-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EAvtH+xvE5egiUSOc+DbS54nedCr68cArnwXVgbD+01m6v8S6dqKfn07yWxuhww1 6mVl1MhDIsOISmNLzluxmw== 0000278001-98-000002.txt : 19980113 0000278001-98-000002.hdr.sgml : 19980113 ACCESSION NUMBER: 0000278001-98-000002 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY PHILLIPS STREET TRUST CENTRAL INDEX KEY: 0000278001 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042667982 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02890 FILM NUMBER: 98504506 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 2142816360 MAIL ADDRESS: STREET 1: FIDLEITY INVESTMENTS MAILZONE DW4B STREET 2: P.O. BOX 650471 CITY: DALLAS STATE: TX ZIP: 75265-0471 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY CASH RESERVES DATE OF NAME CHANGE: 19930122 N-30D 1 FIDELITY (REGISTERED TRADEMARK) CASH RESERVES ANNUAL REPORT NOVEMBER 30, 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 AND ONE YEAR. INVESTMENTS 9 A COMPLETE LIST OF THE FUND'S INVESTMENTS. FINANCIAL STATEMENTS 21 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS. NOTES 25 NOTES TO THE FINANCIAL STATEMENTS. REPORT OF INDEPENDENT 27 THE AUDITORS' OPINION. ACCOUNTANTS 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, 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. PRESIDENT'S MESSAGE (photo_of_Edward_C_Johnson_3d) DEAR SHAREHOLDER: Although financial turmoil in Pacific Basin countries was a catalyst for significant volatility in U.S. markets in late October and into November, the Standard & Poor's 500 Index has risen more than 31% year-to-date, almost three times its historical annual average. Meanwhile, bond markets - primarily influenced by a relatively steady flow of positive news on the inflation front - continued to post solid returns through the first 11 months of 1997. 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 evaluate 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 NOVEMBER 30, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY CASH RESERVES 5.30% 25.02% 73.75% ALL TAXABLE MONEY MARKET FUNDS AVERAGE 5.07% 23.67% 70.30% 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 849 money market funds. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY CASH RESERVES 5.30% 4.57% 5.68% ALL TAXABLE MONEY MARKET FUNDS AVERAGE 5.07% 4.34% 5.46% 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 12/2/97 9/2/97 6/3/97 2/25/97 12/03/96 FIDELITY CASH RESERVES 5.31% 5.29% 5.25% 5.04% 5.00% ALL TAXABLE MONEY 5.09% 5.04% 5.02% 4.80% 4.88% MARKET FUNDS AVERAGE 12/3/97 9/3/97 5/28/97 2/26/97 12/4/96 MMDA 2.62% 2.67% 2.66% 2.63% 2.63% Row: 1, Col: 1, Value: 5.31 Row: 1, Col: 2, Value: 5.09 Row: 1, Col: 3, Value: 2.62 Row: 2, Col: 1, Value: 5.29 Row: 2, Col: 2, Value: 5.04 Row: 2, Col: 3, Value: 2.67 Row: 3, Col: 1, Value: 5.25 Row: 3, Col: 2, Value: 5.0 Row: 3, Col: 3, Value: 2.66 Row: 4, Col: 1, Value: 5.04 Row: 4, Col: 2, Value: 4.8 Row: 4, Col: 3, Value: 2.63 Row: 5, Col: 1, Value: 5.0 Row: 5, Col: 2, Value: 4.88 Row: 5, Col: 3, Value: 2.63 6% - 5% - 4% - 3% - 2% - 1% - 0% Fidelity Cash Reserves All Taxable Money Market Funds Average MMDA 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 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 John Todd, Portfolio Manager of Fidelity Cash Reserves Q. JOHN, WHAT HAS THE INVESTMENT ENVIRONMENT BEEN LIKE OVER THE PAST YEAR? A. The central theme was robust economic growth with no noticeable threats posed by inflation. At the end of March, the Federal Reserve Board raised the rate banks charge each other for overnight loans - known as the fed funds rate - by 0.25 percentage points to 5.50%. The Fed was attempting to slow the momentum in the economy that it feared might translate into a build-up of inflationary pressures. Since then, real economic growth - as measured by real gross domestic product, or GDP, adjusted for inflation - has slowed from a 4.9% annual rate in the first quarter of 1997 to 3.3% and 3.1% in the second and third quarters, respectively. While a growth rate this strong is believed to be above the economy's capacity to expand without generating inflation, pressure from political and business leaders has kept the Fed on the sidelines. The Fed appears to be waiting to see actual signs of inflation before raising rates again, instead of taking pre-emptive steps to slow growth to head off inflation before it emerges. Q. DID ANY INDICATIONS OF IMMINENT INFLATION EMERGE? A. Not really. In fact, the GDP deflator, which is the broadest measure of inflation in the economy, showed that inflation in the third quarter of 1997 increased at its lowest quarterly rate since 1967. However, job and income growth remained strong, and consumer confidence was at or near record highs. One of the main drivers of economic growth was personal consumption, which was very strong in the first quarter, backed off in the second quarter and surged again in the third quarter. If this pattern holds, consumption should slow somewhat in the fourth quarter. In fact, personal savings rates hit an all-time low in September, suggesting that consumers may slow down their spending and, hence, dampen overall economic growth. The recent financial market difficulties in Southeast Asia also could affect the U.S. economy because U.S. companies usually export a fair amount to the region. In addition, concerns about the financial condition of Japanese banks arose, especially after the closing of one of the country's largest securities firms at the end of the period. We also were beginning to see upward pressure on global overnight rates - rates at which banks lend money to each other - caused by a seasonal, year-end demand for cash. In fact, at the very end of the period the uncertainty surrounding the Japanese financial institutions was reflected in the large premiums that banks were paying to borrow money through the turn of the year. That said, most market participants feel the situation in Asia will push the Fed to wait even longer before taking action on U.S. interest rates. Q. WHAT WAS YOUR STRATEGY? A. At the end of the first quarter, prices in the market reflected the sentiment that the Fed would continue with a series of interest-rate increases that it appeared to begin in March. I felt that the market was jumping the gun and that the resulting yields offered by longer-term securities were particularly attractive. As a result, I extended the fund's average maturity to the low 70-day range. Moving into the summer, the markets reversed course, with prices and yields indicating that the Fed would hold off making any moves for the foreseeable future. So, I let the fund's maturity slip back to the low 60s. When the economy didn't slow as expected in late summer and early autumn, the market once again changed direction and started to price