(2_FIDELITY_LOGOS)
FIDELITY ADVISOR(registered trademark)
STRATEGIC INCOME
FUND - CLASS A, CLASS T, CLASS B
AND CLASS C
ANNUAL REPORT
DECEMBER 31, 1999
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 21 The managers' 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.
INDEPENDENT AUDITORS' REPORT 65 The auditors' opinion.
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:
The NASDAQ, S&P 500(Registered trademark) and Dow Jones Industrial
Average all closed 1999 at record highs. Investors should note,
however, that much of the year's returns were driven by a single
sector: technology. Most other stocks were flat or down in 1999.
Likewise, bond investors had little cause to celebrate at year's end.
Steadily rising interest rates left the benchmark 30-year Treasury at
its highest yield level in two years.
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 past five year and life
of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 6.12% 63.48% 63.76%
- - CL A
FIDELITY ADV STRATEGIC INCOME 1.08% 55.71% 55.98%
- - CL A (INCL. 4.75% SALES
CHARGE)
Fidelity Strategic Income 3.01% 58.84% 57.18%
Composite
JP EMBI Global 24.18% 110.15% 97.81%
LB Government Bond -2.23% 43.14% 43.75%
ML High Yield Master II 2.51% 60.23% 60.52%
SB Non-US Dollar World Govt -5.07% 33.20% 30.59%
Bond
ML High Yield Master 1.57% 58.21% 58.61%
Multi-Sector Income Funds 2.57% 46.46% n/a
Average
CUMULATIVE TOTAL RETURNS show Class A's performance in percentage
terms over a set period - in this case, one year, five years 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 II Index - a market
value-weighted index of all domestic and yankee high-yield bonds,
including deferred interest bonds and payment-in-kind securities.
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 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. Additionally 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 Global, 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 one year average represents
a peer group of 111 mutual funds. The benchmarks listed in the table
above include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 6.12% 10.33% 10.02%
- - CL A
FIDELITY ADV STRATEGIC INCOME 1.08% 9.26% 8.99%
- - CL A (INCL. 4.75% SALES
CHARGE)
Fidelity Strategic Income 3.01% 9.70% 9.15%
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.
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.
(checkmark)
$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 9929.10 9913.96
1994/12/31 9541.61 9896.03 10018.42
1995/01/31 9648.07 9974.20 10159.09
1995/02/28 9875.95 10138.76 10484.71
1995/03/31 10019.24 10319.30 10626.39
1995/04/30 10395.11 10653.99 10895.62
1995/05/31 10786.33 11061.91 11237.63
1995/06/30 10841.49 11137.49 11313.19
1995/07/31 10928.59 11209.27 11460.51
1995/08/31 10945.88 11212.08 11520.65
1995/09/30 11140.78 11399.46 11654.54
1995/10/31 11270.10 11460.75 11753.05
1995/11/30 11395.97 11621.05 11869.53
1995/12/31 11643.10 11872.44 12068.40
1996/01/31 11903.52 12093.29 12270.00
1996/02/29 11807.14 11976.55 12307.50
1996/03/31 11769.08 11986.43 12257.18
1996/04/30 11882.44 12063.55 12274.37
1996/05/31 11965.00 12125.55 12362.83
1996/06/30 12066.53 12248.99 12412.09
1996/07/31 12139.29 12361.96 12493.68
1996/08/31 12280.23 12497.57 12646.07
1996/09/30 12663.01 12775.35 12943.32
1996/10/31 12827.47 12936.84 13055.66
1996/11/30 13077.33 13207.97 13317.84
1996/12/31 13141.42 13240.15 13428.55
1997/01/31 13226.46 13284.43 13529.44
1997/02/28 13339.67 13379.69 13737.43
1997/03/31 13046.74 13199.49 13548.48
1997/04/30 13192.75 13336.62 13722.19
1997/05/31 13535.42 13624.41 14011.11
1997/06/30 13731.04 13819.58 14227.65
1997/07/31 14001.03 14074.80 14604.77
1997/08/31 13990.54 14055.05 14587.19
1997/09/30 14331.31 14314.22 14849.59
1997/10/31 14085.62 14212.09 14925.41
1997/11/30 14206.44 14322.92 15058.37
1997/12/31 14356.16 14453.95 15210.02
1998/01/31 14615.36 14636.31 15452.41
1998/02/28 14724.36 14737.14 15515.02
1998/03/31 14853.96 14819.24 15662.39
1998/04/30 14903.22 14918.72 15729.66
1998/05/31 14832.89 14929.54 15824.25
1998/06/30 14791.03 14946.67 15905.97
1998/07/31 14883.79 15007.25 16007.35
1998/08/31 13741.00 14267.50 15199.31
1998/09/30 14183.23 14723.21 15238.87
1998/10/31 14213.37 14823.14 14910.04
1998/11/30 14708.36 15239.16 15687.24
1998/12/31 14698.49 15258.57 15659.13
1999/01/31 14799.38 15279.37 15867.51
1999/02/28 14622.88 15070.93 15762.48
1999/03/31 14946.15 15312.79 15945.58
1999/04/30 15410.28 15573.11 16237.32
1999/05/31 15038.43 15315.21 16088.37
1999/06/30 15078.99 15324.24 16048.50
1999/07/31 15023.02 15367.93 16070.08
1999/08/31 14979.77 15319.18 15900.29
1999/09/30 15093.20 15446.91 15836.54
1999/10/31 15179.95 15500.32 15750.59
1999/11/30 15408.32 15605.15 15955.98
1999/12/31 15598.43 15718.47 16052.29
IMATRL PRASUN SHR__CHT 19991231 20000131 124623 R00000000000065
</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 December 31, 1999, the value
of the investment would have grown to $15,598 - a 55.98% 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 $16,052 - a 60.52% 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 Global, Lehman Brothers Government Bond Index,
Merrill Lynch High Yield Master II Index, and the Salomon Brothers
Non-U.S. Dollar World Government Bond Index, according to the fund's
neutral mix .* With dividends and capital gains, if any, reinvested,
the same $10,000 investment would have grown to $15,718 - a 57.18%
increase. Going forward, 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>
SEPTEMBER 3, 1996
YEARS ENDED DECEMBER 31, (COMMENCEMENT OF SALE OF
CLASS A SHARES) TO DECEMBER
31,
1999 1998 1997 1996
Dividend returns 6.97% 6.59% 7.20% 2.56%
Capital returns -0.85% -4.21% 2.04% 4.39%
Total returns 6.12% 2.38% 9.24% 6.95%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 6.84(cents) 36.19(cents) 71.30(cents)
Annualized dividend rate 7.68% 6.92% 6.81%
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 $10.48 over the past one month, $10.37 over the past six months and
$10.47 over the past one year, you can compare the class' income over
these three periods. The past one month dividends per share include
additional nonrecurring 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 past five year and life of fund total returns
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 6.15% 63.47% 63.76%
- - CL T
FIDELITY ADV STRATEGIC INCOME 2.43% 57.75% 58.03%
- - CL T (INCL. 3.50% SALES
CHARGE)
Fidelity Strategic Income 3.01% 58.84% 57.18%
Composite
JP EMBI Global 24.18% 110.15% 97.81%
LB Government Bond -2.23% 43.14% 43.75%
ML High Yield Master II 2.51% 60.23% 60.52%
SB Non-US Dollar World Govt -5.07% 33.20% 30.59%
Bond
ML High Yield Master 1.57% 58.21% 58.61%
Multi-Sector Income Funds 2.57% 46.46% n/a
Average
CUMULATIVE TOTAL RETURNS show Class T's performance in percentage
terms over a set period - in this case, one year, five years 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 II Index - a market
value-weighted index of all domestic and yankee high-yield bonds,
including deferred interest bonds and payment-in-kind securities.
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 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. Additionally 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 Global, 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 one year average represents
a peer group of 111 mutual funds. The benchmarks listed in the table
above include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 6.15% 10.33% 10.02%
- - CL T
FIDELITY ADV STRATEGIC INCOME 2.43% 9.55% 9.26%
- - CL T (INCL. 3.50% SALES
CHARGE)
Fidelity Strategic Income 3.01% 9.70% 9.15%
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.
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.
(checkmark)
$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 9929.10 9913.96
1994/12/31 9666.83 9896.03 10018.42
1995/01/31 9774.68 9974.20 10159.09
1995/02/28 10005.55 10138.76 10484.71
1995/03/31 10150.73 10319.30 10626.39
1995/04/30 10531.53 10653.99 10895.62
1995/05/31 10927.88 11061.91 11237.63
1995/06/30 10983.77 11137.49 11313.19
1995/07/31 11072.01 11209.27 11460.51
1995/08/31 11089.52 11212.08 11520.65
1995/09/30 11286.98 11399.46 11654.54
1995/10/31 11418.00 11460.75 11753.05
1995/11/30 11545.52 11621.05 11869.53
1995/12/31 11795.90 11872.44 12068.40
1996/01/31 12059.74 12093.29 12270.00
1996/02/29 11962.09 11976.55 12307.50
1996/03/31 11923.53 11986.43 12257.18
1996/04/30 12038.38 12063.55 12274.37
1996/05/31 12122.02 12125.55 12362.83
1996/06/30 12224.89 12248.99 12412.09
1996/07/31 12298.60 12361.96 12493.68
1996/08/31 12441.38 12497.57 12646.07
1996/09/30 12830.13 12775.35 12943.32
1996/10/31 12997.13 12936.84 13055.66
1996/11/30 13251.26 13207.97 13317.84
1996/12/31 13315.91 13240.15 13428.55
1997/01/31 13391.70 13284.43 13529.44
1997/02/28 13518.64 13379.69 13737.43
1997/03/31 13222.75 13199.49 13548.48
1997/04/30 13371.63 13336.62 13722.19
1997/05/31 13720.32 13624.41 14011.11
1997/06/30 13919.62 13819.58 14227.65
1997/07/31 14194.54 14074.80 14604.77
1997/08/31 14185.26 14055.05 14587.19
1997/09/30 14518.67 14314.22 14849.59
1997/10/31 14282.39 14212.09 14925.41
1997/11/30 14393.11 14322.92 15058.37
1997/12/31 14558.12 14453.95 15210.02
1998/01/31 14805.33 14636.31 15452.41
1998/02/28 14927.20 14737.14 15515.02
1998/03/31 15058.21 14819.24 15662.39
1998/04/30 15105.82 14918.72 15729.66
1998/05/31 15036.26 14929.54 15824.25
1998/06/30 14994.41 14946.67 15905.97
1998/07/31 15088.85 15007.25 16007.35
1998/08/31 13918.00 14267.50 15199.31
1998/09/30 14367.82 14723.21 15238.87
1998/10/31 14397.26 14823.14 14910.04
1998/11/30 14912.03 15239.16 15687.24
1998/12/31 14887.81 15258.57 15659.13
1999/01/31 15002.45 15279.37 15867.51
1999/02/28 14822.20 15070.93 15762.48
1999/03/31 15135.03 15312.79 15945.58
1999/04/30 15604.79 15573.11 16237.32
1999/05/31 15242.05 15315.21 16088.37
1999/06/30 15268.00 15324.24 16048.50
1999/07/31 15209.38 15367.93 16070.08
1999/08/31 15164.02 15319.18 15900.29
1999/09/30 15278.27 15446.91 15836.54
1999/10/31 15380.42 15500.32 15750.59
1999/11/30 15596.21 15605.15 15955.98
1999/12/31 15802.81 15718.47 16052.29
IMATRL PRASUN SHR__CHT 19991231 20000131 141329 R00000000000065
</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 December 31, 1999, the value
of the investment would have grown to $15,803 - a 58.03% 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 $16,052 - a 60.52% 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 Global, Lehman Brothers Government Bond Index,
Merrill Lynch High Yield Master II Index, and the Salomon Brothers
Non-U.S. Dollar World Government Bond Index, according to the fund's
neutral mix .* With dividends and capital gains, if any, reinvested,
the same $10,000 investment would have grown to $15,718 - a 57.18%
increase. Going forward, 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
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
Dividend returns 6.91% 6.56% 7.29% 7.73% 8.65%
Capital returns -0.76% -4.30% 2.04% 5.16% 13.37%
Total returns 6.15% 2.26% 9.33% 12.89% 22.02%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 6.78(cents) 35.76(cents) 70.50(cents)
Annualized dividend rate 7.62% 6.85% 6.74%
30-day annualized yield 7.28% - -
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 $10.47 over the past one month, $10.36 over the past six months,
and $10.46 over the past one year, you can compare the class' income
over these three periods. The past one month dividends per share
include additional nonrecurring distributions required by federal tax
regulations. These distributions may not be reflected in future
monthly dividends. The 30-day annualized YIELD is a standard formula
for all bond funds based on the yields of the bonds in the fund,
averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It
also helps you to compare funds from different companies on an equal
basis. The offering share price used in the calculation of the yield
includes the effect of Class T's 3.50% sales charge.
FIDELITY ADVISOR STRATEGIC INCOME FUND - CLASS B
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can
look at the total percentage change in value, the average annual
percentage change or the growth of a hypothetical $10,000 investment.
Total return reflects the change in the value of an investment,
assuming reinvestment of the class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield to measure performance. Class B shares' contingent deferred
sales charge included in the past one year, five year and life of fund
total return figures are 5%, 2% and 1%, respectively. If Fidelity had
not reimbursed certain class expenses, the past five year and life of
fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEAR LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 5.45% 58.48% 58.38%
- - CL B
FIDELITY ADV STRATEGIC INCOME 0.49% 56.48% 57.38%
- - CL B (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 3.01% 58.84% 57.18%
Composite
JP EMBI Global 24.18% 110.15% 97.81%
LB Government Bond -2.23% 43.14% 43.75%
ML High Yield Master II 2.51% 60.23% 60.52%
SB Non-US Dollar World Govt -5.07% 33.20% 30.59%
Bond
ML High Yield Master 1.57% 58.21% 58.61%
Multi-Sector Income Funds 2.57% 46.46% n/a
Average
CUMULATIVE TOTAL RETURNS show Class B's performance in percentage
terms over a set period - in this case, one year, five years 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 II Index - a market
value-weighted index of all domestic and yankee high-yield bonds,
including deferred interest bonds and payment-in-kind securities.
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 the Class B's returns to 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. Additionally 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 Global, 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 one year average represents
a peer group of 111 mutual funds. The benchmarks listed in the table
above include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 5.45% 9.65% 9.31%
- - CL B
FIDELITY ADV STRATEGIC INCOME 0.49% 9.37% 9.17%
- - CL B (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 3.01% 9.70% 9.15%
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.
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.
(checkmark)
$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 9929.10 9913.96
1994/12/31 9993.77 9896.03 10018.42
1995/01/31 10109.93 9974.20 10159.09
1995/02/28 10342.97 10138.76 10484.71
1995/03/31 10496.27 10319.30 10626.39
1995/04/30 10883.14 10653.99 10895.62
1995/05/31 11285.68 11061.91 11237.63
1995/06/30 11326.35 11137.49 11313.19
1995/07/31 11420.96 11209.27 11460.51
1995/08/31 11431.98 11212.08 11520.65
1995/09/30 11617.60 11399.46 11654.54
1995/10/31 11755.36 11460.75 11753.05
1995/11/30 11878.64 11621.05 11869.53
1995/12/31 12127.76 11872.44 12068.40
1996/01/31 12391.44 12093.29 12270.00
1996/02/29 12283.74 11976.55 12307.50
1996/03/31 12237.32 11986.43 12257.18
1996/04/30 12347.83 12063.55 12274.37
1996/05/31 12426.63 12125.55 12362.83
1996/06/30 12525.39 12248.99 12412.09
1996/07/31 12594.31 12361.96 12493.68
1996/08/31 12733.18 12497.57 12646.07
1996/09/30 13123.27 12775.35 12943.32
1996/10/31 13286.86 12936.84 13055.66
1996/11/30 13539.79 13207.97 13317.84
1996/12/31 13599.52 13240.15 13428.55
1997/01/31 13681.65 13284.43 13529.44
1997/02/28 13803.67 13379.69 13737.43
1997/03/31 13482.16 13199.49 13548.48
1997/04/30 13638.86 13336.62 13722.19
1997/05/31 13973.99 13624.41 14011.11
1997/06/30 14181.74 13819.58 14227.65
1997/07/31 14453.55 14074.80 14604.77
1997/08/31 14423.79 14055.05 14587.19
1997/09/30 14767.17 14314.22 14849.59
1997/10/31 14518.78 14212.09 14925.41
1997/11/30 14623.24 14322.92 15058.37
1997/12/31 14769.60 14453.95 15210.02
1998/01/31 15025.93 14636.31 15452.41
1998/02/28 15128.43 14737.14 15515.02
1998/03/31 15266.11 14819.24 15662.39
1998/04/30 15306.75 14918.72 15729.66
1998/05/31 15227.35 14929.54 15824.25
1998/06/30 15175.85 14946.67 15905.97
1998/07/31 15263.44 15007.25 16007.35
1998/08/31 14073.13 14267.50 15199.31
1998/09/30 14519.06 14723.21 15238.87
1998/10/31 14526.86 14823.14 14910.04
1998/11/30 15051.23 15239.16 15687.24
1998/12/31 15018.95 15258.57 15659.13
1999/01/31 15111.61 15279.37 15867.51
1999/02/28 14936.11 15070.93 15762.48
1999/03/31 15242.68 15312.79 15945.58
1999/04/30 15706.73 15573.11 16237.32
1999/05/31 15334.34 15315.21 16088.37
1999/06/30 15352.32 15324.24 16048.50
1999/07/31 15285.45 15367.93 16070.08
1999/08/31 15231.80 15319.18 15900.29
1999/09/30 15338.05 15446.91 15836.54
1999/10/31 15432.17 15500.32 15750.59
1999/11/30 15639.90 15605.15 15955.98
1999/12/31 15738.00 15718.47 16052.29
IMATRL PRASUN SHR__CHT 19991231 20000131 164639 R00000000000065
</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
December 31, 1999, the value of the investment, including the effect
of the contingent deferred sales charge, would have grown to $15,738 -
a 57.38% 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 $16,052 -
a 60.52% 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 Global, Lehman Brothers Government
Bond Index, Merrill Lynch High Yield Master II Index, and the Salomon
Brothers Non-U.S. Dollar World Government Bond Index, according to the
fund's neutral mix. * With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,718 -
a 57.18% increase. Going forward, 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
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
Dividend returns 6.21% 5.89% 6.58% 7.00% 7.78%
Capital returns -0.76% -4.20% 2.02% 5.14% 13.57%
Total returns 5.45% 1.69% 8.60% 12.14% 21.35%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 6.21(cents) 32.42(cents) 63.73(cents)
Annualized dividend rate 6.97% 6.20% 6.08%
30-day annualized yield 6.88% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number based on an average share price
of $10.49 over the past one month, $10.38 over the past six months,
and $10.48 over the past one year, you can compare the class' income
over these three periods. The past one month dividends per share
include additional nonrecurring 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, as reflected in its
yield, to measure performance. The initial offering of Class C shares
took place on November 3, 1997. Class C shares bear a 1.00% 12b-1 fee
that is reflected in returns after November 3, 1997. Returns prior to
November 3, 1997 are those of Class B shares and reflect Class B
shares' 0.90% 12b-1 fee (1.00% prior to January 1, 1996). If Class C
shares 12b-1 fee had been reflected, returns between January 1, 1996
and November 3, 1997 would have been lower. Class C shares' contingent
deferred sales charge included in the past one year, five year, and
life of fund total return figures are 1% and 0%, 0%, respectively. If
Fidelity had not reimbursed certain class expenses, the past five year
and life of fund total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 5.25% 57.67% 57.57%
- - CL C
FIDELITY ADV STRATEGIC INCOME 4.26% 57.67% 57.57%
- - CL C (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 3.01% 58.84% 57.18%
Composite
JP EMBI Global 24.18% 110.15% 97.81%
LB Government Bond -2.23% 43.14% 43.75%
ML High Yield Master II 2.51% 60.23% 60.52%
SB Non-US Dollar World Govt -5.07% 33.20% 30.59%
Bond
ML High Yield Master 1.57% 58.21% 58.61%
Multi-Sector Income Funds 2.57% 46.46% n/a
Average
CUMULATIVE TOTAL RETURNS show Class C's performance in percentage
terms over a set period - in this case, one year, five years 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 II Index - a market
value-weighted index of all domestic and yankee high-yield bonds,
including deferred interest bonds and payment-in-kind securities.
