(2_FIDELITY_LOGOS) EXHIBIT 24(A)(1)
SPARTAN(Registered trademark)
BOND STRATEGIST
ANNUAL REPORT
DECEMBER 31, 1993
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on minimizing taxes.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 5 The manager's review of fund
performance, strategy, and outlook.
INVESTMENT SUMMARY 8 A summary of the fund's
investments at the end of the period.
INVESTMENTS 9 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 14 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 18 Footnotes to the financial
statements.
REPORT OF INDEPENDENT 20 The auditor's opinion.
ACCOUNTANTS
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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK, AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED
BY THE
FDIC.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Once the new year begins, many people start reviewing their finances and
calculating their tax bills. No one wants to pay more taxes than they have
to. But a recent survey of 500 U.S. households, conducted by Fidelity and
Yankelovich Partners, showed that few people have taken steps to reduce
their taxes under the new legislation. Many were not even aware that the
new tax laws were retroactive to January 1993.
Whether or not you're someone whose tax bill will increase as a result of
these changes, it may make sense to consider ways to keep more of what you
earn.
First, if your employer offers a 401(k) or 403(b) retirement savings plan,
consider enrolling. These plans are set up so you can make regular
contributions -
before taxes - to a retirement savings plan. They offer a disciplined
savings strategy, the ability to accumulate earnings tax-deferred, and
immediate tax savings. For example, if you earn $40,000 a year and
contribute 7% of your salary to your 401(k) plan, your annual contribution
is $2,800. That reduces your taxable income to $37,200 and, if you're in
the
28% tax bracket, saves you $784 in federal taxes. In addition, you pay no
taxes on any earnings until withdrawal.
It may be a good idea to contact your benefits office as soon as possible
to find out when you can enroll or increase your contribution. Most
employers allow employees to make changes only a few times each year.
Second, consider an IRA. Many people are eligible to make an IRA
contribution (up to $2,000) that is fully tax deductible. That includes
people who are not covered by company pension plans, or those within
certain income brackets. Even if you don't qualify for a fully deductible
contribution, any IRA earnings will grow tax-deferred until withdrawal.
Third, consider adding to your tax-free investments, either municipal bonds
or funds that invest in municipal bonds. Often these can provide higher
after-tax yields than comparable taxable investments. For example, if
you're in the new 36% federal income tax bracket and invest $10,000 in a
taxable investment yielding 7%, you'll pay $252 in federal taxes and
receive $448 in income. That same $10,000 invested in a tax-free bond fund
yielding 5.5% would allow you to keep $550 in income.
These are three investment strategies that could help lower your tax bill
in 1994. If you're interested in learning more, please call us at
1-800-544-8888 or visit a Fidelity Investor Center.
Wishing you a prosperous new year,
Edward C. Johnson 3d, Chairman
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's 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
figures include changes in a fund's share price and reinvestment of any
dividends (or income), and the effect of the $5 account closeout-fee. You
can also look at the fund's income.
CUMULATIVE TOTAL RETURNS
PERIOD ENDED DECEMBER 31, 1993 LIFE OF
FUND
Spartan Bond Strategist 1.22%
Spartan Bond Strategist -
After Taxes 1.18%
Consumer Price Index 0.69%
CUMULATIVE TOTAL RETURNS reflect the fund's performance over a set period -
in this case, since the fund began on September 9, 1993. For example, if
you invested $1,000 in a fund that had a 5% return over the past year, you
would end up with $1,050. The after-tax total return shown above reflects
what you would have after paying taxes if you closed your account at the
end of the year and paid taxes on income and capital gains (at the 36%
federal tax bracket) out of the proceeds. Comparing the fund's performance
to the consumer price index helps show how your investment did compared to
inflation. (The CPI figure is as of the month end nearest to the fund's
start.)
AVERAGE ANNUAL RETURNS and the growth of a hypothetical $10,000
INVESTMENT in the fund will appear in future reports once the fund is
older.
