As filed with the Securities and Exchange Commission
on September 6, 1996
Registration No. 33-___________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
<TABLE>
<CAPTION>
<S> <C>
UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
</TABLE>
Fidelity Union Street Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Offices)
Registrant's Telephone Number (617) 563-7000
Arthur S. Loring, Secretary
82 Devonshire Street
Boston, MA 02109
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of
1933.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940; accordingly, no fee is payable herewith because of
reliance upon Rule 24f-2. A Rule 24f-2 Notice for the Registrant's most
recent fiscal year ended August 31, 1996 will be filed with the Commission
on or before October 30, 1996. Pursuant to Rule 429, this Registration
Statement relates to shares previously registered on Form N-1A.
It is proposed that this filing will become effective on October 5, 1996,
pursuant to Rule 488.
SPARTAN MUNICIPAL INCOME FUND
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
Facing Page
Contents of Registration Statement
Cross Reference Sheet
Letter to Shareholders
Form of Proxy Card
Notice of Special Meeting
Part A - Prospectus/Proxy Statement
Part B- Statement of Additional Information
Part C - Other Information
Signature Pages
Exhibits
FIDELITY UNION STREET TRUST:
SPARTAN MUNICIPAL INCOME FUND
FORM N-14 CROSS REFERENCE SHEET
PART A
<TABLE>
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<S> <C>
Form N-14 Item Number and Caption Prospectus/Proxy Statement Caption
1. Beginning of Registration Statement and Out- Cover Page
side Front Cover Page of Prospectus
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
2. Beginning and Outside Back Cover Page of Pro- Table of Contents
spectus
3. Fee Table, Synopsis Information and Risk Synopsis; Comparative Fee Tables; Comparison of
Factors Principal Risk Factors; The Proposed Transaction
4. Information About the Transactions Synopsis; The Proposed Transaction; Exhibit 1
5. Information About the Registrant Synopsis; Comparison of Principal Risk Factors;
Miscellaneous; Additional Information About
Spartan Municipal Income Fund; Prospectus of
Spartan Municipal Income Fund
6. Information About the Company Being Acquired Cover Page; Comparison of Principal Risk Factors;
Miscellaneous; Prospectuses of Spartan Bond
Strategist
7. Voting Information Voting Information
8. Interest of Certain Persons and Experts Not Applicable
9. Additional Information Required for Reoffering Not Applicable
by Persons Deemed to be
Underwriters
</TABLE>
PART B
Item Number and Caption Statement of Additional Information Caption
<TABLE>
<CAPTION>
<S> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. Additional Information ABout the Registrant Prospectus and Statement of Additional
Information of Spartan Municipal Income
Fund
13. Additional Information About the Company Be- Not applicable
ing Acquired
14. Financial Statements Annual Report of Spartan Municipal Income
Fund for the Fiscal Year Ended August 31,
995; Annual Report of Spartan Bond
Strategist for the Fiscal Year Ended
December 31, 1995.
Semiannual Report of Spartan Municipal
Income Fund for the Fiscal Period Ended
February 29, 1996; Semiannual Report of
Spartan Bond Strategist for the Fiscal Period
Ended June 30, 1996.
Part C Information required to be included in Part C
is set forth under the appropriate item so
numbered in Part C of this Registration
Statement.
</TABLE>
SPARTAN(registered trademark) BOND STRATEGISTTM
Dear Shareholder:
I am writing to let you know about an important proposal to merge Spartan
Bond Strategist with another Spartan bond fund, and to ask you to send in
your vote. A shareholder meeting will be held in December, and the votes
submitted in time to be counted at the meeting will decide whether the
merger takes place. This package contains information about the proposal
and includes all the materials you will need to vote by mail.
Please take the time to read the enclosed materials and cast your vote on
the yellow proxy card. PLEASE VOTE PROMPTLY. YOUR VOTE IS EXTREMELY
IMPORTANT, NO MATTER HOW MANY SHARES YOU OWN.
HERE IS A BRIEF SUMMARY OF THE PROPOSAL.
The Trustees of Spartan Bond Strategist are recommending that the fund
merge with Spartan Municipal Income Fund, a larger bond fund also managed
by Fidelity Management & Research Company (FMR). The Trustees, most of whom
are not affiliated with Fidelity, are responsible for protecting your
interests as a shareholder. The Trustees believe that the merger is in
shareholders' best interest, and recommend that you vote for the proposal.
But the final decision is up to you.
(medium solid bullet) The merger would be a tax-free reorganization, with
no gain or loss to you as a shareholder. If shareholders vote to approve
the merger, Spartan Bond Strategist will cease to exist and you will become
a shareholder of Spartan Municipal Income Fund instead.
(medium solid bullet) As part of Fidelity's "Spartan" family of mutual
funds, each fund has a management contract under which FMR bears
substantially all fund expenses. However, Spartan Municipal Income Fund has
significantly lower operating expenses than Spartan Bond Strategist, and
represents a lower-cost option for Spartan Bond Strategist shareholders.
Spartan Municipal Income Fund's management fee rate is .15% lower, or
approximately 21% less, than Spartan Bond Strategist's management fee rate
(.55% vs. .70% of average net assets). Therefore, if the merger is
approved, as a Spartan Municipal Income Fund shareholder, Spartan Bond
Strategist shareholders would enjoy a management fee rate that is
significantly lower than what they currently bear as a shareholder of
Spartan Bond Strategist.
(medium solid bullet) Spartan Bond Strategist has an unusual investment
strategy: it seeks maximum total return after the effect of federal income
taxes by allocating its assets between taxable and municipal securities.
Spartan Municipal Income is a conventional municipal bond fund, and seeks
tax-exempt income by investing primarily in municipal securities. In
practice, the funds have had relatively comparable total returns before and
after taxes. However, because Municipal Income does not normally invest in
taxable securities, a larger portion of its return has been federally
tax-free.
The merger would give shareholders of Spartan Bond Strategist the
opportunity to participate in a fund with a similar investment portfolio
and strategy, and a 0.15% lower all-inclusive management fee rate. The
enclosed materials include a detailed description of the funds and the
proposed merger.
VOTING BY MAIL IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED. We
encourage you to exercise your right as a shareholder and to vote promptly.
To cast your vote, simply complete the yellow proxy card enclosed in this
package. Be sure to sign the card before mailing it in the postage-paid
envelope provided.
If you have any questions before you vote, please call us at
1-800-544-8888. We'll be glad to help you get your vote in quickly. Thank
you for your participation in this important initiative for your fund.
Sincerely,
/s/Edward C. Johnson 3d
Edward C. Johnson 3d
President
SBS-PXL-1096
Vote this proxy card TODAY! Your prompt response will
save the expense of additional mailings.
Return the proxy card in the enclosed envelope or mail to:
FIDELITY INVESTMENTS
Proxy Department
P.O. Box 9107
Hingham, MA 02043-9848
PLEASE DETACH AT PERFORATION BEFORE MAILING.
- ---------------------------------------------------------------------------
FIDELITY SCHOOL STREET TRUST: SPARTAN BOND STRATEGIST
PROXY SOLICITED BY THE TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward C.
Johnson 3d, Arthur S. Loring, and Edward H. Malone, or any one or more of
them, attorneys, with full power of substitution, to vote all shares of
Fidelity School Street Trust: Spartan Bond Strategist which the undersigned
is entitled to vote at the Special Meeting of Shareholders of the Fund to
be held at the office of the trust at 82 Devonshire St., Boston, MA 02109,
on December 18, 1996 at 9:00 a.m. Eastern time and at any adjournments
thereof. All powers may be exercised by a majority of said proxy holders
or substitutes voting or acting or, if only one votes and acts, then by
that one. This Proxy shall be voted on the proposal described in the Proxy
Statement as specified on the reverse side. Receipt of the Notice of the
Meeting and the accompanying Proxy Statement is hereby acknowledged.
NOTE: Please sign exactly as your name appears on this Proxy. When signing
in a fiduciary capacity, such as executor, administrator, trustee,
attorney, guardian, etc., please so indicate. Corporate and partnership
proxies should be signed by an authorized person indicating the person's
title.
Date _____________, 1996
_______________________________________
_______________________________________
Signature(s) (Title(s), if applicable)
PLEASE SIGN, DATE, AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
[cusip # __________/fund# ___]
Please refer to the Proxy Statement discussion of this matter.
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSAL.
As to any other matter, said attorneys shall vote in accordance with their
best judgment.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
- ---------------------------------------------------------------------------
___________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1. To approve an Agreement and Plan of Reorganization FOR [ ] AGAINST [ ] ABSTAIN [ ] 1.
between Spartan Bond Strategist and Spartan
Municipal Income Fund.
</TABLE>
PXC-1096 [cusip # 31638R105/fund# 447]
SPARTAN BOND STRATEGIST
A FUND OF
FIDELITY SCHOOL STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Spartan Bond Strategist:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
Meeting) of Spartan Bond Strategist (the Fund), will be held at the office
of the Fidelity School Street Trust, 82 Devonshire Street, Boston,
Massachusetts 02109 on Wednesday, December 18, 1996, at 9:00 a.m. Eastern
time. The purpose of the Meeting is to consider and act upon the following
proposal, and to transact such other business as may properly come before
the Meeting or any adjournments thereof.
(1) To approve an Agreement and Plan of Reorganization (the Agreement)
between the Fund and Spartan Municipal Income Fund. The Agreement provides
for the transfer of all of the assets of the Fund to Spartan Municipal
Income Fund in exchange solely for shares of beneficial interest of Spartan
Municipal Income Fund and the assumption by Spartan Municipal Income Fund
of the Fund's liabilities, followed by the distribution of Spartan
Municipal Income Fund shares to Fund shareholders.
The Board of Trustees has fixed the close of business on October 21, 1996
as the record date for the determination of shareholders of the Fund
entitled to notice of, and to vote at, such Meeting and any adjournments
thereof.
By order of the Board of Trustees,
ARTHUR S. LORING, Secretary
October 21, 1996
YOUR VOTE IS IMPORTANT -
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER
WHO DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING
INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN
THE ENVELOPE PROVIDED, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED
STATES. IN ORDER TO AVOID UNNECESSARY EXPENSE, WE ASK YOUR COOPERATION IN
MAILING YOUR PROXY CARD PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for executing proxy cards may be of assistance
to you and help you avoid the time involved in validating your vote if you
fail to execute your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Your name should be signed exactly as it appears
in the registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.
3. ALL OTHER ACCOUNTS should show the capacity of the individual signing.
This can be shown either in the form of the account registration itself or
by the individual executing the proxy card. For example:
REGISTRATION VALID
SIGNATURE
A. 1) ABC Corp. John Smith,
Treasurer
2) ABC Corp. John Smith,
Treasurer
c/o John Smith, Treasurer
B. 1) ABC Corp. Profit Sharing Plan Ann B. Collins,
Trustee
2) ABC Trust Ann B. Collins,
Trustee
3) Ann B. Collins, Trustee Ann B. Collins,
Trustee
u/t/d 12/28/78
C. 1) Anthony B. Craft, Cust. Anthony B. Craft
f/b/o Anthony B. Craft, Jr.
UGMA
SPARTAN BOND STRATEGIST
A FUND OF FIDELITY SCHOOL STREET TRUST
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
1-800-544-8888
PROXY STATEMENT AND PROSPECTUS
OCTOBER 21, 1996
This Proxy Statement and Prospectus (Proxy Statement) is being furnished
to shareholders of Spartan Bond Strategist (Bond Strategist or the Fund), a
fund of Fidelity School Street Trust (the trust), in connection with the
solicitation of proxies by the trust's Board of Trustees for use at the
Special Meeting of Shareholders of the Fund and at any adjournments thereof
(the Meeting). The Meeting will be held on Wednesday, December 18, 1996, at
9:00 a.m. Eastern time at 82 Devonshire Street, Boston, Massachusetts
02109, the principal executive office of the trust.
As more fully described in the Proxy Statement, the purpose of the Meeting
is to vote on a proposed reorganization (the Reorganization). Pursuant to
an Agreement and Plan of Reorganization (the Agreement), Bond Strategist
would transfer all of its assets to Spartan Municipal Income Fund
(Municipal Income), a fund of Fidelity Union Street Trust, in exchange
solely for shares of beneficial interest of Municipal Income and the
assumption by Municipal Income of Bond Strategist's liabilities. The number
of shares to be issued in the proposed Reorganization will be based upon
the relative net asset values of the funds at the time of the exchange. As
provided in the Agreement, Bond Strategist will distribute shares of
Municipal Income to its shareholders on the closing date (defined below) so
that each shareholder receives the number of full and fractional shares of
Municipal Income equal in value to the aggregate net asset value of the
shares of Bond Strategist held by such shareholder on December 30, 1996, or
such other date as the parties may agree (the Closing Date). Following the
distribution, Bond Strategist will have neither assets, liabilities, nor
shareholders, and it is expected that the trust's Board of Trustees will
liquidate Bond Strategist as soon as practicable thereafter.
Municipal Income, a bond fund, is a non-diversified fund of Fidelity Union
Street Trust, an open-end management investment company organized as a
Massachusetts business trust on March 1, 1974. Municipal Income's
investment objective is to seek high current income by investing primarily
in municipal securities. Municipal Income seeks to achieve its investment
objective by investing in investment-grade quality municipal bonds of any
maturity under normal conditions. However, the Fund is managed so that it
generally reacts to changes in interest rates similarly to municipal bonds
with maturities between eight and 18 years. The Fund normally invests so
that at least 80% of its income is free from federal income tax.
This Proxy Statement is accompanied by the Prospectus of Municipal Income
(dated October 25, 1995) as supplemented on June 26, 1996, which is
incorporated herein by reference and should be retained for future
reference. These documents set forth concisely the information about the
Reorganization, Bond Strategist, and Municipal Income that a shareholder
should know before voting on the proposed Reorganization. A Prospectus and
Statement of Additional Information for Bond Strategist, both dated
February 20, 1996, a supplement to Bond Strategist's Prospectus dated July
19, 1996, and a Statement of Additional Information dated October 25, 1995
for Municipal Income have been filed with the Securities and Exchange
Commission and are incorporated herein by reference. Copies of these
documents may be obtained without charge by contacting Fidelity
Distributors Corporation at 82 Devonshire Street, Boston, Massachusetts
02109 or by calling 1-800-544-8888.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
VOTING INFORMATION 1
SYNOPSIS 2
COMPARISON OF PRINCIPAL RISK FACTORS 11
THE PROPOSED TRANSACTION 12
ADDITIONAL INFORMATION ABOUT SPARTAN MUNICIPAL INCOME FUND 18
MISCELLANEOUS 19
EXHIBIT 1. AGREEMENT AND PLAN OF REORGANIZATION 20
SPARTAN(registered trademark) BOND STRATEGIST
(A FUND OF FIDELITY SCHOOL STREET TRUST)
82 DEVONSHIRE STREET, BOSTON, MASSACHUSETTS 02109
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS OF
FIDELITY SCHOOL STREET TRUST: SPARTAN BOND STRATEGIST
TO BE HELD ON DECEMBER 18, 1996
VOTING INFORMATION
This Proxy Statement and Prospectus (Proxy Statement) is furnished in
connection with a solicitation of proxies made by, and on behalf of, the
Board of Trustees of Fidelity School Street Trust (the trust) to be used at
the Special Meeting of Shareholders of Spartan Bond Strategist (Bond
Strategist) and at any adjournments thereof (the Meeting), to be held on
Wednesday, December 18, 1996 at 9:00 a.m. Eastern time at 82 Devonshire
Street, Boston, Massachusetts 02109, the principal executive office of the
trust and Fidelity Management & Research Company (FMR), Bond Strategist's
investment adviser. The purpose of the Meeting is set forth in the
accompanying Notice. The solicitation is made primarily by the mailing of
this Proxy Statement and the accompanying proxy card on or about October
21, 1996. Supplementary solicitations may be made by mail, telephone,
telegraph, or by personal interview by representatives of the trust. In
addition, D.F. King may be paid on a per-call basis to solicit shareholders
on behalf of Bond Strategist at an anticipated cost of approximately
$2,100.00. The expenses in connection with preparing this Proxy Statement
and its enclosures and of all solicitations will be borne by FMR. FMR will
reimburse brokerage firms and others for their reasonable expenses in
forwarding solicitation material to the beneficial owners of shares.
If a quorum is not present at the Meeting, or if a quorum is present but
sufficient votes to approve the proposal are not received, or if other
matters arise requiring shareholder attention, the persons named as proxies
may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of a majority of those shares present at the Meeting or represented by
proxy. When voting on a proposed adjournment, the persons named as proxies
will vote FOR the proposed adjournment all shares that they are entitled to
vote, unless directed to vote AGAINST the item, in which case such shares
will be voted against the proposed adjournment with respect to that item. A
shareholder vote may be taken on the items in this Proxy Statement or on
any other business properly presented at the meeting prior to such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
If the enclosed proxy card is executed and returned, it may nevertheless
be revoked at any time prior to its use by written notification received by
the trust, by the execution of a later-dated proxy card, or by attending
the Meeting and voting in person. All proxy cards solicited by the Board of
Trustees that are properly executed and received by the Secretary prior to
the Meeting, and which are not revoked, will be voted at the Meeting.
Shares represented by such proxies will be voted in accordance with the
instructions thereon. If no specification is made on a proxy card, it will
be voted FOR the matters specified on the proxy card. Only proxies voted
will be counted towards establishing a quorum. Broker non-votes are not
considered voted for this purpose. Shareholders should note that while
votes to ABSTAIN will count toward establishing a quorum, passage of any
proposal being considered at the Meeting will occur only if a sufficient
number of votes are cast FOR the proposal. Accordingly, votes to ABSTAIN
and votes AGAINST will have the same effect in determining whether the
proposal is approved.
Bond Strategist may also choose to have votes recorded by telephone. D.F.
King may be paid on a per-call basis for vote-by-phone solicitations on
behalf of Bond Strategist at an anticipated cost of approximately $450.00.
If the Fund records votes by telephone, it will use procedures designed to
authenticate shareholders' identities, to allow shareholders to authorize
the voting of their shares in accordance with their instructions, and to
confirm that their instructions have been properly recorded. Proxies given
by telephone may be revoked at any time before they are voted in the same
manner that proxies voted by mail may be revoked.
On July 31, 1996 , there were 53,184,044 shares of Spartan Municipal
Income Fund (Municipal Income) issued and outstanding.
On July 31, 1996, there were 880,642 shares of Bond Strategist issued and
outstanding. Shareholders of record of Bond Strategist at the close of
business on October 21, 1996 will be entitled to vote at the Meeting. Each
such shareholder will be entitled to one vote for each dollar value of net
asset value held on that date.
As of July 31, 1996, the Trustees and officers of the funds owned, in the
aggregate, less than 1% of each fund's total outstanding shares.
VOTE REQUIRED: APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION (THE
AGREEMENT) REQUIRES THE AFFIRMATIVE VOTE OF A "MAJORITY OF THE OUTSTANDING
VOTING SECURITIES" OF BOND STRATEGIST. UNDER THE INVESTMENT COMPANY ACT OF
1940 (THE 1940 ACT), A "MAJORITY VOTE OF THE OUTSTANDING VOTING SECURITIES"
MEANS THE AFFIRMATIVE VOTE OF THE LESSER OF (A) 67% OR MORE OF THE VOTING
SECURITIES PRESENT AT THE MEETING OR REPRESENTED BY PROXY IF THE HOLDERS OF
MORE THAN 50% OF THE OUTSTANDING VOTING SECURITIES ARE PRESENT OR
REPRESENTED BY PROXY, OR (B) MORE THAN 50% OF THE OUTSTANDING VOTING
SECURITIES. BROKER NON-VOTES ARE NOT CONSIDERED "PRESENT" FOR THIS PURPOSE.
SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement, in the Agreement, and in the Prospectuses of Bond
Strategist and Municipal Income, which are incorporated herein by this
reference. Shareholders should read the entire Proxy Statement and the
enclosed Prospectus of Municipal Income carefully for more complete
information.