near-term Fed interest-rate increases back into the market. As a consequence, yields for securities with longer-term maturities became attractive, so I lengthened the maturity so that at the end of the period it stood at 69 days. Q. HOW DID THE FUND PERFORM? A. The fund's seven-day yield on November 30, 1997, was 5.30%, compared to 5.25% six months ago. For the 12 months that ended November 30, 1997, the fund had a total return of 5.30%, compared to 5.07% for the all taxable money market funds average, according to IBC Financial Data, Inc. Q. WHAT'S YOUR OUTLOOK? A. While it appears that consumption will slow in the fourth quarter, it doesn't appear that growth will slow at all. As we head toward the new year, the Fed may wait until late 1998 to act on interest rates to determine whether or not the slowdown materializes. Also, it likely will wait until the financial situation in Asia settles down. But as we move through 1998, if increasing wage and benefits costs spark inflation, the Fed probably would respond with higher rates - absent of continued turmoil in world financial matters. 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: income and a stable $1 share price by investing in high-quality, short-term money market securities of all types FUND NUMBER: 055 TRADING SYMBOL: FDRXX START DATE: May 10, 1979 SIZE: as of November 30, 1997, more than $23.4 billion MANAGER: John Todd, since April 1997; manager, Spartan Money Market Fund, since 1989; Fidelity Select Money Market Portfolio, since 1991; short-term and money market investments for the Fidelity Asset Manager funds, since 1996; joined Fidelity in 1981 (checkmark) INVESTMENT CHANGES MATURITY DIVERSIFICATION DAYS % OF FUND ASSETS % OF FUND ASSETS % OF FUND ASSETS 11/30/97 5/31/97 11/30/96 0 - 30 44 49 44 31 - 90 29 29 27 91 - 180 18 10 25 181 - 397 9 12 4 WEIGHTED AVERAGE MATURITY 11/30/97 5/31/97 11/30/96 FIDELITY CASH RESERVES 69 DAYS 67 DAYS 62 DAYS ALL TAXABLE MONEY MARKET FUNDS AVERAGE* 55 DAYS 52 DAYS 53 DAYS ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF NOVEMBER 30, 1997 AS OF MAY 31, 1997 Row: 1, Col: 1, Value: 3.0 Row: 1, Col: 2, Value: 3.0 Row: 1, Col: 3, Value: 27.0 Row: 1, Col: 4, Value: 67.0 Bank CDs, BAs, TDs, and notes 62% Commercial paper 32% Government securities 6% Other 0% Bank CDs, BAs, TDs, and notes 67% Commercial paper 27% Government securities 3% Other 3% Row: 1, Col: 1, Value: 0.0 Row: 1, Col: 2, Value: 6.0 Row: 1, Col: 3, Value: 32.0 Row: 1, Col: 4, Value: 62.0 *SOURCE: IBC'S MONEY FUND REPORT(registered trademark) INVESTMENTS NOVEMBER 30, 1997 Showing Percentage of Total Value of Investment in Securities CERTIFICATES OF DEPOSIT - 47.6% DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) DOMESTIC CERTIFICATES OF DEPOSIT - 2.4% Chase Manhattan Bank (USA) 2/9/98 5.75% $ 144,000 $ 144,000 CoreStates Bank 12/10/97 5.63 (a) 20,000 20,000 3/11/98 5.41 (a) 25,000 24,999 5/4/98 5.61 (a) 25,000 24,999 7/31/98 5.65 (a) 35,000 34,998 8/4/98 5.61 (a) 30,000 30,000 Morgan Guaranty Trust Co., NY 3/19/98 5.95 118,750 118,737 3/20/98 6.00 45,000 44,992 8/6/98 5.90 93,000 92,981 Wachovia Bank, NA 9/17/98 5.62 (a) 40,000 39,977 575,683 CHICAGO BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 0.8% ABN-AMRO Bank 3/19/98 6.00 25,000 24,999 Bank of Montreal 1/14/98 5.77 150,000 150,000 174,999 PORTLAND BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 1.0% Bank of Nova Scotia 4/1/98 6.20 117,000 116,978 7/21/98 5.97 28,000 27,972 8/31/98 5.97 80,000 79,963 224,913 SAN FRANCISCO BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 0.1% Banque Nationale de Paris 4/21/98 5.77 25,000 25,001 NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 29.7% ABN-AMRO Bank 12/23/97 5.70 100,000 99,997 1/22/98 5.65 20,000 19,999 2/2/98 5.65 22,000 22,000 3/2/98 5.68 125,000 125,000 3/19/98 5.98 20,000 20,000 8/14/98 5.90 70,000 70,008 Australia & New Zealand Banking Group 12/29/97 5.75 25,000 25,000 3/2/98 5.71 23,000 23,002 Bank of Tokyo - Mitsubishi Ltd. 1/22/98 5.75 51,000 51,000 2/2/98 5.75 33,000 32,673 CERTIFICATES OF DEPOSIT - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - CONTINUED Banque Nationale de Paris 12/10/97 5.60% $ 60,000 $ 60,000 2/3/98 5.65 47,000 47,000 3/2/98 5.78 240,000 240,000 Barclays Bank, PLC 1/16/98 5.80 28,000 27,998 2/17/98 5.75 210,000 210,000 2/20/98 5.75 100,000 100,000 Bayerische Landesbank Girozentrale 2/10/98 5.93 60,000 59,965 7/17/98 5.90 140,000 139,966 Canadian Imperial Bank of Commerce 12/1/97 5.59 25,000 25,000 12/22/97 5.58 200,000 200,000 8/28/98 5.97 145,000 144,938 Credit Agicole Indosuez 3/27/98 5.70 50,000 49,995 10/14/98 5.85 100,000 99,967 10/14/98 5.90 50,000 49,979 10/19/98 5.97 50,000 49,970 10/21/98 6.00 65,000 64,972 Credit Suisse First Boston 1/5/98 5.63 130,000 130,000 Den Danske Bank A/S 12/2/97 5.57 30,000 30,000 Deutsche Bank, AG 1/28/98 5.80 30,000 29,999 4/10/98 6.25 100,000 99,983 4/15/98 6.30 70,000 69,990 8/10/98 5.91 145,000 144,943 8/10/98 5.92 70,000 69,977 10/26/98 6.00 45,000 44,977 Dresdner Bank, AG 12/8/97 5.56 90,000 90,000 3/3/98 5.80 363,000 363,000 Hongkong & Shanghai Banking Corp. 12/22/97 5.60 127,000 127,000 Landesbank Hessen - Thuringen 4/1/98 6.25 70,000 69,973 6/30/98 5.79 80,000 80,028 National Westminster Bank, PLC 12/15/97 5.64 420,000 420,000 12/19/97 5.92 30,000 29,999 1/28/98 5.80 135,000 135,000 2/12/98 5.75 43,000 43,000 3/3/98 5.80 140,000 139,990 8/10/98 6.00 32,000 31,969 9/25/98 5.88 42,000 41,970 CERTIFICATES OF DEPOSIT - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - CONTINUED Norddeutsche Landesbank Girozentrale 12/8/97 5.56% $ 75,000 $ 75,000 12/8/97 5.57 50,000 50,000 Rabobank Nederland, N.V. 2/25/98 5.75 75,000 75,002 3/16/98 5.75 70,000 70,001 3/20/98 6.00 115,000 114,990 3/20/98 6.10 5,000 4,998 3/24/98 6.05 65,000 64,988 4/10/98 6.25 65,000 64,989 4/10/98 6.26 60,000 59,988 Royal Bank of Canada 3/3/98 5.82 150,000 149,993 8/7/98 5.90 96,000 95,981 8/13/98 6.00 50,000 49,982 Royal Bank of Scotland, PLC 6/15/98 5.85 30,000 30,000 Sanwa Bank, Ltd. 1/29/98 5.79 105,000 105,002 2/6/98 5.80 42,000 42,000 Societe Generale, France 12/1/97 5.57 50,000 50,000 12/1/97 5.90 30,000 30,000 2/18/98 5.77 210,000 210,000 3/18/98 5.75 19,000 19,001 4/14/98 5.75 125,000 125,000 4/15/98 5.75 115,000 115,000 Swiss Bank Corp. 12/1/97 5.58 10,000 10,000 12/22/97 5.96 135,000 135,000 12/22/97 5.99 158,000 158,000 12/30/97 6.04 100,000 100,000 1/20/98 5.70 190,000 190,000 2/2/98 5.65 170,000 170,000 2/11/98 5.75 100,000 100,000 2/27/98 5.88 45,000 45,000 8/19/98 5.87 70,000 69,981 8/28/98 5.97 140,000 139,950 Westdeutsche Landesbank Girozentrale 12/22/97 5.62 68,000 68,000 7,038,073 LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - 13.6% Abbey National, Treasury Services, PLC 12/3/97 5.60 70,000 70,000 12/26/97 5.60 213,000 