INCOME
1993 TOTAL PERCENT
TAX-FREE
September $.025 79.27%
October $.035 88.37%
November $.036 82.55%
December $.044 66.41%
The amounts shown above reflect the total income distributed for each fund
share and the percentage that was federally tax-free.
YIELD
PERIOD ENDED DECEMBER 31, 1993
30-day annualized yield 4.74%
Tax-equivalent yield 6.89%
The 30-day annualized yield is a standard formula for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days. It
helps you compare funds from different companies on an equal basis. The
tax-equivalent yield shows what you would have to earn on a taxable
investment to equal the fund's yield, if you're in the 36% federal tax
bracket.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
(Portfolio Manager's photograph)
MARKET RECAP
Generally, interest rates fell in the
United States during the 12
months ended December 31,
1993. As a result, bond prices rose
and most fixed-income
investments - including those in
tax-free bonds - enjoyed
attractive returns. The yield on the
benchmark 30-year Treasury bond
declined steadily and reached an
historic low of 5.79% in mid-
October. By year-end, mild inflation
fears, fueled by a strengthening
economy, had pushed up the yield
on the 30-year bond to 6.35%. Two
factors affected municipal bonds
specifically: on the positive side,
higher federal taxes - discussed
all year and approved in August -
boosted demand. At the same
time, record new issuance kept
supplies high, which somewhat
dampened prices. Overall during
the period, tax-free bonds
performed well compared to other
fixed-income investments. The
Lehman Brothers Municipal Bond
Index - a broad measure of the
tax-free market - rose 12.29%. By
comparison, the Lehman Brothers
Aggregate Bond Index - which
tracks investment-grade taxable
bonds - rose only 9.75%, due in
part to poor performance by
mortgage-backed securities.
Globally, falling interest rates and
low inflation drove strong returns in
both developed countries and,
more notably, in emerging markets.
The Salomon Brothers World
Government Bond Index - which
includes U.S. issues - rose
13.27% for the year. The J.P.
Morgan Emerging Markets Bond
Index was up 44.17%.
An interview with George Fischer, Portfolio Manager of Spartan
Bond Strategist
Q. GEORGE, HOW HAS THE FUND DONE?
A. From September 9, 1993 - the fund's start date - to December 31, the
fund had a total return of 1.22%. That's a 1.18% total return after the
effect of federal income taxes for investors in the 36% federal tax
bracket. Unfortunately, in the fund's first few days the bond market
experienced a substantial sell-off, which immediately set the fund back.
But from September 30 to December 31, the fund's before-tax and after-tax
returns were 1.98% and 1.60% respectively. During the same period, the
Lehman Brothers Aggregate Bond Index - which tracks taxable issues - had a
total return of .06% before taxes. The Lehman Brothers Municipal Bond Index
- - which measures tax-free bond performance - returned 1.41%.
Q. WHAT'S THE PHILOSOPHY BEHIND THE FUND?
A. In the 1980s and early '90s, you could have put money into almost any
sector of the U.S. bond market and gotten good returns. Interest rates were
generally high and on the way down. Now, interest rates are half of what
they were 10 years ago while tax rates have risen. This argues for a fund
that manages not so much for tax-free income, but for after-tax total
return for investors in the higher federal tax brackets. The fund invests
in both taxable and tax-free bonds so shareholders will have the most money
left over after paying taxes.
Q. SO HOW DO YOU STRUCTURE THE FUND?
A. I take a very broad view of bond investing, looking all over the world
for the best opportunities. But the fund begins here at home and usually
keeps at least a 50% stake in mostly high quality municipal bonds. Munis
have always been a solid vehicle for managing after-tax total return, but
they're by no means the only one. I rely on our analysts to help me find
investment opportunities in a variety of other markets: U.S. Treasuries,
corporate bonds, mortgage securities, and foreign bonds.
