FIDELITY
(registered trademark)
DAILY INCOME
TRUST
ANNUAL REPORT
AUGUST 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 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 17 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 21 Notes to the financial statements.
REPORT OF INDEPENDENT 24 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 25
PROXY VOTING RESULTS 26
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 RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND
MONEY.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The short-term volatility that hit the stock and bond markets in the spring
re-emerged in August, and many equity and fixed-income securities retreated
from their 1997 highs. Still, the Standard & Poor's 500 Index was up
roughly 23% year-to-date through August 31, more than twice its historical
annual average. The bond markets have posted moderate returns through the
first eight months of the year, primarily influenced by positive news on
the inflation front.
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.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will greatly
reduce your vulnerability to any single decline. We know from experience,
for example, that stock prices have gone up over longer periods of time,
have significantly outperformed other types of investments and have stayed
ahead of inflation.
Second, you can further manage your investing risk through diversification.
A stock mutual fund, for instance, is already diversified, because it
invests in many different companies. You can increase your diversification
further by investing in a number of different stock funds, or in such other
investment categories as bonds. You should also keep money you'll need in
the near future in a more stable investment.
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.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
To measure a money market fund's historical performance, you can look at
either total return or yield. Total return reflects the change in the value
of an investment, assuming reinvestment of the fund's dividend income.
Yield measures the income paid by a fund. Since a money market fund tries
to maintain a $1 share price, yield is an important measure of performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Daily Income Trust 5.18% 23.90% 73.01%
All Taxable Money Market Funds Average 5.02% 22.98% 70.73%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years, or 10 years. 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. To measure how the
fund's performance stacked up against its peers, you can compare it to the
all-taxable money market funds average which reflects the performance of
taxable money market funds with similar objectives tracked by IBC Financial
Data, Inc. The past one year average represents a peer group of 867 mutual
funds. (The periods covered by the IBC Financial Data, Inc. numbers are the
closest available match to those covered by the fund.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Daily Income Trust 5.18% 4.38% 5.63%
All Taxable Money Market Funds Average 5.02% 4.22% 5.49%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had achieved that return by performing
at a constant rate each year.
YIELDS
9/2/97 6/3/97 2/25/97 12/3/96 9/3/96
5.26% 5.24% 4.98% 4.98% 4.96%
Fidelity Daily Income Trust
All Taxable Money 5.04% 5.02% 4.80% 4.88% 4.83%
Market Funds Average
9/3/97 5/28/97 2/26/97 11/27/96 8/28/96
2.67% 2.66% 2.63% 2.65% 2.68%
MMDA
Row: 1, Col: 1, Value: 5.26
Row: 1, Col: 2, Value: 5.04
Row: 1, Col: 3, Value: 2.67
Row: 2, Col: 1, Value: 5.24
Row: 2, Col: 2, Value: 5.02
Row: 2, Col: 3, Value: 2.66
Row: 3, Col: 1, Value: 4.98
Row: 3, Col: 2, Value: 4.84
Row: 3, Col: 3, Value: 2.63
Row: 4, Col: 1, Value: 4.98
Row: 4, Col: 2, Value: 4.88
Row: 4, Col: 3, Value: 2.65
Row: 5, Col: 1, Value: 4.96
Row: 5, Col: 2, Value: 4.83
Row: 5, Col: 3, Value: 2.68
Fidelity Daily
Income Trust
All Taxable
Money Market
Funds Average
MMDA
6% -
5% -
4% -
3% -
2% -
1% -
0%
YIELD refers to the income paid by the fund over a given period. Yields for
money market funds are usually for seven-day periods, expressed as annual
percentage rates. A yield that assumes income earned is reinvested or
compounded is called an effective yield. The chart above shows the fund's
current seven-day yield at quarterly intervals over the past year. You can
compare these yields to the all taxable money market funds average and the
bank money market deposit account (MMDA) average. Figures for the all
taxable money market funds average are from IBC Financial Data, Inc. The
MMDA average is supplied by BANK RATE MONITOR.(Trademark)
A MONEY MARKET FUND'S TOTAL RETURNS AND YIELDS WILL VARY, AND REFLECT PAST
RESULTS RATHER THAN PREDICT FUTURE PERFORMANCE.
COMPARING
PERFORMANCE
There are some important
differences between a bank
money market deposit
account (MMDA) and a
money market fund. First, the
U.S. government neither
insures nor guarantees a
money market fund. In fact,
there is no assurance that a
money market fund will
maintain a $1 share price.
Second, a money market
fund returns to its
shareholders income earned
by the fund's investments
after expenses. This is in
contrast to banks, which set
their MMDA rates periodically
based on current interest
rates, competitors' rates, and
internal criteria.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Burnell Stehman, Portfolio Manager of Fidelity Daily
Income Trust
Q. WHAT WAS THE INVESTING ENVIRONMENT LIKE OVER THE PAST YEAR, BURNIE?
A. At the beginning of the period, most market participants expected the
Federal Reserve Board to raise the rate banks charge each other for
overnight loans - known as the federal funds rate - to slow growth and
prevent inflationary pressures from erupting. Through October 1996, the
markets fluctuated, reacting negatively in anticipation of emerging data
that might show economic strength, then rallying when other releases came
out indicating no significant increase in inflation. When growth in the
third quarter slowed, most market participants became convinced that the
Fed would stand pat through the end of 1996 as long as inflation remained
benign, which it did. Nevertheless, there was an undercurrent of concern as
many felt low unemployment and tight labor markets might lead to wage and
price pressures that could spark inflation, given increases in consumer
confidence and consumption of goods and services. At the end of 1996,
market volatility increased as consumer confidence reached its highest
level in seven years and data showed rekindled growth in manufacturing,
housing and retail sales activity.
Q. WHAT'S HAPPENED SO FAR IN 1997?
A. The late fourth-quarter 1996 momentum carried robustly into the first
quarter of 1997, when gross domestic product (GDP) was reported at a much
higher-than-anticipated annual rate of 4.9%. On top of that, Fed Chairman
Alan Greenspan, in his semiannual Humphrey-Hawkins testimony before
Congress in February, hinted that the Fed might act pre-emptively by
raising rates to head off inflation pressures that could be developing as a
result of the tight labor markets and strong demand. The Fed followed
through in March, increasing the fed funds rate by 0.25% to 5.50%. From
that point, however, evidence pointed to a slowdown in economic growth in
the second quarter. That moderation, combined with continuing favorable
inflation data, led the Fed to keep rates steady at its May and July
meetings. The second-quarter slowdown, combined with the Fed's steady
policy stance, sparked a market rally in July. In keeping rates unchanged,
Greenspan in his July Congressional testimony suggested, among other
things, that productivity improvements seem to have allowed for growth to
continue above the level that the Fed would ordinarily consider
inflationary. Volatility returned to the marketplace in August on
stronger-than-expected economic numbers and an upward revision of
second-quarter GDP to a 3.6% annual rate. However, the Fed once again
stood pat as inflation remained subdued.
Q. WHAT WAS YOUR STRATEGY DURING THIS PERIOD?
A. During the first part of the period, I extended the fund's average
maturity to about 61 days through November because growth in the third
quarter slowed enough for me to feel that the Fed wouldn't raise rates. I
became more cautious through January, rolling the maturity down to 45 days,
due to evidence of strong fourth-quarter growth. By the end of February,
the fund's average maturity was back up to 63 days, as I selectively
invested in some longer-term securities to take advantage of attractive
yields. At the same time, I offset those holdings with a heavier
concentration of shorter-term securities. By structuring the fund in such a
way, I was able to increase the fund's yield without taking undue risk,
maintaining the ability to re-invest or sell short-term holdings if rates
should rise. Since that time, I've generally maintained the same structure,
keeping the fund's maturity in a relatively neutral range, taking advantage
of attractively priced longer-term securities when supply came to market.