The proposed Reorganization would merge Spartan Bond Strategist into
Spartan Municipal Income Fund, a larger bond fund also managed by FMR. If
the Reorganization is approved, Bond Strategist will cease to exist and its
current shareholders will become shareholders of Municipal Income instead.
As discussed more fully below, the Board of Trustees believes that the
Reorganization will benefit Bond Strategist shareholders.
Bond Strategist has an unusual investment strategy: it seeks maximum total
return after the effect of federal income taxes by allocating its assets
between taxable and municipal securities. Municipal Income is a
conventional municipal bond fund, and seeks tax-exempt income by investing
primarily in municipal securities. Historically, the Funds have had
relatively comparable total returns before and after taxes (see page 7).
However, because Municipal Income does not normally invest in taxable
securities, a larger portion of its return has been federally tax-free.
FMR proposed the merger because Bond Strategist's unique investment
strategy has not been successful in attracting a high level of assets. With
approximately $8.3 million in net assets as of July 31, 1996, Bond
Strategist is Fidelity's smallest municipal bond fund. Municipal Income's
more mainstream approach has appealed to a broader variety of investors
accumulating over $545 million in assets as of the same date.
As part of Fidelity's "Spartan" family of mutual funds, each fund has a
management contract under which FMR bears substantially all fund expenses.
However, Municipal Income has a significantly lower operating expense ratio
than Bond Strategist, and represents a lower-cost option for Bond
Strategist shareholders. Municipal Income 's management fee rate is .15%
lower or approximately 21% less than Bond Strategist's management fee rate
(.55% vs. .70% of average net assets).
Bond Strategist and Municipal Income share identical service features,
including purchase and exchange provisions, redemption procedures,
automatic reinvestment policies, and dividend policies.
In sum, the merger would give shareholders of Bond Strategist the
opportunity to participate in a fund with a similar investment portfolio, a
comparable performance record, and a 0.15% lower all-inclusive management
fee rate.
THE PROPOSED REORGANIZATION
Shareholders of Bond Strategist will be asked at the Meeting to vote upon
and approve the Reorganization and the Agreement, which provides for the
acquisition by Municipal Income of all of the assets of Bond Strategist in
exchange solely for shares of Municipal Income and the assumption by
Municipal Income of the liabilities of Bond Strategist. Bond Strategist
will then distribute the shares of Municipal Income to its shareholders, so
that each shareholder will receive the number of full and fractional shares
of Municipal Income equal in value to the aggregate net asset value of the
shareholder's shares of Bond Strategist on the Closing Date (defined
below). The exchange of Bond Strategist's assets for Municipal Income's
shares will occur at 4:00 p.m. Eastern time on December 30, 1996, or such
other date as the parties may agree (the Closing Date). Bond Strategist
will then be liquidated as soon as practicable thereafter.
The rights and privileges of the former shareholders of Bond Strategist
will be effectively unchanged by the Reorganization.
COMPARATIVE FEE TABLES
Each Fund's management fee is calculated and paid to FMR every month. Bond
Strategist and Municipal Income pay FMR a management fee at an annual rate
of .70% and .55%, respectively, of its average net assets. This
all-inclusive fee represents each Fund's total operating expenses. FMR not
only provides the Funds with investment advisory and research services, but
also pays all of the Funds' expenses, with the exception of fees and
expenses of all Trustees of each trust who are not "interested persons" of
the trust or FMR; interest on borrowings; taxes; brokerage commissions (if
any); and such nonrecurring expenses as may arise, including costs of any
litigation to which a Fund may be a party, and any obligation it may have
to indemnify the officers and Trustees with respect to litigation. The
management fee that each Fund pays FMR is reduced by an amount equal to the
fees and expenses paid by the Fund to the non-interested Trustees. If the
Reorganization is approved, former Bond Strategist shareholders will enjoy
a .15% lower all-inclusive management fee rate beginning with the first
business day after the effective date of the Reorganization.
To help offset shareholder service costs, both Funds have the same fees
for individual transactions. FMR affiliates collect the Funds' $5.00
exchange fees, $5.00 account closeout fees, and $5.00 fees for wire
purchases and redemptions. These fees are waived if a shareholder's account
balance at the time of the transaction is $50,000 or more. Fidelity also
reserves the right to deduct an annual maintenance fee of $12.00 from
accounts with a value of less than $2,500, subject to an annual maximum
charge of $60.00 per shareholder. Each Fund also imposes a redemption fee
equal to 0.50% of the amount redeemed on shares held less than 180 days. In
each case, this fee is payable to the Fund to help offset the costs
associated with short-term trading by shareholders. These fees will not be
affected by the Reorganization. For more information about the Funds' fees,
refer to their Prospectuses, which are incorporated by reference herein
(and, in the case of Municipal Income, which accompanies this Proxy
Statement).
The following table shows the current fees and expenses of Bond Strategist
and Municipal Income for the 12 months ended February 29, 1996 and pro
forma fees for the combined fund based on the same period after giving
effect to the Reorganization.
ANNUAL FUND OPERATING EXPENSES
Annual fund operating expenses are paid out of each Fund's assets.
Expenses are factored into the Fund's share price or dividends and are not
charged directly to shareholder accounts. The following are projections
based on historical expenses and are calculated as a percentage of average
net assets.
Pro Forma
Bond Strategist Municipal Expenses
Income Combined
Fund
Management Fees 0.70% 0.55% 0.55%
Other Expenses 0.00% 0.00% 0.00%
Total Fund 0.70% 0.55% 0.55%
Operating
Expenses
EXAMPLES OF EFFECT OF FUND EXPENSES
The following table illustrates the expenses on a hypothetical $1,000
investment in each Fund under the current and pro forma (combined fund)
expenses calculated at the rates stated above, assuming a 5% annual return
and including the effect of the $5.00 account closeout fee.
After 1 Year After 3 After 5 After 10
Years Years Years
Bond $ 12 $ 27 $ 44 $ 92
Strategist
Municipal $ 11 $ 23 $ 36 $ 74
Income
Combined $ 11 $ 23 $ 36 $ 74
Fund
This example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Fund
Operating Expenses remain the same in the years shown. These examples
illustrate the effect of expenses, but are not meant to suggest actual or
expected costs, which may vary. The assumed return of 5% is not a
prediction of, and does not represent, actual or expected performance of
any fund.
FORMS OF ORGANIZATION
Bond Strategist is a non-diversified fund of Fidelity School Street Trust,
an open-end management investment company organized as a Massachusetts
business trust on September 10, 1976. Municipal Income is a non-diversified
fund of Fidelity Union Street Trust, an open-end management investment
company organized as a Massachusetts business trust on March 1, 1974. Both
trusts are authorized to issue an unlimited number of shares of beneficial
interest. Because Bond Strategist and Municipal Income are series of
Massachusetts business trusts, organized under substantially similar
Declarations of Trust, the rights of the security holders of Bond
Strategist under state law and the governing documents are expected to
remain unchanged after the Reorganization. For more information regarding
shareholder rights, refer to the section of the Funds' Statements of
Additional Information called "Description of the Trust."
INVESTMENT OBJECTIVE AND POLICIES
The investment objectives and policies of the Funds are set forth below.
There can be no assurance that either Fund will achieve its objective.
The principal difference between the Funds is that Bond Strategist invests
in both taxable and tax-exempt debt securities, while Municipal Income
invests solely in municipal (tax-exempt) securities. Bond Strategist seeks
maximum total return after the effect of federal income taxes, by investing
primarily in taxable and tax-exempt debt instruments. Municipal Income
seeks high current income free from federal income tax by investing in
municipal securities under normal conditions. Whereas Bond Strategist can
and does invest in both taxable and tax-exempt securities, Municipal
Income, although permitted to invest in taxable securities under certain
conditions, currently has no intention of investing in such instruments.
However, Bond Strategist generally has invested mainly in municipal
securities and, during the past year, has limited its taxable investments
to repurchase agreements, which represent less than 10% of its assets.
Additionally, the Funds have identical policies regarding the credit
quality of their investments, and the maturity and interest rate
sensitivity of their portfolios. Therefore, despite the differences in each
Fund's investments objective and permissible investments, both Funds are
currently investing nearly exclusively in municipal securities.
The following table highlights the percentage of each Fund's income
dividends that was free from federal income tax since Bond Strategist's
commencement of operations on September 9, 1993.
PERIOD ENDED
DECEMBER 31, BOND STRATEGIST MUNICIPAL INCOME
1993 76.18% 100.00%
1994 79.25% 100.00%
1995 90.31% 100.00%
1996* 91.70% 100.00%
* Period ended June 30, 1996.
The investment objective of each Fund is fundamental and may not be
changed without the approval of at least a majority of the outstanding
voting securities of the Fund. With the exception of fundamental policies,
investment policies of the Funds can be changed without shareholder
approval. The differences between the Funds discussed below, except as
noted, could be changed without a vote of shareholders.
PERFORMANCE COMPARISON OF THE FUNDS
The following table compares the one-year average annual total returns of
both Funds from Bond Strategist's commencement of operations (September 9,
1993) through December 31, 1995, the six-month total return for the period
ending June 30, 1996, and each Fund's cumulative total return from
September 9, 1993 through June 30, 1996, on both a pre-tax and after-tax
basis. Overall, the Funds have experienced relatively comparable returns,
with Municipal Income outperforming Bond Strategist on a pre-tax basis.
Please note that total returns are based on past results and are not an
indication of future performance. Figures shown for pre-tax total returns
and account closed after-tax total returns include the effect of the $5.00
account closeout fee on an average size account.
AVERAGE ANNUAL AVERAGE ANNUAL
PRE-TAX TOTAL RETURNS AFTER-TAX TOTAL RETURNS1
Account Open Account Closed
BOND
STRATEGIST
1993* 1.22% 1.12% 1.22%
1994 -7.67% -8.00% -3.75%
1995 16.51% 16.34% 11.87%
1996 -0.63% -0.69% 0.39%
Life of Fund* 8.26% 7.64% 9.31%
MUNICIPAL
INCOME
1993* 1.22% -1.98% -0.31%
1994 -8.11% -8.31% -3.12%
1995 18.58% 18.52% 14.10%
1996 -0.45% -0.44% 0.62%
Life of Fund* 9.81% 6.10% 10.25%
1 Assumes taxes paid each year from monies held in the account at a 36% tax
rate for taxable income and short-term capital gains, and a 28% tax rate
for long-term capital gains.
* From the inception date of Bond Strategist (September 9, 1993).
As the table above shows, on an after-tax basis, Bond Strategist provided
higher returns for shareholders who continued to hold their investment
through the end of the period. For shareholders who redeemed their shares,
however, Municipal Income provided a slightly better cumulative after-tax
total return. After-tax total returns were higher for shareholders who
closed their accounts because both Funds' share prices declined over the
period. As a result, redeeming shareholders realized capital losses that
improved returns on an after-tax basis.
The following graph shows the value of a hypothetical $10,000 investment
in each Fund made on September 9, 1993, assuming the accounts remain open
and all distributions are reinvested. The graph compares the cumulative
returns of the Funds on a monthly basis from September 1993 through June
1996, and illustrates the short-term volatility of their performance.
Bond Strategist Municipal Income
Row: 1, Col: 1, Value: 10000.0
Row: 1, Col: 2, Value: 10000.0
Row: 2, Col: 1, Value: 9925.349999999999
Row: 2, Col: 2, Value: 9972.120000000001
Row: 3, Col: 1, Value: 9930.530000000001
Row: 3, Col: 2, Value: 9982.0
Row: 4, Col: 1, Value: 9826.17
Row: 4, Col: 2, Value: 9891.110000000001
Row: 5, Col: 1, Value: 10123.12
Row: 5, Col: 2, Value: 10121.58
Row: 6, Col: 1, Value: 10245.77
Row: 6, Col: 2, Value: 10243.59
Row: 7, Col: 1, Value: 9906.859999999999
Row: 7, Col: 2, Value: 9952.15
Row: 8, Col: 1, Value: 9408.58
Row: 8, Col: 2, Value: 9421.459999999999
Row: 9, Col: 1, Value: 9389.1
Row: 9, Col: 2, Value: 9477.879999999999
Row: 10, Col: 1, Value: 9524.640000000001
Row: 10, Col: 2, Value: 9565.240000000002
Row: 11, Col: 1, Value: 9450.780000000001
Row: 11, Col: 2, Value: 9489.120000000001
Row: 12, Col: 1, Value: 9648.040000000001
Row: 12, Col: 2, Value: 9681.309999999999
Row: 13, Col: 1, Value: 9679.76
Row: 13, Col: 2, Value: 9701.67
Row: 14, Col: 1, Value: 9532.120000000001
Row: 14, Col: 2, Value: 9537.959999999999
Row: 15, Col: 1, Value: 9354.49
Row: 15, Col: 2, Value: 9306.76
Row: 16, Col: 1, Value: 9164.43
Row: 16, Col: 2, Value: 9071.959999999999
Row: 17, Col: 1, Value: 9348.49
Row: 17, Col: 2, Value: 9301.68
Row: 18, Col: 1, Value: 9619.780000000001
Row: 18, Col: 2, Value: 9620.369999999999
Row: 19, Col: 1, Value: 9865.25
Row: 19, Col: 2, Value: 9924.559999999999
Row: 20, Col: 1, Value: 9956.700000000001
Row: 20, Col: 2, Value: 10043.4
Row: 21, Col: 1, Value: 9978.41
Row: 21, Col: 2, Value: 10050.27
Row: 22, Col: 1, Value: 10315.22
Row: 22, Col: 2, Value: 10382.77
Row: 23, Col: 1, Value: 10225.56
Row: 23, Col: 2, Value: 10277.18
Row: 24, Col: 1, Value: 10323.78
Row: 24, Col: 2, Value: 10366.61
Row: 25, Col: 1, Value: 10455.56
Row: 25, Col: 2, Value: 10497.3
Row: 26, Col: 1, Value: 10497.58
Row: 26, Col: 2, Value: 10596.11
Row: 27, Col: 1, Value: 10630.24
Row: 27, Col: 2, Value: 10737.13
Row: 28, Col: 1, Value: 10805.39
Row: 28, Col: 2, Value: 10928.43
Row: 29, Col: 1, Value: 10893.15
Row: 29, Col: 2, Value: 11030.31
Row: 30, Col: 1, Value: 10959.14
Row: 30, Col: 2, Value: 11130.3
Row: 31, Col: 1, Value: 10897.62
Row: 31, Col: 2, Value: 11068.94
Row: 32, Col: 1, Value: 10771.82
Row: 32, Col: 2, Value: 10925.47
Row: 33, Col: 1, Value: 10712.63
Row: 33, Col: 2, Value: 10886.43
Row: 34, Col: 1, Value: 10723.93
Row: 34, Col: 2, Value: 10881.07
Row: 35, Col: 1, Value: 10825.75
Row: 35, Col: 2, Value: 10981.34
$
$10,981
$
$10,826
$
$
9/93 3/94 10/94 5/95 12/95 6/96
COMPARISON OF OTHER POLICIES OF THE FUNDS
DEBT SECURITIES. The Funds have identical policies regarding the credit
quality of their investments, and the maturity and interest rate
sensitivity of their portfolios. Each Fund seeks to achieve its investment
objective by investing in investment-grade debt securities, but reserves
the right to invest up to 5% of its assets in below investment-grade debt
securities. Each Fund may also invest in securities of any maturity, but is
generally managed so that it reacts to changes in interest rates similarly
to bonds with maturities between eight and 18 years.
Most bond funds focus on income, which is one component of total return,
and invest in either taxable or tax-exempt debt securities. While Municipal
Income invests primarily in tax-exempt securities, Bond Strategist has the
flexibility to invest in both taxable and tax-exempt securities. Bond
Strategist invests in both types of securities in varying proportions in
pursuit of high after-tax total return, which is a combination of income
and changes in value after the effect of federal income tax. Bond
Strategist's investments are selected after giving consideration to
expected federal tax rates on income and capital gains and the potential
effect of taxes, assuming a high tax bracket. The federal alternative
minimum tax (described below) and state and local taxes are not considered.
Although Bond Strategist's strategy allows the Fund to invest in either the
taxable or tax-exempt bond market, like Municipal Income, in order to
distribute its tax-free income to shareholders on a tax-free basis, Bond
Strategist must invest at least 50% of its total assets in municipal
securities as of the end of each calendar quarter. This requirement may
cause Bond Strategist to miss investment opportunities in the taxable bond
market. Since the beginning of 1995, Bond Strategist has invested primarily
in municipal securities, and during the past year has limited its taxable
investments to repurchase agreements, which represent less than 10% of its
assets. Of course, the past performance of the bond markets is no
indication of future performance. If Bond Strategist shareholders approve
the Agreement, they will no longer be in a Fund that has the ability to
shift assets out of the tax-exempt bond market to take advantage of
potentially profitable investment opportunities in the taxable bond market.
In addition, they will be invested in a fund that seeks high current income
rather than high total return.
Each Fund may invest all of its assets in municipal securities issued to
finance private activities. The interest from these investments is a
tax-preference item for purposes of the federal alternative minimum tax.
For the 12 months ended June 30, 1996, 7.09% of Bond Strategist's income
dividends was subject to the federal alternative minimum tax and 16.65% of
Municipal Income's income dividends was subject to the federal alternative
minimum tax.
LENDING. As a matter of fundamental policy, each Fund may not lend any
security or make any other loan, except through the purchase of debt
securities or repurchase agreements, if more than 33 1/3% of its total
assets would be lent to other parties. Bond Strategist may lend securities
to broker-dealers and institutions, including Fidelity Brokerage Services
Inc., (FBSI), an affiliate of FMR, or to other funds advised by FMR, as a
means of earning income and may also acquire loans, loan participations, or
other forms of direct debt instruments. With the exception of purchasing
debt securities, Municipal Income does not currently intend to make loans
or enter into repurchase agreements and may not acquire any form of direct
debt instruments. As a practical matter, Bond Strategist's lending ability
does not create a significant distinction between the Funds because during
the past year Bond Strategist's lending has been limited to the use of
repurchase agreements which have represented less than 10% of its assets.
OTHER INVESTMENT POLICIES. Each Fund may borrow from banks or other funds
advised by FMR, or through reverse repurchase agreements. As a matter of
fundamental policy, each Fund may borrow only for temporary or emergency
purposes in an amount not equal to more than 33 1/3% of its total assets.
Unlike Municipal Income, Bond Strategist can invest in foreign securities,
currency exchange contracts, mortgage securities, stripped securities,
convertible bonds, preferred stocks, and warrants and enter into swap
agreements. As a practical matter, Bond Strategist's ability to invest in
these securities does not represent a significant distinction between the
Funds because Bond Strategist has historically not held significant amounts
of these types of securities and currently holds none.
FMR normally invests each Fund's assets according to its investment
strategy. However, each Fund reserves the right to invest without
limitation in short-term instruments or to hold a substantial amount of
uninvested cash, and Bond Strategist reserves the right to invest without
limitation in investment-grade money market instruments, for temporary
defensive purposes. Additionally, although Municipal Income does not expect
to invest in federally taxable obligations, it reserves the right to invest
more than normally permitted in federally taxable obligations for
temporary, defensive purposes. Both Funds may also enter into when-issued
and delayed delivery transactions, invest in asset-backed securities,
variable and floating rate securities, municipal lease obligations, put
features, and illiquid and restricted securities. As stated above, for more
information about the risks and restrictions associated with these polices
see each Fund's Prospectus, and for a more detailed discussion of the
Funds' investments, see their Statements of Additional Information, which
are incorporated herein by reference.
OPERATIONS OF MUNICIPAL INCOME FOLLOWING THE REORGANIZATION
FMR does not expect Municipal Income to revise its investment policies as
a result of the Reorganization. In addition, FMR does not anticipate
significant changes to the Fund's management or to agents that provide the
Fund with services. Specifically, the Trustees and officers, the investment
adviser, distributor, and other agents will continue to serve Municipal
Income in their current capacities. Municipal Income's current portfolio
manager, David Murphy, will continue to be responsible for Municipal
Income's portfolio management after the Reorganization.
