FIDELITY ADVISOR
STRATEGIC INCOME
FUND - CLASS A, CLASS T, CLASS B
AND CLASS C
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 21 The manager's review of fund
performance, strategy and
outlook.
INVESTMENT CHANGES 25 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 26 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 48 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 57 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other 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:
After much speculation about the U.S. Federal Reserve Board's
near-term monetary policy, stock and bond investors breathed a sigh of
relief when the Fed shifted to a neutral position on rates following
its widely anticipated quarter-point increase in short-term rates on
June 30. This switch in bias helped the S&P 500(registered trademark)
and NASDAQ soar to record-closing highs, and sent yields on the
bellwether 30-year Treasury back below 6%.
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 JUNE 30, 1999 PAST 6 MONTHS PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 2.59% 1.95% 58.31%
- - CL A
FIDELITY ADV STRATEGIC INCOME -2.28% -2.90% 50.79%
- - CL A (INCL. 4.75% SALES
CHARGE)
Fidelity Strategic Income 0.54% 2.37% 53.65%
Composite
JP EMBI Plus 10.57% -4.26% 76.60%
LB Government Bond -2.27% 3.05% 43.70%
ML High Yield Master II 2.49% 0.90% 60.48%
SB Non-US Dollar World Govt -9.11% 4.87% 25.04%
Bond
ML High Yield Master 1.76% 0.94% 58.90%
Multi-Sector Income Funds 0.82% -0.62% n/a
Average
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, six months, one year or since
the fund started on October 31, 1994. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare Class A's returns to
those of the Merrill Lynch High Yield Master Index - a market
value-weighted index of all domestic and yankee high-yield bonds.
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. You
can also 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 J.P.
Morgan Emerging Markets Bond Index Plus, the Lehman Brothers
Government Bond Index, the Merrill Lynch High Yield Master II 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
six months average represents a peer group of 105 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 JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 1.95% 10.34%
- - CL A
FIDELITY ADV STRATEGIC INCOME -2.90% 9.20%
- - CL A (INCL. 4.75% SALES
CHARGE)
Fidelity Strategic Income 2.37% 9.64%
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.
(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.
$10,000 OVER LIFE OF FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FA Strategic Inc -CL A FID Strategic Inc Comp. ML High Yield Master II
00260 F0086 ML012
1994/10/31 9525.00 10000.00 10000.00
1994/11/30 9572.77 9920.90 9913.96
1994/12/31 9541.61 9884.90 10018.42
1995/01/31 9648.07 9959.54 10159.09
1995/02/28 9875.95 10125.91 10484.71
1995/03/31 10019.24 10299.71 10626.39
1995/04/30 10395.11 10642.75 10895.62
1995/05/31 10786.33 11044.59 11237.63
1995/06/30 10841.49 11138.73 11313.19
1995/07/31 10928.59 11203.42 11460.51
1995/08/31 10945.88 11205.44 11520.65
1995/09/30 11140.78 11399.33 11654.54
1995/10/31 11270.10 11458.48 11753.05
1995/11/30 11395.97 11610.46 11869.53
1995/12/31 11643.10 11865.72 12068.40
1996/01/31 11903.52 12069.97 12270.00
1996/02/29 11807.14 11957.42 12307.50
1996/03/31 11769.08 11967.99 12257.18
1996/04/30 11882.44 12054.04 12274.37
1996/05/31 11965.00 12119.18 12362.83
1996/06/30 12066.53 12256.12 12412.09
1996/07/31 12139.29 12387.78 12493.68
1996/08/31 12280.23 12532.99 12646.07
1996/09/30 12663.01 12822.79 12943.32
1996/10/31 12827.47 12984.25 13055.66
1996/11/30 13077.33 13257.60 13314.71
1996/12/31 13141.42 13292.17 13428.55
1997/01/31 13226.46 13331.31 13529.44
1997/02/28 13339.67 13429.06 13737.43
1997/03/31 13046.74 13242.60 13548.48
1997/04/30 13192.75 13380.63 13722.19
1997/05/31 13535.42 13679.20 14011.11
1997/06/30 13731.04 13877.42 14227.65
1997/07/31 14001.03 14134.06 14604.77
1997/08/31 13990.54 14116.04 14587.19
1997/09/30 14331.31 14382.36 14849.59
1997/10/31 14085.62 14259.82 14925.41
1997/11/30 14206.44 14381.93 15058.37
1997/12/31 14356.16 14535.15 15210.02
1998/01/31 14615.36 14703.70 15452.41
1998/02/28 14724.36 14809.79 15515.02
1998/03/31 14853.96 14897.17 15662.39
1998/04/30 14903.22 14997.36 15729.66
1998/05/31 14832.89 14999.45 15824.25
1998/06/30 14791.03 15008.64 15905.97
1998/07/31 14883.79 15071.87 16007.35
1998/08/31 13741.00 14297.30 15199.31
1998/09/30 14183.23 14778.41 15238.87
1998/10/31 14213.37 14880.52 14910.04
1998/11/30 14708.36 15276.60 15687.24
1998/12/31 14698.49 15283.08 15659.13
1999/01/31 14799.38 15271.09 15867.51
1999/02/28 14622.88 15073.10 15762.48
1999/03/31 14946.15 15336.24 15945.58
1999/04/30 15410.28 15612.59 16237.32
1999/05/31 15038.43 15341.51 16088.37
1999/06/30 15078.99 15365.00 16048.50
IMATRL PRASUN SHR__CHT 19990630 19990715 111404 R00000000000059
</TABLE>
$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 June 30, 1999, the value of
the investment would have grown to $15,079 - a 50.79% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master II Index - a market value-weighted index of all domestic
and yankee high-yield bonds, including deferred interest bonds and
payment-in-kind securities - 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 $16,048 - a 60.48% 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
(+76.60%), Lehman Brothers Government Bond Index (+43.70%), Merrill
Lynch High Yield Master II Index (+60.48%), and Salomon Brothers
Non-U.S. Dollar World Government Bond Index (+25.04%), 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 $15,365 - a 53.65% increase. Beginning
with this report, the fund will compare its performance to that of the
Merrill Lynch High Yield Master II Index rather than the Merrill Lynch
High Yield Master Index. The Merrill Lynch High Yield Master II Index
contains deferred interest bonds and payment-in-kind securities and is
therefore a better representation of the high yield bond universe.
* 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>
SIX MONTHS ENDED JUNE 30, SEPTEMBER 3, 1996
YEARS ENDED DECEMBER 31, (COMMENCEMENT OF SALE OF
CLASS A SHARES) TO DECEMBER
31,
1999 1998 1997 1996
Dividend returns 3.35% 6.59% 7.20% 2.56%
Capital returns -0.76% -4.21% 2.04% 4.39%
Total returns 2.59% 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 JUNE 30, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.83(cents) 35.11(cents) 73.43(cents)
Annualized dividend rate 6.79% 6.70% 6.93%
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 $10.44 over the past one month, $10.57 over the past six months and
$10.59 over the past one year, you can compare the class' income over
these three periods. The past one year 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 JUNE 30, 1999 PAST 6 MONTHS PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 2.55% 1.82% 58.22%
- - CL T
FIDELITY ADV STRATEGIC INCOME -1.04% -1.74% 52.68%
- - CL T (INCL. 3.50% SALES
CHARGE)
Fidelity Strategic Income 0.54% 2.37% 53.65%
Composite
JP EMBI Plus 10.57% -4.26% 76.60%
LB Government Bond -2.27% 3.05% 43.70%
ML High Yield Master II 2.49% 0.90% 60.48%
SB Non-US Dollar World Govt -9.11% 4.87% 25.04%
Bond
ML High Yield Master 1.76% 0.94% 58.90%
Multi-Sector Income Funds 0.82% -0.62% n/a
Average
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, six months, one year or since
the fund started on October 31, 1994. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare Class T's returns to
those of the Merrill Lynch High Yield Master Index - a market-value
weighted index of all domestic and yankee high-yield bonds. 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. You can
also 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 II 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
six months average represents a peer group of 105 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 JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 1.82% 10.33%
- - CL T
FIDELITY ADV STRATEGIC INCOME -1.74% 9.49%
- - CL T (INCL. 3.50% SALES
CHARGE)
Fidelity Strategic Income 2.37% 9.64%
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.
(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.
$10,000 OVER LIFE OF FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FA Strategic Inc -CL T FID Strategic Inc Comp. ML High Yield Master II
00638 F0086 ML012
1994/10/31 9650.00 10000.00 10000.00
1994/11/30 9698.40 9920.90 9913.96
1994/12/31 9666.83 9884.90 10018.42
1995/01/31 9774.68 9959.54 10159.09
1995/02/28 10005.55 10125.91 10484.71
1995/03/31 10150.73 10299.71 10626.39
1995/04/30 10531.53 10642.75 10895.62
1995/05/31 10927.88 11044.59 11237.63
1995/06/30 10983.77 11138.73 11313.19
1995/07/31 11072.01 11203.42 11460.51
1995/08/31 11089.52 11205.44 11520.65
1995/09/30 11286.98 11399.33 11654.54
1995/10/31 11418.00 11458.48 11753.05
1995/11/30 11545.52 11610.46 11869.53
1995/12/31 11795.90 11865.72 12068.40
1996/01/31 12059.74 12069.97 12270.00
1996/02/29 11962.09 11957.42 12307.50
1996/03/31 11923.53 11967.99 12257.18
1996/04/30 12038.38 12054.04 12274.37
1996/05/31 12122.02 12119.18 12362.83
1996/06/30 12224.89 12256.12 12412.09
1996/07/31 12298.60 12387.78 12493.68
1996/08/31 12441.38 12532.99 12646.07
1996/09/30 12830.13 12822.79 12943.32
1996/10/31 12997.13 12984.25 13055.66
1996/11/30 13251.26 13257.60 13314.71
1996/12/31 13315.91 13292.17 13428.55
1997/01/31 13391.70 13331.31 13529.44
1997/02/28 13518.64 13429.06 13737.43
1997/03/31 13222.75 13242.60 13548.48
1997/04/30 13371.63 13380.63 13722.19
1997/05/31 13720.32 13679.20 14011.11
1997/06/30 13919.62 13877.42 14227.65
1997/07/31 14194.54 14134.06 14604.77
1997/08/31 14185.26 14116.04 14587.19
1997/09/30 14518.67 14382.36 14849.59
1997/10/31 14282.39 14259.82 14925.41
1997/11/30 14393.11 14381.93 15058.37
1997/12/31 14558.12 14535.15 15210.02
1998/01/31 14805.33 14703.70 15452.41
1998/02/28 14927.20 14809.79 15515.02
1998/03/31 15058.21 14897.17 15662.39
1998/04/30 15105.82 14997.36 15729.66
1998/05/31 15036.26 14999.45 15824.25
1998/06/30 14994.41 15008.64 15905.97
1998/07/31 15088.85 15071.87 16007.35
1998/08/31 13918.00 14297.30 15199.31
1998/09/30 14367.82 14778.41 15238.87
1998/10/31 14397.26 14880.52 14910.04
1998/11/30 14912.03 15276.60 15687.24
1998/12/31 14887.81 15283.08 15659.13
1999/01/31 15002.45 15271.09 15867.51
1999/02/28 14822.20 15073.10 15762.48
1999/03/31 15135.03 15336.24 15945.58
1999/04/30 15604.79 15612.59 16237.32
1999/05/31 15242.05 15341.51 16088.37
1999/06/30 15268.00 15365.00 16048.50
IMATRL PRASUN SHR__CHT 19990630 19990715 112123 R00000000000059
</TABLE>
$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 June 30, 1999, the value of
the investment would have grown to $15,268 - a 52.68% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master II Index - a market value- weighted index of all domestic
and yankee high-yield bonds, including deferred interest bonds and
payment-in-kind securities - 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 $16,048 - a 60.48% 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
(+76.60%), Lehman Brothers Government Bond Index (+43.70%), Merrill
Lynch High Yield Master II Index (+60.48%), and Salomon Brothers
Non-U.S. Dollar World Government Bond Index (+25.04%), 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 $15,365 - a 53.65% increase. Beginning
with this report, the fund will compare its performance to that of the
Merrill Lynch High Yield Master II Index rather than the Merrill Lynch
High Yield Master Index. The Merrill Lynch High Yield Master II Index
contains deferred interest bonds and payment-in-kind securities and is
therefore a better representation of the high yield bond universe.
* 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> <C>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, OCTOBER 31, 1994
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31,
1999 1998 1997 1996 1995 1994
Dividend returns 3.31% 6.56% 7.29% 7.73% 8.65% 0.97%
Capital returns -0.76% -4.30% 2.04% 5.16% 13.37% -0.80%
Total returns 2.55% 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 JUNE 30, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.79(cents) 34.74(cents) 73.12(cents)
Annualized dividend rate 6.75% 6.63% 6.90%
30-day annualized yield 6.93% - -
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 $10.43 over the past one month, $10.56 over the past six months,
and $10.59 over the past one year, you can compare the class' income
over these three periods. The past one year 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 six months, past one year and life
of fund total return figures are 5%, 5% and 2%, respectively. If
Fidelity had not reimbursed certain class expenses, the life of fund
total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 6 MONTHS PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 2.22% 1.16% 53.52%
- - CL B
FIDELITY ADV STRATEGIC INCOME -2.74% -3.56% 51.52%
- - CL B (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 0.54% 2.37% 53.65%
Composite
JP EMBI Plus 10.57% -4.26% 76.60%
LB Government Bond -2.27% 3.05% 43.70%
ML High Yield Master II 2.49% 0.90% 60.48%
SB Non-US Dollar World Govt -9.11% 4.87% 25.04%
Bond
ML High Yield Master 1.76% 0.94% 58.90%
Multi-Sector Income Funds 0.82% -0.62% n/a
Average
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, six months, one year or since
the fund started on October 31, 1994. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare Class B's returns to
those of the Merrill Lynch High Yield Master Index - a market
value-weighted index of all domestic and yankee high-yield bonds.
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. You
can also 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 J.P.
Morgan Emerging Markets Bond Index Plus, the Lehman Brothers
Government Bond Index, the Merrill Lynch High Yield Master II 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
six months average represents a peer group of 105 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 JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 1.16% 9.62%
- - CL B
FIDELITY ADV STRATEGIC INCOME -3.56% 9.31%
- - CL B (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 2.37% 9.64%
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.
(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.
$10,000 OVER LIFE OF FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FA Strategic Inc -CL B FID Strategic Inc Comp. ML High Yield Master II
00639 F0086 ML012
1994/10/31 10000.00 10000.00 10000.00
1994/11/30 10045.19 9920.90 9913.96
1994/12/31 9993.77 9884.90 10018.42
1995/01/31 10109.93 9959.54 10159.09
1995/02/28 10342.97 10125.91 10484.71
1995/03/31 10496.27 10299.71 10626.39
1995/04/30 10883.14 10642.75 10895.62
1995/05/31 11285.68 11044.59 11237.63
1995/06/30 11326.35 11138.73 11313.19
1995/07/31 11420.96 11203.42 11460.51
1995/08/31 11431.98 11205.44 11520.65
1995/09/30 11617.60 11399.33 11654.54
1995/10/31 11755.36 11458.48 11753.05
1995/11/30 11878.64 11610.46 11869.53
1995/12/31 12127.76 11865.72 12068.40
1996/01/31 12391.44 12069.97 12270.00
1996/02/29 12283.74 11957.42 12307.50
1996/03/31 12237.32 11967.99 12257.18
1996/04/30 12347.83 12054.04 12274.37
1996/05/31 12426.63 12119.18 12362.83
1996/06/30 12525.39 12256.12 12412.09
1996/07/31 12594.31 12387.78 12493.68
1996/08/31 12733.18 12532.99 12646.07
1996/09/30 13123.27 12822.79 12943.32
1996/10/31 13286.86 12984.25 13055.66
1996/11/30 13539.79 13257.60 13314.71
1996/12/31 13599.52 13292.17 13428.55
1997/01/31 13681.65 13331.31 13529.44
1997/02/28 13803.67 13429.06 13737.43
1997/03/31 13482.16 13242.60 13548.48
1997/04/30 13638.86 13380.63 13722.19
1997/05/31 13973.99 13679.20 14011.11
1997/06/30 14181.74 13877.42 14227.65
1997/07/31 14453.55 14134.06 14604.77
1997/08/31 14423.79 14116.04 14587.19
1997/09/30 14767.17 14382.36 14849.59
1997/10/31 14518.78 14259.82 14925.41
1997/11/30 14623.24 14381.93 15058.37
1997/12/31 14769.60 14535.15 15210.02
1998/01/31 15025.93 14703.70 15452.41
1998/02/28 15128.43 14809.79 15515.02
1998/03/31 15266.11 14897.17 15662.39
1998/04/30 15306.75 14997.36 15729.66
1998/05/31 15227.35 14999.45 15824.25
1998/06/30 15175.85 15008.64 15905.97
1998/07/31 15263.44 15071.87 16007.35
1998/08/31 14073.13 14297.30 15199.31
1998/09/30 14519.06 14778.41 15238.87
1998/10/31 14526.86 14880.52 14910.04
1998/11/30 15051.23 15276.60 15687.24
1998/12/31 15018.95 15283.08 15659.13
1999/01/31 15111.61 15271.09 15867.51
1999/02/28 14936.11 15073.01 15762.48
1999/03/31 15242.68 15336.24 15945.58
1999/04/30 15706.73 15612.59 16237.32
1999/05/31 15334.34 15341.51 16088.37
1999/06/30 15152.32 15365.00 16048.50
IMATRL PRASUN SHR__CHT 19990630 19990730 115617 R00000000000059
</TABLE>
$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 June
30, 1999, the value of the investment, including the effect of the
contingent deferred sales charge, would have grown to $15,152 - a
51.52% increase on the initial investment. For comparison, look at how
the Merrill Lynch High Yield Master II Index - a market
value-weighted index of all domestic and yankee high-yield bonds,
including deferred interest bonds and payment-in-kind securities - 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 $16,048 -
a 60.48% 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 (+76.60%), Lehman Brothers
Government Bond Index (+43.70%), Merrill Lynch High Yield Master II
Index (+60.48%), and Salomon Brothers Non-U.S. Dollar World Government
Bond Index (+25.04%), 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 $15,365 - a 53.65% increase. Beginning with this report, the
fund will compare its performance to that of the Merrill Lynch High
Yield Master II Index rather than the Merrill Lynch High Yield Master
Index. The Merrill Lynch High Yield Master II Index contains deferred
interest bonds and payment-in-kind securities and is therefore a
better representation of the high yield bond universe.
* 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> <C>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, OCTOBER 31, 1994
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31,
1999 1998 1997 1996 1995 1994
Dividend returns 2.98% 5.89% 6.58% 7.00% 7.78% 0.84%
Capital returns -0.76% -4.20% 2.02% 5.14% 13.57% -0.90%
Total returns 2.22% 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 JUNE 30, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.23(cents) 31.31(cents) 66.20(cents)
Annualized dividend rate 6.09% 5.97% 6.25%
30-day annualized yield 6.52% - -
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 $10.45 over the past one month, $10.58 over the past six months,
and $10.60 over the past one year, you can compare the class' income
over these three periods. The past one year 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 six months, past one year and life of fund total
return figures are 1%, 1% and 0%, respectively. If Fidelity had not
reimbursed certain class expenses, the past one year and life of fund
total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JUNE 30, 1999 PAST 6 MONTHS PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 2.17% 0.98% 52.95%
- - CL C
FIDELITY ADV STRATEGIC INCOME 1.17% 0.04% 52.95%
- - CL C (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 0.54% 2.37% 53.65%
Composite
JP EMBI Plus 10.57% -4.26% 76.60%
LB Government Bond -2.27% 3.05% 43.70%
ML High Yield Master II 2.49% 0.90% 60.48%
SB Non-US Dollar World Govt -9.11% 4.87% 25.04%
Bond
ML High Yield Master 1.76% 0.94% 58.90%
Multi-Sector Income Funds 0.82% -0.62% n/a
Average
CUMULATIVE TOTAL RETURNS show Class C's performance in percentage
terms over a set period - in this case, six months, one year or since
the fund started on October 31, 1994. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare Class C's returns to
those of the Merrill Lynch High Yield Master Index - a market
value-weighted index of all domestic and yankee high-yield bonds.