Q. HOW DID THE FUND PERFORM?
A. The fund's seven-day yield on August 31, 1997, was 5.26%, compared to
4.97% 12 months ago. For the 12 months that ended August 31, 1997, the
fund's total return was 5.18%. That compares favorably with the total
return of 5.02% during the same period for the all taxable money market
funds average, according to IBC Financial Data, Inc.
Q. WHAT'S YOUR OUTLOOK?
A. It appears that the main issue will continue to be whether or not strong
economic growth will result in inflation. With the
forward momentum in wage pressures and steady growth in the economy, I
believe the Fed will maintain its bias toward raising interest rates in the
event of indications of emerging inflation. In making its decision, I
believe the Fed will focus on the labor markets and productivity, as well
as consumer demand and spending habits. If we see signs of burgeoning
economic strength or budding inflation, I would expect to see the Fed
modestly raise rates in the near future.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide current
income while maintaining a
stable $1.00 share price by
investing in high-quality,
short-term money market
securities
FUND NUMBER: 031
TRADING SYMBOL: FDTXX
START DATE: May 31, 1974
SIZE: as of August 31, 1997,
more than $2.4 billion
MANAGER: Burnell Stehman,
since 1985, and 1979-1983
manager, several
institutionalmoney market
funds; joined Fidelity in 1979
(checkmark)
INVESTMENT CHANGES
MATURITY DIVERSIFICATION
DAYS % OF FUND % OF FUND % OF FUND
ASSETS ASSETS ASSETS
8/31/97 2/28/97 8/31/96
0 - 30 43 41 45
31 - 90 42 37 40
91 - 180 9 18 15
181 - 397 6 4 0
WEIGHTED AVERAGE MATURITY
8/31/97 2/28/97 8/31/96
Fidelity Daily Income Trust 58 days 63 days 50 days
All Taxable Money 54 days 53 days 51 days
Market Funds Average *
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF AUGUST 31, 1997 AS OF FEBRUARY 28, 1997
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 6.0
Row: 1, Col: 3, Value: 39.0
Row: 1, Col: 4, Value: 53.0
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 15.0
Row: 1, Col: 3, Value: 33.0
Row: 1, Col: 4, Value: 50.0
Commercial
paper 53%
Bank, CDs, BAs,
TD, and notes 40%
Government
securities 6%
Other 1%
Commercial
paper 50%
Bank, CDs, BAs,
TD, and notes 33%
Government
securities 16%
Other 1%
* SOURCE: IBC'S MONEY FUND REPORT (registered trademark)
INVESTMENTS AUGUST 31, 1997
Showing Percentage of Total Value of Investment in Securities
BANKERS' ACCEPTANCES - 2.0%
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
Chase Manhattan Bank
11/4/97 5.94% $ 2,325 $ 2,301
SunTrust Bank, Atlanta
10/8/97 5.63 10,473 10,414
10/16/97 5.59 20,760 20,617
11/5/97 5.58 15,000 14,851
TOTAL BANKERS' ACCEPTANCES 48,183
CERTIFICATES OF DEPOSIT - 10.1%
Chase Manhattan Bank (USA)
9/9/97 5.57 10,000 10,000
10/17/97 5.56 25,000 25,000
11/5/97 5.59 30,000 30,000
Morgan Guaranty Trust, NY
9/30/97 5.60 5,000 5,001
10/3/97 5.55 2,000 2,000
3/19/98 5.95 20,000 19,997
U.S. National Bank of Oregon
10/23/97 5.55 25,000 25,000
10/30/97 5.55 25,000 24,999
Wachovia Bank NA
10/7/97 5.54 15,000 15,000
World Savings Bank, FSB
9/17/97 5.65 25,000 25,000
9/23/97 5.65 11,000 11,000
10/9/97 5.62 14,000 14,000
10/17/97 5.56 10,000 10,000
11/3/97 5.60 25,000 24,998
TOTAL CERTIFICATES OF DEPOSIT 241,995
COMMERCIAL PAPER - 53.4%
A.H. Robins Company, Inc.
9/15/97 5.57 25,000 24,946
AC Acquisition Holding Co.
10/20/97 5.56 7,000 6,948
10/29/97 5.56 5,000 4,956
American Express Credit Corp.
9/8/97 5.57 3,000 2,997
9/9/97 5.57 20,000 19,975
10/23/97 5.58 10,000 9,921
COMMERCIAL PAPER - CONTINUED
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
American Home Products
9/9/97 5.58% $ 5,000 $ 4,994
10/20/97 5.58 10,000 9,925
Asset Securitization COOP Corp.
9/26/97 5.53 6,000 5,977
10/21/97 5.58 20,000 19,846
Associates Corp. of North America
9/17/97 5.65 11,000 10,973
10/27/97 5.59 20,000 19,829
AVCO Financial Services
9/16/97 5.65 12,000 11,972
Bear Stearns Cos., Inc.
10/14/97 5.62 4,000 3,974
10/21/97 5.60 8,000 7,939
10/27/97 5.58 5,000 4,957
11/4/97 5.58 20,000 19,804
11/17/97 5.60 5,000 4,941
1/21/98 5.72 5,000 4,890
Bell Atlantic Financial Services
9/22/97 5.53 9,000 8,971
9/24/97 5.53 10,000 9,965
10/1/97 5.54 10,000 9,954
Beneficial Corp.
10/29/97 5.56 15,000 14,867
Campbell Soup Co.
12/30/97 5.61 22,000 21,598
Chase Manhattan Corp.
12/1/97 5.85 10,000 9,856
CIESCO, L.P.
9/3/97 5.57 3,000 2,999
9/8/97 5.53 10,000 9,989
9/8/97 5.57 5,000 4,995
9/10/97 5.54 20,000 19,973
9/11/97 5.54 10,000 9,985
9/11/97 5.55 20,000 19,969
9/12/97 5.57 16,000 15,973
9/19/97 5.65 20,000 19,944
11/10/97 5.61 10,000 9,892
CIT Group Holdings, Inc.
12/2/97 5.61 8,000 7,888
Citibank Credit Card Master Trust I (Dakota Certificate Program)
9/3/97 5.59 1,000 1,000
9/22/97 5.59 2,000 1,994
9/24/97 5.56 3,000 2,989
10/6/97 5.56 2,000 1,989
10/21/97 5.60 5,000 4,961
10/30/97 5.59 10,000 9,910
11/10/97 5.62 1,268 1,254
11/13/97 5.62 2,000 1,978
COMMERCIAL PAPER - CONTINUED
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
Enterprise Funding Corp.
9/2/97 5.57% $ 3,000 $ 3,000
9/5/97 5.60 13,000 12,992
9/8/97 5.55 11,441 11,429
9/24/97 5.57 4,000 3,986
10/15/97 5.59 2,000 1,986
10/17/97 5.57 3,000 2,979
10/20/97 5.59 6,000 5,955
Fina Oil and Chemical Company
9/8/97 5.64 1,000 999
Fleet Funding Corporation
9/5/97 5.53 15,000 14,991
Ford Motor Credit Corp.
10/20/97 5.58 30,000 29,775
10/28/97 5.60 25,000 24,782
11/5/97 5.87 25,000 24,743
11/26/97 5.62 2,500 2,467
12/15/97 5.75 9,000 8,853
2/3/98 5.66 25,000 24,408
General Electric Capital Corp.
10/3/97 5.67 15,000 14,925
10/6/97 5.81 20,000 19,890
10/22/97 5.57 25,000 24,805
12/29/97 5.76 15,000 14,722
General Electric Capital Services Inc.
9/23/97 5.80 25,000 24,914
9/25/97 5.54 10,000 9,963
General Electric Co.
9/4/97 5.51 15,000 14,993
9/10/97 5.57 20,000 19,972
General Motors Acceptance Corp.
9/10/97 5.61 16,000 15,978
9/15/97 5.55 10,000 9,979
9/22/97 5.56 4,000 3,987
10/14/97 6.00 22,000 21,847
10/16/97 6.01 2,000 1,985
10/20/97 6.03 7,000 6,944
10/29/97 6.02 4,000 3,962
11/3/97 6.02 6,000 5,939
11/10/97 6.02 12,000 11,864
11/12/97 6.02 4,000 3,953
Goldman Sachs Group, L.P. (The)
9/17/97 5.55 7,000 6,983
11/12/97 5.87 25,000 24,715
1/26/98 6.10 20,000 19,524
GTE Corp.
