997/07/31 14453.55 14081.77 14470.87
1997/08/31 14423.79 14060.71 14438.31
1997/09/30 14767.17 14317.94 14684.83
1997/10/31 14518.78 14204.77 14782.28
1997/11/30 14605.97 14326.98 14914.67
1997/12/31 14761.52 14478.93 15063.79
1998/01/31 14999.89 14640.74 15284.46
1998/02/28 15112.41 14746.85 15351.23
1998/03/31 15245.74 14828.66 15483.52
1998/04/30 15283.34 14931.13 15557.07
1998/05/31 15200.14 14938.88 15657.71
1998/06/30 15146.44 14946.72 15742.96
1998/07/31 15230.47 15005.68 15832.74
1998/08/31 14036.76 14278.51 15149.54
1998/09/30 14492.58 14755.55 15179.76
1998/10/31 14497.59 14886.61 14926.53
1998/11/30 15003.67 15245.10 15610.38
1998/12/31 14970.49 15264.49 15615.57
</TABLE>
IMATRL PRASUN SHR__CHT 19981231 19990129 150418 R00000000000053
$10,000 OVER LIFE OF FUND: 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, 1998, the value of the investment, would have grown to
$14,970 - a 49.70% increase on the initial investment. For comparison,
look at how the Merrill Lynch High Yield Master Index - a market
value-weighted index of all domestic and yankee high-yield bonds, did
over the same period. Issues included in the index have maturities of
one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,616 -
a 56.16% increase. You can also look at how the Fidelity Strategic
Income Composite Index - 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 (+59.71%), Lehman Brothers
Government Bond Index (+47.03%), Merrill Lynch High Yield Master Index
(+56.16%), and Salomon Brothers Non-U.S. Dollar World Government Bond
Index (+37.57%), according to the fund's neutral mix *, and assumes
monthly rebalancing of the mix. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$15,264 - a 52.64% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. 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.
* 40% HIGH YIELD, 30% U.S. GOVERNMENT AND INVESTMENT GRADE, 15%
EMERGING MARKETS, AND 15% FOREIGN DEVELOPED MARKETS.
TOTAL RETURN COMPONENTS
NOVEMBER 3, 1997
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF SALE OF
CLASS C SHARES) TO DECEMBER
31,
1998 1997
Dividend returns 5.63% 1.36%
Capital returns -4.21% -0.09%
Total returns 1.42% 1.27%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 7.63(cents) 33.55(cents) 62.48(cents)
Annualized dividend rate 8.46% 6.27% 5.73%
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 $10.62 over the past one month, $10.61 over the past six months,
and $10.91 over the past one year, you can compare the class' income
over these two periods. The past month dividends per share include
additional distributions required by federal tax regulations. These
distributions may not be reflected in future monthly dividends. 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.
FUND TALK: THE MANAGERS' OVERVIEW
MARKET RECAP
Escalating volatility characterized
capital markets during the
12-month period ended December
31, 1998. Below-investment-grade
issues such as high-yield bonds
and emerging-market debt bore
the brunt of this increased volatility,
as did any sector priced relative to
U.S. Treasury yields. Investors
entered the year fairly upbeat
thanks to positive economic data,
favorable corporate earnings
estimates and resilience in
emerging markets. However, as
spring ended, global events
undermined investor confidence.
Prolonged uncertainty
surrounding resolution of Japan's
banking crisis put significant
pressure on the yen. This called
into question the export
competitiveness of surrounding
Asian countries. Russian debt
came under pressure when
investors' attention turned to the
significant reform challenges the
country faced and its slow
progress in addressing them. As
the summer wore on, investors
began turning their backs on
higher-yielding, more volatile debt
instruments in favor of
lower-yielding, higher-quality
issues. The ensuing rapid flight to
quality in August, triggered by
Russia's default and devaluation,
caused the gap between Treasury
yields and the yields on
non-investment-grade debt to
increase dramatically. The key
beneficiaries in this environment
included U.S. Treasuries as well
as G-7 government bonds. As the
year came to a close, investors
were focusing on Brazil's outlook
and its potential for unsettling
global markets.
(photograph of John Carlson)
(photograph of Kevin Grant)
(photograph of Margaret Eagle)
(photograph of Ian Spreadbury)
The following is an interview with John Carlson (top left), Lead
Portfolio Manager of Fidelity Advisor Strategic Income Fund, with
additional comments from Kevin Grant (top right), who replaced Curt
Hollingsworth on December 7, 1998, on U.S. government and
investment-grade securities; Margaret Eagle (lower left) on high-yield
securities; and Ian Spreadbury (lower right) on foreign
developed-market securities. Mr. Carlson also manages the
emerging-markets portion of the fund, replacing Brian Hogan as of
November 16, 1998.
Q. HOW DID THE FUND PERFORM, JOHN
J.C. For the 12 months ended December 31, 1998, the fund's Class A,
Class T, Class B and Class C shares returned 2.38%, 2.26%, 1.69% and
1.42%, respectively. The multi-sector income funds average, as tracked
by Lipper Inc., returned 1.30%. The Merrill Lynch High Yield Master
Index returned 3.66%.
Q. JOHN, WHAT WERE THE MAJOR THEMES IN THE CREDIT MARKETS IN 1998?
J.C. When I look back on 1998, two words epitomize the year -
deflation and deleveraging. Deflation in the form of declining
commodity prices destabilized revenue sources for many emerging-market
countries, while lack of pricing power inhibited cash flow growth for
some corporations. These issues contributed to higher risk premiums
for emerging-market and high-yield debt, while developed-country debt
yields declined. With risk premiums rising, banks, Wall Street firms
and hedge funds curtailed lending, reducing their exposure to
volatility and possible credit disappointments. This liquidity
retraction left the gap between developed-country debt yields and
below-investment-grade yields much wider year-over-year.
Q. JOHN, WHAT DROVE PERFORMANCE IN THE EMERGING-MARKET DEBT
SUB-PORTFOLIO?
J.C. There is no question, Russia was the largest detractor from
sub-portfolio performance. The government took the highly unusual
action of defaulting on its local currency-denominated debt in August.
The action was considered unusual because a government has the option
of printing money to meet principal and interest payments. On a
positive note, several countries contributed to performance. For
example, Turkey, an out-of-index country, was a relatively small
investment, but the best contributor to fund performance. Venezuela
and Bulgaria, countries represented in the index, also generated
positive returns for the fund.
Q. MARGARET, HOW DID THE HIGH-YIELD MARKET FARE IN 1998? WHAT'S YOUR
OUTLOOK FOR THE HIGH-YIELD MARKET OVER THE NEXT SEVERAL MONTHS?
M.E. The high-yield sub-portfolio was bolstered by the performance of
cable issues, but an overweighted position in telecommunication
companies detracted from performance relative to the benchmark in the
same period. While resilient in the face of increased global market
volatility in the first half, the high-yield market weakened in the
summer. With Asian currencies declining dramatically, making their
exports cheaper, U.S. export competitiveness was questioned. In spite
of this environment, companies continued to look to the high-yield
market for financing - surpassing investor demand at times. However,
few anticipated the significant August flight to quality and the
repercussions on liquidity. The high-yield bond market rebounded
somewhat in the fourth quarter, and yields relative to Treasuries
narrowed a bit. However, yields still reflect a more severe outlook
for credit quality than I believe is warranted. While worldwide
deflation is likely to lead to further economic softening, I do not
believe it will intensify into a recession.
Q. KEVIN, HOW DID THE U.S. GOVERNMENT SECTOR OF THE PORTFOLIO FARE?
K.G. The fixed-income markets were an interesting place to be in 1998.
Financial and economic turmoil abroad, and sustained U.S. growth in
the absence of inflation, produced a dramatic decline in domestic
interest rates. The fund's Treasury holdings generated strong
performance during the year as 10-year yields at one point reached
their lowest level in over 30 years. The yield curve steepened as
short rates fell more than long rates. Long-term interest rates
declined in response to benign inflation, an unchanged monetary policy
and Asian instability that pushed the dollar to an eight-year high
against the Japanese yen. Treasuries benefited as a safe haven, and
federal agency securities were favored over other sectors. However,
the Fed unexpectedly eased monetary policy on October 15th, boosting
confidence and restoring liquidity. Economic vitality continued to
confound expectations, limiting the extent of the central bank's role
in reducing short-term interest rates to a series of three 25 basis
point reductions. Investor demand for securities offering a yield
advantage over Treasuries allowed agencies to outperform Treasuries
during the fourth quarter. Against this backdrop, Treasuries made the
largest contribution to the fund's performance in 1998, while
mortgage-backed debt was the biggest drag on performance.
Q. IAN, HOW DID THE FOREIGN DEVELOPED MARKET HOLDINGS DO OVER THE LAST
12 MONTHS?
I.S. 1998 was a generally positive year for G-7 bond markets as
government bond yields fell and the U.S. dollar was generally weaker
against the world's major currencies. These developments were driven
by fears of global deflation and a general flight to quality. As it
became clear the launch of the euro was unlikely to be delayed, we
began to treat the German, French and Italian markets as one. One
strategy was to position the sub-portfolio in shorter maturities in
Italy and in longer maturities in Germany, thus keeping overall
interest-rate exposure unchanged, but taking advantage of the
relatively higher yields in the three-year sector of the Italian
market.
Q. JOHN, AS LEAD PORTFOLIO MANAGER, WHAT'S YOUR OUTLOOK FOR THE FUND?
J.C. In general, I am very cautious about the capital markets in 1999
and I think there is considerable risk in several markets. However, I
also recognize current yield levels reflect many of these risks and in
some instances overestimate them. We will rely on our global research
to take advantage of these high yields and differentiate the winners
from the losers. I will continue to look to the high-yield debt and
emerging-market sectors to add value to the fund's return.
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 ON THE
FUND'S ASSET ALLOCATION:
"Four sectors comprise the fund:
high-yield bonds (40%), U.S.
government securities (30%),
non-U.S. developed market debt
(15%) and emerging-market debt
(15%). Fidelity performs
extensive analysis to determine
the optimal mix for meaningful
diversification and a reasonable
level of return. Each sector plays a
role: high-yield and
emerging-market debt typically
provide the bulk of the added value,
while U.S. government securities
provide liquidity and non-U.S.
developed market securities provide
diversification.
"We are frequently asked `when do
we change the sector weightings?'
The answer is, we don't. The
optimal mix is designed to work
across an entire market cycle. The
events of 1998 demonstrated why
the mix works.
"Deleveraging by banks and other
market participants led to
negative returns for the high-
yield and emerging-debt markets
in 1998. However, these same
forces benefited U.S. and other
developed-country government
bonds through lower inflation and
a weaker U.S. dollar. As a result,
even though high-yield and
emerging-market debt suffered,
the other two sectors picked up
the slack.
"Looking forward, no change is
anticipated in the fund's structure.
We do not believe it is possible to
predict the direction of markets
consistently. Instead, we rely on the
individual managers to add value
over their benchmarks."
(checkmark)FUND FACTS
GOAL: a high level of current
income by investing primarily
in debt securities; the fund
may also seek capital
appreciation
START DATE: October 31,
1994
SIZE: as of December 31,
1998, more than $288 million
MANAGER: John Carlson, lead
and emerging-markets
manager, since 1995 and
November 1998,
respectively; Kevin Grant,
U.S. government investments;
since December 1998;
Margaret Eagle, high-yield
investments, since 1996;
and Ian Spreadbury, foreign
developed-market securities,
since 1998
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1998
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
EQUIVALENTS) THESE HOLDINGS 6 MONTHS AGO
U.S. Treasury Obligations 11.3 14.3
German Federal Republic 7.8 3.7
Fannie Mae 7.0 3.3
Federal Home Loan Bank 3.2 0.0
Government National Mortgage 3.0 3.5
Association
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1998
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE MARKET SECTORS 6
MONTHS AGO
MEDIA & LEISURE 13.2 12.1
UTILITIES 11.7 11.1
TECHNOLOGY 2.3 3.0
RETAIL & WHOLESALE 2.2 2.2
FINANCE 1.8 0.9
QUALITY DIVERSIFICATION AS OF
DECEMBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa, Aa, A 43.5 42.0
Baa 0.3 0.3
Ba 10.6 7.4
B 23.5 26.4
Caa, Ca, C 5.6 4.6
Not Rated 4.5 6.3
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT DECEMBER 31, 1998 AND JUNE 30, 1998
ACCOUNT FOR 4.5% AND 6.3% RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF DECEMBER 31, 1998 *
Corporate bonds 33.2%
U.S. government and
agency obligations 29.3%
Foreign government
obligations 24.9%
Stocks 5.9%
Other 0.9%
Short-term
investments 5.8%
*FOREIGN
INVESTMENTS 29.8%
Row: 1, Col: 1, Value: 32.2
Row: 1, Col: 2, Value: 29.3
Row: 1, Col: 3, Value: 24.9
Row: 1, Col: 4, Value: 5.9
Row: 1, Col: 5, Value: 1.9
Row: 1, Col: 6, Value: 5.8
AS OF JUNE 30, 1998 **
Corporate bonds 32.0%
U.S. government and
agency obligations 29.0%
Foreign government
obligations 24.4%
Stocks 7.6%
Other 1.6%
Short-term
investments 5.4%
**FOREIGN
INVESTMENTS 30.0%
Row: 1, Col: 1, Value: 32.0
Row: 1, Col: 2, Value: 29.0
Row: 1, Col: 3, Value: 24.4
Row: 1, Col: 4, Value: 7.6
Row: 1, Col: 5, Value: 1.6
Row: 1, Col: 6, Value: 5.4
INVESTMENTS DECEMBER 31, 1998
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 33.2%
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
CONVERTIBLE BONDS - 0.0%
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. - $ 10,000 $ 8,600
0% 12/15/05 (c)(e)
NONCONVERTIBLE BONDS - 33.2%
BASIC INDUSTRIES - 0.9%
CHEMICALS & PLASTICS - 0.1%
Huntsman Corp. 9.5% 7/1/07 (e) B2 340,000 339,150
PACKAGING & CONTAINERS - 0.3%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 340,000 289,000
9.75% 6/15/07 Caa1 200,000 174,000
9.875% 2/15/08 Caa2 480,000 350,400
813,400
PAPER & FOREST PRODUCTS - 0.5%
Container Corp. of America:
gtd.:
9.75% 4/1/03 B2 210,000 212,625
11.25% 5/1/04 B2 50,000 51,375
10.75% 5/1/02 B2 70,000 71,925
Florida Coast Paper Co. Ca 690,000 369,150
LLC/Florida Coast Paper
Finance Corp. Series B,
12.75% 6/1/03
Millar Western Forest B3 215,000 159,100
Products Ltd. 9.875% 5/15/08
Stone Container Corp. 12.58% B2 560,000 593,600
8/1/16 (f)
1,457,775
TOTAL BASIC INDUSTRIES 2,610,325
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
Ocwen Asset Investment Corp. - 510,000 392,700
11.5% 7/1/05 (e)
DURABLES - 0.8%
AUTOS, TIRES, & ACCESSORIES -
0.2%
Blue Bird Body Co. 10.75% B2 40,000 41,200
11/15/06
Breed Technologies, Inc. B3 350,000 306,250
9.25% 4/15/08 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES -
CONTINUED
Federal-Mogul Corp. 7.875% Ba2 $ 290,000 $ 296,699
7/1/10
Morris Material Handling, B2 49,000 36,260
Inc. 9.5% 4/1/08
680,409
HOME FURNISHINGS - 0.5%
Sealy Corp., Inc. 10% - 548,913 508,842
12/18/08 pay-in-kind (g)
Sealy Mattress Co.:
0% 12/15/07 (c) B3 1,140,000 684,000
9.875% 12/15/07 B3 170,000 164,050
1,356,892
TEXTILES & APPAREL - 0.1%
Worldtex, Inc. 9.625% 12/15/07 B1 170,000 147,900
TOTAL DURABLES 2,185,201
ENERGY - 1.5%
COAL - 0.3%
P&L Coal Holdings Corp. B2 700,000 712,250
9.625% 5/15/08
ENERGY SERVICES - 0.3%
Petroliam Nasional BHD:
yankee 7.625% 10/15/26 (e) Baa3 250,000 173,375
7.125% 10/18/06 (Reg. S) Baa3 1,000,000 817,400
990,775
OIL & GAS - 0.9%
Chesapeake Energy Corp. B3 490,000 367,500
9.625% 5/1/05
Cross Timbers Oil Co.:
8.75% 11/1/09 B2 310,000 275,900
9.25% 4/1/07 B2 30,000 27,750
Great Lakes Carbon Corp. B3 245,000 246,838
10.25% 5/15/08 pay-in-kind
Ocean Energy, Inc.:
8.375% 7/1/08 B1 200,000 187,000
8.875% 7/15/07 B1 35,000 33,950
10.375% 10/15/05 B2 20,000 20,650
Petroleos Mexicanos:
9.25% 3/30/18 Ba2 500,000 410,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Petroleos Mexicanos: -
continued
9.5% 9/15/27 BB $ 150,000 $ 123,000
10.2613% 7/15/05 (Reg. S) (f) Ba2 600,000 558,000
Seven Seas Petroleum, Inc. Caa1 160,000 80,000
12.5% 5/15/05
Snyder Oil Corp. 8.75% 6/15/07 B2 160,000 157,800
Vintage Petroleum, Inc. 9% B1 60,000 58,800
12/15/05
2,547,188
TOTAL ENERGY 4,250,213
FINANCE - 1.7%
BANKS - 0.7%
Banco Nacional de
Desenvolvimento Economico e
Social:
14.724% 6/16/08 (f) B1 500,000 400,000
14.724% 6/16/08 (e)(f) B1 2,000,000 1,600,000
2,000,000
CREDIT & OTHER FINANCE - 1.0%
ContiFinancial Corp. 8.125% B1 260,000 176,800
4/1/08
Digital Television Services B3 360,000 387,000
LLC/ DTS Capital, Inc. 12.5%
8/1/07
GS Escrow Corp. 7.125% 8/1/05 Ba1 750,000 736,230
Ocwen Capital Trust 10.875% B2 90,000 72,000
8/1/27
ORBCOMM Global LP/ORBCOMM B3 260,000 267,800
Capital Co. 14% 8/15/04
Stone Container Finance Co. B2 120,000 125,850
11.5% 8/15/06 (e)
Time Warner Telecom LLC/Time B2 740,000 760,350
Warner Telecom, Inc. 9.75%
7/15/08
Transwestern Pub Co. B2 270,000 280,800
LP/Township Capital 9.625%
11/15/07
Winstar Equipment II Corp. - 145,000 146,450
12.5% 3/15/04
2,953,280
TOTAL FINANCE 4,953,280
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - 1.2%
DRUGS & PHARMACEUTICALS - 0.3%
Global Health Sciences, Inc. Caa1 $ 1,080,000 $ 739,800
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.4%
ALARIS Medical, Inc. 9.75% B3 50,000 49,500
12/1/06
Beckman Instruments, Inc. Ba1 990,000 1,004,850
7.45% 3/4/08
1,054,350
MEDICAL FACILITIES MANAGEMENT
- - 0.5%
Fountain View, Inc. 11.25% Caa1 200,000 174,000
4/15/08
Harborside Healthcare Corp. B3 680,000 329,800
0% 8/1/08 (c)
Oxford Health Plans, Inc. 11% Caa1 800,000 752,000
5/15/05 (e)
Tenet Healthcare Corp. 8.625% Ba3 320,000 334,400
1/15/07
1,590,200
TOTAL HEALTH 3,384,350
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.2%
L-3 Communications Corp.:
8% 8/1/08 (e) B2 310,000 312,325
10.375% 5/1/07 B2 80,000 87,800
Motors & Gears, Inc. 10.75% B3 220,000 225,500
11/15/06
625,625
POLLUTION CONTROL - 0.3%
Allied Waste North America, Ba2 820,000 830,250
Inc. 7.875% 1/1/09 (e)
TOTAL INDUSTRIAL MACHINERY & 1,455,875
EQUIPMENT
MEDIA & LEISURE - 10.6%
BROADCASTING - 8.3%
ACME Television LLC/ACME B3 140,000 111,650
Financial Corp. 0% 9/30/04
(c)
Adelphia Communications Corp.:
8.375% 2/1/08 B2 370,000 382,950
9.25% 10/1/02 B2 280,000 294,000
9.5% 2/15/04 pay-in-kind B2 1,736,328 1,775,204
9.875% 3/1/07 B2 800,000 884,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Ascent Entertainment Group, B3 $ 380,000 $ 228,000
Inc. 0% 12/15/04 (c)
Avalon Cable Michigan, B3 120,000 122,400
Inc./Avalon Cable New
England/Avalon Cable
Finance, Inc. 9.375%
12/1/08 (e)
Benedek Communications Corp. B3 410,000 287,000
0% 5/15/06 (c)
CapStar Broadcasting B3 315,000 258,300
Partners, Inc. 0% 2/1/09 (c)
Century Communications Corp.:
8.375% 12/15/07 Ba3 20,000 21,600
8.75% 10/1/07 Ba3 90,000 99,000
9.5% 3/1/05 Ba3 60,000 67,050
Chancellor Media Corp.:
8% 11/1/08 (e) Ba2 740,000 754,800
9% 10/1/08 (e) B1 820,000 863,050
Charter Communications B3 25,000 28,000
LP/Charter Communications
Southeast Capital Corp.