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. You
can also 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 J.P.
Morgan Emerging Markets Bond Index Plus, the Lehman Brothers
Government Bond Index, the Merrill Lynch High Yield Master II 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
six months average represents a peer group of 105 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 JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 0.98% 9.53%
- - CL C
FIDELITY ADV STRATEGIC INCOME 0.04% 9.53%
- - CL C (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 2.37% 9.64%
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.
(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.
$10,000 OVER LIFE OF FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FA Strategic Inc -CL C FID Strategic Inc Comp. ML High Yield Master II
00523 F0086 ML012
1994/10/31 10000.00 10000.00 10000.00
1994/11/30 10045.19 9920.90 9913.96
1994/12/31 9993.77 9884.90 10018.42
1995/01/31 10109.93 9959.54 10159.09
1995/02/28 10342.97 10125.91 10484.71
1995/03/31 10496.27 10299.71 10626.39
1995/04/30 10883.14 10642.75 10895.62
1995/05/31 11285.68 11044.59 11237.63
1995/06/30 11326.35 11138.73 11313.19
1995/07/31 11420.96 11203.42 11460.51
1995/08/31 11431.98 11205.44 11520.65
1995/09/30 11617.60 11399.33 11654.54
1995/10/31 11755.36 11458.48 11753.05
1995/11/30 11878.64 11610.46 11869.53
1995/12/31 12127.76 11865.72 12068.40
1996/01/31 12391.44 12069.97 12270.00
1996/02/29 12283.74 11957.42 12307.50
1996/03/31 12237.32 11967.99 12257.18
1996/04/30 12347.83 12054.04 12274.37
1996/05/31 12426.63 12119.18 12362.83
1996/06/30 12525.39 12256.12 12412.09
1996/07/31 12594.31 12387.78 12493.68
1996/08/31 12733.18 12532.99 12646.07
1996/09/30 13123.27 12822.79 12943.32
1996/10/31 13286.86 12984.25 13055.66
1996/11/30 13539.79 13257.60 13314.71
1996/12/31 13599.52 13292.17 13428.55
1997/01/31 13681.65 13331.31 13529.44
1997/02/28 13803.67 13429.06 13737.43
1997/03/31 13482.16 13242.60 13548.48
1997/04/30 13638.86 13380.63 13722.19
1997/05/31 13973.99 13679.20 14011.11
1997/06/30 14181.74 13877.42 14227.65
1997/07/31 14453.55 14134.06 14604.77
1997/08/31 14423.79 14116.04 14587.19
1997/09/30 14767.17 14382.36 14849.59
1997/10/31 14518.78 14259.82 14925.41
1997/11/30 14605.97 14381.93 15058.37
1997/12/31 14761.52 14535.15 15210.02
1998/01/31 14999.89 14703.70 15452.41
1998/02/28 15112.41 14809.79 15515.02
1998/03/31 15245.74 14897.17 15662.39
1998/04/30 15283.34 14997.36 15729.66
1998/05/31 15200.14 14999.45 15824.25
1998/06/30 15146.44 15008.64 15905.97
1998/07/31 15230.47 15071.87 16007.35
1998/08/31 14036.76 14297.30 15199.31
1998/09/30 14492.58 14778.41 15238.87
1998/10/31 14497.59 14880.52 14910.04
1998/11/30 15003.67 15276.60 15687.24
1998/12/31 14970.49 15283.08 15659.13
1999/01/31 15063.18 15271.09 15867.51
1999/02/28 14887.58 15073.10 15762.48
1999/03/31 15191.59 15336.24 15945.58
1999/04/30 15653.23 15612.59 16237.32
1999/05/31 15264.25 15341.51 16088.37
1999/06/30 15294.92 15365.00 16048.50
IMATRL PRASUN SHR__CHT 19990630 19990730 121114 R00000000000059
</TABLE>
$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 June
30, 1999, the value of the investment, would have grown to $15,295 - a
52.95% increase on the initial investment. For comparison, look at how
the Merrill Lynch High Yield Master II Index - a market value-weighted
index of all domestic and yankee high-yield bonds, including deferred
interest bonds and payment-in-kind securities - 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 $16,048 - a 60.48%
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 (+76.60%), Lehman Brothers Government
Bond Index (+43.70%), Merrill Lynch High Yield Master II Index
(+60.48%), and Salomon Brothers Non-U.S. Dollar World Government Bond
Index (+25.04%), 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
$15,365 - a 53.65% increase. Beginning with this report, the fund will
compare its performance to that of the Merrill Lynch High Yield Master
II Index rather than the Merrill Lynch High Yield Master Index. The
Merrill Lynch High Yield Master II Index contains deferred interest
bonds and payment-in-kind securities and is therefore a better
representation of the high yield bond universe.
* 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>
NOVEMBER 3, 1997
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, (COMMENCEMENT OF SALE OF
CLASS C SHARES) TO DECEMBER
31,
1999 1998 1997
Dividend returns 2.93% 5.63% 1.36%
Capital returns -0.76% -4.21% -0.09%
Total returns 2.17% 1.42% 1.27%
</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 JUNE 30, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.11(cents) 30.72(cents) 64.27(cents)
Annualized dividend rate 5.96% 5.87% 6.07%
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 $10.43 over the past one month, $10.56 over the past six months,
and $10.58 over the past one year, you can compare the class' income
over these three periods. The past one year 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 MANAGER'S OVERVIEW
MARKET RECAP
Throughout much of the six-month
period ending June 30, 1999,
strong U.S. economic reports and
a buoyant U.S. stock market had
global bond investors concerned
about the implications of a U.S.
Federal Reserve Board intervention
to boost key interest rates. One side
effect was an increase in yields
for U.S. government securities.
Bonds with five-year and 10-year
maturities declined the most in price,
leaving the yield curve steeper at the
shorter end. A strong equity market
and consolidation in the
telecommunications sector helped
the high-yield market. However, by
mid-year some of this enthusiasm
was tempered by increased new
issuance and investors' focus on
interest rates. Emerging-market debt
enjoyed a favorable first half on
the back of stronger commodity
prices, especially oil. Higher oil
prices helped emerging-market
countries that are significant oil
exporters as well as high-yield
energy companies.
Emerging-market debt
outperformed most other
fixed-income markets in the period.
With regard to non-U.S. developed
markets in local currency terms,
Japan posted the highest gain -
2.57%- while the U.K. had the
lowest return at -1.88%. The majority
of countries posted negative returns in
local currency terms. A strong U.S.
dollar detracted further from this
performance. The euro lost 12.17%
versus the U.S. dollar, while the
Japanese yen declined 6.8%.
(photograph of John Carlson)
An interview with John Carlson, Lead Portfolio Manager of Fidelity
Advisor Strategic Income Fund
Q. HOW DID THE FUND PERFORM, JOHN?
A. For the six months ending June 30, 1999, the fund's Class A, Class
T, Class B and Class C shares returned 2.59%, 2.55%, 2.22% and 2.17%,
respectively. The multi-sector income funds average, as tracked by
Lipper Inc., returned 0.82%. The Merrill Lynch High Yield Master Index
returned 1.76%, while the fund's new benchmark, the Merrill Lynch High
Yield Master II Index, returned 2.49% during the same six-month
period. For the 12 months ending June 30, 1999, the fund's Class A,
Class T, Class B and Class C shares returned 1.95%, 1.82%, 1.16% and
0.98%, respectively. The Lipper peer group index returned -0.62%, and
the Merrill Lynch High Yield Master and Master II indexes returned
0.94% and 0.90%, respectively, for the one-year period.
Q. WHY DID THE FUND CHANGE ITS BENCHMARK INDEX?
A. The fund changed its benchmark because the Merrill Lynch High Yield
Master Index does not include deferred-interest bonds (DIBs) and
pay-in-kind securities (PIKs), which have emerged as important
components of the market in recent years. Deferred-interest bonds do
not pay cash interest for a set period of the bond's life, typically
for three to five years, and therefore sell at a significant discount.
At the end of the deferred-interest period, the interest accrues and
begins to be paid (it is a variation on the zero coupon bond
structure). PIKs pay interest in the form of additional bonds or
preferred stock. As of June 30, 1999, DIBs and PIKs represented
approximately 17% of the fund's new benchmark, the Merrill Lynch High
Yield Master II Index.
Q. HOW DID THE HIGH-YIELD PORTION OF THE FUND FARE IN THE FIRST HALF
OF 1999?
A. The high-yield market was strong from January through March as it
recovered from the relatively wide spreads reached in October 1998.
However, in the second quarter, fears that the strong U.S. economy
might lead to higher inflation drove Treasury yields higher and the
market gave back some of its earlier gains. Industry selection was
favorable; overweighting cable and telecommunications and
underweighting the health care industry contributed positively to the
fund's return. Individual security selection within the fund's
high-yield subportfolio - managed by Mark Notkin - continued to be the
major driver of performance. Although it's no longer in the fund,
Pathmark was a strong contributor after Royal Ahold, the world's
sixth-largest supermarket operator, announced its intention to
purchase the company. Securities of Nextel, a national wireless
operator, appreciated as the company continued to build its national
network and add customers at a rapid pace. Also, several of the fund's
CLEC (competitive local exchange carrier) positions, such as ICG
Services, performed well, gaining market share in the large and
growing domestic telecommunications industry. Performance detractors
included the telecommunications company Iridium, which the fund no
longer held at the end of the period, and computer maintenance and
technology support company DecisionOne.
Q. IN WHICH SECTORS OF THE MARKET DID THE INVESTMENT-GRADE PORTION OF
THE FUND INVEST, AND HOW DID THESE SECTORS PERFORM?
A. The U.S. investment-grade fixed-income subportfolio - managed by
Kevin Grant - was invested in government securities issued by the U.S.
Treasury and a variety of federal agencies. It also invested in
conventional and GNMA (Government National Mortgage Association)
agency securities, constituting both 15-year and 30-year residential
mortgages. Relative to its benchmark index, the investment-grade
subportfolio remained overweighted in federal agencies and mortgage
securities, and underweighted in Treasuries. Although the general
increase in interest rates dampened domestic fixed-income returns,
agencies and mortgage securities outperformed comparable duration
Treasuries in the first half of 1999, boosting the fund's performance.
Q. HOW DID THE NON-U.S. DEVELOPED MARKETS FARE?
A. The rise in U.S. yields was mirrored in most developed markets
despite their weak Gross Domestic Product (GDP) growth and subdued
inflation. As a result, local currency returns were negative in all
main markets except Japan where government buying held down yields. In
dollar terms, European markets were negatively impacted by the weak
euro, which fell approximately 12% against the dollar over the
reporting period. The only positive performer was Canada, helped by a
recovering currency. Our decision to underweight Japanese bonds when
10-year yields fell to 0.75% was vindicated when yields rose to 2.2%
on concern over a ballooning budget deficit. Ian Spreadbury - who
manages the fund's foreign developed market subportfolio - closed
virtually the entire Japanese bond position as it became clear the
government would continue to support the market. We also reduced
exposure to euro-yen bonds in anticipation of the removal of
withholding tax on Japanese government bonds later this year. In
euros, which account for approximately one half of the subportfolio,
we took a small position in corporate bonds. The level of corporate
issuance was very heavy (see callout box on next page) and this led to
wider spreads.
Q. WHAT WERE THE KEY DRIVERS OF EMERGING-MARKET SUBPORTFOLIO
PERFORMANCE?
A. Russian asset prices ended 1998 at deeply depressed levels, but the
fund maintained its overweighted position in Russia as our team
believed assets had become significantly oversold. The fund's holdings
in Russia were also shifted to include more senior securities, which
is debt that has a higher standing in terms of repayment. This year,
Russian debt prices have rebounded, as stronger commodity prices,
particularly oil, helped. In addition, some stability returned to the
Russian economy. Russia was the top-performing country in the
emerging-markets benchmark this year and a top contributor to the
subportfolio. Our decision to overweight Brazil also helped
performance. In early January, we took advantage of the oversold
prices that resulted from investors' anticipation of the country's
currency devaluation. Brazilian debt prices subsequently recovered in
part due to better-than-expected economic reports. With oil prices
improving, the fund further benefited from its overweighting in
Venezuela, one of the world's most important oil producers.
Underweighting Ecuador also contributed to relative performance.
Security selection was a key driver of fund performance, specifically
in countries with robust bond markets, such as Brazil, Mexico and
Argentina.
Q. JOHN, WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. I have a cautious outlook as we enter the second half. I am keeping
a careful watch on capital market liquidity. That being said, we
continue to see compelling opportunities in credit spread markets such
as high-yield and emerging markets given their absolute yield levels.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(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 June 30, 1999,
more than $308 million
MANAGER: John Carlson, since
1995; manager, Fidelity
Advisor Emerging Markets
Income Fund, since 1995;
joined Fidelity in 1995
JOHN CARLSON DISCUSSES
THE EURO AND CORPORATE DEBT
ISSUANCE:
"The physical transition to the single
currency has proceeded relatively
smoothly, with all participating
government bonds redenominating
to euros at the beginning of 1999.
Some corporate bonds remain
denominated in legacy currencies -
national currencies replaced by the
euro - and will redenominate by the
end of 2001.
"The introduction of the euro has
reduced the scope for international
investors to add value through
currency plays and, as a result, more
investors are turning to the credit
markets as a medium for adding
value.
"In terms of economic convergence
- - the performance of the
euro-countries' national economies
- - it is too early to judge how things
will develop. Certainly there is
still a wide range of economic
performance, with some peripheral
countries like Ireland turning in very
strong growth while the German
economy, for example, continues to
struggle.
"Prior to this year, the corporate
markets hardly existed in Europe
as companies used banks as their
main source of debt finance. This
year, we have seen huge amounts of
corporate issuance as the banks
have come under increasing
competitive pressure and the
markets have enabled companies to
finance themselves to a larger extent
and with more flexibility. The
issuance also has been driven by an
increased level of merger and
acquisition activity as companies
seek to establish themselves across
Europe."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF JUNE
30, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
EQUIVALENTS) THESE HOLDINGS 6 MONTHS AGO
U.S. Treasury Obligations 12.5 11.3
Fannie Mae 5.9 7.0
Treuhandanstalt 3.9 0.0
Brazilian Federative Republic 3.0 1.6
Federal Home Loan Bank 2.8 3.2
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE MARKET SECTORS 6
MONTHS AGO
MEDIA & LEISURE 15.7 13.2
UTILITIES 11.4 11.7
BASIC INDUSTRIES 3.6 0.9
TECHNOLOGY 1.9 2.3
FINANCE 1.7 1.8
QUALITY DIVERSIFICATION AS OF
JUNE 30, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa, Aa, A 40.9 43.5
Baa 1.2 0.3
Ba 6.4 10.6
B 30.7 23.5
Caa, Ca, C 6.9 5.6
Not Rated 3.3 4.5
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P(registered trademark) RATINGS. UNRATED
DEBT SECURITIES THAT ARE EQUIVALENT TO BA AND BELOW AT JUNE 30, 1999
AND DECEMBER 31, 1998 ACCOUNT FOR 3.3% AND 4.5% RESPECTIVELY, OF THE
FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF JUNE 30, 1999 *
Corporate Bonds 37.4%
U.S. Government and
Government Agency
Obligations 27.4%
Foreign Government &
Government Agency
Obligations 21.6%
Stocks 5.5%
Other Investments 3.2%
Short-term Investments 4.9%
* FOREIGN INVESTMENTS 32.5%
AS OF DECEMBER 31, 1998 **
Corporate Bonds 33.2%
U.S. Government and
Government Agency
Obligations 29.3%
Foreign Government &
Government Agency
Obligations 24.9%
Stocks 5.9%
Other Investments 0.9%
Short-term Investments 5.8%
** FOREIGN INVESTMENTS 29.8%
Row: 1, Col: 1, Value: 38.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 27.4
Row: 1, Col: 4, Value: 21.6
Row: 1, Col: 5, Value: 5.5
Row: 1, Col: 6, Value: 2.4
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.9
Row: 1, Col: 1, Value: 33.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 29.3
Row: 1, Col: 4, Value: 24.9
Row: 1, Col: 5, Value: 5.9
Row: 1, Col: 6, Value: 0.9
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 5.8
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 37.4%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
CONVERTIBLE BONDS - 1.4%
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
Total Renal Care Holdings, B1 $ 960,000 $ 777,600
Inc. 7% 5/15/09 (g)
MEDIA & LEISURE - 0.5%
LODGING & GAMING - 0.2%
Signature Resorts, Inc. 5.75% Caa1 960,000 681,600
1/15/07
RESTAURANTS - 0.3%
CKE Restaurants, Inc. 4.25% B1 1,070,000 802,500
3/15/04
TOTAL MEDIA & LEISURE 1,484,100
RETAIL & WHOLESALE - 0.2%
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
Sunglass Hut International, B3 660,000 574,200
Inc. 5.25% 6/15/03
UTILITIES - 0.4%
TELEPHONE SERVICES - 0.4%
Telefonos de Mexico SA de CV BB 480,000 495,600
4.25% 6/15/04
Telekom Malaysia BHD 4% Baa3 990,000 853,875
10/3/04
1,349,475
TOTAL CONVERTIBLE BONDS 4,185,375
NONCONVERTIBLE BONDS - 36.0%
BASIC INDUSTRIES - 3.6%
CHEMICALS & PLASTICS - 1.6%
Berry Plastics Corp. 11% B3 590,000 597,375
7/15/07 (g)