Q. WHAT HAS YOUR SEARCH TURNED UP SO FAR?
A. Over the past four months, the fund's stake in municipal bonds has been
between 75 and 85%. These were typically high quality bonds; 45% were rated
AA or above by Standard & Poor's on December 31. I concentrated on
bonds with 10- to 15-year maturities, which I felt offered the most
attractive yields when weighed against their risk. The fund benefited from
artificially low prices in the municipal bond market because of a record
large supply. I looked for non-callable bonds - which issuers can't redeem
early - because it made sense to buy inexpensive bonds that the fund could
hold onto for a while.
Q. WHAT ELSE IS IN THE FUND?
A. So far, I've stayed away from Treasuries because of the relative
attractiveness of municipal bonds. I've also bought only a handful of
domestic corporate bonds because I feel their best returns came earlier in
the year. Most of the rest is invested overseas. On December 31, the fund
had a 10.7% stake in dollar-denominated securities - foreign bonds issued
in U.S. dollars - and 6.3% in non-dollar denominated securities. Among the
dollar-denominated bonds, the fund relied heavily on issues from emerging
markets like Mexico and Argentina. Among non-dollar denominated securities,
I invested mainly in government bonds in Europe and Japan. These were the
best performing of the fund's foreign issues. Bond prices in countries like
France and Denmark rose when interest rates fell. In Europe and Japan, the
fund usually hedged its investments, to lower currency risk.
Q. HOW DO YOU SEE THE NEW YEAR SHAPING UP?
A. Much of last year's large supply of municipal bonds was due to
prerefunding, which is popular when interest rates fall. Issuers sell new
lower-interest bonds, invest the proceeds in short-term government
securities, and pay off the old bonds at the earliest opportunity. That
essentially wipes old, higher interest debt off the issuer's balance sheet,
but also pumps more bonds into the market. The issuer can only do it once
on any given bond, though. That's why I think prerefunding will slow
dramatically in '94, and the supply of munis will fall. On the demand side,
tax hikes should keep people looking for tax-free investments. A lower
supply and constant demand could help the fund by making its bonds more
valuable. I don't see a lot of impact from interest rates moving one way or
another. I plan to keep the fund heavily invested in municipals and use our
analysts to help me find solid bets overseas. Foreign investing may become
more challenging, however, because many of the price gains on European and
Japanese bonds are probably behind us.
FUND FACTS
GOAL: maximum total return
after federal income taxes by
investing in both taxable and
tax-free bonds
START DATE: September 9,
1993
SIZE: as of December 31,
1993, over $21 million
MANAGER: George Fischer,
since September 1993;
manager, institutional
municipal income portfolios,
since May 1991
(checkmark)
GEORGE FISCHER ON MANAGING
FOR AFTER-TAX TOTAL
RETURN:
"This strategy means keeping
an open mind. Municipal bonds
are an obvious pick because
their income is free of federal
taxes. But other types of bonds
whose income is taxable often
have attractive enough yields
to more than offset what the
tax man takes. I want to find a
mix of bonds that brings in the
highest total return, after taxes.
"
"Managing for after-tax return
also requires being very careful
when buying and selling bonds.
Selling a bond whose price has
risen could mean the fund will
realize a taxable capital gain.
When that happens, I hope to
be able to offset the tax impact
with a capital loss somewhere
else, or with a high-yielding
bond whose income will help
cover the cost of taxes on the
original capital gain."
(bullet) As of December 31, 81.9%
of the fund's investments
provided tax-free income.
18.1% were taxable.
(bullet) So far, the fund's 12.5%
stake in California bonds
hasn't been affected by the
recent earthquake. Since it's
difficult to predict the quake's
long-term impact, the fund's
California investments will be
closely monitored for any
signs of trouble.
(bullet) The fund had 64% of its
investments in bonds rated A
or above on December 31.
Another 7.3% was invested in
BBB-rated bonds.