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 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. Additionally 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 Global, 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 one year average represents
a peer group of 111 mutual funds. The benchmarks listed in the table
above include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 5.25% 9.53% 9.20%
- - CL C
FIDELITY ADV STRATEGIC INCOME 4.26% 9.53% 9.20%
- - CL C (INCL. CONTINGENT
DEFERRED SALES CHARGE)
Fidelity Strategic Income 3.01% 9.70% 9.15%
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.
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.
(checkmark)
$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 9929.10 9913.96
1994/12/31 9993.77 9896.03 10018.42
1995/01/31 10109.93 9974.20 10159.09
1995/02/28 10342.97 10138.76 10484.71
1995/03/31 10496.27 10319.30 10626.39
1995/04/30 10883.14 10653.99 10895.62
1995/05/31 11285.68 11061.91 11237.63
1995/06/30 11326.35 11137.49 11313.19
1995/07/31 11420.96 11209.27 11460.51
1995/08/31 11431.98 11212.08 11520.65
1995/09/30 11617.60 11399.46 11654.54
1995/10/31 11755.36 11460.75 11753.05
1995/11/30 11878.64 11621.05 11869.53
1995/12/31 12127.76 11872.44 12068.40
1996/01/31 12391.44 12093.29 12270.00
1996/02/29 12283.74 11976.55 12307.50
1996/03/31 12237.32 11986.43 12257.18
1996/04/30 12347.83 12063.55 12274.37
1996/05/31 12426.63 12125.55 12362.83
1996/06/30 12525.39 12248.99 12412.09
1996/07/31 12594.31 12361.96 12493.68
1996/08/31 12733.18 12497.57 12646.07
1996/09/30 13123.27 12775.35 12943.32
1996/10/31 13286.86 12936.84 13055.66
1996/11/30 13539.79 13207.97 13317.84
1996/12/31 13599.52 13240.15 13428.55
1997/01/31 13681.65 13284.43 13529.44
1997/02/28 13803.67 13379.69 13737.43
1997/03/31 13482.16 13199.49 13548.48
1997/04/30 13638.86 13336.62 13722.19
1997/05/31 13973.99 13624.41 14011.11
1997/06/30 14181.74 13819.58 14227.65
1997/07/31 14453.55 14074.80 14604.77
1997/08/31 14423.79 14055.05 14587.19
1997/09/30 14767.17 14314.22 14849.59
1997/10/31 14518.78 14212.09 14925.41
1997/11/30 14605.97 14322.92 15058.37
1997/12/31 14761.52 14453.95 15210.02
1998/01/31 14999.89 14636.31 15452.41
1998/02/28 15112.41 14737.14 15515.02
1998/03/31 15245.74 14819.24 15662.39
1998/04/30 15283.34 14918.72 15729.66
1998/05/31 15200.14 14929.54 15824.25
1998/06/30 15146.44 14946.67 15905.97
1998/07/31 15230.47 15007.25 16007.35
1998/08/31 14036.76 14267.50 15199.31
1998/09/30 14492.58 14723.21 15238.87
1998/10/31 14497.59 14823.14 14910.04
1998/11/30 15003.67 15239.16 15687.24
1998/12/31 14970.49 15258.57 15659.13
1999/01/31 15063.18 15279.37 15867.51
1999/02/28 14887.58 15070.93 15762.48
1999/03/31 15191.59 15312.79 15945.58
1999/04/30 15653.23 15573.11 16237.32
1999/05/31 15264.25 15315.21 16088.37
1999/06/30 15294.92 15324.24 16048.50
1999/07/31 15227.28 15367.93 16070.08
1999/08/31 15172.90 15319.18 15900.29
1999/09/30 15277.49 15446.91 15836.54
1999/10/31 15354.89 15500.32 15750.59
1999/11/30 15575.64 15605.15 15955.98
1999/12/31 15756.93 15718.47 16052.29
IMATRL PRASUN SHR__CHT 19991231 20000131 141006 R00000000000065
</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
December 31, 1999, the value of the investment, would have grown to
$15,757 - a 57.57% 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 $16,052 -
a 60.52% 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 Global, Lehman Brothers Government
Bond Index, Merrill Lynch High Yield Master II Index, and the Salomon
Brothers Non-U.S. Dollar World Government Bond Index, according to the
fund's neutral mix. * With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,718 -
a 57.18% increase. Going forward, 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
YEARS ENDED DECEMBER 31, (COMMENCEMENT OF SALE OF
CLASS C SHARES) TO DECEMBER
31,
1999 1998 1997
Dividend returns 6.10% 5.63% 1.36%
Capital returns -0.85% -4.21% -0.09%
Total returns 5.25% 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 DECEMBER 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 6.11(cents) 31.88(cents) 62.60(cents)
Annualized dividend rate 6.87% 6.10% 5.98%
30-day annualized yield 6.78% - -
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 $10.47 over the past one month, $10.36 over the past six months,
and $10.46 over the past one year, you can compare the class' income
over these three periods. The past one month dividends per share
include additional nonrecurring 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 C's contingent deferred sales charge.
FUND TALK: THE MANAGERS' OVERVIEW
MARKET RECAP
Concern over rising interest rates,
spurred by strengthening global
economies, left most bond investors
looking much the worse for wear
during the 12-month period that
ended December 31, 1999. Continued
non-inflationary growth in the U.S.
economy, as well as a sharp rally
in worldwide commodity prices -
driven by a dramatic rebound in oil -
provided the lifeblood for widespread
recovery in international markets
during this time frame. Outside of
positive performing Canadian and
Japanese issues - beneficiaries of
strong local currencies - higher rates
proved insurmountable for most other
non-U.S. developed markets, which
produced negative returns in local
currency terms. A markedly weak
euro, coupled with firming supply
pressures, felled bond prices in
Germany, France and Italy. On the
other side of the coin, supported by
favorable external and domestic
conditions, emerging-market debt
made solid strides toward recovery,
outpacing most other fixed-income
markets during the period. Russia
was the big winner, garnering interest
from the world for its commitment to
enacting wide-sweeping economic
reform. Having emerged from
recession, Brazil benefited from
bullish investor sentiment forming in
support of its own array of
progressive reform measures.
Similarly, signs of economic expansion
and strong growth prospects
buoyed both Mexico and Argentina,
while Venezuela continued to trail the
broader market due to political
uncertainty.
(Photographs of John Carlson, Kevin Grant, Mark Notkin and Ian
Spreadbury)
The following is an interview with John Carlson (top left), Lead
Portfolio Manager of Fidelity Advisor Strategic Income Fund, with
additional comments from Kevin Grant (top right), on U.S. government
and investment-grade securities; Mark Notkin (lower left) on
high-yield securities; and Ian Spreadbury (lower right) on foreign
developed-market securities. John Carlson also manages the
emerging-markets portion of the fund.
Q. HOW DID THE FUND PERFORM, JOHN?
J.C. Very well relative to its benchmark and peers. For the 12 months
ending December 31, 1999, the fund's Class A, Class T, Class B and
Class C shares returned 6.12%, 6.15%, 5.45% and 5.25%, respectively.
The multi-sector income funds average, as tracked by Lipper Inc.,
returned 2.57%. The Merrill Lynch High Yield Master II Index returned
2.51%.
Q. WHAT LED TO THE FUND'S STRONG PERFORMANCE?
J.C. There are four subportfolios that make up the fund: emerging
markets, high-yield, foreign developed markets and U.S.
investment-grade debt. Each one contributed in its own way to the
fund's overall performance. The entire fund was positively influenced
by strong, continued growth in the U.S. economy and recovery in the
global markets.
Q. MARK, HOW DID THE HIGH-YIELD SUBPORTFOLIO PERFORM IN 1999 AND WHAT
WAS YOUR FOCUS?
M.N. The subportfolio's outperformance compared to its benchmark was
driven primarily by individual security selection and, to a lesser
extent, industry selection. Most of the positive performance of the
high-yield market occurred early in 1999 and again in the fourth
quarter. During the May through October time period, performance was
hampered by higher Treasury yields, volatile equity markets and Y2K
fears, which dampened investor confidence. The subportfolio was
overweighted in telecommunications and cable, while underweighted in
health care, and both weightings contributed to performance. Cable
industry fundamentals were very strong, demonstrating solid earnings
growth, debt reduction and increased revenue streams. Deregulation of
that industry - allowing emerging telecommunications companies to take
market share from established companies - has come at a time when the
industry is enjoying significant growth due to consumer demand for
data and Internet services. Securities of Nextel, a national wireless
telephone operator, appreciated during the year due to increasing
subscribers and strong earnings growth. Several CLEC (competitive
local exchange carriers) positions, such as Covad Communications,
Intermedia Communications and WinStar Communications also were strong
contributors. Detractors included Jitney-Jungle and CKE Restaurants,
which are no longer held in the fund.
Q. JOHN, WOULD YOU HIGHLIGHT SOME OF THE EVENTS THAT AFFECTED THE
EMERGING-MARKET DEBT PORTION OF THE FUND DURING 1999?
J.C. Of course. Russia was the big story in 1998, and it was again in
1999. However, this time the story was good - after having been
oversold and distressed in 1998, the Russian market is recovering. Its
government adopted a number of prudent fiscal and monetary policies,
with the result being that Russia ended the year as the
best-performing country in the index. The fund's overweighted position
in Russia was the largest contributor to performance. The fund's
holdings in Brazil also aided performance. In January 1999, Brazil
devalued its local currency, the real, sending valuations downward.
Its government used the crisis to enact reforms in its social security
system, and valuations rebounded by year's end. Another significant
factor was the worldwide rally in the commodities markets; most
notable was the near doubling of oil prices during the year. This had
a positive effect on a number of emerging-market countries, since most
of them are commodity exporters.
Q. KEVIN, HOW DID THE U.S. GOVERNMENT SECTOR OF THE PORTFOLIO FARE?
K.G. The subportfolio ended the year in line with its benchmark, which
is what it should do. The subportfolio is designed to be the stable
component of the larger portfolio and to add value by credit selection
and trading efficiencies. Long-term bonds began 1999 with unusually
low interest rates, as a result of the flight to quality during 1998
caused by the crisis in world markets. Interest rates that low simply
could not be sustained. During 1999, interest rates rose rapidly as
the world markets rebounded and investor confidence returned. While
the returns on the subportfolio were not as high as they were last
year, there was a positive note: Higher levels of interest rates have
increased the income stream into the portfolio. The income creates a
cushion for market activity; if interest rates continue to rise, the
income will offset the impact of lower returns and, if rates remain
steady or decline, then the bond market could post strong returns.
Q. IAN, WHAT WAS YOUR STRATEGY FOR THE FOREIGN DEVELOPED-COUNTRY
SUBPORTFOLIO DURING 1999?
I.S. The recovery of the world markets, particularly the emerging
countries, was not necessarily good news for the G-7 markets. The yen
strengthened over the period as positive economic news from Japan
showed signs of recovery. The euro declined during the year, driven by
a relatively weak economy in Western Europe as well as loose monetary
policy. The fund was able, however, to take advantage of selective
investment opportunities created by the large number of euros issued,
especially in the lower-quality investment-grade categories. The
British sterling portfolio has seen historically wide spreads, partly
driven by the high cost of gilts, or British government bond,
portfolio and has provided good investment opportunities. One of the
strategies I successfully employed during the year was underweighting
medium duration bonds in the gilt, anticipating their underperformance
relative to short and long duration bonds.
Q. JOHN, AS LEAD PORTFOLIO MANAGER, WHAT'S YOUR OUTLOOK FOR THE FUND?
J.C. More of the same - and by that I mean the fund's investment
strategy of strategic allocations to four subportfolios will be
maintained. Emphasis will continue to be placed on individual security
selection utilizing Fidelity's extensive credit research capabilities.
We look for continued growth from the high-yield and emerging-markets
portfolios, and diversification and liquidity from the foreign
developed-markets and investment-grade portfolios.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER 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.
JOHN CARLSON DISCUSSES
THE FUND'S NEUTRAL
INVESTMENT ALLOCATION:
"There are four subportfolios that
make up this fund: U.S. high-yield
(40%), U.S. government (30%),
non-U.S. developed markets (15%),
and emerging-market debt (15%).
Fidelity conducted extensive
research to determine the optimal
mix to maximize diversification
and return. The U.S. high-yield and
emerging-market subportfolios
typically provide the bulk of the
return while assuming the most risk.
The U.S. government sector provides
stability and liquidity, while the
non-U.S. developed-market portion
adds diversification, primarily
through currency exposure.
"The contrasting market
environments of 1998 and 1999 clearly
demonstrate how the neutral
investment strategy works. In 1998,
adverse conditions for the high-yield
and emerging-debt markets led to
negative returns in those
subportfolios. Positive returns were
created in the two remaining
subportfolios by those same forces. In
1999, the story was reversed, when
U.S. high-yield and emerging-market
debt recovered against a backdrop of
higher developed-country interest
rates and a stronger U.S. dollar. The
fund's success through these two
markedly different environments
supports our research that at least
two of the four sectors provide
positive returns to the fund on a
quarterly basis.
"The portfolio's neutral investment
mix was designed to succeed across
an entire market cycle. Looking
forward, we anticipate making no
changes to the fund's structure. We
do not believe it is possible to predict
the direction of markets consistently;
instead, we rely on the individual
portfolio managers to add value over
their benchmarks."
FUND FACTS
GOAL: a high level of current
income by investing primarily
in debt securities; as a
secondary objective, the fund
may seek capital
appreciation
START DATE: October 31,
1994
SIZE: as of December 31,
1999, more than $309
million
MANAGER: John Carlson, lead
and emerging-markets
manager, since 1996 and
1999, respectively; Kevin
Grant, U.S. government
investments; since 1998;
Mark Notkin, high-yield
investments, since 1999; and
Ian Spreadbury, foreign
developed-market securities,
since 1998
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S NET ASSETS % OF FUND'S NET ASSETS 6
EQUIVALENTS) MONTHS AGO
U.S. Treasury Obligations 15.5 12.6
Fannie Mae 5.3 5.9
Canadian Government 3.0 2.4
Federative Republic of Brazil 2.7 3.0
Federal Home Loan Bank 2.5 2.8
29.0 26.7
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS % OF FUND'S NET ASSETS 6
MONTHS AGO
MEDIA & LEISURE 16.7 15.7
UTILITIES 10.0 11.4
BASIC INDUSTRIES 3.9 3.6
TECHNOLOGY 2.1 1.9
FINANCE 2.0 1.7
QUALITY DIVERSIFICATION AS OF
DECEMBER 31, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa, Aa, A 42.4 40.9
Baa 1.2 1.2
Ba 4.8 6.4
B 34.4 30.7
Caa, Ca, C 5.7 6.9
Not Rated 2.2 3.3
</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 DECEMBER 31,
1999 AND JUNE 30, 1999 ACCOUNT FOR 2.2% AND 3.3% RESPECTIVELY OF
THE FUND'S INVESTMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
NET ASSETS)
AS OF DECEMBER 31, 1999 * AS OF JUNE 30, 1999 **
Corporate Bonds 35.6% Corporate Bonds 37.4%
U.S. Government and U.S. Government and
Government Agency Government Agency
Obligations 29.0% Obligations 27.5%
Foreign Government & Foreign Government &
Government Agency Government Agency
Obligations 23.0% Obligations 21.6%
Stocks 6.6% Stocks 5.5%
Other Investments 1.5% Other Investments 3.2%
Short-Term Investments and Short-Term Investments and
Net Other Assets 4.3% Net Other Assets 4.8%
</TABLE>
Row: 1, Col: 1, Value: 35.6
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 29.0
Row: 1, Col: 4, Value: 23.0
Row: 1, Col: 5, Value: 6.6
Row: 1, Col: 6, Value: 1.5
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.3
Row: 1, Col: 1, Value: 37.4
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 27.5
Row: 1, Col: 4, Value: 21.6
Row: 1, Col: 5, Value: 5.5
Row: 1, Col: 6, Value: 3.2
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.8
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
INVESTMENTS DECEMBER 31, 1999
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 35.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
CONVERTIBLE BONDS - 1.1%
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Total Renal Care Holdings, B1 $ 960,000 $ 602,400
Inc. 7% 5/15/09 (h)
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.3%
EchoStar Communications Corp. - 600,000 736,500
4.875% 1/1/07 (h)
NTL, Inc. 5.75% 12/15/09 (h) - 344,000 370,660
1,107,160
LODGING & GAMING - 0.2%
Signature Resorts, Inc. 5.75% Caa1 960,000 573,600
1/15/07
TOTAL MEDIA & LEISURE 1,680,760
RETAIL & WHOLESALE - 0.2%
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
Sunglass Hut International, B3 660,000 537,075
Inc. 5.25% 6/15/03
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