11.25% 3/15/06
Citadel Broadcasting Co.:
9.25% 11/15/08 (e) B3 210,000 219,450
10.25% 7/1/07 B3 420,000 457,800
Classic Cable, Inc. 9.875% B3 80,000 83,200
8/1/08 (e)
Comcast UK Cable Partners B2 220,000 185,900
Ltd. 0% 11/15/07 (c)
CSC Holdings, Inc.:
7.625% 7/15/18 Ba2 570,000 567,948
7.875% 2/15/18 Ba2 90,000 91,548
Diamond Cable Communications B3 280,000 231,000
PLC yankee 0% 12/15/05 (c)
EchoStar Communications Corp. B2 200,000 204,500
0% 6/1/04 (c)
Echostar DBS Corp. 12.5% Caa1 850,000 982,813
7/1/02
Echostar Satellite B3 1,110,000 1,110,000
Broadcasting Corp. 0%
3/15/04 (c)
Falcon Holding Group
LP/Falcon Funding Corp.:
0% 4/15/10 (c) B2 615,000 413,588
8.375% 4/15/10 B2 380,000 383,800
FrontierVision Holdings Caa1 500,000 416,250
Capital Corp. 0% 9/15/07
(c)(e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
FrontierVision Holdings Caa1 $ 901,000 $ 741,073
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (c)
Granite Broadcasting Corp. B3 615,000 585,788
8.875% 5/15/08
Intermedia Capital Partners B2 520,000 585,000
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06
International Cabletel, Inc. B3 810,000 656,100
0% 2/1/06 (c)
Iridium Operating LLC/Iridium
Capital Corp.:
10.875% 7/15/05 B3 865,000 735,250
11.25% 7/15/05 B3 610,000 524,600
Jacor Communications Co. 8% B2 310,000 325,500
2/15/10
Lenfest Communications, Inc.:
8.25% 2/15/08 B2 90,000 92,700
8.375% 11/1/05 Ba3 90,000 97,538
LIN Holdings Corp. 0% 3/1/08 B3 1,480,000 1,039,700
(c)
Metromedia Fiber Network, B2 250,000 256,875
Inc. 10% 11/15/08 (e)
NTL, Inc.:
0% 4/1/08 (c) B3 890,000 549,575
10% 2/15/07 B3 1,000,000 1,030,000
11.5% 10/1/08 (e) B3 1,080,000 1,161,000
Olympus Communications B1 90,000 99,000
LP/Olympus Capital Corp.
10.625% 11/15/06
Orbital Imaging Corp. 11.625% - 1,010,000 1,025,150
3/1/05
Pegasus Communications Corp. B3 20,000 19,800
9.625% 10/15/05
Renaissance Media Group B3 700,000 472,500
LLC/Renaissance Media
Capital Corp. 0% 4/15/08 (c)
Telewest Communications PLC B1 170,000 191,250
11.25% 11/1/08 (e)
Telewest PLC:
yankee 9.625% 10/1/06 B1 320,000 332,800
0% 10/1/07 (c) B1 1,240,000 1,029,200
UIH Australia/Pacific, Inc. B2 430,000 208,550
Series B 0% 5/15/06 (c)
United International B3 760,000 410,400
Holdings, Inc. 0% 2/15/08 (c)
23,694,150
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 1.3%
AMC Entertainment, Inc. 9.5% B2 $ 130,000 $ 132,600
3/15/09
Cinemark USA, Inc. 8.5% 8/1/08 B2 270,000 265,275
Harrahs Operating Co., Inc. Ba2 1,000,000 1,000,000
7.875% 12/15/05
Hollywood Theaters, Inc. Caa2 190,000 133,000
10.625% 8/1/07
Livent, Inc. 9.375% 10/15/04 B1 300,000 111,000
(b)
Premier Parks, Inc.:
0% 4/1/08 (c) B3 1,170,000 792,675
9.25% 4/1/06 B3 1,080,000 1,117,800
3,552,350
LODGING & GAMING - 0.5%
Circus Circus Enterprises,
Inc.:
7.625% 7/15/13 Ba2 80,000 70,400
9.25% 12/1/05 Ba2 160,000 162,400
Hard Rock Hotel, Inc. 9.25% B3 90,000 90,000
4/1/05
KSL Recreation Group, Inc. B3 320,000 318,400
10.25% 5/1/07
Signature Resorts, Inc. 9.75% B3 780,000 655,200
10/1/07
Sun International Hotels Ba3 30,000 30,900
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
1,327,300
PUBLISHING - 0.2%
Perry Judd, Inc. 10.625% B3 60,000 62,700
12/15/07
Sun Media Corp.:
yankee 9.5% 2/15/07 B2 40,000 43,600
9.5% 5/15/07 B2 28,000 30,520
Transwestern Holding LP/TWP B3 50,000 32,500
Capital Corp. 0% 11/15/08 (c)
World Color Press, Inc. B1 480,000 480,000
8.375% 11/15/08 (e)
649,320
RESTAURANTS - 0.3%
AFC Enterprises, Inc. 10.25% B3 630,000 656,775
5/15/07
Nebraska Restaurant, Inc. B3 140,000 141,400
10.75% 7/15/08
798,175
TOTAL MEDIA & LEISURE 30,021,295
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - 1.1%
FOODS - 0.6%
Aurora Foods, Inc. 8.75% B1 $ 130,000 $ 135,200
7/1/08
Del Monte Corp. 12.25% 4/15/07 Caa1 390,000 434,850
Del Monte Foods Co. 0% Caa2 870,000 595,950
12/15/07 (c)
Gorges/Quik-To-Fix Foods, Caa1 1,000,000 420,000
Inc. 11.5% 12/1/06
1,586,000
HOUSEHOLD PRODUCTS - 0.5%
AKI Holding Corp. 0% 7/1/09 Caa1 290,000 113,100
(c)(e)
AKI, Inc. 10.5% 7/1/08 (e) B2 100,000 95,000
Revlon Consumer Products Corp.:
8.625% 2/1/08 B3 890,000 809,900
9% 11/1/06 (e) B2 400,000 396,000
1,414,000
TOTAL NONDURABLES 3,000,000
RETAIL & WHOLESALE - 2.1%
GROCERY STORES - 1.5%
Fleming Companies, Inc. B3 160,000 149,200
Series B, 10.625% 7/31/07
Jitney-Jungle Stores America, B3 1,205,000 1,235,125
Inc. 10.375% 9/15/07
Marsh Supermarkets, Inc. B2 230,000 240,350
8.875% 8/1/07
Pathmark Stores, Inc.:
9.625% 5/1/03 Caa1 30,000 29,475
11.625% 6/15/02 Caa2 870,000 838,463
12.625% 6/15/02 Caa2 260,000 250,250
Smiths Food & Drug Centers, BB+ 1,000,000 1,110,000
Inc. 1994 Pass Through Trust
9.2% 7/2/18
Star Market Co., Inc. 13% B3 320,000 356,800
11/1/04
4,209,663
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.6%
Amazon.com, Inc. 0% 5/1/08 (c) Caa2 1,440,000 950,400
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE,
MISCELLANEOUS - CONTINUED
TM Group Holdings PLC 11% B3 $ 500,000 $ 500,000
5/15/08 (e)
U.S. Office Products Co. B3 680,000 428,400
9.75% 6/15/08
1,878,800
TOTAL RETAIL & WHOLESALE 6,088,463
SERVICES - 1.0%
LEASING & RENTAL - 0.2%
AP Holdings, Inc. 0% 3/15/08 Caa2 900,000 486,000
(c)
Apcoa, Inc. 9.25% 3/15/08 Caa1 160,000 147,200
Hollywood Entertainment Corp. B3 80,000 80,800
10.625% 8/15/04
714,000
PRINTING - 0.5%
Sullivan Graphics, Inc. Caa1 720,000 727,200
12.75% 8/1/05
Von Hoffman Corp. 13.5% - 608,638 626,897
5/15/09 (e)
1,354,097
SERVICES - 0.3%
Iron Mountain, Inc. 8.75% B3 160,000 164,800
9/30/09
La Petite Academy, Inc./La B3 190,000 188,100
Petite Academy Holding Co.
10% 5/15/08
Medaphis Corp. 9.5% 2/15/05 Caa1 200,000 154,000
Spin Cycle, Inc. 0% 5/1/05 (c) - 340,000 156,400
Young American Corp. 11.625% B3 420,000 180,600
2/15/06
843,900
TOTAL SERVICES 2,911,997
TECHNOLOGY - 1.9%
COMMUNICATIONS EQUIPMENT - 0.2%
Intermedia Communications,
Inc.:
8.5% 1/15/08 B2 90,000 85,050
8.6% 6/1/08 B2 400,000 380,000
8.875% 11/1/07 B2 70,000 67,550
532,600
COMPUTER SERVICES & SOFTWARE
- - 0.9%
Concentric Network Corp. - 690,000 703,800
12.75% 12/15/07
DecisionOne Corp. 9.75% 8/1/07 B3 590,000 271,400
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE
- - CONTINUED
DecisionOne Holdings Corp. 0% Caa1 $ 200,000 $ 40,000
8/1/08 unit (c)
Federal Data Corp. 10.125% B3 150,000 147,000
8/1/05
ICG Services, Inc.:
0% 2/15/08 (c) - 2,445,000 1,295,850
0% 5/1/08 (c) - 50,000 25,875
2,483,925
ELECTRONIC INSTRUMENTS - 0.5%
Fisher Scientific B3 520,000 516,100
International, Inc. 9% 2/1/08
High Voltage Engineering B3 490,000 460,600
Corp. 10.5% 8/15/04
Telecommunications Techniques B3 455,000 445,900
Co. LLC 9.75% 5/15/08
1,422,600
ELECTRONICS - 0.3%
Communications Instruments, B3 40,000 38,500
Inc. 10% 9/15/04
Details, Inc. 10% 11/15/05 B3 240,000 228,000
Samsung Electronics America, Ba1 250,000 236,250
Inc. 9.75% 5/1/03 (e)
Stellex Industries, Inc. 9.5% B3 400,000 347,000
11/1/07
849,750
TOTAL TECHNOLOGY 5,288,875
TRANSPORTATION - 0.6%
AIR TRANSPORTATION - 0.4%
Atlas Air, Inc.:
9.25% 4/15/08 B3 360,000 356,400
9.375% 11/15/06 (e) B3 300,000 300,000
Kitty Hawk, Inc. 9.95% B1 610,000 600,850
11/15/04
1,257,250
SHIPPING - 0.2%
Amer Reefer Co. Ltd. 10.25% B1 150,000 94,500
3/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TRANSPORTATION - CONTINUED
SHIPPING - CONTINUED
Cenargo International PLC Ba3 $ 280,000 $ 263,200
9.75% 6/15/08 (e)
International Shipholding Ba3 140,000 131,600
Corp. 7.75% 10/15/07
489,300
TOTAL TRANSPORTATION 1,746,550
UTILITIES - 9.2%
CELLULAR - 1.6%
ESAT Holdings Ltd. 0% 2/1/07 Caa1 360,000 239,400
(c)
McCaw International Ltd. 0% Caa1 833,000 449,820
4/15/07 (c)
Millicom International Caa1 1,460,000 1,025,650
Cellular SA 0% 6/1/06 (c)
Nextel Communications, Inc.:
0% 8/15/04 (c) B2 330,000 320,925
0% 9/15/07 (c) B2 83,000 53,328
0% 2/15/08 (c) B2 690,000 414,000
12% 11/1/08 (e) B2 460,000 502,550
Orange PLC 8% 8/1/08 Ba3 470,000 470,000
Rogers Communications, Inc. B2 345,000 355,350
8.875% 7/15/07
Telesystem International Caa1 280,000 119,000
Wireless, Inc. 0% 6/30/07 (c)
Teligent, Inc.:
0% 3/1/08 (c) Caa1 350,000 173,250
11.5% 12/1/07 Caa1 605,000 565,675
4,688,948
ELECTRIC UTILITY - 0.7%
Niagara Mohawk Power Corp.:
0% 7/1/10 (c) Ba2 1,180,000 896,800
7.625% 10/1/05 Ba2 570,000 590,691
7.75% 10/1/08 Ba2 410,000 438,700
1,926,191
TELEPHONE SERVICES - 6.9%
Allegiance Telecom, Inc.:
0% 2/15/08 (c) - 60,000 27,600
12.875% 5/15/08 - 460,000 446,200
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Covad Communications Group, - $ 610,000 $ 335,500
Inc. 0% 3/15/08 (c)
Dobson Wireline Co. 12.25% - 490,000 438,550
6/15/08
DTI Holdings, Inc. 0% 3/1/08 - 1,050,000 257,250
(c)
e.spire Communications, Inc.:
0% 11/1/05 (c) - 190,000 121,600
0% 4/1/06 (c) - 360,000 252,000
13.75% 7/15/07 - 360,000 340,200
ESAT Telecom Group PLC 0% Caa1 180,000 118,800
2/1/07 (c)
Facilicom International, Inc. - 190,000 152,000
10.5% 1/15/08
Firstworld Communications, - 660,000 198,000
Inc. 0% 4/15/08 (c)
Flag Ltd. 8.25% 1/30/08 Ba3 110,000 107,250
Global Crossing Holdings Ltd. B1 1,120,000 1,178,800
9.625% 5/15/08
GST Network Funding, Inc. 0% - 1,080,000 491,400
5/1/08 (c)(e)
GST Equipment Funding, Inc. - 400,000 415,000
13.25% 5/1/07
GST Telecommunications, Inc. - 480,000 436,800
12.75% 11/15/07
GST USA, Inc. 0% 12/15/05 (c) - 630,000 441,000
Hermes Europe Railtel BV B3 540,000 576,450
11.5% 8/15/07
IXC Communications, Inc. 9% B3 720,000 712,800
4/15/08
KMC Telecom Holdings, Inc. 0% - 860,000 404,200
2/15/08 (c)
Level 3 Communications, Inc. B3 1,450,000 1,437,313
9.125% 5/1/08
McLeodUSA, Inc.:
8.375% 3/15/08 B2 130,000 129,838
9.25% 7/15/07 B2 310,000 319,300
9.5% 11/1/08 (e) B2 450,000 477,000
MetroNet Communications Corp.:
0% 11/1/07 (c) B3 380,000 250,800
0% 6/15/08 (c) B3 1,300,000 796,250
10.625% 11/1/08 (e) B3 460,000 487,600
MGC Communications, Inc. 13% Caa2 170,000 112,200
10/1/04
Netia Holdings BV 10.25% B3 290,000 247,950
11/1/07
NEXTLINK Communications LLC B3 1,210,000 1,285,625
12.5% 4/15/06
Pathnet, Inc. 12.25% 4/15/08 - 480,000 336,000
Qwest Communications
International, Inc.:
0% 10/15/07 (c) Ba1 850,000 658,750
7.5% 11/1/08 (e) Ba1 400,000 416,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Qwest Communications
International, Inc.: -
continued
10.875% 4/1/07 Ba1 $ 185,000 $ 213,213
Rhythms Netconnections, Inc. - 320,000 156,800
0% 5/15/08 (c)
RSL Communications Ltd./RSL B2 355,000 374,525
Communications PLC 12.25%
11/15/06
RSL Communications PLC 9.125% B2 1,000,000 900,000
3/1/08
Telegroup, Inc. 0% 11/1/04 (c) - 180,000 90,000
Versatel Telecom BV 13.25% - 340,000 336,600
5/15/08
Viatel, Inc.:
0% 4/15/08 (c) Caa1 345,000 193,200
11.25% 4/15/08 Caa1 960,000 960,000
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 80,000 56,800
14.5% 10/15/05 Caa1 60,000 66,000
0% 3/15/08 (c) CCC 1,175,000 834,250
10% 3/15/08 CCC 600,000 480,000
Winstar Equipment Corp. 12.5% B3 490,000 494,900
3/15/04
19,562,314
TOTAL UTILITIES 26,177,453
TOTAL NONCONVERTIBLE BONDS 94,466,577
TOTAL CORPORATE BONDS 94,475,177
(Cost $99,236,946)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 23.7%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 12.4%
Fannie Mae:
6.48% 6/28/04 Aaa 4,300,000 4,548,583
6.5% 7/16/07 Aaa 6,930,000 7,435,682
6.74% 5/13/04 Aaa 780,000 833,602
Federal Farm Credit Bank Aaa 1,000,000 1,085,000
6.66% 12/26/06
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Federal Home Loan Bank:
4.96% 10/7/05 Aaa $ 7,500,000 $ 7,360,575
6.75% 4/5/04 Aaa 870,000 928,725
7.7% 9/20/04 Aaa 800,000 895,248
Government Loan Trusts Aaa 192,902 215,678
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class 1-C, 9.25% 11/15/01 Aaa 3,813,140 4,059,660
Class 2-E 9.4% 5/15/02 Aaa 137,901 145,761
Class T-3, 9.625% 5/15/02 Aaa 56,624 59,840
Guaranteed Export Trust Aaa 1,320,000 1,356,650
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1995-A, 6.28% 6/15/04
Guaranteed Trade Trust Aaa 916,667 933,442
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1997-A, 6.104% 7/15/03
Private Export Funding Corp.:
secured 6.86% 4/30/04 Aaa 627,000 652,986
5.82% 6/15/03 (e) Aaa 4,600,000 4,694,847
U.S. Department of Housing Aaa 210,000 235,158
and Urban Development
government guaranteed
participation certificates
Series 1995 A, 8.27% 8/1/03
35,441,437
U.S. TREASURY OBLIGATIONS -
11.3%
U.S. Treasury Bond:
8.875% 8/15/17 Aaa 6,315,000 8,895,246
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
U.S. TREASURY OBLIGATIONS -
CONTINUED
U.S. Treasury Bond: - continued
9% 11/15/18 Aaa $ 10,090,000 $ 14,498,007
U.S. Treasury Notes 5.875% Aaa 8,600,000 8,669,029
8/31/99
32,062,282
TOTAL U.S. GOVERNMENT AND 67,503,719
GOVERNMENT AGENCY OBLIGATIONS
(Cost $66,287,339)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 5.6%
FANNIE MAE - 2.5%
5.5% 5/1/11 Aaa 445,226 440,123
5.5% 1/1/14 (k) Aaa 300,000 296,156