Huntsman Corp. 9.5% 7/1/07 (g) B2 940,000 895,350
Huntsman ICI Chemicals LLC B2 1,200,000 1,210,500
10.125% 7/1/09 (g)
Lyondell Chemical Co.:
9.625% 5/1/07 (g) Ba3 750,000 766,875
9.875% 5/1/07 (g) Ba3 850,000 864,875
10.875% 5/1/09 (g) B2 710,000 733,075
5,068,050
IRON & STEEL - 0.2%
WHX Corp. 10.5% 4/15/05 B3 560,000 532,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 0.3%
Kaiser Aluminum & Chemical B3 $ 780,000 $ 793,650
Corp. 12.75% 2/1/03
PACKAGING & CONTAINERS - 1.0%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 520,000 490,100
9.75% 6/15/07 Caa1 200,000 192,000
Packaging Corp. of America B3 2,400,000 2,442,000
9.625% 4/1/09 (g)
3,124,100
PAPER & FOREST PRODUCTS - 0.5%
Container Corp. of America:
gtd.:
9.75% 4/1/03 B2 210,000 216,300
11.25% 5/1/04 B2 50,000 51,875
10.75% 5/1/02 B2 70,000 73,325
Florida Coast Paper Co. Ca 690,000 310,500
LLC/Florida Coast Paper
Finance Corp. Series B,
12.75% 6/1/03 (c)
Millar Western Forest B3 215,000 209,088
Products Ltd. 9.875% 5/15/08
Stone Container Corp. 12.58% B2 560,000 604,800
8/1/16 (h)
1,465,888
TOTAL BASIC INDUSTRIES 10,983,688
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.3%
Cemex SA 9.25% 6/17/02 Ba2 870,000 878,700
ENGINEERING - 0.1%
Anteon Corp. 12% 5/15/09 (g) B3 360,000 354,600
TOTAL CONSTRUCTION & REAL 1,233,300
ESTATE
DURABLES - 1.1%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Blue Bird Body Co. 10.75% B2 210,000 222,600
11/15/06
CONSUMER DURABLES - 0.2%
Corning Consumer Products Co. B3 650,000 563,875
9.625% 5/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
DURABLES - CONTINUED
HOME FURNISHINGS - 0.9%
Omega Cabinets Ltd. 10.5% B3 $ 720,000 $ 720,000
6/15/07
Sealy Corp., Inc. 10% - 582,342 570,695
12/18/08 pay-in-kind (k)
Sealy Mattress Co.:
0% 12/15/07 (e) B3 1,140,000 741,000
9.875% 12/15/07 B3 170,000 166,600
Simmons Co. 10.25% 3/15/09 (g) B3 540,000 549,450
2,747,745
TOTAL DURABLES 3,534,220
ENERGY - 1.3%
ENERGY SERVICES - 0.4%
Petroliam Nasional BHD
(Petronas):
7.625% 10/15/26 (Reg. S) A2 670,000 546,050
yankee 7.625% 10/15/26 (g) Baa3 250,000 203,750
R&B Falcon Corp. 12.25% Ba3 240,000 248,400
3/15/06 (g)
RBF Finance Co.:
11% 3/15/06 (g) Ba3 180,000 185,400
11.375% 3/15/09 (g) Ba3 180,000 186,300
1,369,900
OIL & GAS - 0.9%
Chesapeake Energy Corp. B3 350,000 327,250
9.625% 5/1/05
Comstock Resources, Inc. B2 660,000 674,850
11.25% 5/1/07 (g)
Cross Timbers Oil Co.:
8.75% 11/1/09 B2 310,000 292,950
9.25% 4/1/07 B2 30,000 29,775
Ocean Energy, Inc.:
8.875% 7/15/07 B1 35,000 34,475
10.375% 10/15/05 B2 20,000 20,950
Petroleos Mexicanos:
9.25% 3/30/18 Ba2 510,000 425,850
9.5% 9/15/27 Ba2 760,000 722,950
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Snyder Oil Corp. 8.75% 6/15/07 Ba3 $ 160,000 $ 158,800
Vintage Petroleum, Inc. 9% B1 60,000 59,550
12/15/05
2,747,400
TOTAL ENERGY 4,117,300
FINANCE - 1.6%
BANKS - 0.5%
Banco Nacional de
Desenvolvimento Economico e
Social:
13.64% 6/16/08 (h) B1 1,160,000 980,200
13.64% 6/16/08 (g)(h) B1 500,000 422,500
1,402,700
CREDIT & OTHER FINANCE - 1.1%
AMRESCO, Inc. 9.875% 3/15/05 Caa3 390,000 298,350
Cellco Finance NV 15% 8/1/05 B2 930,000 957,900
ContiFinancial Corp. 8.125% Caa1 220,000 167,200
4/1/08
Digital Television Services B3 360,000 390,600
LLC/ DTS Capital, Inc. 12.5%
8/1/07
FSA Global Funding Ltd. euro - EUR 1,000,000 1,028,450
5.125% 7/22/09
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 80,000 67,200
7.6% 8/1/07 Ba1 10,000 8,225
7.875% 8/1/03 Ba1 235,000 200,338
Stone Container Finance Co. B2 120,000 129,000
11.5% 8/15/06 (g)
WinStar Equipment II Corp. CCC+ 145,000 150,800
12.5% 3/15/04
3,398,063
TOTAL FINANCE 4,800,763
HEALTH - 1.4%
DRUGS & PHARMACEUTICALS - 0.2%
Global Health Sciences, Inc. Caa1 580,000 436,450
11% 5/1/08
MEDICAL FACILITIES MANAGEMENT
- - 1.2%
Everest Healthcare Services, B3 740,000 713,175
Inc. 9.75% 5/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT
- - CONTINUED
Express Scripts, Inc. 9.625% Ba2 $ 270,000 $ 274,050
6/15/09 (g)
Fountain View, Inc. 11.25% Caa1 200,000 162,000
4/15/08
Hanger Orthopedic Group, Inc. B3 490,000 497,350
11.25% 6/15/09 (g)
Harborside Healthcare Corp. B3 680,000 265,200
0% 8/1/08 (e)
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 288,000 201,600
9.5% 9/15/07 B2 50,000 36,250
Mariner Post-Acute Network, B3 1,136,000 181,760
Inc. 9.5% 11/1/07
Oxford Health Plans, Inc. 11% Caa1 900,000 909,000
5/15/05 (g)
Tenet Healthcare Corp. 8.125% Ba3 580,000 548,100
12/1/08
3,788,485
TOTAL HEALTH 4,224,935
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.9%
ELECTRICAL EQUIPMENT - 0.1%
Juno Lighting, Inc. 11.875% B3 315,000 318,938
7/1/09 (g)
Motors & Gears, Inc. 10.75% B3 70,000 70,350
11/15/06
389,288
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Applied Power, Inc. 8.75% B1 590,000 572,300
4/1/09
Dunlop Standard Aero Holdings B3 480,000 487,200
PLC 11.875% 5/15/09 (g)
Thermadyne Manufacturing LLC B3 550,000 485,375
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 640,000 611,200
(g)
2,156,075
POLLUTION CONTROL - 0.1%
Safety-Kleen Corp. 9.25% B3 310,000 312,325
5/15/09 (g)
TOTAL INDUSTRIAL MACHINERY & 2,857,688
EQUIPMENT
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - 12.8%
BROADCASTING - 10.1%
ACME Television LLC/ACME B3 $ 1,020,000 $ 836,400
Financial Corp. 0% 9/30/04
(e)
Adelphia Communications Corp.:
8.375% 2/1/08 B1 370,000 356,125
9.25% 10/1/02 B1 280,000 283,500
9.875% 3/1/07 B1 800,000 835,000
Ascent Entertainment Group, B3 380,000 273,600
Inc. 0% 12/15/04 (e)
Avalon Cable Michigan, B3 120,000 122,100
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08 (g)
Benedek Communications Corp. B3 1,260,000 1,045,800
0% 5/15/06 (e)
Bresnan Communications Group
LLC/Bresnan Capital Corp.:
0% 2/1/09 (e)(g) B2 230,000 150,075
8% 2/1/09 (g) B2 80,000 79,400
CapStar Broadcasting
Partners, Inc.:
0% 2/1/09 (e) B3 315,000 264,600
9.25% 7/1/07 B2 1,010,000 1,031,463
Century Communications Corp.:
8.375% 12/15/07 Ba3 20,000 19,250
8.75% 10/1/07 Ba3 90,000 89,100
9.5% 3/1/05 Ba3 60,000 61,800
, Series B, 0% 1/15/08 Ba3 630,000 277,200
Chancellor Media Corp.:
8% 11/1/08 Ba2 970,000 950,600
8.125% 12/15/07 B1 250,000 241,875
9% 10/1/08 B1 3,220,000 3,260,250
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (e)(g) B2 2,600,000 1,599,000
8.625% 4/1/09 (g) B2 1,145,000 1,094,906
Citadel Broadcasting Co.:
9.25% 11/15/08 B3 820,000 846,650
10.25% 7/1/07 B3 420,000 452,550
Classic Cable, Inc. 9.875% B3 140,000 144,900
8/1/08 (g)
Comcast UK Cable Partners B2 220,000 195,800
Ltd. 0% 11/15/07 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable Communications B3 $ 696,000 $ 610,740
PLC yankee 0% 12/15/05 (e)
EchoStar DBS Corp. 9.375% B2 2,380,000 2,409,750
2/1/09 (g)
Emmis Broadcasting B2 240,000 228,000
Communications Corp. 8.125%
3/15/09 (g)
Falcon Holding Group
LP/Falcon Funding Corp.:
0% 4/15/10 (e) B2 2,575,000 1,799,281
8.375% 4/15/10 B2 380,000 378,100
FrontierVision Holdings Caa1 901,000 779,365
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (e)
FrontierVision Holdings Caa1 500,000 432,500
LP/FrontierVision Holdings
Capital II Corp. 0% 9/15/07
(e)
Golden Sky DBS, Inc. 0% Caa1 1,180,000 684,400
3/1/07 (e)(g)
Intermedia Capital Partners B2 520,000 574,600
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06
Lenfest Communications, Inc.:
8.25% 2/15/08 B1 90,000 91,575
8.375% 11/1/05 Ba2 90,000 94,950
LIN Holdings Corp. 0% 3/1/08 B3 1,240,000 827,700
(e)
NTL Communications Corp.:
0% 10/1/08 (e) B3 3,230,000 2,212,550
11.5% 10/1/08 B3 1,080,000 1,182,600
NTL, Inc. 0% 4/1/08 (e) B3 890,000 596,300
Olympus Communications B1 90,000 98,550
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 20,000 19,600
9.625% 10/15/05
Satelites Mexicanos SA de CV B3 580,000 458,200
10.125% 11/1/04
Susquehanna Media Co. 8.5% B1 90,000 89,100
5/15/09 (g)
TeleWest Communications PLC:
0% 4/15/09 (e)(g) B1 210,000 140,700
11.25% 11/1/08 B1 170,000 192,100
Telewest PLC 0% 10/1/07 (e) B1 1,240,000 1,109,800
United International B3 2,560,000 1,702,400
Holdings, Inc. 0% 2/15/08 (e)
31,224,805
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.8%
AMC Entertainment, Inc. 9.5% B3 $ 130,000 $ 122,200
3/15/09
Livent, Inc. 9.375% 10/15/04 B1 300,000 108,000
(c)
Mohegan Tribal Gaming Ba3 210,000 208,950
Authority 8.75% 1/1/09
Premier Parks, Inc.:
0% 4/1/08 (e) B3 1,170,000 775,125
9.25% 4/1/06 B3 1,080,000 1,069,200
2,283,475
LODGING & GAMING - 1.4%
Circus Circus Enterprises,
Inc.:
7.625% 7/15/13 Ba2 190,000 167,200
9.25% 12/1/05 Ba2 160,000 162,400
Florida Panthers Holdings, B2 930,000 876,525
Inc. 9.875% 4/15/09
Horseshoe Gaming LLC:
8.625% 5/15/09 (g) B2 340,000 328,950
9.375% 6/15/07 B2 890,000 907,800
ITT Corp. 6.75% 11/15/05 Ba1 50,000 44,250
KSL Recreation Group, Inc. B3 320,000 324,800
10.25% 5/1/07
Signature Resorts, Inc. 9.75% B3 780,000 702,000
10/1/07
Station Casinos, Inc. 8.875% B2 850,000 828,750
12/1/08
Sun International Hotels Ba3 30,000 30,075
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
4,372,750
RESTAURANTS - 0.5%
Domino's, Inc. 10.375% 1/15/09 B3 1,040,000 1,050,400
NE Restaurant, Inc. 10.75% B3 510,000 466,650
7/15/08
1,517,050
TOTAL MEDIA & LEISURE 39,398,080
NONDURABLES - 0.7%
FOODS - 0.5%
Aurora Foods, Inc. 8.75% B1 130,000 127,725
7/1/08
Del Monte Corp. 12.25% 4/15/07 B3 252,000 283,500
Del Monte Foods Co. 0% Caa2 1,564,000 1,153,450
12/15/07 (e)
1,564,675
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - CONTINUED
HOUSEHOLD PRODUCTS - 0.2%
Revlon Consumer Products B3 $ 680,000 $ 635,800
Corp. 8.625% 2/1/08
TOTAL NONDURABLES 2,200,475
RETAIL & WHOLESALE - 1.2%
GENERAL MERCHANDISE STORES -
0.0%
K mart Corp. 7.95% 2/1/23 Ba1 200,000 189,000
GROCERY STORES - 1.0%
Jitney-Jungle Stores of
America, Inc.:
10.375% 9/15/07 Caa1 460,000 165,600
12% 3/1/06 B3 601,000 489,815
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 230,000 213,900
9.5% 8/1/03 B3 940,000 874,200
Smiths Food & Drug Centers, BBB- 1,000,000 1,045,000
Inc. 1994 Pass Through Trust
9.2% 7/2/18
Star Market Co., Inc. 13% B3 230,000 250,125
11/1/04
3,038,640
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
TM Group Holdings PLC 11% B3 500,000 506,250
5/15/08
TOTAL RETAIL & WHOLESALE 3,733,890
SERVICES - 0.5%
PRINTING - 0.4%
Sullivan Graphics, Inc. Caa1 720,000 748,800
12.75% 8/1/05
Von Hoffman Corp. 13.5% - 649,492 623,512
5/15/09 pay-in-kind (g)
1,372,312
SERVICES - 0.1%
Medaphis Corp. 9.5% 2/15/05 Caa1 190,000 140,600
Spin Cycle, Inc. 0% 5/1/05 (e) - 490,000 142,100
282,700
TOTAL SERVICES 1,655,012
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - 1.4%
COMPUTER SERVICES & SOFTWARE
- - 0.9%
Amazon.com, Inc. 0% 5/1/08 (e) Caa1 $ 950,000 $ 650,750
Concentric Network Corp. - 690,000 721,050
12.75% 12/15/07
DecisionOne Corp. 9.75% B3 830,000 41,500
8/1/07 (c)
DecisionOne Holdings Corp. 0% Caa1 200,000 1,000
8/1/08 unit (c)(e)
Federal Data Corp. 10.125% B3 1,650,000 1,563,375
8/1/05
2,977,675
ELECTRONIC INSTRUMENTS - 0.3%
Telecommunications Techniques B3 945,000 916,650
Co. LLC 9.75% 5/15/08
ELECTRONICS - 0.2%
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 420,000 408,450
10.375% 10/1/07 (g) B3 160,000 157,600
566,050
TOTAL TECHNOLOGY 4,460,375
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
Atlas Air, Inc. 9.375% B3 270,000 260,213
11/15/06
Kitty Hawk, Inc. 9.95% B1 670,000 664,975
11/15/04
925,188
UTILITIES - 8.8%
CELLULAR - 3.3%
McCaw International Ltd. 0% Caa1 930,000 562,650
4/15/07 (e)
Millicom International Caa1 6,050,000 4,416,500
Cellular SA 0% 6/1/06 (e)
Nextel Communications, Inc.:
0% 9/15/07 (e) B2 703,000 509,675
0% 10/31/07 (e) B2 850,000 597,125
0% 2/15/08 (e) B2 2,060,000 1,421,400
9.75% 8/15/04 B2 330,000 336,600
12% 11/1/08 B2 460,000 517,500
Orbital Imaging Corp. 11.625% - 1,010,000 929,200
3/1/05
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Rogers Communications, Inc. B2 $ 625,000 $ 631,250
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 290,000 163,850
4/15/09 (e)(g)
10,085,750
TELEPHONE SERVICES - 5.5%
Compania Internacional de BB ARS 950,000 736,349
Telecomunicaciones 10.375%
8/1/04 (Reg. S)
Energis PLC 9.75% 6/15/09 (g) B1 590,000 597,375
Esprit Telecom Group PLC Caa1 1,500,000 1,582,500
10.875% 6/15/08
Global TeleSystems Group, Caa2 650,000 630,500
Inc. 9.875% 2/15/05
GST Network Funding, Inc. 0% - 1,000,000 570,000
5/1/08 (e)(g)
GST Equipment Funding, Inc. - 90,000 96,075
13.25% 5/1/07
Hermes Europe Railtel BV B3 540,000 565,650
11.5% 8/15/07
ICG Services, Inc.:
0% 2/15/08 (e) - 2,435,000 1,357,513
0% 5/1/08 (e) - 45,000 24,300
Mannesmann Finance BV euro A2 EUR 1,000,000 994,331
4.75% 5/27/09
McLeodUSA, Inc.:
8.375% 3/15/08 B2 130,000 122,850
9.25% 7/15/07 B2 310,000 307,675
9.5% 11/1/08 B2 450,000 451,125
MetroNet Communications Corp.:
0% 11/1/07 (e) B3 380,000 297,350
0% 6/15/08 (e) B3 1,300,000 962,000
10.625% 11/1/08 (g) B3 460,000 518,650
NEXTLINK Communications, Inc. B3 1,050,000 618,188
0% 6/1/09 (e)
Ono Finance PLC 13% 5/1/09 - 600,000 618,000
unit (g)
Pathnet, Inc. 12.25% 4/15/08 - 375,000 206,250
Qwest Communications Ba1 850,000 660,875
International, Inc. 0%
10/15/07 (e)
Rhythms NetConnections, Inc. B3 290,000 271,150
12.75% 4/15/09 (g)
Teligent, Inc.:
0% 3/1/08 (e) Caa1 70,000 41,300
11.5% 12/1/07 Caa1 845,000 832,325
Viatel, Inc.:
0% 4/15/08 (e) Caa1 345,000 219,938
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Viatel, Inc.: - continued
11.25% 4/15/08 Caa1 $ 960,000 $ 981,600
WinStar Communications, Inc.:
0% 10/15/05 (e) Caa1 80,000 70,000
0% 10/15/05 (e) Caa1 60,000 82,800
0% 3/15/08 (e) CCC 1,685,000 1,474,375
10% 3/15/08 CCC 600,000 528,000
WinStar Equipment Corp. 12.5% B3 490,000 509,600
3/15/04
16,928,644
TOTAL UTILITIES 27,014,394
TOTAL NONCONVERTIBLE BONDS 111,139,308
TOTAL CORPORATE BONDS 115,324,683
(Cost $118,998,462)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 23.1%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 10.6%
Fannie Mae:
5.125% 2/13/04 Aaa 5,535,000 5,306,681
6.5% 7/16/07 Aaa 6,930,000 6,911,566
Federal Farm Credit Bank Aaa 1,000,000 1,009,220
6.66% 12/26/06
Federal Home Loan Bank:
4.96% 10/7/05 Aaa 7,500,000 6,964,425
6.75% 4/5/04 Aaa 870,000 887,400
7.7% 9/20/04 Aaa 800,000 848,496
Government Loan Trusts Aaa 185,503 200,026
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) Series 1 B,
8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Series 1 C, 9.25% 11/15/01 Aaa 3,188,455 3,326,707
Series 2 E, 9.4% 5/15/02 Aaa 113,155 117,731
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency): - continued
Series T 3, 9.625% 5/15/02 Aaa $ 44,623 $ 46,492
Guaranteed Export Trust Aaa 1,200,000 1,206,764
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 825,000 826,073
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 5.82% 6/15/03 (g) Aaa 4,600,000 4,539,464
secured 6.86% 4/30/04 Aaa 570,000 580,429
TOTAL U.S. GOVERNMENT AGENCY 32,771,474
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
12.5%
U.S. Treasury Bonds:
8.75% 5/15/17 Aaa 11,440,000 14,441,162
8.875% 8/15/17 Aaa 6,315,000 8,067,413
10.75% 8/15/05 Aaa 5,900,000 7,334,408
U.S. Treasury Notes:
5.875% 8/31/99 Aaa 8,600,000 8,615,893
7% 7/15/06 Aaa 180,000 190,660
TOTAL U.S. TREASURY 38,649,536
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 71,421,010
GOVERNMENT AGENCY OBLIGATIONS
(Cost $73,902,349)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 4.3%
FANNIE MAE - 2.0%
5.5% 5/1/11 to 6/1/14 Aaa 724,464 687,827
6% 11/1/10 to 1/1/26 Aaa 1,555,348 1,500,657
6.5% 5/1/08 to 2/1/26 Aaa 1,797,156 1,741,584
7% 9/1/25 to 12/1/28 Aaa 724,979 716,595
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
FANNIE MAE - CONTINUED
7.5% 1/1/28 to 5/1/28 Aaa $ 745,440 $ 752,895
8% 7/1/26 to 12/1/27 Aaa 616,193 633,326
TOTAL FANNIE MAE 6,032,884
FREDDIE MAC - 0.1%
6% 12/1/07 Aaa 53,562 52,273
8.5% 3/1/20 Aaa 211,490 222,079
TOTAL FREDDIE MAC 274,352
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 2.2%
6% 1/15/09 to 5/15/09 Aaa 877,268 856,406
6.5% 4/15/26 to 5/15/26 Aaa 849,581 819,047
7% 9/15/25 to 10/15/28 Aaa 1,496,716 1,476,665
7.5% 2/15/22 to 8/15/28 Aaa 2,655,830 2,683,918
8% 9/15/26 to 12/15/26 Aaa 525,487 540,427
11% 2/15/16 to 10/15/18 Aaa 416,750 459,283
11.5% 3/15/10 Aaa 56,985 62,525
TOTAL GOVERNMENT NATIONAL 6,898,271
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 13,205,507
- - MORTGAGE SECURITIES
(Cost $13,254,307)
ASSET-BACKED SECURITIES - 0.1%
Airplanes Pass Through Trust Ba2 260,000 245,700
10.875% 3/15/19 (Cost
$279,500)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - 21.7%
Argentinian Republic:
Bote 2.2184% 4/1/00 (h) Ba3 2,145 269
Brady par euro 6% 3/31/23 Ba3 3,940,000 2,521,600
9.75% 9/19/27 Ba3 3,020,000 2,321,625
Banco Central Costa Rica Ba1 300,000 262,500
Series A, 6.25% 5/21/10
Bank for Foreign Economic Ca 2,370,000 379,200
Affairs of Russia
(Vnesheconombank) interest
notes 6.0625% 12/15/15 (h)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Brazilian Federative Republic:
Brady:
capitalization bond 8% 4/15/14 B2 $ 3,986,258 $ 2,596,051
debt conversion bond euro B2 2,970,000 1,841,400
5.9375% 4/15/12 (h)
discount euro 5.875% 4/15/24 B2 2,020,000 1,287,750
(h)
new money bond L 5.9375% B2 3,690,000 2,587,613
4/15/09 (Bearer) (h)
global bond 10.125% 5/15/27 B2 1,750,000 1,319,063
Bulgarian Republic Brady:
discount A 5.875% 7/28/24 (h) B2 1,530,000 1,046,138
FLIRB A 2.5% 7/28/12 (h) B2 280,000 172,200
Canadian Government:
7% 12/1/06 Aa1 CAD 2,000,000 1,490,394
9% 6/1/25 Aa1 CAD 2,100,000 2,076,885
10% 5/1/02 Aa1 CAD 5,000,000 3,795,037
Central Bank of Nigeria:
6.25% 11/15/20 - 750,000 461,250
warrants 11/15/20 (a)(j) - 750 0
City of Buenos Aires euro B1 ARS 1,660,000 1,336,480
10.5% 5/28/04
Costa Rican Republic 9.335% Ba1 410,000 401,800
5/15/09 (g)
German Federal Republic:
5.625% 1/4/28 Aaa EUR 1,650,000 1,756,000
8.25% 9/20/01 Aaa EUR 3,050,000 3,478,467
Ivory Coast Brady past due - 585,000 204,750
interest 2% 3/29/18 (h)
Japan Government Series 206 Aa1 JPY 180,000,000 1,450,201
1.5% 9/22/08
Malaysian Government yankee Baa3 1,370,000 1,384,673
8.75% 6/1/09
Moscow City 9.5% 5/31/00 Caa1 1,220,000 753,350
(Reg.)