As explained above, Bond Strategist may invest in federally taxable
securities. Therefore, if the Reorganization is approved, it is anticipated
that Bond Strategist will sell any taxable holdings prior to the Closing
Date so that the portfolio of the combined fund will be consistent with
Municipal Income's current portfolio. Any transaction costs associated with
such adjustment to the portfolio of Bond Strategist will be borne by Bond
Strategist, or by Municipal Income after the Reorganization takes place.
PURCHASES AND REDEMPTIONS
The purchase and redemption policies for both Funds are substantially the
same and will remain unchanged after the Reorganization.
Both Funds' share price, or net asset value per share (NAV), is calculated
every business day. Shares of both Funds are sold without a sales charge.
Shares are purchased at the next share price calculated after an investment
is received and accepted. Share price is normally calculated at 4:00 p.m.
Eastern time. Refer to a Fund's Prospectus for more information regarding
how to buy shares.
Shares of both Funds may be redeemed on any business day at their NAV.
Shares of both Funds are redeemed at the next share price calculated after
an order is received and accepted, normally 4:00 p.m. Eastern time. Each
Fund's 0.50% redemption fee on shares held less than 180 days, if
applicable, will be deducted from the amount of your redemption.
On or about September 16, 1996, Bond Strategist was closed to all new and
subsequent purchases except for reinvestment of dividends or other
distributions pending the Reorganization. Shareholders may redeem shares
through the Closing Date.
EXCHANGES
The exchange privilege currently offered by both Funds is the same and is
not expected to change after the Reorganization. Shareholders of the Funds
may exchange their shares of a Fund for shares of any other Fidelity fund
registered in a shareholder's state. Exchanges are subject to a $5.00
exchange fee and a 0.50% redemption fee on shares held less than 180 days.
Refer to each Fund's Prospectus for restrictions governing exchanges.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Each Fund declares income
dividends daily and pays them monthly. Bond Strategist normally distributes
capital gains in February and December. Municipal Income normally
distributes capital gains in October and December. On or before the Closing
Date, Bond Strategist will distribute substantially all of its investment
company taxable income and net realized capital gain, if any, in order to
maintain its tax status as a regulated investment company.
Bond Strategist will be required to recognize gain or loss on Section 1256
contracts held by the Fund on the last day of its taxable year which
typically is December 31. If the Reorganization is approved, gains or
losses on Section 1256 contracts held on the Closing Date will be
recognized on the Closing Date.
FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
Each Fund has received an opinion of its counsel, Kirkpatrick & Lockhart
LLP, that the Reorganization will constitute a tax-free reorganization
within the meaning of Section 368 (a)(1)(C) of the Internal Revenue Code of
1986, as amended (the Code). Accordingly, except with respect to Section
1256 contracts, no gain or loss will be recognized by the Funds or their
shareholders as a result of the Reorganization. Please see the section
entitled "Federal Income Tax Considerations" for more information.
Bond Strategist and Municipal Income have capital loss carryforwards for
federal tax purposes of $1,755,144 and $2,187,954 as of December 31, 1995
and August 31, 1995, respectively. Under current federal tax law, Municipal
Income may be limited to using only a portion, if any, of the capital loss
carryforward transferred by Bond Strategist at the time of the
Reorganization. There is no assurance that Municipal Income will be able to
realize sufficient capital gains to use its capital loss carryforward as
well as a portion, if any, of Bond Strategist's capital loss carryforward,
before they expire. The capital loss carryforward attributable to Bond
Strategist will expire between August 31, 2001 and August 31, 2003. The
capital loss carryforward attributable to Municipal Income will expire on
August 31, 2003.
COMPARISON OF PRINCIPAL RISK FACTORS
Both Funds are subject to the risks normally associated with bond funds.
The principal difference between the Funds is that Bond Strategist invests
in taxable bonds, while Municipal Income does not. As described more fully
below, Bond Strategist's ability to invest in a broader range of debt
securities provides a potential for higher returns, but also carries a
higher degree of risk than Municipal Income.
INVESTMENT STRATEGY. Municipal Income invests primarily in municipal
securities and focuses on income, which is one component of total return.
Bond Strategist has the flexibility to invest in either taxable or
tax-exempt (municipal) debt securities and focuses on after-tax total
return, which is a combination of income and changes in value after the
effect of federal income tax. Although Bond Strategist's strategy allows it
to invest in both the taxable and tax-exempt bond markets, since the Fund's
inception in September 1993, the Fund has not invested significantly in
taxable securities. Additionally, during the past year, Bond Strategist has
invested primarily in municipal securities and has limited its taxable
investments to repurchase agreements, which comprised less than 10% of its
assets.
REPURCHASE AGREEMENTS. A repurchase agreement, which may be deemed a loan,
is an arrangement whereby a fund buys a security at one price and
simultaneously agrees to sell it back at a higher price. The difference
between the two prices is taxable income to a fund and its shareholders.
Since Municipal Income is currently managed so as not to produce federally
taxable income, it does not engage in repurchase agreements. Repurchase
agreements also carry the risk that the original seller will not fulfill
its obligation to repurchase the agreement at the agreed upon price, at the
agreed upon time. Therefore, a fund such as Bond Strategist that engages in
repurchase agreements assumes this risk, which may result in delays or
losses to the Fund. Accordingly, investing in Bond Strategist may involve a
slightly higher degree of risk than investing in Municipal Income.
OTHER INVESTMENTS. As described above, unlike Municipal Income, Bond
Strategist can invest in foreign securities, currency exchange contracts,
mortgage securities, stripped securities, convertible bonds, preferred
stocks, and warrants, and enter into swap agreements. Bond Strategist's
ability to invest in these securities offers the potential for higher
returns and allows the Fund to respond to changing economic conditions in
the U.S. and abroad. However, it also exposes the Fund to additional
interest rate and market risk. Bond Strategist's ability to invest in these
securities does not represent a significant practical distinction between
the Funds because Bond Strategist historically has not invested
significantly in these types of securities and currently holds none.
THE PROPOSED TRANSACTION
TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN SPARTAN BOND
STRATEGIST AND SPARTAN MUNICIPAL INCOME FUND
REORGANIZATION PLAN
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Exhibit I to
this Proxy Statement.
The Agreement contemplates (a) Municipal Income acquiring on the Closing
Date all of the assets of Bond Strategist in exchange solely for shares of
Municipal Income and the assumption by Municipal Income of Bond
Strategist's liabilities; and (b) the distribution of shares of Municipal
Income to the shareholders of Bond Strategist as provided for in the
Agreement.
The assets of Bond Strategist to be acquired by Municipal Income include
all cash, cash equivalents, securities, receivables (including interest or
dividends receivables), claims, choses in action, and other property owned
by Bond Strategist, and any deferred or prepaid expenses shown as an asset
on the books of Bond Strategist on the Closing Date. Municipal Income will
assume from Bond Strategist all liabilities, debts, obligations, and duties
of Bond Strategist of whatever kind or nature, whether absolute, accrued,
contingent, or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable on the Closing Date, and whether or
not specifically referred to in the Agreement; provided, however, that Bond
Strategist will use its best efforts, to the extent practicable, to
discharge all of its known liabilities prior to the Closing Date. Municipal
Income also will deliver to Bond Strategist the number of full and
fractional shares of Municipal Income having an aggregate net asset value
equal to the value of the assets of Bond Strategist less the liabilities of
Bond Strategist on the Closing Date. Bond Strategist shall then distribute
the Municipal Income shares PRO RATA to its shareholders.
The value of Bond Strategist's assets to be acquired by Municipal Income
and the amount of its liabilities to be assumed by Municipal Income will be
determined as of the close of business (4:00 p.m. Eastern time) of Bond
Strategist on the Closing Date, using the valuation procedures set forth in
Bond Strategist's then-current Prospectus and Statement of Additional
Information. The net asset value of a share of Municipal Income will be
determined as of the same time using the valuation procedures set forth in
its then-current Prospectus and Statement of Additional Information.
Upon the Closing Date, Bond Strategist will distribute to its shareholders
of record the shares of Municipal Income it received, so that each Bond
Strategist shareholder will receive the number of full and fractional
shares of Municipal Income equal in value to the aggregate net asset value
of shares of Bond Strategist held by such shareholder on the Closing Date;
Bond Strategist will be liquidated as soon as practicable thereafter. Such
distribution will be accomplished by opening accounts on the books of
Municipal Income in the names of the Bond Strategist shareholders and by
transferring thereto shares of Municipal Income. Each Bond Strategist
shareholder's account shall be credited with the respective PRO RATA number
of full and fractional shares (rounded to the third decimal place) of
Municipal Income due that shareholder. Municipal Income shall not issue
certificates representing its shares in connection with such exchange.
Accordingly, immediately after the Reorganization, each former Bond
Strategist shareholder will own shares of Municipal Income equal in value
to the aggregate net asset value of that shareholder's shares of Bond
Strategist immediately prior to the Reorganization. The net asset value per
share of Municipal Income will be unchanged by the transaction. Thus, the
Reorganization will not result in the dilution of any shareholder interest.
Any transfer taxes payable upon issuance of shares of Municipal Income in
a name other than that of the registered holder of the shares on the books
of Bond Strategist as of that time shall be paid by the person to whom such
shares are to be issued as a condition of such transfer. Any reporting
responsibility of Bond Strategist is and will continue to be its
responsibility up to and including the Closing Date and such later date on
which Bond Strategist is liquidated.
Pursuant to its management contract with Bond Strategist and its
all-inclusive management fee, FMR will bear the cost of the Reorganization,
including professional fees, expenses associated with the filing of
registration statements, and the cost of soliciting proxies for the
Meeting, which will consist principally of printing and mailing
prospectuses and proxy statements, together with the cost of any
supplemental solicitation. However, there may be some transaction costs
associated with Bond Strategist's portfolio adjustments due to the
Reorganization which will be borne by Bond Strategist. Bond Strategist may
recognize a taxable gain or loss on the disposition of securities pursuant
to these portfolio adjustments. See the section entitled "Reasons for the
Reorganization."
The consummation of the Reorganization is subject to a number of
conditions set forth in the Agreement, some of which may be waived by a
Fund. In addition, the Agreement may be amended in any mutually agreeable
manner, except that no amendment that may have a materially adverse effect
on the shareholders' interests may be made subsequent to the Meeting.
REASONS FOR THE REORGANIZATION
The Boards of Trustees (the Boards) of both Funds have determined that the
Reorganization is in the best interests of the shareholders of both Funds
and that the Reorganization will not result in a dilution of any
shareholders' interests.
In considering the Reorganization, the Boards considered a number of
factors, including the following:
(1) a comparison of the Funds' investment objectives and policies;
(2) the historical performance of the Funds;
(3) the impact of the Reorganization on the expected expense ratio of
Municipal Income relative to each Fund's current expense ratio;
(4) the costs to be incurred by each Fund as a result of the
Reorganization;
(5) the tax consequences of the Reorganization;
(6) services available to shareholders before and after the
Reorganization; and
(7) benefit to FMR.
FMR recommended the Reorganization to the Boards at a meeting of the
Boards on July 18, 1996. In recommending the Reorganization, FMR also
advised the Boards that the Funds have generally compatible investment
objectives and policies, with the material differences noted, and that the
Funds currently have similar investment strategies, with the material
differences noted.
The Boards further considered the relative risk/return characteristics of
the Funds. The Boards specifically weighed the fact that since Bond
Strategist's inception in September 1993, the Fund had limited market
opportunities to implement its unique investment approach of shifting
assets between the taxable and tax-exempt bond markets based on expected
after-tax performance. The Boards considered that this unique investment
approach had not been successful in attracting assets, making it difficult
for Bond Strategist to implement its investment strategy to the fullest
extent. The Fund's low asset levels require that it hold relatively small
positions in order to remain adequately diversified. These smaller
positions make it more difficult for the Fund to take advantage of market
changes, a critical aspect of the Fund's investment strategy. Consequently,
the Funds experienced comparable returns over Bond Strategist's lifetime,
with Municipal Income providing slightly better after-tax total returns for
shareholders who redeemed their shares at the end of each period.
Accordingly, the Boards considered that if the Reorganization is approved,
the former shareholders of Bond Strategist would have the opportunity to
earn tax-free income through an investment in a fund with a similar
investment portfolio and a relatively comparable performance record.
The Boards also considered that former shareholders of Bond Strategist
will receive shares of Municipal Income equal to the value of their shares
of Bond Strategist. In addition, the Funds will receive an opinion of
counsel that, except with respect to Section 1256 contracts, the
Reorganization will not result in any gain or loss for federal income tax
purposes either to Bond Strategist or Municipal Income or to the
shareholders of either Fund.
Furthermore, the Boards considered that combining the Funds would result
in an immediate benefit to Bond Strategist shareholders by lowering fund
expenses, as a percentage of net assets, by .15% following the effective
date of the Reorganization. In addition, FMR informed the Boards that it
would pay the costs associated with the Reorganization, including
professional fees and the costs of proxy solicitation. FMR further informed
the Boards that although Bond Strategist would bear any costs (as described
above) associated with portfolio adjustments resulting from the
Reorganization, FMR believed that such costs would be minimal and would be
counterbalanced by the reduction in Bond Strategist's management fee.
In addition, the Boards considered that the Funds have the same purchase
and exchange provisions, fees, redemption procedures, and automatic
reinvestment policies.
Finally, FMR advised the Boards that Bond Strategist has not been
successful in attracting or retaining assets and that Municipal Income has
a wider appeal among investors. While the elimination of funds with lower
assets potentially would benefit FMR, it also should benefit shareholders
by facilitating increased operational efficiencies.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Fidelity Union Street Trust (the trust) is registered with the Securities
and Exchange Commission (the Commission) as an open-end management
investment company. The trust's Trustees are authorized to issue an
unlimited number of shares of beneficial interest of separate series.
Municipal Income is one of eight funds of the trust. Each share of
Municipal Income represents an equal proportionate interest with each other
share of the Fund, and each such share of Municipal Income is entitled to
equal voting, dividend, liquidation, and redemption rights. Each
shareholder of the Fund is entitled to one vote for each dollar value of
net asset value of the Fund that shareholder owns. Shares of Municipal
Income have no preemptive or conversion rights. The voting and dividend
rights, the right of redemption, and the privilege of exchange are
described in the Fund's Prospectus. Shares are fully paid and
nonassessable, except as set forth in the Fund's Statement of Additional
Information under the heading "Shareholder and Trustee Liability."
The trust does not hold annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Trustees unless less than a majority of the Trustees holding office have
been elected by shareholders, at which time the Trustees then in office
will call a shareholders meeting for the election of Trustees. Under the
1940 Act, shareholders of record of at least two-thirds of the outstanding
shares of an investment company may remove a trustee by votes cast in
person or by proxy at a meeting called for that purpose. The Trustees are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any Trustee when requested in writing to do so
by the shareholders of record holding at least 10% of the trust's
outstanding shares.
FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Bond Strategist's assets for Municipal Income's shares and
the assumption of the liabilities of Bond Strategist by Municipal Income is
intended to qualify for federal income tax purposes as a tax-free
reorganization under the Code. With respect to the Reorganization, the
participating Funds have received an opinion from Kirkpatrick & Lockhart
LLP, counsel to Bond Strategist and Municipal Income, substantially to the
effect that:
(i) The acquisition by Municipal Income of all of the assets of Bond
Strategist solely in exchange for Municipal Income shares and the
assumption by Municipal Income of Bond Strategist's liabilities, followed
by the distribution by Bond Strategist of Municipal Income shares to the
shareholders of Bond Strategist pursuant to the liquidation of Bond
Strategist and constructively in exchange for their Bond Strategist shares
will constitute a reorganization within the meaning of section 368(a)(1)(C)
of the Code, and Bond Strategist and Municipal Income will each be "a party
to a reorganization" within the meaning of section 368(b) of the Code;
(ii) No gain or loss will be recognized by Bond Strategist upon the
transfer of all of its assets to Municipal Income in exchange solely for
Municipal Income shares and Municipal Income's assumption of Bond
Strategist's liabilities, followed by Bond Strategist's subsequent
distribution of those shares to shareholders in liquidation of Bond
Strategist;
(iii) No gain or loss will be recognized by Municipal Income upon the
receipt of the assets of Bond Strategist in exchange solely for Municipal
Income shares and its assumption of Bond Strategist's liabilities;
(iv) The shareholders of Bond Strategist will recognize no gain or loss
upon the exchange of their Bond Strategist shares solely for Municipal
Income shares;
(v) The basis of Bond Strategist's assets in the hands of Municipal Income
will be the same as the basis of those assets in the hands of Bond
Strategist immediately prior to the Reorganization, and the holding period
of those assets in the hands of Municipal Income will include the holding
period of those assets in the hands of Bond Strategist;
(vi) The basis of Bond Strategist shareholders in Municipal Income shares
will be the same as their basis in Bond Strategist shares to be surrendered
in exchange therefor; and
(vii) The holding period of the Municipal Income shares to be received by
the Bond Strategist shareholders will include the period during which the
Bond Strategist shares to be surrendered in exchange therefor were held,
provided such Bond Strategist shares were held as capital assets by those
shareholders on the date of the Reorganization.
Shareholders of Bond Strategist should consult their tax advisers
regarding the effect, if any, of the proposed Reorganization in light of
their individual circumstances. Because the foregoing discussion only
related to the federal income tax consequences of the Reorganization, those
shareholders also should consult their tax advisers as to state and local
tax consequences, if any, of the Reorganization.
CAPITALIZATION
The following tables show the capitalization of the Funds as of July 31,
1996 (unaudited) and on a pro forma combined basis (unaudited) as of that
date giving effect to the Reorganization.
Bond Strategist Municipal Pro Forma
Income Combined Fund
Net Assets $ 8,305,529 $ 545,765,312 $ 554,070,841
Net Asset Value $ 9.43 $ 10.26 $ 10.26
Per Share
Shares 880,642 53,184,044 53,993,550
Outstanding
CONCLUSION
The Agreement and Plan of Reorganization and the transactions provided for
therein were approved by the Boards at a meeting held on July 18, 1996. The
Boards of Trustees of Fidelity School Street Trust and Fidelity Union
Street Trust determined that the proposed Reorganization is in the best
interests of shareholders of each Fund and that the interests of existing
shareholders of Bond Strategist and Municipal Income would not be diluted
as a result of the Reorganization. In the event that the Reorganization is
not consummated, Bond Strategist will continue to engage in business as a
fund of a registered investment company and the Board of Fidelity School
Street Trust will consider other proposals for the reorganization or
liquidation of the Fund.
ADDITIONAL INFORMATION ABOUT SPARTAN MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1.Selected Per-Share Data
and Ratios
2.Years ended 1996G 1995 1994D 1993 1992 1991 1990E
August 31
3.Net asset value, $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 $ 10.000
beginning
of period
4.Income from .268 .587 .611 .663 .704 .739 .187
Investment
Operations
Net interest
income
5. Net realized .282 .189 (.752) .727 .387 .463 (.120)
and unrealized
gain (loss) on
investments
6. Total from .550 .776 (.141) 1.390 1.091 1.202 .067
investment
operations
7.Less (.268) (.587) (.611) (.663) (.704) (.739) (.187)
Distributions
From net interest
income
8. From net (.002) (.080) (.550) (.070) (.040) -- --
realized gain on
investments
9. Total (.270) (.667) (1.161) (.733) (.744) (.739) (.187)
distributions
10. Redemption -- .001 .002 .003 .003 .007 .010
fees added
to paid in capital
11.Net asset $ 10.460 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890
value, end of
period
12.Total returnB,C 5.45% 8.20 (1.42) 13.55 10.93 12.65 .76
% % % % % %
13.Net assets, $ 578,225 $ 574,05 $ 680,176 $ 912,71 $ 870,66 $ 550,93 $ 93,118
end of period (000 6 0 4 0
omitted)
14.Ratio of .53% .55 .55 .47 .36 .23 --
expenses to A,F % % % % %
average net
assets
15.Ratio of net 5.19% 5.99 5.76 6.09 6.68 7.24 7.91
interest income to A % % % % % %A
average net
assets
16.Portfolio 69% 69 48 50 62 78 116
turnover rate A % % % % % %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.
D EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FOR THE PERIOD JUNE 4, 1990 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31,
1990
F 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.
G SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED).
MISCELLANEOUS
AVAILABLE INFORMATION. Fidelity School Street Trust and Fidelity Union
Street Trust are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act, and in accordance
therewith file reports, proxy material, and other information with the
Commission. Such reports, proxy material, and other information can be
inspected and copied at the Public Reference Room maintained by the
Commission at 450 Fifth Street, N.W., Washington D.C. 20549. Copies of such
material can also be obtained from the Public Reference Branch Office of
Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington D.C. 20549, at prescribed rates.
LEGAL MATTERS. Certain legal matters in connection with the issuance of
Municipal Income's shares will be passed upon by Kirkpatrick & Lockhart
LLP, counsel to the trusts.
EXPERTS. The audited financial statements of Municipal Income,
incorporated by reference into the Statement of Additional Information,
have been audited by Coopers & Lybrand, L.L.P., independent accountants
(Coopers), whose report thereon is included in the Annual Report to
Shareholders for the fiscal year ended August 31, 1995. The audited
financial statements of Bond Strategist, incorporated by reference into the
Statement of Additional Information, have been audited by Coopers &
Lybrand, L.L.P., whose report thereon is included in the Annual Report to
Shareholders for the fiscal year ended December 31, 1995. Unaudited
financial statements for Bond Strategist for the six-month period ended
June 30, 1996 and unaudited financial statements for Municipal Income for
the six-month period ended February 29, 1996 are also incorporated by
reference. The financial statements audited by Coopers & Lybrand, L.L.P.
have been incorporated by reference in reliance on their reports given on
their authority as experts in auditing and accounting.
EXHIBIT 1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the Agreement) is made as of
the 18th of October 1996, by and between Fidelity School Street Trust, a
Massachusetts business trust, on behalf of its series Spartan Bond
Strategist (Bond Strategist), and Fidelity Union Street Trust, a
Massachusetts business trust, on behalf of its series Spartan Municipal
Income Fund (Municipal Income). Fidelity School Street Trust and Fidelity
Union Street Trust may be referred to herein collectively as the "Trusts"
or each individually as a "Trust." Bond Strategist and Municipal Income
may be referred to herein collectively as the "Funds" or each individually
as the "Fund."
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the Code). The reorganization will
comprise: (a) the transfer of all of the assets of Bond Strategist to
Municipal Income solely in exchange for shares of beneficial interest in
Municipal Income (the Municipal Income Shares) and the assumption by
Municipal Income of Bond Strategist's liabilities; and (b) the constructive
distribution of such shares by Bond Strategist PRO RATA to its shareholders
in complete liquidation and termination of Bond Strategist in exchange for
all of Bond Strategist's outstanding shares. Bond Strategist shall receive
the number of full and fractional shares of Municipal Income having an
aggregate net asset value equal to the value of the assets of Bond
Strategist less the liabilities of Bond Strategist on the closing date (as
defined below), which Bond Strategist shall then distribute PRO RATA to its
shareholders. The foregoing transactions are referred to herein as the
"Reorganization."
In consideration of the mutual promises and subject to the terms and
conditions herein, the parties covenant and agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF BOND STRATEGIST. Bond Strategist
represents and warrants to and agrees with Municipal Income that:
(a) Bond Strategist is a series of Fidelity School Street Trust, a
business trust duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts, and has the power to own all
of its properties and assets and to carry out its obligations under this
Agreement. It has all necessary federal, state, and local authorizations
to carry on its business as now being conducted and to carry out this
Agreement;
(b) Fidelity School Street Trust is an open-end, management investment
company duly registered under the Investment Company Act of 1940, as
amended (the 1940 Act), and such registration is in full force and effect;
(c) The Prospectus and Statement of Additional Information of Bond
Strategist dated February 20, 1996, and the Supplement to the Prospectus
dated July 19, 1996, previously furnished to Municipal Income, did not and
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Bond Strategist, threatened against Bond
Strategist which assert liability on the part of Bond Strategist. Bond
Strategist knows of no facts which might form the basis for the institution
of such proceedings;
(e) Bond Strategist is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Bond Strategist, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Bond Strategist
is a party or by which Bond Strategist is bound or result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment or decree to which Bond Strategist is a party or is
bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Bond Strategist at
December 31, 1995, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, and have been furnished to Municipal Income
together with such unaudited financial statements and schedule of
investments (including market values) for the six month period ended June
30, 1996. Said Statements of Assets and Liabilities and Schedule of
Investments fairly present the Fund's financial position as of such date
and said Statement of Operations, Changes in Net Assets, and Financial
Highlights fairly reflect its results of operations, changes in financial
position, and Financial Highlights for the periods covered thereby in
conformity with generally accepted accounting principles consistently
applied;
(g) Bond Strategist has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of June 30, 1996 and those incurred
in the ordinary course of Bond Strategist's business as an investment
company since June 30, 1996;
(h) The registration statement (Registration Statement) filed with the
Securities and Exchange Commission (Commission) by Fidelity Unon Street
Trust on Form N-14 relating to the shares of Municipal Income issuable
hereunder and the proxy statement of Bond Strategist included therein
(Proxy Statement), on the effective date of the Registration Statement and
insofar as they relate to Bond Strategist (i) comply in all material
respects with the provisions of the Securities Act of 1933, as amended (the
1933 Act), the Securities Exchange Act of 1934, as amended (the 1934 Act),
and the 1940 Act, and the rules and regulations thereunder, and (ii) do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and at the time of the shareholders' meeting
referred to in Section 7 and on the Closing Date, the prospectus contained
in the Registration Statement of which the Proxy Statement is a part (the
Prospectus), as amended or supplemented, insofar as it relates to Bond
Strategist, does not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(i) All material contracts and commitments of Bond Strategist (other than
this Agreement) will be terminated without liability to Bond Strategist
prior to the Closing Date (other than those made in connection with
redemptions of shares and the purchase and sale of portfolio securities
made in the ordinary course of business);
(j) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Bond Strategist
of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and state
securities or blue sky laws (which term as used herein shall include the
District of Columbia and Puerto Rico);
(k) Bond Strategist has filed or will file all federal and state tax
returns which, to the knowledge of Bond Strategist's officers, are required
to be filed by Bond Strategist and has paid or will pay all federal and
state taxes shown to be due on said returns or provision shall have been
made for the payment thereof, and, to the best of Bond Strategist's
knowledge, no such return is currently under audit and no assessment has
been asserted with respect to such returns;
(l) Bond Strategist has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company for all
prior taxable years and intends to meet such requirements for its current
taxable year ending on the Closing Date (as defined in Section 6);
(m) All of the issued and outstanding shares of Bond Strategist are, and
at the Closing Date will be, duly and validly issued and outstanding and
fully paid and nonassessable as a matter of Massachusetts law (except as
disclosed in the Fund's Statement of Additional Information), and have been
offered for sale and in conformity with all applicable federal securities
laws. All of the issued and outstanding shares of Bond Strategist will, at
the Closing Date, be held by the persons and in the amounts set forth in
the list of shareholders submitted to Municipal Income in accordance with
this Agreement;
(n) At both the Valuation Time (as defined in Section 4) and the Closing
Date (as defined in Section 6), Bond Strategist will have the full right,
power, and authority to sell, assign, transfer, and deliver its portfolio
securities and any other assets of Bond Strategist to be transferred to
Municipal Income pursuant to this Agreement. At the Closing Date, subject
only to the delivery of Bond Strategist's portfolio securities and any such
other assets as contemplated by this Agreement, Municipal Income will
acquire Bond Strategist's portfolio securities and any such other assets
subject to no encumbrances, liens, or security interests (except for those
that may arise in the ordinary course and are disclosed to Municipal
Income) and without any restrictions upon the transfer thereof; and
(o) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Bond Strategist, and this Agreement constitutes a
valid and binding obligation of Bond Strategist enforceable in accordance
with its terms, subject to shareholder approval.
2. REPRESENTATIONS AND WARRANTIES OF MUNICIPAL INCOME. Municipal Income
represents and warrants to and agrees with Bond Strategist that:
(a) Municipal Income is a series of Fidelity Union Street Trust, a
business trust duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts, and has the power to own all
of its properties and assets and to carry out its obligations under this
Agreement. It has all necessary federal, state, and local authorizations
to carry on its business as now being conducted and to carry out this
Agreement;
(b) Fidelity Union Street Trust is an open-end, management investment
company duly registered under the 1940 Act, and such registration is in
full force and effect;
(c) The Prospectus and Statement of Additional Information of Municipal
Income, dated October 18, 1996, previously furnished to Bond Strategist did
not and does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading;
(d) There are no material legal, administrative, or other proceedings
pending or, to the knowledge of Municipal Income, threatened against
Municipal Income which assert liability on the part of Municipal Income.
Municipal Income knows of no facts which might form the basis for the
institution of such proceedings;
(e) Municipal Income is not in, and the execution, delivery, and
performance of this Agreement will not result in, violation of any
provision of its Amended and Restated Declaration of Trust or By-laws, or,
to the knowledge of Municipal Income, of any agreement, indenture,
instrument, contract, lease, or other undertaking to which Municipal Income
is a party or by which Municipal Income is bound or result in the
acceleration of any obligation or the imposition of any penalty under any
agreement, judgment, or decree to which Municipal Income is a party or is
bound;
(f) The Statement of Assets and Liabilities, the Statement of Operations,
the Statement of Changes in Net Assets, Financial Highlights, and the
Schedule of Investments (including market values) of Municipal Income at
August 31, 1996, have been audited by Coopers & Lybrand L.L.P., independent
accountants, and have been furnished to Bond Strategist. Said Statements of
Assets and Liabilities and Schedule of Investments fairly present its
financial position as of such date and said Statement of Operations,
Changes in Net Assets, and Financial Highlights fairly reflect its results
of operations, changes in financial position, and Financial Highlights for
the periods covered thereby in conformity with generally accepted
accounting principles consistently applied;
(g) Municipal Income has no known liabilities of a material nature,
contingent or otherwise, other than those shown as belonging to it on its
statement of assets and liabilities as of August 31, 1996 and those
incurred in the ordinary course of Municipal Income's business as an
investment company since August 31, 1996;
(h) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Municipal Income
of the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and state
securities or blue sky laws (which term as used herein shall include the
District of Columbia and Puerto Rico);
(i) Municipal Income has filed or will file all federal and state tax
returns which, to the knowledge of Municipal Income's officers, are
required to be filed by Municipal Income and has paid or will pay all
federal and state taxes shown to be due on said returns or provision shall
have been made for the payment thereof, and, to the best of Municipal
Income's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to such returns;
(j) Municipal Income has met the requirements of Subchapter M of the Code
for qualification and treatment as a regulated investment company for all
prior taxable years and intends to meet such requirements for its current
taxable year ending on August 31, 1997;
(k) By the Closing Date, the shares of beneficial interest of Municipal
Income to be issued to Bond Strategist will have been duly authorized and,
when issued and delivered pursuant to this Agreement, will be legally and
validly issued and will be fully paid and nonassessable (except as
disclosed in the Fund's Statement of Additional Information) by Municipal
Income, and no shareholder of Municipal Income will have any preemptive
right of subscription or purchase in respect thereof;
(l) The execution, performance, and delivery of this Agreement will have
been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Municipal Income, and this Agreement constitutes a
valid and binding obligation of Municipal Income enforceable in accordance
with its terms, subject to approval by the shareholders of Bond Strategist;
(m) The Registration Statement and the Proxy Statement, on the effective
date of the Registration Statement and insofar as they relate to Municipal
Income, (i) will comply in all material respects with the provisions of the
1933 Act, the 1934 Act, and the 1940 Act, and the rules and regulations
thereunder, and (ii) will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at the time of
the shareholders' meeting referred to in Section 7 and on the Closing Date,
the Prospectus, as amended or supplemented, insofar as it relates to
Municipal Income, will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading;
(n) The issuance of the Municipal Income Shares pursuant to this Agreement
will be in compliance with all applicable federal securities laws; and
(o) All of the issued and outstanding shares of beneficial interest of
Municipal Income have been offered for sale and sold in conformity with the
federal securities laws.
3. REORGANIZATION.
(a) Subject to the requisite approval of the shareholders of Bond
Strategist and to the other terms and conditions contained herein, Bond
Strategist agrees to assign, sell, convey, transfer, and deliver to
Municipal Income on the Closing Date (as defined in Section 6) all of the
assets of Bond Strategist of every kind and nature existing on the Closing
Date. Municipal Income agrees in exchange therefor: (i) to assume all of
Bond Strategist's liabilities existing on or after the Closing Date,
whether or not determinable on the Closing Date, and (ii) to issue and
deliver to Bond Strategist the number of full and fractional shares of
Municipal Income having an aggregate net asset value equal to the value of
the assets of Bond Strategist transferred hereunder, less the value of the
liabilities of Bond Strategist, determined as provided for under Section 4.
(b) The assets of Bond Strategist to be acquired by Municipal Income shall
include, without limitation, all cash, cash equivalents, securities,
receivables (including interest or dividends receivables), claims, choses
in action, and other property owned by Bond Strategist, and any deferred or
prepaid expenses shown as an asset on the books of Bond Strategist on the
Closing Date. Bond Strategist will pay or cause to be paid to Municipal
Income any dividend or interest payments received by it on or after the
Closing Date with respect to the assets transferred to Municipal Income
hereunder, and Municipal Income will retain any dividend or interest
payments received by it after the Valuation Time (as defined in Section 4)
with respect to the assets transferred hereunder without regard to the
payment date thereof.
(c) The liabilities of Bond Strategist to be assumed by Municipal Income
shall include (except as otherwise provided for herein) all of Bond
Strategist's liabilities, debts, obligations, and duties, of whatever kind
or nature, whether absolute, accrued, contingent, or otherwise, whether or
not arising in the ordinary course of business, whether or not determinable
on the Closing Date, and whether or not specifically referred to in this
Agreement. Notwithstanding the foregoing, Bond Strategist agrees to use
its best efforts to discharge all of its known liabilities prior to the
Closing Date.
(d) Pursuant to this Agreement, as soon after the Closing Date as is
conveniently practicable (the Liquidation Date), Bond Strategist will
constructively distribute PRO RATA to its shareholders of record,
determined as of the Valuation Time on the Closing Date, the Municipal
Income Shares in exchange for such shareholders' shares of beneficial
interest in Bond Strategist and Bond Strategist will be liquidated in
accordance with Bond Strategist's Amended and Restated Declaration of
Trust. Such distribution shall be accomplished by the Funds' transfer
agent opening accounts on Municipal Income's share transfer books in the
names of the Bond Strategist shareholders and transferring the Municipal
Income Shares thereto. Each Bond Strategist shareholder's account shall be
credited with the respective PRO RATA number of full and fractional
(rounded to the third decimal place) Municipal Income Shares due that
shareholder. All outstanding Bond Strategist shares, including any
represented by certificates, shall simultaneously be canceled on Bond
Strategist's share transfer records. Municipal Income shall not issue
certificates representing the Municipal Income Shares in connection with
the Reorganization.
(e) Any reporting responsibility of Bond Strategist is and shall remain
its responsibility up to and including the date on which it is terminated.
(f) Any transfer taxes payable upon issuance of the Municipal Income
Shares in a name other than that of the registered holder on Bond
Strategist's books of the Bond Strategist shares constructively exchanged
for the Municipal Income Shares shall be paid by the person to whom such
Municipal Income Shares are to be issued, as a condition of such transfer.
4. VALUATION.
(a) The Valuation Time shall be 4:00 p.m. Eastern time on the Closing Date
(as defined in Section 6) (the Valuation Time).
(b) On the Closing Date, Municipal Income will deliver to Bond Strategist
the number of Municipal Income Shares having an aggregate net asset value
equal to the value of the assets of Bond Strategist transferred hereunder
less the liabilities of Bond Strategist, determined as provided in this
Section 4.
(c) The net asset value per share of the Municipal Income Shares to be
delivered to Bond Strategist, the value of the assets of Bond Strategist
transferred hereunder, and the value of the liabilities of Bond Strategist
to be assumed hereunder shall in each case be determined as of the
Valuation Time.
(d) The net asset value per share of the Municipal Income Shares shall be
computed in the manner set forth in the then-current Municipal Income
Prospectus and Statement of Additional Information, and the value of the
assets and liabilities of Bond Strategist shall be computed in the manner
set forth in the then-current Bond Strategist Prospectus and Statement of
Additional Information.
(e) All computations pursuant to this Section shall be made by or under
the direction of Fidelity Service Co., a division of FMR Corp., in
accordance with its regular practice as pricing agent for Bond Strategist
and Municipal Income.
5. FEES; EXPENSES.
(a) Pursuant to the Funds' management contracts with Fidelity Management &
Research Company (FMR), FMR will pay all fees and expenses, including
legal, accounting, printing, filing, and proxy solicitation expenses,
portfolio transfer taxes (if any), or other similar expenses incurred in
connection with the transactions contemplated by this Agreement (but not
including costs incurred in connection with the purchase or sale of
portfolio securities).
(b) Each of Municipal Income and Bond Strategist represents that there is
no person who has dealt with it who by reason of such dealings is entitled
to any broker's or finder's or other similar fee or commission arising out
of the transactions contemplated by this Agreement.
6. CLOSING DATE.
(a) The Reorganization, together with related acts necessary to consummate
the same (the Closing), unless otherwise provided herein, shall occur at
the principal office of the Trusts, 82 Devonshire Street, Boston,
Massachusetts, at the Valuation Time on December 30, 1996, or at some other
time, date, and place agreed to by Bond Strategist and Municipal Income
(the Closing Date).
(b) In the event that on the Closing Date: (i) any of the markets for
securities held by the Funds is closed to trading, or (ii) trading thereon
is restricted, or (iii) trading or the reporting of trading on said market
or elsewhere is disrupted, all so that accurate appraisal of the total net
asset value per share of Bond Strategist and the net asset value per share
of Municipal Income is impracticable, the Valuation Time and the Closing
Date shall be postponed until the first business day after the day when
such trading shall have been fully resumed and such reporting shall have
been restored, or such other date as the parties may agree.
7. SHAREHOLDER MEETING AND TERMINATION OF BOND STRATEGIST.
(a) Bond Strategist agrees to call a meeting of its shareholders after the
effective date of the Registration Statement, to consider approving this
Agreement.
(b) Bond Strategist agrees that as soon as reasonably practicable after
distribution of the Municipal Income Shares, Bond Strategist shall be
terminated as a series of Fidelity School Street Trust pursuant to its
Amended and Restated Declaration of Trust, any further actions shall be
taken in connection therewith as required by applicable law, and on and
after the Closing Date Bond Strategist shall not conduct any business
except in connection with its liquidation and termination.