213,000 3/4/98 5.87 100,000 100,000 3/18/98 5.70 215,000 215,000 CERTIFICATES OF DEPOSIT - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - CONTINUED Australia & New Zealand Banking Group 2/20/98 5.70% $ 21,000 $ 20,999 Banco Bilbao Vizcaya, SA 1/21/98 5.70 20,000 20,000 Bank of Scotland 2/9/98 5.70 235,000 235,004 Bank of Scotland Treasury Services 12/29/97 5.75 60,000 60,000 Banque Bruxelles Lambert, SA 2/17/98 5.78 10,000 10,000 2/18/98 5.77 10,000 10,000 Barclays Bank, PLC 2/17/98 5.75 100,000 100,002 4/23/98 5.80 170,000 170,000 Bayerische Landesbank Girozentrale 12/31/97 5.75 35,000 35,000 1/20/98 5.70 96,000 96,001 2/20/98 5.76 20,000 20,000 2/23/98 5.76 55,000 55,000 Bayerische Vereinsbank, AG 12/2/97 5.57 74,000 74,000 12/29/97 5.75 100,000 100,000 1/26/98 5.70 74,000 73,999 2/6/98 5.75 25,000 24,996 3/16/98 5.72 79,000 79,007 Commerzbank, Germany 2/17/98 5.75 19,000 19,002 Credit Agicole Indosuez 12/1/97 5.57 56,000 56,000 2/9/98 5.66 95,000 94,994 Deutsche Bank, AG 12/10/97 5.56 360,000 360,000 Dresdner Bank, AG 2/19/98 5.75 51,000 51,002 Kredietbank, NV 12/2/97 5.57 150,000 150,000 12/8/97 5.55 45,000 45,000 Norddeutsche Landesbank Girozentrale 1/29/98 5.64 50,000 50,000 3/16/98 5.73 36,000 36,002 Rabobank Nederland, COOP Central 2/23/98 5.76 25,000 25,000 2/25/98 5.76 10,000 10,000 Sanwa Bank, Ltd. Japan 1/30/98 5.75 62,000 62,001 Toronto-Dominion Bank 2/17/98 5.75 95,000 95,000 3/3/98 5.87 130,000 130,000 4/9/98 5.75 45,000 44,990 10/14/98 5.93 70,000 70,000 CERTIFICATES OF DEPOSIT - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) LONDON BRANCH, EURODOLLAR, FOREIGN BANKS - CONTINUED Westdeutsche Landesbank 2/2/98 5.65% $ 100,000 $ 99,999 2/10/98 5.75 41,000 40,993 3,221,991 TOTAL CERTIFICATES OF DEPOSIT $ 11,260,660 COMMERCIAL PAPER - 27.2% ABN-AMRO North America, Inc. 7/2/98 5.84 70,000 67,681 7/13/98 5.84 50,000 48,258 AC Acquisition Holding Co. 12/15/97 5.60 32,750 32,680 A.H. Robins Company, Inc. 2/11/98 5.76 35,463 35,060 Abbey National, North America 3/11/98 5.72 100,000 98,456 American Express Credit Corp. 12/15/97 5.59 200,000 199,571 Asset Securitization Coop. Corp. 12/8/97 5.59 60,000 59,935 12/11/97 5.60 98,000 97,850 1/21/98 5.70 30,000 29,761 2/17/98 5.77 100,000 98,767 Associates Corp. of North America 2/10/98 5.77 30,000 29,663 2/12/98 5.77 25,000 24,712 2/24/98 5.78 60,000 59,193 BBL North America, Inc. 12/24/97 5.75 45,000 44,839 2/25/98 5.80 145,000 143,020 BMW US Capital Corp. 12/1/97 5.57 16,000 16,000 12/8/97 5.60 50,000 49,946 12/10/97 5.61 40,000 39,944 12/16/97 5.60 24,000 23,945 12/22/97 5.61 30,000 29,903 Bank of Nova Scotia 12/15/97 5.60 68,000 67,854 Bear Stearns Cos., Inc. 1/21/98 5.72 44,000 43,653 2/23/98 5.80 30,000 29,600 Bradford & Bingley Building Society 3/16/98 5.72 30,000 29,514 COMMERCIAL PAPER - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) CIT Group Holdings, Inc. 12/1/97 5.59% $ 60,000 $ 60,000 Chase Manhattan Corp. 12/1/97 5.85 110,000 110,000 Citibank Credit Card Master Trust I (Dakota Certificate Program) 12/1/97 5.70 20,000 20,000 1/26/98 5.81 10,000 9,911 1/27/98 5.81 20,000 19,818 Commonwealth Bank of Australia 3/16/98 5.70 45,000 44,273 CoreStates Capital Corp. 12/2/97 5.59 (a) 26,000 26,000 Den Danske Corp., Inc. 12/16/97 5.59 100,000 99,770 Dresdner Bank, AG 12/2/97 5.71 109,415 109,398 Eiger Capital Corp. 12/8/97 5.60 10,000 9,989 12/10/97 5.60 50,000 49,930 12/18/97 5.59 36,000 35,905 Enterprise Funding Corp. 12/3/97 5.60 25,000 24,992 12/4/97 5.57 15,000 14,993 1/26/98 5.81 20,000 19,821 Fina Oil and Chemical Company 12/1/97 5.63 20,000 20,000 12/2/97 5.66 10,000 9,998 12/10/97 5.67 10,000 9,986 12/15/97 5.67 10,000 9,978 Ford Credit Europe, PLC 2/10/98 5.78 20,000 19,775 Ford Motor Credit Corp. 12/19/97 5.58 50,000 49,862 General Electric Capital Corp. 12/1/97 5.70 110,000 110,000 12/1/97 5.85 110,000 110,000 12/2/97 5.58 200,000 199,969 1/22/98 6.12 90,000 89,240 1/28/98 5.95 110,000 108,986 2/9/98 5.66 72,000 71,223 2/10/98 5.77 160,000 158,204 2/25/98 5.78 125,000 123,298 3/30/98 5.71 110,000 107,982 4/6/98 5.79 150,000 147,060 General Electric Co. 12/8/97 5.57 45,000 44,952 COMMERCIAL PAPER - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) General Motors Acceptance Corp. 12/1/97 5.62% $ 170,000 $ 170,000 12/9/97 5.68 25,000 24,969 2/11/98 5.85 375,000 370,673 3/9/98 5.76 145,000 142,794 3/9/98 5.84 200,000 196,880 General Motors Corp. 12/22/97 5.62 45,000 44,853 Generale de Banque, SA 3/3/98 5.72 36,000 35,488 Goldman Sachs Group, L.P. (The) 1/23/98 6.09 40,000 39,657 1/26/98 6.10 105,000 104,048 Household Finance Corp. 12/1/97 5.58 35,000 35,000 2/10/98 5.78 30,000 29,663 2/11/98 5.78 35,000 34,601 International Lease Finance Corp. 12/1/97 5.70 115,000 115,000 Lloyds Bank, PLC 3/3/98 5.71 111,830 110,244 Matterhorn Capital Corp. (LOC Union Bank of Switzerland) 12/1/97 5.56 10,000 10,000 12/16/97 5.56 7,996 7,977 Merrill Lynch & Co., Inc. 2/10/98 5.78 30,000 29,663 3/16/98 5.73 72,000 70,830 Morgan Stanley, Dean Witter, Discover & Co. 12/23/97 5.64 (a) 160,000 160,000 2/19/98 5.78 90,000 88,860 New Center Asset Trust 2/10/98 5.80 20,000 19,774 2/17/98 5.78 90,000 88,889 2/17/98 5.80 85,000 83,947 Norfolk Southern Corp. 12/1/97 5.75 13,000 13,000 12/3/97 5.77 15,000 14,995 12/15/97 5.80 12,000 11,973 12/16/97 5.74 15,000 14,964 12/17/97 5.77 28,000 27,929 12/22/97 5.78 30,000 29,899 PHH Corp. 12/2/97 5.58 15,000 14,998 Preferred Receivables Funding Corp. 12/1/97 5.62 15,775 15,775 12/10/97 5.61 53,000 52,926 12/12/97 5.60 30,000 29,949 12/15/97 5.63 32,425 32,354 COMMERCIAL PAPER - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) Preferred Receivables Funding Corp. - continued 12/17/97 5.62% $ 10,000 $ 9,975 1/20/98 5.81 40,000 39,681 1/28/98 5.81 10,000 9,907 Rabobank USA Financial Corp. 4/2/98 5.70 64,000 62,798 ScotiaBank, Inc. 2/11/98 5.75 100,000 98,866 Sears, Roebuck Acceptance Corp. 12/2/97 5.60 50,000 49,992 12/3/97 5.60 15,000 14,995 1/26/98 5.67 45,000 44,609 Society Generale, France 12/10/97 5.57 15,000 14,979 Textron, Inc. 12/18/97 5.75 9,000 8,976 12/23/97 5.78 12,000 11,958 12/29/97 5.78 35,000 34,843 Toronto-Dominion Holdings USA, Inc. 12/23/97 5.75 55,000 54,812 Transamerica Finance Corp. 12/1/97 5.58 25,000 25,000 Triple A One Funding Corp. 12/16/97 5.65 10,000 9,977 12/16/97 5.68 25,000 24,941 US Bank of N.C. 12/18/97 5.57 118,000 117,691 12/22/97 5.55 22,000 21,929 12/22/97 5.57 23,000 22,927 Westpac Capital Corp. 12/1/97 5.87 35,000 35,000 TOTAL COMMERCIAL PAPER 6,431,546 FEDERAL AGENCIES (A) - 2.9% FEDERAL HOME LOAN BANK - AGENCY COUPONS - 0.4% 12/4/97 5.62 85,000 84,999 FEDERAL NATIONAL MORTGAGE ASSOC. - AGENCY COUPONS - 2.5% 12/1/97 5.62 125,000 125,201 12/9/97 5.56 280,000 279,995 12/13/97 5.62 200,000 199,949 605,145 TOTAL FEDERAL AGENCIES 690,144 BANK NOTES - 