Peruvian Republic Brady:
FLIRB 3.75% 3/7/17 (h) Ba3 380,000 209,000
past due interest 4.5% 3/7/17 Ba3 510,000 314,925
(h)
Polish Republic Brady par 3% Baa3 380,000 227,050
10/27/24 (f)
Russian Federation:
euro 12.75% 6/24/28 (Reg. S) B3 2,170,000 1,220,625
9.25% 11/27/01 B3 260,000 176,150
11% 7/24/18 (Reg. S) B3 2,370,000 1,185,000
Russian Federation Ministry Ca 420,000 98,700
of Finance 3% 5/14/03
Treuhandanstalt 6.625% 7/9/03 Aaa EUR 10,650,000 12,136,209
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Turkish Republic:
global 12.375% 6/15/09 B1 $ 370,000 $ 364,913
Treasury Bill 0% 1/19/00 (l) - TRL 122,803,000 190,355
United Kingdom, Great Britain
& Northern Ireland:
8.75% 8/25/17 Aaa GBP 1,400,000 3,228,197
9.75% 8/27/02 Aaa GBP 2,000,000 3,535,676
United Mexican States:
Brady par A 6.25% 12/31/19 Ba2 1,490,000 1,106,325
unit
global bond 11.5% 5/15/26 Ba2 1,990,000 2,218,850
value recovery rights 6/30/03 - 1,000 0
discount A (a)(j)
10.375% 2/17/09 Ba2 430,000 439,138
warrants 2/17/00 (a)(j) - 11,100 704,850
Venezuelan Republic:
Brady:
debt conversion bond euro B2 2,226,182 1,722,508
6.3125% 12/18/07 (h)
FLIRB A 6% 3/31/07 (h) B2 761,900 582,854
par W-B euro 6.75% 3/31/20 B2 960,000 669,600
global bond:
13.625% 8/15/18 B2 835,000 768,200
Oil recovery rights 3/31/20 - 4,810 0
(j)
9.25% 9/15/27 B2 1,430,000 950,950
TOTAL FOREIGN GOVERNMENT AND 66,974,771
GOVERNMENT AGENCY OBLIGATIONS
(Cost $65,287,304)
SUPRANATIONAL OBLIGATIONS -
2.3%
European Investment Bank 4% Aaa EUR 2,500,000 2,427,078
4/15/09
International Bank for Aaa JPY 480,000,000 4,682,044
Reconstruction & Development
4.75% 12/20/04
TOTAL SUPRANATIONAL OBLIGATIONS 7,109,122
(Cost $7,682,135)
</TABLE>
COMMON STOCKS - 0.2%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive 260 $ 0
LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. 10 0
(a)(g)
NTL, Inc. warrants 12/31/08 1,586 79,300
(a)
UIH Australia/Pacific, Inc. 570 1,140
warrants 5/15/06 (a)
80,440
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc. Series I 270 0
warrants 11/14/99 (a)(g)
TOTAL MEDIA & LEISURE 80,440
SERVICES - 0.0%
Spin Cycle, Inc. warrants 490 5
5/1/05 (a)(g)
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 200 61,000
warrants 12/15/07 (a)(g)
UTILITIES - 0.2%
CELLULAR - 0.1%
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 230 1,208
.47) (a)
warrants 1/15/07 (CV ratio 480 3,480
.6) (a)
McCaw International Ltd. 1,753 4,383
warrants 4/15/07 (a)(g)
Microcell Telecommunications, 5,404 42,487
Inc. Class B (a)
Orbital Imaging Corp. 1,010 30,300
warrants 3/1/05 (a)(g)
PageMart Nationwide, Inc. 2,100 15,750
(non-vtg.) (a)
Powertel, Inc. warrants 3,328 12,480
2/1/06 (a)
110,088
TELEPHONE SERVICES - 0.1%
FirstCom Corp. warrants 8,050 33,206
10/27/07 (a)(g)
InterAmericas Communications 1,750 7,219
Corp. warrants 10/27/07 (a)
KMC Telecom Holdings, Inc. 890 2,225
warrants 4/15/08 (a)(g)
MGC Communications, Inc. 916 23,816
(a)(g)
Pathnet, Inc. warrants 375 3,750
4/15/08 (a)(g)
Rhythms NetConnections, Inc. 1,280 215,219
warrants 5/15/08 (a)(g)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Source Media, Inc. warrants 1,676 $ 14,246
11/1/07 (a)(g)
Versatel Telecom BV warrants 340 17,000
5/15/08 (a)(g)
316,681
TOTAL UTILITIES 426,769
TOTAL COMMON STOCKS 568,214
(Cost $152,611)
NONCONVERTIBLE PREFERRED
STOCKS - 5.3%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 15,847 412,022
Capital Corp. $2.2812
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 240 238,253
Capital Trust II 8.875%
MEDIA & LEISURE - 2.4%
BROADCASTING - 2.0%
Adelphia Communications Corp. 5,345 610,666
$13.00
Benedek Communications Corp. 996 756,960
11.5% pay-in-kind
Citadel Broadcasting Co. 5,149 597,284
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 17,034 1,865,223
Series H, 11.75% pay-in-kind 4,616 504,298
Granite Broadcasting Corp. 736 721,280
12.75% pay-in-kind
NTL, Inc. 13% pay-in-kind 796 875,600
Sinclair Capital 11.625% 2,233 232,790
6,164,101
PUBLISHING - 0.4%
PRIMEDIA, Inc.:
$9.20 1,600 149,200
8.625% 7,377 671,307
Series D, $10.00 5,733 563,267
1,383,774
TOTAL MEDIA & LEISURE 7,547,875
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - 0.2%
GROCERY STORES - 0.2%
Supermarkets General Holdings 12,725 $ 483,550
Corp. $3.52 pay-in-kind
TECHNOLOGY - 0.5%
COMPUTER SERVICES & SOFTWARE
- - 0.5%
Concentric Network Corp. 1,504 1,428,800
13.5% pay-in-kind
UTILITIES - 2.0%
CELLULAR - 0.5%
Nextel Communications, Inc.:
11.125% pay-in-kind 742 745,710
Series D, 13% pay-in-kind 974 1,027,570
1,773,280
TELEPHONE SERVICES - 1.5%
e.spire Communications, Inc.:
$127.50 pay-in-kind 20 7,100
14.75% pay-in-kind 1 430
Hyperion Telecommunication, 13 11,570
Inc. 12.875% pay-in-kind
ICG Holdings, Inc. 14.25% 801 796,995
pay-in-kind
Intermedia Communications, 1,124 1,104,330
Inc. 13.5% pay-in-kind
NEXTLINK Communications, Inc. 28,656 1,447,128
14% pay-in-kind
Source Media, Inc. 13.50% 3,663 65,934
pay-in-kind
WinStar Communications, Inc. 1,399 1,126,195
14.25%
4,559,682
TOTAL UTILITIES 6,332,962
TOTAL NONCONVERTIBLE 16,443,462
PREFERRED STOCKS
(Cost $17,194,338)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 0.0%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
Bank for Foreign Economic Ca $ 490,000 60,638
Affairs of Russia
(Vnesheconombank) loan under
1997 restructuring Agreement
6.0625% 12/15/20 (c)(h)
(Cost $213,864)
SOVEREIGN LOAN PARTICIPATIONS
- - 0.8%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Algerian Republic loan - $ 210,000 $ 198,450
participation - The Chase
Manhattan Bank 7.3125%
3/4/00 (h)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement:
- - BankBoston Corp. 6.0625% - 4,070,000 503,663
12/15/20 (c)(h)
- - Deutsche Bank 6.0625% - 2,920,000 361,350
12/15/20 (c)(h)
- - ING Bank NV 6.0625% - 250,000 30,938
12/15/20 (c)(h)
- - Merrill Lynch, Pierce, - 630,000 77,963
Fenner & Smith, Inc. 6.0625%
12/15/20 (c)(h)
- - Morgan (J.P.) Securities, - 2,920,000 361,350
Inc. 6.0625% 12/15/20 (c)(h)
- - Paribus Capital Markets - 400,000 49,500
6.0625% 12/15/20 (c)(h)
- - The Chase Manhattan Bank - 1,710,000 211,613
6.0625% 12/15/20 (c)(h)
Moroccan Kingdom:
loan participation:
Series A - Morgan Guaranty - 404,762 328,869
Trust Co. 5.9063% 1/1/09 (h)
Series A - The Chase - 60,476 49,137
Manhattan Bank 5.9063%
1/1/09 (h)
loan participation Series A - - 208,095 169,077
ING Bank NV 5.9063% 1/1/09
(h)
loan participation Series A - - 280,000 227,500
Paribas Capital Markets
5.9063% 1/1/09 (h)
TOTAL SOVEREIGN LOAN 2,569,410
PARTICIPATIONS
(Cost $2,896,538)
</TABLE>
COMMERCIAL PAPER - 0.3%
Ford Credit Europe PLC 0% EUR 1,000,000 1,033,053
7/22/99 (Cost $1,041,301)
CASH EQUIVALENTS - 4.5%
MATURITY AMOUNT VALUE (NOTE 1)
Investments in repurchase $ 13,799,855 $ 13,798,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.84%,
dated 6/30/99 due 7/1/99
(Cost $13,798,000)
TOTAL INVESTMENT IN $ 308,753,570
SECURITIES - 100%
(Cost $314,700,709)
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest
Reduction Bonds
CURRENCY ABBREVIATIONS
ARS - Argentine peso
CAD - Canadian dollar
EUR - European Monetary Unit
GBP - British pound
JPY - Japanese yen
TRL - Turkish lira
LEGEND
(a) Non-income producing
(b) Standard & Poor's(registered trademark) credit ratings are used in
the absence of a rating by Moody's Investors Service, Inc.
(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(d) Principal amount is stated in United States dollars unless
otherwise noted.
(e) 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.
(f) 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.
(g) 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 $30,589,795 or 9.9% of net assets.
(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(i) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
(j) Quantity represents share amount.
(k) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additonal information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Sealy Corp., Inc. 10% 2/23/98 - 3/31/99 $ 540,417
12/18/08 pay-in-kind
(l) Principal amount in thousands
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 40.9% AAA, AA, A 34.2%
Baa 0.9% BBB 1.2%
Ba 6.0% BB 7.0%
B 30.7% B 32.1%
Caa 5.9% CCC 3.4%
Ca, C 0.3% CC, C 0.9%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 3.3%. FMR has
determined that unrated debt securities that are lower quality account
for 3.3% 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 67.5%
Germany 5.6
United Kingdom 4.3
Brazil 3.4
Canada 3.4
Mexico 2.3
Multi-National 2.3
Argentina 2.2
Russia 1.7
Venezuela 1.5
Luxembourg 1.4
Malaysia 1.1
Others (individually less 3.3
than 1%)
100.0%
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $315,960,254. Net unrealized depreciation
aggregated $7,206,684, of which $7,039,976 related to appreciated
investment securities and $14,246,660 related to depreciated
investment securities.
The fund has elected to defer to its fiscal year ending December 31,
1999 approximately $5,876,000 of losses recognized during the period
November 1, 1998 to December 31, 1998.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 308,753,570
value (including repurchase
agreements of $13,798,000)
(cost $314,700,709) - See
accompanying schedule
Cash 1,430,910
Foreign currency held at 1,032,741
value (cost $1,032,741)
Receivable for investments 3,696,365
sold
Receivable for fund shares 1,406,688
sold
Dividends receivable 15,906
Interest receivable 5,244,228
Other receivables 5,447
TOTAL ASSETS 321,585,855
LIABILITIES
Payable for investments $ 10,878,155
purchased
Payable for fund shares 1,560,853
redeemed
Distributions payable 330,848
Accrued management fee 146,632
Distribution fees payable 114,191
Other payables and accrued 102,828
expenses
TOTAL LIABILITIES 13,133,507
NET ASSETS $ 308,452,348
Net Assets consist of:
Paid in capital $ 324,404,068
Undistributed net investment 1,866,221
income
Accumulated undistributed net (11,811,266)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (6,006,675)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 308,452,348
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
JUNE 30, 1999 (UNAUDITED)
CALCULATION OF MAXIMUM $10.48
OFFERING PRICE CLASS A: NET
ASSET VALUE and redemption
price per share
($11,595,227 (divided by)
1,106,398 shares)
Maximum offering price per $11.00
share (100/95.25 of $10.48)
CLASS T: NET ASSET VALUE and $10.47
redemption price per share
($193,689,440 (divided by)
18,490,788 shares)
Maximum offering price per $10.85
share (100/96.50 of $10.47)
CLASS B: NET ASSET VALUE and $10.49
offering price per share
($83,734,906 (divided by)
7,980,434 shares) A
CLASS C: NET ASSET VALUE and $10.47
offering price per share
($14,708,431 (divided by)
1,404,761 shares) A
INSTITUTIONAL CLASS: NET $10.53
ASSET VALUE, offering price
and redemption price per
share ($4,724,344 (divided
by) 448,466 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 760,297
Dividends
Interest 11,841,181
TOTAL INCOME 12,601,478
EXPENSES
Management fee $ 868,643
Transfer agent fees 275,879
Distribution fees 664,214
Accounting fees and expenses 84,167
Non-interested trustees' 311
compensation
Custodian fees and expenses 27,146
Registration fees 53,124
Audit 12,621
Legal 627
Total expenses before 1,986,732
reductions
Expense reductions (1,523) 1,985,209
NET INVESTMENT INCOME 10,616,269
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (3,665,619)
Foreign currency transactions (39,854) (3,705,473)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 454,117
Assets and liabilities in (55,346) 398,771
foreign currencies
NET GAIN (LOSS) (3,306,702)
NET INCREASE (DECREASE) IN $ 7,309,567
NET ASSETS RESULTING FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 10,616,269 $ 17,634,579
income
Net realized gain (loss) (3,705,473) (7,290,913)
Change in net unrealized 398,771 (8,237,745)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 7,309,567 2,105,921
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (9,544,286) (16,346,500)
From net investment income
In excess of net realized - (1,629,425)
gain
TOTAL DISTRIBUTIONS (9,544,286) (17,975,925)
Share transactions - net 22,677,666 119,784,884
increase (decrease)
TOTAL INCREASE (DECREASE) 20,442,947 103,914,880
IN NET ASSETS
NET ASSETS
Beginning of period 288,009,401 184,094,521
End of period (including $ 308,452,348 $ 288,009,401
undistributed net investment
income of $1,866,221 and
$794,238, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.560 $ 11.090 $ 11.250 $ 11.010
period
Income from Investment
Operations
Net investment income D .387 .771 .802 .267
Net realized and unrealized (.116) (.512) .198 .493
gain (loss)
Total from investment .271 .259 1.000 .760
operations
Less Distributions
From net investment income (.351) (.729) (.790) (.280)
From net realized gain - - (.370) (.240)
In excess of net realized gain - (.060) - -
Total distributions (.351) (.789) (1.160) (.520)
Net asset value, end of period $ 10.480 $ 10.560 $ 11.090 $ 11.250
TOTAL RETURN B, C 2.59% 2.38% 9.24% 6.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 11,595 $ 9,596 $ 3,379 $ 587
(000 omitted)
Ratio of expenses to average 1.08% A 1.23% 1.25% F 1.25% A, F
net assets
Ratio of expenses to average 1.08% A 1.22% G 1.24% G 1.25% A
net assets after expense
reductions
Ratio of net investment 7.41% A 7.22% 7.16% 7.32% A
income to average net assets
Portfolio turnover rate 161% A 150% 140% 119%
</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 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.
FINANCIAL HIGHLIGHTS - CLASS T
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.550 $ 11.090 $ 11.250 $ 11.000 $ 9.920
period
Income from Invest- ment
Operations
Net investment income .385 D .781 D .814 D .813 D .885
Net realized and unrealized (.118) (.535) .194 .542 1.231
gain (loss)
Total from investment .267 .246 1.008 1.355 2.116
operations
Less Distributions
From net investment income (.347) (.726) (.798) (.805) (.806)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.347) (.786) (1.168) (1.105) (1.036)
Net asset value, end of $ 10.470 $ 10.550 $ 11.090 $ 11.250 $ 11.000
period
TOTAL RETURN B, C 2.55% 2.26% 9.33% 12.89% 22.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 193,689 $ 189,755 $ 119,204 $ 99,327 $ 52,626
(000 omitted)
Ratio of expenses to average 1.14% A 1.18% 1.20% 1.23% 1.35% F
net assets
Ratio of expenses to average 1.14% A 1.17% G 1.19% G 1.22% G 1.35%
net assets after expense
reductions
Ratio of net investment 7.35% A 7.25% 7.21% 7.34% 7.28%
income to average net assets
Portfolio turnover rate 161% A 150% 140% 119% 193%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1994 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.000
period
Income from Invest- ment
Operations
Net investment income .064 D
Net realized and unrealized (.046)
gain (loss)
Total from investment .018
operations
Less Distributions
From net investment income (.098)
From net realized gain -
In excess of net realized gain -
Total distributions (.098)
Net asset value, end of $ 9.920
period
TOTAL RETURN B, C .17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 10,687
(000 omitted)
Ratio of expenses to average 1.35% A, F
net assets
Ratio of expenses to average 1.35% A
net assets after expense
reductions
Ratio of net investment 5.80% A
income to average net assets
Portfolio turnover rate 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 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.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, be- ginning $ 10.570 $ 11.100 $ 11.260 $ 11.010 $ 9.910
of period
Income from Invest- ment
Operations
Net investment income .351 D .713 D .740 D .743 D .820
Net realized and unrealized (.118) (.529) .194 .538 1.237
gain (loss)
Total from investment .233 .184 .934 1.281 2.057
operations
Less Distributions
From net investment income (.313) (.654) (.724) (.731) (.727)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.313) (.714) (1.094) (1.031) (.957)
Net asset value, end of $ 10.490 $ 10.570 $ 11.100 $ 11.260 $ 11.010
period
TOTAL RETURN B, C 2.22% 1.69% 8.60% 12.14% 21.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 83,735 $ 72,773 $ 54,562 $ 37,403 $ 26,654
(000 omitted)
Ratio of expenses to average 1.79% A 1.83% 1.86% 1.88% 2.10% F
net assets
Ratio of expenses to average 1.79% A 1.83% 1.85% G 1.87% G 2.10%
net assets after expense
reductions
Ratio of net invest- ment 6.70% A 6.56% 6.55% 6.69% 6.53%
income to average net assets
Portfolio turnover rate 161% A 150% 140% 119% 193%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1994 E
SELECTED PER-SHARE DATA
Net asset value, be- ginning $ 10.000
of period
Income from Invest- ment
Operations
Net investment income .072 D
Net realized and unrealized (.078)
gain (loss)
Total from investment (.006)
operations
Less Distributions
From net investment income (.084)
From net realized gain -
In excess of net realized gain -
Total distributions (.084)
Net asset value, end of $ 9.910
period
TOTAL RETURN B, C (.06)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 9,379
(000 omitted)
Ratio of expenses to average 2.10% A, F
net assets
Ratio of expenses to average 2.10% A
net assets after expense
reductions
Ratio of net invest- ment 5.06% A
income to average net assets
Portfolio turnover rate 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.550 $ 11.080 $ 11.400
period
Income from Investment
Operations
Net investment income D .343 .672 .105
Net realized and unrealized (.116) (.517) .037
gain (loss)
Total from investment .227 .155 .142
operations
Less Distributions
From net investment income (.307) (.625) (.152)
From net realized gain - - (.310)
In excess of net realized gain - (.060) -
Total distributions (.307) (.685) (.462)
Net asset value, end of period $ 10.470 $ 10.550 $ 11.080
TOTAL RETURN B, C 2.17% 1.42% 1.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 14,708 $ 11,248 $ 659
(000 omitted)
Ratio of expenses to average 1.92% A 2.07% F 2.10% A, F
net assets
Ratio of net investment 6.57% A 6.37% 6.30% A
income to average net assets
Portfolio turnover rate 161% A 150% 140%
</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 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.610 $ 11.140 $ 11.300 $ 11.030 $ 10.890
of period
Income from Investment
Operations
Net investment income .398 D .805 D .830 D .826 D .456
Net realized and unrealized (.119) (.533) .186 .548 .340
gain (loss)
Total from investment .279 .272 1.016 1.374 .796
operations
Less Distributions
From net investment income (.359) (.742) (.806) (.804) (.426)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized - (.060) - - -
gain
Total distributions (.359) (.802) (1.176) (1.104) (.656)
Net asset value, end of $ 10.530 $ 10.610 $ 11.140 $ 11.300 $ 11.030
period
TOTAL RETURN B, C 2.65% 2.49% 9.36% 13.04% 7.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 4,724 $ 4,636 $ 6,289 $ 6,107 $ 107
(000 omitted)
Ratio of expenses to average .93% A 1.07% 1.10% F 1.10% F 1.10% A, F
net assets
Ratio of expenses to average .93% A 1.07% 1.09% G 1.10% 1.10% A
net assets after expense
reductions
Ratio of net investment 7.56% A 7.29% 7.31% 7.47% 7.53% A
income to average net assets
Portfolio turnover rate 161% A 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 June 30, 1999 (Unaudited)
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 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
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.