8. CONDITIONS TO MUNICIPAL INCOME'S OBLIGATIONS. The obligations of
Municipal Income hereunder shall be subject to the following conditions:
(a) That Bond Strategist furnishes to Municipal Income a statement, dated
as of the Closing Date, signed by an officer of Fidelity School Street
Trust, certifying that as of the Valuation Time and the Closing Date all
representations and warranties of Bond Strategist made in this Agreement
are true and correct in all material respects and that Bond Strategist has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to such dates;
(b) That Bond Strategist furnishes Municipal Income with copies of the
resolutions, certified by an officer of Fidelity School Street Trust,
evidencing the adoption of this Agreement and the approval of the
transactions contemplated herein by the requisite vote of the holders of
the outstanding shares of beneficial interest of Bond Strategist;
(c) That, on or prior to the Closing Date, Bond Strategist will declare
one or more dividends or distributions which, together with all previous
such dividends or distributions, shall have the effect of distributing to
the shareholders of Bond Strategist substantially all of Bond Strategist's
investment company taxable income and all of its net realized capital gain,
if any, as of the Closing Date;
(d) That Bond Strategist shall deliver to Municipal Income at the Closing
a statement of its assets and liabilities, together with a list of its
portfolio securities showing each such security's adjusted tax basis and
holding period by lot, with values determined as provided in Section 4 of
this Agreement, all as of the Valuation Time, certified on Bond
Strategist's behalf by its Treasurer or Assistant Treasurer;
(e) That Bond Strategist's custodian shall deliver to Municipal Income a
certificate identifying the assets of Bond Strategist held by such
custodian as of the Valuation Time on the Closing Date and stating that at
the Valuation Time: (i) the assets held by the custodian will be
transferred to Municipal Income; (ii) Bond Strategist's assets have been
duly endorsed in proper form for transfer in such condition as to
constitute good delivery thereof; and (iii) to the best of the custodian's
knowledge, all necessary taxes in conjunction with the delivery of the
assets, including all applicable federal and state stock transfer stamps,
if any, have been paid or provision for payment has been made;
(f) That Bond Strategist's transfer agent shall deliver to Municipal Income
at the Closing a certificate setting forth the number of shares of Bond
Strategist outstanding as of the Valuation Time and the name and address of
each holder of record of any such shares and the number of shares held of
record by each such shareholder;
(g) That Bond Strategist calls a meeting of its shareholders to be held
after the effective date of the Registration Statement, to consider
transferring its assets to Municipal Income as herein provided, adopting
this Agreement, and authorizing the liquidation and termination of Bond
Strategist;
(h) That Bond Strategist delivers to Municipal Income a certificate of an
officer of Fidelity School Street Trust, dated the Closing Date, that there
has been no material adverse change in Bond Strategist's financial position
since June 30, 1996, other than changes in the market value of its
portfolio securities, or changes due to net redemptions of its shares,
dividends paid, or losses from operations; and
(i) That all of the issued and outstanding shares of beneficial interest
of Bond Strategist shall have been offered for sale and sold in conformity
with all applicable state securities laws and, to the extent that any audit
of the records of Bond Strategist or its transfer agent by Municipal Income
or its agents shall have revealed otherwise, Bond Strategist shall have
taken all actions that in the opinion of Municipal Income are necessary to
remedy any prior failure on the part of Bond Strategist to have offered for
sale and sold such shares in conformity with such laws.
9. CONDITIONS TO OBLIGATIONS OF BOND STRATEGIST.
(a) That Municipal Income shall have executed and delivered to Bond
Strategist an Assumption of Liabilities, certified by an officer of
Fidelity Union Street Trust, dated as of the Closing Date pursuant to which
Municipal Income will assume all of the liabilities of Bond Strategist
existing at the Valuation Time in connection with the transactions
contemplated by this Agreement;
(b) That Municipal Income furnishes to Bond Strategist a statement, dated
as of the Closing Date, signed by an officer of Fidelity Union Street
Trust, certifying that as of the Valuation Time and the Closing Date all
representations and warranties of Municipal Income made in this Agreement
are true and correct in all material respects, and Municipal Income has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to such dates; and
(c) That Bond Strategist shall have received an opinion of Kirkpatrick &
Lockhart LLP, counsel to Bond Strategist and Municipal Income, to the
effect that the Municipal Income Shares are duly authorized and upon
delivery to Bond Strategist as provided in this Agreement will be validly
issued and will be fully paid and nonassessable by Municipal Income (except
as disclosed in Bond Strategist's Statement of Additional Information) and
no shareholder of Municipal Income has any preemptive right of subscription
or purchase in respect thereof.
10. CONDITIONS TO OBLIGATIONS OF MUNICIPAL INCOME AND BOND STRATEGIST.
(a) That this Agreement shall have been adopted and the transactions
contemplated herein shall have been approved by the requisite vote of the
holders of the outstanding shares of beneficial interest of Bond
Strategist;
(b) That all consents of other parties and all other consents, orders, and
permits of federal, state, and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities authorities,
including "no action" positions of such federal or state authorities)
deemed necessary by Municipal Income or Bond Strategist to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of Municipal Income or Bond Strategist,
provided that either party hereto may for itself waive any of such
conditions;
(c) That all proceedings taken by either Fund in connection with the
transactions contemplated by this Agreement and all documents incidental
thereto shall be satisfactory in form and substance to it and its counsel,
Kirkpatrick & Lockhart LLP;
(d) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement;
(e) That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Municipal Income and Bond Strategist,
threatened by the Commission; and
(f) That Municipal Income and Bond Strategist shall have received an
opinion of Kirkpatrick & Lockhart LLP satisfactory to Municipal Income and
Bond Strategist that for federal income tax purposes:
(i) The Reorganization will be a reorganization under section
368(a)(1)(C) of the Code, and Bond Strategist and Municipal Income will
each be parties to the Reorganization under section 368(b) of the Code;
(ii) No gain or loss will be recognized by Bond Strategist upon the
transfer of all of its assets to Municipal Income in exchange solely for
the Municipal Income Shares and the assumption of Bond Strategist's
liabilities followed by the distribution of those Municipal Income Shares
to the shareholders of Bond Strategist in liquidation of Bond Strategist;
(iii) No gain or loss will be recognized by Municipal Income on the
receipt of Bond Strategist's assets in exchange solely for the Municipal
Income Shares and the assumption of Bond Strategist's liabilities;
(iv) The basis of Bond Strategist's assets in the hands of Municipal
Income will be the same as the basis of such assets in Bond Strategist's
hands immediately prior to the Reorganization;
(v) Municipal Income's holding period in the assets to be received from
Bond Strategist will include Bond Strategist's holding period in such
assets;
(vi) A Bond Strategist shareholder will recognize no gain or loss on the
exchange of his or her shares of beneficial interest in Bond Strategist for
the Municipal Income Shares in the Reorganization;
(vii) A Bond Strategist shareholder's basis in the Municipal Income
Shares to be received by him or her will be the same as his or her basis in
the Bond Strategist shares exchanged therefor; and
(viii) A Bond Strategist shareholder's holding period for his or her
Municipal Income Shares will include the holding period of Bond Strategist
shares exchanged, provided that those Bond Strategist shares were held as
capital assets on the date of the Reorganization.
Notwithstanding anything herein to the contrary, neither Bond Strategist
nor Municipal Income may waive the conditions set forth in this subsection
10(f).
11. COVENANTS OF MUNICIPAL INCOME AND BOND STRATEGIST.
(a) Municipal Income and Bond Strategist each covenants to operate its
respective business in the ordinary course between the date hereof and the
Closing Date, it being understood that such ordinary course of business
will include the payment of customary dividends and distributions;
(b) Bond Strategist covenants that it is not acquiring the Municipal
Income Shares for the purpose of making any distribution other than in
accordance with the terms of this Agreement;
(c) Bond Strategist covenants that it will assist Municipal Income in
obtaining such information as Municipal Income reasonably requests
concerning the beneficial ownership of Bond Strategist's shares; and
(d) Bond Strategist covenants that its liquidation and termination will be
effected in the manner provided in its Amended and Restated Declaration of
Trust in accordance with applicable law and after the Closing Date, Bond
Strategist will not conduct any business except in connection with its
liquidation and termination.
12. TERMINATION; WAIVER.
Municipal Income and Bond Strategist may terminate this Agreement by
mutual agreement. In addition, either Municipal Income or Bond Strategist
may at its option terminate this Agreement at or prior to the Closing Date
because:
(i) of a material breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date;
or
(ii) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
In the event of any such termination, there shall be no liability for
damages on the part of Bond Strategist or Municipal Income, or their
respective Trustees or officers.
13. SOLE AGREEMENT; AMENDMENTS; WAIVERS; SURVIVAL OF WARRANTIES.
(a) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the subject matter hereof,
constitutes the only understanding with respect to such subject matter, may
not be changed except by a letter of agreement signed by each party hereto
and shall be construed in accordance with and governed by the laws of the
Commonwealth of Massachusetts.
(b) This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the respective
President, any Vice President, or Treasurer of Municipal Income or Bond
Strategist; provided, however, that following the shareholders' meeting
called by Bond Strategist pursuant to Section 7 of this Agreement, no such
amendment may have the effect of changing the provisions for determining
the number of Municipal Income Shares to be paid to Bond Strategist
shareholders under this Agreement to the detriment of such shareholders
without their further approval.
(c) Either Fund may waive any condition to its obligations hereunder,
provided that such waiver does not have any material adverse effect on the
interests of such Fund's shareholders.
The representations, warranties, and covenants contained in the Agreement,
or in any document delivered pursuant hereto or in connection herewith,
shall survive the consummation of the transactions contemplated hereunder.
14. DECLARATIONS OF TRUST.
A copy of the Declaration of Trust of each Fund, as restated and amended,
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed
on behalf of the Trustees of each Fund as trustees and not individually and
that the obligations of each Fund under this instrument are not binding
upon any of such Fund's Trustees, officers, or shareholders individually
but are binding only upon the assets and property of such Fund. Each Fund
agrees that its obligations hereunder apply only to such Fund and not to
its shareholders individually or to the Trustees of such Fund.
15. ASSIGNMENT.
This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
of any rights or obligations hereunder shall be made by any party without
the written consent of the other parties. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any
person, firm, or corporation other than the parties hereto and their
respective successors and assigns any rights or remedies under or by reason
of this Agreement.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by an appropriate officer.
SIGNATURE LINES OMITTED
SUPPLEMENT TO THE
SPARTAN(registered trademark) MUNICIPAL FUNDS' PROSPECTUS
DATED OCTOBER 25, 1995
On February 20, 1996, Spartan Short-Intermediate Municipal Fund changed its
name to Spartan Short-Intermediate Municipal Income Fund, Spartan
Intermediate Municipal Fund changed its name to Spartan Intermediate
Municipal Income Fund, and Spartan Municipal Income Portfolio changed its
name to Spartan Municipal Income Fund.
Effective February 1, 1996, the following information replaces the similar
information found in the "EXPENSES" section beginning on page 6.
The operating expenses on page 7 are projections based on historical
expenses, and are calculated as a percentage of average net assets. FMR has
voluntarily agreed to temporarily limit the total operating expenses of
Spartan Municipal Money to .40% of average net assets. If this agreement
was not in effect, the management fee, other expenses, and total operating
expenses for Spartan Municipal Money would be .50%, .00%, and .50%,
respectively. Expenses eligible for reimbursement do not include interest,
taxes, brokerage commissions, or extraordinary expenses.
SPARTAN INTERMEDIATE MUNICIPAL
Operating Expenses
Management fee .55%
12b-1 fee None
Other expenses .00
%
Total fund operating expenses .55%
SPARTAN INTERMEDIATE MUNICIPAL
Examples
Account Account
open closed
After 1 year $ 6 $11
After 3 years $18 $23
After 5 years $31 $36
After 10 years $69 $74
The following information replaces the similar information found in
paragraphs four through seven in the "INVESTMENT PRINCIPLES AND RISKS"
section beginning on page 16.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL stresses preservation of capital by
investing in investment-grade municipal securities under normal conditions.
Although the fund can invest in securities of any maturity, the fund, under
normal conditions, maintains a dollar-weighted average maturity of between
two and five years. The fund normally invests so that 80% or more of its
income is free from federal income tax.
SPARTAN INTERMEDIATE MUNICIPAL invests in investment-grade municipal
securities under normal conditions. Although the fund can invest in
securities of any maturity, the fund maintains a dollar-weighted average
maturity of between three to 10 years under normal conditions. FMR seeks to
manage the fund so that it generally reacts to changes in interest rates
similarly to municipal bonds with maturities between seven and 10 years.
The fund normally invests so that at least 80% of its assets are invested
in municipal securities whose interest is free from federal income tax.
SPARTAN MUNICIPAL INCOME invests in investment-grade municipal securities
under normal conditions. Although the fund can invest in securities of any
maturity, FMR seeks to manage the fund so that it generally reacts to
changes in interest rates similarly to municipal bonds with maturities
between eight and 18 years. The fund normally invests so that at least 80%
of its income is free from federal income tax.
SPARTAN AGGRESSIVE MUNICIPAL invests in municipal securities of any quality
under normal conditions. Since the fund can emphasize lower-quality
securities, FMR's research and analysis are an integral part of choosing
the fund's investments. Although the fund can invest in securities of any
maturity, FMR seeks to manage the fund so that it generally reacts to
changes in interest rates similarly to municipal bonds of comparable
quality with maturities between 12 and 20 years. The fund normally invests
so that at least 80% of its assets are invested in municipal securities
whose interest is free from federal income tax.
The following information replaces the similar information found in the
"SECURITIES AND INVESTMENT PRACTICES" section on page 19.
RESTRICTIONS: Spartan Short-Intermediate Municipal, Spartan Intermediate
Municipal, and Spartan Municipal Income normally invest in investment-grade
securities, but reserve the right to invest up to 5% of their assets in
below investment-grade securities (sometimes called "municipal junk
bonds"). A security is considered to be investment-grade if it is rated
investment grade by Moody's Investors Service, Standard & Poor's, Duff &
Phelps Credit Rating Co., or Fitch Investors Service, L.P., or is unrated
but judged by FMR to be of equivalent quality. Spartan Aggressive Municipal
Fund does not currently intend to invest more than 10% of its total assets
in bonds that are in default.
The following information replaces that found on page 5.
FUND STRATEGY RISK AND YIELD POTENTIAL
THE RISK LEVEL AND YIELD POTENTIAL OF MONEY MARKET AND BOND FUNDS DEPEND ON
THE QUALITY AND MATURITY OF THEIR INVESTMENTS. THE CHART BELOW PRESENTS
EACH FUND'S STRATEGY AND EXPLAINS ITS RISK AND YIELD POTENTIAL RELATIVE TO
THE OTHER FUNDS IN THIS FAMILY.
<TABLE>
<CAPTION>
<S> <C> <C>
Spartan Municipal Invests normally in Because this fund seeks
Money high-quality, short-term to maintain a stable
municipal securities $1.00 share price, it is
with an average the safest and lowest
maturity of 90 days or yielding fund in the
less. family.
(low risk graphic)
Spartan Invests under normal With its emphasis on
Short-Intermediate conditions in short maturities, this is
Municipal investment-grade the most conservative
municipal securities bond fund in the family.
while normally
maintaining an average
maturity of two to five
years.
(low to medium risk graphic)
Spartan Invests under normal With its emphasis on
Intermediate conditions in intermediate maturities,
Municipal investment-grade this is the moderate
municipal securities member of the family.
while normally
maintaining an average
maturity of between
three and 10 years.
(medium risk graphic)
Spartan Municipal Invests under normal With its emphasis on
Income conditions in municipal longer-term maturities,
securities of this is the moderately
investment-grade aggressive member of
quality. Although the the family.
fund can invest in
securities of any
maturity, FMR seeks to
manage the fund so that
it generally reacts to
changes in interest rates
similarly to municipal
bonds with maturities
between eight and 18
years.
(low to medium risk graphic)
FUND STRATEGY RISK AND YIELD POTENTIAL
THE RISK LEVEL AND YIELD POTENTIAL OF MONEY MARKET AND BOND FUNDS DEPEND ON
THE QUALITY AND MATURITY OF THEIR INVESTMENTS. THE CHART BELOW PRESENTS
EACH FUND'S STRATEGY AND EXPLAINS ITS RISK AND YIELD POTENTIAL RELATIVE TO
THE OTHER FUNDS IN THIS FAMILY.
Spartan Aggressive Allowed to invest in With its ability to invest in
Municipal lower-quality municipal lower-quality securities
securities. Although the with longer-term
fund can invest in maturities, this is the
securities of any most aggressive fund in
maturity, FMR seeks to the family.
manage the fund so
that it generally reacts
to changes in interest
rates similarly to
municipal bonds of
comparable quality with
maturities between 12
and 20 years.
(high risk graphic)
</TABLE>
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
each fund's most recent financial report and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated October 25, 1995.
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of any of these documents, call Fidelity at
1-800-544-8888.
Investments in the money market fund are neither insured nor guaranteed by
the U.S. government, and there can be no assurance that the fund will
maintain a stable $1.00 share price.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, the Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal.
Spartan Aggressive Municipal may invest without limitation in lower-quality
debt securities, sometimes called "municipal junk bonds." Investors should
consider that these securities carry greater risks, such as the risk of
default, than other debt securities. Refer to "Investment Principles and
Risks" on page for further information.
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SMU-pro-1095
SPARTAN(REGISTERED TRADEMARK)
MUNICIPAL
FUNDS
Each of these funds seeks a high level of income free from federal income
tax. The funds have different strategies, however, and carry varying
degrees of risk and yield potential.
SPARTAN MUNICIPAL
MONEY FUND
SPARTAN SHORT-INTERMEDIATE
MUNICIPAL FUND
SPARTAN INTERMEDIATE
MUNICIPAL FUND
SPARTAN MUNICIPAL INCOME
PORTFOLIO
SPARTAN AGGRESSIVE
MUNICIPAL FUND
PROSPECTUS
OCTOBER 25, 1995 (FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
CONTENTS
KEY FACTS THE FUNDS AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES Each fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of each fund's financial data.
PERFORMANCE How each fund has
done over time.
THE FUNDS IN DETAIL CHARTER How each fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
Each fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUNDS AT A GLANCE
The chart on page highlights the strategy, risk , and yield
potential for each fund. Elements common to all five funds are described
below.
GOAL: High current income free from federal income tax. As with any mutual
fund, there is no assurance that a fund will achieve its goal.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FTX), a subsidiary
of FMR, chooses investments for Spartan Municipal Money.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors in higher tax brackets
who seek high current income that is free from federal income taxes .
Each fund's level of risk, and potential reward, depend on the
quality and maturity of its investments. Spartan Municipal Money is managed
to keep its share price stable at $1.00. The bond funds, with their broader
range o f investments, have the potential for higher yields, but also
carry a higher degree of risk. You should consider your investment
objective and tolerance for risk when making an investment decision.
The value of the funds' investments and the income they generate will vary
from day to day, and generally reflect interest rates, market
conditions, and other federal and state political and economic news.
When you sell your shares of any of the bond funds, they may be worth more
or less than what you paid for them. By themselves, these funds do not
constitute a balanced investment plan.
The Spartan family of funds is designed for cost-conscious investors
looking for higher yields through lower costs. The Spartan
Approach(registered trademark) requires investors to make high minimum
investments and, in some cases, to pay for individual transactions.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. The
funds in this prospectus are
in the INCOME category,
except for Spartan Municipal
Money, which is in the MONEY
MARKET category.
(right arrow) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
FUND STRATEGY RISK AND YIELD POTENTIAL
THE RISK LEVEL AND YIELD POTENTIAL OF MONEY MARKET AND BOND FUNDS DEPEND ON
THE QUALITY AND MATURITY OF THEIR INVESTMENTS. THE CHART BELOW PRESENTS
EACH FUND'S STRATEGY AND EXPLAINS ITS RISK AND YIELD POTENTIAL RELATIVE
TO THE OTHE R FUNDS IN THIS FAMILY.
<TABLE>
<CAPTION>
<S> <C> <C>
Spartan Municipal Invests in high-quality, Because this fund seeks
Money short-term municipal to maintain a stable
securities with an $1.00 share price, it is
average maturity of 90 the safest and lowest
days or less. yielding fund in the
family.
(low risk graphic)
Spartan Invests in With its short maturity
Short-Intermediate investment-grade and the high quality of its
Municipal municipal securities investments, this is the
while maintaining an most conservative bond
average maturity of two fund in the family.
to four years.