6% 11/1/10 to 1/1/26 Aaa 1,783,216 1,784,697
6.5% 5/1/08 to 2/1/26 Aaa 1,992,275 2,007,695
7% 1/1/29 (k) Aaa 850,000 867,266
7.5% 1/1/28 to 5/1/28 Aaa 841,780 864,660
8% 7/1/26 to 12/1/27 Aaa 823,972 854,349
7,114,946
FREDDIE MAC - 0.1%
6% 12/1/07 Aaa 72,474 72,735
8.5% 3/1/20 Aaa 262,165 276,190
348,925
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 3.0%
6% 1/15/09 to 5/15/09 Aaa 956,212 967,859
6.5% 4/15/26 to 5/15/26 Aaa 895,985 905,222
7% 9/15/25 to 10/15/28 Aaa 1,695,450 1,734,671
7.5% 2/15/22 to 8/15/28 Aaa 3,202,100 3,303,380
8% 9/15/26 to 12/15/26 Aaa 708,034 735,910
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
11% 2/15/16 to 10/15/18 Aaa $ 581,637 $ 646,978
11.5% 3/15/10 Aaa 59,393 65,842
8,359,862
TOTAL U.S. GOVERNMENT AGENCY 15,823,733
- - MORTGAGE SECURITIES
(Cost $15,455,730)
ASSET-BACKED SECURITIES - 0.2%
Airplanes Pass Through Trust Ba2 440,000 462,000
10.875% 3/15/19 (Cost
$481,163)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - 24.9%
Argentinian Republic:
BOCON 3.29% 9/1/02 (f) Ba3 ARS 710,249 558,776
Bote 2.2184% 4/1/00 (f) Ba3 2,145 424
Brady 6.1875% 3/31/05 (f) Ba3 1,880,000 1,578,025
Brady par euro 5.75% 3/31/23 Ba3 1,720,000 1,238,400
(d)
global bond:
8.726% 4/10/05 (f) Ba3 310,000 279,000
11.375% 1/30/17 Ba3 1,450,000 1,448,188
11.375% 1/30/17 Ba3 220,000 219,725
8.75% 7/10/02 (Reg. S) Ba3 ARS 890,000 726,029
11.75% 2/12/07 Ba3 ARS 1,530,000 1,295,017
11.75% 2/12/07 (e) Ba3 ARS 250,000 211,604
Austrian Republic 5% 1/22/01 Aaa JPY 400,000,000 3,849,890
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) interest
notes:
5.9688% 12/15/15 (f) B1 2,890,000 314,288
5.9688% 12/15/15 (e)(f) Ca 236 26
Brazilian Federative Republic
Brady:
5.5% 4/15/24 (d) B2 325,000 190,531
capitalization bond 8% 4/15/14 B2 4,080,453 2,432,970
IDU euro 6.75% 1/1/01 (f) B2 418,200 379,517
new money bond L 6.1875% B2 2,250,000 1,229,063
4/15/09 (Bearer) (f)
global bond 10.125% 5/15/27 B2 577,000 384,426
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
Bulgarian Republic Brady:
discount A 6.6875% 7/28/24 (f) B2 $ 1,835,000 $ 1,298,263
FLIRB A 2.5% 7/28/12 (f) B2 1,175,000 669,750
Canadian Government:
7% 12/1/06 Aa1 CAD 8,200,000 6,090,449
10% 5/1/02 Aa1 CAD 500,000 377,785
City of Buenos Aires:
euro 10.5% 5/28/04 B1 ARS 820,000 631,991
11.25% 4/11/07 (e) B1 250,000 245,000
German Federal Republic:
4.75% 7/4/28 Aaa DEM 5,200,000 3,105,224
7.375% 1/3/05 Aaa DEM 15,400,000 11,091,923
9% 10/20/00 Aaa DEM 11,900,000 7,861,843
Greek Government Treasury A2 GRD 140,500,000 557,639
Bill 8.6% 3/26/08
Hungarian Government:
13% 7/24/03 A1 HUF 41,700,000 194,944
15% 7/24/01 A1 HUF 39,300,000 186,545
Ivory Coast Brady:
FLIRB 2% 3/30/18 (e)(f) - 403,000 96,720
past due interest 2% 3/30/18 - 616,200 169,455
(e)(f)
Korean Republic global bond Ba1 480,000 492,600
8.875% 4/15/08
Moscow City 9.5% 5/31/00 B3 1,900,000 703,000
(Reg.)
Panamanian Republic Brady:
interest reduction bond euro Ba1 450,000 330,750
4% 7/17/14 (f)
par 3.5% 7/17/26 (d) Ba1 550,000 338,250
past due interest euro Ba1 606,429 448,757
6.6875% 7/17/16 (f)
Peruvian Republic Brady FLIRB:
3.25% 3/7/17 (f) Ba3 1,165,000 661,138
3.25% 3/7/17 (e)(f) Ba3 200,000 113,500
Russian Federation euro B3 1,570,000 478,850
12.75% 6/24/28 (Reg. S)
United Kingdom, Great Britain
& Northern Ireland:
8.75% 8/25/17 Aaa GBP 1,200,000 3,057,120
9.75% 8/27/02 Aaa GBP 2,000,000 3,866,424
United Mexican States:
Brady par A 6.25% 12/31/19 Ba2 2,600,000 2,021,500
unit
Brady par B 6.25% 12/31/19 Ba2 1,450,000 1,127,375
unit
Cetes:
0% 3/4/99 - MXN 4,700,000 449,335
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
United Mexican States: -
continued
Cetes:
0% 3/11/99 - MXN 2,190,000 $ 209,205
global bond 11.5% 5/15/26 Ba2 3,430,000 3,678,675
Venezuelan Republic:
Brady debt conversion bond B2 3,428,562 2,177,137
euro 5.9375% 12/18/07 (f)
global bond:
13.625% 8/15/18 B2 750,000 577,500
13.625% 8/15/18 B2 700,000 539,000
9.25% 9/15/27 B2 1,172,000 714,187
TOTAL FOREIGN GOVERNMENT AND 70,897,733
GOVERNMENT AGENCY OBLIGATIONS
(Cost $70,717,462)
</TABLE>
COMMON STOCKS - 0.1%
SHARES
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive 260 5,460
LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. 10 0
(a)(e)
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 230 1,840
.47) (a)
warrants 1/15/07 (CV ratio 480 5,040
.6) (a)
NTL, Inc. warrants 12/31/08 1,586 23,790
(a)
Orbital Imaging Corp. 1,010 10,100
warrants 3/1/05 (a)(e)
UIH Australia/Pacific, Inc. 570 1,710
warrants 5/15/06 (a)
42,480
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc. Series I 270 0
warrants 11/14/99 (a)(e)
TOTAL MEDIA & LEISURE 42,480
SERVICES - 0.0%
Spin Cycle, Inc. warrants 340 3
5/1/05 (a)(e)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 540 $ 78,300
warrants 12/15/07 (a)(e)
UTILITIES - 0.1%
CELLULAR - 0.0%
McCaw International Ltd. 1,753 8,765
warrants 4/15/07 (a)(e)
Microcell Telecommunications, 2,520 32,130
Inc. warrants 6/1/06 (a)(e)
Nextel Communications, Inc. 1,997 47,179
Class A (a)
PageMart Nationwide, Inc. 2,100 11,813
(non-vtg.) (a)
Powertel, Inc. warrants 3,328 9,984
2/1/06 (a)
109,871
TELEPHONE SERVICES - 0.1%
Covad Communications Group, 610 30,500
Inc. warrants 3/15/08 (a)(e)
DTI Holdings, Inc. warrants 5,250 263
3/1/08 (a)(e)
FirstCom Corp.:
warrants 10/27/07 (Reg. S) (a) 1,750 875
warrants 10/27/07 (a)(e) 8,050 4,025
Firstworld Communications, 660 6,600
Inc. warrants 4/15/08 (a)(e)
KMC Telecom Holdings, Inc. 890 2,225
warrants 4/15/08 (a)(e)
MGC Communications, Inc. 170 5,243
warrants 10/1/04 (a)(e)
Pathnet, Inc. warrants 480 4,800
4/15/08 (a)(e)
Rhythms Netconnections, Inc. 1,280 9,600
warrants 5/15/08 (a)(e)
RSL Communications Ltd./RSL 630 66,150
Communications PLC warrants
11/15/06 (a)(e)
Source Media, Inc. warrants 1,676 16,341
11/1/07 (a)(e)
Versatel Telecom BV warrants 340 3,400
5/15/08 (a)(e)
150,022
TOTAL UTILITIES 259,893
TOTAL COMMON STOCKS 386,136
(Cost $257,478)
PREFERRED STOCKS - 5.8%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
MEDIA & LEISURE - 0.1%
LODGING & GAMING - 0.1%
Host Marriott Financial Trust 8,400 342,825
$3.375 QUIPS
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
IXC Communications, Inc. 10,000 $ 331,250
$3.375 (e)
NEXTLINK Communications, Inc. 3,000 118,125
$3.25 (a)(e)
449,375
TOTAL CONVERTIBLE PREFERRED 792,200
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 5.5%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 15,847 398,156
Capital Corp. $2.28
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 240 235,200
Capital Trust II 8.75%
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT
- - 0.1%
Fresenius Medical Care 251 262,923
Capital Trust 9%
MEDIA & LEISURE - 2.5%
BROADCASTING - 2.2%
Adelphia Communications Corp. 5,345 622,693
$13.00
Benedek Communications Corp. 996 806,760
11.5% pay-in-kind (a)
Citadel Broadcasting Co. 4,830 550,620
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 16,125 1,797,938
Series H, 11.75% pay-in-kind 4,355 496,470
(a)
Echostar Communications Corp. 408 471,750
12.125% pay-in-kind
Granite Broadcasting Corp. 692 622,800
12.75% pay-in-kind
NTL, Inc. 13% pay-in-kind (a) 746 790,760
6,159,791
PUBLISHING - 0.3%
PRIMEDIA, Inc.:
$9.20 1,600 155,200
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
PRIMEDIA, Inc.: - continued
8.625% 914 $ 89,115
Series D, $10.00 5,733 591,932
836,247
TOTAL MEDIA & LEISURE 6,996,038
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Nebco Evans Holding Co. 83 4,150
11.25% pay-in-kind (a)
Supermarkets General Holdings 12,725 267,225
Corp. $3.52 pay-in-kind (a)
271,375
TECHNOLOGY - 0.4%
COMMUNICATIONS EQUIPMENT - 0.4%
Intermedia Communications, 1,053 1,060,898
Inc. 13.5% pay-in-kind (a)
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 198 169,290
13.5% pay-in-kind (a)
TOTAL TECHNOLOGY 1,230,188
UTILITIES - 2.2%
CELLULAR - 0.7%
Nextel Communications, Inc.:
11.125% pay-in-kind (a) 1,140 1,026,000
Series D, 13% pay-in-kind 1,114 1,102,860
2,128,860
TELEPHONE SERVICES - 1.5%
e.spire Communications, Inc.:
$127.50 pay-in-kind 649 318,010
14.75% pay-in-kind 226 158,200
Hyperion Telecommunication, 419 333,105
Inc. 12.875% pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
ICG Holdings, Inc.:
14% pay-in-kind (a) 554 $ 540,150
14.25% pay-in-kind 746 753,460
IXC Communications, Inc. 1,029 1,039,290
12.5% pay-in-kind
NEXTLINK Communications, Inc. 10,276 534,352
14% pay-in-kind
Source Media, Inc. 13.50% 3,426 40,256
pay-in-kind (a)
Viatel, Inc. 10% pay-in-kind 612 67,320
(a)(e)
WinStar Communications, Inc. 474 379,200
14.25%
4,163,343
TOTAL UTILITIES 6,292,203
TOTAL NONCONVERTIBLE 15,686,083
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 16,478,283
(Cost $18,563,923)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 0.0%
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H)
Bank for Foreign Economic B1 $ 490,000 30,625
Affairs of Russia
(Vnesheconombank) loan under
1997 restructuring Agreement
5.9688% 12/15/20 (f) (Cost
$213,864)
SOVEREIGN LOAN PARTICIPATIONS
- - 0.7%
Algerian Republic loan - 450,000 373,500
participation - The Chase
Manhattan Bank 7.3125%
3/4/00 (f)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank):
loan participation
restructured under 1997
Agreement:
- - BankBoston Corp. 6.7188% - 4,330,000 270,625
12/15/20 (b)(f)
- - Deutsche Bank 6.7188% - 3,090,000 193,125
12/15/20 (b)(f)
SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank): - continued
loan participation
restructured under 1997
Agreement:
- - ING Bank NV 5.9688% - $ 250,000 $ 15,625
12/15/20 (b)(f)
- - Merrill Lynch, Pierce, - 630,000 39,375
Fenner & Smith, Inc. 6.7188%
12/15/20 (b)(f)
- - Morgan (J.P.) Securities, - 1,480,000 92,500
Inc. 5.9688% 12/15/20 (b)(f)
- - Paribus Capital Markets - 400,000 25,000
6.7188% 12/15/20 (b)(f)
- - The Chase Manhattan Bank - 1,710,000 106,875
5.9688% 12/15/20 (b)(f)
Moroccan Kingdom loan
participation:
Series A - ING Bank NV - 250,000 198,750
6.0625% 1/1/09 (f)
Series A - Morgan Guaranty - 425,000 337,875
Trust Co. 6.0625% 1/1/09 (f)
Series A - The Chase - 200,000 159,000
Manhattan Bank 6.0625%
1/1/09 (f)
TOTAL SOVEREIGN LOAN 1,812,250
PARTICIPATIONS
(Cost $3,050,022)
</TABLE>
CASH EQUIVALENTS - 5.8%
MATURITY AMOUNT
Investments in repurchase $ 16,552,676 16,544,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.72%,
dated 12/31/98 due 1/4/99
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED OPTIONS - 0.0%
EXPIRATION DATE/ STRIKE YIELD UNDERLYING FACE AMOUNT AT VALUE VALUE (NOTE 1)
PURCHASED OPTIONS - 0.0%
The Chase Manhattan Bank Call May 99/ 16% $ 661,704 $ 18,040
Option on ZAR 4,600,000
notional amount of South
African Republic 12% 2/28/05
(Cost $25,025)
TOTAL INVESTMENT IN $ 284,431,696
SECURITIES - 100%
(Cost $290,832,952)
</TABLE>
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest
Reduction Bonds
QUIPS - Quarterly Income Preferred
Securities
CURRENCY ABBREVIATIONS
ARS - Argentine peso
CAD - Canadian dollar
DEM - German deutsche mark
GBP - British pound
GRD - Greek drachma
HUF - Hungarian forint
JPY - Japanese yen
MXN - Mexican peso
ZAR - South African rand
LEGEND
(a) Non-income producing
(b) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(c) 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.
(d) 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.
(e) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $20,620,064 or 7.2% of net assets.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) Restricted securities - Investment in securities not registered
under the Securities Act of 1933 (see Note 2 of Notes to Financial
Statements).
Additional information on each holding is as follows:
SECURITY ACQUISTION DATE ACQUISITION COST
Sealy Corp., Inc. 10% 2/23/98 - 9/30/98 $ 506,047
12/18/08 pay-in-kind
(h) Principal amount is stated in United States dollars unless
otherwise noted.
(i) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(j) 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.
(k) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 43.5% AAA, AA, A 37.9%
Baa 0.3% BBB 1.3%
Ba 10.2% BB 12.2%
B 23.5% B 21.8%
Caa 5.0% CCC 3.9%
Ca, C 0.1% CC, C 0.0%
D 0.1%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 4.5%. FMR has determined that
unrated debt securities that are lower quality account for 4.5% of the
total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investments in securities, is as follows:
United States of America 70.2%
Germany 7.8
United Kingdom 3.4
Canada 3.2
Mexico 3.1
Argentina 2.9
Brazil 2.3
Venezuela 1.4
Austria 1.3
(Others individually less 4.4
than 1%)
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $293,332,422. Net unrealized depreciation
aggregated $8,900,726, of which $6,283,015 related to appreciated
investment securities and $15,183,741 related to depreciated
investment securities.
