(2_FIDELITY_LOGOS)
SPARTAN(registered trademark)
BOND STRATEGIST(trademark)
SEMIANNUAL REPORT
JUNE 30, 1994
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on bond market
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 5 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 8 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 9 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 19 Notes to the financial statements.
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, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,AND ARE SUBJECT TO INVESTMENT
RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY
DISTRIBUTORS
CORPORATION IS A BANK.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
The first half of the year has been an
unsettling time for bond investors. The bond market declined after the
Federal Reserve Board raised short-term interest rates from February
through May. These rate hikes caused bond yields to rise and bond prices to
fall. The board raised the rate again in August, and while nobody knows
whether rates will continue to go up, this may be a good time to review the
effect rising rates have on your bond fund investment, and consider how
well your current bond fund holdings match your original investment goals.
Most investors choose bond funds to generate income and to help diversify
their investment portfolios. Despite the recent market downturn, bond
mutual funds still satisfy these needs. Where investors have felt the
negative effect of rising rates is in the market value of their investment,
which has eroded as bond prices have fallen. It's important
to remember, however, that this loss in principal is only "on paper" until
you choose to sell your shares. That's why your investing time horizon is
key.
If your time horizon is short - one year or less - you may want to consider
shifting all or part of your bond fund investment into short-term
investments.
If you don't need your money within the next year, staying in your bond
fund may be the appropriate strategy for you. The longer your investing
time frame, the better your chances of retaining your principal investment
through periods of rising AND falling rates. For example, if you plan to
use your money in one to two years, a short-term bond fund may be the right
choice. If your time frame is two to four years, a fund with an
intermediate length average maturity may be best. If you have a longer-term
goal - say a child's college education that's 10 years away - you may be
willing to ride out the bond market's peaks and valleys in exchange for the
higher potential returns of a longer-term fund.
If you have questions, please call us at 1-800-544-8888. We would be happy
to send you a Fidelity FundMatch kit, which can help you determine the mix
of investments that is right for you. You might also find it convenient to
set up
a regular investment plan using the Fidelity Automatic Account BuilderSM.
We look forward to hearing from you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
To evaluate a fund's performance, you can look at the total percentage
change in value, and you can also look at the fund's income.
CUMULATIVE TOTAL RETURNS
PERIOD ENDED PAST LIFE OF
JUNE 30, 1994 6 MONTHS FUND
Spartan Bond Strategist -6.66% -5.51%
Spartan Bond Strategist -
After Taxes -3.57% -2.49%
Consumer Price Index 1.51% 2.21%
CUMULATIVE TOTAL RETURNS reflect the fund's performance over a set period -
in this case, six months, or 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. After-tax returns reflect what you
would have after taxes (at the 36% federal tax bracket) if you closed your
account at the end of the period, assuming 1993 taxes were withdrawn from
your account at year-end. If you did not close your account, the after-tax
return would have been -6.89% for the past six months and -5.85% for the
life of the fund. These returns are lower because they do not include the
tax benefit of realizing a capital loss upon closing your account.
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.)
INCOME
1994 TOTAL PERCENT
TAX-FREE
January $.041 70.10%
February $.037 72.94%
March $.043 68.12%
April $.041 67.84%
May $.041 71.21%
June $.039 78.38%
The amounts shown above reflect the total income distributed for each fund
share and the percentage that was federally tax-free.
YIELD
PERIOD ENDED JUNE 30, 1994
30-day annualized yield 5.59%
Tax-equivalent yield 8.01%
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
An interview with George Fischer, Portfolio Manager of Spartan Bond
Strategist
Q. WHAT ARE THE LATEST NUMBERS FOR SPARTAN BOND STRATEGIST, GEORGE?
A. Performance was somewhat below par in the last six months. The fund,
designed for investors in the 31% or higher federal income tax bracket, had
a total return of -6.66% for the six months ended June 30, 1994. That's a
- -3.57% total return after the effect of federal income taxes for investors
in the 36% federal tax bracket (-6.89% if you did not sell your shares).