5.9% DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) Bank of New York, NA 3/3/98 5.85% $ 40,000 $ 39,995 Bank One 12/2/97 5.65 170,000 169,938 Comerica Bank 12/17/97 5.65 (a) 53,000 52,977 3/27/98 6.20 95,000 94,942 First Bank NA - Minnesota 12/17/97 5.62 (a) 20,000 19,990 6/17/98 5.65 (a) 40,000 39,988 Key Bank, NA 12/1/97 5.67 (a) 53,000 52,973 12/1/97 5.71 (a) 50,000 49,995 12/12/97 5.62 (a) 70,000 69,978 12/24/97 5.64 (a) 84,000 83,963 12/29/97 5.64 (a) 92,000 91,954 Morgan Stanley Group, Inc. 8/31/98 5.85 72,000 72,025 8/31/98 5.97 112,000 111,968 National City Bank 12/2/97 5.61 (a) 65,000 64,971 NBD Bank, NA 3/2/98 5.82 60,000 59,996 Northern Trust 12/1/97 5.59 (a) 65,000 64,974 PNC Bank, NA 12/1/97 5.69 (a) 30,000 29,984 12/11/97 5.63 (a) 85,000 84,999 12/29/97 5.65 (a) 66,000 65,981 9/25/98 5.64 (a) 18,000 18,010 Southtrust Bank - Alabama 12/11/97 5.62 (a) 32,000 31,986 USBank 12/17/97 5.64 (a) 32,000 31,982 TOTAL BANK NOTES 1,403,569 MASTER NOTES (A) - 3.1% Goldman Sachs Group, L.P. (The) (c) 12/16/97 5.72 210,000 210,000 2/7/98 5.75 43,000 43,000 J.P. Morgan Securities 12/1/97 5.88 314,000 314,000 Norwest Corp. 12/1/97 5.97 130,000 130,000 Suntrust Bank, Inc. 12/1/97 5.92 40,000 40,000 TOTAL MASTER NOTES 737,000 MEDIUM-TERM NOTES (A) - 4.3% DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) Bank of Scotland Treasury Services 2/9/98 5.75% $ 250,000 $ 250,000 Beneficial Corp. 12/25/97 5.77 50,000 49,977 1/11/98 5.67 43,000 42,991 Commonwealth Life Insurance Co. (c) 12/31/97 5.86 50,000 50,000 General Motors Acceptance Corp. 12/1/97 5.74 40,000 39,998 1/20/98 5.75 50,000 50,007 2/1/98 5.75 100,000 100,000 Merrill Lynch & Co., Inc. 5/4/98 5.63 42,000 41,997 10/5/98 5.70 97,000 96,992 Norwest Corp. 1/22/98 5.83 118,000 118,000 Pacific Mutual Life Insurance Co. (b) 12/9/97 5.76 90,000 90,000 Transamerica Life Insurance and Annuity Co. 12/1/97 (c) 5.67 20,000 20,000 12/16/97 5.75 65,000 65,000 TOTAL MEDIUM-TERM NOTES 1,014,962 SHORT-TERM NOTES (A) - 4.4% Capital One Funding Corp. (1996-D) 12/5/97 5.75 23,657 23,657 Capital One Funding Corp. (1996-F) 12/5/97 5.75 40,370 40,370 Capital One Funding Corp. (1996-G) 12/5/97 5.75 4,023 4,023 Capital One Funding Corp. (1996-H) 12/5/97 5.83 18,995 18,995 Capital One Funding Corp. (1997-E) 12/5/97 5.83 20,700 20,700 Capital One Funding Corp. (1997-F) 12/5/97 5.75 21,000 21,000 Liquid Asset Backed Securities Trust (1996-1) (b) 10/15/98 5.67 91,000 91,000 Liquid Asset Backed Securities Trust (1996-2) (b) 12/1/97 5.67 134,000 134,000 Liquid Asset Backed Securities Trust (1997-5) (b) 12/17/97 5.67 211,000 211,000 SMM Trust (1996-P) (b) 12/16/97 5.72 130,000 130,000 SMM Trust (1997-I) (b) 12/29/97 5.69 75,000 75,000 SHORT-TERM NOTES (A) - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) SMM Trust (1997-V) (b) 12/26/97 5.69% $ 141,000 $ 141,000 SMM Trust (1997-W) (b) 12/16/97 5.69 125,000 125,000 TOTAL SHORT-TERM NOTES 1,035,745 TIME DEPOSITS - 1.9% Barclays Bank, PLC 12/1/97 5.63 454,000 454,000 Chase Manhattan Bank 1/20/98 5.77 5,846 5,801 TOTAL TIME DEPOSITS 459,801 REPURCHASE AGREEMENTS - 2.7% MATURITY AMOUNT (000S) In a joint trading account (U.S. Government Obligations) dated 11/20/97 due 12/1/97 At 5.58% $ 250,427 250,000 dated 11/26/97 due 12/1/97 At 5.68% 280,221 280,000 dated 11/28/97 due 12/1/97 At 5.74% 96,391 96,345 TOTAL REPURCHASE AGREEMENTS 626,345 TOTAL INVESTMENTS - 100% $ 23,659,772 Total Cost for Income Tax Purposes $ 23,659,772 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 reflect the next interest rate reset date or, when applicable, the final maturity date. 2. 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 approximately $997,000,000 or 4.2% of net assets. 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 (000) Commonwealth Life Insurance Co. 5.86%, 12/31/97 9/24/97 $50,000 Goldman Sachs Group, L.P. (The) 5.72%, 12/16/97 6/11/97 $210,000 Goldman Sachs Group, L.P. (The) 5.75%, 2/7/98 8/5/97 $43,000 Transamerica Life Insurance and Annuity Co. 5.67%, 12/1/97 5/7/97 $20,000 INCOME TAX INFORMATION At November 30, 1997, the fund had a capital loss carryforward of approximately $2,262,000 of which $468,000, $1,634,000, and $160,000 will expire on November 30, 2001, 2002 and 2004 respectively. A total of 0.43% 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. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) NOVEMBER 30, 1997 ASSETS INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 23,659,772 AGREEMENTS OF $626,345) - SEE ACCOMPANYING SCHEDULE RECEIVABLE FOR INVESTMENTS SOLD 229,470 INTEREST RECEIVABLE 219,785 TOTAL ASSETS 24,109,027 LIABILITIES PAYABLE TO CUSTODIAN BANK $ 1,027 PAYABLE FOR INVESTMENTS PURCHASED 592,466 SHARE TRANSACTIONS IN PROCESS 5,920 DISTRIBUTIONS PAYABLE 1,232 ACCRUED MANAGEMENT FEE 4,083 OTHER PAYABLES AND ACCRUED EXPENSES 6,577 TOTAL LIABILITIES 611,305 NET ASSETS $ 23,497,722 NET ASSETS CONSIST OF: PAID IN CAPITAL $ 23,499,984 ACCUMULATED NET REALIZED GAIN (LOSS) ON INVESTMENTS (2,262) NET ASSETS, FOR 23,498,755 SHARES OUTSTANDING $ 23,497,722 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $1.00 SHARE ($23,497,722 (DIVIDED BY) 23,498,755 SHARES) STATEMENT OF OPERATIONS AMOUNTS IN THOUSANDS YEAR ENDED NOVEMBER 30, 1997 INTEREST INCOME $ 1,279,356 EXPENSES MANAGEMENT FEE $ 47,443 TRANSFER AGENT FEES 59,504 ACCOUNTING FEES AND EXPENSES 806 NON-INTERESTED TRUSTEES' COMPENSATION 140 CUSTODIAN FEES AND EXPENSES 372 REGISTRATION FEES 511 AUDIT 71 LEGAL 113 MISCELLANEOUS 5 TOTAL EXPENSES BEFORE REDUCTIONS 108,965 EXPENSE REDUCTIONS (299) 108,666 NET INTEREST INCOME 1,170,690 NET REALIZED GAIN (LOSS) ON INVESTMENTS 42 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,170,732 STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED NOVEMBER 30, NOVEMBER 30, 1997 1996 INCREASE (DECREASE) IN NET ASSETS OPERATIONS $ 1,170,690 $ 975,537 NET INTEREST INCOME NET REALIZED GAIN (LOSS) 42 (160) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,170,732 975,377 FROM OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS FROM NET INTEREST INCOME (1,170,690) (975,537) SHARE TRANSACTIONS AT NET ASSET VALUE OF $1.00 PER SHARE 47,096,513 36,638,550 PROCEEDS FROM SALES OF SHARES REINVESTMENT OF DISTRIBUTIONS FROM NET INTEREST INCOME 1,134,911 948,155 COST OF SHARES REDEEMED (45,974,342) (34,777,730) NET INCREASE (DECREASE) IN NET ASSETS AND SHARES 2,257,082 2,808,975 RESULTING FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 2,257,124 2,808,815 NET ASSETS BEGINNING OF PERIOD 21,240,598 18,431,783 END OF PERIOD $ 23,497,722 $ 21,240,598