The fund hereby designates approximately $1,555,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
The fund intends to elect to defer to its fiscal year ending December
31, 1999 approximately $5,876,000 of losses recognized during the
period November1, 1998 to December 31, 1998.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
Investment in securities, at $ 284,431,696
value (including repurchase
agreements of $16,544,000)
(cost $290,832,952) - See
accompanying schedule
Cash 169,012
Receivable for investments 1,139,625
sold
Receivable for fund shares 1,251,124
sold
Dividends receivable 53,364
Interest receivable 4,972,232
Other receivables 11,638
TOTAL ASSETS 292,028,691
LIABILITIES
Payable for investments $ 631,917
purchased Regular delivery
Delayed delivery 1,167,066
Payable for fund shares 1,220,319
redeemed
Distributions payable 616,714
Accrued management fee 138,733
Distribution fees payable 103,281
Other payables and accrued 141,260
expenses
TOTAL LIABILITIES 4,019,290
NET ASSETS $ 288,009,401
Net Assets consist of:
Paid in capital $ 301,726,402
Undistributed net investment 794,238
income
Accumulated undistributed net (8,105,793)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (6,405,446)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 288,009,401
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1998
CALCULATION OF MAXIMUM $10.56
OFFERING PRICE CLASS A: NET
ASSET VALUE and redemption
price per share
($9,596,485 (divided by)
909,175 shares)
Maximum offering price per $11.09
share (100/95.25 of $10.56)
CLASS T: NET ASSET VALUE and $10.55
redemption price per share
($189,754,890 (divided by)
17,986,106 shares)
Maximum offering price per $10.93
share (100/96.50 of $10.55)
CLASS B: NET ASSET VALUE and $10.57
offering price per share
($72,773,443 (divided by)
6,886,758 shares) A
CLASS C: NET ASSET VALUE and $10.55
offering price per share
($11,248,296 (divided by)
1,066,326 shares) A
INSTITUTIONAL CLASS: NET $10.61
ASSET VALUE, offering price
and redemption price per
share ($4,636,287 (divided
by) 437,032 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME $ 1,902,074
Dividends
Interest 19,178,188
TOTAL INCOME 21,080,262
EXPENSES
Management fee $ 1,461,994
Transfer agent fees 521,372
Distribution fees 1,099,164
Accounting fees and expenses 101,938
Non-interested trustees' 881
compensation
Custodian fees and expenses 48,259
Registration fees 141,216
Audit 39,746
Legal 9,490
Interest 2,505
Miscellaneous 29,594
Total expenses before 3,456,159
reductions
Expense reductions (10,476) 3,445,683
NET INVESTMENT INCOME 17,634,579
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (7,314,693)
Foreign currency transactions 23,780 (7,290,913)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (8,265,240)
Assets and liabilities in 27,495 (8,237,745)
foreign currencies
NET GAIN (LOSS) (15,528,658)
NET INCREASE (DECREASE) IN $ 2,105,921
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 17,634,579 $ 11,535,543
income
Net realized gain (loss) (7,290,913) 5,548,328
Change in net unrealized (8,237,745) (2,667,312)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 2,105,921 14,416,559
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (16,346,500) (11,341,743)
From net investment income
From net realized gain - (5,678,734)
In excess of net realized (1,629,425) -
gain
TOTAL DISTRIBUTIONS (17,975,925) (17,020,477)
Share transactions - net 119,784,884 43,274,917
increase (decrease)
TOTAL INCREASE (DECREASE) 103,914,880 40,670,999
IN NET ASSETS
NET ASSETS
Beginning of period 184,094,521 143,423,522
End of period (including $ 288,009,401 $ 184,094,521
undistributed net investment
income of $794,238 and
$570,865, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED DECEMBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.090 $ 11.250 $ 11.010
period
Income from Investment
Operations
Net investment income D .771 .802 .267
Net realized and unrealized (.512) .198 .493
gain (loss)
Total from investment .259 1.000 .760
operations
Less Distributions
From net investment income (.729) (.790) (.280)
From net realized gain - (.370) (.240)
In excess of net realized (.060) - -
gain
Total distributions (.789) (1.160) (.520)
Net asset value, end of period $ 10.560 $ 11.090 $ 11.250
TOTAL RETURN B, C 2.38% 9.24% 6.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 9,596 $ 3,379 $ 587
(000 omitted)
Ratio of expenses to average 1.23% 1.25% F 1.25% A, F
net assets
Ratio of expenses to average 1.22% G 1.24% G 1.25% A
net assets after expense
reductions
Ratio of net investment 7.22% 7.16% 7.32% A
income to average net assets
Portfolio turnover rate 150% 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.
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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
Net asset value, beginning $ 11.090 $ 11.250 $ 11.000 $ 9.920 $ 10.000
of period
Income from Investment
Operations
Net investment income .781 D .814 D .813 D .885 .064 D
Net realized and unrealized (.535) .194 .542 1.231 (.046)
gain (loss)
Total from investment .246 1.008 1.355 2.116 .018
operations
Less Distributions
From net investment income (.726) (.798) (.805) (.806) (.098)
From net realized gain - (.370) (.300) (.230) -
In excess of net realized (.060) - - - -
gain
Total distributions (.786) (1.168) (1.105) (1.036) (.098)
Net asset value, end of period $ 10.550 $ 11.090 $ 11.250 $ 11.000 $ 9.920
TOTAL RETURN B, C 2.26% 9.33% 12.89% 22.02% .17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 189,755 $ 119,204 $ 99,327 $ 52,626 $ 10,687
(000 omitted)
Ratio of expenses to average 1.18% 1.20% 1.23% 1.35% F 1.35% A, F
net assets
Ratio of expenses to average 1.17% G 1.19% G 1.22% G 1.35% 1.35% A
net assets after expense
reductions
Ratio of net investment 7.25% 7.21% 7.34% 7.28% 5.80% A
income to average net assets
Portfolio turnover rate 150% 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
Net asset value, beginning $ 11.100 $ 11.260 $ 11.010 $ 9.910 $ 10.000
of period
Income from Investment
Operations
Net investment income .713 D .740 D .743 D .820 .072 D
Net realized and unrealized (.529) .194 .538 1.237 (.078)
gain (loss)
Total from investment .184 .934 1.281 2.057 (.006)
operations
Less Distributions
From net investment income (.654) (.724) (.731) (.727) (.084)
From net realized gain - (.370) (.300) (.230) -
In excess of net realized (.060) - - - -
gain
Total distributions (.714) (1.094) (1.031) (.957) (.084)
Net asset value, end of period $ 10.570 $ 11.100 $ 11.260 $ 11.010 $ 9.910
TOTAL RETURN B, C 1.69% 8.60% 12.14% 21.35% (.06)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 72,773 $ 54,562 $ 37,403 $ 26,654 $ 9,379
(000 omitted)
Ratio of expenses to average 1.83% 1.86% 1.88% 2.10% F 2.10% A, F
net assets
Ratio of expenses to average 1.83% 1.85% G 1.87% G 2.10% 2.10% A
net assets after expense
reductions
Ratio of net investment 6.56% 6.55% 6.69% 6.53% 5.06% A
income to average net assets
Portfolio turnover rate 150% 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.
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.
FINANCIAL HIGHLIGHTS - CLASS C
YEARS ENDED DECEMBER 31,
1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.080 $ 11.400
period
Income from Investment
Operations
Net investment income D .672 .105
Net realized and unrealized (.517) .037
gain (loss)
Total from investment .155 .142
operations
Less Distributions
From net investment income (.625) (.152)
From net realized gain - (.310)
In excess of net realized (.060) -
gain
Total distributions (.685) (.462)
Net asset value, end of period $ 10.550 $ 11.080
TOTAL RETURN B, C 1.42% 1.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 11,248 $ 659
(000 omitted)
Ratio of expenses to average 2.07% F 2.10% A, F
net assets
Ratio of net investment to 6.37% 6.30% A
average net assets
Portfolio turnover rate 150% 140%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.140 $ 11.300 $ 11.030 $ 10.890
period
Income from Investment
Operations
Net investment income .805 D .830 D .826 D .456
Net realized and unrealized (.533) .186 .548 .340
gain (loss)
Total from investment .272 1.016 1.374 .796
operations
Less Distributions
From net investment income (.742) (.806) (.804) (.426)
From net realized gain - (.370) (.300) (.230)
In excess of net realized (.060) - - -
gain
Total distributions (.802) (1.176) (1.104) (.656)
Net asset value, end of period $ 10.610 $ 11.140 $ 11.300 $ 11.030
TOTAL RETURN B, C 2.49% 9.36% 13.04% 7.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 4,636 $ 6,289 $ 6,107 $ 107
(000 omitted)
Ratio of expenses to average 1.07% 1.10% F 1.10% F 1.10% A, F
net assets
Ratio of expenses to average 1.07% 1.09% G 1.10% 1.10% A
net assets after expense
reductions
Ratio of net investment 7.29% 7.31% 7.47% 7.53% A
income to average net assets
Portfolio turnover rate 150% 140% 119% 193%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO 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.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Strategic Income Fund (the fund) is a fund of
Fidelity Advisor Series II (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust.
The fund offers Class A, Class T, Class B, Class C, and Institutional
Class shares, each of which has equal rights as to assets and voting
privileges. Each class has exclusive voting rights with respect to
matters that affect that class. Class B shares will automatically
convert to Class A shares after a holding period of seven years from
the initial date of purchase. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution, transfer agent, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices (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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
the U.S. dollar amount actually received, and gains and losses between
trade and settlement date on purchases and sales of securities. The
effects of changes in foreign currency exchange rates on investments
in securities are included with the net realized and unrealized gain
or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
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. The fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a
portion of interest has become doubtful based on consistently applied
procedures, under the general supervision of the Board of Trustees of
the fund. A debt obligation is removed from non-accrual status when
the issuer resumes interest payments or when collectibility of
interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
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 and excise tax regulations.
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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its records with a value at least equal to the amount of the
commitment. Losses may arise
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $508,842 or 0.2% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,812,250 or 0.6% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $456,683,756 and $349,997,664, respectively, of which U.S.
government and government agency obligations aggregated $135,244,102
and $108,724,025, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% of average net assets.
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 Investments Japan Limited
(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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SUB-ADVISER FEE - CONTINUED
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. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90% *
CLASS C 1.00% **
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
** .75% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A
SHAREHOLDER SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was retained by FDC:
PAID TO FDC RETAINED BY FDC
CLASS A $ 10,359 $ 82
CLASS T 405,368 170
CLASS B 614,016 443,838
CLASS C 69,421 68,468
$ 1,099,164 $ 512,558
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class' shares. The
Plans also authorize payments to third parties that assist in the sale
of each class' shares or render shareholder support services. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 1,507
CLASS T 46,652
CLASS B 13,435
CLASS C 2,761
INSTITUTIONAL CLASS 674
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and on Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5% to 1% for Class B and 1% for Class C, of the
lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested
dividends and capital gains. In addition, purchases of Class A and
Class T shares that were subject to a finder's fee bear a contingent
deferred sales charge on assets that do not remain in the fund for at
least one year. The Class A and Class T contingent deferred sales
charge is based on 0.25% of the lesser of the cost of shares at the
initial date of purchase or the net asset value of the redeemed
shares, excluding any reinvested dividends and capital gains. A
portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO FDC RETAINED BY FDC
CLASS A $ 97,601 $ 25,922
CLASS T 269,192 76,233
CLASS B 140,845 140,845 *
CLASS C 9,131 9,131 *
$ 516,769 $ 252,131
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund.
FIIOC receives account fees and asset-based fees that vary according
to the account size and type of account of the shareholders of the
respective classes of the fund. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For
the period, the following amounts were paid to FIIOC:
AMOUNT % OF AVERAGE NET ASSETS
CLASS A $ 18,232 .26
CLASS T 333,844 .21
CLASS B 141,064 .21
CLASS C 16,836 .24
INSTITUTIONAL CLASS 11,396 .19
$ 521,372
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.
During the period, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above a specified percentage on average net
assets for each of the following classes:
FMR EXPENSE LIMITATIONS REIMBURSEMENT
CLASS A 1.25% $ -
CLASS T 1.35% -
CLASS B 2.00% -
CLASS C 2.10% 3,803
INSTITUTIONAL CLASS 1.10% -
$ 3,803
Effective December 1, 1998, the expense limitations were eliminated.
FMR has also directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $394 under this arrangement.
5. EXPENSE REDUCTIONS - CONTINUED
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $6,279 under the custodian
arrangement.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $8,587,000. The weighted average interest rate was 5.25%.
7. CREDIT RISK.
The fund's relatively large investment in countries with limited or
developing capital markets may involve greater risks than investments
in more developed markets and the prices of such investments may be
volatile. The yields of emerging market debt obligations reflect,
among other things, perceived credit risk. The consequences of
political, social or economic changes in these markets may have
disruptive effects on the market prices of the fund's investments and
the income they generate, as well as the fund's ability to repatriate
such amounts.
8. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of
approximately 15% of the total outstanding shares of the fund.
9. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997A
FROM NET INVESTMENT INCOME
Class A $ 468,016 $ 128,164
Class T 10,946,403 7,824,627
Class B 4,114,994 2,941,590
Class C 416,895 5,711
Institutional Class 400,192 441,651
Total $ 16,346,500 $ 11,341,743
FROM NET REALIZED GAIN
Class A $ - $ 93,953
Class T - 3,695,167
Class B - 1,668,813
Class C - 16,228
Institutional Class - 204,573
Total $ - $ 5,678,734
IN EXCESS OF NET REALIZED GAIN
Class A $ 53,961 $ -
Class T 1,076,254 -
Class B 409,677 -
Class C 63,791 -
Institutional Class 25,742 -
Total $ 1,629,425 $ -
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1997.
10. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997A 1998 1997A
CLASS A Shares sold 900,167 265,146 $ 9,908,134 $ 3,006,773
Reinvestment of
distributions 40,130 17,057 381,968 191,271
Shares redeemed (335,982) (29,534) (3,569,407) (335,583)
Net increase
(decrease) 604,315 252,669 $ 6,720,695 $ 2,862,461
CLASS T Shares sold 11,047,467 4,933,967 $ 122,912,518 $ 55,635,680
Reinvestment of
distributions 920,256 837,190 8,937,450 9,389,799
Shares redeemed (4,726,297) (3,857,473) (51,174,332) (43,554,684)
Net increase (decrease) 7,241,426 1,913,684 $ 80,675,636 $ 21,470,795
CLASS B Shares sold 4,082,575 1,957,957 $ 45,035,865 $ 22,125,314
Reinvestment of
distributions 304,841 332,029 2,975,955 3,727,875
Shares redeemed (2,414,647) (691,264) (25,559,874) (7,851,913)
Net increase
(decrease) 1,972,769 1,598,722 $ 22,451,946 $ 18,001,276
CLASS C Shares sold 1,295,745 75,453 $ 14,256,416 $ 858,758
Reinvestment of
distributions 34,501 1,548 315,902 17,203
Shares redeemed (323,431) (17,490) (3,449,844) (199,505)
Net increase (decrease) 1,006,815 59,511 $ 11,122,474 $ 676,456
INSTITUTIONAL CLASS
Shares 422,294 146,268 $ 4,701,276 $ 1,658,979
sold
Reinvestment of
distributions 32,127 53,502 334,547 603,021
Shares redeemed (581,996) (175,667) (6,221,690) (1,998,071)
Net increase
(decrease) (127,575) 24,103 $ (1,185,867) $ 263,929
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1997.
11. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION FEES
CLASS A $ 10,108
CLASS T 73,244
CLASS B 30,311
CLASS C 16,010
INSTITUTIONAL CLASS 11,543
$ 141,216
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Strategic Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Strategic Income Fund (a fund of Fidelity Advisor
Series II) at December 31, 1998, and the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Advisor Strategic Income Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
DISTRIBUTIONS
The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.
OF SPECIAL NOTE
INTRODUCING FIDELITY'S NEW, REORGANIZED PROSPECTUS
Recently, the SEC issued new disclosure requirements for all mutual
fund prospectuses. While Fidelity could have complied by simply
following the new requirements, we saw a different opportunity. We saw
the chance to create a brand new prospectus: one that is better
organized, easier to use and more informative than ever.
The new format of the Fidelity mutual fund prospectus puts the
information you need to make informed investment decisions right at
your fingertips. In the opening pages, you will find the SEC-mandated
summary that highlights the fund's investment objectives, strategies
and risks. There's also an easy-to-read performance chart and fee
table right up front.
Inside, you will find additional features we've introduced to make the
fund prospectus a more useful tool. In our new Shareholder Information
section, for example, we have provided practical, beneficial
information - from how to buy or sell shares, key contact information,
investment services, ways to set up your account and more - all in one
convenient location.
We invite you to spend a moment and review our new prospectus. It is
designed to help make your investment decision easier, no matter which
of the Fidelity funds you invest in.
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
Margaret L. Eagle, Vice President
Kevin E. Grant, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
SI-ANN-0299 70363
1.54022.101
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
STRATEGIC INCOME
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
DECEMBER 31, 1998
(2_FIDELITY_LOGOS)(registered trademark)
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 37 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 46 Notes to the financial
statements.
REPORT OF INDEPENDENT 57 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 58
OF SPECIAL NOTE 59
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
Resurgent stock market performance in the fourth quarter helped the
Dow Jones Industrial Average post a double-digit return for the fourth
year in a row - a first in the Dow's 100-plus year history. Three
interest-rate cuts made late in the year by the Federal Reserve Board
helped spark the equity rally. Meanwhile, while the majority of bonds
posted positive performance, most bond returns for 1998 trailed their
gains from 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
ADVISOR STRATEGIC INCOME FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. 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 life of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 2.49% 55.35%
- - INST CL
Fidelity Strategic Inc 5.43% 52.64%
Composite
JP EMBI Plus -14.35% 59.71%
LB Government Bond 9.85% 47.03%
ML High Yield Master 3.66% 56.16%
SB Non-US Dollar World Govt 17.79% 37.57%
Bond
Multi-Sector Income Funds 1.30% n/a
Average
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 the fund's returns to
the performance of the Fidelity Strategic Income Composite Index - a
hypothetical combination of unmanaged indices. The composite index
combines the total returns of the JP Morgan Emerging Markets Bond
Index Plus, the Lehman Brothers Government Bond Index, the Merrill
Lynch High Yield Master Index and the Salomon Brothers Non-U.S. Dollar
World Government Bond Index weighted according to the fund's neutral
mix. 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 Inc. The past one year average represents
a peer group of 93 mutual funds. The benchmarks listed in the table
above include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR LIFE OF FUND
1998
FIDELITY ADV STRATEGIC INCOME 2.49% 11.15%
- - INST CL
Fidelity Strategic Inc 5.43% 10.68%
Composite
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$10,000 OVER LIFE OF FUND
FA Strategic Inc -CL I FID Strategic Inc Comp. ML High Yield Master
00648 F0086 ML002
1994/10/31 10000.00 10000.00 10000.00
1994/11/30 10050.16 9921.26 9914.94
1994/12/31 10017.44 9887.56 10025.22
1995/01/31 10129.20 9962.57 10166.88
1995/02/28 10368.45 10125.61 10484.10
1995/03/31 10518.89 10301.07 10630.00
1995/04/30 10913.50 10634.09 10878.89
1995/05/31 11324.23 11037.19 11218.77
1995/06/30 11382.14 11135.32 11304.46
1995/07/31 11496.09 11192.91 11433.70
1995/08/31 11515.97 11198.60 11503.09
1995/09/30 11722.27 11390.44 11634.70
1995/10/31 11858.92 11444.44 11717.17
1995/11/30 11991.80 11595.55 11831.55
1995/12/31 12262.15 11847.24 12021.46
1996/01/31 12535.82 12046.81 12211.32
1996/02/29 12434.95 11927.06 12229.71
1996/03/31 12406.66 11944.14 12196.49
1996/04/30 12523.21 12025.48 12202.02
1996/05/31 12607.92 12090.46 12290.02
1996/06/30 12714.41 12234.53 12363.84
1996/07/31 12791.31 12369.42 12447.78
1996/08/31 12938.43 12504.03 12576.33
1996/09/30 13341.77 12784.11 12846.16
1996/10/31 13515.35 12956.74 12986.95
1996/11/30 13779.59 13230.23 13249.51
1996/12/31 13860.66 13261.40 13351.46
1997/01/31 13942.67 13301.40 13454.07
1997/02/28 14076.48 13391.81 13642.80
1997/03/31 13767.86 13220.01 13491.28
1997/04/30 13922.06 13350.18 13644.83
1997/05/31 14282.92 13643.22 13916.32
1997/06/30 14490.10 13839.71 14131.74
1997/07/31 14775.44 14081.77 14470.87
1997/08/31 14766.31 14060.71 14438.31
1997/09/30 15126.16 14317.94 14684.83
1997/10/31 14882.86 14204.77 14782.28
1997/11/30 14998.62 14326.98 14914.67
1997/12/31 15157.95 14478.93 15063.79
1998/01/31 15430.92 14640.74 15284.46
1998/02/28 15560.57 14746.85 15351.23
1998/03/31 15697.07 14828.66 15483.52
1998/04/30 15748.76 14931.13 15557.07
1998/05/31 15676.85 14938.88 15657.71
1998/06/30 15634.85 14946.72 15742.96
1998/07/31 15734.44 15005.68 15832.74
1998/08/31 14520.66 14278.51 15149.54
1998/09/30 14987.25 14755.55 15179.76
1998/10/31 15020.70 14886.61 14926.53
1998/11/30 15557.45 15245.10 15610.38
1998/12/31 15535.33 15264.49 15615.57
</TABLE>
IMATRL PRASUN SHR__CHT 19981231 19990129 150553 R00000000000053
$10,000 OVER LIFE OF FUND: 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, 1998, the value of the investment would have grown to
$15,535 - a 55.35% increase on the initial investment. For comparison,
look at how the Merrill Lynch High Yield Master Index - a market
value-weighted index of all domestic and yankee high-yield bonds, did
over the same period. Issues included in the index have maturities of
one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,616 -
a 56.16% increase. You can also look at how the Fidelity Strategic
Income Composite Index - 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 (+59.71%), Lehman Brothers
Government Bond Index (+47.03%), Merrill Lynch High Yield Master Index
(+56.16%), and Salomon Brothers Non-U.S. Dollar World Government Bond
Index (+37.57%), according to the fund's neutral mix *, and assumes
monthly rebalancing of the mix. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$15,264 - a 52.64% increase.