Telekom Malaysia BHD 4% Baa3 830,000 713,800
10/3/04
TOTAL CONVERTIBLE BONDS 3,534,035
NONCONVERTIBLE BONDS - 34.5%
BASIC INDUSTRIES - 3.9%
CHEMICALS & PLASTICS - 1.7%
Berry Plastics Corp. 11% B3 590,000 598,850
7/15/07 (h)
Georgia Gulf Corp. 10.375% B1 80,000 83,500
11/1/07 (h)
Huntsman Corp. 9.5% 7/1/07 (h) B2 940,000 888,300
Huntsman ICI Chemicals LLC B2 1,200,000 1,233,000
10.125% 7/1/09 (h)
Lyondell Chemical Co.:
9.625% 5/1/07 Ba3 750,000 765,000
9.875% 5/1/07 Ba3 850,000 867,000
10.875% 5/1/09 B2 710,000 734,850
5,170,500
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 0.2%
WHX Corp. 10.5% 4/15/05 B3 $ 560,000 $ 548,800
METALS & MINING - 0.3%
Better Minerals & Aggregates B3 280,000 280,700
Co. 13% 9/15/09 (h)
Kaiser Aluminum & Chemical B3 780,000 780,000
Corp. 12.75% 2/1/03
1,060,700
PACKAGING & CONTAINERS - 0.9%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 520,000 483,600
9.75% 6/15/07 Caa1 700,000 665,000
Packaging Corp. of America B3 1,770,000 1,807,613
9.625% 4/1/09
2,956,213
PAPER & FOREST PRODUCTS - 0.8%
Container Corp. of America:
gtd.:
9.75% 4/1/03 B2 210,000 216,300
11.25% 5/1/04 B2 50,000 51,625
10.75% 5/1/02 B2 70,000 72,625
Florida Coast Paper Co. LLC Ca 690,000 441,600
Florida Coast Paper Finance
Corp. Series B, 12.75%
6/1/03 (c)
Millar Western Forest B3 565,000 565,000
Products Ltd. 9.875% 5/15/08
Repap New Brunswick, Inc. Caa1 470,000 433,575
yankee 10.625% 4/15/05
Stone Container Corp. 12.58% B2 560,000 596,400
8/1/16 (i)
2,377,125
TOTAL BASIC INDUSTRIES 12,113,338
CONSTRUCTION & REAL ESTATE -
0.4%
CONSTRUCTION - 0.4%
Blount, Inc.:
7% 6/15/05 B2 385,000 333,988
13% 8/1/09 (h) B3 700,000 738,500
1,072,488
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
DURABLES - 0.7%
CONSUMER DURABLES - 0.1%
Simonds Industries, Inc. B3 $ 400,000 $ 320,000
10.25% 7/1/08
HOME FURNISHINGS - 0.6%
Omega Cabinets Ltd. 10.5% B3 720,000 716,400
6/15/07
Sealy Corp., Inc. 10% - 637,164 618,050
12/18/08 pay-in-kind (l)
Sealy Mattress Co. 9.875% B3 170,000 168,300
12/15/07
Winsloew Furniture, Inc. B2 440,000 420,200
12.75% 8/15/07 (h)
1,922,950
TOTAL DURABLES 2,242,950
ENERGY - 0.4%
ENERGY SERVICES - 0.2%
Petroliam Nasional BHD Baa3 790,000 699,150
(Petronas) yankee 7.625%
10/15/26 (h)
OIL & GAS - 0.2%
Petroleos Mexicanos 9.5% BB 450,000 441,000
9/15/27
TOTAL ENERGY 1,140,150
FINANCE - 1.9%
BANKS - 0.6%
Banco Nacional de
Desenvolvimento Economico e
Social:
12.193% 6/16/08 (i) B2 1,710,000 1,547,550
12.193% 6/16/08 (h)(i) B2 500,000 452,500
2,000,050
CREDIT & OTHER FINANCE - 1.2%
AMRESCO, Inc. 9.875% 3/15/05 Caa3 351,000 233,415
APP International Finance
(Mauritius) Ltd.:
0% 7/7/00 (h) Caa1 290,000 266,800
0% 7/7/00 (Reg. S) Caa1 280,000 257,600
APP International Finance Co. Caa1 1,050,000 884,625
11.75% 10/1/05
Kappa Beheer BV 10.625% B2 715,000 747,175
7/15/09 (h)
Macsaver Financial Services, Ba2 80,000 48,000
Inc. 7.4% 2/15/02
Sealed Air Finance II BV euro Baa3 EUR 1,000,000 966,800
5.625% 7/19/06
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
Stone Container Finance Co. B2 $ 120,000 $ 127,200
11.5% 8/15/06 (h)
WinStar Equipment II Corp. CCC+ 145,000 152,250
12.5% 3/15/04
3,683,865
INVESTMENT COMPANIES - 0.1%
Astra Overseas Finance BV - 550,000 189,750
(Reg. S) 0% 6/30/06
TOTAL FINANCE 5,873,665
HEALTH - 1.0%
DRUGS & PHARMACEUTICALS - 0.1%
Global Health Sciences, Inc. Caa1 280,000 168,000
11% 5/1/08
MEDICAL FACILITIES MANAGEMENT
- - 0.9%
Everest Healthcare Services, B3 740,000 691,900
Inc. 9.75% 5/1/08
Fountain View, Inc. 11.25% Caa1 200,000 152,000
4/15/08
Hanger Orthopedic Group, Inc. B3 490,000 505,925
11.25% 6/15/09
Harborside Healthcare Corp. B3 680,000 217,600
0% 8/1/08 (f)
Mariner Post-Acute Network, B3 1,136,000 68,160
Inc. 9.5% 11/1/07 (c)
Oxford Health Plans, Inc. 11% Caa1 930,000 902,100
5/15/05
Unilab Corp. 12.75% 10/1/09 B3 390,000 403,650
(h)
2,941,335
TOTAL HEALTH 3,109,335
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.9%
ELECTRICAL EQUIPMENT - 0.0%
Motors & Gears, Inc. 10.75% B3 70,000 67,900
11/15/06
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Applied Power, Inc. 8.75% B1 810,000 791,775
4/1/09
Dunlop Standard Aero Holdings B3 480,000 494,400
PLC 11.875% 5/15/09
Thermadyne Manufacturing LLC B3 450,000 373,500
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 560,000 327,600
1,987,275
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
POLLUTION CONTROL - 1.2%
Allied Waste North America,
Inc.:
7.875% 1/1/09 Ba2 $ 935,000 $ 822,800
10% 8/1/09 (h) B2 3,290,000 2,928,100
3,750,900
TOTAL INDUSTRIAL MACHINERY & 5,806,075
EQUIPMENT
MEDIA & LEISURE - 13.6%
BROADCASTING - 11.5%
ACME Television LLC/ACME B3 1,020,000 918,000
Financial Corp. 0% 9/30/04
(f)
Adelphia Communications Corp.:
8.375% 2/1/08 B1 370,000 345,950
9.25% 10/1/02 B1 280,000 280,000
9.875% 3/1/07 B1 800,000 808,000
Ascent Entertainment Group, B3 380,000 283,100
Inc. 0% 12/15/04 (f)
Avalon Cable Michigan, B2 120,000 121,200
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08
Benedek Communications Corp. B3 1,260,000 1,134,000
0% 5/15/06 (f)
CapStar Broadcasting
Partners, Inc.:
0% 2/1/09 (f) B2 315,000 283,500
9.25% 7/1/07 B1 1,010,000 1,045,350
Century Communications Corp.:
Series B, 0% 1/15/08 B1 3,330,000 1,456,875
8.375% 12/15/07 B1 20,000 18,800
8.75% 10/1/07 B1 90,000 86,400
9.5% 3/1/05 B1 60,000 60,450
Chancellor Media Corp.:
8.125% 12/15/07 B1 250,000 249,375
9% 10/1/08 B1 3,220,000 3,348,800
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (f) B2 2,600,000 1,521,000
8.625% 4/1/09 B2 1,755,000 1,623,375
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Citadel Broadcasting Co.:
9.25% 11/15/08 B3 $ 820,000 $ 822,050
10.25% 7/1/07 B3 1,430,000 1,508,650
Classic Cable, Inc. 9.375% B3 115,000 110,975
8/1/09
Comcast UK Cable Partners B2 220,000 207,900
Ltd. 0% 11/15/07 (f)
Diamond Cable Communications B3 696,000 654,240
PLC yankee 0% 12/15/05 (f)
Earthwatch, Inc. 0% 7/15/07 - 700,000 490,000
unit (f)(h)
EchoStar DBS Corp. 9.375% B2 1,030,000 1,032,575
2/1/09
Falcon Holding Group
LP/Falcon Funding Corp.:
0% 4/15/10 (f) B2 2,575,000 1,879,750
8.375% 4/15/10 B2 380,000 380,000
FrontierVision Holdings B1 901,000 792,880
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (f)
FrontierVision Holdings Caa1 500,000 440,000
LP/FrontierVision Holdings
Capital II Corp. 0% 9/15/07
(f)
Golden Sky DBS, Inc. 0% Caa1 1,410,000 853,050
3/1/07 (f)
Lenfest Communications, Inc.:
8.25% 2/15/08 B1 90,000 89,100
8.375% 11/1/05 Ba2 90,000 91,575
LIN Holdings Corp. 0% 3/1/08 B3 1,240,000 837,000
(f)
NTL Communications Corp.:
0% 10/1/08 (f) B3 4,130,000 2,911,650
11.5% 10/1/08 B3 1,080,000 1,169,100
NTL, Inc. 0% 4/1/08 (f) B3 890,000 614,100
Olympus Communications B1 90,000 94,050
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 1,010,000 1,088,275
12.5% 8/1/07 (h)
Satelites Mexicanos SA de CV B3 580,000 406,000
10. 125% 11/1/04
Sinclair Broadcast Group, B2 392,000 372,400
Inc. 9% 7/15/07
Susquehanna Media Co. 8.5% B1 90,000 88,200
5/15/09
Telemundo Holdings, Inc. 0% Caa1 150,000 90,750
8/15/08 (f)
Telewest Communications PLC:
0% 4/15/09 (f)(h) B1 1,160,000 736,600
11.25% 11/1/08 B1 170,000 185,725
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Telewest PLC yankee 9.625% B1 $ 625,000 $ 637,500
10/1/06
United International B3 4,016,000 2,510,000
Holdings, Inc. 0% 2/15/08
(f)
United Pan-Europe
Communications NV:
0% 8/1/09 (f) B2 490,000 281,750
10.875% 8/1/09 B2 755,000 766,325
35,726,345
ENTERTAINMENT - 0.9%
AMC Entertainment, Inc.:
9.5% 3/15/09 B3 110,000 97,075
9.5% 2/1/11 B3 20,000 17,450
Bally Total Fitness Holding B3 455,000 440,213
Corp. 9.875% 10/15/07
Livent, Inc. 9.375% 10/15/04 - 300,000 69,000
(c)
Mohegan Tribal Gaming Ba3 210,000 206,850
Authority 8.75% 1/1/09
Premier Parks, Inc.:
0% 4/1/08 (f) B3 1,170,000 795,600
9.25% 4/1/06 B3 480,000 468,000
Regal Cinemas, Inc. 9.5% Caa1 689,000 544,310
6/1/08
2,638,498
LODGING & GAMING - 0.9%
Florida Panthers Holdings, B2 930,000 902,100
Inc. 9.875% 4/15/09
Hollywood Casino Corp. 11.25% B3 40,000 41,700
5/1/07
Horseshoe Gaming LLC 9.375% B+ 890,000 885,550
6/15/07
KSL Recreation Group, Inc. B3 320,000 313,600
10.25% 5/1/07
Signature Resorts, Inc. 9.75% B3 780,000 670,800
10/1/07
Station Casinos, Inc. 8.875% B1 130,000 124,150
12/1/08
2,937,900
RESTAURANTS - 0.3%
Domino's, Inc. 10.375% 1/15/09 B3 530,000 510,125
NE Restaurant, Inc. 10.75% B3 510,000 452,625
7/15/08
962,750
TOTAL MEDIA & LEISURE 42,265,493
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - 0.7%
FOODS - 0.7%
Del Monte Corp. 12.25% 4/15/07 B3 $ 252,000 $ 278,460
Del Monte Foods Co. 0% Caa1 1,564,000 1,188,640
12/15/07 (f)
Premier International Foods B3 840,000 831,600
PLC 12% 9/1/09 (h)
2,298,700
RETAIL & WHOLESALE - 0.7%
GENERAL MERCHANDISE STORES -
0.2%
Kmart Corp.:
7.95% 2/1/23 Ba1 200,000 174,000
8.375% 12/1/04 Ba1 400,000 398,000
572,000
GROCERY STORES - 0.5%
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 230,000 138,000
9.5% 8/1/03 B3 750,000 450,000
Smiths Food & Drug Centers, BBB- 1,000,000 1,045,000
Inc. 1994 Pass Through
Trust 9.2% 7/2/18
1,633,000
TOTAL RETAIL & WHOLESALE 2,205,000
SERVICES - 0.7%
LEASING & RENTAL - 0.2%
Crown Castle International B3 1,000,000 628,750
Corp. 0% 5/15/11 (f)
PRINTING - 0.4%
Sullivan Graphics, Inc. Caa1 720,000 750,600
12.75% 8/1/05
Von Hoffman Corp. 13.5% - 693,332 630,932
5/15/09 pay-in-kind (h)
1,381,532
SERVICES - 0.1%
Medaphis Corp. 9.5% 2/15/05 Caa1 190,000 146,300
TOTAL SERVICES 2,156,582
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - 1.6%
COMPUTER SERVICES & SOFTWARE
- - 1.0%
Amazon.com, Inc. 0% 5/1/08 (f) Caa1 $ 950,000 $ 624,625
Covad Communications Group,
Inc.:
0% 3/15/08 (f) B3 140,000 87,850
12.5% 2/15/09 B3 79,000 81,765
DecisionOne Corp. 9.75% B3 830,000 3,113
8/1/07 (c)
DecisionOne Holdings Corp. 0% Caa1 200,000 125
8/1/08 unit (c)(f)
Exodus Communications, Inc. B- 190,000 193,325
10.75% 12/15/09 (h)
Federal Data Corp. 10.125% B3 760,000 551,000
8/1/05
PSINet, Inc. 11% 8/1/09 B3 645,000 662,738
Verio, Inc. 11.25% 12/1/08 B3 705,000 736,725
2,941,266
ELECTRONIC INSTRUMENTS - 0.2%
Telecommunications Techniques B3 624,000 567,840
Co. LLC 9.75% 5/15/08
ELECTRONICS - 0.4%
ChipPAC International Ltd. B3 385,000 404,250
12.75% 8/1/09 (h)
Fairchild Semiconductor Corp. B3 470,000 479,400
10.375% 10/1/07
Intersil Corp. 13.25% 8/15/09 B3 420,000 457,800
(h)
1,341,450
TOTAL TECHNOLOGY 4,850,556
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
Atlas Air, Inc. 9.375% B3 270,000 261,225
11/15/06
Kitty Hawk, Inc. 9.95% B1 670,000 661,625
11/15/04
922,850
UTILITIES - 6.7%
CELLULAR - 3.1%
McCaw International Ltd. 0% Caa1 930,000 651,000
4/15/07 (f)
Millicom International Caa1 1,610,000 1,332,275
Cellular SA 0% 6/1/06 (f)
Nextel Communications, Inc.:
0% 9/15/07 (f) B1 703,000 525,493
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Nextel Communications, Inc.:
- - continued
0% 10/31/07 (f) B1 $ 850,000 $ 616,250
0% 2/15/08 (f) B1 1,340,000 954,750
9.75% 8/15/04 B1 330,000 341,550
12% 11/1/08 B1 460,000 514,050
Orbital Imaging Corp. 11.625% CCC+ 430,000 290,250
3/1/05
Rogers Communications, Inc. B2 625,000 629,688
8.875% 7/15/07
US Unwired, Inc. 0% 11/1/09 Caa1 370,000 216,450
(f)(h)
Voicestream Wireless
Corp./Voicestream Wireless
Holding Co.:
0% 11/15/09 (f)(h) B2 4,170,000 2,512,425
10.375% 11/15/09 (h) B2 990,000 1,019,700
9,603,881
TELEPHONE SERVICES - 3.6%
Alestra S. de R.L. de CV B2 310,000 313,100
12.625% 5/15/09
Allegiance Telecom, Inc. 0% B3 825,000 594,000
2/15/08 (f)
Compania Internacional de BB ARS 740,000 614,286
Telecomunicaciones 10.375%
8/1/04 (Reg. S)
Energis PLC 9.75% 6/15/09 B1 590,000 610,650
Esat Telecom Group PLC Caa1 60,000 67,200
11.875% 12/1/08
Esprit Telecom Group PLC B3 750,000 746,250
10.875% 6/15/08
GST Network Funding, Inc. 0% - 1,000,000 490,000
5/1/08 (f)
GST Equipment Funding, Inc. - 450,000 434,250
13.25% 5/1/07
GST USA, Inc. 0% 12/15/05 (f) - 530,000 394,850
Hyperion Telecommunications, Caa1 575,000 609,500
Inc. 12% 11/1/07
ICG Services, Inc. 0% 5/1/08 B3 45,000 23,063
(f)
Intermedia Communications, B2 445,000 409,400
Inc. 8.5% 1/15/08
Mannesmann Finance BV euro A2 EUR 540,000 479,708
4.75% 5/27/09
Metromedia Fiber Network, B2 290,000 295,800
Inc. 10% 12/15/09
NEXTLINK Communications, Inc.:
0% 6/1/09 (f) B2 1,050,000 640,500
10.5% 12/1/09 (h) B2 620,000 630,850
Rhythms NetConnections, Inc. B3 690,000 669,300
12.75% 4/15/09
Viatel, Inc. 0% 4/15/08 (f) B3 185,000 116,550
WinStar Communications, Inc.:
0% 10/15/05 (f) Caa1 80,000 75,200
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.:
- - continued
0% 10/15/05 (f) Caa1 $ 60,000 $ 91,200
0% 3/15/08 (f) CCC 1,685,000 1,718,700
10% 3/15/08 CCC 600,000 576,000
WinStar Equipment Corp. 12.5% B3 490,000 524,300
3/15/04
11,124,657
TOTAL UTILITIES 20,728,538
TOTAL NONCONVERTIBLE BONDS 106,785,720
TOTAL CORPORATE BONDS 110,319,755
(Cost $114,143,468)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 25.2%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 9.7%
Fannie Mae:
5.25% 1/15/09 Aaa 6,500,000 5,733,195
6.5% 4/29/09 Aaa 5,500,000 5,146,790
Federal Farm Credit Bank Aaa 1,000,000 981,090
6.66% 12/26/06
Federal Home Loan Bank:
4.96% 10/7/05 Aaa 7,500,000 6,780,450
6.75% 4/5/04 Aaa 870,000 865,920
Freddie Mac 6.25% 7/15/04 Aaa 800,000 782,128
Government Loan Trusts Aaa 177,788 185,195
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class 1-C, 9.25% 11/15/01 Aaa 2,563,770 2,632,966
Class 2-E, 9.4% 5/15/02 Aaa 88,408 90,760
Class T-3, 9.625% 5/15/02 Aaa 32,622 33,585
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
Guaranteed Export Trust Aaa $ 1,080,000 $ 1,064,094
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 733,333 723,360
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 (h) Aaa 4,600,000 4,417,518
6.86% 4/30/04 Aaa 513,000 511,706
TOTAL U.S. GOVERNMENT AGENCY 29,948,757
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
15.5%
U.S. Treasury Bonds:
8.75% 5/15/17 Aaa 5,440,000 6,497,373
8.875% 8/15/17 Aaa 6,315,000 7,632,246
10.75% 8/15/05 Aaa 13,300,000 15,862,378
U.S. Treasury Notes 7% 7/15/06 Aaa 17,780,000 18,210,623
TOTAL U.S. TREASURY 48,202,620
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 78,151,377
GOVERNMENT AGENCY OBLIGATIONS
(Cost $82,190,150)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 3.8%
FANNIE MAE - 1.7%
5.5% 5/1/11 to 6/1/14 Aaa 677,321 631,183
6% 11/1/10 to 1/1/26 Aaa 1,405,859 1,335,774
6.5% 5/1/08 to 2/1/26 Aaa 1,633,464 1,555,691
7% 9/1/25 to 12/1/28 Aaa 629,065 609,478
7.5% 1/1/28 to 5/1/28 Aaa 696,889 689,049
8% 7/1/26 to 12/1/27 Aaa 538,942 544,426
TOTAL FANNIE MAE 5,365,601
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
FREDDIE MAC - 0.1%
6% 12/1/07 Aaa $ 44,764 $ 43,502
8.5% 3/1/20 Aaa 160,972 166,215
TOTAL FREDDIE MAC 209,717
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 2.0%
6% 1/15/09 to 5/15/09 Aaa 798,533 767,119
6.5% 4/15/26 to 5/15/26 Aaa 828,569 782,998
7% 9/15/25 to 10/15/28 Aaa 1,442,812 1,393,935
7.5% 2/15/22 to 8/15/28 Aaa 2,415,997 2,396,170
8% 9/15/26 to 12/15/26 Aaa 393,156 397,088
11% 2/15/16 to 10/15/18 Aaa 330,673 364,257
11.5% 3/15/10 Aaa 54,426 59,527
TOTAL GOVERNMENT NATIONAL 6,161,094
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 11,736,412
- - MORTGAGE SECURITIES
(Cost $11,987,965)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - 23.0%
Bangko Sentral Pilipinas 8.6% Ba1 650,000 541,125
6/15/27
Bank for Foreign Economic Ca 1,910,000 339,025
Affairs of Russia
(Vnesheconombank) interest
notes 6.9063% 12/15/15 (c)(i)
Bulgarian Republic Brady:
discount A 6.5% 7/28/24 (i) B2 700,000 562,625
FLIRB A 2.75% 7/28/12 (i) B2 620,000 444,850
interest arrears bond 6.5% B2 550,000 435,188
7/28/11 (i)
Canadian Government:
1.9% 3/23/09 Aa2 JPY 170,000,000 1,703,327
7% 12/1/06 Aa1 CAD 2,700,000 1,940,782
9% 6/1/25 Aa1 CAD 2,100,000 1,931,588
10% 5/1/02 Aa1 CAD 5,000,000 3,743,693
City of Buenos Aires euro B1 ARS 1,360,000 1,128,958
10.5% 5/28/04
City of St. Petersburg Russia Caa1 840,000 537,600
9.5% 6/18/02 (Reg. S)
Ecuador Republic:
Brady:
discount euro 6.75% 2/28/25 Caa3 300,000 115,500
(c)(i)
par euro 4% 2/28/25 (c)(g) Caa3 300,000 103,125
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Ecuador Republic: - continued
Brady past due interest euro Caa3 $ 628,749 $ 152,472
6.75% 2/28/15 (bearer) (c)(i)
Federal Republic of Germany:
3.75% 1/4/09 Aaa EUR 1,700,000 1,521,239
4.5% 5/17/02 Aaa EUR 900,000 908,613
5.625% 1/4/28 Aaa EUR 1,800,000 1,719,591
6.25% 4/26/06 Aaa EUR 1,250,000 1,335,049
Federative Republic of Brazil:
Brady:
capitalization bond 8% 4/15/14 B2 3,354,525 2,524,280
debt conversion bond euro 7% B2 2,300,000 1,707,750
4/15/12 (i)
discount euro 6.9375% 4/15/24 B2 1,000,000 758,750
(i)
new money bond L 7% 4/15/09 B2 2,030,000 1,644,300
(bearer) (i)
6.9375% 4/15/06 (i) B2 1,062,200 933,408
14.5% 10/15/09 B2 760,000 842,650
Jordanian Kingdom Brady par Ba3 1,000,000 665,000
6% 12/23/23 (i)
Kazakhstan Republic 13.625% B1 210,000 220,763
10/18/04 (h)
Kingdom of Belgium 3.75% Aa1 EUR 1,800,000 1,576,488
3/28/09
Peruvian Republic Brady:
FLIRB 3.75% 3/7/17 (i) Ba3 560,000 349,300
past due interest 4.5% 3/7/17 Ba3 650,000 450,938
(i)
Republic of Argentina:
BOCON 2.7696% 4/1/07 (i) B1 ARS 2,673,461 1,832,158
Bote 2.2184% 4/1/00 (i) B1 2,145 188
Brady:
discount euro 6.875% 3/31/23 B1 980,000 779,100
(i)
par euro 6% 3/31/23 B1 1,470,000 970,200
9.75% 9/19/27 B1 1,430,000 1,287,000
11.75% 2/12/07 B1 ARS 490,000 438,611