9/2/97 5.57 4,000 3,999
9/16/97 5.58 4,000 3,991
COMMERCIAL PAPER - CONTINUED
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
IBM Corp.
9/22/97 5.53% $ 10,000 $ 9,968
11/18/97 5.58 15,000 14,821
IBM Credit Corp.
11/10/97 5.61 15,000 14,839
Merrill Lynch & Co., Inc.
9/5/97 5.55 13,484 13,476
11/24/97 5.64 15,000 14,806
12/3/97 5.61 10,000 9,858
1/14/98 5.71 4,000 3,917
1/29/98 5.66 25,000 24,427
2/17/98 5.70 25,000 24,350
Monsanto Co.
10/29/97 5.58 3,100 3,073
MS Dean Witter Discover
9/23/97 5.58 16,000 16,000
10/10/97 5.58 12,505 12,430
10/17/97 5.57 15,000 14,895
10/22/97 5.57 10,000 9,922
10/27/97 5.57 5,000 4,957
National Rural Util. Coop. Fin. Corp.
10/27/97 5.58 15,000 14,872
11/4/97 5.58 26,300 26,043
New Center Asset Trust
9/3/97 5.53 7,500 7,498
11/7/97 5.89 3,000 2,968
Norfolk Southern Corp.
9/8/97 5.72 1,986 1,984
9/15/97 5.70 4,000 3,991
10/2/97 5.75 3,000 2,985
PHH Corp.
9/9/97 5.60 3,000 2,996
10/23/97 5.59 20,000 19,841
10/27/97 5.61 3,000 2,974
11/17/97 5.58 10,000 9,882
Preferred Receivables Funding Corp.
9/4/97 5.56 10,000 9,995
9/9/97 5.54 13,125 13,109
9/18/97 5.56 1,000 997
10/9/97 5.54 5,000 4,971
10/16/97 5.59 15,000 14,896
Sears Roebuck Acceptance Corp.
9/16/97 5.56 4,000 3,991
Textron, Inc.
9/11/97 5.70 1,000 998
9/12/97 5.70 1,000 998
9/12/97 5.71 8,000 7,986
9/15/97 5.71 2,000 1,996
9/18/97 5.73 1,000 997
9/18/97 5.73 3,000 2,992
COMMERCIAL PAPER - CONTINUED
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
Triple A One Funding Corp.
9/8/97 5.55% $ 8,000 $ 7,991
9/11/97 5.68 3,000 2,995
9/16/97 5.54 10,000 9,977
9/18/97 5.58 2,000 1,995
United Parcel Service
11/4/97 5.58 25,000 24,756
TOTAL COMMERCIAL PAPER 1,285,249
FEDERAL AGENCIES - 6.0%
Federal Home Loan Bank - Agency Coupons - 0.4%
9/4/97 5.71 (a) 10,000 9,998
Federal National Mortgage Assoc. - Agency Coupons - 4.4%
9/8/97 5.67 (a) 50,000 49,999
12/9/97 5.71 (a) 35,000 34,992
6/12/98 5.71 (a) 20,000 19,992
104,983
Federal National Mortgage Assoc. - Discount Notes - 1.2%
4/15/98 6.06 30,000 29,979
TOTAL FEDERAL AGENCIES 144,960
BANK NOTES - 17.8%
Bank of America National Trust & Savings Assoc.
10/14/97 5.58 35,000 35,001
Bank of New York, NY
3/3/98 5.85 20,000 19,995
BankBoston NA
9/11/97 5.66 15,000 15,000
10/1/97 5.65 15,000 15,000
11/6/97 5.60 25,000 25,000
2/3/98 5.69 25,000 25,000
Bank One, Columbus, NA
9/2/97 5.73 (a) 16,000 15,991
Bank One - Milwaukee, Wisconsin
9/19/97 5.65 (a) 29,000 29,015
Comerica Bank - Detroit
3/27/98 6.20 10,000 9,989
Comerica Bank - Detroit, Michigan
9/17/97 5.61 (a) 5,000 4,997
CoreStates Capital Corp.
9/8/97 5.60 (a) 10,000 10,000
BANK NOTES - CONTINUED
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
First Bank NA - Minnesota
9/17/97 5.59% (a) $ 5,000 $ 4,998
First of America Bank - Michigan
10/14/97 5.70 35,000 34,997
Huntington National Bank
9/30/97 5.50 5,000 5,001
Key Bank National Association
9/2/97 5.61 (a) 15,000 14,990
9/24/97 5.58 (a) 8,000 7,996
LaSalle National Bank
9/8/97 6.12 5,000 5,000
3/20/98 6.00 25,000 25,000
Morgan Guaranty Trust, NY
6/22/98 5.85 25,000 25,013
8/31/98 5.97 20,000 19,992
National City Bank - Pennsylvania
9/2/97 5.59 (a) 7,000 6,996
NationsBank Corp.
11/18/97 5.71 (a) 18,000 18,005
NationsBank, NA
9/22/97 5.63 20,000 20,000
Northern Trust Company
9/2/97 5.58 (a) 7,000 6,995
PNC Bank, NA
9/2/97 5.66 (a) 5,000 4,996
9/11/97 5.59 (a) 10,000 9,998
9/27/97 5.59 (a) 6,000 5,997
SunTrust Bank, Atlanta
7/24/98 5.88 6,500 6,494
TOTAL BANK NOTES 427,456
MASTER NOTES (A) - 3.4%
Goldman Sachs Group, L.P. (The) (c)
3/13/98 5.81 22,000 22,000
5/4/98 5.72 5,000 5,000
J.P. Morgan Securities
9/2/97 5.75 6,000 6,000
9/2/97 5.75 27,000 27,000
Norwest Corp.
9/2/97 5.66 13,000 13,000
SunTrust Banks, Inc.
9/2/97 5.61 10,000 10,000
TOTAL MASTER NOTES 83,000
MEDIUM-TERM NOTES (A) - 3.5%
DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1)
DATE TIME OF PURCHASE (000S) (000S)
Beneficial Corp.
9/5/97 5.61% $ 5,000 $ 4,999
9/25/97 5.72 7,000 6,996
Commonwealth Life Insurance Co. (c)
7/1/98 5.86 15,000 15,000
General Motors Acceptance Corp.
9/2/97 5.81 4,000 4,000
11/1/97 5.71 13,000 13,000
Merrill Lynch & Co., Inc.
9/4/97 5.61 4,000 3,999
Norwest Corp.
10/22/97 5.77 13,000 13,000
Pacific Mutual Life Insurance Co.
9/9/97 5.87 5,000 5,000
9/8/98 (b) 5.76 10,000 10,000
Transamerica Life Insurance and Annuity Co.
9/16/97 5.81 8,000 8,000
TOTAL MEDIUM-TERM NOTES 83,994
SHORT-TERM NOTES (A) - 2.7%
Capital One Funding Corp. (1995-E)
9/8/97 5.56 3,900 3,900
Capital One Funding Corp. (1996-B)
9/8/97 5.56 6,330 6,330
Capital One Funding Corp. (1996-I)
9/8/97 5.56 9,599 9,599
SMM Trust (1996-P)
9/16/97 5.66 14,000 14,000
SMM Trust (1997-I)
9/29/97 5.63 4,000 4,000
SMM Trust (1997-V)
9/26/97 5.63 15,000 15,000
SMM Trust (1997-W)
9/16/97 5.64 13,000 13,000
TOTAL SHORT-TERM NOTES 65,829
REPURCHASE AGREEMENTS - 1.1%
MATURITY AMOUNT VALUE (NOTE 1)
(000S) (000S)
In a joint trading account
(U.S. Treasury Obligations) dated
8/29/97 due 9/2/97
At 5.62% $ 26,635 $ 26,618
TOTAL INVESTMENTS - 100% $ 2,407,284
Total Cost for Income Tax Purposes $ 2,407,284
LEGEND
1. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due dates on these types of
securities reflects the next interest rate reset date or, when applicable,
the final maturity date.