(checkmark)UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. 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.
* 40% HIGH YIELD, 30% U.S. GOVERNMENT AND INVESTMENT GRADE, 15%
EMERGING MARKETS, AND 15% FOREIGN DEVELOPED MARKETS.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
JULY 3, 1995 (COMMENCEMENT OF
YEARS ENDED DECEMBER 31, SALE OF INSTITUTIONAL CLASS
SHARES) TO DECEMBER 31,
1998 1997 1996 1995
Dividend returns 6.68% 7.33% 7.70% 4.00%
Capital returns -4.19% 2.03% 5.34% 3.47%
Total returns 2.49% 9.36% 13.04% 7.47%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIOD ENDED DECEMBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 8.47(cents) 39.14(cents) 74.17(cents)
Annualized dividend rate 9.34% 7.28% 6.76%
30-day annualized yield 7.32% - -
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 $10.68 over the past one month, $10.67 over the past six months,
and $10.97 over the past one year, you can compare the class' income
over these three periods. The past month dividends per share include
additional distributions required by federal tax regulations. These
distributions may not be reflected in future monthly dividends. 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.
FUND TALK: THE MANAGERS' OVERVIEW
MARKET RECAP
Escalating volatility characterized
capital markets during the
12-month period ended December
31, 1998. Below-investment-grade
issues such as high-yield bonds
and emerging-market debt bore
the brunt of this increased volatility,
as did any sector priced relative to
U.S. Treasury yields. Investors
entered the year fairly upbeat
thanks to positive economic data,
favorable corporate earnings
estimates and resilience in
emerging markets. However, as
spring ended, global events
undermined investor confidence.
Prolonged uncertainty
surrounding resolution of Japan's
banking crisis put significant
pressure on the yen. This called
into question the export
competitiveness of surrounding
Asian countries. Russian debt
came under pressure when
investors' attention turned to the
significant reform challenges the
country faced and its slow
progress in addressing them. As
the summer wore on, investors
began turning their backs on
higher-yielding, more volatile debt
instruments in favor of
lower-yielding, higher-quality
issues. The ensuing rapid flight to
quality in August, triggered by
Russia's default and devaluation,
caused the gap between Treasury
yields and the yields on
non-investment-grade debt to
increase dramatically. The key
beneficiaries in this environment
included U.S. Treasuries as well
as G-7 government bonds. As the
year came to a close, investors
were focusing on Brazil's outlook
and its potential for unsettling
global markets.
(photograph of John Carlson)
(photograph of Kevin Grant)
(photograph of Margaret Eagle)
(photograph of Ian Spreadbury)
The following is an interview with John Carlson (top left), Lead
Portfolio Manager of Fidelity Advisor Strategic Income Fund, with
additional comments from Kevin Grant (top right), who replaced Curt
Hollingsworth on December 7, 1998, on U.S. government and
investment-grade securities; Margaret Eagle (lower left) on high-yield
securities; and Ian Spreadbury (lower right) on foreign
developed-market securities. Mr. Carlson also manages the
emerging-markets portion of the fund, replacing Brian Hogan as of
November 16, 1998.
Q. HOW DID THE FUND PERFORM, JOHN
J.C. For the 12 months ended December 31, 1998, the fund's
Institutional Class shares returned 2.49%. The multi-sector income
funds average, as tracked by Lipper Inc., returned 1.30%. The Merrill
Lynch High Yield Master Index returned 3.66%.
Q. JOHN, WHAT WERE THE MAJOR THEMES IN THE CREDIT MARKETS IN 1998?
J.C. When I look back on 1998, two words epitomize the year -
deflation and deleveraging. Deflation in the form of declining
commodity prices destabilized revenue sources for many emerging-market
countries, while lack of pricing power inhibited cash flow growth for
some corporations. These issues contributed to higher risk premiums
for emerging-market and high-yield debt, while developed-country debt
yields declined. With risk premiums rising, banks, Wall Street firms
and hedge funds curtailed lending, reducing their exposure to
volatility and possible credit disappointments. This liquidity
retraction left the gap between developed-country debt yields and
below-investment-grade yields much wider year-over-year.
Q. JOHN, WHAT DROVE PERFORMANCE IN THE EMERGING-MARKET DEBT
SUB-PORTFOLIO?
J.C. There is no question, Russia was the largest detractor from
sub-portfolio performance. The government took the highly unusual
action of defaulting on its local currency-denominated debt in August.
The action was considered unusual because a government has the option
of printing money to meet principal and interest payments. On a
positive note, several countries contributed to performance. For
example, Turkey, an out-of-index country, was a relatively small
investment, but the best contributor to fund performance. Venezuela
and Bulgaria, countries represented in the index, also generated
positive returns for the fund.
Q. MARGARET, HOW DID THE HIGH-YIELD MARKET FARE IN 1998? WHAT'S YOUR
OUTLOOK FOR THE HIGH-YIELD MARKET OVER THE NEXT SEVERAL MONTHS?
M.E. The high-yield sub-portfolio was bolstered by the performance of
cable issues, but an overweighted position in telecommunication
companies detracted from performance relative to the benchmark in the
same period. While resilient in the face of increased global market
volatility in the first half, the high-yield market weakened in the
summer. With Asian currencies declining dramatically, making their
exports cheaper, U.S. export competitiveness was questioned. In spite
of this environment, companies continued to look to the high-yield
market for financing - surpassing investor demand at times. However,
few anticipated the significant August flight to quality and the
repercussions on liquidity. The high-yield bond market rebounded
somewhat in the fourth quarter, and yields relative to Treasuries
narrowed a bit. However, yields still reflect a more severe outlook
for credit quality than I believe is warranted. While worldwide
deflation is likely to lead to further economic softening, I do not
believe it will intensify into a recession.
Q. KEVIN, HOW DID THE U.S. GOVERNMENT SECTOR OF THE PORTFOLIO FARE?
K.G. The fixed-income markets were an interesting place to be in 1998.
Financial and economic turmoil abroad, and sustained U.S. growth in
the absence of inflation, produced a dramatic decline in domestic
interest rates. The fund's Treasury holdings generated strong
performance during the year as 10-year yields at one point reached
their lowest level in over 30 years. The yield curve steepened as
short rates fell more than long rates. Long-term interest rates
declined in response to benign inflation, an unchanged monetary policy
and Asian instability that pushed the dollar to an eight-year high
against the Japanese yen. Treasuries benefited as a safe haven, and
federal agency securities were favored over other sectors. However,
the Fed unexpectedly eased monetary policy on October 15th, boosting
confidence and restoring liquidity. Economic vitality continued to
confound expectations, limiting the extent of the central bank's role
in reducing short-term interest rates to a series of three 25 basis
point reductions. Investor demand for securities offering a yield
advantage over Treasuries allowed agencies to outperform Treasuries
during the fourth quarter. Against this backdrop, Treasuries made the
largest contribution to the fund's performance in 1998, while
mortgage-backed debt was the biggest drag on performance.
Q. IAN, HOW DID THE FOREIGN DEVELOPED MARKET HOLDINGS DO OVER THE LAST
12 MONTHS?
I.S. 1998 was a generally positive year for G-7 bond markets as
government bond yields fell and the U.S. dollar was generally weaker
against the world's major currencies. These developments were driven
by fears of global deflation and a general flight to quality. As it
became clear the launch of the euro was unlikely to be delayed, we
began to treat the German, French and Italian markets as one. One
strategy was to position the sub-portfolio in shorter maturities in
Italy and in longer maturities in Germany, thus keeping overall
interest-rate exposure unchanged, but taking advantage of the
relatively higher yields in the three-year sector of the Italian
market.
Q. JOHN, AS LEAD PORTFOLIO MANAGER, WHAT'S YOUR OUTLOOK FOR THE FUND?
J.C. In general, I am very cautious about the capital markets in 1999
and I think there is considerable risk in several markets. However, I
also recognize current yield levels reflect many of these risks and in
some instances overestimate them. We will rely on our global research
to take advantage of these high yields and differentiate the winners
from the losers. I will continue to look to the high-yield debt and
emerging-market sectors to add value to the fund's return.
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 ON THE
FUND'S ASSET ALLOCATION:
"Four sectors comprise the fund:
high-yield bonds (40%), U.S.
government securities (30%),
non-U.S. developed market debt
(15%) and emerging-market debt
(15%). Fidelity performs
extensive analysis to determine
the optimal mix for meaningful
diversification and a reasonable
level of return. Each sector plays a
role: high-yield and
emerging-market debt typically
provide the bulk of the added value,
while U.S. government securities
provide liquidity and non-U.S.
developed market securities provide
diversification.
"We are frequently asked `when do
we change the sector weightings?'
The answer is, we don't. The
optimal mix is designed to work
across an entire market cycle. The
events of 1998 demonstrated why
the mix works.
"Deleveraging by banks and other
market participants led to
negative returns for the high-
yield and emerging-debt markets
in 1998. However, these same
forces benefited U.S. and other
developed-country government
bonds through lower inflation and
a weaker U.S. dollar. As a result,
even though high-yield and
emerging-market debt suffered,
the other two sectors picked up
the slack.
"Looking forward, no change is
anticipated in the fund's structure.
We do not believe it is possible to
predict the direction of markets
consistently. Instead, we rely on the
individual managers to add value
over their benchmarks."
(checkmark)FUND FACTS
GOAL: a high level of current
income by investing primarily
in debt securities; the fund
may also seek capital
appreciation
START DATE: October 31,
1994
SIZE: as of December 31,
1998, more than $288 million
MANAGER: John Carlson, lead
and emerging-markets
manager, since 1995 and
November 1998,
respectively; Kevin Grant,
U.S. government investments;
since December 1998;
Margaret Eagle, high-yield
investments, since 1996;
and Ian Spreadbury, foreign
developed-market securities,
since 1998
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1998
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
EQUIVALENTS) THESE HOLDINGS 6 MONTHS AGO
U.S. Treasury Obligations 11.3 14.3
German Federal Republic 7.8 3.7
Fannie Mae 7.0 3.3
Federal Home Loan Bank 3.2 0.0
Government National Mortgage 3.0 3.5
Association
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1998
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE MARKET SECTORS 6
MONTHS AGO
MEDIA & LEISURE 13.2 12.1
UTILITIES 11.7 11.1
TECHNOLOGY 2.3 3.0
RETAIL & WHOLESALE 2.2 2.2
FINANCE 1.8 0.9
QUALITY DIVERSIFICATION AS OF
DECEMBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa, Aa, A 43.5 42.0
Baa 0.3 0.3
Ba 10.6 7.4
B 23.5 26.4
Caa, Ca, C 5.6 4.6
Not Rated 4.5 6.3
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT DECEMBER 31, 1998 AND JUNE 30, 1998
ACCOUNT FOR 4.5% AND 6.3% RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF DECEMBER 31, 1998 *
Corporate bonds 33.2%
U.S. government and
agency obligations 29.3%
Foreign government
obligations 24.9%
Stocks 5.9%
Other 0.9%
Short-term
investments 5.8%
*FOREIGN
INVESTMENTS 29.8%
Row: 1, Col: 1, Value: 32.2
Row: 1, Col: 2, Value: 29.3
Row: 1, Col: 3, Value: 24.9
Row: 1, Col: 4, Value: 5.9
Row: 1, Col: 5, Value: 1.9
Row: 1, Col: 6, Value: 5.8
AS OF JUNE 30, 1998 **
Corporate bonds 32.0%
U.S. government and
agency obligations 29.0%
Foreign government
obligations 24.4%
Stocks 7.6%
Other 1.6%
Short-term
investments 5.4%
**FOREIGN
INVESTMENTS 30.0%
Row: 1, Col: 1, Value: 32.0
Row: 1, Col: 2, Value: 29.0
Row: 1, Col: 3, Value: 24.4
Row: 1, Col: 4, Value: 7.6
Row: 1, Col: 5, Value: 1.6
Row: 1, Col: 6, Value: 5.4
INVESTMENTS DECEMBER 31, 1998
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 33.2%
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
CONVERTIBLE BONDS - 0.0%
UTILITIES - 0.0%
TELEPHONE SERVICES - 0.0%
GST Telecommunications, Inc. - $ 10,000 $ 8,600
0% 12/15/05 (c)(e)
NONCONVERTIBLE BONDS - 33.2%
BASIC INDUSTRIES - 0.9%
CHEMICALS & PLASTICS - 0.1%
Huntsman Corp. 9.5% 7/1/07 (e) B2 340,000 339,150
PACKAGING & CONTAINERS - 0.3%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 340,000 289,000
9.75% 6/15/07 Caa1 200,000 174,000
9.875% 2/15/08 Caa2 480,000 350,400
813,400
PAPER & FOREST PRODUCTS - 0.5%
Container Corp. of America:
gtd.:
9.75% 4/1/03 B2 210,000 212,625
11.25% 5/1/04 B2 50,000 51,375
10.75% 5/1/02 B2 70,000 71,925
Florida Coast Paper Co. Ca 690,000 369,150
LLC/Florida Coast Paper
Finance Corp. Series B,
12.75% 6/1/03
Millar Western Forest B3 215,000 159,100
Products Ltd. 9.875% 5/15/08
Stone Container Corp. 12.58% B2 560,000 593,600
8/1/16 (f)
1,457,775
TOTAL BASIC INDUSTRIES 2,610,325
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
Ocwen Asset Investment Corp. - 510,000 392,700
11.5% 7/1/05 (e)
DURABLES - 0.8%
AUTOS, TIRES, & ACCESSORIES -
0.2%
Blue Bird Body Co. 10.75% B2 40,000 41,200
11/15/06
Breed Technologies, Inc. B3 350,000 306,250
9.25% 4/15/08 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES -
CONTINUED
Federal-Mogul Corp. 7.875% Ba2 $ 290,000 $ 296,699
7/1/10
Morris Material Handling, B2 49,000 36,260
Inc. 9.5% 4/1/08
680,409
HOME FURNISHINGS - 0.5%
Sealy Corp., Inc. 10% - 548,913 508,842
12/18/08 pay-in-kind (g)
Sealy Mattress Co.:
0% 12/15/07 (c) B3 1,140,000 684,000
9.875% 12/15/07 B3 170,000 164,050
1,356,892
TEXTILES & APPAREL - 0.1%
Worldtex, Inc. 9.625% 12/15/07 B1 170,000 147,900
TOTAL DURABLES 2,185,201
ENERGY - 1.5%
COAL - 0.3%
P&L Coal Holdings Corp. B2 700,000 712,250
9.625% 5/15/08
ENERGY SERVICES - 0.3%
Petroliam Nasional BHD:
yankee 7.625% 10/15/26 (e) Baa3 250,000 173,375
7.125% 10/18/06 (Reg. S) Baa3 1,000,000 817,400
990,775
OIL & GAS - 0.9%
Chesapeake Energy Corp. B3 490,000 367,500
9.625% 5/1/05
Cross Timbers Oil Co.:
8.75% 11/1/09 B2 310,000 275,900
9.25% 4/1/07 B2 30,000 27,750
Great Lakes Carbon Corp. B3 245,000 246,838
10.25% 5/15/08 pay-in-kind
Ocean Energy, Inc.:
8.375% 7/1/08 B1 200,000 187,000
8.875% 7/15/07 B1 35,000 33,950
10.375% 10/15/05 B2 20,000 20,650
Petroleos Mexicanos:
9.25% 3/30/18 Ba2 500,000 410,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Petroleos Mexicanos: -
continued
9.5% 9/15/27 BB $ 150,000 $ 123,000
10.2613% 7/15/05 (Reg. S) (f) Ba2 600,000 558,000
Seven Seas Petroleum, Inc. Caa1 160,000 80,000
12.5% 5/15/05
Snyder Oil Corp. 8.75% 6/15/07 B2 160,000 157,800
Vintage Petroleum, Inc. 9% B1 60,000 58,800
12/15/05
2,547,188
TOTAL ENERGY 4,250,213
FINANCE - 1.7%
BANKS - 0.7%
Banco Nacional de
Desenvolvimento Economico e
Social:
14.724% 6/16/08 (f) B1 500,000 400,000
14.724% 6/16/08 (e)(f) B1 2,000,000 1,600,000
2,000,000
CREDIT & OTHER FINANCE - 1.0%
ContiFinancial Corp. 8.125% B1 260,000 176,800
4/1/08
Digital Television Services B3 360,000 387,000
LLC/ DTS Capital, Inc. 12.5%
8/1/07
GS Escrow Corp. 7.125% 8/1/05 Ba1 750,000 736,230
Ocwen Capital Trust 10.875% B2 90,000 72,000
8/1/27
ORBCOMM Global LP/ORBCOMM B3 260,000 267,800
Capital Co. 14% 8/15/04
Stone Container Finance Co. B2 120,000 125,850
11.5% 8/15/06 (e)
Time Warner Telecom LLC/Time B2 740,000 760,350
Warner Telecom, Inc. 9.75%
7/15/08
Transwestern Pub Co. B2 270,000 280,800
LP/Township Capital 9.625%
11/15/07
Winstar Equipment II Corp. - 145,000 146,450
12.5% 3/15/04
2,953,280
TOTAL FINANCE 4,953,280
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - 1.2%
DRUGS & PHARMACEUTICALS - 0.3%
Global Health Sciences, Inc. Caa1 $ 1,080,000 $ 739,800
11% 5/1/08
MEDICAL EQUIPMENT & SUPPLIES
- - 0.4%
ALARIS Medical, Inc. 9.75% B3 50,000 49,500
12/1/06
Beckman Instruments, Inc. Ba1 990,000 1,004,850
7.45% 3/4/08
1,054,350
MEDICAL FACILITIES MANAGEMENT
- - 0.5%
Fountain View, Inc. 11.25% Caa1 200,000 174,000
4/15/08
Harborside Healthcare Corp. B3 680,000 329,800
0% 8/1/08 (c)
Oxford Health Plans, Inc. 11% Caa1 800,000 752,000
5/15/05 (e)
Tenet Healthcare Corp. 8.625% Ba3 320,000 334,400
1/15/07
1,590,200
TOTAL HEALTH 3,384,350
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.2%
L-3 Communications Corp.:
8% 8/1/08 (e) B2 310,000 312,325
10.375% 5/1/07 B2 80,000 87,800
Motors & Gears, Inc. 10.75% B3 220,000 225,500
11/15/06
625,625
POLLUTION CONTROL - 0.3%
Allied Waste North America, Ba2 820,000 830,250
Inc. 7.875% 1/1/09 (e)
TOTAL INDUSTRIAL MACHINERY & 1,455,875
EQUIPMENT
MEDIA & LEISURE - 10.6%
BROADCASTING - 8.3%
ACME Television LLC/ACME B3 140,000 111,650
Financial Corp. 0% 9/30/04
(c)
Adelphia Communications Corp.:
8.375% 2/1/08 B2 370,000 382,950
9.25% 10/1/02 B2 280,000 294,000
9.5% 2/15/04 pay-in-kind B2 1,736,328 1,775,204
9.875% 3/1/07 B2 800,000 884,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Ascent Entertainment Group, B3 $ 380,000 $ 228,000
Inc. 0% 12/15/04 (c)
Avalon Cable Michigan, B3 120,000 122,400
Inc./Avalon Cable New
England/Avalon Cable
Finance, Inc. 9.375%
12/1/08 (e)
Benedek Communications Corp. B3 410,000 287,000
0% 5/15/06 (c)
CapStar Broadcasting B3 315,000 258,300
Partners, Inc. 0% 2/1/09 (c)
Century Communications Corp.:
8.375% 12/15/07 Ba3 20,000 21,600
8.75% 10/1/07 Ba3 90,000 99,000
9.5% 3/1/05 Ba3 60,000 67,050
Chancellor Media Corp.:
8% 11/1/08 (e) Ba2 740,000 754,800
9% 10/1/08 (e) B1 820,000 863,050
Charter Communications B3 25,000 28,000
LP/Charter Communications
Southeast Capital Corp.