12.125% 2/25/19 B1 390,000 411,450
Republic of Colombia 8.7% Ba2 1,440,000 1,116,000
2/15/16
Republic of Croatia 6.4563% Baa3 121,162 110,863
7/31/06 (i)
Republic of Italy 3.75% 6/8/05 Aa3 JPY 610,000,000 6,823,286
Republic of Poland 0% 12/21/01 A PLN 1,190,000 220,445
Republic of Venezuela:
Brady:
FLIRB A 6.875% 3/31/07 (i) B2 714,280 560,710
par W-B euro 6.75% 3/31/20 B2 960,000 656,400
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Republic of Venezuela: -
continued
global bond:
13.625% 8/15/18 B2 $ 350,000 $ 310,188
13.625% 8/15/18 B2 425,000 376,656
Oil recovery rights 4/15/20 - 4,810 0
(k)
9.25% 9/15/27 B2 760,000 511,100
Russian Federation:
euro 12.75% 6/24/28 (Reg. S) B3 1,060,000 742,000
8.75% 7/24/05 B3 990,000 621,225
9.25% 11/27/01 B3 660,000 541,200
10% 6/26/07 B3 770,000 487,025
11% 7/24/18 (Reg. S) B3 1,150,000 704,375
11.75% 6/10/03 B3 390,000 302,250
Russian Federation Ministry Ca 420,000 135,450
of Finance 3% 5/14/03
South African Republic 13% Baa1 ZAR 1,480,000 231,915
8/31/10
Tecnost International NV euro A3 EUR 1,000,000 971,225
6.125% 7/30/09
Treuhandanstalt 7.5% 9/9/04 Aaa EUR 4,400,000 4,884,903
Turkish Republic 20.27% - TRL 109,942,000 210,907
7/24/02 (e)(i)
United Kingdom, Great Britain
& Northern Ireland:
7.5% 12/7/06 Aaa GBP 900,000 1,580,491
8.75% 8/25/17 Aaa GBP 1,250,000 2,923,541
9.75% 8/27/02 Aaa GBP 1,500,000 2,610,243
United Mexican States:
Brady:
discount B 6.9425% 12/31/19 Ba1 500,000 468,750
(i)
discount C 6.8363% 12/31/19 Ba1 1,040,000 975,000
(i)
par A 6.25% 12/31/19 unit Ba1 1,230,000 971,700
par B 6.25% 12/31/19 unit Ba1 2,180,000 1,722,200
global bond 11.5% 5/15/26 Ba1 2,440,000 2,909,700
value recovery rights 6/30/03:
discount A (k) - 1,000 0
discount B (k) - 769,000 8
discount C (k) - 1,601,000 16
TOTAL FOREIGN GOVERNMENT AND 71,236,456
GOVERNMENT AGENCY OBLIGATIONS
(Cost $66,744,175)
SUPRANATIONAL OBLIGATIONS -
0.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
European Investment Bank 4% Aaa EUR 2,000,000 $ 1,783,208
4/15/09
International Bank for AAA PLN 200,000 47,642
Reconstruction & Development
15.5% 11/22/00
TOTAL SUPRANATIONAL OBLIGATIONS 1,830,850
(Cost $2,087,679)
</TABLE>
COMMON STOCKS - 0.3%
SHARES
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
Winsloew Furniture, Inc. 440 2,200
warrants 8/15/07 (a)(h)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. 10 0
(a)(h)
NTL, Inc. warrants 10/14/08 1,586 79,300
(a)
UIH Australia/Pacific, Inc. 570 17,100
warrants 5/15/06 (a)
96,400
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 200 50,000
warrants 12/15/07 (a)(h)
ELECTRONICS - 0.0%
Intersil Holding Corp. 420 59,010
warrants 8/15/09 (a)(h)
TOTAL TECHNOLOGY 109,010
UTILITIES - 0.3%
CELLULAR - 0.1%
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 230 1,610
.47) (a)
warrants 1/15/07 (CV ratio 480 4,320
.6) (a)
McCaw International Ltd. 1,753 3,944
warrants 4/16/07 (a)(h)
Orbital Imaging Corp. 450 6,750
warrants 3/1/05 (a)(h)
PageMart Nationwide, Inc. 2,100 23,100
(non-vtg.) (a)
Powertel, Inc. warrants 3,328 199,680
2/1/06 (a)
239,404
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.2%
FirstCom Corp. warrants 8,050 $ 255,588
10/27/07 (a)(h)
InterAmericas Communications 1,750 55,563
Corp. warrants 10/27/07 (a)
KMC Telecom Holdings, Inc. 890 2,225
warrants 4/15/08 (a)(h)
MGC Communications, Inc. (h) 916 46,487
Source Media, Inc. (a) 1,676 31,006
Versatel Telecom 340 136,000
International NV warrants
5/15/08 (a)(h)
526,869
TOTAL UTILITIES 766,273
TOTAL COMMON STOCKS 973,883
(Cost $161,901)
PREFERRED STOCKS - 6.3%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
Laboratory Corp. of America 10,600 731,400
Holdings Series A, $4.25
NONCONVERTIBLE PREFERRED
STOCKS - 6.0%
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 240 214,910
Capital Trust II 8.875%
MEDIA & LEISURE - 2.6%
BROADCASTING - 2.2%
Adelphia Communications Corp. 5,345 603,985
$13.00
Benedek Communications Corp. 996 796,800
11.5% pay-in-kind
Citadel Broadcasting Co. 3,429 382,334
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 17,995 1,965,954
Series H, 11.75% pay-in-kind 4,891 538,010
Granite Broadcasting Corp. 782 797,640
12.75% pay-in-kind
NTL, Inc. 13% pay-in-kind 849 933,900
Sinclair Capital 11.625% 6,342 635,786
6,654,409
PUBLISHING - 0.4%
PRIMEDIA, Inc.:
$9.20 1,600 150,400
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
PRIMEDIA, Inc.: - continued
8.625% 7,377 $ 652,865
Series D, $10.00 5,733 567,567
1,370,832
TOTAL MEDIA & LEISURE 8,025,241
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings 12,725 63,625
Corp. $3.52 pay-in-kind
TECHNOLOGY - 0.5%
COMPUTER SERVICES & SOFTWARE
- - 0.5%
Concentric Network Corp. 1,607 1,607,000
13.5% pay-in-kind
UTILITIES - 2.8%
CELLULAR - 1.0%
Nextel Communications, Inc.:
11.125% pay-in-kind 1,030 1,035,150
Series D, 13% pay-in-kind 1,895 2,037,125
3,072,275
TELEPHONE SERVICES - 1.8%
Adelphia Business Solution, 14 13,650
Inc. 12.875% pay-in-kind
e.spire Communications, Inc.:
$127.50 pay-in-kind 22 3,850
14.75% pay-in-kind 1 190
ICG Holdings, Inc. 14.25% 861 783,510
pay-in-kind
Intermedia Communications, 1,829 1,783,275
Inc. 13.5% pay-in-kind
NEXTLINK Communications, Inc. 30,698 1,657,692
14% pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Source Media, Inc. 13.50% 3,914 $ 39,140
pay-in-kind
WinStar Communications, Inc. 1,399 1,385,010
14.25% (a)
5,666,317
TOTAL UTILITIES 8,738,592
TOTAL NONCONVERTIBLE 18,649,368
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 19,380,768
(Cost $20,055,216)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOVEREIGN LOAN PARTICIPATIONS
- - 0.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
Algerian Republic loan
participation:
Series 1 - Deutsche Bank - $ 150,000 114,750
6.625% 9/4/06 (i)
Series 1 - The Chase - 210,000 160,650
Manhattan Bank 6.625%
9/4/06 (i)
Series 1- Societe Generale - 160,000 122,400
6.625% 9/4/06 (i)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement:
BankBoston Corp. 6.9063% - 3,740,000 598,400
12/15/20 (c)(i)
Deutsche Bank 6.9063% - 760,000 121,600
12/15/20 (c)(i)
Merrill Lynch, Pierce, Fenner - 350,000 56,000
& Smith, Inc. 6.9063%
12/15/20 (c)(i)
Morgan (J.P.) Securities, - 70,000 11,200
Inc. 6.9063% 12/15/20 (c)(i)
Paribas Capital Markets - 1,540,000 246,400
6.9063% 12/15/20 (c)(i)
The Chase Manhattan Bank - 190,000 30,400
6.9063% 12/15/20 (c)(i)
Moroccan Kingdom loan
participation:
Series A - Morgan Guaranty - 398,000 360,190
Trust Co. 6.8438% 1/1/09 (i)
SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Moroccan Kingdom loan
participation: - continued
Series A - Paribas Capital - $ 160,000 $ 144,800
Markets 6.8438% 1/1/09 (i)
Series A - The Chase - 57,452 51,994
Manhattan Bank 6.8438%
1/1/09 (i)
TOTAL SOVEREIGN LOAN 2,018,784
PARTICIPATIONS
(Cost $1,944,065)
</TABLE>
COMMERCIAL PAPER - 1.6%
BMW U.K. Capital PLC 3.43% EUR 1,000,000 1,005,233
1/12/00
Depfa Bank Europe PLC 3.48% EUR 1,000,000 1,005,213
1/12/00
Rheinische Hypothekenbank AG EUR 1,000,000 1,005,142
3.42% 1/13/00
Santander International Ltd. EUR 1,000,000 1,005,132
3.44% 1/13/00
Societe Generale Australia EUR 1,000,000 1,005,032
3.45% 1/14/00
TOTAL COMMERCIAL PAPER 5,025,752
(Cost $5,039,133)
CASH EQUIVALENTS - 0.7%
MATURITY AMOUNT
Investments in repurchase $ 2,283,643 2,283,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 3.38%,
dated 12/31/99 due 1/3/00
(Cost $2,283,000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PURCHASED OPTIONS - 0.2%
EXPIRATION DATE/ STRIKE PRICE UNDERLYING FACE AMOUNT VALUE (NOTE 1)
PURCHASED OPTIONS - 0.2%
The Deutsche Bank Call Option 4/00/ 8.75 $ 1,296,000 $ 603,450
on $8,100,000 notional
amount of Bank for Foreign
Economic Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement -
Deutsche Bank 6.9063% 12/15/20
The Deutsche Bank Call Option 1/00/ 78.25 3,352,172 48,875
on $4,249,980 notional
amount of Republic of
Venezuela Brady debt
conversion bond euro 6.3125%
12/18/07
TOTAL PURCHASED OPTIONS 652,325
(Cost $295,400)
</TABLE>
TOTAL INVESTMENT PORTFOLIO - 303,609,362
98.0%
(Cost $306,932,152)
NET OTHER ASSETS - 2.0% 6,213,605
NET ASSETS - 100% $ 309,822,967
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
PLN - Polish zloty (new)
TRL - Turkish lira
ZAR - South African rand
LEGEND
(a) Non-income producing
(b) S&P 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) Principal amount in thousands.
(f) 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.
(g) 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.
(h) 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 $25,989,877 or 8.4% of net assets.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) 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.
(k) Quantity represents share amount.
(l) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Sealy Corp., Inc. 10% 2/23/98 - 12/31/99 $ 602,087
12/18/08 pay-in-kind
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 42.3% AAA, AA, A 35.5%
Baa 0.9% BBB 2.5%
Ba 4.5% BB 7.7%
B 34.0% B 30.6%
Caa 4.5% CCC 4.4%
Ca, C 0.3% CC, C 0.7%
D 0.2%
The percentage not rated by Moody's or S&P amounted to 2.2%. FMR has
determined that unrated debt securities that are lower quality account
for 2.2% of the total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
net assets, is as follows:
United States of America 68.2%
Germany 4.1
United Kingdom 3.6
Canada 3.5
Brazil 3.3
Mexico 2.7
Argentina 2.4
Italy 2.2
Russia 1.9
Netherlands 1.5
Others (individually less 6.6
than 1%)
100.0%
INCOME TAX INFORMATION
At December 31, 1999, the aggregate cost of investment securities for
income tax purposes was $308,004,889. Net unrealized depreciation
aggregated $4,395,527, of which $9,514,314 related to appreciated
investment securities and $13,909,841 related to depreciated
investment securities.
At December 31, 1999, the fund had a capital loss carryforward of
approximately $10,864,000 of which all will expire on December 31,
2007.
The fund intends to elect to defer to its fiscal year ending December
31, 2000 approximately $2,077,000 of losses recognized during the
period November 1, 1999 to December 31, 1999.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investment in securities, at $ 303,609,362
value (including repurchase
agreements of $2,283,000)
(cost $306,932,152) - See
accompanying schedule
Cash 2,031,753
Receivable for investments 1,008,865
sold
Receivable for fund shares 782,626
sold
Dividends receivable 61,297
Interest receivable 5,639,279
TOTAL ASSETS 313,133,182
LIABILITIES
Payable for investments $ 2,046,559
purchased
Payable for fund shares 493,492
redeemed
Distributions payable 384,688
Accrued management fee 148,604
Distribution fees payable 119,376
Other payables and accrued 117,496
expenses
TOTAL LIABILITIES 3,310,215
NET ASSETS $ 309,822,967
Net Assets consist of:
Paid in capital $ 325,412,351
Undistributed net investment 1,690,132
income
Accumulated undistributed net (13,917,644)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (3,361,872)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 309,822,967
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1999
CALCULATION OF MAXIMUM $10.47
OFFERING PRICE CLASS A: NET
ASSET VALUE and redemption
price per share
($12,800,493 (divided by)
1,222,056 shares)
Maximum offering price per $10.99
share (100/95.25 of $10.47)
CLASS T: NET ASSET VALUE and $10.47
redemption price per share
($190,335,069 (divided by)
18,180,247 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
($86,115,653 (divided by)
8,211,142 shares) A
CLASS C: NET ASSET VALUE and $10.46
offering price per share
($16,926,617 (divided by)
1,617,544 shares) A
INSTITUTIONAL CLASS: NET $10.53
ASSET VALUE, offering price
and redemption price per
share ($3,645,135 (divided
by) 346,168 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME $ 1,666,725
Dividends
Interest 24,309,508
TOTAL INCOME 25,976,233
EXPENSES
Management fee $ 1,767,669
Transfer agent fees 585,412
Distribution fees 1,375,685
Accounting fees and expenses 170,566
Non-interested trustees' 742
compensation
Custodian fees and expenses 49,483
Registration fees 89,517
Audit 29,187
Legal 13,490
Total expenses before 4,081,751
reductions
Expense reductions (4,518) 4,077,233
NET INVESTMENT INCOME 21,899,000
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (7,370,682)
Foreign currency transactions (88,631) (7,459,313)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 3,078,466
Assets and liabilities in (34,892) 3,043,574
foreign currencies
NET GAIN (LOSS) (4,415,739)
NET INCREASE (DECREASE) IN $ 17,483,261
NET ASSETS RESULTING FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 21,899,000 $ 17,634,579
income
Net realized gain (loss) (7,459,313) (7,290,913)
Change in net unrealized 3,043,574 (8,237,745)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 17,483,261 2,105,921
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (19,936,469) (16,346,500)
From net investment income
In excess of net realized - (1,629,425)
gain
TOTAL DISTRIBUTIONS (19,936,469) (17,975,925)
Share transactions - net 24,266,774 119,784,884
increase (decrease)
TOTAL INCREASE (DECREASE) 21,813,566 103,914,880
IN NET ASSETS
NET ASSETS
Beginning of period 288,009,401 184,094,521
End of period (including $ 309,822,967 $ 288,009,401
undistributed net investment
income of $1,690,132 and
$794,238, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED DECEMBER 31, 1999 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 .775 .771 .802 .267
Net realized and unrealized (.152) (.512) .198 .493
gain (loss)
Total from investment .623 .259 1.000 .760
operations
Less Distributions
From net investment income (.713) (.729) (.790) (.280)
From net realized gain - - (.370) (.240)
In excess of net realized gain - (.060) - -
Total distributions (.713) (.789) (1.160) (.520)
Net asset value, end of period $ 10.470 $ 10.560 $ 11.090 $ 11.250
TOTAL RETURN B, C 6.12% 2.38% 9.24% 6.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,800 $ 9,596 $ 3,379 $ 587
(000 omitted)
Ratio of expenses to average 1.08% 1.23% 1.25% F 1.25% A, F
net assets
Ratio of expenses to average 1.07% G 1.22% G 1.24% G 1.25% A
net assets after expense
reductions
Ratio of net investment 7.44% 7.22% 7.16% 7.32% A
income to average net assets
Portfolio turnover rate 146% 150% 140% 119%
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>
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.550 $ 11.090 $ 11.250 $ 11.000 $ 9.920
of period
Income from Investment
Operations
Net investment income .772 C .781 C .814 C .813 C .885
Net realized and unrealized (.147) (.535) .194 .542 1.231
gain (loss)
Total from investment .625 .246 1.008 1.355 2.116
operations
Less Distributions
From net investment income (.705) (.726) (.798) (.805) (.806)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.705) (.786) (1.168) (1.105) (1.036)
Net asset value, end of period $ 10.470 $ 10.550 $ 11.090 $ 11.250 $ 11.000
TOTAL RETURN A, B 6.15% 2.26% 9.33% 12.89% 22.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 190,335 $ 189,755 $ 119,204 $ 99,327 $ 52,626
(000 omitted)
Ratio of expenses to average 1.13% 1.18% 1.20% 1.23% 1.35% D
net assets
Ratio of expenses to average 1.13% 1.17% E 1.19% E 1.22% E 1.35%
net assets after expense
reductions
Ratio of net investment 7.38% 7.25% 7.21% 7.34% 7.28%
income to average net assets
Portfolio turnover rate 146% 150% 140% 119% 193%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E 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>
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.570 $ 11.100 $ 11.260 $ 11.010 $ 9.910
of period
Income from Investment
Operations
Net investment income .703 C .713 C .740 C .743 C .820
Net realized and unrealized (.146) (.529) .194 .538 1.237
gain (loss)
Total from investment .557 .184 .934 1.281 2.057
operations
Less Distributions
From net investment income (.637) (.654) (.724) (.731) (.727)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.637) (.714) (1.094) (1.031) (.957)
Net asset value, end of period $ 10.490 $ 10.570 $ 11.100 $ 11.260 $ 11.010
TOTAL RETURN A, B 5.45% 1.69% 8.60% 12.14% 21.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 86,116 $ 72,773 $ 54,562 $ 37,403 $ 26,654
(000 omitted)
Ratio of expenses to average 1.78% 1.83% 1.86% 1.88% 2.10% D
net assets
Ratio of expenses to average 1.78% 1.83% 1.85% E 1.87% E 2.10%
net assets after expense
reductions
Ratio of net investment 6.73% 6.56% 6.55% 6.69% 6.53%
income to average net assets
Portfolio turnover rate 146% 150% 140% 119% 193%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
FINANCIAL HIGHLIGHTS - CLASS C
YEARS ENDED DECEMBER 31, 1999 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 .687 .672 .105
Net realized and unrealized (.151) (.517) .037
gain (loss)
Total from investment .536 .155 .142
operations
Less Distributions
From net investment income (.626) (.625) (.152)
From net realized gain - - (.310)
In excess of net realized gain - (.060) -
Total distributions (.626) (.685) (.462)
Net asset value, end of period $ 10.460 $ 10.550 $ 11.080
TOTAL RETURN B, C 5.25% 1.42% 1.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 16,927 $ 11,248 $ 659
(000 omitted)
Ratio of expenses to average 1.91% 2.07% F 2.10% A, F
net assets
Ratio of expenses to average 1.90% G 2.07% 2.10% A
net assets after expense
reductions
Ratio of net investment 6.61% 6.37% 6.30% A
income to average net assets
Portfolio turnover rate 146% 150% 140%
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.