During the same period, the Lehman Brothers Aggregate Bond Index, which
tracks taxable issues, had a total return of -3.87% before taxes. The
Lehman Brothers Municipal Bond Index, which measures tax-free bond
performance, returned -4.42%. Over the life of the fund, which opened
September 9, 1993, the fund's before tax and after-tax returns were -5.51%
and -2.49% respectively.
Q. WHAT WERE THE REASONS FOR THE FUND'S PERFORMANCE THIS PERIOD?
A. The major reason was the severe sell-off in international bond markets.
Earlier in the year, I became cautious on the prospects for bonds in the
U.S. I was worried that if the economy stayed strong, inflation worries
would resurface. My response was to diversify by moving a portion of the
fund into international bonds. Unfortunately, those bonds provided little
shelter in the storm. In some cases they fell more than U.S. bonds.
Q. WHY?
A. Those foreign markets had become closely tied to the U. S. market. When
the Federal Reserve Board began to tighten money in February, the negative
reaction came not only in U.S. markets, but also overseas. Markets in
Europe fell in spite of the fact that their central banks were still
lowering rates. Most of the world's bond markets fell dramatically, as
liquidations by leveraged investors accelerated the decline. The bulk of
the decline occurred in February and March. By early April, the markets had
stabilized, and the market has been choppy but trendless since.
Q. HOW IS THE FUND STRUCTURED NOW?
A. It has almost no non-dollar exposure and is structured fairly
defensively. The fund has a small, 4%-5% stake in short-maturity Mexican
corporate bonds, and about 90% of the fund in municipal securities. But I
anticipate further volatility. I've boosted the cash position and sold some
of the bonds that were the most erratic. I've slimmed the fund down to the
bonds I like best - those I believe over time will provide the best value,
throw off good income and have appreciation potential. These include New
York State bonds - presently 8.7% of the fund - which I think will be
upgraded, and California bonds, at 15.8%. California bonds have been
performing poorly, and I've been adding more of them to the portfolio as
they've been weakening, so that the fund might make some significant gains
when they turn around. Bonds have good value right now.
Q. ARE THERE PARTICULAR SUCCESSES YOU'D LIKE TO HIGHLIGHT?
A. There have been some good stories to tell. I made a major bet in New
York City bonds late last year. Those were among the best performing bonds
in the municipal market in the first few months. The fund is largely out of
that position right now because the bonds reached their highest value.
Q. GEORGE, DOES SPARTAN BOND STRATEGIST USE DERIVATIVES?
A. I have the flexibility to choose from a range of derivative securities,
and I use them for the same reason I buy and sell bonds: to seek maximum
after-tax total return consistent with the investment objective and policy
of the fund. To date, they haven't been a major contributor to the fund's
return or to its volatility. I use interest rate futures as a way of
managing bond market exposure, and I use currency forward contracts to
hedge currency risk. The fund also contains some structured notes.
Structured notes are debt securities whose coupon rates and/or principal
amounts are indexed to a financial indicator such as an index rate or
market indicator. The notes enable me to create or structure a particular
investment view which may not be available in the cash market or from
conventional investment instruments. After the market was hit hard by the
Fed's tightening, for example, the bond market - in its pricing - seemed to
be anticipating a considerable rise in short-term interest rates. I have
put some structured notes in the portfolio to help me take advantage of the
higher rates that appear to be indicated in the bond market's pricing. They
are a recent investment and I believe they will help the fund.
Q. DO YOU THINK THE BOND MARKET WILL STABILIZE?
A. My short-term outlook is for continued volatility in the bond market,
certainly until it is clear that the Fed is no longer prone to raising
short-term interest rates. I think the Fed would like to be neutral, but
hasn't found that place yet. There have been some signs that the economy is
slowing and I don't think the Fed wants to be in the position of raising
interest rates just as the economy is slowing down.