INVESTMENT SUMMARY
TOP TEN FIXED-INCOME SECURITIES AS OF DECEMBER 31, 1993
(BY ISSUER) % OF FUND'S INVESTMENTS
Austin, Texas Utilities System 6.1%
Knox County, Tennessee Health & Education 5.7
Hospital
Springfield, Illinois Electric 5.4
Fresno, California Sewer 5.2
Hawaii County, Hawaii 5.0
New York City, New York 4.8
Mexican Government 3.0
Houston, Texas Water Conveyance System 2.9
Indiana Health Facilities Financing Authority 2.8
Hospital
Washington Public Power Supply System 2.8
AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1993
Years 13.6
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE
FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF DECEMBER 31, 1993
Years 8.8
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL
LOSE ABOUT 5% OF ITS VALUE.
ASSET ALLOCATION AS OF DECEMBER 31, 1993
Municipal Securities 81.9%
Foreign taxable bonds -
dollar-denominated 10.7%
Foreign taxable bonds -
non-dollar denominated 6.3%
Short-term investments 1.1%
Row: 1, Col: 1, Value: 1.1
Row: 1, Col: 2, Value: 6.3
Row: 1, Col: 3, Value: 10.7
Row: 1, Col: 4, Value: 21.9
Row: 1, Col: 5, Value: 30.0
Row: 1, Col: 6, Value: 30.0
INVESTMENTS DECEMBER 31, 1993
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL BONDS - 74.3%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (A)
CALIFORNIA - 12.5%
California Pub. Wks. Board Lease Rev.:
Rfdg. (Dept. of Corrections) 5%, 12/1/07 A1 $ 500,000 $ 496,250 13068GSX
(California Univ. Proj.) Series A,
5.50% 6/1/10 A1 500,000 512,500 13068GRE
Fresno Swr. Rev. Series A-1, 6% 9/1/09,
(AMBAC Insured) Aaa 1,000,000 1,095,000 358229CE
San Jose Redev. Agcy. Tax Allocation
(Merged Area Redev. Proj.) 6% 8/1/08,
(MBIA Insured) Aaa 500,000 541,250 798147KR
2,645,000
CONNECTICUT - 2.4%
Connecticut Health & Ed. Facs. Auth. Rev. Rfdg.
(Quinnipiac Coll.) Series D, 6% 7/1/13 BBB- 500,000 510,625 207742F3
HAWAII - 7.7%
Hawaii County Rfdg. & Impt. Series A,
5.60% 5/1/13, (FGIC Insured) Aaa 1,000,000 1,063,750 419722QD
Hawaii Gen. Oblig. Series CH, 6% 11/1/07 Aa 500,000 553,750 419779NR
1,617,500
ILLINOIS - 5.4%
Springfield Elec. Rev. (Sr. Lien) 6.50% 3/1/08 Aa 1,000,000 1,136,250
850578NP
INDIANA - 2.8%
Indiana Health Facs. Fing. Auth. Hosp. Rev. Rfdg.
(Columbus Regional Hosp.) 7% 8/15/15,
(Cap. Guaranty Insured) Aaa 500,000 596,875 454797SM
KENTUCKY - 2.1%
Owensboro Elec. Lt. & Pwr. Rev. Rfdg. Series B,
0% 1/1/08, (AMBAC Insured) Aaa 925,000 446,313 691021JG
MARYLAND - 2.4%
Maryland Health & Higher Ed. Facs. Auth. Rev.
(Frederick Mem. Hosp.) 5.20% 7/1/08,
(FGIC Insured) Aaa 500,000 507,500 574216KG
MONTANA - 2.4%
Montana Higher Ed. Student Assistance Corp.