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 - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31, 1999 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 .799 D .805 D .830 D .826 D .456
Net realized and unrealized (.150) (.533) .186 .548 .340
gain (loss)
Total from investment .649 .272 1.016 1.374 .796
operations
Less Distributions
From net investment income (.729) (.742) (.806) (.804) (.426)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.729) (.802) (1.176) (1.104) (.656)
Net asset value, end of period $ 10.530 $ 10.610 $ 11.140 $ 11.300 $ 11.030
TOTAL RETURN B, C 6.35% 2.49% 9.36% 13.04% 7.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 3,645 $ 4,636 $ 6,289 $ 6,107 $ 107
(000 omitted)
Ratio of expenses to average .93% 1.07% 1.10% F 1.10% F 1.10% A, F
net assets
Ratio of expenses to average .93% 1.07% 1.09% G 1.10% 1.10% A
net assets after expense
reductions
Ratio of net investment 7.58% 7.29% 7.31% 7.47% 7.53% A
income to average net assets
Portfolio turnover rate 146% 150% 140% 119% 193%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO DECEMBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1999
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. Foreign
governments may also impose taxes on other payments or transactions
with respect to foreign securities. The fund accrues such taxes as
applicable. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned and dividend income is
recorded on the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. 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, non-taxable dividends, market discount, capital
loss carryforwards, 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.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place after the customary settlement period for that security. The
price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction
is negotiated. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the value of the
underlying securities or if the counterparty does not perform under
the contract.
OPTIONS. The fund may use options to manage its exposure to the bond
market and to fluctuations in interest rates and currency values.
Writing puts and buying calls tend to increase the fund's exposure to
the underlying instrument. Buying puts and writing calls tend to
decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. The underlying face amount at value of any
open options at period end is shown in the schedule of investments
under the caption "Purchased Options". This amount reflects each
contract's exposure to the underlying instrument at period end. Losses
may arise from changes in the value of the underlying instruments, if
there is an illiquid secondary market for the contracts, or if the
counterparties do not perform under the contracts' terms. Gains and
losses are realized upon the expiration or closing of the options.
Realized gains (losses) on purchased options are included in realized
gains (losses) on investment securities.
2. OPERATING POLICIES - CONTINUED
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 $618,050 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 $2,018,784 or 0.7% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $449,049,402 and $419,392,239, respectively, of which U.S.
government and government agency obligations aggregated $79,705,604
and $65,371,999, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .0920% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% of average net assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted separate Distribution and
Service 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 $ 17,096 $ 44
CLASS T 483,836 3,655
CLASS B 732,187 528,988
CLASS C 142,566 93,919
1,375,685 626,606
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 is paid to securities
dealers, banks and other financial institutions.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO FDC RETAINED BY FDC
CLASS A $ 74,145 $ 21,005
CLASS T 175,466 59,131
CLASS B 253,862 253,862*
CLASS C 10,430 10,430*
513,903 344,428
* 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 $ 26,393 .23
CLASS T 365,557 .19
CLASS B 152,573 .19
CLASS C 30,142 .21
INSTITUTIONAL CLASS 10,747 .24
$ 585,412
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 $144 under this arrangement.
In addition, through an arrangement with the fund's custodian, credits
realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. During the period, the fund's expenses
were reduced by $4,374 under this 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. BENEFICIAL INTEREST.
At the end of the period, FMR was record owner of approximately 13% of
the total outstanding shares of the fund.
8. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED DECEMBER 31,
1999 1998
FROM NET INVESTMENT INCOME
Class A $ 775,559 $ 468,016
Class T 13,041,860 10,946,403
Class B 4,950,300 4,114,994
Class C 853,483 416,895
Institutional Class 315,267 400,192
Total 19,936,469 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
$ 19,936,469 $ 17,975,925
9. SHARE TRANSACTIONS.
Transactions for each class of shares for the periods are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
CLASS A Shares sold 900,167 $ 7,034,562 $ 9,908,134
670,664
Reinvestment of
distributions 59,003 40,130 616,531 381,968
Shares redeemed (416,786) (335,982) (4,352,173) (3,569,407)
Net increase (decrease) 312,881 604,315 $ 3,298,920 $ 6,720,695
CLASS T Shares sold 7,300,446 11,047,467 $ 76,364,764 $ 122,912,518
Reinvestment of
distributions 1,043,417 920,256 10,903,390 8,937,450
Shares redeemed (8,149,722) (4,726,297) (85,087,489) (51,174,332)
Net increase (decrease) 194,141 7,241,426 $ 2,180,665 $ 80,675,636
CLASS B Shares sold 3,093,028 4,082,575 $ 32,490,970 $ 45,035,865
Reinvestment of
distributions 321,769 304,841 3,367,960 2,975,955
Shares redeemed (2,090,413) (2,414,647) (21,891,154) (25,559,874)
Net increase (decrease) 1,324,384 1,972,769 $ 13,967,776 $ 22,451,946
CLASS C Shares sold 1,002,410 1,295,745 $ 10,478,051 $ 14,256,416
Reinvestment of
distributions 62,617 34,501 653,680 315,902
Shares redeemed (513,809) (323,431) (5,359,385) (3,449,844)
Net increase (decrease) 551,218 1,006,815 $ 5,772,346 $ 11,122,474
INSTITUTIONAL CLASS
Shares 137,655 422,294 $ 1,449,056 $ 4,701,276
sold
Reinvestment of
distributions 20,355 32,127 213,945 334,547
Shares redeemed (248,874) (581,996) (2,615,934) (6,221,690)
Net increase (decrease) (90,864) (127,575) $ (952,933) $ (1,185,867)
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of Fidelity Advisor Series II and Shareholders of
Fidelity Advisor Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities
of Fidelity Advisor Strategic Income Fund (the Fund), a fund of
Fidelity Advisor Series II (the Trust), including the portfolio of
investments, as of December 31, 1999, and the related statements of
operations, changes in net assets, and financial highlights for the
year then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audit. The statement of changes in net assets
for the year ended December 31, 1998, and the financial highlights for
each of the four years in the period then ended were audited by other
auditors whose report, dated February 12, 1999, expressed an
unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1999, by
correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Advisor Strategic Income Fund as of
December 31, 1999, the results of its operations, the changes in its
net assets, and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 2000
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
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
Ned C. Lautenbach
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 High Income 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
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(registered trademark)
(2_FIDELITY_LOGOS)
FIDELITY ADVISOR
(registered trademark)
STRATEGIC INCOME
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
DECEMBER 31, 1999
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over
time.
FUND TALK 9 The managers' 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.
INDEPENDENT AUDITORS' REPORT 53 The auditors' opinion.
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:
The NASDAQ, S&P 500(Registered trademark) and Dow Jones Industrial
Average all closed 1999 at record highs. Investors should note,
however, that much of the year's returns were driven by a single
sector: technology. Most other stocks were flat or down in 1999.
Likewise, bond investors had little cause to celebrate at year's end.
Steadily rising interest rates left the benchmark 30-year Treasury at
its highest yield level in two years.
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 past five year and life of fund total returns would have
been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 6.35% 64.93% 65.22%
- - INST CL
Fidelity Strategic Income 3.01% 58.84% 57.18%
Composite
JP EMBI Global 24.18% 110.15% 97.81%
LB Government Bond -2.23% 43.14% 43.75%
ML High Yield Master II 2.51% 60.23% 60.52%
SB Non-US Dollar World Govt -5.07% 33.20% 30.59%
Bond
ML High Yield Master 1.57% 58.21% 58.61%
Multi-Sector Income Funds 2.57% 46.46% n/a
Average
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, one year, five
years 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 II Index - a market value-weighted index of all domestic and
yankee high-yield bonds, including deferred interest bonds and
payment-in-kind securities. 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 Institutional
Class' returns to 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.
Additionally, 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 Global, 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 one year average
represents a peer group of 111 mutual funds. The benchmarks listed in
the table above include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1999
FIDELITY ADV STRATEGIC INCOME 6.35% 10.53% 10.21%
- - INST CL
Fidelity Strategic Income 3.01% 9.70% 9.15%
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.
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.
(checkmark)
$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 9929.10 9913.96
1994/12/31 10017.44 9896.03 10018.42
1995/01/31 10129.20 9974.20 10159.09
1995/02/28 10368.45 10138.76 10484.71
1995/03/31 10518.89 10319.30 10626.39
1995/04/30 10913.50 10653.99 10895.62
1995/05/31 11324.23 11061.91 11237.63
1995/06/30 11382.14 11137.49 11313.19
1995/07/31 11496.09 11209.27 11460.51
1995/08/31 11515.97 11212.08 11520.65
1995/09/30 11722.27 11399.46 11654.54
1995/10/31 11858.92 11460.75 11753.05
1995/11/30 11991.80 11621.05 11869.53
1995/12/31 12262.15 11872.44 12068.40
1996/01/31 12535.82 12093.29 12270.00
1996/02/29 12434.95 11976.55 12307.50
1996/03/31 12406.66 11986.43 12257.18
1996/04/30 12523.21 12063.55 12274.37
1996/05/31 12607.92 12125.55 12362.83
1996/06/30 12714.41 12248.99 12412.09
1996/07/31 12791.31 12361.96 12493.68
1996/08/31 12938.43 12497.57 12646.07
1996/09/30 13341.77 12775.35 12943.32
1996/10/31 13515.35 12936.84 13055.66
1996/11/30 13779.59 13207.97 13317.84
1996/12/31 13860.66 13240.15 13428.55
1997/01/31 13942.67 13284.43 13529.44
1997/02/28 14076.48 13379.69 13737.43
1997/03/31 13767.86 13199.49 13548.48
1997/04/30 13922.06 13336.62 13722.19
1997/05/31 14282.92 13624.41 14011.11
1997/06/30 14490.10 13819.58 14227.65
1997/07/31 14775.44 14074.80 14604.77
1997/08/31 14766.31 14055.05 14587.19
1997/09/30 15126.16 14314.22 14849.59
1997/10/31 14882.86 14212.09 14925.41
1997/11/30 14998.62 14322.92 15058.37
1997/12/31 15157.95 14453.95 15210.02
1998/01/31 15430.92 14636.31 15452.41
1998/02/28 15560.57 14737.14 15515.02
1998/03/31 15697.07 14819.24 15662.39
1998/04/30 15748.76 14918.72 15729.66
1998/05/31 15676.85 14929.54 15824.25
1998/06/30 15634.85 14946.67 15905.97
1998/07/31 15734.44 15007.25 16007.35
1998/08/31 14520.66 14267.50 15199.31
1998/09/30 14987.25 14723.21 15238.87
1998/10/31 15020.70 14823.14 14910.04
1998/11/30 15557.45 15239.16 15687.24
1998/12/31 15535.33 15258.57 15659.13
1999/01/31 15656.38 15279.37 15867.51
1999/02/28 15471.80 15070.93 15762.48
1999/03/31 15799.12 15312.79 15945.58
1999/04/30 16289.62 15573.11 16237.32
1999/05/31 15917.08 15315.21 16088.37
1999/06/30 15946.83 15324.24 16048.50
1999/07/31 15890.39 15367.93 16070.08
1999/08/31 15847.45 15319.18 15900.29
1999/09/30 15969.04 15446.91 15836.54
1999/10/31 16078.26 15500.32 15750.59
1999/11/30 16304.86 15605.15 15955.98
1999/12/31 16521.95 15718.47 16052.29
IMATRL PRASUN SHR__CHT 19991231 20000131 140723 R00000000000065
</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 December 31, 1999, the value of the investment would have grown to
$16,522 - a 65.22% 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 $16,052 -
a 60.52% 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 Global, Lehman Brothers Government
Bond Index, Merrill Lynch High Yield Master II Index, and the Salomon
Brothers Non-U.S. Dollar World Government Bond Index, according to the
fund's neutral mix .* With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $15,718 -
a 57.18% increase. Going forward, 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>
JULY 3, 1995 (COMMENCEMENT OF
YEARS ENDED DECEMBER 31, SALE OF INSTITUTIONAL CLASS
SHARES) TO DECEMBER 31,
1999 1998 1997 1996 1995
Dividend returns 7.10% 6.68% 7.33% 7.70% 4.00%
Capital returns -0.75% -4.19% 2.03% 5.34% 3.47%
Total returns 6.35% 2.49% 9.36% 13.04% 7.47%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains, if
any, paid by the class are reinvested, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIOD ENDED DECEMBER 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 6.93(cents) 37.01(cents) 72.89(cents)
Annualized dividend rate 7.75% 7.05% 6.93%
30-day annualized yield 7.67% - -
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 $10.53 over the past one month, $10.42 over the past six months,
and $10.52 over the past one year, you can compare the class' income
over these three periods. The past one month dividends per share
include additional nonrecurring distributions required by federal tax
regulations. These distributions may not be reflected in future
monthly dividends. The 30-day annualized YIELD is a standard formula
for all bond funds based on the yields of the bonds in the fund,
averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It
also helps you to compare funds from different companies on an equal
basis.
FUND TALK: THE MANAGERS' OVERVIEW
MARKET RECAP
Concern over rising interest rates,
spurred by strengthening global
economies, left most bond investors
looking much the worse for wear
during the 12-month period that
ended December 31, 1999. Continued
non-inflationary growth in the U.S.
economy, as well as a sharp rally
in worldwide commodity prices -
driven by a dramatic rebound in oil -
provided the lifeblood for widespread
recovery in international markets
during this time frame. Outside of
positive performing Canadian and
Japanese issues - beneficiaries of
strong local currencies - higher rates
proved insurmountable for most other
non-U.S. developed markets, which
produced negative returns in local
currency terms. A markedly weak
euro, coupled with firming supply
pressures, felled bond prices in
Germany, France and Italy. On the
other side of the coin, supported by
favorable external and domestic
conditions, emerging-market debt
made solid strides toward recovery,
outpacing most other fixed-income
markets during the period. Russia
was the big winner, garnering interest
from the world for its commitment to
enacting wide-sweeping economic
reform. Having emerged from
recession, Brazil benefited from
bullish investor sentiment forming in
support of its own array of
progressive reform measures.
Similarly, signs of economic expansion
and strong growth prospects
buoyed both Mexico and Argentina,
while Venezuela continued to trail the
broader market due to political
uncertainty.
(Photographs of John Carlson, Kevin Grant, Mark Notkin and Ian
Spreadbury)
The following is an interview with John Carlson (top left), Lead
Portfolio Manager of Fidelity Advisor Strategic Income Fund, with
additional comments from Kevin Grant (top right), on U.S. government
and investment-grade securities; Mark Notkin (lower left) on
high-yield securities; and Ian Spreadbury (lower right) on foreign
developed-market securities. John Carlson also manages the
emerging-markets portion of the fund.
Q. HOW DID THE FUND PERFORM, JOHN?
J.C. Very well relative to its benchmark and peers. For the 12 months
ending December 31, 1999, the fund's Institutional Class shares
returned 6.35%. The multi-sector income funds average, as tracked by
Lipper Inc., returned 2.57%. The Merrill Lynch High Yield Master II
Index returned 2.51%.
Q. WHAT LED TO THE FUND'S STRONG PERFORMANCE?
J.C. There are four subportfolios that make up the fund: emerging
markets, high-yield, foreign developed markets and U.S.
investment-grade debt. Each one contributed in its own way to the
fund's overall performance. The entire fund was positively influenced
by strong, continued growth in the U.S. economy and recovery in the
global markets.
Q. MARK, HOW DID THE HIGH-YIELD SUBPORTFOLIO PERFORM IN 1999 AND WHAT
WAS YOUR FOCUS?
M.N. The subportfolio's outperformance compared to its benchmark was
driven primarily by individual security selection and, to a lesser
extent, industry selection. Most of the positive performance of the
high-yield market occurred early in 1999 and again in the fourth
quarter. During the May through October time period, performance was
hampered by higher Treasury yields, volatile equity markets and Y2K
fears, which dampened investor confidence. The subportfolio was
overweighted in telecommunications and cable, while underweighted in
health care, and both weightings contributed to performance. Cable
industry fundamentals were very strong, demonstrating solid earnings
growth, debt reduction and increased revenue streams. Deregulation of
that industry - allowing emerging telecommunications companies to take
market share from established companies - has come at a time when the
industry is enjoying significant growth due to consumer demand for
data and Internet services. Securities of Nextel, a national wireless
telephone operator, appreciated during the year due to increasing
subscribers and strong earnings growth. Several CLEC (competitive
local exchange carriers) positions, such as Covad Communications,
Intermedia Communications and WinStar Communications also were strong
contributors. Detractors included Jitney-Jungle and CKE Restaurants,
which are no longer held in the fund.
Q. JOHN, WOULD YOU HIGHLIGHT SOME OF THE EVENTS THAT AFFECTED THE
EMERGING-MARKET DEBT PORTION OF THE FUND DURING 1999?
J.C. Of course. Russia was the big story in 1998, and it was again in
1999. However, this time the story was good - after having been
oversold and distressed in 1998, the Russian market is recovering. Its
government adopted a number of prudent fiscal and monetary policies,
with the result being that Russia ended the year as the
best-performing country in the index. The fund's overweighted position
in Russia was the largest contributor to performance. The fund's
holdings in Brazil also aided performance. In January 1999, Brazil
devalued its local currency, the real, sending valuations downward.
Its government used the crisis to enact reforms in its social security
system, and valuations rebounded by year's end. Another significant
factor was the worldwide rally in the commodities markets; most
notable was the near doubling of oil prices during the year. This had
a positive effect on a number of emerging-market countries, since most
of them are commodity exporters.