Q. WHAT ABOUT INFLATION?
A. I think the average market participant believes that economic growth
leads to higher inflation, but it's just not that simple. I think wage
pressures are far and away the most important factor, and I don't see any
evidence of that push occurring. Commodity prices are up, related to
stronger economic growth and the need for industrial materials. In general,
however, these prices are not higher than they were one, two or three years
ago.
Q. HOW DO YOU SEE THE BOND MARKET SHAPING UP OVER THE NEXT SIX MONTHS?
A. I'm relatively optimistic. I don't think inflation is going to rise to
the levels already reflected in bond prices. In the near future, though,
some instability could remain. I'm inclined to be a defensive municipal
fund in a choppy, difficult market environment. I only venture outside
munis to bring home bacon, and if there isn't bacon out there, I'll stay
home and eat toast. I'll make due with a leaner diet here in the U.S. I'll
wait for the markets to settle down somewhat and for the outlook to become
clearer. Good value is being established in the markets, and I'll just let
that continue to come about. I'll try to make good bets within the
different states and the different credits and invest outside the market
opportunistically.
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 June 30, 1994,
more than $21 million
MANAGER: George Fischer,
since September 1993;
manager, institutional
municipal income portfolios,
since May 1991: joined
Fidelity in 1989
(checkmark)
GEORGE FISCHER ON TAX
SWAPPING IN A DOWN MARKET:
"One of the strategies of a
fund that seeks maximum
after-tax total return like this
one is to do what's called tax
swapping. I sell a bond below
its cost basis - its original
price - to take a loss. I then
buy another bond - a
functional equivalent - that
will give the fund essentially
the same investment
performance of the first bond,
but for tax purposes the fund
has realized a loss. I have
used this tax strategy
frequently during the period.
This `tax loss carryforward' is
an asset of the fund that
permits me in the future to take
gains on bonds and not
distribute them, therefore not
creating a taxable event. I will
try to continue to do this so that
in the long term there will be
the potential for a lower tax bill
and a higher after-tax total
return. Looking with a
long-term perspective, this tax
swapping gives me the ability
to be more flexible with my
trading strategy, because I can
create these tax swaps in a
down market and then use
them to offset gains later. If the
market goes straight up, a fund
that seeks maximum after-tax
total return has to reduce its
turnover. It doesn't have the
ability to trade bonds as freely
as a fund that's not managed
for after-tax total return,
because the fund incurs
unrealized taxable gains.
When I go to sell a bond, the
fund will realize that gain which
it has to distribute."
INVESTMENT CHANGES
TOP TEN FIXED-INCOME SECURITIES AS OF JUNE 30, 1994
(BY ISSUER) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Chicago O'Hare International Airport 7.1 -
Maricopa, Arizona County School 6.2 -
Knox County, Tennessee Health &
Education Hosptial 5.3 5.7
Piedmont, South Carolina Municipal 5.0 -
Power
Springfield, Illinois Electric 5.0 5.4
California Department of Water 4.8 -
Resources
Fresno, California Sewer 4.7 5.2
Gainsville, Georgia Water & Sewer 4.3 -
New York State Medical Care Facilities 4.3 -
Houston, Texas Water Conveyance 2.6 2.9
System
AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1994
6 MONTHS AGO
Years 13.7 13.6
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL OF THE
BONDS IN THE FUND IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF JUNE 30, 1994
6 MONTHS AGO
Years 8.3 8.8
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, THE SHARE PRICE OF A FUND WITH A
FIVE-YEAR DURATION WILL FALL 5%.
ASSET ALLOCATION
AS OF JUNE 30, 1994 AS OF DECEMBER 31, 1993
Row: 1, Col: 1, Value: 3.7
Row: 1, Col: 2, Value: 1.8
Row: 1, Col: 3, Value: 5.0
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 49.5
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: 40.0
Row: 1, Col: 5, Value: 41.9
Municipal
Securities 89.5%
Foreign taxable
bonds - dollar
denominated 5.0%
Foreign taxable
bonds - non-dollar
denominated 1.8%
Short-term taxable
investments 3.7%
Municipal
Securities 81.9%
Foreign taxable
bonds - dollar-
denominated 10.7%
Foreign taxable
bonds - non-dollar
denominated 6.3%
Short-term taxable
invesments 1.1%
INVESTMENTS JUNE 30, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL BONDS - 82.4%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
ARIZONA - 8.3%
Arizona Trans. Board Hwy. Rev. Rfdg.