2. Security purchased on a delayed delivery or when-issued basis (see Note
2 of Notes to Financial Statements).
3. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Goldman Sachs
Group, L.P. (The):
5.81%, 3/13/98 6/11/97 $22,000,000
5.72%, 5/4/98 8/5/97 $5,000,000
Commonwealth Life
Insurance Co.
5.86%, 7/1/98 7/1/97 $15,000,000
INCOME TAX INFORMATION
At August 31, 1997, the fund had a capital loss carryforward of
approximately $990,000 of which $336,000, $536,000, $19,000 and $99,000
will expire on August 31, 2001, 2002, 2003 and 2004, respectively.
The fund intends to elect to defer to its fiscal year ending August 31,
1998 approximately $108,000 of losses recognized during the period November
1, 1996 to August 31, 1997.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) AUGUST 31, 1997
ASSETS
Investment in securities, at value (including repurchase $ 2,407,284
agreements of $26,618) - See accompanying
schedule
Cash 18,057
Interest receivable 10,986
TOTAL ASSETS 2,436,327
LIABILITIES
Payable for investments purchased $ 10,000
Delayed delivery
Distributions payable 190
Accrued management fee 659
Other payables and accrued expenses 431
TOTAL LIABILITIES 11,280
NET ASSETS $ 2,425,047
Net Assets consist of:
Paid in capital $ 2,426,145
Accumulated net realized gain (loss) on investments (1,098)
NET ASSETS, for 2,425,518 shares outstanding $ 2,425,047
NET ASSET VALUE, offering price and redemption price $1.00
per share ($2,425,047 (divided by) 2,425,518 shares)
</TABLE>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED AUGUST 31, 1997
INTEREST INCOME $ 131,208
EXPENSES
Management fee $ 7,571
Transfer agent fees 3,684
Accounting fees and expenses 228
Non-interested trustees' compensation 2
Custodian fees and expenses 46
Registration fees 101
Audit 34
Legal 18
Reports to shareholders 17
Miscellaneous 10
Total expenses before reductions 11,711
Expense reductions (69) 11,642
NET INTEREST INCOME 119,566
NET REALIZED GAIN (LOSS) ON INVESTMENTS (99)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 119,467
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 119,566 $ 117,866
Net interest income
Net realized gain (loss) (99) (99)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 119,467 117,767
FROM OPERATIONS
Distributions to shareholders from net interest income (119,566) (117,866)
Share transactions at net asset value of $1.00 per share 9,437,254 7,701,468
Proceeds from sales of shares
Reinvestment of distributions from net interest income 116,546 115,356
Cost of shares redeemed (9,446,036) (7,754,895)
NET INCREASE (DECREASE) IN NET ASSETS AND SHARES 107,764 61,929
RESULTING FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 107,665 61,830
NET ASSETS
Beginning of period 2,317,382 2,255,552
End of period $ 2,425,047 $ 2,317,382
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED AUGUST 31,
1997 1996 1995 1994 1993
SELECTED PER-SHARE DATA
Net asset value, beginning $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
of period
Income from Investment .051 .051 .053 .032 .028
Operations
Net interest income
Less Distributions
From net interest income (.051) (.051) (.053) (.032) (.028)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN A 5.18% 5.25% 5.43% 3.23% 2.83%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 2,425 $ 2,317 $ 2,256 $ 2,132 $ 2,096
(in millions)
Ratio of expenses to average .50% .50% .54% .56% .57%
net assets
Ratio of expenses to average .49% .50% .54% .56% .57%
net assets after expense B
reductions
Ratio of net interest income to 5.07% 5.11% 5.31% 3.18% 2.83%
average net assets
</TABLE>
A THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 4 OF NOTES TO FINANCIAL
STATEMENTS).
B FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 4 OF
NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended August 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Daily Income Trust (the fund) is a fund of Fidelity Union Street
Trust 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, as an open-end management investment company organized as a
Delaware business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which permit
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. As permitted under Rule 2a-7 of the 1940 Act, and
certain conditions therein, securities are valued initially at cost and
thereafter assume a constant amortization to maturity of any discount or
premium.
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 substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INTEREST INCOME. Interest income, which includes amortization of premium
and accretion of original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income.
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.
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.
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a delayed delivery basis. Payment and delivery may take place a month or
more after the date of the transaction. 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 market values of
the securities purchased or sold on a delayed delivery basis are identified
as such in the fund's schedule of investments. With respect to purchase
commitments, the fund identifies securities as segregated in its custodial
records with a value at least equal to the amount of the commitment. Losses
may arise due to changes in the market value of the underlying securities
or if the counterparty does not perform under the contract.
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 $42,000,000 or
1.7% of net assets.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee computed daily and paid monthly, based on the fund's average net assets
and gross income earned each month The portion of the fee based on average
net assets is graduated ranging from an annual rate of .10% of average net
assets up to $2 billion to an annual rate of .05% of average net assets in
excess of $6 billion. The portion of the fee on gross income is equal to 4%
of the gross income earned by the fund each month (exclusive of gains
realized from the sales of investments) provided the amount of such fee, at
a minimum, amounts to an annual rate of .20% and, at a maximum, does not
exceed an annual rate of .40% of the fund's average net assets. For the
period, the management fee was equivalent to an annual rate of .32% of
average net assets.
SUB-ADVISER FEE. As the fund's investment sub-adviser, FMR Texas Inc., a
wholly owned subsidiary of FMR, receives a fee from FMR of 50% of the
management fee payable to FMR. The fee is paid prior to any voluntary
expense reimbursements which may be in effect.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, is the fund's transfer, dividend disbursing and shareholder servicing
agent. FSC receives account fees and asset-based fees that vary according
to account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annual rate of .16%
of average net assets.
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. FSC 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.
Shareholders participating in the Fidelity Ultra Service Account(registered
trademark) Program (the Program) paid a $5.00 monthly fee to Fidelity
Brokerage Services, Inc. (FBSI), an affiliate of FMR, for performing
services associated with the Program. For the period, fees paid to FBSI by
shareholders participating in the Program amounted to $1,136,200. Effective
September 1, 1997, the monthly fee was eliminated.
4. EXPENSE REDUCTIONS.
The Fund has entered into an arrangement on behalf of the fund with the
fund's transfer agent whereby 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 $69,000 under this
arrangement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Union Street Trust II and the Shareholders of
Fidelity Daily Income Trust:
We have audited the accompanying statement of assets and liabilities of
Fidelity Union Street Trust II: Fidelity Daily Income Trust, including the
schedule of portfolio investments, as of August 31, 1997, and the related
statement of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period 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 audits.