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.
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 $570,695 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 $2,630,048 or 0.9% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $253,889,776 and $225,435,876, respectively, of which U.S.
government and government agency obligations aggregated $40,183,492
and $34,173,485, 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 annualized 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. In
addition, FIIA entered into a sub-advisory agreement with its
subsidiary, Fidelity International Investment Advisors (U.K.) Limited
(FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may receive
investment advice and research services and may grant the sub-advisers
investment management authority to buy and sell securities. FMR pays
its sub-advisers either a portion of its management fee or a fee based
on costs incurred for these services. FIIA pays FIIA(U.K.)L a fee
based on costs incurred for either service.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of 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 $ 7,910 $ 44
CLASS T 241,128 3,200
CLASS B 350,968 254,272
CLASS C 64,208 50,557
$ 664,214 $ 308,073
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5% to 1% for Class B and 1% for Class C, of the
lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested
dividends and capital gains. In addition, purchases of Class A and
Class T shares that were subject to a finder's fee bear a contingent
deferred sales charge on assets that do not remain in the fund for at
least one year. The Class A and Class T contingent deferred sales
charge is based on 0.25% of the lesser of the cost of shares at the
initial date of purchase or the net asset value of the redeemed
shares, excluding any reinvested dividends and capital gains. A
portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO FDC RETAINED BY FDC
CLASS A $ 35,974 $ 10,434
CLASS T 91,008 30,793
CLASS B 123,946 123,946*
CLASS C 4,529 4,529*
$ 255,457 $ 169,702
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS, BANKS, AND
OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund.
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 $ 11,700 .22*
CLASS T 175,982 .18*
CLASS B 69,942 .18*
CLASS C 13,000 .20*
INSTITUTIONAL CLASS 5,255 .22*
$ 275,879
* ANNUALIZED
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company, Inc., an affiliate of FMR,
maintains the fund's accounting records. The fee is based on the level
of average net assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $146 under this arrangement.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $1,377 under the custodian
arrangement.
6. 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.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30,1999 YEAR ENDED DECEMBER 31, 1998
FROM NET INVESTMENT INCOME
Class A $ 349,289 $ 468,016
Class T 6,357,611 10,946,403
Class B 2,306,149 4,114,994
Class C 371,973 416,895
Institutional Class 159,264 400,192
Total $ 9,544,286 $ 16,346,500
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
$ 9,544,286 $ 17,975,925
</TABLE>
8. SHARE TRANSACTIONS.
Transactions for each class of shares for the periods are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHARES DOLLARS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1999 1998 1999
CLASS A Shares sold 333,405 900,167 $ 3,530,824
Reinvestment of distributions 26,338 40,130 278,015
Shares redeemed (162,520) (335,982) (1,721,944)
Net increase (decrease) 197,223 604,315 $ 2,086,895
CLASS T Shares sold 3,919,651 11,047,467 $ 41,356,689
Reinvestment of distributions 501,567 920,256 5,292,269
Shares redeemed (3,916,536) (4,726,297) (41,308,120)
Net increase (decrease) 504,682 7,241,426 $ 5,340,838
CLASS B Shares sold 1,886,033 4,082,575 $ 19,947,120
Reinvestment of distributions 149,657 304,841 1,581,895
Shares redeemed (942,014) (2,414,647) (9,966,455)
Net increase (decrease) 1,093,676 1,972,769 $ 11,562,560
CLASS C Shares sold 523,802 1,295,745 $ 5,521,090
Reinvestment of distributions 27,242 34,501 287,355
Shares redeemed (212,609) (323,431) (2,245,165)
Net increase (decrease) 338,435 1,006,815 $ 3,563,280
INSTITUTIONAL CLASS Shares 83,932 422,294 $ 891,824
sold
Reinvestment of distributions 9,820 32,127 104,204
Shares redeemed (82,318) (581,996) (871,935)
Net increase (decrease) 11,434 (127,575) $ 124,093
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
1998
CLASS A Shares sold $ 9,908,134
Reinvestment of distributions 381,968
Shares redeemed (3,569,407)
Net increase (decrease) $ 6,720,695
CLASS T Shares sold $ 122,912,518
Reinvestment of distributions 8,937,450
Shares redeemed (51,174,332)
Net increase (decrease) $ 80,675,636
CLASS B Shares sold $ 45,035,865
Reinvestment of distributions 2,975,955
Shares redeemed (25,559,874)
Net increase (decrease) $ 22,451,946
CLASS C Shares sold $ 14,256,416
Reinvestment of distributions 315,902
Shares redeemed (3,449,844)
Net increase (decrease) $ 11,122,474
INSTITUTIONAL CLASS Shares $ 4,701,276
sold
Reinvestment of distributions 334,547
Shares redeemed (6,221,690)
Net increase (decrease) $ (1,185,867)
</TABLE>
9. CHANGE IN INDEPENDENT AUDITOR.
Based on the recommendation of the Audit Committee of the Fidelity
Advisor Strategic Income Fund, the Board of Trustees has determined
not to retain PricewaterhouseCoopers LLP as the fund's independent
auditor and voted to appoint Deloitte & Touche LLP for the fiscal year
ended December 31, 1999. For the fiscal years ended December 31, 1998
and December 31, 1997, PricewaterhouseCoopers LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were their
reports qualified as to uncertainty, audit scope, or accounting
principles. Further, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on accounting principles, financial
statement disclosure or audit scope, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference to the disagreement in their report.
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
Kevin E. Grant, Vice President
Ian Spreadbury, 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 *
ADVISORY BOARD
J. Gary Burkhead
Abigail P. Johnson
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 Emerging Asia 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 TechnoQuant (registered trademark)
Growth Fund
Fidelity Advisor Small Cap Fund
Fidelity Advisor Value Strategies 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
SI-SANN-0899 82013
1.705747.101
(Fidelity Logo Graphic)(registered trademark)
FIDELITY ADVISOR
STRATEGIC INCOME
FUND - INSTITUTIONAL CLASS
SEMIANNUAL REPORT
JUNE 30, 1999
(2_FIDELITY_LOGOS)
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 9 The manager's review of fund
performance, strategy and
outlook.
INVESTMENT CHANGES 13 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 14 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 36 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 45 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other 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:
After much speculation about the U.S. Federal Reserve Board's
near-term monetary policy, stock and bond investors breathed a sigh of
relief when the Fed shifted to a neutral position on rates following
its widely anticipated quarter-point increase in short-term rates on
June 30. This switch in bias helped the S&P 500(registered trademark)
and NASDAQ soar to record-closing highs, and sent yields on the
bellwether 30-year Treasury back below 6%.
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 - 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 JUNE 30, 1999 PAST 6 MONTHS PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 2.65% 2.00% 59.47%
- - INST CL
Fidelity Strategic Income 0.54% 2.37% 53.65%
Composite
JP EMBI Plus 10.57% -4.26% 76.60%
LB Government Bond -2.27% 3.05% 43.70%
ML High Yield Master II 2.49% 0.90% 60.48%
SB Non-US Dollar World Govt -9.11% 4.87% 25.04%
Bond
ML High Yield Master 1.76% 0.94% 58.90%
Multi-Sector Income Funds 0.82% -0.62% n/a
Average
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one
year or since the fund started on October 31, 1994. For example, if
you had invested $1,000 in a fund that had a 5% return over the past
year, the value of your investment would be $1,050. You can compare
Institutional Class' returns to those of the Merrill Lynch High Yield
Master Index - a market value-weighted index of all domestic and
yankee high-yield bonds. Issues included in the index have maturities
of at least one year and have a credit rating lower than BBB-/Baa3,
but are not in default. You can also compare the Institutional Class'
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 J.P. Morgan Emerging Markets
Bond Index Plus, the Lehman Brothers Government Bond Index, the
Merrill Lynch High Yield Master II 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 six months
average represents a peer group of 105 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 JUNE 30, 1999 PAST 1 YEAR LIFE OF FUND
FIDELITY ADV STRATEGIC INCOME 2.00% 10.52%
- - INST CL
Fidelity Strategic Income 2.37% 9.64%
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.
(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.
$10,000 OVER LIFE OF FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FA Strategic Inc -CL I FID Strategic Inc Comp. ML High Yield Master II
00648 F0086 ML012
1994/10/31 10000.00 10000.00 10000.00
1994/11/30 10050.16 9920.90 9913.96
1994/12/31 10017.44 9884.90 10018.42
1995/01/31 10129.20 9959.54 10159.09
1995/02/28 10368.45 10125.91 10484.71
1995/03/31 10518.89 10299.71 10626.39
1995/04/30 10913.50 10642.75 10895.62
1995/05/31 11324.23 11044.59 11237.63
1995/06/30 11382.14 11138.73 11313.19
1995/07/31 11496.09 11203.42 11460.51
1995/08/31 11515.97 11205.44 11520.65
1995/09/30 11722.27 11399.33 11654.54
1995/10/31 11858.92 11458.48 11753.05
1995/11/30 11991.80 11610.46 11869.53
1995/12/31 12262.15 11865.72 12068.40
1996/01/31 12535.82 12069.97 12270.00
1996/02/29 12434.95 11957.42 12307.50
1996/03/31 12406.66 11967.99 12257.18
1996/04/30 12523.21 12054.04 12274.37
1996/05/31 12607.92 12119.18 12362.83
1996/06/30 12714.41 12256.12 12412.09
1996/07/31 12791.31 12387.78 12493.68
1996/08/31 12938.43 12532.99 12646.07
1996/09/30 13341.77 12822.79 12943.32
1996/10/31 13515.35 12984.25 13055.66
1996/11/30 13779.59 13257.60 13314.71
1996/12/31 13860.66 13292.17 13428.55
1997/01/31 13942.67 13331.31 13529.44
1997/02/28 14076.48 13429.06 13737.43
1997/03/31 13767.86 13242.60 13548.48
1997/04/30 13922.06 13380.63 13722.19
1997/05/31 14282.92 13679.20 14011.11
1997/06/30 14490.10 13877.42 14227.65
1997/07/31 14775.44 14134.06 14604.77
1997/08/31 14766.31 14116.04 14587.19
1997/09/30 15126.16 14382.36 14849.59
1997/10/31 14882.86 14259.82 14925.41
1997/11/30 14998.62 14381.93 15058.37
1997/12/31 15157.95 14535.15 15210.02
1998/01/31 15430.92 14703.70 15452.41
1998/02/28 15560.57 14809.79 15515.02
1998/03/31 15697.07 14897.17 15662.39
1998/04/30 15748.76 14997.36 15729.66
1998/05/31 15676.85 14999.45 15824.25
1998/06/30 15634.85 15008.64 15905.97
1998/07/31 15734.44 15071.87 16007.35
1998/08/31 14520.66 14297.30 15199.31
1998/09/30 14987.25 14778.41 15238.87
1998/10/31 15020.70 14880.52 14910.04
1998/11/30 15557.45 15276.60 15687.24
1998/12/31 15535.33 15283.08 15659.13
1999/01/31 15656.38 15271.09 15867.51
1999/02/28 15471.80 15073.10 15762.48
1999/03/31 15799.12 15336.24 15945.58
1999/04/30 16289.62 15612.59 16237.32
1999/05/31 15917.08 15341.51 16088.37
1999/06/30 15946.83 15365.00 16048.50
IMATRL PRASUN SHR__CHT 19990630 19990715 111813 R00000000000059
</TABLE>
$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 June 30, 1999, the value of the investment would have grown to
$15,947 - a 59.47% increase on the initial investment. For comparison,
look at how the Merrill Lynch High Yield Master II Index - a market
value-weighted index of all domestic and yankee high-yield bonds,
including deferred interest bonds and payment-in-kind securities - 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 $16,048 -
a 60.48% 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 (+76.60%), Lehman Brothers
Government Bond Index (+43.70%), Merrill Lynch High Yield Master II
Index (+60.48%), and Salomon Brothers Non-U.S. Dollar World Government
Bond Index (+25.04%), 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 $15,365 - a 53.65% increase. Beginning with this report, the
fund will compare its performance to that of the Merrill Lynch High
Yield Master II Index rather than the Merrill Lynch High Yield Master
Index. The Merrill Lynch High Yield Master II Index contains deferred
interest bonds and payment-in-kind securities and is therefore a
better representation of the high yield bond universe.
* 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>
SIX MONTHS ENDED JUNE 30, JULY 3, 1995 (COMMENCEMENT OF
YEARS ENDED DECEMBER 31, SALE OF INSTITUTIONAL CLASS
SHARES) TO DECEMBER 31,
1999 1998 1997 1996 1995
Dividend returns 3.40% 6.68% 7.33% 7.70% 4.00%
Capital returns -0.75% -4.19% 2.03% 5.34% 3.47%
Total returns 2.65% 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 JUNE 30, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 5.98(cents) 35.88(cents) 75.02(cents)
Annualized dividend rate 6.94% 6.81% 7.04%
30-day annualized yield 7.36% - -
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 $10.49 over the past one month, $10.62 over the past six months,
and $10.65 over the past one year, you can compare the class' income
over these three periods. The past one year 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 MANAGER'S OVERVIEW
MARKET RECAP
Throughout much of the six-month
period ending June 30, 1999,
strong U.S. economic reports and
a buoyant U.S. stock market had
global bond investors concerned
about the implications of a U.S.
Federal Reserve Board intervention
to boost key interest rates. One side
effect was an increase in yields
for U.S. government securities.
Bonds with five-year and 10-year
maturities declined the most in price,
leaving the yield curve steeper at the
shorter end. A strong equity market
and consolidation in the
telecommunications sector helped
the high-yield market. However, by
mid-year some of this enthusiasm
was tempered by increased new
issuance and investors' focus on
interest rates. Emerging-market debt
enjoyed a favorable first half on
the back of stronger commodity
prices, especially oil. Higher oil
prices helped emerging-market
countries that are significant oil
exporters as well as high-yield
energy companies.
Emerging-market debt
outperformed most other
fixed-income markets in the period.
With regard to non-U.S. developed
markets in local currency terms,
Japan posted the highest gain -
2.57%- while the U.K. had the
lowest return at -1.88%. The majority
of countries posted negative returns in
local currency terms. A strong U.S.
dollar detracted further from this
performance. The euro lost 12.17%
versus the U.S. dollar, while the
Japanese yen declined 6.8%.
(Photograph of John Carlson)
An interview with John Carlson, Lead Portfolio Manager of Fidelity
Advisor Strategic Income Fund
Q. HOW DID THE FUND PERFORM, JOHN?
A. For the six months ending June 30, 1999, the fund's Institutional
Class shares returned 2.65%. The multi-sector income funds average, as
tracked by Lipper Inc., returned 0.82%. The Merrill Lynch High Yield
Master Index returned 1.76%, while the fund's new benchmark, the
Merrill Lynch High Yield Master II Index, returned 2.49% during the
same six-month period. For the 12 months ending June 30, 1999, the
fund posted a return of 2.00%. The Lipper peer group index returned
- -0.62%, and the Merrill Lynch High Yield Master and Master II indexes
returned 0.94% and 0.90%, respectively, for the one-year period.
Q. WHY DID THE FUND CHANGE ITS BENCHMARK INDEX?
A. The fund changed its benchmark because the Merrill Lynch High Yield
Master Index does not include deferred-interest bonds (DIBs) and
pay-in-kind securities (PIKs), which have emerged as important
components of the market in recent years. Deferred-interest bonds do
not pay cash interest for a set period of the bond's life, typically
for three to five years, and therefore sell at a significant discount.
At the end of the deferred-interest period, the interest accrues and
begins to be paid (it is a variation on the zero coupon bond
structure). PIKs pay interest in the form of additional bonds or
preferred stock. As of June 30, 1999, DIBs and PIKs represented
approximately 17% of the fund's new benchmark, the Merrill Lynch High
Yield Master II Index.
Q. HOW DID THE HIGH-YIELD PORTION OF THE FUND FARE IN THE FIRST HALF
OF 1999?
A. The high-yield market was strong from January through March as it
recovered from the relatively wide spreads reached in October 1998.
However, in the second quarter, fears that the strong U.S. economy
might lead to higher inflation drove Treasury yields higher and the
market gave back some of its earlier gains. Industry selection was
favorable; overweighting cable and telecommunications and
underweighting the health care industry contributed positively to the
fund's return. Individual security selection within the fund's
high-yield subportfolio - managed by Mark Notkin - continued to be the
major driver of performance. Although it's no longer in the fund,
Pathmark was a strong contributor after Royal Ahold, the world's
sixth-largest supermarket operator, announced its intention to
purchase the company. Securities of Nextel, a national wireless
operator, appreciated as the company continued to build its national
network and add customers at a rapid pace. Also, several of the fund's
CLEC (competitive local exchange carrier) positions, such as ICG
Services, performed well, gaining market share in the large and
growing domestic telecommunications industry. Performance detractors
included the telecommunications company Iridium, which the fund no
longer held at the end of the period, and computer maintenance and
technology support company DecisionOne.
Q. IN WHICH SECTORS OF THE MARKET DID THE INVESTMENT-GRADE PORTION OF
THE FUND INVEST, AND HOW DID THESE SECTORS PERFORM?
A. The U.S. investment-grade fixed-income subportfolio - managed by
Kevin Grant - was invested in government securities issued by the U.S.
Treasury and a variety of federal agencies. It also invested in
conventional and GNMA (Government National Mortgage Association)
agency securities, constituting both 15-year and 30-year residential
mortgages. Relative to its benchmark index, the investment-grade
subportfolio remained overweighted in federal agencies and mortgage
securities, and underweighted in Treasuries. Although the general
increase in interest rates dampened domestic fixed-income returns,
agencies and mortgage securities outperformed comparable duration
Treasuries in the first half of 1999, boosting the fund's performance.