Sub-Series A, 5% 7/1/09 Aa $ 500,000 $ 443,125
Maricopa County School Dist. #3 Rfdg.
(Temple Elementary) 0% 7/1/08,
(AMBAC Insured) Aaa 3,055,000 1,298,375
1,741,500
CALIFORNIA - 15.8%
California Dept. Wtr. Resources Central Valley
Proj. Rev. (Wtr. Sys.) Series J-2, 6% 12/1/07 Aa 1,000,000 1,010,000
California Pub. Wks. Board Lease Rev. Rfdg.
(Dept. of Corrections) 5% 12/1/07 A1 500,000 436,250
Fresno Swr. Rev. Series A-1, 6% 9/1/09,
(AMBAC Insured) Aaa 1,000,000 991,250
San Jose Redev. Agcy. Tax Allocation
(Merged Area Redev. Proj.):
6% 8/1/08, (MBIA Insured) Aaa 500,000 500,000
4.75% 8/1/24, (MBIA Insured) Aaa 500,000 385,000
3,322,500
COLORADO - 2.4%
Aurora Ctfs. of Prtn. Rfdg. 6% 12/1/06 A 500,000 493,125
CONNECTICUT - 2.2%
Connecticut Health & Ed. Facs. Auth. Rev. Rfdg.
(Quinnipiac College) Series D, 6% 7/1/13 BBB- 500,000 463,125
GEORGIA - 4.4%
Gainsville Wtr. & Swr. Rev. Rfdg.
5.25% 11/15/10, (FGIC Insured) Aaa 1,000,000 912,500
HAWAII - 2.4%
Hawaii Gen. Oblig. Series CH, 6% 11/1/07 Aa 500,000 508,125
ILLINOIS - 6.9%
Illinois Dev. Fin. Auth. Solid Waste Disp. Rev.
(Ford Heights Waste Tire Proj.)
7.875% 4/1/11 (e) - 400,000 405,500
Springfield Elec. Rev. (Sr. Lien) 6.50% 3/1/08 Aa 1,000,000 1,046,250
1,451,750
INDIANA - 2.5%
Indiana Health Facs. Fing. Auth. Hosp. Rev.
Rfdg. (Columbus Gen'l. Hosp.) 7% 8/15/15,
(Cap. Guaranty Insured) Aaa 500,000 530,000
KENTUCKY - 1.9%
Owensboro Elec. Lt. & Pwr. Rev. Rfdg. Series B,
0% 1/1/08, (AMBAC Insured) Aaa 925,000 404,688
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
MARYLAND - 2.3%
Maryland Health & Higher Ed. Facs. Auth. Rev.
(Frederick Mem. Hosp.) 5.20% 7/1/08,
(FGIC Insured) Aaa $ 500,000 $ 471,875
NEW YORK - 8.7%
New York State Dorm. Auth. Rev. (Consolidated
City Univ. Sys.) 2nd Gen. Series A:
5.75% 7/1/09 Baa1 500,000 469,375
5.75% 7/1/13 Baa1 500,000 456,875
New York State Med. Care Facs. Fin. Agcy.
Rev. Rfdg. (Mental Health Svcs.) Series E,
5.25% 8/15/08 Baa1 1,000,000 896,250
1,822,500
OHIO - 2.2%
Cleveland Wtrwks. Rev. Rfdg. 1st Mtg. Series G,
5.50% 1/1/13, (MBIA Insured) Aaa 500,000 466,250
PENNSYLVANIA - 2.3%
Philadelphia Muni. Auth. Rev. Rfdg. Lease
Series D, 6% 7/15/03 Ba 500,000 484,375
SOUTH CAROLINA - 5.0%
Piedmont Muni. Pwr. Agcy. Elec. Rev. Rfdg.