11.25% 3/15/06
Citadel Broadcasting Co.:
9.25% 11/15/08 (e) B3 210,000 219,450
10.25% 7/1/07 B3 420,000 457,800
Classic Cable, Inc. 9.875% B3 80,000 83,200
8/1/08 (e)
Comcast UK Cable Partners B2 220,000 185,900
Ltd. 0% 11/15/07 (c)
CSC Holdings, Inc.:
7.625% 7/15/18 Ba2 570,000 567,948
7.875% 2/15/18 Ba2 90,000 91,548
Diamond Cable Communications B3 280,000 231,000
PLC yankee 0% 12/15/05 (c)
EchoStar Communications Corp. B2 200,000 204,500
0% 6/1/04 (c)
Echostar DBS Corp. 12.5% Caa1 850,000 982,813
7/1/02
Echostar Satellite B3 1,110,000 1,110,000
Broadcasting Corp. 0%
3/15/04 (c)
Falcon Holding Group
LP/Falcon Funding Corp.:
0% 4/15/10 (c) B2 615,000 413,588
8.375% 4/15/10 B2 380,000 383,800
FrontierVision Holdings Caa1 500,000 416,250
Capital Corp. 0% 9/15/07
(c)(e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
FrontierVision Holdings Caa1 $ 901,000 $ 741,073
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (c)
Granite Broadcasting Corp. B3 615,000 585,788
8.875% 5/15/08
Intermedia Capital Partners B2 520,000 585,000
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06
International Cabletel, Inc. B3 810,000 656,100
0% 2/1/06 (c)
Iridium Operating LLC/Iridium
Capital Corp.:
10.875% 7/15/05 B3 865,000 735,250
11.25% 7/15/05 B3 610,000 524,600
Jacor Communications Co. 8% B2 310,000 325,500
2/15/10
Lenfest Communications, Inc.:
8.25% 2/15/08 B2 90,000 92,700
8.375% 11/1/05 Ba3 90,000 97,538
LIN Holdings Corp. 0% 3/1/08 B3 1,480,000 1,039,700
(c)
Metromedia Fiber Network, B2 250,000 256,875
Inc. 10% 11/15/08 (e)
NTL, Inc.:
0% 4/1/08 (c) B3 890,000 549,575
10% 2/15/07 B3 1,000,000 1,030,000
11.5% 10/1/08 (e) B3 1,080,000 1,161,000
Olympus Communications B1 90,000 99,000
LP/Olympus Capital Corp.
10.625% 11/15/06
Orbital Imaging Corp. 11.625% - 1,010,000 1,025,150
3/1/05
Pegasus Communications Corp. B3 20,000 19,800
9.625% 10/15/05
Renaissance Media Group B3 700,000 472,500
LLC/Renaissance Media
Capital Corp. 0% 4/15/08 (c)
Telewest Communications PLC B1 170,000 191,250
11.25% 11/1/08 (e)
Telewest PLC:
yankee 9.625% 10/1/06 B1 320,000 332,800
0% 10/1/07 (c) B1 1,240,000 1,029,200
UIH Australia/Pacific, Inc. B2 430,000 208,550
Series B 0% 5/15/06 (c)
United International B3 760,000 410,400
Holdings, Inc. 0% 2/15/08 (c)
23,694,150
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 1.3%
AMC Entertainment, Inc. 9.5% B2 $ 130,000 $ 132,600
3/15/09
Cinemark USA, Inc. 8.5% 8/1/08 B2 270,000 265,275
Harrahs Operating Co., Inc. Ba2 1,000,000 1,000,000
7.875% 12/15/05
Hollywood Theaters, Inc. Caa2 190,000 133,000
10.625% 8/1/07
Livent, Inc. 9.375% 10/15/04 B1 300,000 111,000
(b)
Premier Parks, Inc.:
0% 4/1/08 (c) B3 1,170,000 792,675
9.25% 4/1/06 B3 1,080,000 1,117,800
3,552,350
LODGING & GAMING - 0.5%
Circus Circus Enterprises,
Inc.:
7.625% 7/15/13 Ba2 80,000 70,400
9.25% 12/1/05 Ba2 160,000 162,400
Hard Rock Hotel, Inc. 9.25% B3 90,000 90,000
4/1/05
KSL Recreation Group, Inc. B3 320,000 318,400
10.25% 5/1/07
Signature Resorts, Inc. 9.75% B3 780,000 655,200
10/1/07
Sun International Hotels Ba3 30,000 30,900
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
1,327,300
PUBLISHING - 0.2%
Perry Judd, Inc. 10.625% B3 60,000 62,700
12/15/07
Sun Media Corp.:
yankee 9.5% 2/15/07 B2 40,000 43,600
9.5% 5/15/07 B2 28,000 30,520
Transwestern Holding LP/TWP B3 50,000 32,500
Capital Corp. 0% 11/15/08 (c)
World Color Press, Inc. B1 480,000 480,000
8.375% 11/15/08 (e)
649,320
RESTAURANTS - 0.3%
AFC Enterprises, Inc. 10.25% B3 630,000 656,775
5/15/07
Nebraska Restaurant, Inc. B3 140,000 141,400
10.75% 7/15/08
798,175
TOTAL MEDIA & LEISURE 30,021,295
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - 1.1%
FOODS - 0.6%
Aurora Foods, Inc. 8.75% B1 $ 130,000 $ 135,200
7/1/08
Del Monte Corp. 12.25% 4/15/07 Caa1 390,000 434,850
Del Monte Foods Co. 0% Caa2 870,000 595,950
12/15/07 (c)
Gorges/Quik-To-Fix Foods, Caa1 1,000,000 420,000
Inc. 11.5% 12/1/06
1,586,000
HOUSEHOLD PRODUCTS - 0.5%
AKI Holding Corp. 0% 7/1/09 Caa1 290,000 113,100
(c)(e)
AKI, Inc. 10.5% 7/1/08 (e) B2 100,000 95,000
Revlon Consumer Products Corp.:
8.625% 2/1/08 B3 890,000 809,900
9% 11/1/06 (e) B2 400,000 396,000
1,414,000
TOTAL NONDURABLES 3,000,000
RETAIL & WHOLESALE - 2.1%
GROCERY STORES - 1.5%
Fleming Companies, Inc. B3 160,000 149,200
Series B, 10.625% 7/31/07
Jitney-Jungle Stores America, B3 1,205,000 1,235,125
Inc. 10.375% 9/15/07
Marsh Supermarkets, Inc. B2 230,000 240,350
8.875% 8/1/07
Pathmark Stores, Inc.:
9.625% 5/1/03 Caa1 30,000 29,475
11.625% 6/15/02 Caa2 870,000 838,463
12.625% 6/15/02 Caa2 260,000 250,250
Smiths Food & Drug Centers, BB+ 1,000,000 1,110,000
Inc. 1994 Pass Through Trust
9.2% 7/2/18
Star Market Co., Inc. 13% B3 320,000 356,800
11/1/04
4,209,663
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.6%
Amazon.com, Inc. 0% 5/1/08 (c) Caa2 1,440,000 950,400
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE,
MISCELLANEOUS - CONTINUED
TM Group Holdings PLC 11% B3 $ 500,000 $ 500,000
5/15/08 (e)
U.S. Office Products Co. B3 680,000 428,400
9.75% 6/15/08
1,878,800
TOTAL RETAIL & WHOLESALE 6,088,463
SERVICES - 1.0%
LEASING & RENTAL - 0.2%
AP Holdings, Inc. 0% 3/15/08 Caa2 900,000 486,000
(c)
Apcoa, Inc. 9.25% 3/15/08 Caa1 160,000 147,200
Hollywood Entertainment Corp. B3 80,000 80,800
10.625% 8/15/04
714,000
PRINTING - 0.5%
Sullivan Graphics, Inc. Caa1 720,000 727,200
12.75% 8/1/05
Von Hoffman Corp. 13.5% - 608,638 626,897
5/15/09 (e)
1,354,097
SERVICES - 0.3%
Iron Mountain, Inc. 8.75% B3 160,000 164,800
9/30/09
La Petite Academy, Inc./La B3 190,000 188,100
Petite Academy Holding Co.
10% 5/15/08
Medaphis Corp. 9.5% 2/15/05 Caa1 200,000 154,000
Spin Cycle, Inc. 0% 5/1/05 (c) - 340,000 156,400
Young American Corp. 11.625% B3 420,000 180,600
2/15/06
843,900
TOTAL SERVICES 2,911,997
TECHNOLOGY - 1.9%
COMMUNICATIONS EQUIPMENT - 0.2%
Intermedia Communications,
Inc.:
8.5% 1/15/08 B2 90,000 85,050
8.6% 6/1/08 B2 400,000 380,000
8.875% 11/1/07 B2 70,000 67,550
532,600
COMPUTER SERVICES & SOFTWARE
- - 0.9%
Concentric Network Corp. - 690,000 703,800
12.75% 12/15/07
DecisionOne Corp. 9.75% 8/1/07 B3 590,000 271,400
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE
- - CONTINUED
DecisionOne Holdings Corp. 0% Caa1 $ 200,000 $ 40,000
8/1/08 unit (c)
Federal Data Corp. 10.125% B3 150,000 147,000
8/1/05
ICG Services, Inc.:
0% 2/15/08 (c) - 2,445,000 1,295,850
0% 5/1/08 (c) - 50,000 25,875
2,483,925
ELECTRONIC INSTRUMENTS - 0.5%
Fisher Scientific B3 520,000 516,100
International, Inc. 9% 2/1/08
High Voltage Engineering B3 490,000 460,600
Corp. 10.5% 8/15/04
Telecommunications Techniques B3 455,000 445,900
Co. LLC 9.75% 5/15/08
1,422,600
ELECTRONICS - 0.3%
Communications Instruments, B3 40,000 38,500
Inc. 10% 9/15/04
Details, Inc. 10% 11/15/05 B3 240,000 228,000
Samsung Electronics America, Ba1 250,000 236,250
Inc. 9.75% 5/1/03 (e)
Stellex Industries, Inc. 9.5% B3 400,000 347,000
11/1/07
849,750
TOTAL TECHNOLOGY 5,288,875
TRANSPORTATION - 0.6%
AIR TRANSPORTATION - 0.4%
Atlas Air, Inc.:
9.25% 4/15/08 B3 360,000 356,400
9.375% 11/15/06 (e) B3 300,000 300,000
Kitty Hawk, Inc. 9.95% B1 610,000 600,850
11/15/04
1,257,250
SHIPPING - 0.2%
Amer Reefer Co. Ltd. 10.25% B1 150,000 94,500
3/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TRANSPORTATION - CONTINUED
SHIPPING - CONTINUED
Cenargo International PLC Ba3 $ 280,000 $ 263,200
9.75% 6/15/08 (e)
International Shipholding Ba3 140,000 131,600
Corp. 7.75% 10/15/07
489,300
TOTAL TRANSPORTATION 1,746,550
UTILITIES - 9.2%
CELLULAR - 1.6%
ESAT Holdings Ltd. 0% 2/1/07 Caa1 360,000 239,400
(c)
McCaw International Ltd. 0% Caa1 833,000 449,820
4/15/07 (c)
Millicom International Caa1 1,460,000 1,025,650
Cellular SA 0% 6/1/06 (c)
Nextel Communications, Inc.:
0% 8/15/04 (c) B2 330,000 320,925
0% 9/15/07 (c) B2 83,000 53,328
0% 2/15/08 (c) B2 690,000 414,000
12% 11/1/08 (e) B2 460,000 502,550
Orange PLC 8% 8/1/08 Ba3 470,000 470,000
Rogers Communications, Inc. B2 345,000 355,350
8.875% 7/15/07
Telesystem International Caa1 280,000 119,000
Wireless, Inc. 0% 6/30/07 (c)
Teligent, Inc.:
0% 3/1/08 (c) Caa1 350,000 173,250
11.5% 12/1/07 Caa1 605,000 565,675
4,688,948
ELECTRIC UTILITY - 0.7%
Niagara Mohawk Power Corp.:
0% 7/1/10 (c) Ba2 1,180,000 896,800
7.625% 10/1/05 Ba2 570,000 590,691
7.75% 10/1/08 Ba2 410,000 438,700
1,926,191
TELEPHONE SERVICES - 6.9%
Allegiance Telecom, Inc.:
0% 2/15/08 (c) - 60,000 27,600
12.875% 5/15/08 - 460,000 446,200
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Covad Communications Group, - $ 610,000 $ 335,500
Inc. 0% 3/15/08 (c)
Dobson Wireline Co. 12.25% - 490,000 438,550
6/15/08
DTI Holdings, Inc. 0% 3/1/08 - 1,050,000 257,250
(c)
e.spire Communications, Inc.:
0% 11/1/05 (c) - 190,000 121,600
0% 4/1/06 (c) - 360,000 252,000
13.75% 7/15/07 - 360,000 340,200
ESAT Telecom Group PLC 0% Caa1 180,000 118,800
2/1/07 (c)
Facilicom International, Inc. - 190,000 152,000
10.5% 1/15/08
Firstworld Communications, - 660,000 198,000
Inc. 0% 4/15/08 (c)
Flag Ltd. 8.25% 1/30/08 Ba3 110,000 107,250
Global Crossing Holdings Ltd. B1 1,120,000 1,178,800
9.625% 5/15/08
GST Network Funding, Inc. 0% - 1,080,000 491,400
5/1/08 (c)(e)
GST Equipment Funding, Inc. - 400,000 415,000
13.25% 5/1/07
GST Telecommunications, Inc. - 480,000 436,800
12.75% 11/15/07
GST USA, Inc. 0% 12/15/05 (c) - 630,000 441,000
Hermes Europe Railtel BV B3 540,000 576,450
11.5% 8/15/07
IXC Communications, Inc. 9% B3 720,000 712,800
4/15/08
KMC Telecom Holdings, Inc. 0% - 860,000 404,200
2/15/08 (c)
Level 3 Communications, Inc. B3 1,450,000 1,437,313
9.125% 5/1/08
McLeodUSA, Inc.:
8.375% 3/15/08 B2 130,000 129,838
9.25% 7/15/07 B2 310,000 319,300
9.5% 11/1/08 (e) B2 450,000 477,000
MetroNet Communications Corp.:
0% 11/1/07 (c) B3 380,000 250,800
0% 6/15/08 (c) B3 1,300,000 796,250
10.625% 11/1/08 (e) B3 460,000 487,600
MGC Communications, Inc. 13% Caa2 170,000 112,200
10/1/04
Netia Holdings BV 10.25% B3 290,000 247,950
11/1/07
NEXTLINK Communications LLC B3 1,210,000 1,285,625
12.5% 4/15/06
Pathnet, Inc. 12.25% 4/15/08 - 480,000 336,000
Qwest Communications
International, Inc.:
0% 10/15/07 (c) Ba1 850,000 658,750
7.5% 11/1/08 (e) Ba1 400,000 416,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Qwest Communications
International, Inc.: -
continued
10.875% 4/1/07 Ba1 $ 185,000 $ 213,213
Rhythms Netconnections, Inc. - 320,000 156,800
0% 5/15/08 (c)
RSL Communications Ltd./RSL B2 355,000 374,525
Communications PLC 12.25%
11/15/06
RSL Communications PLC 9.125% B2 1,000,000 900,000
3/1/08
Telegroup, Inc. 0% 11/1/04 (c) - 180,000 90,000
Versatel Telecom BV 13.25% - 340,000 336,600
5/15/08
Viatel, Inc.:
0% 4/15/08 (c) Caa1 345,000 193,200
11.25% 4/15/08 Caa1 960,000 960,000
WinStar Communications, Inc.:
0% 10/15/05 (c) Caa1 80,000 56,800
14.5% 10/15/05 Caa1 60,000 66,000
0% 3/15/08 (c) CCC 1,175,000 834,250
10% 3/15/08 CCC 600,000 480,000
Winstar Equipment Corp. 12.5% B3 490,000 494,900
3/15/04
19,562,314
TOTAL UTILITIES 26,177,453
TOTAL NONCONVERTIBLE BONDS 94,466,577
TOTAL CORPORATE BONDS 94,475,177
(Cost $99,236,946)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 23.7%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 12.4%
Fannie Mae:
6.48% 6/28/04 Aaa 4,300,000 4,548,583
6.5% 7/16/07 Aaa 6,930,000 7,435,682
6.74% 5/13/04 Aaa 780,000 833,602
Federal Farm Credit Bank Aaa 1,000,000 1,085,000
6.66% 12/26/06
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Federal Home Loan Bank:
4.96% 10/7/05 Aaa $ 7,500,000 $ 7,360,575
6.75% 4/5/04 Aaa 870,000 928,725
7.7% 9/20/04 Aaa 800,000 895,248
Government Loan Trusts Aaa 192,902 215,678
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class 1-C, 9.25% 11/15/01 Aaa 3,813,140 4,059,660
Class 2-E 9.4% 5/15/02 Aaa 137,901 145,761
Class T-3, 9.625% 5/15/02 Aaa 56,624 59,840
Guaranteed Export Trust Aaa 1,320,000 1,356,650
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1995-A, 6.28% 6/15/04
Guaranteed Trade Trust Aaa 916,667 933,442
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1997-A, 6.104% 7/15/03
Private Export Funding Corp.:
secured 6.86% 4/30/04 Aaa 627,000 652,986
5.82% 6/15/03 (e) Aaa 4,600,000 4,694,847
U.S. Department of Housing Aaa 210,000 235,158
and Urban Development
government guaranteed
participation certificates
Series 1995 A, 8.27% 8/1/03
35,441,437
U.S. TREASURY OBLIGATIONS -
11.3%
U.S. Treasury Bond:
8.875% 8/15/17 Aaa 6,315,000 8,895,246
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
U.S. TREASURY OBLIGATIONS -
CONTINUED