Q. KEVIN, HOW DID THE U.S. GOVERNMENT SECTOR OF THE PORTFOLIO FARE?
K.G. The subportfolio ended the year in line with its benchmark, which
is what it should do. The subportfolio is designed to be the stable
component of the larger portfolio and to add value by credit selection
and trading efficiencies. Long-term bonds began 1999 with unusually
low interest rates, as a result of the flight to quality during 1998
caused by the crisis in world markets. Interest rates that low simply
could not be sustained. During 1999, interest rates rose rapidly as
the world markets rebounded and investor confidence returned. While
the returns on the subportfolio were not as high as they were last
year, there was a positive note: Higher levels of interest rates have
increased the income stream into the portfolio. The income creates a
cushion for market activity; if interest rates continue to rise, the
income will offset the impact of lower returns and, if rates remain
steady or decline, then the bond market could post strong returns.
Q. IAN, WHAT WAS YOUR STRATEGY FOR THE FOREIGN DEVELOPED-COUNTRY
SUBPORTFOLIO DURING 1999?
I.S. The recovery of the world markets, particularly the emerging
countries, was not necessarily good news for the G-7 markets. The yen
strengthened over the period as positive economic news from Japan
showed signs of recovery. The euro declined during the year, driven by
a relatively weak economy in Western Europe as well as loose monetary
policy. The fund was able, however, to take advantage of selective
investment opportunities created by the large number of euros issued,
especially in the lower-quality investment-grade categories. The
British sterling portfolio has seen historically wide spreads, partly
driven by the high cost of gilts, or British government bond,
portfolio and has provided good investment opportunities. One of the
strategies I successfully employed during the year was underweighting
medium duration bonds in the gilt, anticipating their underperformance
relative to short and long duration bonds.
Q. JOHN, AS LEAD PORTFOLIO MANAGER, WHAT'S YOUR OUTLOOK FOR THE FUND?
J.C. More of the same - and by that I mean the fund's investment
strategy of strategic allocations to four subportfolios will be
maintained. Emphasis will continue to be placed on individual security
selection utilizing Fidelity's extensive credit research capabilities.
We look for continued growth from the high-yield and emerging-markets
portfolios, and diversification and liquidity from the foreign
developed-markets and investment-grade portfolios.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER 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.
JOHN CARLSON DISCUSSES
THE FUND'S NEUTRAL
INVESTMENT ALLOCATION:
"There are four subportfolios that
make up this fund: U.S. high-yield
(40%), U.S. government (30%),
non-U.S. developed markets (15%),
and emerging-market debt (15%).
Fidelity conducted extensive
research to determine the optimal
mix to maximize diversification
and return. The U.S. high-yield and
emerging-market subportfolios
typically provide the bulk of the
return while assuming the most risk.
The U.S. government sector provides
stability and liquidity, while the
non-U.S. developed-market portion
adds diversification, primarily
through currency exposure.
"The contrasting market
environments of 1998 and 1999 clearly
demonstrate how the neutral
investment strategy works. In 1998,
adverse conditions for the high-yield
and emerging-debt markets led to
negative returns in those
subportfolios. Positive returns were
created in the two remaining
subportfolios by those same forces. In
1999, the story was reversed, when
U.S. high-yield and emerging-market
debt recovered against a backdrop of
higher developed-country interest
rates and a stronger U.S. dollar. The
fund's success through these two
markedly different environments
supports our research that at least
two of the four sectors provide
positive returns to the fund on a
quarterly basis.
"The portfolio's neutral investment
mix was designed to succeed across
an entire market cycle. Looking
forward, we anticipate making no
changes to the fund's structure. We
do not believe it is possible to predict
the direction of markets consistently;
instead, we rely on the individual
portfolio managers to add value over
their benchmarks."
FUND FACTS
GOAL: a high level of current
income by investing primarily
in debt securities; as a
secondary objective, the fund
may seek capital
appreciation
START DATE: October 31,
1994
SIZE: as of December 31,
1999, more than $309
million
MANAGER: John Carlson, lead
and emerging-markets
manager, since 1996 and
1999, respectively; Kevin
Grant, U.S. government
investments; since 1998;
Mark Notkin, high-yield
investments, since 1999; and
Ian Spreadbury, foreign
developed-market securities,
since 1998
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1999
(BY ISSUER, EXCLUDING CASH % OF FUND'S NET ASSETS % OF FUND'S NET ASSETS 6
EQUIVALENTS) MONTHS AGO
U.S. Treasury Obligations 15.5 12.6
Fannie Mae 5.3 5.9
Canadian Government 3.0 2.4
Federative Republic of Brazil 2.7 3.0
Federal Home Loan Bank 2.5 2.8
29.0 26.7
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1999
% OF FUND'S NET ASSETS % OF FUND'S NET ASSETS 6
MONTHS AGO
MEDIA & LEISURE 16.7 15.7
UTILITIES 10.0 11.4
BASIC INDUSTRIES 3.9 3.6
TECHNOLOGY 2.1 1.9
FINANCE 2.0 1.7
QUALITY DIVERSIFICATION AS OF
DECEMBER 31, 1999
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Aaa, Aa, A 42.4 40.9
Baa 1.2 1.2
Ba 4.8 6.4
B 34.4 30.7
Caa, Ca, C 5.7 6.9
Not Rated 2.2 3.3
</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 DECEMBER 31,
1999 AND JUNE 30, 1999 ACCOUNT FOR 2.2% AND 3.3% RESPECTIVELY OF
THE FUND'S INVESTMENTS.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
NET ASSETS)
AS OF DECEMBER 31, 1999 * AS OF JUNE 30, 1999 **
Corporate Bonds 35.6% Corporate Bonds 37.4%
U.S. Government and U.S. Government and
Government Agency Government Agency
Obligations 29.0% Obligations 27.5%
Foreign Government & Foreign Government &
Government Agency Government Agency
Obligations 23.0% Obligations 21.6%
Stocks 6.6% Stocks 5.5%
Other Investments 1.5% Other Investments 3.2%
Short-Term Investments and Short-Term Investments and
Net Other Assets 4.3% Net Other Assets 4.8%
</TABLE>
Row: 1, Col: 1, Value: 35.6
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 29.0
Row: 1, Col: 4, Value: 23.0
Row: 1, Col: 5, Value: 6.6
Row: 1, Col: 6, Value: 1.5
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.3
Row: 1, Col: 1, Value: 37.4
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 27.5
Row: 1, Col: 4, Value: 21.6
Row: 1, Col: 5, Value: 5.5
Row: 1, Col: 6, Value: 3.2
Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 4.8
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
INVESTMENTS DECEMBER 31, 1999
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 35.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
CONVERTIBLE BONDS - 1.1%
HEALTH - 0.2%
MEDICAL FACILITIES MANAGEMENT
- - 0.2%
Total Renal Care Holdings, B1 $ 960,000 $ 602,400
Inc. 7% 5/15/09 (h)
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.3%
EchoStar Communications Corp. - 600,000 736,500
4.875% 1/1/07 (h)
NTL, Inc. 5.75% 12/15/09 (h) - 344,000 370,660
1,107,160
LODGING & GAMING - 0.2%
Signature Resorts, Inc. 5.75% Caa1 960,000 573,600
1/15/07
TOTAL MEDIA & LEISURE 1,680,760
RETAIL & WHOLESALE - 0.2%
RETAIL & WHOLESALE,
MISCELLANEOUS - 0.2%
Sunglass Hut International, B3 660,000 537,075
Inc. 5.25% 6/15/03
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
Telekom Malaysia BHD 4% Baa3 830,000 713,800
10/3/04
TOTAL CONVERTIBLE BONDS 3,534,035
NONCONVERTIBLE BONDS - 34.5%
BASIC INDUSTRIES - 3.9%
CHEMICALS & PLASTICS - 1.7%
Berry Plastics Corp. 11% B3 590,000 598,850
7/15/07 (h)
Georgia Gulf Corp. 10.375% B1 80,000 83,500
11/1/07 (h)
Huntsman Corp. 9.5% 7/1/07 (h) B2 940,000 888,300
Huntsman ICI Chemicals LLC B2 1,200,000 1,233,000
10.125% 7/1/09 (h)
Lyondell Chemical Co.:
9.625% 5/1/07 Ba3 750,000 765,000
9.875% 5/1/07 Ba3 850,000 867,000
10.875% 5/1/09 B2 710,000 734,850
5,170,500
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 0.2%
WHX Corp. 10.5% 4/15/05 B3 $ 560,000 $ 548,800
METALS & MINING - 0.3%
Better Minerals & Aggregates B3 280,000 280,700
Co. 13% 9/15/09 (h)
Kaiser Aluminum & Chemical B3 780,000 780,000
Corp. 12.75% 2/1/03
1,060,700
PACKAGING & CONTAINERS - 0.9%
Gaylord Container Corp.:
9.375% 6/15/07 Caa1 520,000 483,600
9.75% 6/15/07 Caa1 700,000 665,000
Packaging Corp. of America B3 1,770,000 1,807,613
9.625% 4/1/09
2,956,213
PAPER & FOREST PRODUCTS - 0.8%
Container Corp. of America:
gtd.:
9.75% 4/1/03 B2 210,000 216,300
11.25% 5/1/04 B2 50,000 51,625
10.75% 5/1/02 B2 70,000 72,625
Florida Coast Paper Co. LLC Ca 690,000 441,600
Florida Coast Paper Finance
Corp. Series B, 12.75%
6/1/03 (c)
Millar Western Forest B3 565,000 565,000
Products Ltd. 9.875% 5/15/08
Repap New Brunswick, Inc. Caa1 470,000 433,575
yankee 10.625% 4/15/05
Stone Container Corp. 12.58% B2 560,000 596,400
8/1/16 (i)
2,377,125
TOTAL BASIC INDUSTRIES 12,113,338
CONSTRUCTION & REAL ESTATE -
0.4%
CONSTRUCTION - 0.4%
Blount, Inc.:
7% 6/15/05 B2 385,000 333,988
13% 8/1/09 (h) B3 700,000 738,500
1,072,488
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
DURABLES - 0.7%
CONSUMER DURABLES - 0.1%
Simonds Industries, Inc. B3 $ 400,000 $ 320,000
10.25% 7/1/08
HOME FURNISHINGS - 0.6%
Omega Cabinets Ltd. 10.5% B3 720,000 716,400
6/15/07
Sealy Corp., Inc. 10% - 637,164 618,050
12/18/08 pay-in-kind (l)
Sealy Mattress Co. 9.875% B3 170,000 168,300
12/15/07
Winsloew Furniture, Inc. B2 440,000 420,200
12.75% 8/15/07 (h)
1,922,950
TOTAL DURABLES 2,242,950
ENERGY - 0.4%
ENERGY SERVICES - 0.2%
Petroliam Nasional BHD Baa3 790,000 699,150
(Petronas) yankee 7.625%
10/15/26 (h)
OIL & GAS - 0.2%
Petroleos Mexicanos 9.5% BB 450,000 441,000
9/15/27
TOTAL ENERGY 1,140,150
FINANCE - 1.9%
BANKS - 0.6%
Banco Nacional de
Desenvolvimento Economico e
Social:
12.193% 6/16/08 (i) B2 1,710,000 1,547,550
12.193% 6/16/08 (h)(i) B2 500,000 452,500
2,000,050
CREDIT & OTHER FINANCE - 1.2%
AMRESCO, Inc. 9.875% 3/15/05 Caa3 351,000 233,415
APP International Finance
(Mauritius) Ltd.:
0% 7/7/00 (h) Caa1 290,000 266,800
0% 7/7/00 (Reg. S) Caa1 280,000 257,600
APP International Finance Co. Caa1 1,050,000 884,625
11.75% 10/1/05
Kappa Beheer BV 10.625% B2 715,000 747,175
7/15/09 (h)
Macsaver Financial Services, Ba2 80,000 48,000
Inc. 7.4% 2/15/02
Sealed Air Finance II BV euro Baa3 EUR 1,000,000 966,800
5.625% 7/19/06
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
Stone Container Finance Co. B2 $ 120,000 $ 127,200
11.5% 8/15/06 (h)
WinStar Equipment II Corp. CCC+ 145,000 152,250
12.5% 3/15/04
3,683,865
INVESTMENT COMPANIES - 0.1%
Astra Overseas Finance BV - 550,000 189,750
(Reg. S) 0% 6/30/06
TOTAL FINANCE 5,873,665
HEALTH - 1.0%
DRUGS & PHARMACEUTICALS - 0.1%
Global Health Sciences, Inc. Caa1 280,000 168,000
11% 5/1/08
MEDICAL FACILITIES MANAGEMENT
- - 0.9%
Everest Healthcare Services, B3 740,000 691,900
Inc. 9.75% 5/1/08
Fountain View, Inc. 11.25% Caa1 200,000 152,000
4/15/08
Hanger Orthopedic Group, Inc. B3 490,000 505,925
11.25% 6/15/09
Harborside Healthcare Corp. B3 680,000 217,600
0% 8/1/08 (f)
Mariner Post-Acute Network, B3 1,136,000 68,160
Inc. 9.5% 11/1/07 (c)
Oxford Health Plans, Inc. 11% Caa1 930,000 902,100
5/15/05
Unilab Corp. 12.75% 10/1/09 B3 390,000 403,650
(h)
2,941,335
TOTAL HEALTH 3,109,335
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.9%
ELECTRICAL EQUIPMENT - 0.0%
Motors & Gears, Inc. 10.75% B3 70,000 67,900
11/15/06
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.7%
Applied Power, Inc. 8.75% B1 810,000 791,775
4/1/09
Dunlop Standard Aero Holdings B3 480,000 494,400
PLC 11.875% 5/15/09
Thermadyne Manufacturing LLC B3 450,000 373,500
9.875% 6/1/08
Tokheim Corp. 11.375% 8/1/08 B3 560,000 327,600
1,987,275
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
POLLUTION CONTROL - 1.2%
Allied Waste North America,
Inc.:
7.875% 1/1/09 Ba2 $ 935,000 $ 822,800
10% 8/1/09 (h) B2 3,290,000 2,928,100
3,750,900
TOTAL INDUSTRIAL MACHINERY & 5,806,075
EQUIPMENT
MEDIA & LEISURE - 13.6%
BROADCASTING - 11.5%
ACME Television LLC/ACME B3 1,020,000 918,000
Financial Corp. 0% 9/30/04
(f)
Adelphia Communications Corp.:
8.375% 2/1/08 B1 370,000 345,950
9.25% 10/1/02 B1 280,000 280,000
9.875% 3/1/07 B1 800,000 808,000
Ascent Entertainment Group, B3 380,000 283,100
Inc. 0% 12/15/04 (f)
Avalon Cable Michigan, B2 120,000 121,200
Inc./Avalon Cable New
England/Avalon Cable Finance
9.375% 12/1/08
Benedek Communications Corp. B3 1,260,000 1,134,000
0% 5/15/06 (f)
CapStar Broadcasting
Partners, Inc.:
0% 2/1/09 (f) B2 315,000 283,500
9.25% 7/1/07 B1 1,010,000 1,045,350
Century Communications Corp.:
Series B, 0% 1/15/08 B1 3,330,000 1,456,875
8.375% 12/15/07 B1 20,000 18,800
8.75% 10/1/07 B1 90,000 86,400
9.5% 3/1/05 B1 60,000 60,450
Chancellor Media Corp.:
8.125% 12/15/07 B1 250,000 249,375
9% 10/1/08 B1 3,220,000 3,348,800
Charter Communications
Holdings LLC/Charter
Communications Holdings
Capital Corp.:
0% 4/1/11 (f) B2 2,600,000 1,521,000
8.625% 4/1/09 B2 1,755,000 1,623,375
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Citadel Broadcasting Co.:
9.25% 11/15/08 B3 $ 820,000 $ 822,050
10.25% 7/1/07 B3 1,430,000 1,508,650
Classic Cable, Inc. 9.375% B3 115,000 110,975
8/1/09
Comcast UK Cable Partners B2 220,000 207,900
Ltd. 0% 11/15/07 (f)
Diamond Cable Communications B3 696,000 654,240
PLC yankee 0% 12/15/05 (f)
Earthwatch, Inc. 0% 7/15/07 - 700,000 490,000
unit (f)(h)
EchoStar DBS Corp. 9.375% B2 1,030,000 1,032,575
2/1/09
Falcon Holding Group
LP/Falcon Funding Corp.:
0% 4/15/10 (f) B2 2,575,000 1,879,750
8.375% 4/15/10 B2 380,000 380,000
FrontierVision Holdings B1 901,000 792,880
LP/FrontierVision Holdings
Capital Corp. 0% 9/15/07 (f)
FrontierVision Holdings Caa1 500,000 440,000
LP/FrontierVision Holdings
Capital II Corp. 0% 9/15/07
(f)
Golden Sky DBS, Inc. 0% Caa1 1,410,000 853,050
3/1/07 (f)
Lenfest Communications, Inc.:
8.25% 2/15/08 B1 90,000 89,100
8.375% 11/1/05 Ba2 90,000 91,575
LIN Holdings Corp. 0% 3/1/08 B3 1,240,000 837,000
(f)
NTL Communications Corp.:
0% 10/1/08 (f) B3 4,130,000 2,911,650
11.5% 10/1/08 B3 1,080,000 1,169,100
NTL, Inc. 0% 4/1/08 (f) B3 890,000 614,100
Olympus Communications B1 90,000 94,050
LP/Olympus Capital Corp.