6.75% 1/1/19, (FGIC Insured) Aaa 1,000,000 1,046,250
TENNESSEE - 5.3%
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 1,107,500
TEXAS - 5.3%
Houston Wtr. (Conveyance Sys.)
7.20% 12/15/08, (AMBAC Insured) Aaa 500,000 555,625
Texas City Ind. Dev. Corp. Marine Term. Rev. Rfdg.
(Arco Pipeline Co. Proj.) 7.375% 10/1/20 A2 500,000 548,750
1,104,375
VIRGINIA - 2.0%
Virginia Beach Dev. Auth. Hosp. Facs. Rev.
(Virginia Beach Gen. Hosp. Proj.)
5.125% 2/15/18, (AMBAC Insured) Aaa 500,000 426,250
WASHINGTON - 2.5%
Washington State Pub. Pwr. Supply Sys.
Nuclear Proj. #1 Rev. Rfdg. Series A,
7% 7/1/08 Aa 500,000 530,625
TOTAL MUNICIPAL BONDS
(Cost $18,432,381) 17,287,313
MUNICIPAL NOTES (D) - 7.1%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
ILLINOIS - 7.1%
Chicago O'Hare Int'l. Arpt. Spl. Facs. Rev.
(American Airlines, Inc.) Series 1984 C,
3.20%, LOC Long-Term Cr. Bank, VRDN
(Cost $1,500,000) P-2 $ 1,500,000 $ 1,500,000
NONCONVERTIBLE BONDS - 6.8%
BASIC INDUSTRIES - 1.4%
IRON & STEEL - 1.4%
Grupo Simec 8 7/8% 12/15/98 (c) - 300,000 284,370
CONSTRUCTION & REAL ESTATE - 1.2%
BUILDING MATERIALS - 1.2%
Tolmex SA de CV 8 3/8% 11/1/03 Ba2 300,000 259,200
DURABLES - 0.4%
TEXTILES & APPAREL - 0.4%
Alpargatas SA euro 9% 3/15/98 - 100,000 91,000
FINANCE - 1.8%
BANKS - 1.8%
Public Bank of Malaysia 6 1/2% 9/14/94 - MYR 1,000,000 383,798
NONDURABLES - 2.0%
BEVERAGES - 1.0%
Grupo Embotellador de Mexico euro
10 3/4% 11/19/97 Ba2 200,000 204,500
TOBACCO - 1.0%
Empresas La Moderna SA
10 1/4% 11/12/97 (c) - 200,000 204,000
TOTAL NONDURABLES 408,500
TOTAL NONCONVERTIBLE BONDS
(Cost $1,503,977) 1,426,868
INDEXED SECURITIES - 3.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
Bankers Trust Company:
4 1/2% 12/9/94 (inversely indexed to
3 month U.S. Treasury Bill, multiplied by 12) $ 400,000 $ 383,840
4 1/2% 12/9/94 (inversely indexed to
3 month U.S. Treasury Bill, multiplied by 12) 400,000 382,480
TOTAL INDEXED SECURITIES
(Cost $800,000) 766,320
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $22,236,358) $ 20,980,501
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
SOLD
5 Municipal Bond Futures Contracts Sept. 1994 $ 443,906 $ 12,298
10 U.S. Treasury Bond Futures Contracts Sept. 1994 1,012,188 22,409
$ 1,456,094 $ 34,707
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 6.9%
FORWARD FOREIGN CURRENCY CONTRACTS
SETTLEMENT UNREALIZED
DATE(S) VALUE GAIN/(LOSS)
CONTRACTS TO BUY
2,294,516 DKK 8/2/94 $ 367,628 $ 5,580
961,679 FRF 8/2/94 176,481 11,966
62,779,010 JPY 7/29/94 to 8/16/94 639,157 38,360
TOTAL CONTRACTS TO BUY
(Payable amount $1,127,360) $ 1,183,266 55,906
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 5.6%
CONTRACTS TO SELL
2,294,516 DKK 8/2/94 $ 367,628 (19,874)
961,679 FRF 8/2/94 176,481 (9,213)
62,779,010 JPY 7/29/94 to 8/16/94 639,157 (35,803)
TOTAL CONTRACTS TO SELL
(Receivable amount $1,118,376) $ 1,183,266 (64,890)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 5.6%
$ (8,984)
SECURITY TYPE ABBREVIATIONS
VRDN - Variable Rate Demand Notes
CURRENCY ABBREVIATIONS
DKK - Danish krone
FRF - French franc
JPY - Japanese yen
MYR - Malaysian ringgit
LEGEND
1. Principal amount is stated in United States dollars unless otherwise
noted.
2. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
3. 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 $488,370 or 2.3% of net
assets.
4. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
5. Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 67.3% AAA, AA, A 67.3%
Baa 8.7% BBB 10.9%
Ba 4.5% BB 3.5%
B 0.0% B 0.0%
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 6.5%. FMR has
determined that unrated debt securities that are lower quality account for
2.4% of the total value of investment in securities.
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
Water and Sewer 18.8%
Electric Revenue 14.4
Health Care 12.1
Industrial Development 11.7
Special Tax 10.4
Others (individually less than 10%) 22.1
TOTAL 89.5%
INCOME TAX INFORMATION
At June 30, 1994, the aggregate cost of investment securities for income
tax purposes was $22,236,358. Net unrealized depreciation aggregated
$1,255,857, of which $19,870 related to appreciated investment securities
and $1,275,727 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>
JUNE 30, 1994 (UNAUDITED)
ASSETS
Investment in securities, at value (cost $22,236,358) (Note $ 20,980,501
1) - See accompanying schedule
Cash 90,217
Receivable for investments sold 486,423
Unrealized appreciation on foreign currency contracts (Note 55,906
2)
Interest receivable 384,433
Redemption fees receivable (Note 1) 297
TOTAL ASSETS 21,997,777
LIABILITIES
Payable for investments purchased $ 467,293
Unrealized depreciation on foreign currency contracts (Note 64,890
2)
Payable for closed foreign currency contracts (Note 2) 2,334
Dividends payable 9,287
Accrued management fee 12,546
TOTAL LIABILITIES 556,350
NET ASSETS $ 21,441,427
Net Assets consist of (Note 1):
Paid in capital $ 23,694,685
Distributions in excess of net investment income (18,820)
Accumulated undistributed net realized gain (loss) on (1,005,014)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on investments (1,229,424)
and assets and liabilities in foreign currencies
NET ASSETS, for 2,361,771 shares outstanding $ 21,441,427
NET ASSET VALUE, offering price and redemption price per $9.08
share ($21,441,427 (divided by) 2,361,771 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED)
INVESTMENT INCOME $ 667,541
Interest
EXPENSES
Management fee (Note 4) $ 79,910
Non-interested trustees' compensation 68
TOTAL EXPENSES 79,978
NET INVESTMENT INCOME 587,563
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1, 2 AND 3)
Net realized gain (loss) on:
Investment securities (801,441)
Foreign currency transactions (24,386)
Futures contracts 22,344 (803,483)
Change in net unrealized appreciation (depreciation) on:
Investment securities (1,510,060)
Futures contracts 34,707
Assets and liabilities in foreign currencies (31,569) (1,506,922)
NET GAIN (LOSS) (2,310,405)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ (1,722,842)
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS SEPTEMBER 9, 1993
ENDED JUNE (COMMENCEMENT OF
30,1994 OPERATIONS) TO
(UNAUDITED) DECEMBER 31,1993
INCREASE (DECREASE) IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Operations $ 587,563 $ 213,995
Net investment income
Net realized gain (loss) (803,483) (205,917)
Change in net unrealized appreciation (depreciation) (1,506,922) 277,498
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (1,722,842) 285,576
FROM OPERATIONS
Distributions to shareholders (582,596) (213,995)
From net investment income
In excess of net investment income - (19,401)
TOTAL DISTRIBUTIONS (582,596) (233,396)
Share transactions 10,378,688 21,406,105
Net proceeds from sales of shares
Reinvestment of distributions 523,933 213,513
Cost of shares redeemed (8,254,848) (595,185)
Redemption fees (Note 1) 19,552 2,927
Net increase (decrease) in net assets resulting from 2,667,325 21,027,360
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS 361,887 21,079,540
NET ASSETS
Beginning of period 21,079,540 -
End of period (including distributions in excess of net $ 21,441,427 $ 21,079,540
investment income of $(18,820) and $(23,787),
respectively)
OTHER INFORMATION
Shares
Sold 1,070,189 2,151,983
Issued in reinvestment of distributions 56,013 21,617
Redeemed (877,128) (60,903)
Net increase (decrease) 249,074 2,112,697
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED SEPTEMBER 9,
JUNE 30, 1994 1993
(UNAUDITED) (COMMENCEMENT
OF
OPERATIONS) TO
DECEMBER
31,1993
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.980 $ 10.000