Student Loan Rev. Sr. Series A, 5 1/4%
12/1/02 (f) Aaa 500,000 515,625 612130DN
NEW YORK - 9.6%
New York City Rfdg. Series D, 5.70% 8/15/06 Baa1 1,000,000 1,012,500
649653MT
New York State Dorm. Auth. Rev. (Consolidated City
Univ. Sys.):
2nd Gen. Series A, 5.75% 7/1/09 Baa1 500,000 513,125 649834HQ
Series A, 5.75% 7/1/13 Baa1 500,000 510,625 649834HW
2,036,250
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (A)
OHIO - 2.5%
Cleveland Wtrwks. Rev. Rfdg. 1st Mtg. Series G,
5.50% 1/1/13, (MBIA Insured) Aaa $ 500,000 $ 523,125 186432SF
PENNSYLVANIA - 2.4%
Philadelphia Muni. Auth. Rev. Rfdg. Lease
Series D, 6% 7/15/03 Ba 500,000 502,500 717904FX
TENNESSEE - 5.7%
Knox County Health & Ed. Hsg. Hosp. Facs. Rev.
Rfdg. (Ft. Sanders Alliance) Series C,
7.25% 1/1/09, (MBIA Insured) Aaa 1,000,000 1,212,500 499523MM
TEXAS - 11.3%
Austin Util. Sys. Rev. Rfdg. (Cap. Appreciation)
Series A, 0% 11/15/09, (MBIA Insured) Aaa 3,000,000 1,286,250 0524735N
Houston Wtr. (Conveyance Sys.) 7.20%
12/15/08, (AMBAC Insured) Aaa 500,000 605,000 442437EN
South Texas Higher Ed. Auth. Student Loan
Rev. Rfdg. Series A-1, 5% 12/1/02 (f) Aaa 500,000 505,000 840555BS
2,396,250
VIRGINIA - 2.3%
Virginia Beach Dev. Auth. Hosp. Facs. Rev.
(Virginia Beach Gen. Hosp. Proj.)
5.125% 2/15/18, (AMBAC Insured) Aaa 500,000 485,625 927739DH
WASHINGTON - 2.8%
Washington Pub. Pwr. Supply Sys.
Nuclear Proj. #1 Rev. Rfdg. Series A,
7% 7/1/08 Aa 500,000 585,625 939827QU
TOTAL MUNICIPAL BONDS
(Cost $15,592,784) 15,717,563
MUNICIPAL NOTES (E) - 7.6%
CONNECTICUT - 1.9%
Connecticut Spl. Assessment Unemployment
Rev. Series 1993B, 2.95%, LOC Industrial
Bank of Japan, Mitsubishi Bank Ltd.
Japan, VRDN VMIG 1 400,000 400,000 207756AR
FLORIDA - 2.4%
Brevard County Hsg. Fin. Auth. Rev. (Sun Pointe
Bay Apts. Proj.) Series 1993, 3.55%,
BPA Continental Casualty Co., VRDN A-1+ 500,000 500,000 106904EC
MUNICIPAL NOTES (E) - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (A)
ILLINOIS - 3.3%
Illinois Dev. Fin. Auth. Multi-Family Hsg. Rev.