10.625% 11/15/06
Pegasus Communications Corp. B3 1,010,000 1,088,275
12.5% 8/1/07 (h)
Satelites Mexicanos SA de CV B3 580,000 406,000
10. 125% 11/1/04
Sinclair Broadcast Group, B2 392,000 372,400
Inc. 9% 7/15/07
Susquehanna Media Co. 8.5% B1 90,000 88,200
5/15/09
Telemundo Holdings, Inc. 0% Caa1 150,000 90,750
8/15/08 (f)
Telewest Communications PLC:
0% 4/15/09 (f)(h) B1 1,160,000 736,600
11.25% 11/1/08 B1 170,000 185,725
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Telewest PLC yankee 9.625% B1 $ 625,000 $ 637,500
10/1/06
United International B3 4,016,000 2,510,000
Holdings, Inc. 0% 2/15/08
(f)
United Pan-Europe
Communications NV:
0% 8/1/09 (f) B2 490,000 281,750
10.875% 8/1/09 B2 755,000 766,325
35,726,345
ENTERTAINMENT - 0.9%
AMC Entertainment, Inc.:
9.5% 3/15/09 B3 110,000 97,075
9.5% 2/1/11 B3 20,000 17,450
Bally Total Fitness Holding B3 455,000 440,213
Corp. 9.875% 10/15/07
Livent, Inc. 9.375% 10/15/04 - 300,000 69,000
(c)
Mohegan Tribal Gaming Ba3 210,000 206,850
Authority 8.75% 1/1/09
Premier Parks, Inc.:
0% 4/1/08 (f) B3 1,170,000 795,600
9.25% 4/1/06 B3 480,000 468,000
Regal Cinemas, Inc. 9.5% Caa1 689,000 544,310
6/1/08
2,638,498
LODGING & GAMING - 0.9%
Florida Panthers Holdings, B2 930,000 902,100
Inc. 9.875% 4/15/09
Hollywood Casino Corp. 11.25% B3 40,000 41,700
5/1/07
Horseshoe Gaming LLC 9.375% B+ 890,000 885,550
6/15/07
KSL Recreation Group, Inc. B3 320,000 313,600
10.25% 5/1/07
Signature Resorts, Inc. 9.75% B3 780,000 670,800
10/1/07
Station Casinos, Inc. 8.875% B1 130,000 124,150
12/1/08
2,937,900
RESTAURANTS - 0.3%
Domino's, Inc. 10.375% 1/15/09 B3 530,000 510,125
NE Restaurant, Inc. 10.75% B3 510,000 452,625
7/15/08
962,750
TOTAL MEDIA & LEISURE 42,265,493
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
NONDURABLES - 0.7%
FOODS - 0.7%
Del Monte Corp. 12.25% 4/15/07 B3 $ 252,000 $ 278,460
Del Monte Foods Co. 0% Caa1 1,564,000 1,188,640
12/15/07 (f)
Premier International Foods B3 840,000 831,600
PLC 12% 9/1/09 (h)
2,298,700
RETAIL & WHOLESALE - 0.7%
GENERAL MERCHANDISE STORES -
0.2%
Kmart Corp.:
7.95% 2/1/23 Ba1 200,000 174,000
8.375% 12/1/04 Ba1 400,000 398,000
572,000
GROCERY STORES - 0.5%
Pueblo Xtra International,
Inc.:
Series C, 9.5% 8/1/03 B3 230,000 138,000
9.5% 8/1/03 B3 750,000 450,000
Smiths Food & Drug Centers, BBB- 1,000,000 1,045,000
Inc. 1994 Pass Through
Trust 9.2% 7/2/18
1,633,000
TOTAL RETAIL & WHOLESALE 2,205,000
SERVICES - 0.7%
LEASING & RENTAL - 0.2%
Crown Castle International B3 1,000,000 628,750
Corp. 0% 5/15/11 (f)
PRINTING - 0.4%
Sullivan Graphics, Inc. Caa1 720,000 750,600
12.75% 8/1/05
Von Hoffman Corp. 13.5% - 693,332 630,932
5/15/09 pay-in-kind (h)
1,381,532
SERVICES - 0.1%
Medaphis Corp. 9.5% 2/15/05 Caa1 190,000 146,300
TOTAL SERVICES 2,156,582
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
TECHNOLOGY - 1.6%
COMPUTER SERVICES & SOFTWARE
- - 1.0%
Amazon.com, Inc. 0% 5/1/08 (f) Caa1 $ 950,000 $ 624,625
Covad Communications Group,
Inc.:
0% 3/15/08 (f) B3 140,000 87,850
12.5% 2/15/09 B3 79,000 81,765
DecisionOne Corp. 9.75% B3 830,000 3,113
8/1/07 (c)
DecisionOne Holdings Corp. 0% Caa1 200,000 125
8/1/08 unit (c)(f)
Exodus Communications, Inc. B- 190,000 193,325
10.75% 12/15/09 (h)
Federal Data Corp. 10.125% B3 760,000 551,000
8/1/05
PSINet, Inc. 11% 8/1/09 B3 645,000 662,738
Verio, Inc. 11.25% 12/1/08 B3 705,000 736,725
2,941,266
ELECTRONIC INSTRUMENTS - 0.2%
Telecommunications Techniques B3 624,000 567,840
Co. LLC 9.75% 5/15/08
ELECTRONICS - 0.4%
ChipPAC International Ltd. B3 385,000 404,250
12.75% 8/1/09 (h)
Fairchild Semiconductor Corp. B3 470,000 479,400
10.375% 10/1/07
Intersil Corp. 13.25% 8/15/09 B3 420,000 457,800
(h)
1,341,450
TOTAL TECHNOLOGY 4,850,556
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
Atlas Air, Inc. 9.375% B3 270,000 261,225
11/15/06
Kitty Hawk, Inc. 9.95% B1 670,000 661,625
11/15/04
922,850
UTILITIES - 6.7%
CELLULAR - 3.1%
McCaw International Ltd. 0% Caa1 930,000 651,000
4/15/07 (f)
Millicom International Caa1 1,610,000 1,332,275
Cellular SA 0% 6/1/06 (f)
Nextel Communications, Inc.:
0% 9/15/07 (f) B1 703,000 525,493
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Nextel Communications, Inc.:
- - continued
0% 10/31/07 (f) B1 $ 850,000 $ 616,250
0% 2/15/08 (f) B1 1,340,000 954,750
9.75% 8/15/04 B1 330,000 341,550
12% 11/1/08 B1 460,000 514,050
Orbital Imaging Corp. 11.625% CCC+ 430,000 290,250
3/1/05
Rogers Communications, Inc. B2 625,000 629,688
8.875% 7/15/07
US Unwired, Inc. 0% 11/1/09 Caa1 370,000 216,450
(f)(h)
Voicestream Wireless
Corp./Voicestream Wireless
Holding Co.:
0% 11/15/09 (f)(h) B2 4,170,000 2,512,425
10.375% 11/15/09 (h) B2 990,000 1,019,700
9,603,881
TELEPHONE SERVICES - 3.6%
Alestra S. de R.L. de CV B2 310,000 313,100
12.625% 5/15/09
Allegiance Telecom, Inc. 0% B3 825,000 594,000
2/15/08 (f)
Compania Internacional de BB ARS 740,000 614,286
Telecomunicaciones 10.375%
8/1/04 (Reg. S)
Energis PLC 9.75% 6/15/09 B1 590,000 610,650
Esat Telecom Group PLC Caa1 60,000 67,200
11.875% 12/1/08
Esprit Telecom Group PLC B3 750,000 746,250
10.875% 6/15/08
GST Network Funding, Inc. 0% - 1,000,000 490,000
5/1/08 (f)
GST Equipment Funding, Inc. - 450,000 434,250
13.25% 5/1/07
GST USA, Inc. 0% 12/15/05 (f) - 530,000 394,850
Hyperion Telecommunications, Caa1 575,000 609,500
Inc. 12% 11/1/07
ICG Services, Inc. 0% 5/1/08 B3 45,000 23,063
(f)
Intermedia Communications, B2 445,000 409,400
Inc. 8.5% 1/15/08
Mannesmann Finance BV euro A2 EUR 540,000 479,708
4.75% 5/27/09
Metromedia Fiber Network, B2 290,000 295,800
Inc. 10% 12/15/09
NEXTLINK Communications, Inc.:
0% 6/1/09 (f) B2 1,050,000 640,500
10.5% 12/1/09 (h) B2 620,000 630,850
Rhythms NetConnections, Inc. B3 690,000 669,300
12.75% 4/15/09
Viatel, Inc. 0% 4/15/08 (f) B3 185,000 116,550
WinStar Communications, Inc.:
0% 10/15/05 (f) Caa1 80,000 75,200
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
WinStar Communications, Inc.:
- - continued
0% 10/15/05 (f) Caa1 $ 60,000 $ 91,200
0% 3/15/08 (f) CCC 1,685,000 1,718,700
10% 3/15/08 CCC 600,000 576,000
WinStar Equipment Corp. 12.5% B3 490,000 524,300
3/15/04
11,124,657
TOTAL UTILITIES 20,728,538
TOTAL NONCONVERTIBLE BONDS 106,785,720
TOTAL CORPORATE BONDS 110,319,755
(Cost $114,143,468)
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 25.2%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 9.7%
Fannie Mae:
5.25% 1/15/09 Aaa 6,500,000 5,733,195
6.5% 4/29/09 Aaa 5,500,000 5,146,790
Federal Farm Credit Bank Aaa 1,000,000 981,090
6.66% 12/26/06
Federal Home Loan Bank:
4.96% 10/7/05 Aaa 7,500,000 6,780,450
6.75% 4/5/04 Aaa 870,000 865,920
Freddie Mac 6.25% 7/15/04 Aaa 800,000 782,128
Government Loan Trusts Aaa 177,788 185,195
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class 1-C, 9.25% 11/15/01 Aaa 2,563,770 2,632,966
Class 2-E, 9.4% 5/15/02 Aaa 88,408 90,760
Class T-3, 9.625% 5/15/02 Aaa 32,622 33,585
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
Guaranteed Export Trust Aaa $ 1,080,000 $ 1,064,094
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 733,333 723,360
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 (h) Aaa 4,600,000 4,417,518
6.86% 4/30/04 Aaa 513,000 511,706
TOTAL U.S. GOVERNMENT AGENCY 29,948,757
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
15.5%
U.S. Treasury Bonds:
8.75% 5/15/17 Aaa 5,440,000 6,497,373
8.875% 8/15/17 Aaa 6,315,000 7,632,246
10.75% 8/15/05 Aaa 13,300,000 15,862,378
U.S. Treasury Notes 7% 7/15/06 Aaa 17,780,000 18,210,623
TOTAL U.S. TREASURY 48,202,620
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 78,151,377
GOVERNMENT AGENCY OBLIGATIONS
(Cost $82,190,150)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 3.8%
FANNIE MAE - 1.7%
5.5% 5/1/11 to 6/1/14 Aaa 677,321 631,183
6% 11/1/10 to 1/1/26 Aaa 1,405,859 1,335,774
6.5% 5/1/08 to 2/1/26 Aaa 1,633,464 1,555,691
7% 9/1/25 to 12/1/28 Aaa 629,065 609,478
7.5% 1/1/28 to 5/1/28 Aaa 696,889 689,049
8% 7/1/26 to 12/1/27 Aaa 538,942 544,426
TOTAL FANNIE MAE 5,365,601
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
FREDDIE MAC - 0.1%
6% 12/1/07 Aaa $ 44,764 $ 43,502
8.5% 3/1/20 Aaa 160,972 166,215
TOTAL FREDDIE MAC 209,717
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 2.0%
6% 1/15/09 to 5/15/09 Aaa 798,533 767,119
6.5% 4/15/26 to 5/15/26 Aaa 828,569 782,998
7% 9/15/25 to 10/15/28 Aaa 1,442,812 1,393,935
7.5% 2/15/22 to 8/15/28 Aaa 2,415,997 2,396,170
8% 9/15/26 to 12/15/26 Aaa 393,156 397,088
11% 2/15/16 to 10/15/18 Aaa 330,673 364,257
11.5% 3/15/10 Aaa 54,426 59,527
TOTAL GOVERNMENT NATIONAL 6,161,094
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 11,736,412
- - MORTGAGE SECURITIES
(Cost $11,987,965)
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - 23.0%
Bangko Sentral Pilipinas 8.6% Ba1 650,000 541,125
6/15/27
Bank for Foreign Economic Ca 1,910,000 339,025
Affairs of Russia
(Vnesheconombank) interest
notes 6.9063% 12/15/15 (c)(i)
Bulgarian Republic Brady:
discount A 6.5% 7/28/24 (i) B2 700,000 562,625
FLIRB A 2.75% 7/28/12 (i) B2 620,000 444,850
interest arrears bond 6.5% B2 550,000 435,188
7/28/11 (i)
Canadian Government:
1.9% 3/23/09 Aa2 JPY 170,000,000 1,703,327
7% 12/1/06 Aa1 CAD 2,700,000 1,940,782
9% 6/1/25 Aa1 CAD 2,100,000 1,931,588
10% 5/1/02 Aa1 CAD 5,000,000 3,743,693
City of Buenos Aires euro B1 ARS 1,360,000 1,128,958
10.5% 5/28/04
City of St. Petersburg Russia Caa1 840,000 537,600
9.5% 6/18/02 (Reg. S)
Ecuador Republic:
Brady:
discount euro 6.75% 2/28/25 Caa3 300,000 115,500
(c)(i)
par euro 4% 2/28/25 (c)(g) Caa3 300,000 103,125
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Ecuador Republic: - continued
Brady past due interest euro Caa3 $ 628,749 $ 152,472
6.75% 2/28/15 (bearer) (c)(i)
Federal Republic of Germany:
3.75% 1/4/09 Aaa EUR 1,700,000 1,521,239
4.5% 5/17/02 Aaa EUR 900,000 908,613
5.625% 1/4/28 Aaa EUR 1,800,000 1,719,591
6.25% 4/26/06 Aaa EUR 1,250,000 1,335,049
Federative Republic of Brazil:
Brady:
capitalization bond 8% 4/15/14 B2 3,354,525 2,524,280
debt conversion bond euro 7% B2 2,300,000 1,707,750
4/15/12 (i)
discount euro 6.9375% 4/15/24 B2 1,000,000 758,750
(i)
new money bond L 7% 4/15/09 B2 2,030,000 1,644,300
(bearer) (i)
6.9375% 4/15/06 (i) B2 1,062,200 933,408
14.5% 10/15/09 B2 760,000 842,650
Jordanian Kingdom Brady par Ba3 1,000,000 665,000
6% 12/23/23 (i)
Kazakhstan Republic 13.625% B1 210,000 220,763
10/18/04 (h)
Kingdom of Belgium 3.75% Aa1 EUR 1,800,000 1,576,488
3/28/09
Peruvian Republic Brady:
FLIRB 3.75% 3/7/17 (i) Ba3 560,000 349,300
past due interest 4.5% 3/7/17 Ba3 650,000 450,938
(i)
Republic of Argentina:
BOCON 2.7696% 4/1/07 (i) B1 ARS 2,673,461 1,832,158
Bote 2.2184% 4/1/00 (i) B1 2,145 188
Brady:
discount euro 6.875% 3/31/23 B1 980,000 779,100
(i)
par euro 6% 3/31/23 B1 1,470,000 970,200
9.75% 9/19/27 B1 1,430,000 1,287,000
11.75% 2/12/07 B1 ARS 490,000 438,611
12.125% 2/25/19 B1 390,000 411,450
Republic of Colombia 8.7% Ba2 1,440,000 1,116,000
2/15/16
Republic of Croatia 6.4563% Baa3 121,162 110,863
7/31/06 (i)
Republic of Italy 3.75% 6/8/05 Aa3 JPY 610,000,000 6,823,286
Republic of Poland 0% 12/21/01 A PLN 1,190,000 220,445
Republic of Venezuela:
Brady:
FLIRB A 6.875% 3/31/07 (i) B2 714,280 560,710
par W-B euro 6.75% 3/31/20 B2 960,000 656,400
FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (J) - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Republic of Venezuela: -
continued
global bond:
13.625% 8/15/18 B2 $ 350,000 $ 310,188
13.625% 8/15/18 B2 425,000 376,656
Oil recovery rights 4/15/20 - 4,810 0
(k)
9.25% 9/15/27 B2 760,000 511,100
Russian Federation:
euro 12.75% 6/24/28 (Reg. S) B3 1,060,000 742,000
8.75% 7/24/05 B3 990,000 621,225
9.25% 11/27/01 B3 660,000 541,200
10% 6/26/07 B3 770,000 487,025
11% 7/24/18 (Reg. S) B3 1,150,000 704,375
11.75% 6/10/03 B3 390,000 302,250
Russian Federation Ministry Ca 420,000 135,450
of Finance 3% 5/14/03
South African Republic 13% Baa1 ZAR 1,480,000 231,915
8/31/10
Tecnost International NV euro A3 EUR 1,000,000 971,225
6.125% 7/30/09
Treuhandanstalt 7.5% 9/9/04 Aaa EUR 4,400,000 4,884,903
Turkish Republic 20.27% - TRL 109,942,000 210,907
7/24/02 (e)(i)
United Kingdom, Great Britain
& Northern Ireland:
7.5% 12/7/06 Aaa GBP 900,000 1,580,491
8.75% 8/25/17 Aaa GBP 1,250,000 2,923,541
9.75% 8/27/02 Aaa GBP 1,500,000 2,610,243
United Mexican States:
Brady:
discount B 6.9425% 12/31/19 Ba1 500,000 468,750
(i)
discount C 6.8363% 12/31/19 Ba1 1,040,000 975,000
(i)
par A 6.25% 12/31/19 unit Ba1 1,230,000 971,700
par B 6.25% 12/31/19 unit Ba1 2,180,000 1,722,200
global bond 11.5% 5/15/26 Ba1 2,440,000 2,909,700
value recovery rights 6/30/03:
discount A (k) - 1,000 0
discount B (k) - 769,000 8
discount C (k) - 1,601,000 16
TOTAL FOREIGN GOVERNMENT AND 71,236,456
GOVERNMENT AGENCY OBLIGATIONS
(Cost $66,744,175)
SUPRANATIONAL OBLIGATIONS -
0.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
European Investment Bank 4% Aaa EUR 2,000,000 $ 1,783,208
4/15/09
International Bank for AAA PLN 200,000 47,642
Reconstruction & Development
15.5% 11/22/00
TOTAL SUPRANATIONAL OBLIGATIONS 1,830,850
(Cost $2,087,679)
</TABLE>
COMMON STOCKS - 0.3%
SHARES
DURABLES - 0.0%
HOME FURNISHINGS - 0.0%
Winsloew Furniture, Inc. 440 2,200
warrants 8/15/07 (a)(h)
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CS Wireless Systems, Inc. 10 0
(a)(h)
NTL, Inc. warrants 10/14/08 1,586 79,300
(a)
UIH Australia/Pacific, Inc. 570 17,100
warrants 5/15/06 (a)
96,400
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE
- - 0.0%
Concentric Network Corp. 200 50,000
warrants 12/15/07 (a)(h)
ELECTRONICS - 0.0%
Intersil Holding Corp. 420 59,010
warrants 8/15/09 (a)(h)
TOTAL TECHNOLOGY 109,010
UTILITIES - 0.3%
CELLULAR - 0.1%
Loral Orion Network Systems,
Inc.:
warrants 1/15/07 (CV ratio 230 1,610
.47) (a)
warrants 1/15/07 (CV ratio 480 4,320
.6) (a)
McCaw International Ltd. 1,753 3,944
warrants 4/16/07 (a)(h)
Orbital Imaging Corp. 450 6,750
warrants 3/1/05 (a)(h)
PageMart Nationwide, Inc. 2,100 23,100
(non-vtg.) (a)
Powertel, Inc. warrants 3,328 199,680
2/1/06 (a)
239,404
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.2%
FirstCom Corp. warrants 8,050 $ 255,588
10/27/07 (a)(h)
InterAmericas Communications 1,750 55,563
Corp. warrants 10/27/07 (a)
KMC Telecom Holdings, Inc. 890 2,225
warrants 4/15/08 (a)(h)
MGC Communications, Inc. (h) 916 46,487
Source Media, Inc. (a) 1,676 31,006
Versatel Telecom 340 136,000
International NV warrants
5/15/08 (a)(h)
526,869
TOTAL UTILITIES 766,273
TOTAL COMMON STOCKS 973,883
(Cost $161,901)
PREFERRED STOCKS - 6.3%
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT
- - 0.3%
Laboratory Corp. of America 10,600 731,400
Holdings Series A, $4.25
NONCONVERTIBLE PREFERRED
STOCKS - 6.0%
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group 240 214,910
Capital Trust II 8.875%
MEDIA & LEISURE - 2.6%
BROADCASTING - 2.2%
Adelphia Communications Corp. 5,345 603,985
$13.00
Benedek Communications Corp. 996 796,800
11.5% pay-in-kind
Citadel Broadcasting Co. 3,429 382,334
Series B, 13.25% pay-in-kind
CSC Holdings, Inc.:
11.125% pay-in-kind 17,995 1,965,954
Series H, 11.75% pay-in-kind 4,891 538,010
Granite Broadcasting Corp. 782 797,640
12.75% pay-in-kind
NTL, Inc. 13% pay-in-kind 849 933,900
Sinclair Capital 11.625% 6,342 635,786
6,654,409
PUBLISHING - 0.4%
PRIMEDIA, Inc.:
$9.20 1,600 150,400
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
PRIMEDIA, Inc.: - continued
8.625% 7,377 $ 652,865
Series D, $10.00 5,733 567,567
1,370,832
TOTAL MEDIA & LEISURE 8,025,241
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings 12,725 63,625
Corp. $3.52 pay-in-kind
TECHNOLOGY - 0.5%
COMPUTER SERVICES & SOFTWARE
- - 0.5%
Concentric Network Corp. 1,607 1,607,000
13.5% pay-in-kind
UTILITIES - 2.8%
CELLULAR - 1.0%
Nextel Communications, Inc.:
11.125% pay-in-kind 1,030 1,035,150
Series D, 13% pay-in-kind 1,895 2,037,125
3,072,275
TELEPHONE SERVICES - 1.8%
Adelphia Business Solution, 14 13,650
Inc. 12.875% pay-in-kind
e.spire Communications, Inc.:
$127.50 pay-in-kind 22 3,850
14.75% pay-in-kind 1 190
ICG Holdings, Inc. 14.25% 861 783,510
pay-in-kind
Intermedia Communications, 1,829 1,783,275
Inc. 13.5% pay-in-kind
NEXTLINK Communications, Inc. 30,698 1,657,692
14% pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Source Media, Inc. 13.50% 3,914 $ 39,140
pay-in-kind
WinStar Communications, Inc. 1,399 1,385,010
14.25% (a)
5,666,317
TOTAL UTILITIES 8,738,592
TOTAL NONCONVERTIBLE 18,649,368
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 19,380,768
(Cost $20,055,216)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOVEREIGN LOAN PARTICIPATIONS
- - 0.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)
Algerian Republic loan
participation:
Series 1 - Deutsche Bank - $ 150,000 114,750
6.625% 9/4/06 (i)
Series 1 - The Chase - 210,000 160,650
Manhattan Bank 6.625%
9/4/06 (i)
Series 1- Societe Generale - 160,000 122,400
6.625% 9/4/06 (i)
Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement:
BankBoston Corp. 6.9063% - 3,740,000 598,400
12/15/20 (c)(i)
Deutsche Bank 6.9063% - 760,000 121,600
12/15/20 (c)(i)
Merrill Lynch, Pierce, Fenner - 350,000 56,000
& Smith, Inc. 6.9063%
12/15/20 (c)(i)
Morgan (J.P.) Securities, - 70,000 11,200
Inc. 6.9063% 12/15/20 (c)(i)
Paribas Capital Markets - 1,540,000 246,400
6.9063% 12/15/20 (c)(i)
The Chase Manhattan Bank - 190,000 30,400
6.9063% 12/15/20 (c)(i)
Moroccan Kingdom loan
participation:
Series A - Morgan Guaranty - 398,000 360,190
Trust Co. 6.8438% 1/1/09 (i)
SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)
Moroccan Kingdom loan
participation: - continued
Series A - Paribas Capital - $ 160,000 $ 144,800
Markets 6.8438% 1/1/09 (i)
Series A - The Chase - 57,452 51,994
Manhattan Bank 6.8438%
1/1/09 (i)
TOTAL SOVEREIGN LOAN 2,018,784
PARTICIPATIONS
(Cost $1,944,065)
</TABLE>
COMMERCIAL PAPER - 1.6%
BMW U.K. Capital PLC 3.43% EUR 1,000,000 1,005,233
1/12/00
Depfa Bank Europe PLC 3.48% EUR 1,000,000 1,005,213
1/12/00
Rheinische Hypothekenbank AG EUR 1,000,000 1,005,142
3.42% 1/13/00
Santander International Ltd. EUR 1,000,000 1,005,132
3.44% 1/13/00
Societe Generale Australia EUR 1,000,000 1,005,032
3.45% 1/14/00
TOTAL COMMERCIAL PAPER 5,025,752
(Cost $5,039,133)
CASH EQUIVALENTS - 0.7%
MATURITY AMOUNT
Investments in repurchase $ 2,283,643 2,283,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 3.38%,
dated 12/31/99 due 1/3/00
(Cost $2,283,000)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PURCHASED OPTIONS - 0.2%
EXPIRATION DATE/ STRIKE PRICE UNDERLYING FACE AMOUNT VALUE (NOTE 1)
PURCHASED OPTIONS - 0.2%
The Deutsche Bank Call Option 4/00/ 8.75 $ 1,296,000 $ 603,450
on $8,100,000 notional
amount of Bank for Foreign
Economic Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement -
Deutsche Bank 6.9063% 12/15/20
The Deutsche Bank Call Option 1/00/ 78.25 3,352,172 48,875
on $4,249,980 notional
amount of Republic of
Venezuela Brady debt
conversion bond euro 6.3125%
12/18/07
TOTAL PURCHASED OPTIONS 652,325
(Cost $295,400)
TOTAL INVESTMENT PORTFOLIO - 303,609,362
98.0%
(Cost $306,932,152)
NET OTHER ASSETS - 2.0% 6,213,605
NET ASSETS - 100% $ 309,822,967
SECURITY TYPE ABBREVIATIONS
</TABLE>
FLIRB - Front Loaded Interest
Reduction Bonds
CURRENCY ABBREVIATIONS
ARS - Argentine peso
CAD - Canadian dollar
EUR - European Monetary Unit
GBP - British pound
JPY - Japanese yen
PLN - Polish zloty (new)
TRL - Turkish lira
ZAR - South African rand
LEGEND
(a) Non-income producing
(b) S&P 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) Principal amount in thousands.