We conducted our audits 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 August 31, 1997 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 audits
provide 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 Union Street Trust II: Fidelity Daily Income Trust as of August
31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 3, 1997
DISTRIBUTIONS
A total of 1.05% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on September 17,
1997. The results of votes taken among shareholders on proposals are listed
below.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
SHARES VOTED SHARES VOTED
RALPH F. COX
Affirmative 2,401,182,794.648 96.436
Withheld 88,751,815.562 3.564
TOTAL 2,489,934,610.210 100.000
PHYLLIS BURKE DAVIS
Affirmative 2,397,118,738.298 96.272
Withheld 92,815,871.912 3.728
TOTAL 2,489,934,610.210 100.000
ROBERT M. GATES
Affirmative 2,396,081,742.286 96.231
Withheld 93,852,867.924 3.769
TOTAL 2,489,934,610.210 100.000
EDWARD C. JOHNSON 3RD
Affirmative 2,399,673,814.265 96.375
Withheld 90,260,795.945 3.625
TOTAL 2,489,934,610.210 100.000
E. BRADLEY JONES
Affirmative 2,398,393,555.851 96.324
Withheld 91,541,054.359 3.676
TOTAL 2,489,934,610.210 100.000
DONALD J. KIRK
Affirmative 2,402,333,998.428 96.482
Withheld 87,600,611.782 3.518
TOTAL 2,489,934,610.210 100.000
# OF % OF
SHARES VOTED SHARES VOTED
PETER S. LYNCH
Affirmative 2,401,919,216.521 96.465
Withheld 88,015,393.689 3.535
TOTAL 2,489,934,610.210 100.000
WILLIAM O. MCCOY
Affirmative 2,402,103,946.654 96.473
Withheld 87,830,663.556 3.527
TOTAL 2,489,934,610.210 100.000
GERALD C. MCDONOUGH
Affirmative 2,400,485,001.686 96.408
Withheld 89,449,608.524 3.592
TOTAL 2,489,934,610.210 100.000
MARVIN L. MANN
Affirmative 2,402,111,793.420 96.473
Withheld 87,822,816.790 3.527
TOTAL 2,489,934,610.210 100.000
ROBERT C. POZEN
Affirmative 2,401,711,292.631 96.457
Withheld 88,223,317.579 3.543
TOTAL 2,489,934,610.210 100.000
THOMAS R. WILLIAMS
Affirmative 2,399,898,719.309 96.384
Withheld 90,035,890.901 3.616
TOTAL 2,489,934,610.210 100.000
PROPOSAL 2
To ratify the selection of Coopers and Lybrand L.L.P. as independent
accountants of the trust.
# OF % OF
SHARES VOTED SHARES VOTED
Affirmative 2,345,334,057.002 94.193
Against 37,408,607.833 1.502
Abstain 107,191,945.375 4.305
TOTAL 2,489,934,610.210 100.000
PROPOSAL 3
To amend the Declaration of Trust to provide voting rights based on a
shareholder's total dollar investment in a fund, rather than on the number
of shares owned.
# OF % OF
SHARES VOTED SHARES VOTED
OF THE TRUST OF THE TRUST
Affirmative 2,204,078,064.733 88.531
Against 147,728,014.266 5.934
Abstain 137,804,775.211 5.535
Broker 323,756.000 00.000
Non-Votes
TOTAL 2,489,610,854.210 100.000
# OF % OF
SHARES VOTED SHARES VOTED
OF THE FUND OF THE FUND
Affirmative 1,078,782,717.846 89.150
Against 68,529,481.616 5.664
Abstain 62,758,500.946 5.186
Broker 15,356.000 00.000
Non-Votes
TOTAL 1,210,070,700.408 100.000
PROPOSAL 4
To amend the fund's fundamental investment limitation concerning
diversification.
# OF % OF
SHARES VOTED SHARES VOTED
Affirmative 1,018,135,434.115 84.139
Against 106,895,092.056 8.833
Abstain 85,040,174.237 7.028
Broker 15,356.000 00.000
Non-Votes
TOTAL 1,210,070,700.408 100.000
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* 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.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and send
you written confirmation upon completion of your request.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02210-0193
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
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Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State 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
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
(registered trademark)
Fidelity Management & Research
Company
Boston, MA
SUB-ADVISER
FMR Texas Inc.
Irving, TX
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Vice President
Fred L. Henning, Jr., Vice President
Boyce I. Greer, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Thomas D. Maher, Assistant
Vice President
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
Bank of New York
New York, NY
FIDELITY'S TAXABLE
MONEY MARKET FUNDS
Fidelity Cash Reserves
Fidelity Daily Income Trust
Fidelity U.S. Government Reserves
Spartan(registered trademark) Money Market Fund
Spartan U.S. Government
Money Market Fund
Spartan U.S. Treasury
Money Market Fund
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
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)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
SPARTAN(registered trademark)
(registered trademark)
ARIZONA
MUNICIPAL MONEY MARKET
FUND
ANNUAL REPORT
AUGUST 31, 1997
CHECK PAGE NUMBERS !!!
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 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
and one year.
INVESTMENTS 9 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 12 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 16 Notes to the financial statements.
REPORT OF INDEPENDENT 18 The auditors' opinion.
ACCOUNTANTS
PROXY VOTING RESULTS 19
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
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 FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 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 short-term volatility that hit the stock and bond markets in the spring
re-emerged in August, and many equity and fixed-income securities retreated
from their 1997 highs. Still, the Standard & Poor's 500 Index was up
roughly 23% year-to-date through August 31, more than twice its historical
annual average. The bond markets have posted moderate returns through the
first eight months of the year, primarily influenced by positive news on
the inflation front.
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.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will greatly
reduce your vulnerability to any single decline. We know from experience,
for example, that stock prices have gone up over longer periods of time,
have significantly outperformed other types of investments and have stayed
ahead of inflation.
Second, you can further manage your investing risk through diversification.
A stock mutual fund, for instance, is already diversified, because it
invests in many different companies. You can increase your diversification
further by investing in a number of different stock funds, or in such other
investment categories as bonds. You should also keep money you'll need in
the near future in a more stable investment.
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.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
To measure a money market fund's historical performance, you can look at
either total return or yield. Total return reflects the change in the value
of an investment, assuming reinvestment of the fund's dividend income and
the effect of the fund's $5 account closeout fee on an average size
account. Yield measures the income paid by a fund. Since a money market
fund tries to maintain a $1 share price, yield is an important measure of
performance. If Fidelity had not reimbursed certain fund expenses the total
returns and yields would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1997 PAST 1 LIFE OF
YEAR FUND
Spartan Arizona Municipal Money Market 3.39% 10.71%
All Tax-Free Money Market Funds Average 3.08% 9.25%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year or since the fund started on
October 11, 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. To measure how the fund's performance stacked up against its peers,
you can compare it to the all tax-free money market funds average, which
reflects the performance of all tax-free money market funds with similar
objectives tracked by IBC Financial Data, Inc. The past one year average
represents a peer group of 434 mutual funds. (The periods covered by the
IBC Financial Data, Inc. numbers are the closest available match to those
covered by the fund.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1997 PAST 1 LIFE OF
YEAR FUND
Spartan Arizona Municipal Money Market 3.39% 3.58%
All Tax-Free Money Market Funds Average 3.08% 3.17%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year.
YIELDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9/1/97 6/2/97 3/3/97 12/2/96 9/2/96
Spartan Arizona Municipal 3.21% 3.60% 3.15% 3.31% 3.27%
Money Market
If Fidelity had not reimburse 3.06% 3.45% 3.00% 3.16% 3.12%
d
certain fund expenses
All Tax-Free Money 2.98% 3.27% 2.87% 3.05% 2.96%
Market Funds Average
Spartan Arizona Municipal 5.29% 5.93% 5.19% 5.46% 5.39%
Money Market - Tax-equivale
nt
If Fidelity had not reimburse 5.04% 5.69% 4.94% 5.21% 5.14%
d
certain fund expenses
</TABLE>
Row: 1, Col: 1, Value: 3.21
Row: 1, Col: 2, Value: 2.98
Row: 2, Col: 1, Value: 3.6
Row: 2, Col: 2, Value: 3.27
Row: 3, Col: 1, Value: 3.15
Row: 3, Col: 2, Value: 2.87
Row: 4, Col: 1, Value: 3.31
Row: 4, Col: 2, Value: 3.05
Row: 5, Col: 1, Value: 3.27
Row: 5, Col: 2, Value: 2.96
Spartan Arizona
Municipal Money
Market
All Tax-Free
Money Market
Funds Average
5% -
4% -
3% -
2% -
1% -
0%
YIELD refers to the income paid by the fund over a given period. Yields for
money market funds are usually for seven-day periods, expressed as annual
percentage rates. A yield that assumes income earned is reinvested or
compounded is called an effective yield. The chart above shows the fund's
current seven-day yield at quarterly intervals over the past year. You can
compare these yields to the all tax-free money market funds average is
tracked by IBC Financial Data, Inc. Or you can look at the fund's
tax-equivalent yield, which is based on a combined effective 1997 federal
and state income tax rate of 39.33%. A portion of the fund's income may be
subject to the alternative minimum tax.