FINANCIAL HIGHLIGHTS YEARS ENDED NOVEMBER 30, 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 .052 .051 .055 .037 .029 OPERATIONS NET INTEREST INCOME LESS DISTRIBUTIONS FROM NET INTEREST INCOME (.052) (.051) (.055) (.037) (.029) NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 TOTAL RETURN A 5.30% 5.18% 5.67% 3.74% 2.97% RATIOS AND SUPPLEMENTAL DATA NET ASSETS, END OF PERIOD $ 23,498 $ 21,241 $ 18,432 $ 14,529 $ 10,314 (IN MILLIONS) RATIO OF EXPENSES TO AVERAGE .49% .51% .55% .52% .48% NET ASSETS RATIO OF EXPENSES TO AVERAGE .48% B .51% .55% .52% .48% NET ASSETS AFTER EXPENSE REDUCTIONS RATIO OF NET INTEREST INCOME TO 5.22% 5.06% 5.50% 3.76% 2.92% AVERAGE NET ASSETS
A 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). 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 November 30, 1997 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Cash Reserves (the fund) is a fund of Fidelity Phillips 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 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 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 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 $322,978,000 or 1.4% of net assets. 3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated by multiplying the sum of two components, a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund and adding an income-based fee. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .1100% to .3700% for the period. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The individual fund fee rate is .03%. The income-based fee is added only when the fund's gross yield exceeds 5%. At that time the income-based fee would equal 6% of that portion of the fund's gross income that represents a gross yield of more than 5% per year. The maximum income-based component is .24% (annualized) of average net assets. For the period, the management fee was equivalent to an annual rate of .21% 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 .27% of average net assets. 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. 4. EXPENSE REDUCTIONS. The fund has entered into an arrangement with its 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 transfer agent fees were reduced by $299,000 under this arrangement. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Phillips Street Trust and the Shareholders of Fidelity Cash Reserves: We have audited the accompanying statement of assets and liabilities of Fidelity Phillips Street Trust: Fidelity Cash Reserves, including the schedule of portfolio investments, as of November 30, 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 November 30, 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 Phillips Street Trust: Fidelity Cash Reserves as of November 30, 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. /s/COOPERS & LYBRAND L.L.P. COOPERS & LYBRAND LLP. Boston, Massachusetts January 5, 1998 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)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. For quotes.* For account balances and holdings. To review orders and mutual fund activity. To change your PIN. 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)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) 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 500 Merrimack, NH 03054-0500 (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 500 Merrimack, NH 03054-0500 TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 815 East Birch Street Brea, CA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. 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 950 Northgate Drive San Rafael, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 48 West Putnam Avenue Greenwich, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT 29 South Main Street West Hartford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 1907 West State Road 434 Longwood, FL 4001 Tamiami Trail, North Naples, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 1502 N. Westshore Blvd. Tampa, FL GEORGIA 3445 Peachtree Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS One North Franklin Street Chicago, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL 3232 Lake Avenue Wilmette, IL INDIANA 4729 East 82nd Street Indianapolis, IN LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 155 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 29155 Northwestern Hwy. Southfield, MI MINNESOTA 7600 France Avenue South Edina, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ NEW YORK 1055 Franklin Avenue 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 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 OREGON 16850 SW 72 Avenue Tigard, 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 INVESTMENT SUB-ADVISER FMR Texas Inc. Irving, TX OFFICERS Edward C. Johnson 3d, President Robert C. Pozen, Senior Vice President Boyce I. Greer, Vice President Fred L. Henning, Vice President John Todd, Vice President Eric D. Roiter, 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 William O. McCoy * Marvin L. Mann * 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 The 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/Redemption 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 FIDELITY (REGISTERED TRADEMARK) U.S. GOVERNMENT RESERVES ANNUAL REPORT NOVEMBER 30, 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 AND ONE YEAR. INVESTMENTS 9 A COMPLETE LIST OF THE FUND'S INVESTMENTS. 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 21 THE AUDITORS' OPINION. ACCOUNTANTS DISTRIBUTIONS 22 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: Although financial turmoil in Pacific Basin countries was a catalyst for significant volatility in U.S. markets in late October and into November, the Standard & Poor's 500 Index has risen more than 31% year-to-date, almost three times its historical annual average. Meanwhile, bond markets - primarily influenced by a relatively steady flow of positive news on the inflation front - continued to post solid returns through the first 11 months of 1997. 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 evaluate 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. If Fidelity had not reimbursed certain fund expenses, the past five and 10 years total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY U.S. GOVERNMENT RESERVES 5.26% 24.24% 70.67% GOVERNMENT MONEY MARKET FUNDS AVERAGE 5.01% 23.37% 68.98% 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 government 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 422 money market funds. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED NOVEMBER 30, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY U.S. GOVERNMENT RESERVES 5.26% 4.44% 5.49% GOVERNMENT MONEY MARKET FUNDS AVERAGE 5.01% 4.29% 5.38% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual cumulative return and show you what would have happened if the fund had performed at a constant rate each year. YIELDS 12/2/97 9/2/97 6/3/97 2/25/97 12/3/96 FIDELITY U.S. 5.30% 5.26% 5.22% 4.95% 4.98% GOVERNMENT RESERVES GOVERNMENT MONEY 4.89% 4.87% 4.93% 4.62% 4.73% MARKET FUNDS AVERAGE 12/3/97 9/3/97 5/28/97 2/26/97 12/4/96 MMDA 2.62% 2.67% 2.66% 2.63% 2.63% Row: 1, Col: 1, Value: 5.3 Row: 1, Col: 2, Value: 4.89 Row: 1, Col: 3, Value: 2.62 Row: 2, Col: 1, Value: 5.26 Row: 2, Col: 2, Value: 4.87 Row: 2, Col: 3, Value: 2.67 Row: 3, Col: 1, Value: 5.22 Row: 3, Col: 2, Value: 4.930000000000001 Row: 3, Col: 3, Value: 2.66 Row: 4, Col: 1, Value: 4.95 Row: 4, Col: 2, Value: 4.619999999999999 Row: 4, Col: 3, Value: 2.63 Row: 5, Col: 1, Value: 4.98 Row: 5, Col: 2, Value: 4.73 Row: 5, Col: 3, Value: 2.63 6% - 5% - 4% - 3% - 2% - 1% - 0% Fidelity U.S. Government Reserves Government Money Market Funds Average MMDA 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 government money market funds average and the bank money market deposit account (MMDA) average. Figures for the government 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 Robert Litterst, Portfolio Manager of Fidelity U.S. Government Reserves Q. BOB, WHAT WAS THE INVESTING ENVIRONMENT LIKE OVER THE PAST YEAR? A. The economy expanded rapidly in the fourth quarter of 1996 and the first quarter of 1997. In an effort to head off the risk of future inflation, the Federal Reserve Board raised the rates banks charge each other for overnight loans - known as the fed funds rate - from 5.25% to 5.50% at the end of March. As we entered the summer, short-term interest rates rose as most in the market expected the Fed to continue raising rates. However, the Fed held off because inflation was well-contained and it expected economic activity to slow. Contrary to the Fed's forecast, the economy continued on a solid pace in the third quarter, with real GDP - gross domestic product adjusted for inflation - growing at a 3.5% annual rate. Over each of the past four quarters, real GDP has grown at about a 4% annual rate, clearly above estimates of the economy's non-inflationary potential. Despite subdued inflation currently, many feel that growth at this rate will result in a rise in inflation at some point. Nonetheless, the Fed has been patient, and appears to be willing to tolerate strong growth until clear signs of rising inflation emerge. Q. WERE THERE OTHER FACTORS THAT DROVE THE MARKET FOR SHORT-TERM U.S. GOVERNMENT SECURITIES? A. Yes, there were some developments in the U.S. Treasury market that tended to affect government money market securities, because there is a correlation between how the two markets behave. As the budget deficit has declined, so have the financing needs of the U.S. Treasury. As a result of reduced issuance and a large pay-down of Treasury debt in the second quarter, the supply of Treasuries has fallen. Combined with strong demand from both foreign and domestic investors during the period, this situation pushed yields on Treasuries - and associated government money market securities - lower. In addition, concerns about the economic difficulties in Asia dominated U.S. markets toward the end of the period. Q. WHAT SORT OF STRATEGY DID YOU PURSUE? A. I've used a barbell strategy - concentrating the fund on either end of the maturity spectrum - investing in overnight to three-month securities on the one hand and on issues with maturities of one year on the other. I've been purchasing longer-term securities at moments of market weakness when the short-term yield curve steepens and longer investments present attractive values. The very short-term securities help to balance the portfolio and serve a defensive purpose that will help the fund if the Fed raises rates again. Overall, the fund's average maturity tended to be longer than the average of its peers. Q. HOW DID THE FUND PERFORM OVER THE 12-MONTH PERIOD? A. On November, 30, 1997, the fund's seven-day yield was 5.29%, compared to 5.21% six months ago. The fund's total return for the 12 months was 5.26%, compared to the 5.01% total return for the government money market funds average tracked by IBC Financial Data, Inc. Q. WHAT'S YOUR OUTLOOK? A. Although broad measures of inflation are well-controlled, the economy is strong and wage pressures appear to be building. Fed Chairman Alan Greenspan is concerned that increased costs due to continued tightness in the labor market eventually will be passed on to the consumer. If the economy continues to expand rapidly and pushes the unemployment rate lower, then higher inflation is likely to materialize and further Fed rate increases are probably in the offing. One factor that may keep the Fed on the sidelines a bit longer than anticipated is the recent market turmoil in Southeast Asia and its influence on domestic markets. In addition, a slowdown in Southeast Asia may dampen U.S. economic growth and moderate inflation pressures. However, while the turmoil in global financial markets will affect the timing of future Fed interest-rate changes, it is unlikely to alter the Fed's ultimate policy decisions, which are driven by domestic economic considerations. 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: income and a stable $1 share price by investing in high-quality, short-term money market securities of all types FUND NUMBER: 055 TRADING SYMBOL: FDRXX START DATE: May 10, 1979 SIZE: as of November 30, 1997, more than $23.4 billion MANAGER: John Todd, since April 1997; manager, Spartan Money Market Fund, since 1989; Fidelity Select Money Market Portfolio, since 1991; short-term and money market investments for the Fidelity Asset Manager funds, since 1996; joined Fidelity in 1981 (checkmark) INVESTMENT CHANGES MATURITY DIVERSIFICATION DAYS % OF FUND ASSETS % OF FUND ASSETS % OF FUND ASSETS 11/30/97 5/31/97 11/30/96 0 - 30 58 67 65 31 - 90 12 15 20 91 - 180 18 5 10 181 - 397 12 13 5 WEIGHTED AVERAGE MATURITY 11/30/97 5/31/97 11/30/96 FIDELITY U.S. GOVERNMENT RESERVES 64 DAYS 61 DAYS 40 DAYS GOVERNMENT MONEY MARKET FUNDS AVERAGE * 46 DAYS 47 DAYS 48 DAYS ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF NOVEMBER 30, 1997 AS OF MAY 31, 1997 Row: 1, Col: 1, Value: 47.0 Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 3, Value: 53.0 Federal agency issues 53% U.S. Treasury obligations 3% Repurchase agreements 44% Federal agency issues 53% U.S. Treasury obligations 0% Repurchase agreements 47% Row: 1, Col: 1, Value: 44.0 Row: 1, Col: 2, Value: 3.0 Row: 1, Col: 3, Value: 53.0 *SOURCE: IBC'S MONEY FUND REPORT(registered trademark) INVESTMENTS NOVEMBER 30, 1997 Showing Percentage of Total Value of Investment in Securities FEDERAL AGENCIES - 53.0% DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) FEDERAL FARM CREDIT BANK - AGENCY COUPONS - 3.2% 4/1/98 6.01% $ 14,000 $ 13,991 4/1/98 6.05 14,000 13,989 9/2/98 5.76 13,000 12,987 40,967 FEDERAL HOME LOAN BANK - AGENCY COUPONS - 12.0% 12/2/97 5.52 (a) 18,000 17,990 12/30/97 5.60 12,000 12,067 3/18/98 5.88 35,000 35,000 