U.S. Treasury Bond: - continued
9% 11/15/18 Aaa $ 10,090,000 $ 14,498,007
U.S. Treasury Notes 5.875% Aaa 8,600,000 8,669,029
8/31/99
32,062,282
TOTAL U.S. GOVERNMENT AND 67,503,719
GOVERNMENT AGENCY OBLIGATIONS
(Cost $66,287,339)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 5.6%
FANNIE MAE - 2.5%
5.5% 5/1/11 Aaa 445,226 440,123
5.5% 1/1/14 (k) Aaa 300,000 296,156
6% 11/1/10 to 1/1/26 Aaa 1,783,216 1,784,697
6.5% 5/1/08 to 2/1/26 Aaa 1,992,275 2,007,695
7% 1/1/29 (k) Aaa 850,000 867,266
7.5% 1/1/28 to 5/1/28 Aaa 841,780 864,660
8% 7/1/26 to 12/1/27 Aaa 823,972 854,349
7,114,946
FREDDIE MAC - 0.1%
6% 12/1/07 Aaa 72,474 72,735
8.5% 3/1/20 Aaa 262,165 276,190
348,925
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 3.0%
6% 1/15/09 to 5/15/09 Aaa 956,212 967,859
6.5% 4/15/26 to 5/15/26 Aaa 895,985 905,222
7% 9/15/25 to 10/15/28 Aaa 1,695,450 1,734,671
7.5% 2/15/22 to 8/15/28 Aaa 3,202,100 3,303,380
8% 9/15/26 to 12/15/26 Aaa 708,034 735,910
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
11% 2/15/16 to 10/15/18 Aaa $ 581,637 $ 646,978
11.5% 3/15/10 Aaa 59,393 65,842
8,359,862
TOTAL U.S. GOVERNMENT AGENCY 15,823,733
- - MORTGAGE SECURITIES
(Cost $15,455,730)
ASSET-BACKED SECURITIES - 0.2%
Airplanes Pass Through Trust Ba2 440,000 462,000
10.875% 3/15/19 (Cost
$481,163)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - 24.9%
Argentinian Republic:
BOCON 3.29% 9/1/02 (f) Ba3 ARS 710,249 558,776
Bote 2.2184% 4/1/00 (f) Ba3 2,145 424
Brady 6.1875% 3/31/05 (f) Ba3 1,880,000 1,578,025
Brady par euro 5.75% 3/31/23 Ba3 1,720,000 1,238,400
(d)
global bond:
8.726% 4/10/05 (f) Ba3 310,000 279,000
11.375% 1/30/17 Ba3 1,450,000 1,448,188
11.375% 1/30/17 Ba3 220,000 219,725
8.75% 7/10/02 (Reg. S) Ba3 ARS 890,000 726,029
11.75% 2/12/07 Ba3 ARS 1,530,000 1,295,017
11.75% 2/12/07 (e) Ba3 ARS 250,000 211,604
Austrian Republic 5% 1/22/01 Aaa JPY 400,000,000 3,849,890
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) interest
notes:
5.9688% 12/15/15 (f) B1 2,890,000 314,288
5.9688% 12/15/15 (e)(f) Ca 236 26
Brazilian Federative Republic
Brady:
5.5% 4/15/24 (d) B2 325,000 190,531
capitalization bond 8% 4/15/14 B2 4,080,453 2,432,970
IDU euro 6.75% 1/1/01 (f) B2 418,200 379,517
new money bond L 6.1875% B2 2,250,000 1,229,063
4/15/09 (Bearer) (f)
global bond 10.125% 5/15/27 B2 577,000 384,426
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
Bulgarian Republic Brady:
discount A 6.6875% 7/28/24 (f) B2 $ 1,835,000 $ 1,298,263
FLIRB A 2.5% 7/28/12 (f) B2 1,175,000 669,750
Canadian Government:
7% 12/1/06 Aa1 CAD 8,200,000 6,090,449
10% 5/1/02 Aa1 CAD 500,000 377,785
City of Buenos Aires:
euro 10.5% 5/28/04 B1 ARS 820,000 631,991
11.25% 4/11/07 (e) B1 250,000 245,000
German Federal Republic:
4.75% 7/4/28 Aaa DEM 5,200,000 3,105,224
7.375% 1/3/05 Aaa DEM 15,400,000 11,091,923
9% 10/20/00 Aaa DEM 11,900,000 7,861,843
Greek Government Treasury A2 GRD 140,500,000 557,639
Bill 8.6% 3/26/08
Hungarian Government:
13% 7/24/03 A1 HUF 41,700,000 194,944
15% 7/24/01 A1 HUF 39,300,000 186,545
Ivory Coast Brady:
FLIRB 2% 3/30/18 (e)(f) - 403,000 96,720
past due interest 2% 3/30/18 - 616,200 169,455
(e)(f)
Korean Republic global bond Ba1 480,000 492,600
8.875% 4/15/08
Moscow City 9.5% 5/31/00 B3 1,900,000 703,000
(Reg.)
Panamanian Republic Brady:
interest reduction bond euro Ba1 450,000 330,750
4% 7/17/14 (f)
par 3.5% 7/17/26 (d) Ba1 550,000 338,250
past due interest euro Ba1 606,429 448,757
6.6875% 7/17/16 (f)
Peruvian Republic Brady FLIRB:
3.25% 3/7/17 (f) Ba3 1,165,000 661,138
3.25% 3/7/17 (e)(f) Ba3 200,000 113,500
Russian Federation euro B3 1,570,000 478,850
12.75% 6/24/28 (Reg. S)
United Kingdom, Great Britain
& Northern Ireland:
8.75% 8/25/17 Aaa GBP 1,200,000 3,057,120
9.75% 8/27/02 Aaa GBP 2,000,000 3,866,424
United Mexican States:
Brady par A 6.25% 12/31/19 Ba2 2,600,000 2,021,500
unit
Brady par B 6.25% 12/31/19 Ba2 1,450,000 1,127,375
unit
Cetes:
0% 3/4/99 - MXN 4,700,000 449,335
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) PRINCIPAL AMOUNT VALUE (NOTE 1)
United Mexican States: -
continued
Cetes:
0% 3/11/99 - MXN 2,190,000 $ 209,205
global bond 11.5% 5/15/26 Ba2 3,430,000 3,678,675
Venezuelan Republic:
Brady debt conversion bond B2 3,428,562 2,177,137
euro 5.9375% 12/18/07 (f)
global bond:
13.625% 8/15/18 B2 750,000 577,500
13.625% 8/15/18 B2 700,000 539,000
9.25% 9/15/27 B2 1,172,000 714,187
TOTAL FOREIGN GOVERNMENT AND 70,897,733
GOVERNMENT AGENCY OBLIGATIONS
(Cost $70,717,462)
</TABLE>
COMMON STOCKS - 0.1%
SHARES
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive 260 5,460
LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. 10 0
(a)(e)
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 230 1,840
.47) (a)
warrants 1/15/07 (CV ratio 480 5,040
.6) (a)
NTL, Inc. warrants 12/31/08 1,586 23,790
(a)
Orbital Imaging Corp. 1,010 10,100
warrants 3/1/05 (a)(e)
UIH Australia/Pacific, Inc. 570 1,710
warrants 5/15/06 (a)
42,480
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc. Series I 270 0
warrants 11/14/99 (a)(e)
TOTAL MEDIA & LEISURE 42,480
SERVICES - 0.0%
Spin Cycle, Inc. warrants 340 3
5/1/05 (a)(e)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 540 $ 78,300
warrants 12/15/07 (a)(e)
UTILITIES - 0.1%
CELLULAR - 0.0%
McCaw International Ltd. 1,753 8,765
warrants 4/15/07 (a)(e)
Microcell Telecommunications, 2,520 32,130
Inc. warrants 6/1/06 (a)(e)
Nextel Communications, Inc. 1,997 47,179
Class A (a)
PageMart Nationwide, Inc. 2,100 11,813
(non-vtg.) (a)
Powertel, Inc. warrants 3,328 9,984
2/1/06 (a)
109,871
TELEPHONE SERVICES - 0.1%
Covad Communications Group, 610 30,500
Inc. warrants 3/15/08 (a)(e)
DTI Holdings, Inc. warrants 5,250 263
3/1/08 (a)(e)
FirstCom Corp.:
warrants 10/27/07 (Reg. S) (a) 1,750 875
warrants 10/27/07 (a)(e) 8,050 4,025
Firstworld Communications, 660 6,600
Inc. warrants 4/15/08 (a)(e)
KMC Telecom Holdings, Inc. 890 2,225
warrants 4/15/08 (a)(e)
MGC Communications, Inc. 170 5,243
warrants 10/1/04 (a)(e)
Pathnet, Inc. warrants 480 4,800
4/15/08 (a)(e)
Rhythms Netconnections, Inc. 1,280 9,600
warrants 5/15/08 (a)(e)
RSL Communications Ltd./RSL 630 66,150
Communications PLC warrants
11/15/06 (a)(e)
Source Media, Inc. warrants 1,676 16,341
11/1/07 (a)(e)
Versatel Telecom BV warrants 340 3,400
5/15/08 (a)(e)
150,022
TOTAL UTILITIES 259,893
TOTAL COMMON STOCKS 386,136
(Cost $257,478)
PREFERRED STOCKS - 5.8%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
MEDIA & LEISURE - 0.1%
LODGING & GAMING - 0.1%
Host Marriott Financial Trust 8,400 342,825
$3.375 QUIPS
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
IXC Communications, Inc. 10,000 $ 331,250
$3.375 (e)
NEXTLINK Communications, Inc. 3,000 118,125
$3.25 (a)(e)
449,375
TOTAL CONVERTIBLE PREFERRED 792,200
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 5.5%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 15,847 398,156
Capital Corp. $2.28
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 240 235,200
Capital Trust II 8.75%
HEALTH - 0.1%
MEDICAL FACILITIES MANAGEMENT
- - 0.1%
Fresenius Medical Care 251 262,923
Capital Trust 9%
MEDIA & LEISURE - 2.5%
BROADCASTING - 2.2%
Adelphia Communications Corp. 5,345 622,693
$13.00
Benedek Communications Corp. 996 806,760
11.5% pay-in-kind (a)
Citadel Broadcasting Co. 4,830 550,620
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 16,125 1,797,938
Series H, 11.75% pay-in-kind 4,355 496,470
(a)
Echostar Communications Corp. 408 471,750
12.125% pay-in-kind
Granite Broadcasting Corp. 692 622,800
12.75% pay-in-kind
NTL, Inc. 13% pay-in-kind (a) 746 790,760
6,159,791
PUBLISHING - 0.3%
PRIMEDIA, Inc.:
$9.20 1,600 155,200
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
PRIMEDIA, Inc.: - continued
8.625% 914 $ 89,115
Series D, $10.00 5,733 591,932
836,247
TOTAL MEDIA & LEISURE 6,996,038
RETAIL & WHOLESALE - 0.1%
GROCERY STORES - 0.1%
Nebco Evans Holding Co. 83 4,150
11.25% pay-in-kind (a)
Supermarkets General Holdings 12,725 267,225
Corp. $3.52 pay-in-kind (a)
271,375
TECHNOLOGY - 0.4%
COMMUNICATIONS EQUIPMENT - 0.4%
Intermedia Communications, 1,053 1,060,898
Inc. 13.5% pay-in-kind (a)
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 198 169,290
13.5% pay-in-kind (a)
TOTAL TECHNOLOGY 1,230,188
UTILITIES - 2.2%
CELLULAR - 0.7%
Nextel Communications, Inc.:
11.125% pay-in-kind (a) 1,140 1,026,000
Series D, 13% pay-in-kind 1,114 1,102,860
2,128,860
TELEPHONE SERVICES - 1.5%
e.spire Communications, Inc.:
$127.50 pay-in-kind 649 318,010
14.75% pay-in-kind 226 158,200
Hyperion Telecommunication, 419 333,105
Inc. 12.875% pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
ICG Holdings, Inc.:
14% pay-in-kind (a) 554 $ 540,150
14.25% pay-in-kind 746 753,460
IXC Communications, Inc. 1,029 1,039,290
12.5% pay-in-kind
NEXTLINK Communications, Inc. 10,276 534,352
14% pay-in-kind
Source Media, Inc. 13.50% 3,426 40,256
pay-in-kind (a)
Viatel, Inc. 10% pay-in-kind 612 67,320
(a)(e)
WinStar Communications, Inc. 474 379,200
14.25%
4,163,343
TOTAL UTILITIES 6,292,203
TOTAL NONCONVERTIBLE 15,686,083
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 16,478,283
(Cost $18,563,923)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 0.0%
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H)
Bank for Foreign Economic B1 $ 490,000 30,625
Affairs of Russia
(Vnesheconombank) loan under
1997 restructuring Agreement
5.9688% 12/15/20 (f) (Cost
$213,864)
SOVEREIGN LOAN PARTICIPATIONS
- - 0.7%
Algerian Republic loan - 450,000 373,500
participation - The Chase
Manhattan Bank 7.3125%
3/4/00 (f)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank):
loan participation
restructured under 1997
Agreement:
- - BankBoston Corp. 6.7188% - 4,330,000 270,625
12/15/20 (b)(f)
- - Deutsche Bank 6.7188% - 3,090,000 193,125
12/15/20 (b)(f)
SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED
MOODY'S RATINGS (UNAUDITED) (I) PRINCIPAL AMOUNT (H) VALUE (NOTE 1)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank): - continued
loan participation
restructured under 1997
Agreement:
- - ING Bank NV 5.9688% - $ 250,000 $ 15,625
12/15/20 (b)(f)
- - Merrill Lynch, Pierce, - 630,000 39,375
Fenner & Smith, Inc. 6.7188%
12/15/20 (b)(f)
- - Morgan (J.P.) Securities, - 1,480,000 92,500
Inc. 5.9688% 12/15/20 (b)(f)
- - Paribus Capital Markets - 400,000 25,000
6.7188% 12/15/20 (b)(f)
- - The Chase Manhattan Bank - 1,710,000 106,875
5.9688% 12/15/20 (b)(f)
Moroccan Kingdom loan
participation:
Series A - ING Bank NV - 250,000 198,750
6.0625% 1/1/09 (f)
Series A - Morgan Guaranty - 425,000 337,875
Trust Co. 6.0625% 1/1/09 (f)
Series A - The Chase - 200,000 159,000
Manhattan Bank 6.0625%
1/1/09 (f)
TOTAL SOVEREIGN LOAN 1,812,250
PARTICIPATIONS
(Cost $3,050,022)
</TABLE>
CASH EQUIVALENTS - 5.8%
MATURITY AMOUNT
Investments in repurchase $ 16,552,676 16,544,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.72%,
dated 12/31/98 due 1/4/99
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED OPTIONS - 0.0%
EXPIRATION DATE/ STRIKE YIELD UNDERLYING FACE AMOUNT AT VALUE VALUE (NOTE 1)
PURCHASED OPTIONS - 0.0%
The Chase Manhattan Bank Call May 99/ 16% $ 661,704 $ 18,040
Option on ZAR 4,600,000
notional amount of South
African Republic 12% 2/28/05
(Cost $25,025)
TOTAL INVESTMENT IN $ 284,431,696
SECURITIES - 100%
(Cost $290,832,952)
</TABLE>
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest
Reduction Bonds
QUIPS - Quarterly Income Preferred
Securities
CURRENCY ABBREVIATIONS
ARS - Argentine peso
CAD - Canadian dollar
DEM - German deutsche mark
GBP - British pound
GRD - Greek drachma
HUF - Hungarian forint
JPY - Japanese yen
MXN - Mexican peso
ZAR - South African rand
LEGEND
(a) Non-income producing
(b) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(c) 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.
(d) 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.
(e) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $20,620,064 or 7.2% of net assets.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) Restricted securities - Investment in securities not registered
under the Securities Act of 1933 (see Note 2 of Notes to Financial
Statements).
Additional information on each holding is as follows:
SECURITY ACQUISTION DATE ACQUISITION COST
Sealy Corp., Inc. 10% 2/23/98 - 9/30/98 $ 506,047
12/18/08 pay-in-kind
(h) Principal amount is stated in United States dollars unless
otherwise noted.
(i) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(j) 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.