A MONEY MARKET FUND'S TOTAL RETURNS AND YIELDS WILL VARY, AND REFLECT PAST
RESULTS RATHER THAN PREDICT FUTURE PERFORMANCE.
COMPARING
PERFORMANCE
Yields on tax-free investments
are usually lower than yields
on taxable investments.
However, a straight
comparison between the two
may be misleading because it
ignores the way taxes reduce
taxable returns. Tax-equivalent
yield - the yield you'd have to
earn on a similar taxable
investment to match the
tax-free yield - makes the
comparison more
meaningful. Keep in mind that
the U.S. government neither
insures nor guarantees a
money market fund. In fact,
there is no assurance that a
money fund will maintain a $1
share price.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: Scott Orr became Portfolio Manager of Spartan Arizona
Municipal Money Market Fund on July 1, 1997.
Q. WHAT WAS THE INVESTING ENVIRONMENT LIKE OVER THE PAST YEAR, SCOTT?
A. For the first six months of the period, investors tried to figure out
when the Federal Reserve Board might raise the rate banks charge each other
for overnight loans - known as the fed funds rate. Over that period, data
showed growth in the economy, but the pace of that growth was inconsistent,
and there were no signs of inflation. As a result, the Fed kept the fed
funds rate steady at 5.25%. In February and March, however, signs that the
economy was growing at a stronger clip changed market sentiment.
Expectations of a rate increase culminated in the Fed's announcement at its
March 25 meeting that it had increased the fed funds rate by 0.25% to
5.50%. For the next month or so, the market expected the Fed to continue to
raise rates. However, at its May meeting, the Fed decided to hold off
because economic growth had moderated and inflation was still benign. Since
then, economic activity has been moderate to fairly strong, but inflation
has remained in check. The Fed has opted to keep rates unchanged, but
remains biased toward raising rates if signs of stronger inflation emerge.
Q. WHAT WAS THE FUND'S STRATEGY?
A. At the beginning of the period, yields on fixed-rate securities were
attractive because the market had priced in expectations of higher interest
rates. The fund's average maturity was extended into the mid-50-day range
in November and December then was allowed to roll down in January as supply
diminished and we began to grow more concerned about additional Fed rate
increases. More recently, the fund's options have continued to be limited
by constrained supply, especially with regard to fixed-rate issues. As a
result, I've purchased fewer fixed-rate notes and instead concentrated more
of the fund in short-term variable-rate demand notes. This strategy has
worked well in this uncertain environment because the variable-rate sector
has provided the best relative yields. In addition, keeping the fund's
average maturity in the low- to mid-30-day range by using the variable-rate
paper keeps the fund well-positioned should the Fed decide to raise rates
in the future.
Q. HOW DID THE FUND PERFORM?
A. The fund's seven-day yield on August 31, 1997, was 3.21%, compared to
3.26% 12 months earlier. The latest yield was the equivalent of a taxable
yield of 5.29% for Arizona investors in the 39.33% combined state and
federal income tax bracket. The fund's 12-month total return was 3.39%,
compared to a return of 3.08% for the all tax-free money market funds
average, according to IBC Financial Data, Inc.
Q. WHAT'S YOUR OUTLOOK?
A. The Fed continues to have a bias toward raising interest rates, and I am
anticipating a rate hike within the next three to six months, especially if
we see more data pointing to stronger economic growth and emerging
inflation. However, I believe that inflation will be the most important
component in the Fed's decision to raise rates. If the inflation numbers
continue to behave, the Fed may be inclined to keep rates steady, even in
an environment of strong growth.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high current tax-free
income for Arizona residents
while maintaining a stable
$1.00 share price
FUND NUMBER: 433
TRADING SYMBOL: FSAXX
START DATE: October 11, 1994
SIZE: as of August 31, 1997,
more than $88 million
MANAGER: Scott Orr, since
July 1997; manager, various
Fidelity and Spartan
municipal money market
funds; joined Fidelity in 1989
(checkmark)
WORDS TO KNOW
COMMERCIAL PAPER: A security
issued by a municipality to
finance capital or operating
needs.
FEDERAL FUNDS RATE: The interest
rate banks charge each other
for overnight loans.
MATURITY: The time remaining
before an issuer is scheduled
to repay the principal amount
on a debt security. When the
fund's average maturity -
weighted by dollar amount -
is short, the fund manager is
anticipating a rise in interest
rates. When the average
maturity is long, the manager
is expecting rates to fall.
When the average maturity is
neutral, the manager wants
the flexibility to respond to
rising rates, while still
capturing a portion of the
higher yields available from
issues with longer maturities.
MUNICIPAL NOTE: A security
issued in advance of future
tax or other revenues and
payable from those specific
sources.
VARIABLE-RATE DEMAND NOTE
(VRDN): A tender bond that
can be redeemed on short
notice, typically one or seven
days. VRDNs are useful in
managing the fund's average
maturity and liquidity.
DISTRIBUTIONS:
During fiscal year ended
1997, 100% of the fund's
income dividends was free
from federal income tax, and
43.12% of the fund's income
dividends was subject to the
federal alternative minimum
tax.
INVESTMENT CHANGES
MATURITY DIVERSIFICATION
DAYS % OF FUND % OF FUND % OF FUND
ASSETS ASSETS ASSETS
8/31/97 2/28/97 8/31/96
0 - 30 79 71 69
31 - 90 15 14 20
91 - 180 0 7 4
181 - 397 6 8 7
WEIGHTED AVERAGE MATURITY
8/31/97 2/28/97 8/31/96
Spartan Arizona Municipal 32 days 37 days 43 days
Money Market
All Tax-Free 50 days 45 days 55 days
Money Market Funds Average*
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF AUGUST 31, 1997 AS OF FEBRUARY 28, 1997
Row: 1, Col: 1, Value: 6.5
Row: 1, Col: 2, Value: 2.0
Row: 1, Col: 3, Value: 3.5
Row: 1, Col: 4, Value: 18.5
Row: 1, Col: 5, Value: 69.5
Variable rate demand
notes (VRDNs) 63%
Commercial paper 27%
Tender bonds 2%
Municipal notes 0%
Other 8%
Variable rate demand
notes (VRDNs) 72%
Commercial paper 20%
Tender bonds 2%
Municipal notes 1%
Other 5%
Row: 1, Col: 1, Value: 8.0
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 2.0
Row: 1, Col: 4, Value: 27.0
Row: 1, Col: 5, Value: 63.0
* SOURCE: IBC'S MONEY FUND SOURCE (registered trademark)
INVESTMENTS AUGUST 31, 1997
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL SECURITIES (A) - 100%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
ARIZONA - 100.0%
Apache County Ind. Dev. Auth. VRDN:
Rev. (Imperial Components, Inc.) Series 1996, 3.50%,
LOC Harris Trust & Savings Bank, Chicago (b) $ 2,100,000 $ 2,100,000
(Tucson Elec. Pwr. Co. Proj.) Series 1981 B, 3.50%,
LOC Bank of Tokyo - Mitsubishi Ltd. 4,000,000 4,000,000
Arizona Ed. Loan Mtg. Corp. Series 1991 A, 3.30%,
LOC Dresdner Bank, A.G., Germany, VRDN (b) 2,300,000 2,300,000
Arizona Health Facs. Auth. Rev. VRDN:
(Blood Systems Inc.) Series 1995, 3.40%,
LOC Bank One, Arizona 500,000 500,000 (Samaritan Health Care-Samcor
1986 Loan Pool)
3.30% (FGIC Insured) (BPA Chase Manhattan Bank) 800,000 800,000
(Voluntary Hosp. Federation Pooled Loan Prog.)
Series1985 A, 3.30% (FGIC Insured)
(Liquidity Facility Citibank, NA) 225,000 225,000
Cochise County Poll. Cont. Solid Waste Rev. Bonds
(Arizona Elec. Pwr. Corp.) 3.50%, tender 9/2/97
(CFC Nat'l. Rural Util. Coop.) (b) 2,000,000 2,000,000
Coconino County Poll. Cont. Corp. Poll. Cont.