3/19/98 5.59 (a) 25,000 24,995 6/11/98 5.88 3,500 3,499 6/12/98 5.81 7,000 6,997 9/18/98 5.76 20,000 19,995 9/24/98 5.71 9,000 8,993 10/23/98 5.70 12,000 11,992 10/23/98 5.73 12,000 11,989 153,517 FEDERAL HOME LOAN BANK - DISCOUNT NOTES - 2.2% 12/31/97 5.59 8,000 7,964 2/18/98 5.61 7,000 6,915 6/9/98 5.89 14,000 13,999 28,878 FEDERAL HOME LOAN MORTGAGE CORP. - AGENCY COUPONS - 3.6% 3/17/98 5.79 12,000 11,995 4/8/98 6.04 12,000 11,989 4/29/98 6.02 9,550 9,515 6/22/98 5.66 (a) 12,000 11,994 45,493 FEDERAL HOME LOAN MORTGAGE CORP. - DISCOUNT NOTES - 1.6% 2/12/98 5.58 7,000 6,922 2/17/98 5.60 14,000 13,833 20,755 FEDERAL NATIONAL MORTGAGE ASSOC. - AGENCY COUPONS - 20.9% 12/1/97 5.62 (a) 33,000 33,053 12/3/97 5.77 (a) 10,000 10,000 12/9/97 5.56 (a) 23,000 23,000 12/10/97 5.60 15,000 15,013 12/13/97 5.62 (a) 10,000 9,997 12/15/97 5.56 (a) 45,000 44,975 3/17/98 5.60 18,000 18,060 3/18/98 5.91 11,000 10,991 4/15/98 6.06 14,000 13,994 4/17/98 6.11 13,000 12,991 5/21/98 5.96 14,000 13,990 6/26/98 5.46 14,000 14,479 FEDERAL AGENCIES - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) FEDERAL NATIONAL MORTGAGE ASSOC. - AGENCY COUPONS - CONTINUED 8/14/98 5.71% $ 13,000 $ 12,986 8/14/98 5.80 10,000 9,984 9/9/98 5.77 6,000 5,990 9/9/98 5.79 5,000 4,994 11/20/98 5.73 13,000 12,982 267,479 FEDERAL NATIONAL MORTGAGE ASSOC. - DISCOUNT NOTES - 9.5% 1/21/98 5.58 13,645 13,539 1/28/98 5.58 7,000 6,938 2/13/98 5.58 27,000 26,695 2/18/98 5.59 7,000 6,915 3/5/98 5.56 40,000 39,434 3/30/98 5.58 13,000 12,767 4/2/98 5.58 16,000 15,706 121,994 TOTAL FEDERAL AGENCIES 679,083 MEDIUM-TERM NOTES (A)(B) - 0.1% EXPORT-IMPORT BANK, U.S. (AS GUARANTOR FOR K.A. LEASING, LTD.) 12/15/97 5.81 1,399 1,399 REPURCHASE AGREEMENTS - 46.9% MATURITY AMOUNT (000S) In a joint trading account (Notes 2 and 3): (U.S. Government Obligations): dated 11/20/97 due 12/1/97 At 5.58% $ 55,094 55,000 dated 11/24/97 due 12/1/97 At 5.59% 26,028 26,000 dated 11/26/97 due 12/1/97 At 5.68% 106,084 106,000 dated 11/28/97 due 12/1/97 At 5.74% 290,572 290,433 dated 11/21/97 due 12/2/97 At 5.58% 13,022 13,000 dated 11/25/97 due 12/2/97 At 5.65% 50,055 50,000 dated 11/20/97 due 12/29/97 At 5.59% 39,236 39,000 dated 10/22/97 due 1/20/98 At 5.66% 7,099 7,000 REPURCHASE AGREEMENTS - CONTINUED MATURITY AMOUNT VALUE (NOTE 1) (000S) (000S) In a joint trading account (Notes 2 and 3): - continued (U.S. Treasury Obligations) dated 11/28/97 due 12/1/97 At 5.71% $ 14,007 $ 14,000 TOTAL REPURCHASE AGREEMENTS 600,433 TOTAL INVESTMENTS - 100% $ 1,280,915 Total Cost For Income Tax Purposes $ 1,280,915 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. 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) Export-Import Bank, U.S. (as guarantor for K.A. Leasing, Ltd.) 7/29/94 $ 1,399 INCOME TAX INFORMATION At November 30, 1997, the fund had a capital loss carryforward of approximately $61,000 all of which will expire on November 30, 2003. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) NOVEMBER 30, 1997 ASSETS INVESTMENT IN SECURITIES, AT VALUE (INCLUDING $ 1,280,915 REPURCHASE AGREEMENTS OF $600,433) - SEE ACCOMPANYING SCHEDULE CASH 1,817 INTEREST RECEIVABLE 8,123 TOTAL ASSETS 1,290,855 LIABILITIES DISTRIBUTIONS PAYABLE $ 37 ACCRUED MANAGEMENT FEE 223 OTHER PAYABLES AND ACCRUED EXPENSES 349 TOTAL LIABILITIES 609 NET ASSETS $ 1,290,246 NET ASSETS CONSIST OF: PAID IN CAPITAL $ 1,290,307 ACCUMULATED NET REALIZED GAIN (LOSS) ON INVESTMENTS (61) NET ASSETS, FOR 1,290,683 SHARES OUTSTANDING $ 1,290,246 NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $1.00 SHARE ($1,290,246 (DIVIDED BY) 1,290,683 SHARES)
STATEMENT OF OPERATIONS AMOUNTS IN THOUSANDS YEAR ENDED NOVEMBER 30, 1997 INTEREST INCOME $ 68,322 EXPENSES MANAGEMENT FEE $ 2,517 TRANSFER AGENT FEES 3,047 ACCOUNTING FEES AND EXPENSES 142 NON-INTERESTED TRUSTEES' COMPENSATION 9 CUSTODIAN FEES AND EXPENSES 14 REGISTRATION FEES 129 AUDIT 37 LEGAL 6 TOTAL EXPENSES BEFORE REDUCTIONS 5,901 EXPENSE REDUCTIONS (77) 5,824 NET INTEREST INCOME 62,498 NET REALIZED GAIN (LOSS) ON INVESTMENTS 24 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 62,522 STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED NOVEMBER 30, NOVEMBER 30, 1997 1996 INCREASE (DECREASE) IN NET ASSETS OPERATIONS $ 62,498 $ 59,722 NET INTEREST INCOME NET REALIZED GAIN (LOSS) 24 12 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 62,522 59,734 FROM OPERATIONS DISTRIBUTIONS TO SHAREHOLDERS FROM NET INTEREST INCOME (62,498) (59,722) SHARE TRANSACTIONS AT NET ASSET VALUE OF $1.00 PER SHARE 1,599,242 1,718,909 PROCEEDS FROM SALES OF SHARES REINVESTMENT OF DISTRIBUTIONS FROM NET INTEREST INCOME 59,780 56,628 COST OF SHARES REDEEMED (1,611,507) (1,720,835) NET INCREASE (DECREASE) IN NET ASSETS AND SHARES 47,515 54,702 RESULTING FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 47,539 54,714 NET ASSETS BEGINNING OF PERIOD 1,242,707 1,187,993 END OF PERIOD $ 1,290,246 $ 1,242,707
FINANCIAL HIGHLIGHTS YEARS ENDED TWO MONTHS YEARS ENDED NOVEMBER 30, ENDED SEPTEMBER 30, NOVEMBER 30, 1997 1996 1995 1994 1994 1993
SELECTED PER-SHARE DATA NET ASSET VALUE, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 BEGINNING OF PERIOD INCOME FROM INVESTMENT .051 .050 .055 .008 .033 .025 OPERATIONS NET INTEREST INCOME LESS DISTRIBUTIONS FROM NET INTEREST (.051) (.050) (.055) (.008) (.033) (.025) INCOME NET ASSET VALUE, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 END OF PERIOD TOTAL RETURN B 5.26% 5.12% 5.60% .78% 3.32% 2.57% RATIOS AND SUPPLEMENTAL DATA NET ASSETS, END OF $ 1,290 $ 1,243 $ 1,188 $ 1,130 $ 1,060 $ 1,043 PERIOD (IN MILLIONS) RATIO OF EXPENSES TO .48% .51% .55% .36% A, .51% .73% AVERAGE NET ASSETS C RATIO OF EXPENSES TO .48% .50% .55% .36% A .51% .73% AVERAGE NET ASSETS D AFTER EXPENSE REDUCTIONS RATIO OF NET INTEREST 5.13% 5.02% 5.43% 4.77% A 3.27% 2.57% INCOME TO AVERAGE NET ASSETS