(k) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 43.5% AAA, AA, A 37.9%
Baa 0.3% BBB 1.3%
Ba 10.2% BB 12.2%
B 23.5% B 21.8%
Caa 5.0% CCC 3.9%
Ca, C 0.1% CC, C 0.0%
D 0.1%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 4.5%. FMR has determined that
unrated debt securities that are lower quality account for 4.5% of the
total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investments in securities, is as follows:
United States of America 70.2%
Germany 7.8
United Kingdom 3.4
Canada 3.2
Mexico 3.1
Argentina 2.9
Brazil 2.3
Venezuela 1.4
Austria 1.3
(Others individually less 4.4
than 1%)
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $293,332,422. Net unrealized depreciation
aggregated $8,900,726, of which $6,283,015 related to appreciated
investment securities and $15,183,741 related to depreciated
investment securities.
The fund hereby designates approximately $1,555,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
The fund intends to elect to defer to its
fiscal year ending December 31, 1999 approximately $5,876,000 of
losses recognized during the period November1, 1998 to December 31,
1998.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
Investment in securities, at $ 284,431,696
value (including repurchase
agreements of $16,544,000)
(cost $290,832,952) - See
accompanying schedule
Cash 169,012
Receivable for investments 1,139,625
sold
Receivable for fund shares 1,251,124
sold
Dividends receivable 53,364
Interest receivable 4,972,232
Other receivables 11,638
TOTAL ASSETS 292,028,691
LIABILITIES
Payable for investments $ 631,917
purchased Regular delivery
Delayed delivery 1,167,066
Payable for fund shares 1,220,319
redeemed
Distributions payable 616,714
Accrued management fee 138,733
Distribution fees payable 103,281
Other payables and accrued 141,260
expenses
TOTAL LIABILITIES 4,019,290
NET ASSETS $ 288,009,401
Net Assets consist of:
Paid in capital $ 301,726,402
Undistributed net investment 794,238
income
Accumulated undistributed net (8,105,793)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (6,405,446)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 288,009,401
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1998
CALCULATION OF MAXIMUM $10.56
OFFERING PRICE CLASS A: NET
ASSET VALUE and redemption
price per share
($9,596,485 (divided by)
909,175 shares)
Maximum offering price per $11.09
share (100/95.25 of $10.56)
CLASS T: NET ASSET VALUE and $10.55
redemption price per share
($189,754,890 (divided by)
17,986,106 shares)
Maximum offering price per $10.93
share (100/96.50 of $10.55)
CLASS B: NET ASSET VALUE and $10.57
offering price per share
($72,773,443 (divided by)
6,886,758 shares) A
CLASS C: NET ASSET VALUE and $10.55
offering price per share
($11,248,296 (divided by)
1,066,326 shares) A
INSTITUTIONAL CLASS: NET $10.61
ASSET VALUE, offering price
and redemption price per
share ($4,636,287 (divided
by) 437,032 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME $ 1,902,074
Dividends
Interest 19,178,188
TOTAL INCOME 21,080,262
EXPENSES
Management fee $ 1,461,994
Transfer agent fees 521,372
Distribution fees 1,099,164
Accounting fees and expenses 101,938
Non-interested trustees' 881
compensation
Custodian fees and expenses 48,259
Registration fees 141,216
Audit 39,746
Legal 9,490
Interest 2,505
Miscellaneous 29,594
Total expenses before 3,456,159
reductions
Expense reductions (10,476) 3,445,683
NET INVESTMENT INCOME 17,634,579
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (7,314,693)
Foreign currency transactions 23,780 (7,290,913)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities (8,265,240)
Assets and liabilities in 27,495 (8,237,745)
foreign currencies
NET GAIN (LOSS) (15,528,658)
NET INCREASE (DECREASE) IN $ 2,105,921
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 17,634,579 $ 11,535,543
income
Net realized gain (loss) (7,290,913) 5,548,328
Change in net unrealized (8,237,745) (2,667,312)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 2,105,921 14,416,559
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (16,346,500) (11,341,743)
From net investment income
From net realized gain - (5,678,734)
In excess of net realized (1,629,425) -
gain
TOTAL DISTRIBUTIONS (17,975,925) (17,020,477)
Share transactions - net 119,784,884 43,274,917
increase (decrease)
TOTAL INCREASE (DECREASE) 103,914,880 40,670,999
IN NET ASSETS
NET ASSETS
Beginning of period 184,094,521 143,423,522
End of period (including $ 288,009,401 $ 184,094,521
undistributed net investment
income of $794,238 and
$570,865, respectively)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED DECEMBER 31,
1998 1997 1996 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.090 $ 11.250 $ 11.010
period
Income from Investment
Operations
Net investment income D .771 .802 .267
Net realized and unrealized (.512) .198 .493
gain (loss)
Total from investment .259 1.000 .760
operations
Less Distributions
From net investment income (.729) (.790) (.280)
From net realized gain - (.370) (.240)
In excess of net realized (.060) - -
gain
Total distributions (.789) (1.160) (.520)
Net asset value, end of period $ 10.560 $ 11.090 $ 11.250
TOTAL RETURN B, C 2.38% 9.24% 6.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 9,596 $ 3,379 $ 587
(000 omitted)
Ratio of expenses to average 1.23% 1.25% F 1.25% A, F
net assets
Ratio of expenses to average 1.22% G 1.24% G 1.25% A
net assets after expense
reductions
Ratio of net investment 7.22% 7.16% 7.32% A
income to average net assets
Portfolio turnover rate 150% 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.
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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
Net asset value, beginning $ 11.090 $ 11.250 $ 11.000 $ 9.920 $ 10.000
of period
Income from Investment
Operations
Net investment income .781 D .814 D .813 D .885 .064 D
Net realized and unrealized (.535) .194 .542 1.231 (.046)
gain (loss)
Total from investment .246 1.008 1.355 2.116 .018
operations
Less Distributions
From net investment income (.726) (.798) (.805) (.806) (.098)
From net realized gain - (.370) (.300) (.230) -
In excess of net realized (.060) - - - -
gain
Total distributions (.786) (1.168) (1.105) (1.036) (.098)
Net asset value, end of period $ 10.550 $ 11.090 $ 11.250 $ 11.000 $ 9.920
TOTAL RETURN B, C 2.26% 9.33% 12.89% 22.02% .17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 189,755 $ 119,204 $ 99,327 $ 52,626 $ 10,687
(000 omitted)
Ratio of expenses to average 1.18% 1.20% 1.23% 1.35% F 1.35% A, F
net assets
Ratio of expenses to average 1.17% G 1.19% G 1.22% G 1.35% 1.35% A
net assets after expense
reductions
Ratio of net investment 7.25% 7.21% 7.34% 7.28% 5.80% A
income to average net assets
Portfolio turnover rate 150% 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994 E
SELECTED PER-SHARE DATA
Net asset value, beginning $ 11.100 $ 11.260 $ 11.010 $ 9.910 $ 10.000
of period
Income from Investment
Operations
Net investment income .713 D .740 D .743 D .820 .072 D
Net realized and unrealized (.529) .194 .538 1.237 (.078)
gain (loss)
Total from investment .184 .934 1.281 2.057 (.006)
operations
Less Distributions
From net investment income (.654) (.724) (.731) (.727) (.084)
From net realized gain - (.370) (.300) (.230) -
In excess of net realized (.060) - - - -
gain
Total distributions (.714) (1.094) (1.031) (.957) (.084)
Net asset value, end of period $ 10.570 $ 11.100 $ 11.260 $ 11.010 $ 9.910
TOTAL RETURN B, C 1.69% 8.60% 12.14% 21.35% (.06)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 72,773 $ 54,562 $ 37,403 $ 26,654 $ 9,379
(000 omitted)
Ratio of expenses to average 1.83% 1.86% 1.88% 2.10% F 2.10% A, F
net assets
Ratio of expenses to average 1.83% 1.85% G 1.87% G 2.10% 2.10% A
net assets after expense
reductions
Ratio of net investment 6.56% 6.55% 6.69% 6.53% 5.06% A
income to average net assets
Portfolio turnover rate 150% 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.
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.
FINANCIAL HIGHLIGHTS - CLASS C
YEARS ENDED DECEMBER 31,
1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.080 $ 11.400
period
Income from Investment
Operations
Net investment income D .672 .105
Net realized and unrealized (.517) .037
gain (loss)
Total from investment .155 .142
operations
Less Distributions
From net investment income (.625) (.152)
From net realized gain - (.310)
In excess of net realized (.060) -
gain
Total distributions (.685) (.462)
Net asset value, end of period $ 10.550 $ 11.080
TOTAL RETURN B, C 1.42% 1.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 11,248 $ 659
(000 omitted)
Ratio of expenses to average 2.07% F 2.10% A, F
net assets
Ratio of net investment to 6.37% 6.30% A
average net assets
Portfolio turnover rate 150% 140%
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD NOVEMBER 3, 1997 (COMMENCEMENT OF SALE OF CLASS C
SHARES) TO 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.140 $ 11.300 $ 11.030 $ 10.890
period
Income from Investment
Operations
Net investment income .805 D .830 D .826 D .456
Net realized and unrealized (.533) .186 .548 .340
gain (loss)
Total from investment .272 1.016 1.374 .796
operations
Less Distributions
From net investment income (.742) (.806) (.804) (.426)
From net realized gain - (.370) (.300) (.230)
In excess of net realized (.060) - - -
gain
Total distributions (.802) (1.176) (1.104) (.656)
Net asset value, end of period $ 10.610 $ 11.140 $ 11.300 $ 11.030
TOTAL RETURN B, C 2.49% 9.36% 13.04% 7.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 4,636 $ 6,289 $ 6,107 $ 107
(000 omitted)
Ratio of expenses to average 1.07% 1.10% F 1.10% F 1.10% A, F
net assets
Ratio of expenses to average 1.07% 1.09% G 1.10% 1.10% A
net assets after expense
reductions
Ratio of net investment 7.29% 7.31% 7.47% 7.53% A
income to average net assets
Portfolio turnover rate 150% 140% 119% 193%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO 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.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Strategic Income Fund (the fund) is a fund of
Fidelity Advisor Series II (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust.
The fund offers Class A, Class T, Class B, Class C, and Institutional
Class shares, each of which has equal rights as to assets and voting
privileges. Each class has exclusive voting rights with respect to
matters that affect that class. Class B shares will automatically
convert to Class A shares after a holding period of seven years from
the initial date of purchase. Investment income, realized and
unrealized capital gains and losses, the common expenses of the fund,
and certain fund-level expense reductions, if any, are allocated on a
pro rata basis to each class based on the relative net assets of each
class to the total net assets of the fund. Each class of shares
differs in its respective distribution, transfer agent, and certain
other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require management to
make certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices (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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FOREIGN CURRENCY TRANSLATION - CONTINUED
the U.S. dollar amount actually received, and gains and losses between
trade and settlement date on purchases and sales of securities. The
effects of changes in foreign currency exchange rates on investments
in securities are included with the net realized and unrealized gain
or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
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. The fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a
portion of interest has become doubtful based on consistently applied
procedures, under the general supervision of the Board of Trustees of
the fund. A debt obligation is removed from non-accrual status when
the issuer resumes interest payments or when collectibility of
interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
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 and excise tax regulations.
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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its records with a value at least equal to the amount of the
commitment. Losses may arise
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $508,842 or 0.2% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,812,250 or 0.6% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $456,683,756 and $349,997,664, respectively, of which U.S.
government and government agency obligations aggregated $135,244,102
and $108,724,025, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% of average net assets.
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 Investments Japan Limited
(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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SUB-ADVISER FEE - CONTINUED
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. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90% *
CLASS C 1.00% **
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
** .75% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A
SHAREHOLDER SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was retained by FDC:
PAID TO FDC RETAINED BY FDC
CLASS A $ 10,359 $ 82
CLASS T 405,368 170
CLASS B 614,016 443,838
CLASS C 69,421 68,468
$ 1,099,164 $ 512,558
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class' shares. The
Plans also authorize payments to third parties that assist in the sale
of each class' shares or render shareholder support services. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 1,507
CLASS T 46,652
CLASS B 13,435
CLASS C 2,761
INSTITUTIONAL CLASS 674
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and on Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5% to 1% for Class B and 1% for Class C, of the
lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested
dividends and capital gains. In addition, purchases of Class A and
Class T shares that were subject to a finder's fee bear a contingent
deferred sales charge on assets that do not remain in the fund for at
least one year. The Class A and Class T contingent deferred sales
charge is based on 0.25% of the lesser of the cost of shares at the
initial date of purchase or the net asset value of the redeemed
shares, excluding any reinvested dividends and capital gains. A
portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO FDC RETAINED BY FDC
CLASS A $ 97,601 $ 25,922
CLASS T 269,192 76,233
CLASS B 140,845 140,845 *
CLASS C 9,131 9,131 *
$ 516,769 $ 252,131
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund.
FIIOC receives account fees and asset-based fees that vary according
to the account size and type of account of the shareholders of the
respective classes of the fund. FIIOC pays for typesetting, printing
and mailing of all shareholder reports, except proxy statements. For
the period, the following amounts were paid to FIIOC:
AMOUNT % OF AVERAGE NET ASSETS
CLASS A $ 18,232 .26
CLASS T 333,844 .21
CLASS B 141,064 .21
CLASS C 16,836 .24
INSTITUTIONAL CLASS 11,396 .19
$ 521,372
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.
During the period, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above a specified percentage on average net
assets for each of the following classes:
FMR EXPENSE LIMITATIONS REIMBURSEMENT
CLASS A 1.25% $ -
CLASS T 1.35% -
CLASS B 2.00% -
CLASS C 2.10% 3,803
INSTITUTIONAL CLASS 1.10% -
$ 3,803
Effective December 1, 1998, the expense limitations were eliminated.
FMR has also directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $394 under this arrangement.
5. EXPENSE REDUCTIONS - CONTINUED
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $6,279 under the custodian
arrangement.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $8,587,000. The weighted average interest rate was 5.25%.
7. CREDIT RISK.
The fund's relatively large investment in countries with limited or
developing capital markets may involve greater risks than investments
in more developed markets and the prices of such investments may be
volatile. The yields of emerging market debt obligations reflect,
among other things, perceived credit risk. The consequences of
political, social or economic changes in these markets may have
disruptive effects on the market prices of the fund's investments and
the income they generate, as well as the fund's ability to repatriate
such amounts.
8. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of
approximately 15% of the total outstanding shares of the fund.
9. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997A
FROM NET INVESTMENT INCOME
Class A $ 468,016 $ 128,164
Class T 10,946,403 7,824,627
Class B 4,114,994 2,941,590
Class C 416,895 5,711
Institutional Class 400,192 441,651
Total $ 16,346,500 $ 11,341,743
FROM NET REALIZED GAIN
Class A $ - $ 93,953
Class T - 3,695,167
Class B - 1,668,813
Class C - 16,228
Institutional Class - 204,573
Total $ - $ 5,678,734
IN EXCESS OF NET REALIZED GAIN
Class A $ 53,961 $ -
Class T 1,076,254 -
Class B 409,677 -
Class C 63,791 -
Institutional Class 25,742 -
Total $ 1,629,425 $ -
A DISTRIBUTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1997.
10. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997A 1998 1997A
CLASS A Shares sold 900,167 265,146 $ 9,908,134 $ 3,006,773
Reinvestment of
distributions 40,130 17,057 381,968 191,271
Shares redeemed (335,982) (29,534) (3,569,407) (335,583)
Net increase (decrease) 604,315 252,669 $ 6,720,695 $ 2,862,461
CLASS T Shares sold 11,047,467 4,933,967 $ 122,912,518 $ 55,635,680
Reinvestment of
distributions 920,256 837,190 8,937,450 9,389,799
Shares redeemed (4,726,297) (3,857,473) (51,174,332) (43,554,684)
Net increase (decrease) 7,241,426 1,913,684 $ 80,675,636 $ 21,470,795
CLASS B Shares sold 4,082,575 1,957,957 $ 45,035,865 $ 22,125,314
Reinvestment of
distributions 304,841 332,029 2,975,955 3,727,875
Shares redeemed (2,414,647) (691,264) (25,559,874) (7,851,913)
Net increase (decrease) 1,972,769 1,598,722 $ 22,451,946 $ 18,001,276
CLASS C Shares sold 1,295,745 75,453 $ 14,256,416 $ 858,758
Reinvestment of
distributions 34,501 1,548 315,902 17,203
Shares redeemed (323,431) (17,490) (3,449,844) (199,505)
Net increase (decrease) 1,006,815 59,511 $ 11,122,474 $ 676,456
INSTITUTIONAL CLASS
Shares 422,294 146,268 $ 4,701,276 $ 1,658,979
sold
Reinvestment of
distributions 32,127 53,502 334,547 603,021
Shares redeemed (581,996) (175,667) (6,221,690) (1,998,071)
Net increase (decrease) (127,575) 24,103 $ (1,185,867) $ 263,929
</TABLE>
A SHARE TRANSACTIONS FOR CLASS C ARE FOR THE PERIOD NOVEMBER 3, 1997
(COMMENCEMENT OF SALE OF SHARES) TO DECEMBER 31, 1997.
11. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION FEES
CLASS A $ 10,108
CLASS T 73,244
CLASS B 30,311
CLASS C 16,010
INSTITUTIONAL CLASS 11,543
$ 141,216
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series II and the Shareholders of
Fidelity Advisor Strategic Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Advisor Strategic Income Fund (a fund of Fidelity Advisor
Series II) at December 31, 1998, and the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Advisor Strategic Income Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999
DISTRIBUTIONS
The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.
OF SPECIAL NOTE
INTRODUCING FIDELITY'S NEW, REORGANIZED PROSPECTUS
Recently, the SEC issued new disclosure requirements for all mutual
fund prospectuses. While Fidelity could have complied by simply
following the new requirements, we saw a different opportunity. We saw
the chance to create a brand new prospectus: one that is better
organized, easier to use and more informative than ever.
The new format of the Fidelity mutual fund prospectus puts the
information you need to make informed investment decisions right at
your fingertips. In the opening pages, you will find the SEC-mandated
summary that highlights the fund's investment objectives, strategies
and risks. There's also an easy-to-read performance chart and fee
table right up front.
Inside, you will find additional features we've introduced to make the
fund prospectus a more useful tool. In our new Shareholder Information
section, for example, we have provided practical, beneficial
information - from how to buy or sell shares, key contact information,
investment services, ways to set up your account and more - all in one
convenient location.
We invite you to spend a moment and review our new prospectus. It is
designed to help make your investment decision easier, no matter which
of the Fidelity funds you invest in.
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
Margaret L. Eagle, Vice President
Kevin E. Grant, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy 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 *
*INDEPENDENT TRUSTEES
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The 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 Latin America Fund
Fidelity Advisor Japan Fund
Fidelity Advisor Europe Capital Appreciation Fund
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor Diversified International Fund
Fidelity Advisor Global Equity Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Retirement
Growth Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Large Cap Fund
Fidelity Advisor Dividend Growth Fund
Fidelity Advisor Growth
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Asset Allocation 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
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