(low to medium risk graphic)
Spartan Invests in municipal With its intermediate
Intermediate securities, focusing on maturity and focus on
Municipal investment-grade medium- to high-quality
securities while investments, this is the
maintaining an average moderate member of the
maturity of three to ten family.
years.
(medium risk graphic)
Spartan Municipal Invests primarily in While emphasizing credit
Income municipal securities of quality, its longer-term
investment-grade maturity makes it the
quality and generally moderately aggressive
maintains an average member of the family.
maturity of 10 years or
more.
(low to medium risk graphic)
Spartan Aggressive Invests primarily in With its emphasis on
Municipal medium- and medium- and
lower-quality municipal lower-quality securities
securities, normally with long maturities, this
maintains an average is the most aggressive
maturity of 10 years or fund in the family.
more.
(high risk graphic)
</TABLE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell
or hold shares of a fund. See pages and - for more information
about these fees .
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Redemption fee (as a % of amount redeemed
on shares held less than 180 days)
for Spartan Municipal Income .50%
for Spartan Aggressive Municipal 1.00%
for all other funds None
Exchange and wire transaction fees $5.00
Checkwriting fee, per check written
(available for Spartan Municipal Money,
Spartan Short-Intermediate Municipal, and
Spartan Intermediate Municipal) $2.00
Account closeout fee $5.00
Annual account maintenance fee
(for accounts under $2500) $12.00
THESE FEES ARE WAIVED (except for the redemption fee) if your account
balance at the time of the transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. Expenses are factored into each fund's
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The operating expenses on page are projections based on historical
expenses, and are calculated as a percentage of average net assets. FMR has
voluntarily agreed to temporarily limit the total operating expenses
of Spartan Municipal Money and Spartan Intermediate Municipal to .40% and
. 45 %, respectively, of average net assets. If these agreements were
not in effect, the management fee, other expenses, and total operating
expenses for Spartan Municipal Money would be .50%, .00%, and
.50%, and .55%, .00%, and .55%, respectively , for Spartan
Intermediate Municipal . Expenses eligible for reimbursement do not
include interest, taxes, brokerage commissions, or extraordinary expenses.
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as described on page . For
every $1,000 you invested, the examples on page show you how much you
would pay in total expenses after the number of years indicated, first
assuming that you leave your account open, and then assuming that you close
your account at the end of the period.
These examples illustrate the effect of expenses, but are not meant
to suggest actual or expected costs or returns, all of which may vary.
SPARTAN MUNICIPAL MONEY
Operating Expenses Examples
Account Account
open closed
Management fee (after .40% After 1 year $ 4 $ 9
reimbursement)
12b-1 fee None After 3 $13 $18
years
Other expenses .00% After 5 $22 $27
years
Total fund operating .40% After 10 $51 $56
expenses years
SPARTAN SHORT-INTERMEDIATE MUNICIPAL
Operating Expenses Examples
Account Account
open closed
Management fee .55% After 1 year $ 6 $11
12b-1 fee None After 3 $18 $23
years
Other expenses .00% After 5 $31 $36
years
Total fund operating .55% After 10 $69 $74
expenses years
SPARTAN INTERMEDIATE MUNICIPAL
Operating Expenses Examples
Account Account
open closed
Management fee (after .45% After 1 year $ 5 $10
reimbursement)
12b-1 fee None After 3 $14 $19
years
Other expenses .00% After 5 $25 $30
years
Total fund operating .45% After 10 $ 5 7 $62
expenses years
SPARTAN MUNICIPAL INCOME
Operating Expenses Examples
Account Account
open closed
Management fee .55% After 1 year $ 6 $11
12b-1 fee None After 3 $18 $23
years
Other expenses .00% After 5 $31 $36
years
Total fund operating .55% After 10 $69 $74
expenses years
SPARTAN AGGRESSIVE MUNICIPAL
Operating Expenses Examples
Account Account
open closed
Management fee .60% After 1 year $ 6 $11
12b-1 fee None After 3 $19 $24
years
Other expenses .00% After 5 $33 $3 8
years
Total fund operating .60% After 10 $75 $80
expenses years
FINANCIAL HIGHLIGHTS
The tables that follow are included in each fund's Annual Report and have
been audited by Coopers & Lybrand L.L.P., independent accountants. Their
reports on the financial statements and financial highlights are included
in the Annual Reports. The financial statements and financial highlights
are incorporated by reference into (are legally a part of) the funds'
Statement of Additional Information.
SPARTAN MUNICIPAL MONEY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
17.Selected Per-Share Data and
Ratios
18.Years ended August 31 1995 1994 1993 1992 1991C
19.Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
20.Income from Investment .035 .025 .026 .038 .030
Operations
Net interest income
21.Less Distributions (.035) (.025) (.026) (.038) (.030)
From net interest income
22.Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
23.Total return B 3.59 2.50 2.66 3.91 3.03
% % % % %
24.Net assets, end of period (In $ 2,206 $ 2,288 $ 1,696 $ 1,303 $ 424
millions)
25.Ratio of expenses to average net .40 .33 .27 .20 .09
assets % % % % %A
26.Ratio of expenses to average net .50 .50 .50 .50 .50
assets before % % % % %A
expense reductions
27.Ratio of net interest income to 3.53 2.48 2.61 3.67 4.69
average net assets % % % % %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. THE TOTAL RETURNS WOULD HAVE BEEN
LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
C FOR THE PERIOD JANUARY 14, 1991 (COMMENCEMENT OF OPERATIONS) TO AUGUST
31, 1991
SPARTAN SHORT-INTERMEDIATE MUNICIPAL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28.Selected Per-Share
Data and Ratios
29.Years ended 1995 1994D 1993G 1992F 1991F 1990F 1989F 1988F 1987F 1986E
August 31
30.Net asset $ 9.84 $ 10.0 $ 9.88 $ 9.78 $ 9.52 $ 9.49 $ 9.45 $ 9.51 $ 9.92 $ 10.0
value, 0 90 0 0 0 0 0 0 0 00
beginning of period
31.Income from .429 .443 .303 .490 .559 .562 .536 .516 .433 .008
Investment
Operations
Net interest
income
32. Net realized .140 (.240) .210 .100 .260 .030 .040 (.060) (.410) (.080)
and unrealized
gain (loss) on
investments
33. Total from .569 .203 .513 .590 .819 .592 .576 .456 .023 (.072)
investment
operations
34.Less (.429) (.443) (.303) (.490) (.559) (.562) (.536) (.516) (.433) (.008)
Distributions
From net interest
income
35. In excess of -- (.010) -- -- -- -- -- -- -- --
net realized gain
on investments
36. Total (.429) (.453) (.303) (.490) (.559) (.562) (.536) (.516) (.433) (.008)
distributions
37.Net asset $ 9.98 $ 9.84 $ 10.0 $ 9.88 $ 9.78 $ 9.52 $ 9.49 $ 9.45 $ 9.51 $ 9.92
value, end of 0 0 90 0 0 0 0 0 0 0
period
38.Total returnB,C 5.95 2.05 5.25 6.18 8.85 6.42 6.30 4.89 .26% (.72)
% % % % % % % % %
39.Net assets, end $ 909 $ 1,08 $ 967 $ 659 $ 244 $ 59 $ 58 $ 77 $ 59 $ 2
of period 3
(In millions)
40.Ratio of .55% .47% .55% .55% .55% .60% .58% .35% .60% .60%
expenses to A A
average net assets
41.Ratio of .55% .55% .55% .55% .75% .89% .87% .92% 1.04 1.50
expenses to A % %A
average net assets
before expense
reductions
42.Ratio of net 4.38 4.45 4.55 4.95 5.68 5.90 5.69 5.48 4.58 4.00
interest income % % %A % % % % % % %A
to average net
assets
43.Portfolio 51% 44% 56%A 28% 59% 75% 82% 96% 180% --
turnover rate
</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.
D EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FOR THE PERIOD DECEMBER 24, 1986 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 1986
F YEARS ENDED DECEMBER 31
G FOR THE EIGHT MONTHS ENDING AUGUST 31, 1993
SPARTAN INTERMEDIATE MUNICIPAL
<TABLE>
<CAPTION>
<S> <C> <C> <C>
44.Selected Per-Share Data and Ratios
45.Years ended August 31 1995 1994D 1993E
46.Net asset value, beginning of period $ 9.840 $ 10.340 $ 10.000
47.Income from Investment Operations .490 .514 .177
Net interest income
48. Net realized and unrealized gain (loss) on .220 (.460) .340
investments
49. Total from investment operations .710 .054 .517
50.Less Distributions (.490) (.514) (.177)
From net interest income
51. From net realized gain on investments -- (.010) --
52. In excess of net realized gain on investments -- (.030) --
53. Total distributions (.490) (.554) (.177)
54.Net asset value, end of period $ 10.060 $ 9.840 $ 10.340
55.Total returnB,C 7.50% 0.52% 5.22%
56.Net assets, end of period (000 omitted) $ 219,711 $ 256,269 $ 219,400
57.Ratio of expenses to average net assets .42% .20% --
58.Ratio of expenses to average net assets before .55% .55% .55%
expense reductions A
59.Ratio of net interest income to average net assets 5.04% 5.09% 5.20%
A
60.Portfolio turnover rate 44% 69% 95%
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.
D EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FOR THE PERIOD APRIL 26, 1993 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31,
1993
SPARTAN MUNICIPAL INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
61.Selected Per-Share
Data and Ratios
62.Years ended August 31 1995 1994D 1993 1992 1991 1990E
63.Net asset value, $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 $ 10.000
beginning of period
64.Income from .587 .611 .663 .704 .739 .187
Investment Operations
Net interest income
65. Net realized and .189 (.752) .727 .387 .463 (.120)
unrealized gain (loss)
on investments
66. Total from investment .776 (.141) 1.390 1.091 1.202 .067
operations
67.Less Distributions (.587) (.611) (.663) (.704) (.739) (.187)
From net interest income
68. From net realized (.080) (.550) (.070) (.040) -- --
gain on investments
69. Total distributions (.667) (1.161) (.733) (.744) (.739) (.187)
70. Redemption fees .001 .002 .003 .003 .007 .010
added to paid in capital
71.Net asset value, end of $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890
period
72.Total returnB,C 8.20 (1.42) 13.55 10.93 12.65 .76
% % % % % %
73.Net assets, end of $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930 $ 93,118
period (000 omitted)
74.Ratio of expenses to .55 .55 .47 .36 .23 --
average net assets % % % % %
75.Ratio of expenses to .55 .55 .55 .55 .55 .55
average net assets before % % % % % %A
expense reductions
76.Ratio of net interest 5.99 5.76 6.09 6.68 7.24 7.91
income to average % % % % % %A
net assets
77.Portfolio turnover rate 69 48 50 62 78 116
% % % % % %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.
D EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FOR THE PERIOD JUNE 4, 1990 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31,
1990
SPARTAN AGGRESSIVE MUNICIPAL
<TABLE>
<CAPTION>
<S> <C> <C> <C>
78.Selected Per-Share Data and Ratios
79.Years ended August 31 1995 1994C 1993D
80.Net asset value, beginning of period $ 9.790 $ 10.350 $ 10.000
81.Income from Investment Operations .602 .603 .209
Net interest income
82. Net realized and unrealized gain (loss) on .125 (.564) .346
investments
83. Total from investment operations .727 .039 .555
84.Less Distributions (.602) (.603) (.209)
From net interest income
85. From net realized gain on investments -- (.010) --
86. In excess of net realized gain on investments -- (.010) --
87. Total distributions (.602) (.623) (.209)
88. Redemption fees added to paid in capital .015 .024 .004
89.Net asset value, end of period $ 9.930 $ 9.790 $ 10.350
90.Total returnB 7.97% 0.61% 5.64%
91.Net assets, end of period (000 omitted) $ 74,563 $ 61,673 $ 17,267
92.Ratio of expenses to average net assets .60% .60% .60%
A
93.Ratio of net interest income to average net assets 6.24% 6.03% 6.24%
A
94.Portfolio turnover rate 51% 64% 53%
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 EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
D FOR THE PERIOD APRIL 29, 1993 (COMMENCEMENT OF OPERATIONS) TO AUGUST 31,
1993
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results and do not reflect
the effect of any transaction fees you may have paid. The figures would be
lower if fees were taken into account.
Each fund's fiscal year runs from September 1 through August 31. The
table below shows each fund's performance over past fiscal years compared
to a measure of inflation.
TOTAL RETURNS
Average Annual Total Return Cumulative Total Return
Fiscal periods ended Past 1 Past 5 Life of Past 1 Past 5 Life of
August 31, 1995 year years fund year years fund
Spartan Municipal 3.59 n/a 3.39 3.59% n/a 16.70
Money % % A % A
Spartan Short- 5.95 6.22 5.20 5.95% 35.22 55.37
Intermediate % % %B % % B
Municipal
Spartan 7.50 n/a 5.61 7.50% n/a 13.70
Intermediate % % C % C
Municipal
Spartan Municipal 8.20 8.64 8.38 8.20% 51.36 52.51
Income % % % D % % D
Spartan 7.97 n/a 6.05 7.97% n/a 14.75
Aggressive % % E % E
Municipal
Consumer Price 2.62 3.05 n/a 2.62% 16.19 n/a
Index % % %
A FROM JANUARY 14, 1991
B FROM DECEMBER 24, 1986
C FROM APRIL 26, 1993
D FROM JUNE 4, 1990
E FROM APRIL 29, 1993
EXPLANATION OF TERMS
T OTAL RETURN is the change in value of an investment in a fund over
a given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond funds
are calculated according to a standard that is required for all stock and
bond funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. Seven-day
yields are the most common
illustration of money market
performance. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions, and
any change in a fund's share
price.
(checkmark)
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. In technical terms, Spartan
Municipal Money is currently a diversified fund of Fidelity Union Street
Trust II. Spartan Short-Intermediate Municipal, Spartan Intermediate
Municipal, Spartan Municipal Income, and Spartan Aggressive Municipal are
currently non-diversified funds of Fidelity Union Street Trust. Both trusts
are open-end management investment companies. Fidelity Union Street Trust
II was organized as a Delaware business trust on June 20, 1991. Fidelity
Union Street Trust was organized as a Massachusetts business trust on March
1, 1974. There is a remote possibility that one fund might become liable
for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. For Spartan Municipal
Money, you are entitled to one vote for each share you own. For each bond
fund, the number of votes you are entitled to is based upon the dollar
value of your investment.
FMR AND ITS AFFILIATES
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $328 billion
(solid bullet) Number of shareholder
accounts: over 22 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FTX, located in Irving Texas, has primary
responsibility for providing investment management services for Spartan
Municipal Money.
Norman Lind is manager and Vice President of Spartan Short-Intermediate
Municipal and Spartan Intermediate Municipal, both of which he has managed
since October 1995. Mr. Lind also manages Advisor Short-Intermediate
Tax-Exempt, New York Tax-Free High Yield, New York Tax-Free Insured,
Spartan New York Intermediate Municipal, and Spartan New York Municipal
High Yield. Previously, he managed Spartan Municipal Income, and he served
as a municipal research analyst. Mr. Lind joined Fidelity in 1986.
David Murphy is manager and Vice President of Spartan Municipal Income,
which he has managed since October 1995. Mr. Murphy also manages High Yield
Tax-Free, Limited Term Municipals, Advisor Limited Term Tax-Exempt: Class
A, and Advisor Limited Term Tax-Exempt: Institutional Class. Previously, he
managed Spartan Short-Intermediate Municipal, Spartan Intermediate
Municipal, Spartan New Jersey Municipal High Yield, Spartan New York
Intermediate Municipal, and Advisor Short-Intermediate Tax-Exempt. Mr.
Murphy joined Fidelity in 1989.
Tanya Roy is manager of Spartan Aggressive Municipal, which she has managed
since October 1995. Ms. Roy also manages Advisor High Income Municipal and
Aggressive Tax-Free. Previously, she managed Municipal Bond and was a
municipal bond analyst. Ms. Roy joined Fidelity in 1989.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR and FTX. Members of the
Edward C. Johnson 3d family are the predominant owners of a class of shares
of common stock representing approximately 49% of the voting power of FMR
Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of a
company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with respect
to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for the funds. It is located at 1010 Grand Avenue,
Kansas City, Missouri.
To carry out the funds' transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that a fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
EACH FUND seeks high current income that is free from federal income tax.
Their strategies and levels of risk in pursuing this objective are
different.
SPARTAN MUNICIPAL MONEY seeks to maintain a $1.00 share price by investing
in high-quality, short-term municipal securities of all types. The fund
normally invests so that at least 80% of its income is free from federal
income tax.
When you sell your shares, they should be worth the same amount as when you
bought them. Of course, there is no guarantee that the fund will maintain a
stable $1.00 share price. The fund follows industry-standard guidelines on
the quality and maturity of its investments, which are designed to help
maintain a stable $1.00 share price. The fund will purchase only
high-quality securities that FMR believes present minimal credit risks and
will observe maturity restrictions on securities it buys. In general,
securities with longer maturities are more vulnerable to price changes,
although they may provide higher yields. It is possible that a major change
in interest rates or a default on the fund's investments could cause its
share price (and the value of your investment) to change.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL stresses preservation of capital by
investing in securities judged by FMR to be of equivalent quality to those
rated A or better by a nationally recognized rating service. Although the
fund can invest in securities of any maturity, the fund, under normal
conditions, maintains a dollar-weighted average maturity of between two and
four years. The fund normally invests so that 80% or more of its income is
free from federal income tax.
SPARTAN INTERMEDIATE MUNICIPAL focuses on securities rated A or above by
Moody's or S&P or, if unrated, judged by FMR to be of equivalent quality.
Although the fund can invest in securities of any maturity, the fund, under
normal conditions, maintains a dollar-weighted average maturity ranging
from three to ten years. The fund normally invests so that at least 80% of
its assets are invested in municipal securities whose interest is free from
federal income tax.
SPARTAN MUNICIPAL INCOME invests primarily in municipal bonds judged by FMR
to be of investment-grade quality. Although the fund can invest in
securities of any maturity, it generally invests in medium- and long-term
bonds and maintains a dollar-weighted average maturity of 10 years or
longer. The fund normally invests so that at least 80% of its income is
free from federal income tax.
SPARTAN AGGRESSIVE MUNICIPAL invests at least 65% of its total assets in
securities rated A or lower by Moody's or S&P or, if unrated, judged by FMR
to be of equivalent quality. Although the fund can invest in securities of
any maturity, it generally invests in medium- and long-term bonds and
maintains a dollar-weighted average maturity of 10 years or longer. The
fund normally invests so that at least 80% of its assets are invested in
municipal securities whose interest is free from federal income tax.
The money market fund stresses income, preservation of capital, and
liquidity. The bond funds seek to provide a higher level of income by
investing in a broader range of securities. Each fund's yield and each bond
fund's share price change daily and are based on interest rates, market
conditions, other economic and political news, and on the quality and
maturity of its investments. In general, bond prices rise when interest
rates fall, and vice versa. This effect is usually more pronounced for
longer-term securities. Lower-quality securities offer higher yields, but
also carry more risk. FMR may use various investment techniques to hedge a
portion of the bond funds' risks, but there is no guarantee that these
strategies will work as intended. When you sell your shares of the bond
funds, they may be worth more or less than what you paid for them.
If you are subject to the federal alternative minimum tax, you should note
that each fund may invest all of its assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations. Each fund also reserves the right to invest without limitation
in short-term instruments, to hold a substantial amount of uninvested cash,
or to invest more than normally permitted in federally taxable obligations
for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about the funds' investments are contained in the funds' SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Current holdings and recent investment strategies are described in each
fund's financial reports which are sent to shareholders twice a year. For a
free SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Investment-grade debt securities are medium- and high-quality securities.
Some, however, may possess speculative characteristics and may be more
sensitive to economic changes and to changes in the financial condition of
issuers.
Lower-quality debt securities (sometimes called "municipal junk bonds") are
considered to have speculative characteristics, and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness,
or they may already be in default. The market prices of these securities
may fluctuate more than higher-quality securities and may decline
significantly in periods of general or regional economic difficulty.