A ANNUALIZED B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. C 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. D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES. NOTES TO FINANCIAL STATEMENTS For the period ended November 30, 1997 5. SIGNIFICANT ACCOUNTING POLICIES. Fidelity U.S. Government Reserves (the fund) is a fund of Fidelity Phillips 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 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 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. 6. 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 REVERSE REPURCHASE AGREEMENTS. At all times that a reverse repurchase agreement is outstanding, the fund identifies cash and liquid securities as segregated in its custodian records with a value at least equal to its obligation under the agreement. 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 $1,399,000 or 0.1% of net assets. 7. JOINT TRADING ACCOUNT. At the end of the period, the fund had 20% or more of its total investments in repurchase agreements through a joint trading account. These repurchase agreements were with entities whose creditworthiness has been reviewed and found satisfactory by FMR. The maturity values of the joint trading account investments were: $55,094,000 at 5.58%, $26,028,000 at 5.59%, $106,084,000 at 5.68%, $290,572,000 at 5.74%, $13,022,000 at 5.58%, $50,055,000 at 5.65%, $39,236,000 at 5.59%, $7,099,000 at 5.66%, and $14,007,000 at 5.71%. The investments in repurchase agreements through the joint trading account are summarized as follows: SUMMARY OF JOINT TRADING DATED NOVEMBER 20, 1997, DUE DECEMBER 1, 1997 AT 5.58% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $525,000,000 Aggregate maturity amount of agreements $525,895,125 Aggregate market value of transferred assets $541,754,918 Coupon rates of transferred assets 0% to 11% Maturity dates of transferred assets 9/1/00 to 11/1/36 DATED NOVEMBER 24, 1997, DUE DECEMBER 1, 1997 AT 5.59% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $100,000,000 Aggregate maturity amount of agreements $100,108,694 Aggregate market value of transferred assets $103,130,491 Coupon rates of transferred assets 0% Maturity dates of transferred assets 7/1/19 to 8/1/34 3. JOINT TRADING ACCOUNT - CONTINUED SUMMARY OF JOINT TRADING - CONTINUED DATED NOVEMBER 26, 1997, DUE DECEMBER 1, 1997 AT 5.68% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $1,500,000,000 Aggregate maturity amount of agreements $1,501,183,333 Aggregate market value of transferred assets $1,565,602,827 Coupon rates of transferred assets 0% to 11.50% Maturity dates of transferred assets 2/1/99 to 4/1/37 DATED NOVEMBER 28, 1997, DUE DECEMBER 1, 1997 AT 5.74% Number of dealers or banks 8 Maximum amount with one dealer or bank 18% Aggregate principal amount of agreements $1,664,837,000 Aggregate maturity amount of agreements $1,665,633,663 Aggregate market value of transferred assets $1,716,859,518 Coupon rates of transferred assets 0% to 14.50% Maturity dates of transferred assets 12/8/97 to 7/15/45 DATED NOVEMBER 21, 1997, DUE DECEMBER 2, 1997 AT 5.58% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $100,000,000 Aggregate maturity amount of agreements $100,170,500 Aggregate market value of transferred assets $103,229,275 Coupon rates of transferred assets 0% to 12.50% Maturity dates of transferred assets 12/1/98 to 8/1/34 DATED NOVEMBER 25, 1997, DUE DECEMBER 2, 1997 AT 5.65% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $375,000,000 Aggregate maturity amount of agreements $375,411,979 Aggregate market value of transferred assets $386,618,127 Coupon rates of transferred assets 0% Maturity dates of transferred assets 2/1/17 to 2/1/37 3. JOINT TRADING ACCOUNT - CONTINUED SUMMARY OF JOINT TRADING - CONTINUED DATED NOVEMBER 20, 1997, DUE DECEMBER 29, 1997 AT 5.59% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $150,000,000 Aggregate maturity amount of agreements $150,908,375 Aggregate market value of transferred assets $154,888,187 Coupon rates of transferred assets 0% Maturity dates of transferred assets 7/1/09 to 1/1/31 DATED OCTOBER 22, 1997, DUE JANUARY 20, 1998 AT 5.66% Number of dealers or banks 1 Maximum amount with one dealer or bank 100% Aggregate principal amount of agreements $55,000,000 Aggregate maturity amount of agreements $55,778,250 Aggregate market value of transferred assets $56,574,001 Coupon rates of transferred assets 5.89% to 12% Maturity dates of transferred assets 8/15/13 to 4/1/34 DATED NOVEMBER 28, 1997, DUE DECEMBER 1, 1997 AT 5.71% Number of dealers or banks 9 Maximum amount with one dealer or bank 27.5% Aggregate principal amount of agreements $5,453,673,000 Aggregate maturity amount of agreements $5,456,267,973 Aggregate market value of transferred assets $5,565,932,250 Coupon rates of transferred assets 0% to 13.25% Maturity dates of transferred assets 12/31/97 to 11/15/27 8. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated by multiplying the sum of two componets, a group fee rate plus a fixed individual fund fee rate, applied to the average net assets of the fund and adding an income-based fee. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .1100% to .3700% for the period. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED resulted in the same or a lower management fee. The individual fund fee rate is .03%. The income-based fee is added only when the fund's gross yield exceeds 5%. At that time the income-based fee would equal 6% of that portion of the fund's gross income that represents a gross yield of more than 5% per year. The maximum income-based component is .24% (annualized) of average net assets. For the period, the management fee was equivalent to an annual rate of .21% 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 .25% of average net assets. 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. 9. EXPENSE REDUCTIONS. The fund has entered into an arrangement with its 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 transfer agent fees were reduced by $77,000 under this arrangement. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Phillips Street Trust and the Shareholders of Fidelity U.S. Government Reserves: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity U.S. Government Reserves (a fund of Fidelity Phillips Street Trust) at November 30, 1997, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity U.S. Government Reserve's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 1997 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. /s/Price Waterhouse LLP Price Waterhouse LLP Boston, Massachusetts January 6, 1998 DISTRIBUTIONS A total of 17.7% 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. 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)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. For quotes.* For account balances and holdings. To review orders and mutual fund activity. To change your PIN. 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)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) 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. INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA (REGISTERED TRADEMARK) INVESTMENT SUB-ADVISER FMR Texas Inc. Irving, TX OFFICERS Edward C. Johnson 3d, President Robert C. Pozen, Senior Vice President Boyce I. Greer, Vice President Fred L. Henning, Jr., Vice President Robert Litterst, Vice President Eric D. Roiter, 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 William O. McCoy * Marvin L. Mann * Gerald C. McDonough * Robert C. Pozen Thomas R. Williams * ADVISORY BOARD J. Gary Burkhead GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA * INDEPENDENT TRUSTEES 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 -----END PRIVACY-ENHANCED MESSAGE-----