(Arizona Pub. Svc. Co. Navajo Proj.) Series 1994 A,
3.85%, LOC Bank of America, NT & SA, VRDN (b) 1,300,000 1,300,000
Flagstaff Ind. Dev. Auth. Solid Waste Disposal
(Norton Envir. Inc. Proj.) Series 1997, 3.60%,
LOC Keybank NA, VRDN (b) 2,600,000 2,600,000
Glendale Ind. Dev. Auth. Rev. (Superior Bedding Co. Proj.)
Series 1994, 3.50%, LOC Harris Trust & Savings Bank,
Chicago, VRDN (b) 2,000,000 2,000,000
Glendale School Dist. #205 Participating VRDN,
Series 1996 F, 3.55% (FGIC Insured)
(Liquidity Facility Norwest Bank, Minnesota) (c) 2,600,000 2,600,000
Maricopa County Commty. College Dist. Bonds 6% 7/1/98 1,000,000 1,016,901
Maricopa County Ind. Dev. Auth. Multi-Family Hsg. Auth.
VRDN:
(Privado Park Apt. Proj.) Series 1994 A, 3.45%
(FNMA Guaranteed) (b) 2,000,000 2,000,000
(Royal Oaks-Sun City Proj.) Series 1990, 3.35%
LOC Bank of America 2,000,000 2,000,000
Rev. (Shadow Creek Apt. Proj.) Series 1994 C, 3.45%
(FNMA Guaranteed) (b) 500,000 500,000
Maricopa County Poll. Cont. Rev. Bonds
(Southern California Edison Co.) Series 1985 F,
3.80% 9/19/97, CP mode 400,000 400,000
Mesa Gen. Oblig. Rfdg. Bonds Series 1992, 4.95% 7/1/98
(FGIC Insured) 3,000,000 3,025,953
MUNICIPAL SECURITIES (A) - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
ARIZONA - CONTINUED
Mesa Ind. Dev. Auth. (Western Health Network, Inc.)
Participating VRDN, Series 1997 B, 3.40% (BIG Insured)
(Liquidity Facility Caisse des Depots et Consignations) (c) $ 6,440,000 $
6,440,000
Mesa Municipal Dev. Corp. Bonds Series 1996 A-B, 3.95%,
10/8/97, LOC Westdeutsche Landesbank, CP mode 5,000,000 5,000,000
Mohave County Ind. Dev. Auth. Ind. Dev. Rev. Bonds
(Citizens Utilities Co.) Series 1993 E:
3.85% 9/12/97, CP mode (b) 1,400,000 1,400,000
3.75% 10/7/97, CP mode (b) 1,000,000 1,000,000
3.80% 10/23/97, CP mode (b) 2,500,000 2,500,000
Peoria Dev. Auth. Participating VRDN, Series 1996 B, 3.55%
(Liquidity Facility Norwest Bank, Minnesota) (c) 2,750,000 2,750,000
Phoenix Civic Impt. Corp. Arpt. Impt. Series 1995, 3.40%,
LOC Landesbank Hessen-Thuringen, VRDN (b) 3,200,000 3,200,000
Phoenix Ind. Dev. Auth. Multi-Family Hsg. Rev. VRDN:
Rfdg. (Paradise Lakes Apt. Proj.) Series 1995, 3.50%,
LOC General Electric Capital Corp. 500,000 500,000 (Bell Square Apt.
Proj.) Series 1995, 3.50%,
LOC General Electric Capital Corp. 2,000,000 2,000,000
(Del Mar Terrace Apts. Proj.) Series 1984, 3.35%,
LOC Bank of America 1,800,000 1,800,000
(Venrana Palms Apt.) Series 1994, 3.50%,
LOC Wells Fargo Bank, N.A. (b) 5,210,000 5,210,000
Phoenix Ind. Dev. Auth. Ind. Dev. Rev. VRDN:
Rfdg. (V.A.W. of America Proj.) Series 1997, 3.60%,
LOC Nationsbank, NA (b) 1,000,000 1,000,000
(Continental Circuits Corp.) Series 1996, 3.50%,
LOC Bank One, Arizona (b) 1,000,000 1,000,000
(Plastican Project) Series 1997, 3.65%,
LOC Fleet National Bank (b) 4,000,000 4,000,000
Pima County Ind. Dev. Auth. Multi-Family Hsg. Rev. VRDN:
(La Cholla Apt. Proj.) Series 1996, 3.40%,
LOC Texas Commerce Bank 2,000,000 2,000,000
(Quail Ridge Apt.-B) 3.45% (FNMA Guaranteed) (b) 1,400,000 1,400,000
Pima County School Dist. #1 Participating VRDN,
Series 1996 D, 3.55% (FGIC Insured)
(Liquidity Facility Norwest Bank NA, Minnesota) (c) 2,000,000 2,000,000
Pinal County Ind. Dev. Auth. Hosp. Rev.
(Casa Grande Medical Ctr. Proj.) Series 1995, 3.45%,
LOC Chase Manhattan Bank, VRDN 5,065,000 5,065,000
Salt River Proj. Agric. Impt. and Pwr. Dist., CP:
3.80% 9/18/97 1,000,000 1,000,000
3.70% 10/16/97 1,500,000 1,500,000
3.70% 10/22/97 1,300,000 1,300,000
MUNICIPAL SECURITIES (A) - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
ARIZONA - CONTINUED
Tempe Union High School Dist. #213
TAN 4.40% 6/30/98 $ 1,000,000 $ 1,004,202
Tucson Ind. Dev. Auth. Multi-Family Hsg. Rev.
(Lincoln Garden Proj.) 3.85%,
LOC Sumitomo Bank Ltd., VRDN 1,000,000 1,000,000
Yavapai County Ind. Dev. Auth. Ind. Dev. Rev.:
Bonds:
(Citizens Utilities Co.):
Series 1993, 3.85% 9/9/97, CP mode (b) 1,500,000 1,500,000
Series 1993, 3.75% 10/17/97, CP mode (b) 1,800,000 1,800,000
Rfdg. (Kachina Point LP) 3.35%, LOC Morgan
Guaranty Trust, VRDN 200,000 200,000
Yuma Ind. Dev. Auth. Ind. Rev. VRDN:
(Ardco Inc. Proj.) 3.50%, LOC Harris Trust &
Savings Bank, Chicago (b) 700,000 700,000
(Buchbinder Proj.) Series 1995, 3.50%,
LOC Harris Trust & Savings Bank, Chicago (b) 1,100,000 1,100,000
TOTAL INVESTMENTS - 100% $ 88,737,056
Total Cost for Income Tax Purposes $ 88,737,056
SECURITY TYPE ABBREVIATIONS
CP - Commercial Paper
VRDN - Variable Rate Demand Notes
TAN - Tax Anticipation Note
LEGEND
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.
6. Provides evidence of ownership in one or more underlying municipal
bonds.