Q. HOW DID THE NON-U.S. DEVELOPED MARKETS FARE?
A. The rise in U.S. yields was mirrored in most developed markets
despite their weak Gross Domestic Product (GDP) growth and subdued
inflation. As a result, local currency returns were negative in all
main markets except Japan where government buying held down yields. In
dollar terms, European markets were negatively impacted by the weak
euro, which fell approximately 12% against the dollar over the
reporting period. The only positive performer was Canada, helped by a
recovering currency. Our decision to underweight Japanese bonds when
10-year yields fell to 0.75% was vindicated when yields rose to 2.2%
on concern over a ballooning budget deficit. Ian Spreadbury - who
manages the fund's foreign developed market subportfolio - closed
virtually the entire Japanese bond position as it became clear the
government would continue to support the market. We also reduced
exposure to euro-yen bonds in anticipation of the removal of
withholding tax on Japanese government bonds later this year. In
euros, which account for approximately one half of the subportfolio,
we took a small position in corporate bonds. The level of corporate
issuance was very heavy (see callout box on next page) and this led to
wider spreads.
Q. WHAT WERE THE KEY DRIVERS OF EMERGING-MARKET SUBPORTFOLIO
PERFORMANCE?
A. Russian asset prices ended 1998 at deeply depressed levels, but the
fund maintained its overweighted position in Russia as our team
believed assets had become significantly oversold. The fund's holdings
in Russia were also shifted to include more senior securities, which
is debt that has a higher standing in terms of repayment. This year,
Russian debt prices have rebounded, as stronger commodity prices,
particularly oil, helped. In addition, some stability returned to the
Russian economy. Russia was the top-performing country in the
emerging-markets benchmark this year and a top contributor to the
subportfolio. Our decision to overweight Brazil also helped
performance. In early January, we took advantage of the oversold
prices that resulted from investors' anticipation of the country's
currency devaluation. Brazilian debt prices subsequently recovered in
part due to better-than-expected economic reports. With oil prices
improving, the fund further benefited from its overweighting in
Venezuela, one of the world's most important oil producers.
Underweighting Ecuador also contributed to relative performance.
Security selection was a key driver of fund performance, specifically
in countries with robust bond markets, such as Brazil, Mexico and
Argentina.
Q. JOHN, WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. I have a cautious outlook as we enter the second half. I am keeping
a careful watch on capital market liquidity. That being said, we
continue to see compelling opportunities in credit spread markets such
as high-yield and emerging markets given their absolute yield levels.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(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 June 30, 1999,
more than $308 million
MANAGER: John Carlson, since
1995; manager, Fidelity
Advisor Emerging Markets
Income Fund, since 1995;
joined Fidelity in 1995
JOHN CARLSON DISCUSSES
THE EURO AND CORPORATE DEBT
ISSUANCE:
"The physical transition to the single
currency has proceeded relatively
smoothly, with all participating
government bonds redenominating
to euros at the beginning of 1999.
Some corporate bonds remain
denominated in legacy currencies -
national currencies replaced by the
euro - and will redenominate by the
end of 2001.
"The introduction of the euro has
reduced the scope for international
investors to add value through
currency plays and, as a result, more
investors are turning to the credit
markets as a medium for adding
value.
"In terms of economic convergence
- - the performance of the
euro-countries' national economies
- - it is too early to judge how things
will develop. Certainly there is
still a wide range of economic
performance, with some peripheral
countries like Ireland turning in very
strong growth while the German
economy, for example, continues to
struggle.
"Prior to this year, the corporate
markets hardly existed in Europe
as companies used banks as their
main source of debt finance. This
year, we have seen huge amounts of
corporate issuance as the banks
have come under increasing
competitive pressure and the
markets have enabled companies to
finance themselves to a larger extent
and with more flexibility. The
issuance also has been driven by an
increased level of merger and
acquisition activity as companies
seek to establish themselves across
Europe."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF JUNE
30, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
EQUIVALENTS) THESE HOLDINGS 6 MONTHS AGO
U.S. Treasury Obligations 12.5 11.3
Fannie Mae 5.9 7.0
Treuhandanstalt 3.9 0.0
Brazilian Federative Republic 3.0 1.6
Federal Home Loan Bank 2.8 3.2
TOP FIVE MARKET SECTORS AS OF
JUNE 30, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE MARKET SECTORS 6
MONTHS AGO
MEDIA & LEISURE 15.7 13.2
UTILITIES 11.4 11.7
BASIC INDUSTRIES 3.6 0.9
TECHNOLOGY 1.9 2.3
FINANCE 1.7 1.8
QUALITY DIVERSIFICATION AS OF
JUNE 30, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa, Aa, A 40.9 43.5
Baa 1.2 0.3
Ba 6.4 10.6
B 30.7 23.5
Caa, Ca, C 6.9 5.6
Not Rated 3.3 4.5
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P(registered trademark) RATINGS. UNRATED
DEBT SECURITIES THAT ARE EQUIVALENT TO BA AND BELOW AT JUNE 30, 1999
AND DECEMBER 31, 1998 ACCOUNT FOR 3.3% AND 4.5% RESPECTIVELY, OF THE
FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF JUNE 30, 1999 *
Corporate Bonds 37.4%
U.S. Government and
Government Agency
Obligations 27.4%
Foreign Government &
Government Agency
Obligations 21.6%
Stocks 5.5%
Other Investments 3.2%
Short-term Investments 4.9%
* FOREIGN INVESTMENTS 32.5%
AS OF DECEMBER 31, 1998 **
Corporate Bonds 33.2%
U.S. Government and
Government Agency
Obligations 29.3%
Foreign Government &
Government Agency
Obligations 24.9%
Stocks 5.9%
Other Investments 0.9%
Short-term Investments 5.8%
** FOREIGN INVESTMENTS 29.8%
Row: 1, Col: 1, Value: 38.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 27.4
Row: 1, Col: 4, Value: 21.6
Row: 1, Col: 5, Value: 5.5
Row: 1, Col: 6, Value: 2.4
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.9
Row: 1, Col: 1, Value: 33.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 29.3
Row: 1, Col: 4, Value: 24.9
Row: 1, Col: 5, Value: 5.9
Row: 1, Col: 6, Value: 0.9
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 5.8
INVESTMENTS JUNE 30, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 37.4%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
CONVERTIBLE BONDS - 1.4%
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
Total Renal Care Holdings, B1 $ 960,000 $ 777,600
Inc. 7% 5/15/09 (g)
MEDIA & LEISURE - 0.5%
LODGING & GAMING - 0.2%
Signature Resorts, Inc. 5.75% Caa1 960,000 681,600
1/15/07
RESTAURANTS - 0.3%
CKE Restaurants, Inc. 4.25% B1 1,070,000 802,500
3/15/04
TOTAL MEDIA & LEISURE 1,484,100
RETAIL & WHOLESALE - 0.2%
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
Sunglass Hut International, B3 660,000 574,200
Inc. 5.25% 6/15/03
UTILITIES - 0.4%
TELEPHONE SERVICES - 0.4%
Telefonos de Mexico SA de CV BB 480,000 495,600
4.25% 6/15/04
Telekom Malaysia BHD 4% Baa3 990,000 853,875
10/3/04
1,349,475
TOTAL CONVERTIBLE BONDS 4,185,375
NONCONVERTIBLE BONDS - 36.0%
BASIC INDUSTRIES - 3.6%
CHEMICALS & PLASTICS - 1.6%
Berry Plastics Corp. 11% B3 590,000 597,375
7/15/07 (g)
Huntsman Corp. 9.5% 7/1/07 (g) B2 940,000 895,350
Huntsman ICI Chemicals LLC B2 1,200,000 1,210,500
10.125% 7/1/09 (g)
Lyondell Chemical Co.:
9.625% 5/1/07 (g) Ba3 750,000 766,875
9.875% 5/1/07 (g) Ba3 850,000 864,875
10.875% 5/1/09 (g) B2 710,000 733,075
5,068,050
IRON & STEEL - 0.2%
WHX Corp. 10.5% 4/15/05 B3 560,000 532,000
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
METALS & MINING - 0.3%
Kaiser Aluminum & Chemical B3 $ 780,000 $ 793,650
Corp. 12.75% 2/1/03
PACKAGING & CONTAINERS - 1.0%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 520,000 490,100
9.75% 6/15/07 Caa1 200,000 192,000
Packaging Corp. of America B3 2,400,000 2,442,000
9.625% 4/1/09 (g)
3,124,100
PAPER & FOREST PRODUCTS - 0.5%
Container Corp. of America:
gtd.:
9.75% 4/1/03 B2 210,000 216,300
11.25% 5/1/04 B2 50,000 51,875
10.75% 5/1/02 B2 70,000 73,325
Florida Coast Paper Co. Ca 690,000 310,500
LLC/Florida Coast Paper
Finance Corp. Series B,
12.75% 6/1/03 (c)
Millar Western Forest B3 215,000 209,088
Products Ltd. 9.875% 5/15/08
Stone Container Corp. 12.58% B2 560,000 604,800
8/1/16 (h)
1,465,888
TOTAL BASIC INDUSTRIES 10,983,688
CONSTRUCTION & REAL ESTATE -
0.4%
BUILDING MATERIALS - 0.3%
Cemex SA 9.25% 6/17/02 Ba2 870,000 878,700
ENGINEERING - 0.1%
Anteon Corp. 12% 5/15/09 (g) B3 360,000 354,600
TOTAL CONSTRUCTION & REAL 1,233,300
ESTATE
DURABLES - 1.1%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Blue Bird Body Co. 10.75% B2 210,000 222,600
11/15/06
CONSUMER DURABLES - 0.2%
Corning Consumer Products Co. B3 650,000 563,875
9.625% 5/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
DURABLES - CONTINUED
HOME FURNISHINGS - 0.9%
Omega Cabinets Ltd. 10.5% B3 $ 720,000 $ 720,000
6/15/07
Sealy Corp., Inc. 10% - 582,342 570,695
12/18/08 pay-in-kind (k)
Sealy Mattress Co.:
0% 12/15/07 (e) B3 1,140,000 741,000
9.875% 12/15/07 B3 170,000 166,600
Simmons Co. 10.25% 3/15/09 (g) B3 540,000 549,450
2,747,745
TOTAL DURABLES 3,534,220
ENERGY - 1.3%
ENERGY SERVICES - 0.4%
Petroliam Nasional BHD
(Petronas):
7.625% 10/15/26 (Reg. S) A2 670,000 546,050
yankee 7.625% 10/15/26 (g) Baa3 250,000 203,750
R&B Falcon Corp. 12.25% Ba3 240,000 248,400
3/15/06 (g)
RBF Finance Co.:
11% 3/15/06 (g) Ba3 180,000 185,400
11.375% 3/15/09 (g) Ba3 180,000 186,300
1,369,900
OIL & GAS - 0.9%
Chesapeake Energy Corp. B3 350,000 327,250
9.625% 5/1/05
Comstock Resources, Inc. B2 660,000 674,850
11.25% 5/1/07 (g)
Cross Timbers Oil Co.:
8.75% 11/1/09 B2 310,000 292,950
9.25% 4/1/07 B2 30,000 29,775
Ocean Energy, Inc.:
8.875% 7/15/07 B1 35,000 34,475
10.375% 10/15/05 B2 20,000 20,950
Petroleos Mexicanos:
9.25% 3/30/18 Ba2 510,000 425,850
9.5% 9/15/27 Ba2 760,000 722,950
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Snyder Oil Corp. 8.75% 6/15/07 Ba3 $ 160,000 $ 158,800
Vintage Petroleum, Inc. 9% B1 60,000 59,550
12/15/05
2,747,400
TOTAL ENERGY 4,117,300
FINANCE - 1.6%
BANKS - 0.5%
Banco Nacional de
Desenvolvimento Economico e
Social:
13.64% 6/16/08 (h) B1 1,160,000 980,200
13.64% 6/16/08 (g)(h) B1 500,000 422,500
1,402,700
CREDIT & OTHER FINANCE - 1.1%
AMRESCO, Inc. 9.875% 3/15/05 Caa3 390,000 298,350
Cellco Finance NV 15% 8/1/05 B2 930,000 957,900
ContiFinancial Corp. 8.125% Caa1 220,000 167,200
4/1/08
Digital Television Services B3 360,000 390,600
LLC/ DTS Capital, Inc. 12.5%
8/1/07
FSA Global Funding Ltd. euro - EUR 1,000,000 1,028,450
5.125% 7/22/09
Macsaver Financial Services,
Inc.:
7.4% 2/15/02 Ba1 80,000 67,200
7.6% 8/1/07 Ba1 10,000 8,225
7.875% 8/1/03 Ba1 235,000 200,338
Stone Container Finance Co. B2 120,000 129,000
11.5% 8/15/06 (g)
WinStar Equipment II Corp. CCC+ 145,000 150,800
12.5% 3/15/04
3,398,063
TOTAL FINANCE 4,800,763
HEALTH - 1.4%
DRUGS & PHARMACEUTICALS - 0.2%
Global Health Sciences, Inc. Caa1 580,000 436,450
11% 5/1/08
MEDICAL FACILITIES MANAGEMENT
- - 1.2%
Everest Healthcare Services, B3 740,000 713,175
Inc. 9.75% 5/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT
- - CONTINUED
Express Scripts, Inc. 9.625% Ba2 $ 270,000 $ 274,050
6/15/09 (g)
Fountain View, Inc. 11.25% Caa1 200,000 162,000
4/15/08
Hanger Orthopedic Group, Inc. B3 490,000 497,350
11.25% 6/15/09 (g)
Harborside Healthcare Corp. B3 680,000 265,200
0% 8/1/08 (e)
Integrated Health Services,
Inc.:
9.25% 1/15/08 B2 288,000 201,600
9.5% 9/15/07 B2 50,000 36,250
Mariner Post-Acute Network, B3 1,136,000 181,760
Inc. 9.5% 11/1/07
Oxford Health Plans, Inc. 11% Caa1 900,000 909,000
5/15/05 (g)
Tenet Healthcare Corp. 8.125% Ba3 580,000 548,100
12/1/08
3,788,485
TOTAL HEALTH 4,224,935
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.9%
ELECTRICAL EQUIPMENT - 0.1%
Juno Lighting, Inc. 11.875% B3 315,000 318,938
7/1/09 (g)
Motors & Gears, Inc. 10.75% B3 70,000 70,350
11/15/06
389,288
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Applied Power, Inc. 8.75% B1 590,000 572,300
4/1/09
Dunlop Standard Aero Holdings B3 480,000 487,200
PLC 11.875% 5/15/09 (g)
Thermadyne Manufacturing LLC B3 550,000 485,375
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 640,000 611,200
(g)
2,156,075
POLLUTION CONTROL - 0.1%
Safety-Kleen Corp. 9.25% B3 310,000 312,325
5/15/09 (g)
TOTAL INDUSTRIAL MACHINERY & 2,857,688
EQUIPMENT
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - 12.8%
BROADCASTING - 10.1%
ACME Television LLC/ACME B3 $ 1,020,000 $ 836,400
Financial Corp. 0% 9/30/04
(e)
Adelphia Communications Corp.:
8.375% 2/1/08 B1 370,000 356,125
9.25% 10/1/02 B1 280,000 283,500
9.875% 3/1/07 B1 800,000 835,000
Ascent Entertainment Group, B3 380,000 273,600
Inc. 0% 12/15/04 (e)
Avalon Cable Michigan, B3 120,000 122,100
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08 (g)
Benedek Communications Corp. B3 1,260,000 1,045,800
0% 5/15/06 (e)
Bresnan Communications Group
LLC/Bresnan Capital Corp.:
0% 2/1/09 (e)(g) B2 230,000 150,075
8% 2/1/09 (g) B2 80,000 79,400
CapStar Broadcasting
Partners, Inc.:
0% 2/1/09 (e) B3 315,000 264,600
9.25% 7/1/07 B2 1,010,000 1,031,463
Century Communications Corp.:
8.375% 12/15/07 Ba3 20,000 19,250
8.75% 10/1/07 Ba3 90,000 89,100
9.5% 3/1/05 Ba3 60,000 61,800
, Series B, 0% 1/15/08 Ba3 630,000 277,200
Chancellor Media Corp.:
8% 11/1/08 Ba2 970,000 950,600
8.125% 12/15/07 B1 250,000 241,875
9% 10/1/08 B1 3,220,000 3,260,250
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (e)(g) B2 2,600,000 1,599,000
8.625% 4/1/09 (g) B2 1,145,000 1,094,906
Citadel Broadcasting Co.:
9.25% 11/15/08 B3 820,000 846,650
10.25% 7/1/07 B3 420,000 452,550
Classic Cable, Inc. 9.875% B3 140,000 144,900
8/1/08 (g)
Comcast UK Cable Partners B2 220,000 195,800
Ltd. 0% 11/15/07 (e)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable Communications B3 $ 696,000 $ 610,740
PLC yankee 0% 12/15/05 (e)
EchoStar DBS Corp. 9.375% B2 2,380,000 2,409,750
2/1/09 (g)
Emmis Broadcasting B2 240,000 228,000
Communications Corp. 8.125%
3/15/09 (g)
Falcon Holding Group
LP/Falcon Funding Corp.:
0% 4/15/10 (e) B2 2,575,000 1,799,281
8.375% 4/15/10 B2 380,000 378,100
FrontierVision Holdings Caa1 901,000 779,365
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (e)
FrontierVision Holdings Caa1 500,000 432,500
LP/FrontierVision Holdings
Capital II Corp. 0% 9/15/07
(e)
Golden Sky DBS, Inc. 0% Caa1 1,180,000 684,400
3/1/07 (e)(g)
Intermedia Capital Partners B2 520,000 574,600
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06
Lenfest Communications, Inc.:
8.25% 2/15/08 B1 90,000 91,575
8.375% 11/1/05 Ba2 90,000 94,950
LIN Holdings Corp. 0% 3/1/08 B3 1,240,000 827,700
(e)
NTL Communications Corp.:
0% 10/1/08 (e) B3 3,230,000 2,212,550
11.5% 10/1/08 B3 1,080,000 1,182,600
NTL, Inc. 0% 4/1/08 (e) B3 890,000 596,300
Olympus Communications B1 90,000 98,550
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 20,000 19,600
9.625% 10/15/05
Satelites Mexicanos SA de CV B3 580,000 458,200
10.125% 11/1/04
Susquehanna Media Co. 8.5% B1 90,000 89,100
5/15/09 (g)
TeleWest Communications PLC:
0% 4/15/09 (e)(g) B1 210,000 140,700
11.25% 11/1/08 B1 170,000 192,100
Telewest PLC 0% 10/1/07 (e) B1 1,240,000 1,109,800
United International B3 2,560,000 1,702,400
Holdings, Inc. 0% 2/15/08 (e)
31,224,805
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.8%
AMC Entertainment, Inc. 9.5% B3 $ 130,000 $ 122,200
3/15/09
Livent, Inc. 9.375% 10/15/04 B1 300,000 108,000
(c)
Mohegan Tribal Gaming Ba3 210,000 208,950
Authority 8.75% 1/1/09
Premier Parks, Inc.:
0% 4/1/08 (e) B3 1,170,000 775,125
9.25% 4/1/06 B3 1,080,000 1,069,200
2,283,475
LODGING & GAMING - 1.4%
Circus Circus Enterprises,
Inc.:
7.625% 7/15/13 Ba2 190,000 167,200
9.25% 12/1/05 Ba2 160,000 162,400
Florida Panthers Holdings, B2 930,000 876,525
Inc. 9.875% 4/15/09
Horseshoe Gaming LLC:
8.625% 5/15/09 (g) B2 340,000 328,950
9.375% 6/15/07 B2 890,000 907,800
ITT Corp. 6.75% 11/15/05 Ba1 50,000 44,250
KSL Recreation Group, Inc. B3 320,000 324,800
10.25% 5/1/07
Signature Resorts, Inc. 9.75% B3 780,000 702,000
10/1/07
Station Casinos, Inc. 8.875% B2 850,000 828,750
12/1/08
Sun International Hotels Ba3 30,000 30,075