Rfdg. (Garden Glen Apts.) Series 93,
3.55%, VRDN A-1+ $ 400,000 $ 400,000 451915AQ
Illinois Health Facs. Auth. Rev. (Central Dupage
Hosp. Assoc. Proj.) Series 1990, 4.50%,
LOC Industrial Bank of Japan, VRDN VMIG 1 300,000 300,000 45201HD9
700,000
TOTAL MUNICIPAL NOTES
(Cost $1,600,000) 1,600,000
NONCONVERTIBLE BONDS - 6.9%
CONSTRUCTION & REAL ESTATE - 2.9%
BUILDING MATERIALS - 2.9%
Tolmex SA DE CV 8 3/8%, 11/1/03 Ba2 300,000 315,000 889557AA
Grupo Simec 8 7/8%, 12/15/98 (d) - 300,000 305,625 889557AA
620,625
DURABLES - 0.4%
TEXTILES & APPAREL - 0.4%
Alpargatas SA euro 9%, 3/15/98 - 100,000 95,500 0205459A
FINANCE - 2.5%
BANKS - 1.0%
Bancomer SA euro 8%, 7/7/98 (d) Ba2 200,000 210,000 059682AB
CREDIT AND OTHER FINANCE - 1.5%
Tribasa Toll Road Trust 10 1/2%, 12/1/11 (d) - 300,000 311,250 889557AA
TOTAL FINANCE 521,250
NONDURABLES - 1.1%
BEVERAGES - 1.1%
Grupo Embotellador de Mexico euro
10 3/4%, 11/19/97 Ba2 200,000 224,000 40048J9A
TOTAL NONCONVERTIBLE BONDS
(Cost $1,416,130) 1,461,375
FOREIGN GOVERNMENT OBLIGATIONS - 10.1%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (A)
Argentina Republic BOCON (e):
3.64%, 4/1/01 - ARP 232,043 $ 184,137 039995AH
3.1875%, 9/1/02 - 197,260 161,891 039995AM
Bank Negara Malaysia Treasury Bills
0%, 6/22/94 A2 MYR 1,000,000 363,287 249998AV
Denmark Government 7%, 12/15/04 Aa1 DKK 2,150,000 338,468 249998AV
French Government principal strips 4/25/23 Aaa FRF 6,200,000 165,082
351996BL
Italian Government 11%, 6/1/96 (b) Aa1 ITL 150,000 92,010 46599BBA
Mexican Government Brady 6 1/4%, 12/31/19 Ba3 750,000 626,250 597998PF
New Zealand Government 10%, 3/15/02 Aa3 NZD 275,000 194,902 6501629D
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $2,041,992) 2,126,027
COMMERCIAL PAPER - 1.1%
Bridas Energy Corp. 0%,
6/14/94 (Cost $241,606) - 250,000 241,750 107995AA
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $20,892,512) $ 21,146,715
FORWARD FOREIGN CURRENCY CONTRACTS
SETTLEMENT UNREALIZED
DATE VALUE GAIN/(LOSS)
CONTRACTS TO BUY
38,515,699 JPY 2/2/94 $ 344,761 $ (10,878)
(Payable amount $355,639)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 1.6%
CONTRACTS TO SELL
3,610,349 BEF 1/20/94 $ 99,363 $ 1,433
2,328,268 DKK 2/2/94 341,508 6,315
843,479 FRF 2/2/94 142,034 6,303
38,515,699 JPY 2/2/94 344,761 20,122
TOTAL CONTRACTS TO SELL
(Receivable amount $961,839) $ 927,666 $ 34,173
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 4.4%
SECURITY TYPE ABBREVIATIONS
VRDN - Variable Rate Demand Notes
CURRENCY TYPE ABBREVIATIONS
ARP - Argentinean peso
BEF - Belgian franc
DKK - Danish krone
FRF - French franc
JPY - Japanese yen
ITL - Italian lira
MYR - Malaysian ringgit
NZD - New Zealand dollar
LEGEND
1. Principal amount is stated in United States dollars unless otherwise
noted.
2. Principal amount in thousands.
3. Standard & Poor's Corporation credit ratings are used in the absence
of a rating by Moody's Investors Service, Inc.
4. 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 $826,875 or 3.9% of net
assets.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
6. Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals (AMT securities).
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 63.6% AAA, AA, A 63.6%
Baa 9.6% BBB 7.3%
Ba 8.9% BB 4.5%
B 0.0% B 2.4%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 3.6%.
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
Electric Revenue 16.3%
General Obligation 14.8
Health Care 14.7
Water & Sewer 10.5
Education 9.7
Others (individually less than 10%) 15.9
TOTAL 81.9%
Distribution of investments by country, as a percentage of total value of
investment in securities, is as follows:
United States 81.9%
Mexico 9.4
Argentina 3.2
Malaysia 1.7
Denmark 1.6
Others (individually less than 1%) 2.2
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1993, the aggregate cost of investment securities for
income tax purposes was $20,892,512. Net unrealized appreciation aggregated
$254,203, of which $325,528 related to appreciated investment securities
and $71,325 related to depreciated investment securities.