Income from Investment Operations .245 .130
Net investment income
Net realized and unrealized gain (loss) (.911) (.011)C
Total from investment operations (.666) .119
Less Distributions (.242) (.130)
From net investment income
In excess of net investment income - (.011)
Total distributions (.242) (.141)
Redemption fees added to paid in capital .008 .002
Net asset value, end of period $ 9.080 $ 9.980
TOTAL RETURNB (6.66)% 1.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 21,441 $ 21,080
Ratio of expenses to average net assets .70%A .70%A
Ratio of net investment income to average net assets 5.14%A 4.44%A
Portfolio turnover rate 197%A 275%A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C 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 June 30, 1994 (Unaudited)
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. 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.
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.
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.
Effective January 1, 1994, the fund adopted Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. In accordance with this SOP, reported net realized
gains and losses on foreign currency transactions represent net gains and
losses from sales and maturities of forward currency contracts, disposition
of foreign currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. Further, as permitted under the SOP, the effects of
changes in foreign currency exchange rates on investments in securities are
not segregated in the Statement of Operations from the effects of changes
in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investments.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not 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."
INVESMENT INCOME. Interest income, which includes amortization of premium
and accretion of original issue discount,
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
is accrued as earned. Investment income is recorded net of foreign taxes
withheld where recovery of such taxes is uncertain.
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
futures and options transactions, foreign currency transactions and losses
deferred due to 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 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.
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.
2. OPERATING POLICIES -
CONTINUED
INDEXED SECURITIES. The fund may invest in indexed securities whose value
is linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other reference instruments.
Indexed securities may be more volatile than the reference instrument
itself, but any loss is limited to the amount of the original investment.
FUTURES CONTRACTS AND OPTIONS.
The fund may invest in futures contracts and write options. These
investments involve to varying degrees, elements of market risk and risks
in excess of the amount recognized in the Statement of Assets and
Liabilities. The face or contract amounts reflect the extent of the
involvement the fund has in the particular classes of instruments. Risks
may be caused by an imperfect correlation between movements in the price of
the instruments and the price of the underlying securities and interest
rates. Risks also may arise if there is an illiquid secondary market for
the instruments, or due to the inability of counterparties to perform.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Options traded
on an exchange are valued using the last sale price or, in the absence of a
sale, the last offering price. Options traded over-the-counter are valued
using dealer-supplied valuations.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $22,239,914 and $20,699,737, respectively.
The market value of futures contracts opened and closed amounted to
$25,915,166 and $23,985,447, 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 $400.
5. BENEFICIAL INTEREST.
At the end of the period, FMR was record owner of approximately 48% of the
total outstanding shares.
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
1907 West State Road 434
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
8180 Greensboro Drive
McLean, 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
Thomas J. Steffanci, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, 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
(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