The tables on page provide a summary of ratings assigned to debt holdings
(not including money market instruments) in Spartan Municipal Income's and
Spartan Aggressive Municipal's portfolio. These figures are dollar-weighted
averages of month-end portfolio holdings during fiscal 1995, and are
presented as a percentage of total security investments. These percentages
are historical and do not necessarily indicate a fund's current or future
debt holdings.
SPARTAN MUNICIPAL INCOME
FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC.
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa 30.01% AAA 27.28%
High quality Aa 15.60% AA 18.26%
Upper-medium grade A 16.63% A 18.15%
Medium grade Baa 16.95% BBB 11.28%
LOWER QUALITY
Moderately speculative Ba 1.66% BB 4.84%
Speculative B 0.04% B 0.17%
Highly speculative Caa 0.00% CCC 0.00%
Poor quality Ca 0.00% CC 0.00%
Lowest quality, no interest C C
In default, in arrears -- 0.00% D 0.00%
80.89% 79.98%
SPARTAN AGGRESSIVE MUNICIPAL
FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S S TANDARD & POOR'S
INVESTORS SERVICE, INC.
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa 18.37% AAA 17.02%
High quality Aa 5.20% AA 3.64%
Upper-medium grade A 6.88% A 10.83%
Medium grade Baa 15.34% BBB 16.89%
LOWER QUALITY
Moderately speculative Ba 14.04% BB 12.78%
Speculative B 0.00% B 1.70%
Highly speculative Caa 0.00% CCC 0.00%
Poor quality Ca 0.00% CC 0.00%
Lowest quality, no interest C C
In default, in arrears -- 0.00% D 0.00%
59.83% 62.86%
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO 11.93% AND 23.05% FOR SPARTAN MUNICIPAL INCOME AND
SPARTAN AGGRESSIVE MUNICIPAL, RESPECTIVELY. THIS MAY INCLUDE SECURITIES
RATED BY OTHER NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED
SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES THAT ARE
LOWER-QUALITY ACCOUNT FOR 10.58% AND 20.64% OF SPARTAN MUNICIPAL
INCOME'S AND SPARTAN AGGRESSIVE MUNICIPAL'S TOTAL SECURITY INVESTMENTS,
RESPECTIVELY. REFER TO THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION FOR A
MORE COMPLETE DISCUSSION OF THESE RATINGS.
RESTRICTIONS: For Spartan Short-Intermediate Municipal purchase of a debt
security is consistent with the fund's debt quality policy if it is rated
at or above the stated level by Moody's or rated in the equivalent
categories by any other nationally recognized rating service, or is unrated
but judged to be of equivalent quality by FMR. The fund currently intends
to limit its investments in debt securities to those of Baa-quality or
above. For Spartan Intermediate Municipal, purchase of a debt security is
consistent with the fund's debt quality policy if it is rated at or above
the stated level by Moody's or in the equivalent categories by S&P. The
fund currently intends to limit its investments in lower than A-quality
debt securities to 40% of its total assets and in lower than Baa-quality
debt securities to 5% of its assets. Spartan Municipal Income may not
invest more than one-third of its assets in lower-quality bonds, and does
not intend to invest in those rated below B by Moody's or S&P. Spartan
Aggressive Municipal does not currently intend to invest more than 10% of
its total assets in bonds that are in default.
MONEY MARKET SECURITIES are high-quality, short-term obligations
issued by municipalities, local and state governments, and other entities.
These obligations may carry fixed, variable, or floating interest rates.
Some money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial assets
so that they are eligible investments for money market funds. If the
structure does not perform as intended, adverse tax or investment
consequences may result.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. A security's credit may be
enhanced by a bank, insurance company, or other entity. The value of some
or all municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the
taxation of municipal securities or the rights of municipal securities
holders. A fund may own a municipal security directly or through a
participation interest.
ASSET-BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by municipalities. These
securities usually rely on continued payments by a municipality, and may
also be subject to prepayment risk.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
RESTRICTIONS: The money market fund may not purchase certain types of
variable and floating rate securities which are inconsistent with the
fund's goal of maintaining a stable share price.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
OTHER MUNICIPAL SECURITIES may include obligations of U.S. territories and
possessions such as Guam, the Virgin Islands, and Puerto Rico, and their
political subdivisions and public corporations.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or a financial intermediary. In exchange for this benefit, the funds may
pay periodic fees or accept a lower interest rate. The credit quality of
the investment may be affected by the creditworthiness of the put provider.
Demand features, standby commitments, and tender options are types of put
features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, entering into swap agreements, and purchasing indexed
securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
RESTRICTIONS: The money market fund may not use investment techniques which
are inconsistent with the fund's goal of maintaining a stable share price.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield or the market value of its assets.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: With respect to 75% of total assets, Spartan Municipal Money
may not invest more than 5% of its total assets in any one issuer. Spartan
Short-Intermediate Municipal, Spartan Intermediate Municipal, Spartan
Municipal Income, and Spartan Aggressive Municipal are all considered
non-diversified. Generally, to meet federal requirements at the close of
each quarter, a fund does not invest more than 25% of its total assets in
any one issuer and, with respect to 50% of total assets, does not invest
more than 5% of its total assets in any one issuer. These limitations do
not apply to U.S. government securities. A fund may invest more than 25% of
its total assets in tax-free securities that finance similar types of
projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a bond fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: A fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
SPARTAN MUNICIPAL MONEY seeks as high a level of federally tax-exempt
income as is consistent with the preservation of capital and liquidity. The
fund will normally invest so that at least 80% of its income is free from
federal income tax. With respect to 75% of its total assets, the fund may
not invest more than 5% of its total assets in any one issuer.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL seeks as high a level of current
income, exempt from federal income tax, as is consistent with preservation
of capital by investing primarily in short-term municipal obligations. The
fund will normally invest so that at least 80% of its income is free from
federal income tax.
SPARTAN INTERMEDIATE MUNICIPAL seeks high current income that is exempt
from federal income tax, by investing in municipal obligations. The fund
will normally invest so that at least 80% of its assets are invested in
municipal securities whose interest is free from federal income tax.
SPARTAN MUNICIPAL INCOME seeks high current income by investing primarily
in municipal securities. The fund will normally invest so that at least 80%
of its income is free from federal income tax.
SPARTAN AGGRESSIVE MUNICIPAL seeks a high current yield that is exempt from
federal income tax. The fund will normally invest so that at least 80% of
its assets are invested in municipal securities whose interest is free from
federal income tax.
EACH FUND may borrow solely for temporary or emergency purposes, but not in
an amount exceeding 33% of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to an affiliate who provides
assistance with these services for Spartan Municipal Money.
FMR may, from time to time, agree to reimburse the funds for management
fees above a specified limit. FMR retains the ability to be repaid by a
fund if expenses fall below the specified limit prior to the end of the
fiscal year. Reimbursement arrangements, which may be terminated at any
time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The table on
page shows the annual rate of each fund's management fee as a percentage
of average net assets for fiscal 1995.
FMR has voluntarily agreed to limit Spartan Municipal Money's total
operating expenses to an annual rate of .45% of average net assets. This
agreement will continue until December 31, 1995.
MANAGEMENT AND TRANSACTION FEES
MANAGEMENT FEES TRANSACTIONS FEES
Before After Exchang Closeout Wire Checkwriti
reimbursement reimbursemen e ng
t
Spartan .50 .40 $13,1 $3,2 $3,00 $16,4
Municipal % % 20 74 5 48
Money
Spartan Short- .55 n/a $11,5 $3,8 $770 $2,45
Intermediate % 45 06 4
Municipal
Spartan .55 .45 $3,75 $1,1 $245 $600
Intermediate % % 0 00
Municipal
Spartan .55 n/a $8,14 $2,8 $665 n/a
Municipal % 5 75
Income
Spartan .60 n/a $1,00 $215 $50 n/a
Aggressive % 0
Municipal
FMR HAS A SUB-ADVISORY AGREEMENT with FTX, which has primary responsibility
for providing investment management for Spartan Municipal Money, while FMR
retains responsibility for providing other management services. FMR pays
FTX 50% of its management fee (before expense reimbursements) for these
services.
FSC performs many transaction and accounting functions for the funds. These
services include processing shareholder transactions and calculating each
fund's share price. FMR, and not the funds, pays for these services.
To offset shareholder service costs, FMR or its affiliates also collect the
funds' $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire
purchases and redemptions, and, for Spartan Municipal Money, Spartan
Short-Intermediate Municipal, and Spartan Intermediate Municipal, the $2.00
checkwriting charge. The table above shows what these fees amounted to for
fiscal 1995.
Each fund has adopted a Distribution and Service Plan. These plans
recognize that FMR may use its resources, including management fees, to pay
expenses associated with the sale of fund shares. This may include payments
to third parties, such as banks or broker-dealers, that provide shareholder
support services or engage in the sale of the fund's shares. It is
important to note, however, that the funds do not pay FMR any separate fees
for this service.
The table below shows each fund's portfolio turnover rate for fiscal 1995.
These rates vary from year to year.
PORTFOLIO TURNOVER RATES
Spartan Municipal Money n/a
Spartan Short-Intermediate Municipal 51%
Spartan Intermediate Municipal 44%
Spartan Municipal Income 69%
Spartan Aggressive Municipal 51%
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in a fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed below.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
EACH FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. Spartan Municipal Money is managed to keep its share price
stable at $1.00. Each fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For Spartan Municipal Money $25,000
TO ADD TO AN ACCOUNT $1,000
Through automatic investment plans $500
MINIMUM BALANCE $5,000
For Spartan Municipal Money $10,000
These minimums may vary for investments through Portfolio Advisory
Services. Refer to the product materials for details.
UNDERSTANDING THE
SPARTAN APPROACH(registered trademark)
Fidelity's Spartan Approach is
based on the principle that
lower fund expenses can
increase returns. The Spartan
funds keep expenses low in
two ways. First, higher
investment minimums reduce
the effect of a fund's fixed
costs, many of which are paid
on a per-account basis.
Second, unlike most mutual
funds that include transaction
costs as part of overall fund
expenses, Spartan
shareholders pay directly for
the transactions they make.
(checkmark)
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (small solid bullet) Exchange from another (small solid bullet) Exchange from another
Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(small solid bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
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Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check
application. Make your payable to the complete
check payable to the name of the fund.
complete name of the Indicate your fund
fund of your choice. account number on
Mail to the address your check and mail to
indicated on the the address printed on
application. your account statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
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Wire (wire_graphic) (small solid bullet) There may be a $5.00 (small solid bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(small solid bullet) Call 1-800-544-7777 to (small solid bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify the complete
Bank Routing name of the fund and
#021001033, include your account
Account #00163053. number and your
Specify the complete name.
name of the fund and
include your new
account number and
your name.
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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account ($10,000 for Spartan Municipal Money) to
keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
at right.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account in Spartan Municipal Money,
Spartan Short-Intermediate Municipal, or Spartan Intermediate Municipal,
you may write an unlimited number of checks. Do not, however, try to close
out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOU SELL SHARES OF SPARTAN MUNICIPAL INCOME OR SPARTAN AGGRESSIVE MUNICIPAL AFTER
HOLDING THEM LESS THAN 180 DAYS, THE FUND WILL DEDUCT A REDEMPTION FEE EQUAL TO .50%
AND 1.00%, RESPECTIVELY, OF THE VALUE OF THOSE SHARES. IF YOUR ACCOUNT BALANCE IS LESS
THAN $50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION TRANSACTIONS: $2.00 FOR EACH
CHECK YOU WRITE AND $5.00 FOR EACH EXCHANGE, BANK WIRE, AND ACCOUNT CLOSEOUT.
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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
$100,000.
(small solid bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: $100,000.
(small solid bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (small solid bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Trust names appear on the
account.
(small solid bullet) The trustee must sign the
letter indicating capacity as
Business or trustee. If the trustee's name
Organization is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
(small solid bullet) At least one person
Executor, authorized by corporate
Administrator, resolution to act on the
Conservator, account must sign the letter.
Guardian (small solid bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(small solid bullet) Call 1-800-544-6666 for
instructions.
Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire
feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
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Check (check_graphic) All account types (small solid bullet) Minimum check: $1,000.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of the funds, unless you place your transaction on
Fidelity's automated exchange services.
Note that exchanges out of a fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (small solid bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (small solid bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(small solid bullet) Changes require a new authorization
form.
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FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (small solid bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (small solid bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
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A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THOSE FUNDS MAY NOT BE
APPROPRIATE CHOICES FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains, if any, to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains earned by the bond funds are
normally distributed in October and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. Each fund offers four
options (three for Spartan Municipal Money):
1. REINVESTMENT OPTION. Your dividend and capital gain distributions, if
any, will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. INCOME-EARNED OPTION. Your capital gain distributions, if any, will be
automatically reinvested, but you will be sent a check for each dividend
distribution. This option is not available for Spartan Municipal Money.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions, if any, will be automatically invested in
another identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions, if any, will be reinvested at the NAV as
of the date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the funds' tax implications.
TAXES ON DISTRIBUTIONS. Interest income that a fund earns is distributed to
shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
A portion of a fund's dividends may be free from state or local taxes.
Income from investments in your state are often tax-free to you. Each year,
Fidelity will send you a breakdown of your fund's income from each state to
help you calculate your taxes.
During fiscal 1995, 100% of each fund's income dividends was free from
federal income tax and 77.42%, 21.86%, 32.64%, 17.87%, and 23.93% of
Spartan Municipal Money's, Spartan Short-Intermediate Municipal's, Spartan
Intermediate Municipal's, Spartan Municipal Income's, and Spartan
Aggressive Municipal's income dividends, respectively, were subject to the
federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to
other Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a fund deducts a capital
gain distribution from its NAV, you will pay the full price for the shares
and then receive a portion of the price back in the form of a taxable
distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The money market fund values the securities it owns on the basis of
amortized cost. This method minimizes the effect of changes in a security's
market value and helps the fund to maintain a stable $1.00 share price. For
the bond funds, assets are valued primarily on the basis of market
quotations, if available. Since market quotations are often unavailable,
assets are usually valued by a method that the Board of Trustees believes
accurately reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUNDS THROUGH A BROKER, who may charge
you a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
THE REDEMPTION FEE for Spartan Municipal Income and Spartan Aggressive
Municipal, if applicable, will be deducted from the amount of your
redemption. This fee is paid to the fund rather than FMR, and it does not
apply to shares that were acquired through reinvestment of distributions.
If shares you are redeeming were not all held for the same length of time,
those shares you held longest will be redeemed first for purposes of
determining whether the fee applies.
THE FEES FOR INDIVIDUAL TRANSACTIONS are waived if your account balance at
the time of the transaction is $50,000 or more. Otherwise, you should note
the following:
(small solid bullet) The $2.00 checkwriting charge will be deducted from
your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the amount of
your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $60.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. The fee will not be
deducted from retirement accounts (except non-prototype retirement
accounts), accounts using regular investment plans, or if total assets in
Fidelity funds exceed $50,000. Eligibility for the $50,000 waiver is
determined by aggregating Fidelity mutual fund accounts maintained by FSC
or FBSI which are registered under the same social security number or which
list the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($10,000 for Spartan Municipal
Money), you will be given 30 days' notice to reestablish the minimum
balance. If you do not increase your balance, Fidelity reserves the right
to close your account and send the proceeds to you. Your shares will be
redeemed at the NAV on the day your account is closed and the $5.00 account
closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of a fund for
shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be registered
for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each fund reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
This prospectus is printed on recycled paper using soy-based inks.
Spartan Bond Strategist
(A Fund of Fidelity School Street Trust)
Spartan Municipal Income Fund
(A Fund of Fidelity Union Street Trust)
FORM N-14
STATEMENT OF ADDITIONAL INFORMATION
October 21, 1996
This Statement of Additional Information, relates to the proposed
reorganization whereby Spartan Municipal Income Fund (Municipal Income), a
Fund of Fidelity Union Street Trust, would acquire substantially all of the
assets of Spartan Bond Strategist (Bond Strategist), a Fund of Fidelity
School Street Trust, and assume all of Bond Strategist's liabilities in
exchange solely for shares of beneficial interest in Municipal Income.
This Statement of Additional Information consists of this cover page and
the following described documents, each of which is attached hereto and
incorporated herein by reference:
1. The Statement of Additional Information (SAI) of Spartan Municipal
Income Fund, dated October 23, 1995 and the Supplement to the SAI dated
February 20, 1996.
2. The Prospectus and Statement of Additional Information of Spartan Bond
Strategist, dated February 20, 1996 and the Supplement to the Prospectus
dated July 19, 1996.
3. The Annual Report of Spartan Municipal Income Fund for the fiscal year
ended August 31, 1995.
4. The Annual Report of Spartan Bond Strategist for the fiscal year ended
December 31, 1995.
5. The Semiannual Report of Spartan Municipal Income Fund for the fiscal
period ended February 29, 1996.
6. The Semiannual Report of Spartan Bond Strategist for the fiscal period
ended June 30, 1996.
This Statement of Additional Information is not a prospectus. A Proxy
Statement and Prospectus dated October 21, 1996, relating to the
above-referenced matter may be obtained from Fidelity Distributors
Corporation, 82 Devonshire Street, Boston, Massachusetts, 02109. This
Statement of Additional Information relates to, and should be read in
conjunction with, such Proxy Statement and Prospectus.
The date of this Statement of Additional Information is October 21, 1996.
SUPPLEMENT TO THE
SPARTAN(Registered trademark) MUNICIPAL FUNDS'
STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 25, 1995
ON FEBRUARY 20, 1996, SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND CHANGED ITS
NAME TO SPARTAN SHORT-INTERMEDIATE MUNICIPAL INCOME FUND, SPARTAN
INTERMEDIATE MUNICIPAL FUND CHANGED ITS NAME TO SPARTAN INTERMEDIATE
MUNICIPAL INCOME FUND, AND SPARTAN MUNICIPAL INCOME PORTFOLIO CHANGED ITS
NAME TO SPARTAN MUNICIPAL INCOME FUND.
The following information replaces the similar information found in the
"Performance" section beginning on page 17:
<TABLE>
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1996 TAX RATES AND TAX-EQUIVALENT YIELDS
Federal If individual tax-exempt yield is:
Taxable Income* Tax 2% 3% 4% 5% 6% 7% 8%
Single Return Joint Return Bracket** Then taxable equivalent yield is
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
$ 58,151 - $ 121,300 $ 96,901 - $ 147,700 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
$ 121,301 - $ 263,750 $ 147,701 - $ 263,750 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
$ 263,751 and above $ 263,751 and above 39.6% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
SPARTAN(Registered trademark) MUNICIPAL FUNDS
SPARTAN MUNICIPAL MONEY FUND
A FUND OF FIDELITY UNION STREET TRUST II
SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND
SPARTAN INTERMEDIATE MUNICIPAL FUND
SPARTAN MUNICIPAL INCOME PORTFOLIO
SPARTAN AGGRESSIVE MUNICIPAL FUND
FUNDS OF FIDELITY UNION STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 25, 1995
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated October 25, 1995 ). Please
retain this document for future reference. Each fund's financial statements
and financial highlights, included in its Annual Report for the fiscal year
ended August 31, 1995 , are incorporated herein by reference. To
obtain an additional copy of the Prospectus or an Annual Report, please
call Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 15
Valuation of Portfolio Securities 16
Performance 17
Additional Purchase and Redemption Information 23
Distributions and Taxes 23
FMR 24
Trustees and Officers 25
Management Contracts
Distribution and Service Plans
Contracts with FMR Affiliates
Description of the Trusts
Financial Statements 34
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FTX) (Spartan Municipal Money)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB )
and Fidelity Service Co. (FSC)
SMU -ptb-1095
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
Each fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations listed below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN MUNICIPAL MONEY FUND
(SPARTAN MUNICIPAL MONEY)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government, or any of its agencies or instrumentalities) if, as a result
thereof, (a) more than 5% of the fund's total assets would be invested in
the securities of that issuer, or (b) the fund would hold more than 10% of
the outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short;
(4) purchase securities on margin, except that the fund may obtain such
short-term credits as are necessary for the clearance of transactions;
(5) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(6) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(7) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(8) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(9) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; or
(10) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (for this purpose,
purchasing debt securities and engaging in repurchase agreements do not
constitute lending).