Ltd./Sun International North
America, Inc. yankee 9%
3/15/07
4,372,750
RESTAURANTS - 0.5%
Domino's, Inc. 10.375% 1/15/09 B3 1,040,000 1,050,400
NE Restaurant, Inc. 10.75% B3 510,000 466,650
7/15/08
1,517,050
TOTAL MEDIA & LEISURE 39,398,080
NONDURABLES - 0.7%
FOODS - 0.5%
Aurora Foods, Inc. 8.75% B1 130,000 127,725
7/1/08
Del Monte Corp. 12.25% 4/15/07 B3 252,000 283,500
Del Monte Foods Co. 0% Caa2 1,564,000 1,153,450
12/15/07 (e)
1,564,675
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - CONTINUED
HOUSEHOLD PRODUCTS - 0.2%
Revlon Consumer Products B3 $ 680,000 $ 635,800
Corp. 8.625% 2/1/08
TOTAL NONDURABLES 2,200,475
RETAIL & WHOLESALE - 1.2%
GENERAL MERCHANDISE STORES -
0.0%
K mart Corp. 7.95% 2/1/23 Ba1 200,000 189,000
GROCERY STORES - 1.0%
Jitney-Jungle Stores of
America, Inc.:
10.375% 9/15/07 Caa1 460,000 165,600
12% 3/1/06 B3 601,000 489,815
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 230,000 213,900
9.5% 8/1/03 B3 940,000 874,200
Smiths Food & Drug Centers, BBB- 1,000,000 1,045,000
Inc. 1994 Pass Through Trust
9.2% 7/2/18
Star Market Co., Inc. 13% B3 230,000 250,125
11/1/04
3,038,640
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
TM Group Holdings PLC 11% B3 500,000 506,250
5/15/08
TOTAL RETAIL & WHOLESALE 3,733,890
SERVICES - 0.5%
PRINTING - 0.4%
Sullivan Graphics, Inc. Caa1 720,000 748,800
12.75% 8/1/05
Von Hoffman Corp. 13.5% - 649,492 623,512
5/15/09 pay-in-kind (g)
1,372,312
SERVICES - 0.1%
Medaphis Corp. 9.5% 2/15/05 Caa1 190,000 140,600
Spin Cycle, Inc. 0% 5/1/05 (e) - 490,000 142,100
282,700
TOTAL SERVICES 1,655,012
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - 1.4%
COMPUTER SERVICES & SOFTWARE
- - 0.9%
Amazon.com, Inc. 0% 5/1/08 (e) Caa1 $ 950,000 $ 650,750
Concentric Network Corp. - 690,000 721,050
12.75% 12/15/07
DecisionOne Corp. 9.75% B3 830,000 41,500
8/1/07 (c)
DecisionOne Holdings Corp. 0% Caa1 200,000 1,000
8/1/08 unit (c)(e)
Federal Data Corp. 10.125% B3 1,650,000 1,563,375
8/1/05
2,977,675
ELECTRONIC INSTRUMENTS - 0.3%
Telecommunications Techniques B3 945,000 916,650
Co. LLC 9.75% 5/15/08
ELECTRONICS - 0.2%
Fairchild Semiconductor Corp.:
10.125% 3/15/07 B3 420,000 408,450
10.375% 10/1/07 (g) B3 160,000 157,600
566,050
TOTAL TECHNOLOGY 4,460,375
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
Atlas Air, Inc. 9.375% B3 270,000 260,213
11/15/06
Kitty Hawk, Inc. 9.95% B1 670,000 664,975
11/15/04
925,188
UTILITIES - 8.8%
CELLULAR - 3.3%
McCaw International Ltd. 0% Caa1 930,000 562,650
4/15/07 (e)
Millicom International Caa1 6,050,000 4,416,500
Cellular SA 0% 6/1/06 (e)
Nextel Communications, Inc.:
0% 9/15/07 (e) B2 703,000 509,675
0% 10/31/07 (e) B2 850,000 597,125
0% 2/15/08 (e) B2 2,060,000 1,421,400
9.75% 8/15/04 B2 330,000 336,600
12% 11/1/08 B2 460,000 517,500
Orbital Imaging Corp. 11.625% - 1,010,000 929,200
3/1/05
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Rogers Communications, Inc. B2 $ 625,000 $ 631,250
8.875% 7/15/07
Spectrasite Holdings, Inc. 0% - 290,000 163,850
4/15/09 (e)(g)
10,085,750
TELEPHONE SERVICES - 5.5%
Compania Internacional de BB ARS 950,000 736,349
Telecomunicaciones 10.375%
8/1/04 (Reg. S)
Energis PLC 9.75% 6/15/09 (g) B1 590,000 597,375
Esprit Telecom Group PLC Caa1 1,500,000 1,582,500
10.875% 6/15/08
Global TeleSystems Group, Caa2 650,000 630,500
Inc. 9.875% 2/15/05
GST Network Funding, Inc. 0% - 1,000,000 570,000
5/1/08 (e)(g)
GST Equipment Funding, Inc. - 90,000 96,075
13.25% 5/1/07
Hermes Europe Railtel BV B3 540,000 565,650
11.5% 8/15/07
ICG Services, Inc.:
0% 2/15/08 (e) - 2,435,000 1,357,513
0% 5/1/08 (e) - 45,000 24,300
Mannesmann Finance BV euro A2 EUR 1,000,000 994,331
4.75% 5/27/09
McLeodUSA, Inc.:
8.375% 3/15/08 B2 130,000 122,850
9.25% 7/15/07 B2 310,000 307,675
9.5% 11/1/08 B2 450,000 451,125
MetroNet Communications Corp.:
0% 11/1/07 (e) B3 380,000 297,350
0% 6/15/08 (e) B3 1,300,000 962,000
10.625% 11/1/08 (g) B3 460,000 518,650
NEXTLINK Communications, Inc. B3 1,050,000 618,188
0% 6/1/09 (e)
Ono Finance PLC 13% 5/1/09 - 600,000 618,000
unit (g)
Pathnet, Inc. 12.25% 4/15/08 - 375,000 206,250
Qwest Communications Ba1 850,000 660,875
International, Inc. 0%
10/15/07 (e)
Rhythms NetConnections, Inc. B3 290,000 271,150
12.75% 4/15/09 (g)
Teligent, Inc.:
0% 3/1/08 (e) Caa1 70,000 41,300
11.5% 12/1/07 Caa1 845,000 832,325
Viatel, Inc.:
0% 4/15/08 (e) Caa1 345,000 219,938
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Viatel, Inc.: - continued
11.25% 4/15/08 Caa1 $ 960,000 $ 981,600
WinStar Communications, Inc.:
0% 10/15/05 (e) Caa1 80,000 70,000
0% 10/15/05 (e) Caa1 60,000 82,800
0% 3/15/08 (e) CCC 1,685,000 1,474,375
10% 3/15/08 CCC 600,000 528,000
WinStar Equipment Corp. 12.5% B3 490,000 509,600
3/15/04
16,928,644
TOTAL UTILITIES 27,014,394
TOTAL NONCONVERTIBLE BONDS 111,139,308
TOTAL CORPORATE BONDS 115,324,683
(Cost $118,998,462)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 23.1%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 10.6%
Fannie Mae:
5.125% 2/13/04 Aaa 5,535,000 5,306,681
6.5% 7/16/07 Aaa 6,930,000 6,911,566
Federal Farm Credit Bank Aaa 1,000,000 1,009,220
6.66% 12/26/06
Federal Home Loan Bank:
4.96% 10/7/05 Aaa 7,500,000 6,964,425
6.75% 4/5/04 Aaa 870,000 887,400
7.7% 9/20/04 Aaa 800,000 848,496
Government Loan Trusts Aaa 185,503 200,026
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) Series 1 B,
8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Series 1 C, 9.25% 11/15/01 Aaa 3,188,455 3,326,707
Series 2 E, 9.4% 5/15/02 Aaa 113,155 117,731
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency): - continued
Series T 3, 9.625% 5/15/02 Aaa $ 44,623 $ 46,492
Guaranteed Export Trust Aaa 1,200,000 1,206,764
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 825,000 826,073
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 5.82% 6/15/03 (g) Aaa 4,600,000 4,539,464
secured 6.86% 4/30/04 Aaa 570,000 580,429
TOTAL U.S. GOVERNMENT AGENCY 32,771,474
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
12.5%
U.S. Treasury Bonds:
8.75% 5/15/17 Aaa 11,440,000 14,441,162
8.875% 8/15/17 Aaa 6,315,000 8,067,413
10.75% 8/15/05 Aaa 5,900,000 7,334,408
U.S. Treasury Notes:
5.875% 8/31/99 Aaa 8,600,000 8,615,893
7% 7/15/06 Aaa 180,000 190,660
TOTAL U.S. TREASURY 38,649,536
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 71,421,010
GOVERNMENT AGENCY OBLIGATIONS
(Cost $73,902,349)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 4.3%
FANNIE MAE - 2.0%
5.5% 5/1/11 to 6/1/14 Aaa 724,464 687,827
6% 11/1/10 to 1/1/26 Aaa 1,555,348 1,500,657
6.5% 5/1/08 to 2/1/26 Aaa 1,797,156 1,741,584
7% 9/1/25 to 12/1/28 Aaa 724,979 716,595
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
FANNIE MAE - CONTINUED
7.5% 1/1/28 to 5/1/28 Aaa $ 745,440 $ 752,895
8% 7/1/26 to 12/1/27 Aaa 616,193 633,326
TOTAL FANNIE MAE 6,032,884
FREDDIE MAC - 0.1%
6% 12/1/07 Aaa 53,562 52,273
8.5% 3/1/20 Aaa 211,490 222,079
TOTAL FREDDIE MAC 274,352
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 2.2%
6% 1/15/09 to 5/15/09 Aaa 877,268 856,406
6.5% 4/15/26 to 5/15/26 Aaa 849,581 819,047
7% 9/15/25 to 10/15/28 Aaa 1,496,716 1,476,665
7.5% 2/15/22 to 8/15/28 Aaa 2,655,830 2,683,918
8% 9/15/26 to 12/15/26 Aaa 525,487 540,427
11% 2/15/16 to 10/15/18 Aaa 416,750 459,283
11.5% 3/15/10 Aaa 56,985 62,525
TOTAL GOVERNMENT NATIONAL 6,898,271
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 13,205,507
- - MORTGAGE SECURITIES
(Cost $13,254,307)
ASSET-BACKED SECURITIES - 0.1%
Airplanes Pass Through Trust Ba2 260,000 245,700
10.875% 3/15/19 (Cost
$279,500)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - 21.7%
Argentinian Republic:
Bote 2.2184% 4/1/00 (h) Ba3 2,145 269
Brady par euro 6% 3/31/23 Ba3 3,940,000 2,521,600
9.75% 9/19/27 Ba3 3,020,000 2,321,625
Banco Central Costa Rica Ba1 300,000 262,500
Series A, 6.25% 5/21/10
Bank for Foreign Economic Ca 2,370,000 379,200
Affairs of Russia
(Vnesheconombank) interest
notes 6.0625% 12/15/15 (h)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Brazilian Federative Republic:
Brady:
capitalization bond 8% 4/15/14 B2 $ 3,986,258 $ 2,596,051
debt conversion bond euro B2 2,970,000 1,841,400
5.9375% 4/15/12 (h)
discount euro 5.875% 4/15/24 B2 2,020,000 1,287,750
(h)
new money bond L 5.9375% B2 3,690,000 2,587,613
4/15/09 (Bearer) (h)
global bond 10.125% 5/15/27 B2 1,750,000 1,319,063
Bulgarian Republic Brady:
discount A 5.875% 7/28/24 (h) B2 1,530,000 1,046,138
FLIRB A 2.5% 7/28/12 (h) B2 280,000 172,200
Canadian Government:
7% 12/1/06 Aa1 CAD 2,000,000 1,490,394
9% 6/1/25 Aa1 CAD 2,100,000 2,076,885
10% 5/1/02 Aa1 CAD 5,000,000 3,795,037
Central Bank of Nigeria:
6.25% 11/15/20 - 750,000 461,250
warrants 11/15/20 (a)(j) - 750 0
City of Buenos Aires euro B1 ARS 1,660,000 1,336,480
10.5% 5/28/04
Costa Rican Republic 9.335% Ba1 410,000 401,800
5/15/09 (g)
German Federal Republic:
5.625% 1/4/28 Aaa EUR 1,650,000 1,756,000
8.25% 9/20/01 Aaa EUR 3,050,000 3,478,467
Ivory Coast Brady past due - 585,000 204,750
interest 2% 3/29/18 (h)
Japan Government Series 206 Aa1 JPY 180,000,000 1,450,201
1.5% 9/22/08
Malaysian Government yankee Baa3 1,370,000 1,384,673
8.75% 6/1/09
Moscow City 9.5% 5/31/00 Caa1 1,220,000 753,350
(Reg.)
Peruvian Republic Brady:
FLIRB 3.75% 3/7/17 (h) Ba3 380,000 209,000
past due interest 4.5% 3/7/17 Ba3 510,000 314,925
(h)
Polish Republic Brady par 3% Baa3 380,000 227,050
10/27/24 (f)
Russian Federation:
euro 12.75% 6/24/28 (Reg. S) B3 2,170,000 1,220,625
9.25% 11/27/01 B3 260,000 176,150
11% 7/24/18 (Reg. S) B3 2,370,000 1,185,000
Russian Federation Ministry Ca 420,000 98,700
of Finance 3% 5/14/03
Treuhandanstalt 6.625% 7/9/03 Aaa EUR 10,650,000 12,136,209
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Turkish Republic:
global 12.375% 6/15/09 B1 $ 370,000 $ 364,913
Treasury Bill 0% 1/19/00 (l) - TRL 122,803,000 190,355
United Kingdom, Great Britain
& Northern Ireland:
8.75% 8/25/17 Aaa GBP 1,400,000 3,228,197
9.75% 8/27/02 Aaa GBP 2,000,000 3,535,676
United Mexican States:
Brady par A 6.25% 12/31/19 Ba2 1,490,000 1,106,325
unit
global bond 11.5% 5/15/26 Ba2 1,990,000 2,218,850
value recovery rights 6/30/03 - 1,000 0
discount A (a)(j)
10.375% 2/17/09 Ba2 430,000 439,138
warrants 2/17/00 (a)(j) - 11,100 704,850
Venezuelan Republic:
Brady:
debt conversion bond euro B2 2,226,182 1,722,508
6.3125% 12/18/07 (h)
FLIRB A 6% 3/31/07 (h) B2 761,900 582,854
par W-B euro 6.75% 3/31/20 B2 960,000 669,600
global bond:
13.625% 8/15/18 B2 835,000 768,200
Oil recovery rights 3/31/20 - 4,810 0
(j)
9.25% 9/15/27 B2 1,430,000 950,950
TOTAL FOREIGN GOVERNMENT AND 66,974,771
GOVERNMENT AGENCY OBLIGATIONS
(Cost $65,287,304)
SUPRANATIONAL OBLIGATIONS -
2.3%
European Investment Bank 4% Aaa EUR 2,500,000 2,427,078
4/15/09
International Bank for Aaa JPY 480,000,000 4,682,044
Reconstruction & Development
4.75% 12/20/04
TOTAL SUPRANATIONAL OBLIGATIONS 7,109,122
(Cost $7,682,135)
</TABLE>
COMMON STOCKS - 0.2%
SHARES VALUE (NOTE 1)
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Foamex-JPS Automotive 260 $ 0
LP/Foamex JPS Capital Corp.
warrants 7/1/99 (a)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. 10 0
(a)(g)
NTL, Inc. warrants 12/31/08 1,586 79,300
(a)
UIH Australia/Pacific, Inc. 570 1,140
warrants 5/15/06 (a)
80,440
LEISURE DURABLES & TOYS - 0.0%
IHF Capital, Inc. Series I 270 0
warrants 11/14/99 (a)(g)
TOTAL MEDIA & LEISURE 80,440
SERVICES - 0.0%
Spin Cycle, Inc. warrants 490 5
5/1/05 (a)(g)
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 200 61,000
warrants 12/15/07 (a)(g)
UTILITIES - 0.2%
CELLULAR - 0.1%
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 230 1,208
.47) (a)
warrants 1/15/07 (CV ratio 480 3,480
.6) (a)
McCaw International Ltd. 1,753 4,383
warrants 4/15/07 (a)(g)
Microcell Telecommunications, 5,404 42,487
Inc. Class B (a)
Orbital Imaging Corp. 1,010 30,300
warrants 3/1/05 (a)(g)
PageMart Nationwide, Inc. 2,100 15,750
(non-vtg.) (a)
Powertel, Inc. warrants 3,328 12,480
2/1/06 (a)
110,088
TELEPHONE SERVICES - 0.1%
FirstCom Corp. warrants 8,050 33,206
10/27/07 (a)(g)
InterAmericas Communications 1,750 7,219
Corp. warrants 10/27/07 (a)
KMC Telecom Holdings, Inc. 890 2,225
warrants 4/15/08 (a)(g)
MGC Communications, Inc. 916 23,816
(a)(g)
Pathnet, Inc. warrants 375 3,750
4/15/08 (a)(g)
Rhythms NetConnections, Inc. 1,280 215,219
warrants 5/15/08 (a)(g)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Source Media, Inc. warrants 1,676 $ 14,246
11/1/07 (a)(g)
Versatel Telecom BV warrants 340 17,000
5/15/08 (a)(g)
316,681
TOTAL UTILITIES 426,769
TOTAL COMMON STOCKS 568,214
(Cost $152,611)
NONCONVERTIBLE PREFERRED
STOCKS - 5.3%
CONSTRUCTION & REAL ESTATE -
0.1%
REAL ESTATE INVESTMENT TRUSTS
- - 0.1%
California Federal Preferred 15,847 412,022
Capital Corp. $2.2812
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 240 238,253
Capital Trust II 8.875%
MEDIA & LEISURE - 2.4%
BROADCASTING - 2.0%
Adelphia Communications Corp. 5,345 610,666
$13.00
Benedek Communications Corp. 996 756,960
11.5% pay-in-kind
Citadel Broadcasting Co. 5,149 597,284
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 17,034 1,865,223
Series H, 11.75% pay-in-kind 4,616 504,298
Granite Broadcasting Corp. 736 721,280
12.75% pay-in-kind
NTL, Inc. 13% pay-in-kind 796 875,600
Sinclair Capital 11.625% 2,233 232,790
6,164,101
PUBLISHING - 0.4%
PRIMEDIA, Inc.:
$9.20 1,600 149,200
8.625% 7,377 671,307
Series D, $10.00 5,733 563,267
1,383,774
TOTAL MEDIA & LEISURE 7,547,875
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - 0.2%
GROCERY STORES - 0.2%
Supermarkets General Holdings 12,725 $ 483,550
Corp. $3.52 pay-in-kind
TECHNOLOGY - 0.5%
COMPUTER SERVICES & SOFTWARE
- - 0.5%
Concentric Network Corp. 1,504 1,428,800
13.5% pay-in-kind
UTILITIES - 2.0%
CELLULAR - 0.5%
Nextel Communications, Inc.:
11.125% pay-in-kind 742 745,710
Series D, 13% pay-in-kind 974 1,027,570
1,773,280
TELEPHONE SERVICES - 1.5%
e.spire Communications, Inc.:
$127.50 pay-in-kind 20 7,100
14.75% pay-in-kind 1 430
Hyperion Telecommunication, 13 11,570
Inc. 12.875% pay-in-kind
ICG Holdings, Inc. 14.25% 801 796,995
pay-in-kind
Intermedia Communications, 1,124 1,104,330
Inc. 13.5% pay-in-kind
NEXTLINK Communications, Inc. 28,656 1,447,128
14% pay-in-kind
Source Media, Inc. 13.50% 3,663 65,934
pay-in-kind
WinStar Communications, Inc. 1,399 1,126,195
14.25%
4,559,682
TOTAL UTILITIES 6,332,962
TOTAL NONCONVERTIBLE 16,443,462
PREFERRED STOCKS
(Cost $17,194,338)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED BANK DEBT - 0.0%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
Bank for Foreign Economic Ca $ 490,000 60,638
Affairs of Russia
(Vnesheconombank) loan under
1997 restructuring Agreement
6.0625% 12/15/20 (c)(h)
(Cost $213,864)
SOVEREIGN LOAN PARTICIPATIONS
- - 0.8%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Algerian Republic loan - $ 210,000 $ 198,450
participation - The Chase
Manhattan Bank 7.3125%
3/4/00 (h)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement:
- - BankBoston Corp. 6.0625% - 4,070,000 503,663
12/15/20 (c)(h)
- - Deutsche Bank 6.0625% - 2,920,000 361,350
12/15/20 (c)(h)
- - ING Bank NV 6.0625% - 250,000 30,938
12/15/20 (c)(h)
- - Merrill Lynch, Pierce, - 630,000 77,963
Fenner & Smith, Inc. 6.0625%
12/15/20 (c)(h)
- - Morgan (J.P.) Securities, - 2,920,000 361,350
Inc. 6.0625% 12/15/20 (c)(h)
- - Paribus Capital Markets - 400,000 49,500
6.0625% 12/15/20 (c)(h)
- - The Chase Manhattan Bank - 1,710,000 211,613
6.0625% 12/15/20 (c)(h)
Moroccan Kingdom:
loan participation:
Series A - Morgan Guaranty - 404,762 328,869
Trust Co. 5.9063% 1/1/09 (h)
Series A - The Chase - 60,476 49,137
Manhattan Bank 5.9063%
1/1/09 (h)
loan participation Series A - - 208,095 169,077
ING Bank NV 5.9063% 1/1/09
(h)
loan participation Series A - - 280,000 227,500
Paribas Capital Markets
5.9063% 1/1/09 (h)
TOTAL SOVEREIGN LOAN 2,569,410
PARTICIPATIONS
(Cost $2,896,538)
</TABLE>
COMMERCIAL PAPER - 0.3%
Ford Credit Europe PLC 0% EUR 1,000,000 1,033,053
7/22/99 (Cost $1,041,301)
CASH EQUIVALENTS - 4.5%
MATURITY AMOUNT VALUE (NOTE 1)
Investments in repurchase $ 13,799,855 $ 13,798,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.84%,
dated 6/30/99 due 7/1/99
(Cost $13,798,000)
TOTAL INVESTMENT IN $ 308,753,570
SECURITIES - 100%
(Cost $314,700,709)
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest
Reduction Bonds
CURRENCY ABBREVIATIONS
ARS - Argentine peso
CAD - Canadian dollar
EUR - European Monetary Unit
GBP - British pound
JPY - Japanese yen
TRL - Turkish lira
LEGEND
(a) Non-income producing
(b) Standard & Poor's(registered trademark) credit ratings are used in
the absence of a rating by Moody's Investors Service, Inc.
