Wednesday, May 17, 2006

Fund Focus - Fidelity Floating Rate High Income Fund (FFRHX)

The Fidelity Floating Rate High Income Fund (FFRHX) inception date was August 16, 2000. Since that date, the Fund has averaged an annual rate of return of 4.5%.

Fund Summary - This High Yield Bond Fund invests in Corporate floating rate loans. These loans do not have fixed interest rates, but rather, have fluctuating rates based on set benchmarks (i.e. an example of the rate would be LIBOR + 4%). These loans are often lower-quality debt securities.

Returns - 5.53%, 4.86%, 4.32%, 4.5% (1 yr, 3 yr, 5 yr, life). YTD return for 2006 is 2.16%. 30 day yield is 5.76%.

Holdings - As of March 31, 2006, the Fund has 391 holdings diversified across numerous sectors (the largest being Cable TV - 13%). 99% of the loans were rated BB or lower.

Fund Manager - Christine McConnell. Over 5 years managing this fund.

Expenses - 0.82% versus peer average of 1.20%. There is a short term trading fee associated with this fund of 1% for a redemption within 60 days.

Morningstar Rating - 2 stars

Minimum Investment - $2,500

Conclusion - BUY. Unlike normal bond funds, whose price decreases as rates increase, FFRHX consists of floating rate loans. The value of these loans do not fluctuate with changes in interest rate since the underlying interest rate associated with the loan also fluctuates. Potential investors should be cautioned that the fund invests in lower quality debt. These type investments carry an increased risk of default. We believe the manager of the fund has shown consistent performance in balancing this risk, limiting the overall exposure through diversification. With the 30 day yield currently 5.76%, we believe this is an attractive investment for a small portion of your overall bond allocation.


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