(f) 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.
(g) 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.
(h) 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 $25,989,877 or 8.4% of net assets.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) 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.
(k) Quantity represents share amount.
(l) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Sealy Corp., Inc. 10% 2/23/98 - 12/31/99 $ 602,087
12/18/08 pay-in-kind
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 42.3% AAA, AA, A 35.5%
Baa 0.9% BBB 2.5%
Ba 4.5% BB 7.7%
B 34.0% B 30.6%
Caa 4.5% CCC 4.4%
Ca, C 0.3% CC, C 0.7%
D 0.2%
The percentage not rated by Moody's or S&P amounted to 2.2%. FMR has
determined that unrated debt securities that are lower quality account
for 2.2% of the total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
net assets, is as follows:
United States of America 68.2%
Germany 4.1
United Kingdom 3.6
Canada 3.5
Brazil 3.3
Mexico 2.7
Argentina 2.4
Italy 2.2
Russia 1.9
Netherlands 1.5
Others (individually less 6.6
than 1%)
100.0%
INCOME TAX INFORMATION
At December 31, 1999, the aggregate cost of investment securities for
income tax purposes was $308,004,889. Net unrealized depreciation
aggregated $4,395,527, of which $9,514,314 related to appreciated
investment securities and $13,909,841 related to depreciated
investment securities.
At December 31, 1999, the fund had a capital loss carryforward of
approximately $10,864,000 of which all will expire on December 31,
2007.
The fund intends to elect to defer to its fiscal year ending December
31, 2000 approximately $2,077,000 of losses recognized during the
period November 1, 1999 to December 31, 1999.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
Investment in securities, at $ 303,609,362
value (including repurchase
agreements of $2,283,000)
(cost $306,932,152) - See
accompanying schedule
Cash 2,031,753
Receivable for investments 1,008,865
sold
Receivable for fund shares 782,626
sold
Dividends receivable 61,297
Interest receivable 5,639,279
TOTAL ASSETS 313,133,182
LIABILITIES
Payable for investments $ 2,046,559
purchased
Payable for fund shares 493,492
redeemed
Distributions payable 384,688
Accrued management fee 148,604
Distribution fees payable 119,376
Other payables and accrued 117,496
expenses
TOTAL LIABILITIES 3,310,215
NET ASSETS $ 309,822,967
Net Assets consist of:
Paid in capital $ 325,412,351
Undistributed net investment 1,690,132
income
Accumulated undistributed net (13,917,644)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (3,361,872)
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS $ 309,822,967
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
DECEMBER 31, 1999
CALCULATION OF MAXIMUM $10.47
OFFERING PRICE CLASS A: NET
ASSET VALUE and redemption
price per share
($12,800,493 (divided by)
1,222,056 shares)
Maximum offering price per $10.99
share (100/95.25 of $10.47)
CLASS T: NET ASSET VALUE and $10.47
redemption price per share
($190,335,069 (divided by)
18,180,247 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
($86,115,653 (divided by)
8,211,142 shares) A
CLASS C: NET ASSET VALUE and $10.46
offering price per share
($16,926,617 (divided by)
1,617,544 shares) A
INSTITUTIONAL CLASS: NET $10.53
ASSET VALUE, offering price
and redemption price per
share ($3,645,135 (divided
by) 346,168 shares)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME $ 1,666,725
Dividends
Interest 24,309,508
TOTAL INCOME 25,976,233
EXPENSES
Management fee $ 1,767,669
Transfer agent fees 585,412
Distribution fees 1,375,685
Accounting fees and expenses 170,566
Non-interested trustees' 742
compensation
Custodian fees and expenses 49,483
Registration fees 89,517
Audit 29,187
Legal 13,490
Total expenses before 4,081,751
reductions
Expense reductions (4,518) 4,077,233
NET INVESTMENT INCOME 21,899,000
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (7,370,682)
Foreign currency transactions (88,631) (7,459,313)
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 3,078,466
Assets and liabilities in (34,892) 3,043,574
foreign currencies
NET GAIN (LOSS) (4,415,739)
NET INCREASE (DECREASE) IN $ 17,483,261
NET ASSETS RESULTING FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 21,899,000 $ 17,634,579
income
Net realized gain (loss) (7,459,313) (7,290,913)
Change in net unrealized 3,043,574 (8,237,745)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 17,483,261 2,105,921
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (19,936,469) (16,346,500)
From net investment income
In excess of net realized - (1,629,425)
gain
TOTAL DISTRIBUTIONS (19,936,469) (17,975,925)
Share transactions - net 24,266,774 119,784,884
increase (decrease)
TOTAL INCREASE (DECREASE) 21,813,566 103,914,880
IN NET ASSETS
NET ASSETS
Beginning of period 288,009,401 184,094,521
End of period (including $ 309,822,967 $ 288,009,401
undistributed net investment
income of $1,690,132 and
$794,238, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
YEARS ENDED DECEMBER 31, 1999 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 .775 .771 .802 .267
Net realized and unrealized (.152) (.512) .198 .493
gain (loss)
Total from investment .623 .259 1.000 .760
operations
Less Distributions
From net investment income (.713) (.729) (.790) (.280)
From net realized gain - - (.370) (.240)
In excess of net realized gain - (.060) - -
Total distributions (.713) (.789) (1.160) (.520)
Net asset value, end of period $ 10.470 $ 10.560 $ 11.090 $ 11.250
TOTAL RETURN B, C 6.12% 2.38% 9.24% 6.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 12,800 $ 9,596 $ 3,379 $ 587
(000 omitted)
Ratio of expenses to average 1.08% 1.23% 1.25% F 1.25% A, F
net assets
Ratio of expenses to average 1.07% G 1.22% G 1.24% G 1.25% A
net assets after expense
reductions
Ratio of net investment 7.44% 7.22% 7.16% 7.32% A
income to average net assets
Portfolio turnover rate 146% 150% 140% 119%
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>
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.550 $ 11.090 $ 11.250 $ 11.000 $ 9.920
of period
Income from Investment
Operations
Net investment income .772 C .781 C .814 C .813 C .885
Net realized and unrealized (.147) (.535) .194 .542 1.231
gain (loss)
Total from investment .625 .246 1.008 1.355 2.116
operations
Less Distributions
From net investment income (.705) (.726) (.798) (.805) (.806)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.705) (.786) (1.168) (1.105) (1.036)
Net asset value, end of period $ 10.470 $ 10.550 $ 11.090 $ 11.250 $ 11.000
TOTAL RETURN A, B 6.15% 2.26% 9.33% 12.89% 22.02%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 190,335 $ 189,755 $ 119,204 $ 99,327 $ 52,626
(000 omitted)
Ratio of expenses to average 1.13% 1.18% 1.20% 1.23% 1.35% D
net assets
Ratio of expenses to average 1.13% 1.17% E 1.19% E 1.22% E 1.35%
net assets after expense
reductions
Ratio of net investment 7.38% 7.25% 7.21% 7.34% 7.28%
income to average net assets
Portfolio turnover rate 146% 150% 140% 119% 193%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E 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>
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.570 $ 11.100 $ 11.260 $ 11.010 $ 9.910
of period
Income from Investment
Operations
Net investment income .703 C .713 C .740 C .743 C .820
Net realized and unrealized (.146) (.529) .194 .538 1.237
gain (loss)
Total from investment .557 .184 .934 1.281 2.057
operations
Less Distributions
From net investment income (.637) (.654) (.724) (.731) (.727)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.637) (.714) (1.094) (1.031) (.957)
Net asset value, end of period $ 10.490 $ 10.570 $ 11.100 $ 11.260 $ 11.010
TOTAL RETURN A, B 5.45% 1.69% 8.60% 12.14% 21.35%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 86,116 $ 72,773 $ 54,562 $ 37,403 $ 26,654
(000 omitted)
Ratio of expenses to average 1.78% 1.83% 1.86% 1.88% 2.10% D
net assets
Ratio of expenses to average 1.78% 1.83% 1.85% E 1.87% E 2.10%
net assets after expense
reductions
Ratio of net investment 6.73% 6.56% 6.55% 6.69% 6.53%
income to average net assets
Portfolio turnover rate 146% 150% 140% 119% 193%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
FINANCIAL HIGHLIGHTS - CLASS C
YEARS ENDED DECEMBER 31, 1999 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 .687 .672 .105
Net realized and unrealized (.151) (.517) .037
gain (loss)
Total from investment .536 .155 .142
operations
Less Distributions
From net investment income (.626) (.625) (.152)
From net realized gain - - (.310)
In excess of net realized gain - (.060) -
Total distributions (.626) (.685) (.462)
Net asset value, end of period $ 10.460 $ 10.550 $ 11.080
TOTAL RETURN B, C 5.25% 1.42% 1.27%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 16,927 $ 11,248 $ 659
(000 omitted)
Ratio of expenses to average 1.91% 2.07% F 2.10% A, F
net assets
Ratio of expenses to average 1.90% G 2.07% 2.10% A
net assets after expense
reductions
Ratio of net investment 6.61% 6.37% 6.30% A
income to average net assets
Portfolio turnover rate 146% 150% 140%
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.
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 - INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31, 1999 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 .799 D .805 D .830 D .826 D .456
Net realized and unrealized (.150) (.533) .186 .548 .340
gain (loss)
Total from investment .649 .272 1.016 1.374 .796
operations
Less Distributions
From net investment income (.729) (.742) (.806) (.804) (.426)
From net realized gain - - (.370) (.300) (.230)
In excess of net realized gain - (.060) - - -
Total distributions (.729) (.802) (1.176) (1.104) (.656)
Net asset value, end of period $ 10.530 $ 10.610 $ 11.140 $ 11.300 $ 11.030
TOTAL RETURN B, C 6.35% 2.49% 9.36% 13.04% 7.47%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 3,645 $ 4,636 $ 6,289 $ 6,107 $ 107
(000 omitted)
Ratio of expenses to average .93% 1.07% 1.10% F 1.10% F 1.10% A, F
net assets
Ratio of expenses to average .93% 1.07% 1.09% G 1.10% 1.10% A
net assets after expense
reductions
Ratio of net investment 7.58% 7.29% 7.31% 7.47% 7.53% A
income to average net assets
Portfolio turnover rate 146% 150% 140% 119% 193%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JULY 3, 1995 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO DECEMBER 31, 1995.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1999
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. Foreign
governments may also impose taxes on other payments or transactions
with respect to foreign securities. The fund accrues such taxes as
applicable. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned and dividend income is
recorded on the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. 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, non-taxable dividends, market discount, capital
loss carryforwards, 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.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place after the customary settlement period for that security. The
price of the underlying securities and the date when the securities
will be delivered and paid for are fixed at the time the transaction
is negotiated. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the value of the
underlying securities or if the counterparty does not perform under
the contract.
OPTIONS. The fund may use options to manage its exposure to the bond
market and to fluctuations in interest rates and currency values.
Writing puts and buying calls tend to increase the fund's exposure to
the underlying instrument. Buying puts and writing calls tend to
decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. The underlying face amount at value of any
open options at period end is shown in the schedule of investments
under the caption "Purchased Options". This amount reflects each
contract's exposure to the underlying instrument at period end. Losses
may arise from changes in the value of the underlying instruments, if
there is an illiquid secondary market for the contracts, or if the
counterparties do not perform under the contracts' terms. Gains and
losses are realized upon the expiration or closing of the options.
Realized gains (losses) on purchased options are included in realized
gains (losses) on investment securities.
2. OPERATING POLICIES - CONTINUED
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 $618,050 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 $2,018,784 or 0.7% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $449,049,402 and $419,392,239, respectively, of which U.S.
government and government agency obligations aggregated $79,705,604
and $65,371,999, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .0920% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .58% of average net assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Board of Trustees has adopted separate Distribution and
Service 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 $ 17,096 $ 44
CLASS T 483,836 3,655
CLASS B 732,187 528,988
CLASS C 142,566 93,919
1,375,685 626,606
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 is paid to securities
dealers, banks and other financial institutions.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD - CONTINUED
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO FDC RETAINED BY FDC
CLASS A $ 74,145 $ 21,005
CLASS T 175,466 59,131
CLASS B 253,862 253,862*
CLASS C 10,430 10,430*
513,903 344,428
* 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 $ 26,393 .23
CLASS T 365,557 .19
CLASS B 152,573 .19
CLASS C 30,142 .21
INSTITUTIONAL CLASS 10,747 .24
$ 585,412
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 $144 under this arrangement.
In addition, through an arrangement with the fund's custodian, credits
realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. During the period, the fund's expenses
were reduced by $4,374 under this 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. BENEFICIAL INTEREST.
At the end of the period, FMR was record owner of approximately 13% of
the total outstanding shares of the fund.
8. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEARS ENDED DECEMBER 31,
1999 1998
FROM NET INVESTMENT INCOME
Class A $ 775,559 $ 468,016
Class T 13,041,860 10,946,403
Class B 4,950,300 4,114,994
Class C 853,483 416,895
Institutional Class 315,267 400,192
Total 19,936,469 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
$ 19,936,469 $ 17,975,925
9. SHARE TRANSACTIONS.
Transactions for each class of shares for the periods are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
CLASS A Shares sold 900,167 $ 7,034,562 $ 9,908,134
670,664
Reinvestment of
distributions 59,003 40,130 616,531 381,968
Shares redeemed (416,786) (335,982) (4,352,173) (3,569,407)
Net increase (decrease) 312,881 604,315 $ 3,298,920 $ 6,720,695
CLASS T Shares sold 7,300,446 11,047,467 $ 76,364,764 $ 122,912,518
Reinvestment of
distributions 1,043,417 920,256 10,903,390 8,937,450
Shares redeemed (8,149,722) (4,726,297) (85,087,489) (51,174,332)
Net increase (decrease) 194,141 7,241,426 $ 2,180,665 $ 80,675,636
CLASS B Shares sold 3,093,028 4,082,575 $ 32,490,970 $ 45,035,865
Reinvestment of
distributions 321,769 304,841 3,367,960 2,975,955
Shares redeemed (2,090,413) (2,414,647) (21,891,154) (25,559,874)
Net increase (decrease) 1,324,384 1,972,769 $ 13,967,776 $ 22,451,946
CLASS C Shares sold 1,002,410 1,295,745 $ 10,478,051 $ 14,256,416
Reinvestment of
distributions 62,617 34,501 653,680 315,902
Shares redeemed (513,809) (323,431) (5,359,385) (3,449,844)
Net increase (decrease) 551,218 1,006,815 $ 5,772,346 $ 11,122,474
INSTITUTIONAL CLASS
Shares 137,655 422,294 $ 1,449,056 $ 4,701,276
sold
Reinvestment of
distributions 20,355 32,127 213,945 334,547
Shares redeemed (248,874) (581,996) (2,615,934) (6,221,690)
Net increase (decrease) (90,864) (127,575) $ (952,933) $ (1,185,867)
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of Fidelity Advisor Series II and Shareholders of
Fidelity Advisor Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities
of Fidelity Advisor Strategic Income Fund (the Fund), a fund of
Fidelity Advisor Series II (the Trust), including the portfolio of
investments, as of December 31, 1999, and the related statements of
operations, changes in net assets, and financial highlights for the
year then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audit. The statement of changes in net assets
for the year ended December 31, 1998, and the financial highlights for
each of the four years in the period then ended were audited by other
auditors whose report, dated February 12, 1999, expressed an
unqualified opinion on those statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1999, by
correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Advisor Strategic Income Fund as of
December 31, 1999, the results of its operations, the changes in its
net assets, and the financial highlights for the year then ended, in
conformity with generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 2000
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
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
Ned C. Lautenbach
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 High Income 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
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(registered trademark)