(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(d) Principal amount is stated in United States dollars unless
otherwise noted.
(e) 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.
(f) 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.
(g) 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 $30,589,795 or 9.9% of net assets.
(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(i) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
(j) Quantity represents share amount.
(k) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additonal information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Sealy Corp., Inc. 10% 2/23/98 - 3/31/99 $ 540,417
12/18/08 pay-in-kind
(l) Principal amount in thousands
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 40.9% AAA, AA, A 34.2%
Baa 0.9% BBB 1.2%
Ba 6.0% BB 7.0%
B 30.7% B 32.1%
Caa 5.9% CCC 3.4%
Ca, C 0.3% CC, C 0.9%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 3.3%. FMR has
determined that unrated debt securities that are lower quality account
for 3.3% 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 67.5%
Germany 5.6
United Kingdom 4.3
Brazil 3.4
Canada 3.4
Mexico 2.3
Multi-National 2.3
Argentina 2.2
Russia 1.7
Venezuela 1.5
Luxembourg 1.4
Malaysia 1.1
Others (individually less 3.3
than 1%)
100.0%
INCOME TAX INFORMATION
At June 30, 1999, the aggregate cost of investment securities for
income tax purposes was $315,960,254. Net unrealized depreciation
aggregated $7,206,684, of which $7,039,976 related to appreciated
investment securities and $14,246,660 related to depreciated
investment securities.
The fund has elected to defer to its fiscal year ending December 31,
1999 approximately $5,876,000 of losses recognized during the period
November 1, 1998 to December 31, 1998.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 308,753,570
value (including repurchase
agreements of $13,798,000)
(cost $314,700,709) - See
accompanying schedule
Cash 1,430,910
Foreign currency held at 1,032,741
value (cost $1,032,741)
Receivable for investments 3,696,365
sold
Receivable for fund shares 1,406,688
sold
Dividends receivable 15,906
Interest receivable 5,244,228
Other receivables 5,447
TOTAL ASSETS 321,585,855
LIABILITIES
Payable for investments $ 10,878,155
purchased
Payable for fund shares 1,560,853
redeemed
Distributions payable 330,848
Accrued management fee 146,632
Distribution fees payable 114,191
Other payables and accrued 102,828
expenses
TOTAL LIABILITIES 13,133,507
NET ASSETS $ 308,452,348
Net Assets consist of:
Paid in capital $ 324,404,068
Undistributed net investment 1,866,221
income
Accumulated undistributed net (11,811,266)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (6,006,675)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 308,452,348
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
JUNE 30, 1999 (UNAUDITED)
CALCULATION OF MAXIMUM $10.48
OFFERING PRICE CLASS A: NET
ASSET VALUE and redemption
price per share
($11,595,227 (divided by)
1,106,398 shares)
Maximum offering price per $11.00
share (100/95.25 of $10.48)
CLASS T: NET ASSET VALUE and $10.47
redemption price per share
($193,689,440 (divided by)
18,490,788 shares)
Maximum offering price per $10.85
share (100/96.50 of $10.47)
CLASS B: NET ASSET VALUE and $10.49
offering price per share
($83,734,906 (divided by)
7,980,434 shares) A
CLASS C: NET ASSET VALUE and $10.47
offering price per share
($14,708,431 (divided by)
1,404,761 shares) A
INSTITUTIONAL CLASS: NET $10.53
ASSET VALUE, offering price
and redemption price per
share ($4,724,344 (divided
by) 448,466 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
INVESTMENT INCOME $ 760,297
Dividends
Interest 11,841,181
TOTAL INCOME 12,601,478
EXPENSES
Management fee $ 868,643
Transfer agent fees 275,879
Distribution fees 664,214
Accounting fees and expenses 84,167
Non-interested trustees' 311
compensation
Custodian fees and expenses 27,146
Registration fees 53,124
Audit 12,621
Legal 627
Total expenses before 1,986,732
reductions
Expense reductions (1,523) 1,985,209
NET INVESTMENT INCOME 10,616,269
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (3,665,619)
Foreign currency transactions (39,854) (3,705,473)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 454,117
Assets and liabilities in (55,346) 398,771
foreign currencies
NET GAIN (LOSS) (3,306,702)
NET INCREASE (DECREASE) IN $ 7,309,567
NET ASSETS RESULTING FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, 1998
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 10,616,269 $ 17,634,579
income
Net realized gain (loss) (3,705,473) (7,290,913)
Change in net unrealized 398,771 (8,237,745)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 7,309,567 2,105,921
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (9,544,286) (16,346,500)
From net investment income
In excess of net realized - (1,629,425)
gain
TOTAL DISTRIBUTIONS (9,544,286) (17,975,925)
Share transactions - net 22,677,666 119,784,884
increase (decrease)
TOTAL INCREASE (DECREASE) 20,442,947 103,914,880
IN NET ASSETS
NET ASSETS
Beginning of period 288,009,401 184,094,521
End of period (including $ 308,452,348 $ 288,009,401
undistributed net investment
income of $1,866,221 and
$794,238, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.560 $ 11.090 $ 11.250 $ 11.010
period
Income from Investment
Operations
Net investment income D .387 .771 .802 .267
Net realized and unrealized (.116) (.512) .198 .493
gain (loss)
Total from investment .271 .259 1.000 .760
operations
Less Distributions
From net investment income (.351) (.729) (.790) (.280)
From net realized gain - - (.370) (.240)
In excess of net realized gain - (.060) - -
Total distributions (.351) (.789) (1.160) (.520)
Net asset value, end of period $ 10.480 $ 10.560 $ 11.090 $ 11.250
TOTAL RETURN B, C 2.59% 2.38% 9.24% 6.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 11,595 $ 9,596 $ 3,379 $ 587
(000 omitted)
Ratio of expenses to average 1.08% A 1.23% 1.25% F 1.25% A, F
net assets
Ratio of expenses to average 1.08% A 1.22% G 1.24% G 1.25% A
net assets after expense
reductions
Ratio of net investment 7.41% A 7.22% 7.16% 7.32% A
income to average net assets
Portfolio turnover rate 161% A 150% 140% 119%
</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 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.
FINANCIAL HIGHLIGHTS - CLASS T
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.550 $ 11.090 $ 11.250 $ 11.000 $ 9.920
period
Income from Invest- ment
Operations
Net investment income .385 D .781 D .814 D .813 D .885
Net realized and unrealized (.118) (.535) .194 .542 1.231
gain (loss)
Total from investment .267 .246 1.008 1.355 2.116
operations
Less Distributions
From net investment income (.347) (.726) (.798) (.805) (.806)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.347) (.786) (1.168) (1.105) (1.036)
Net asset value, end of $ 10.470 $ 10.550 $ 11.090 $ 11.250 $ 11.000
period
TOTAL RETURN B, C 2.55% 2.26% 9.33% 12.89% 22.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 193,689 $ 189,755 $ 119,204 $ 99,327 $ 52,626
(000 omitted)
Ratio of expenses to average 1.14% A 1.18% 1.20% 1.23% 1.35% F
net assets
Ratio of expenses to average 1.14% A 1.17% G 1.19% G 1.22% G 1.35%
net assets after expense
reductions
Ratio of net investment 7.35% A 7.25% 7.21% 7.34% 7.28%
income to average net assets
Portfolio turnover rate 161% A 150% 140% 119% 193%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1994 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.000
period
Income from Invest- ment
Operations
Net investment income .064 D
Net realized and unrealized (.046)
gain (loss)
Total from investment .018
operations
Less Distributions
From net investment income (.098)
From net realized gain -
In excess of net realized gain -
Total distributions (.098)
Net asset value, end of $ 9.920
period
TOTAL RETURN B, C .17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 10,687
(000 omitted)
Ratio of expenses to average 1.35% A, F
net assets
Ratio of expenses to average 1.35% A
net assets after expense
reductions
Ratio of net investment 5.80% A
income to average net assets
Portfolio turnover rate 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 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.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, be- ginning $ 10.570 $ 11.100 $ 11.260 $ 11.010 $ 9.910
of period
Income from Invest- ment
Operations
Net investment income .351 D .713 D .740 D .743 D .820
Net realized and unrealized (.118) (.529) .194 .538 1.237
gain (loss)
Total from investment .233 .184 .934 1.281 2.057
operations
Less Distributions
From net investment income (.313) (.654) (.724) (.731) (.727)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.313) (.714) (1.094) (1.031) (.957)
Net asset value, end of $ 10.490 $ 10.570 $ 11.100 $ 11.260 $ 11.010
period
TOTAL RETURN B, C 2.22% 1.69% 8.60% 12.14% 21.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 83,735 $ 72,773 $ 54,562 $ 37,403 $ 26,654
(000 omitted)
Ratio of expenses to average 1.79% A 1.83% 1.86% 1.88% 2.10% F
net assets
Ratio of expenses to average 1.79% A 1.83% 1.85% G 1.87% G 2.10%
net assets after expense
reductions
Ratio of net invest- ment 6.70% A 6.56% 6.55% 6.69% 6.53%
income to average net assets
Portfolio turnover rate 161% A 150% 140% 119% 193%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
1994 E
SELECTED PER-SHARE DATA
Net asset value, be- ginning $ 10.000
of period
Income from Invest- ment
Operations
Net investment income .072 D
Net realized and unrealized (.078)
gain (loss)
Total from investment (.006)
operations
Less Distributions
From net investment income (.084)
From net realized gain -
In excess of net realized gain -
Total distributions (.084)
Net asset value, end of $ 9.910
period
TOTAL RETURN B, C (.06)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 9,379
(000 omitted)
Ratio of expenses to average 2.10% A, F
net assets
Ratio of expenses to average 2.10% A
net assets after expense
reductions
Ratio of net invest- ment 5.06% A
income to average net assets
Portfolio turnover rate 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.550 $ 11.080 $ 11.400
period
Income from Investment
Operations
Net investment income D .343 .672 .105
Net realized and unrealized (.116) (.517) .037
gain (loss)
Total from investment .227 .155 .142
operations
Less Distributions
From net investment income (.307) (.625) (.152)
From net realized gain - - (.310)
In excess of net realized gain - (.060) -
Total distributions (.307) (.685) (.462)
Net asset value, end of period $ 10.470 $ 10.550 $ 11.080
TOTAL RETURN B, C 2.17% 1.42% 1.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 14,708 $ 11,248 $ 659
(000 omitted)
Ratio of expenses to average 1.92% A 2.07% F 2.10% A, F
net assets
Ratio of net investment 6.57% A 6.37% 6.30% A
income to average net assets
Portfolio turnover rate 161% A 150% 140%
</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 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.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999 YEARS ENDED DECEMBER 31,
(UNAUDITED) 1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.610 $ 11.140 $ 11.300 $ 11.030 $ 10.890
of period
Income from Investment
Operations
Net investment income .398 D .805 D .830 D .826 D .456
Net realized and unrealized (.119) (.533) .186 .548 .340
gain (loss)
Total from investment .279 .272 1.016 1.374 .796
operations
Less Distributions
From net investment income (.359) (.742) (.806) (.804) (.426)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized - (.060) - - -
gain
Total distributions (.359) (.802) (1.176) (1.104) (.656)
Net asset value, end of $ 10.530 $ 10.610 $ 11.140 $ 11.300 $ 11.030
period
TOTAL RETURN B, C 2.65% 2.49% 9.36% 13.04% 7.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 4,724 $ 4,636 $ 6,289 $ 6,107 $ 107
(000 omitted)
Ratio of expenses to average .93% A 1.07% 1.10% F 1.10% F 1.10% A, F
net assets
Ratio of expenses to average .93% A 1.07% 1.09% G 1.10% 1.10% A
net assets after expense
reductions
Ratio of net investment 7.56% A 7.29% 7.31% 7.47% 7.53% A
income to average net assets
Portfolio turnover rate 161% A 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 June 30, 1999 (Unaudited)
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 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
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.
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.
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 $570,695 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 $2,630,048 or 0.9% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $253,889,776 and $225,435,876, respectively, of which U.S.
government and government agency obligations aggregated $40,183,492
and $34,173,485, 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 annualized 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. In
addition, FIIA entered into a sub-advisory agreement with its
subsidiary, Fidelity International Investment Advisors (U.K.) Limited
(FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may receive
investment advice and research services and may grant the sub-advisers
investment management authority to buy and sell securities. FMR pays
its sub-advisers either a portion of its management fee or a fee based
on costs incurred for these services. FIIA pays FIIA(U.K.)L a fee
based on costs incurred for either service.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of 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 $ 7,910 $ 44
CLASS T 241,128 3,200
CLASS B 350,968 254,272
CLASS C 64,208 50,557
$ 664,214 $ 308,073
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. Contingent deferred sales charges are based on declining
rates ranging from 5% to 1% for Class B and 1% for Class C, of the
lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested
dividends and capital gains. In addition, purchases of Class A and
Class T shares that were subject to a finder's fee bear a contingent
deferred sales charge on assets that do not remain in the fund for at
least one year. The Class A and Class T contingent deferred sales
charge is based on 0.25% of the lesser of the cost of shares at the
initial date of purchase or the net asset value of the redeemed
shares, excluding any reinvested dividends and capital gains. A
portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO FDC RETAINED BY FDC
CLASS A $ 35,974 $ 10,434
CLASS T 91,008 30,793
CLASS B 123,946 123,946*
CLASS C 4,529 4,529*
$ 255,457 $ 169,702
* WHEN CLASS B AND CLASS C SHARES ARE INITIALLY SOLD, FDC PAYS
COMMISSIONS FROM ITS OWN RESOURCES TO SECURITIES DEALERS, BANKS, AND
OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent for each class of the fund.
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 $ 11,700 .22*
CLASS T 175,982 .18*
CLASS B 69,942 .18*
CLASS C 13,000 .20*
INSTITUTIONAL CLASS 5,255 .22*
$ 275,879
* ANNUALIZED
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. Fidelity Service Company, Inc., an affiliate of FMR,
maintains the fund's accounting records. The fee is based on the level
of average net assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $146 under this arrangement.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $1,377 under the custodian
arrangement.
6. 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.
7. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30,1999 YEAR ENDED DECEMBER 31, 1998
FROM NET INVESTMENT INCOME
Class A $ 349,289 $ 468,016
Class T 6,357,611 10,946,403
Class B 2,306,149 4,114,994
Class C 371,973 416,895
Institutional Class 159,264 400,192
Total $ 9,544,286 $ 16,346,500
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
$ 9,544,286 $ 17,975,925
</TABLE>
8. SHARE TRANSACTIONS.
Transactions for each class of shares for the periods are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SHARES DOLLARS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1999 1998 1999
CLASS A Shares sold 333,405 900,167 $ 3,530,824
Reinvestment of distributions 26,338 40,130 278,015
Shares redeemed (162,520) (335,982) (1,721,944)
Net increase (decrease) 197,223 604,315 $ 2,086,895
CLASS T Shares sold 3,919,651 11,047,467 $ 41,356,689
Reinvestment of distributions 501,567 920,256 5,292,269
Shares redeemed (3,916,536) (4,726,297) (41,308,120)
Net increase (decrease) 504,682 7,241,426 $ 5,340,838
CLASS B Shares sold 1,886,033 4,082,575 $ 19,947,120
Reinvestment of distributions 149,657 304,841 1,581,895
Shares redeemed (942,014) (2,414,647) (9,966,455)
Net increase (decrease) 1,093,676 1,972,769 $ 11,562,560
CLASS C Shares sold 523,802 1,295,745 $ 5,521,090
Reinvestment of distributions 27,242 34,501 287,355
Shares redeemed (212,609) (323,431) (2,245,165)
Net increase (decrease) 338,435 1,006,815 $ 3,563,280
INSTITUTIONAL CLASS Shares 83,932 422,294 $ 891,824
sold
Reinvestment of distributions 9,820 32,127 104,204
Shares redeemed (82,318) (581,996) (871,935)
Net increase (decrease) 11,434 (127,575) $ 124,093
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDED DECEMBER 31,
1998
CLASS A Shares sold $ 9,908,134
Reinvestment of distributions 381,968
Shares redeemed (3,569,407)
Net increase (decrease) $ 6,720,695
CLASS T Shares sold $ 122,912,518
Reinvestment of distributions 8,937,450
Shares redeemed (51,174,332)
Net increase (decrease) $ 80,675,636
CLASS B Shares sold $ 45,035,865
Reinvestment of distributions 2,975,955
Shares redeemed (25,559,874)
Net increase (decrease) $ 22,451,946
CLASS C Shares sold $ 14,256,416
Reinvestment of distributions 315,902
Shares redeemed (3,449,844)
Net increase (decrease) $ 11,122,474
INSTITUTIONAL CLASS Shares $ 4,701,276
sold
Reinvestment of distributions 334,547
Shares redeemed (6,221,690)
Net increase (decrease) $ (1,185,867)
</TABLE>
9. CHANGE IN INDEPENDENT AUDITOR.
Based on the recommendation of the Audit Committee of the Fidelity
Advisor Strategic Income Fund, the Board of Trustees has determined
not to retain PricewaterhouseCoopers LLP as the fund's independent
auditor and voted to appoint Deloitte & Touche LLP for the fiscal year
ended December 31, 1999. For the fiscal years ended December 31, 1998
and December 31, 1997, PricewaterhouseCoopers LLP's audit reports
contained no adverse opinion or disclaimer of opinion; nor were their
reports qualified as to uncertainty, audit scope, or accounting
principles. Further, there were no disagreements between the fund and
PricewaterhouseCoopers LLP on accounting principles, financial
statement disclosure or audit scope, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to
make reference to the disagreement in their report.
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
Kevin E. Grant, Vice President
Ian Spreadbury, 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 *
ADVISORY BOARD
J. Gary Burkhead
Abigail P. Johnson
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 Emerging Asia 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 TechnoQuant (registered trademark)
Growth Fund
Fidelity Advisor Small Cap Fund
Fidelity Advisor Value Strategies 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
SII-SANN-0899 82015
1.705748.101
(Fidelity logo graphic)(registered trademark)