INCOME TAX INFORMATION
At August 31, 1997, the fund had a capital loss carryforward of
approximately $11,000 all of which will expire on August 31, 2004.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS AUGUST 31, 1997
ASSETS
Investment in securities, at value - $ 88,737,056
See accompanying schedule
Cash 77,203
Interest receivable 569,065
TOTAL ASSETS 89,383,324
LIABILITIES
Share transactions in process $ 1,215,751
Distributions payable 6,863
Accrued management fee 26,191
Other payables and accrued expenses 147
TOTAL LIABILITIES 1,248,952
NET ASSETS $ 88,134,372
Net Assets consist of:
Paid in capital $ 88,146,929
Accumulated net realized gain (loss) on investments (12,557)
NET ASSETS, for 88,146,929 shares outstanding $ 88,134,372
NET ASSET VALUE, offering price and redemption price per $1.00
share ($88,134,372 (divided by) 88,146,929 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED AUGUST 31, 1997
INTEREST INCOME $ 3,124,961
EXPENSES
Management fee $ 422,730
Non-interested trustees' compensation 469
Total expenses before reductions 423,199
Expense reductions (129,050) 294,149
NET INTEREST INCOME 2,830,812
NET GAIN (LOSS) (1,821)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,828,991
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 2,830,812 $ 2,303,349
Net interest income
Net realized gain (loss) (1,821) (10,724)
Increase (decrease) in net unrealized gain from - (215)
accretion of market discount
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,828,991 2,292,410
FROM OPERATIONS
Distributions to shareholders from net interest income (2,830,812) (2,303,349)
Share transactions at net asset value of $1.00 per share 105,703,895 118,384,316
Proceeds from sales of shares
Reinvestment of distributions from net interest income 2,737,679 2,241,032
Cost of shares redeemed (103,046,509) (90,439,136)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 5,395,065 30,186,212
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,393,244 30,175,273
NET ASSETS
Beginning of period 82,741,128 52,565,855
End of period $ 88,134,372 $ 82,741,128
</TABLE>
FINANCIAL HIGHLIGHTS
YEARS ENDED AUGUST OCTOBER 11, 1994
31, (COMMENCEMENT
OF
OPERATIONS) TO
AUGUST 31,
1997 1996 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000
Income from Investment Operations .033 .035 .034
Net interest income
Less Distributions
From net interest income (.033) (.035) (.034)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN B, C 3.39% 3.52% 3.43%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 88,134 $ 82,741 $ 52,566
Ratio of expenses to average net assets .35% D .22% D .06% A,
D
Ratio of net interest income to average net assets 3.34% 3.44% 3.91% 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 TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 4 OF NOTES TO
FINANCIAL STATEMENTS).
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 4 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended August 31, 1997
5. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Arizona Municipal Money Market Fund (the fund) is a fund of
Fidelity Union Street Trust 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
financial statements have been prepared in conformity with generally
accepted accounting principles which permit 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. As permitted under Rule 2a-7 of the 1940 Act, and
certain conditions therein, securities are valued initially at cost and
thereafter assume a constant amortization to maturity of any discount or
premium.
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 substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INTEREST INCOME. Interest income, which includes amortization of premium
and accretion of original issue discount,
is accrued as earned. Accretion of market discount represents unrealized
gain until realized at the time of a security disposition or maturity.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS.
Dividends are declared daily and paid monthly from net interest income.
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.
6. OPERATING POLICIES.
MUNICIPAL CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund may invest in the Municipal
Central Cash Fund (the Cash Fund) managed by FMR Texas, an affiliate of
Fidelity Management & Research Company (FMR). The Cash Fund is an openend
money market fund available only to investment companies and other accounts
managed by FMR and its affiliates. The Cash Fund seeks preservation of
capital, liquidity, and current income by investing in high-quality,
short-term municipal securities of various states and municipalities.
Income distributions from the Cash Fund are declared daily and paid monthly
from net interest income. Income distributions received by the fund are
recorded as interest income in the accompanying financial statements.
7. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, 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 annual rate of
.50% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund. To
offset the cost of providing these services, FMR or its affiliates collect
certain transaction fees from the fund's shareholders which amounted to
$610 for the period.
SUB-ADVISER FEE. As the fund's investment sub-adviser, FMR Texas Inc., a
wholly owned subsidiary of FMR, receives a fee from FMR of 50% of the
management fee payable to FMR. The fee is paid prior to any voluntary
expense reimbursements which may be in effect.
8. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .35% of average net assets. For the
period, the reimbursement reduced the expenses by $126,962.
In addition, FMR has entered into arrangements on behalf of the fund with
the fund's custodian and transfer agent whereby 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
$2,088 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Union Street Trust II and the Shareholders of
Spartan Arizona Municipal Money Market Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Union Street Trust II: Spartan Arizona Municipal Money Market
Fund, including the schedule of portfolio investments, as of August 31,
1997, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the
period then ended and for the period October 11, 1994 (commencement of
operations) to August 31, 1995. 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 audits.
We conducted our audits 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 August 31, 1997 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 audits
provide 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 Union Street Trust II: Spartan Arizona Municipal Money Market
Fund as of August 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years
in the period then ended and for the period October 11, 1994 (commencement
of operations) to August 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 30, 1997
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on September 17,
1997. The results of votes taken among shareholders on proposals are listed
below.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
SHARES VOTED SHARES VOTED
RALPH F. COX
Affirmative 2,401,182,794.648 96.436
Withheld 88,751,815.562 3.564
TOTAL 2,489,934,610.210 100.000
PHYLLIS BURKE DAVIS
Affirmative 2,397,118,738.298 96.272
Withheld 92,815,871.912 3.728
TOTAL 2,489,934,610.210 100.000
ROBERT M. GATES
Affirmative 2,396,081,742.286 96.231
Withheld 93,852,867.924 3.769
TOTAL 2,489,934,610.210 100.000
EDWARD C. JOHNSON 3RD
Affirmative 2,399,673,814.265 96.375
Withheld 90,260,795.945 3.625
TOTAL 2,489,934,610.210 100.000
E. BRADLEY JONES
Affirmative 2,398,393,555.851 96.324
Withheld 91,541,054.359 3.676
TOTAL 2,489,934,610.210 100.000
DONALD J. KIRK
Affirmative 2,402,333,998.428 96.482
Withheld 87,600,611.782 3.518
TOTAL 2,489,934,610.210 100.000
# OF % OF
SHARES VOTED SHARES VOTED
PETER S. LYNCH
Affirmative 2,401,919,216.521 96.465
Withheld 88,015,393.689 3.535
TOTAL 2,489,934,610.210 100.000
WILLIAM O. MCCOY
Affirmative 2,402,103,946.654 96.473
Withheld 87,830,663.556 3.527
TOTAL 2,489,934,610.210 100.000
GERALD C. MCDONOUGH
Affirmative 2,400,485,001.686 96.408
Withheld 89,449,608.524 3.592
TOTAL 2,489,934,610.210 100.000
MARVIN L. MANN
Affirmative 2,402,111,793.420 96.473
Withheld 87,822,816.790 3.527
TOTAL 2,489,934,610.210 100.000
ROBERT C. POZEN
Affirmative 2,401,711,292.631 96.457
Withheld 88,223,317.579 3.543
TOTAL 2,489,934,610.210 100.000
THOMAS R. WILLIAMS
Affirmative 2,399,898,719.309 96.384
Withheld 90,035,890.901 3.616
TOTAL 2,489,934,610.210 100.000
PROPOSAL 2
To ratify the selection of Coopers and Lybrand L.L.P. as independent
accountants of the trust.
# OF % OF
SHARES VOTED SHARES VOTED
Affirmative 2,345,334,057.002 94.193
Against 37,408,607.833 1.502
Abstain 107,191,945.375 4.305
TOTAL 2,489,934,610.210 100.000
PROPOSAL 3
To amend the Declaration of Trust to provide voting rights based on a
shareholder's total dollar investment in a fund, rather than on the number
of shares owned.
# OF % OF
SHARES VOTED SHARES VOTED
OF THE TRUST OF THE TRUST
Affirmative 2,204,078,064.733 88.531
Against 147,728,014.266 5.934
Abstain 137,804,775.211 5.535
TOTAL 2,489,610,854.210 100.000
Broker 323,756.000 00.000
Non-Votes
# OF % OF
SHARES VOTED SHARES VOTED
OF THE FUND OF THE FUND
Affirmative 39,654,631.510 86.521
Against 5,532,045.030 12.070
Abstain 645,889.920 1.409
TOTAL 45,832,566.460 100.000
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* 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.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
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INVESTMENT ADVISER
(registered trademark)
Fidelity Management & Research Company
Boston, MA
SUB-ADVISER
FMR Texas Inc.
Irving, TX
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Boyce I. Greer, Vice President
Scott A. Orr, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Thomas D. Maher, Assistant Vice President
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENTS
UMB Bank, n.a.
Kansas City, MO
and
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
UMB Bank, n.a.
Kansas City, MO
THE FIDELITY TELEPHONE CONNECTION
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