At December 31, 1993, the fund had a capital loss carryforward of
approximately $26,000 which will expire on December 31, 2001.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1993
ASSETS
Investment in securities, at value (cost $20,892,512) $ 21,146,715
(Note 1) - See accompanying schedule
Long foreign currency contracts held, at value (cost 344,761
$355,639) (Note 2)
Short foreign currency contracts (Note 2) $ (927,666)
Contracts held, at value
Receivable for contracts held 961,839 34,173
Cash 34,826
Interest receivable 263,151
TOTAL ASSETS 21,823,626
LIABILITIES
Payable for foreign currency contracts held (Note 2) 355,639
Payable for investments purchased 363,287
Dividends payable 13,675
Accrued management fee 11,485
TOTAL LIABILITIES 744,086
NET ASSETS $ 21,079,540
Net Assets consist of:
Paid in capital $ 21,027,360
Distributions in excess of net investment income (23,787)
Accumulated undistributed net realized gain (loss) on (201,531)
investments
Net unrealized appreciation (depreciation) on:
Investment securities 254,203
Foreign currency contracts 23,295
NET ASSETS, for 2,112,697 shares outstanding $ 21,079,540
NET ASSET VALUE, offering price and redemption price per $9.98
share ($21,079,540 (divided by) 2,112,697 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 9, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1993
INVESTMENT INCOME $ 247,675
Interest
EXPENSES
Management fee (Note 4)
$ 33,664
Non-interested trustees' compensation 16
TOTAL EXPENSES 33,680
NET INVESTMENT INCOME 213,995
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1, 2 AND 3)
Net realized gain (loss) on:
Investment securities (201,633)
Foreign currency contracts (4,284) (205,917)
Change in net unrealized appreciation (depreciation) on:
Investment securities 254,203
Foreign currency contracts 23,295 277,498
NET GAIN (LOSS) 71,581
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 285,576
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C>
SEPTEMBER 9, 1993
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31, 1993
INCREASE (DECREASE) IN NET ASSETS
Operations $ 213,995
Net investment income
Net realized gain (loss) on investments (205,917)
Change in net unrealized appreciation (depreciation) on investments 277,498
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 285,576
Distributions to shareholders (213,995)
From net investment income
In excess of net investment income (19,401)
TOTAL DISTRIBUTIONS (233,396)
Share transactions 21,406,105
Net proceeds from sales of shares
Reinvestment of distributions from net investment income 213,513
Cost of shares redeemed (595,185)
Redemption fees (Note 1) 2,927
Net increase (decrease) in net assets resulting from share transactions 21,027,360
TOTAL INCREASE (DECREASE) IN NET ASSETS 21,079,540
NET ASSETS
Beginning of period -
End of period (including distributions in excess of net investment income 21,079,540
of $23,787)
OTHER INFORMATION
Shares
Sold 2,151,983
Issued in reinvestment of distributions from net investment income 21,617
Redeemed (60,903)
Net increase (decrease) 2,112,697
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C>
SEPTEMBER 9,
1993
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1993
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.000
Income from Investment Operations .130
Net investment income
Net realized and unrealized gain (loss) on investments (.011)(dagger)(dagger)
Total from investment operations .119
Less Distributions (.130)
From net investment income
In excess of net investment income (.011)
Total distribution (.141)
Redemption fees added to paid in capital .002
Net asset value, end of period $ 9.980
TOTAL RETURN (dagger) 1.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 21,080
Ratio of expenses to average net assets .70%*
Ratio of net investment income to average net assets 4.44%*
Portfolio turnover rate 275%*
</TABLE>
* ANNUALIZED
(dagger) TOTAL RETURN DOES NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR IS NOT
ANNUALIZED.
(dagger)(dagger) THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT
CORRESPOND WITH THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED
DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO
FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1993
1. SIGNIFICANT ACCOUNTING
POLICIES.
Spartan Bond Strategist (the fund) is a fund of Fidelity School Street
Trust (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 following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Securities for which
quotations are not readily available through the pricing service are valued
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 maturing within sixty days are valued either 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, other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
INCOME TAXES. The fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, the fund
will not be subject to income taxes to the extent that it distributes all
of its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income Tax
Information."
INVESTMENT INCOME. Interest income, which includes amortization of premium
and accretion of original issue discount, is accrued as earned. Investment
income is recorded net of foreign taxes where recovery of such taxes is not
assured.
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 and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions and losses deferred due to excise tax
regulations. Permanent book and tax basis
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
differences relating to shareholder distributions will result in
reclassifications to paid in capital.
REDEMPTION FEES. Shares held in the fund less than 180 days are subject to
a redemption fee equal to .50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
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.
FORWARD FOREIGN CURRENCY
CONTRACTS. The fund may enter into forward foreign currency contracts.
These contracts involve market risk in excess of the amount reflected in
the fund's Statement of Assets and Liabilities. The face or contract amount
in U.S. dollars reflects the total exposure the fund has in that particular
currency contract. The U.S. dollar value of forward foreign currency
contracts is determined using forward currency exchange rates supplied by a
quotation service. Losses may arise due to changes in the value of the
foreign currency or if the counterparty does not perform under the
contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $35,225,544 and $14,765,823, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) pays all expenses except the compensation of the
non-interested Trustees and certain exceptions such as interest, taxes,
brokerage commissions and extraordinary expenses. FMR receives a fee that
is computed daily at an annualized rate of .70% of the fund's average net
assets.
FMR also bears the cost of providing shareholder services to the fund. For
the period, FMR or its affiliates collected certain transaction fees from
shareholders which aggregated $80.
5. BENEFICIAL INTEREST
At the end of the period, FMR was record owner of approximately 52% of the
total outstanding shares.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity School Street Trust and the Shareholders of
Spartan Bond Strategist:
We have audited the accompanying statement of assets and liabilities of
Fidelity School Street Trust: Spartan Bond Strategist, including the
schedule of portfolio investments, as of December 31, 1993, and the related
statement of operations, the statement of changes in net assets and the
financial highlights for the period September 9, 1993 (commencement of
operations)to December 31, 1993. 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.
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, 1993 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall
financial statement presentation. We believe that our 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 School Street Trust: Spartan Bond Strategist as of December 31,
1993, the results of its operations, the changes in its net assets and the
financial highlights for the period September 9, 1993 (commencement of
operations) to December 31, 1993, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
February 4, 1994
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
1. For quotes on funds you own.
2. For an individual fund quote.
3. For the ten most frequently
requested Fidelity fund quotes.
4. For quotes on Fidelity Select
Portfolios.(Registered trademark)
5. To change your Personal
Identification Number (PIN).
6. To speak with a Fidelity
representative.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
1. For balances on funds you own.
2. For your most recent fund activity
(purchases, redemptions, and
dividends).
3. To change your Personal
Identification Number (PIN).
4. To speak with a Fidelity
representative.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. FOR MORE
INFORMATION ON ANY
FIDELITY FUND INCLUDING MANAGEMENT FEES AND CHARGES, CALL 1-800-544-8888
FOR A FREE
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
2249 Galiano Street
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
32 West Central Boulevard
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
175 East 400 South Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8300 Boone Boulevard
Vienna, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc. (FMR U.K.)
Fidelity Management & Research
(Far East) Inc. (FMR Far East)
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Arthur S. Loring, Secretary
Robert H. Morrison, Manager,
Security Transactions
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