(11) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to purchase the voting securities of
any issuer.
(ii) The fund does not currently intend to sell securities short.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (5)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to invest in interests in real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(vi) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vii) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of Business
Enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
(xii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (1) and (7), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (x), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the money market fund's policies on quality and maturity, see the
section entitled "Quality and Maturity" on page .
INVESTMENT LIMITATIONS OF SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND
(SPARTAN SHORT-INTERMEDIATE MUNICIPAL)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of debt securities or to repurchase
agreements).
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale because they cannot be sold or disposed
of in the ordinary course of business at approximately the prices at which
they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(viii) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(ix) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
(x) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (4), and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
INVESTMENT LIMITATIONS OF SPARTAN INTERMEDIATE MUNICIPAL FUND
(SPARTAN INTERMEDIATE MUNICIPAL)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest in interests in real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(vii) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be interested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 5% of the fund's net assets. Included
in that amount, but not to exceed 2% of the fund's net assets may be
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the fund in units or attached to
securities are not subject to these restrictions.
(xi) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (ix), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
INVESTMENT LIMITATIONS OF SPARTAN MUNICIPAL INCOME PORTFOLIO
(SPARTAN MUNICIPAL INCOME)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest in interests in real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(vii) The fund does not currently intend to purchase or sell futures
contracts on physical commodities.
(viii) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to purchases
of debt securities.
(ix) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(x) The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(xi) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
INVESTMENT LIMITATIONS OF SPARTAN AGGRESSIVE MUNICIPAL FUND
(SPARTAN AGGRESSIVE MUNICIPAL)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest in interests in real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(vii) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger
(ix) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 5% of the fund's net assets. Included
in that amount, but not to exceed 2% of the fund's net assets, may be
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the fund in units or attached to
securities are not subject to these restrictions.
(xi) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (ix), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page .
Each fund's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the funds.
AFFILIATED BANK TRANSACTIONS . A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS . Each fund may buy and sell securities
on a delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The bond
funds may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high-quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond funds' standards for high-quality, taxable obligations
are essentially the same as those described by Moody's Investors Service,
Inc. (Moody's) in rating corporate obligations within its two highest
ratings of Prime-1 and Prime-2, and those described by Standard & Poor's
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2. The money market fund will purchase taxable obligations only if
they meet its quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before state legislatures that
would affect the state tax treatment of the funds' distributions. If such
proposals were enacted, the availability of municipal obligations and the
value of the funds' holdings would be affected and the Trustees would
re-evaluate the funds' investment objectives and policies.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, OTC Options, Purchasing Put and Call Options, and
Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS . The funds will
comply with guidelines established by the Securities and Exchange
Commission with respect to coverage of options and futures strategies by
mutual funds, and if the guidelines so require will set aside appropriate
liquid assets in a segregated custodial account in the amount prescribed.
Securities held in a segregated account cannot be sold while the futures or
option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a
large percentage of a fund's assets could impede portfolio management or
the fund's ability to meet redemption requests or other current
obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and option premiums.
In addition, each fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, may be
changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
For the money market fund, FMR may determine some restricted securities and
municipal lease obligations to be illiquid.
For the bond funds, investments currently considered to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments for the money
market fund are valued for purposes of monitoring amortized cost valuation,
and for the bond funds are priced at fair value as determined in good faith
by a committee appointed by the Board of Trustees. If through a change in
values, net assets, or other circumstances, a fund were in a position where
more than 10% of its net assets was invested in illiquid securities, it
would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING PROGRAM. Pursuant to an exemptive order issued by the
SEC, each fund has received permission to lend money to, and borrow money
from, other funds advised by FMR or its affiliates, but will participate in
the interfund borrowing program only as a borrower. Interfund borrowings
normally extend overnight, but can have a maximum duration of seven days. A
fund will borrow through the program only when the costs are equal to or
lower than the costs of bank loans. Loans may be called on one day's
notice, and a fund may have to borrow from a bank at a higher interest rate
if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. Spartan Municipal Income and Spartan
Aggressive Municipal may invest a portion of their assets in lower-quality
municipal securities as described in the Prospectus.
While the market for municipals is considered to be substantial, adverse
publicity and changing investor perceptions may affect the ability of
outside pricing services used by a fund to value its portfolio securities,
and the fund's ability to dispose of lower-quality bonds. The outside
pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be affected
by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the fund.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES INDUSTRY. The electric utilities industry has been
experiencing, and will continue to experience, increased competitive
pressures. Federal legislation in the last two years will open transmission
access to any electricity supplier, although it is not presently known to
what extent competition will evolve. Other risks include: (a) the
availability and cost of fuel, (b) the availability and cost of capital,
(c) the effects of conservation on energy demand, (d) the effects of
rapidly changing environmental, safety, and licensing requirements, and
other federal, state, and local regulations, (e) timely and sufficient rate
increases, and (f) opposition to nuclear power.
HEALTH CARE INDUSTRY. The health care industry is subject to regulatory
action by a number of private and governmental agencies, including federal,
state, and local governmental agencies. A major source of revenues for the
health care industry is payments from the Medicare and Medicaid programs.
As a result, the industry is sensitive to legislative changes and
reductions in governmental spending for such programs. Numerous other
factors may affect the industry, such as general and local economic
conditions; demand for services; expenses (including malpractice insurance
premiums); and competition among health care providers. In the future, the
following elements may adversely affect health care facility operations:
adoption of legislation proposing a national health insurance program;
other state or local health care reform measures; medical and technological
advances which dramatically alter the need for health services or the way
in which such services are delivered; changes in medical coverage which
alter the traditional fee-for-service revenue stream; and efforts by
employers, insurers, and governmental agencies to reduce the costs of
health insurance and health care services.
EDUCATION. In general, there are two types of education-related bonds;
those issued to finance projects for public and private colleges and
universities, and those representing pooled interests in student loans.
Bonds issued to supply educational institutions with funds are subject to
the risk of unanticipated revenue decline, primarily the result of
decreasing student enrollment or decreasing state and federal funding.
Among the factors that may lead to declining or insufficient revenues are
restrictions on students' ability to pay tuition, availability of state and
federal funding, and general economic conditions. Student loan revenue
bonds are generally offered by state (or substate) authorities or
commissions and are backed by pools of student loans. Underlying student
loans may be guaranteed by state guarantee agencies and may be subject to
reimbursement by the United States Department of Education through its
guaranteed student loan program. Others may be private, uninsured loans
made to parents or students which are supported by reserves or other forms
of credit enhancement. Recoveries of principal due to loan defaults may be
applied to redemption of bonds or may be used to re-lend, depending on
program latitude and demand for loans. Cash flows supporting student loan
revenue bonds are impacted by numerous factors, including the rate of
student loan defaults, seasoning of the loan portfolio, and student
repayment deferral periods of forbearance. Other risks associated with
student loan revenue bonds include potential changes in federal legislation
regarding student loan revenue bonds, state guarantee agency reimbursement
and continued federal interest and other program subsidies currently in
effect.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the funds will not
hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
PUT FEATURES entitle the holder to sell a security back to the issuer or a
third party at any time or at specified intervals. They are subject to the
risk that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other
entities. Demand features, standby commitments, and tender options are
types of put features.
QUALITY AND MATURITY ( MONEY MARKET FUND ONLY ). Pursuant to
procedures adopted by the Board of Trustees, the fund may purchase only
high-quality securities that FMR believes present minimal credit risks. To
be considered high-quality, a security must be rated in accordance with
applicable rules in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by
one, if only one rating service has rated the security); or, if unrated,
judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1 or SP-1), and second tier
securities are those deemed to be in the second highest rating category
(e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued basis
in connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts require the issuer to sell and the fund to buy refunded
municipal obligations at a stated price and yield on a settlement date that
may be several months or several years in the future. A fund generally will
not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). A fund may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract. When required by
SEC guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, Spartan Municipal Money anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or another entity in determining whether to purchase a
security supported by a letter of credit guarantee, insurance or other
source of credit or liquidity.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal instruments, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit a fund to sell them at
par value plus accrued interest on short notice.
In many instances bonds and participation interests have tender options or
demand features that permit a fund to tender (or put) the bonds to an
institution at periodic intervals and to receive the principal amount
thereof. A fund considers variable rate instruments structured in this way
(Participating VRDOs) to be essentially equivalent to other VRDOs it
purchases. The IRS has not ruled whether the interest on Participating
VRDOs is tax-exempt and, accordingly, a fund intends to purchase these
instruments based on opinions of bond counsel. A fund may also invest in
fixed-rate bonds that are subject to third party puts and in participation
interests in such bonds held by a bank in trust or otherwise.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
management contract. In the case of the money market, FMR has
granted investment management authority to the sub-adviser (see the section
entitled "Management Contracts"), and the sub-adviser is authorized to
place orders for the purchase and sale of portfolio securities, and will do
so in accordance with the policies described below. FMR is also responsible
for the placement of transaction orders for other investment companies and
accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by the money market fund generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
fund are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For the fiscal years ended August 31, 1995 and 1994, the portfolio turnover
rates amounted to:
1995 1994
Spartan Short-Intermediate Municipal 51% 44%
Spartan Intermediate Municipal 44% 69%
Spartan Municipal Income 69% 48%
Spartan Aggressive Municipal 51% 64%
For fiscal 1995, 1994, and 1993, the funds paid no brokerage commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
SPARTAN SHORT-INTERMEDIATE MUNICIPAL, SPARTAN INTERMEDIATE MUNICIPAL,
SPARTAN MUNICIPAL INCOME, AND SPARTAN AGGRESSIVE MUNICIPAL. Valuations of
portfolio securities furnished by the pricing service employed by the funds
are based upon a computerized matrix system or appraisals by the pricing
service, in each case in reliance upon information concerning market
transactions and quotations from recognized municipal securities dealers.
The methods used by the pricing service and the quality of valuations so
established are reviewed by officers of the funds and FSC under the general
supervision of the Board of Trustees. There are a number of pricing
services available, and the Trustees, or officers acting on behalf of the
Trustees, on the basis of on-going evaluation of these services, may use
other pricing services or discontinue the use of any pricing service in
whole or in part. Futures contracts and options are valued on the basis of
market quotations if available.
SPARTAN MUNICIPAL MONEY. The fund values its investments on the basis of
amortized costs. This technique involves valuing an instrument at its cost
as adjusted for amortization of premium or accretion of discount rather
than its value based on current market quotations or appropriate
substitutes which reflect current market conditions. The amortized cost
value of an instrument may be higher or lower than the price the fund would
receive if it sold the instrument.
Valuing the fund's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the
Investment Company Act of 1940. The fund must adhere to certain conditions
under Rule 2a-7.
The Board of Trustees of the trust oversees FMR's adherence to SEC rules
concerning money market funds, and has established procedures designed to
stabilize the fund's NAV at $1.00. At such intervals as they deem
appropriate, the Trustees consider the extent to which NAV calculated by
using market valuations would deviate from $1.00 per share. If the Trustees
believe that a deviation from Spartan Municipal Money's amortized cost per
share may result in material dilution or other unfair results to
shareholders, the Trustees have agreed to take such corrective action, if
any, as they deem appropriate to eliminate or reduce, to the extent
reasonably practicable, the dilution or unfair results. Such corrective
action could include selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity;
withholding dividends; redeeming shares in kind; establishing NAV by using
available market quotations; and such other measures as the Trustees may
deem appropriate.
During periods of declining interest rates, the money market fund's yields
based on amortized cost may be higher than the yields based on market
valuations. Under these circumstances, a shareholder in the fund would be
able to obtain a somewhat higher yield than would result if the fund
utilized market valuations to determine its NAV. The converse would apply
in a period of rising interest rates.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. A bond fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of a bond fund's shares when redeemed may
be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market fund
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond funds, yields are computed by dividing a fund's interest
income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive dividends during the period,
dividing this figure by a fund's net asset value per share (NAV) at the end
of the period, and annualizing the result (assuming compounding of income)
in order to arrive at an annual percentage rate. Yields do not reflect
Spartan Municipal Income's .50% redemption fee , or Spartan
Aggressive Municipal's 1.00% redemption fee , which apply to shares
held less than 180 days. Income is calculated for purposes of the bond
funds' yield quotations in accordance with standardized methods applicable
to all stock and bond funds. In general, interest income is reduced with
respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount
to daily income. Capital gains and losses generally are excluded from the
calculation.
Income calculated for the purposes of determining each bond fund's yield
differs from income as determined for other accounting purposes. Because of
the different accounting methods used, and because of the compounding of
income assumed in yield calculations, each bond fund's yield may not equal
its distribution rate, the income paid to your account, or the income
reported in the fund's financial statements.
In calculating a bond fund's yield, the fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in order
to reflect the risk premium on that security. This practice will have the
effect of reducing the fund's yield.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates a fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a fund's yield by
the result of one minus a stated federal or combined federal and state tax
rate. If only a portion of a fund's yield is tax-exempt, only that portion
is adjusted in the calculation.
The following table shows the effect of a shareholder's tax status on
effective yield under federal income tax laws for 1995. It shows the
approximate yield a taxable security must provide at various income
brackets to produce after-tax yields equivalent to those of hypothetical
tax-exempt obligations yielding from 2% to 8%. Of course, no assurance can
be given that a fund will achieve any specific tax-exempt yield. While the
funds invest principally in obligations whose interest is exempt from
federal income tax, other income received by the funds may be taxable.
1995 TAX RATES AND TAX-EQUIVALENT YIELDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal If individual tax-exempt yield is:
Taxable Income* Tax 2% 3% 4% 5% 6% 7% 8%
Single Return Joint Return Bracket** Then taxable-equivalent yield is
$23,351 - $56,550 $39,001 - $94,250 28% 2.78% 4.17% 5.56% 6.94% 8.33% 9.72% 11.11%
$56,551 - 117,950 $94,251 - $143,600 31% 2.90% 4.35% 5.80% 7.25% 8.70% 10.14% 11.59%
$117,951 - $256,500 $143,601 - $256,500 36% 3.13% 4.69% 6.25% 7.81% 9.38% 10.94% 12.50%
$256,501 and above $256,501 and above 39.6% 3.31% 4.97% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
A fund may invest a portion of its assets in obligations that are subject
to federal income tax. When a fund invests in these obligations, its
tax-equivalent yields will be lower. In the table above, tax-equivalent
yields are calculated assuming investments are 100% federally tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may or may not include the effect of
Spartan Municipal Income's .50% or Spartan Aggressive Municipal's 1.00%
redemption fee on shares held less than 180 days. Excluding a fund's
redemption fee from a total return calculation produces a higher total
return figure. Total returns, yields, and other performance information may
be quoted numerically or in a table, graph, or similar illustration, and
may omit or include the effect of the $5.00 account closeout fee.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following table shows the money market
fund's 7-day yield, each bond fund's 30-day yield , and
the funds' tax-equivalent yields and total returns fo r the
periods ended August 31, 1995. Total return figures include the
effect of t he $5.00 account closeout fee based on an average size
account, but not Spartan Municipal Income's and Spartan Aggressive
Municipal's .50% and 1.00% redemption fees, respectively, applicable
to shares held less than 180 days.
The tax-equivalent yield for a fund is based on a 36% federal income tax
rate. Note that each fund may invest in securities whose income is subject
to the federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
7-Day 30-Day Tax
Equivalen One Five Life of One Five Life of
t
Yield Yield Yield Year Years Fund** Year Years Fund**
Spartan Municipal 3.48% n/a 5.44% 3.59% n/a 3.39% 3.59% n/a 16.69%
Money *
Spartan n/a 4.21% 6.58% 5.94% 6.22% 5.20% 5.94% 35.21% 55.36%
Short-Intermediate
Municipal
Spartan Intermediate n/a 4.94% 7.72% 7.49% n/a 5.61% 7.49% n/a 13.69%
Municipal*
Spartan Municipal n/a 5.49% 8.58% 8.19% 8.64% 8.37% 8.19% 51.35% 52.50%
Income
Spartan Aggressive n/a 6.06% 9.47% 7.96% n/a 6.05% 7.96% n/a 14.74%
Municipal
</TABLE>
* If FMR had not reimbursed certain fund expenses during these periods,
Spartan Municipal Money's and Spartan Intermediate Municipal's yield and
tax-equivalent yield would have been 3.38% and 5.28%, and 4.84% and 7.56%,
respectively, and the total returns would have been lower.
** From commencement of operations: Spartan Municipal Money - January 14,
1991; Spartan Short-Intermediate Municipal - December 24, 1986; Spartan
Intermediate Municipal - April 26, 1993; Spartan Municipal Income - June 4,
1990; Spartan Aggressive Municipal - April 29, 1993.
The following tables show the income and capital elements of each fund's
cumulative total return. The tables compare each fund's return to the
record of the Standard & Poor's Composite Index of 500 Stocks (S&P
500(registered trademark)), the Dow Jones Industrial Average (DJIA), and
the cost of living (measured by the Consumer Price Index, or CPI) over the
same period. The CPI information is as of the month end closest to the
initial investment date for each fund. The S&P 500 and DJIA comparisons are
provided to show how each fund's total return compared to the record of a
broad average of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Of course, since
Spartan Municipal Money invests in short-term fixed income securities and
the other fund's invest in fixed-income securities, common stocks represent
a different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally experience
greater price volatility, which means greater potential for loss. In
addition, common stocks generally provide lower income than a fixed-income
investment such as the funds. Figures for the S&P 500 and DJIA are based on
the prices of unmanaged groups of stocks and, unlike the funds' returns, do
not include the effect of paying brokerage commissions or other costs of
investing.
SPARTAN MUNICIPAL MONEY FUND. During the period from January 14,
1991 (commencement of operations) to August 31, 1995, a hypothetical
$10,000 investment in S part an Municipal Money Fund would have grown
to $11,670, assuming all distributions were reinvested. This was a period
of fluctuating interest rates and bond prices and the figures below should
not be considered representative of the dividend income or capital gain or
loss that could be realized from an investment in the fund today.
SPARTAN MUNICIPAL MONEY FUND INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Period Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Value Living
August 31 $10,000 Dividend
Investment Distributions
1995 $ 10,000 $ 1,670 $ 11,670 $ 20,415 $ 21,062 $ 11,428
1994 $ 10,000 $ 1,265 $ 11,265 $ 16,810 $ 17,424 $ 11,136
1993 $ 10,000 $ 990 $ 10,990 $ 15,938 $ 15,820 $ 10,822
1992 $ 10,000 $ 705 $ 10,705 $ 13,832 $ 13,704 $ 10,531
1991* $ 10,000 $ 303 $ 10,303 $ 12,815 $ 12,431 $ 10,209
</TABLE>
* From January 14, 1991 (commencement of operations).
Explanatory Notes: With an initial investment of $10,000 made on January
14, 1991, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends for the period covered (their cash value at the time
they were reinvested), amounted to $11,670. If distributions had not been
reinvested, the amount of distributions earned from the fund over time
would have been smaller, and cash payments (dividends) for the period would
have amounted to $1,546. The fund did not distribute any capital gains
during the period. Tax consequences of different investments have not been
factored into the above figures. The figures in the table do not reflect
the effect of the fund's $5.00 account closeout fee.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL FUND. During the period from December
24, 1986 (commencement of operations) to August 31, 1995 , a
hypothetical $10,000 investment in Spartan Short-Intermediate Municipal
Fund would have grown to $15,537, assuming all distributions were
reinvested. This was a period of fluctuating interest rates and bond prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Spartan Short-Intermediate Municipal Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
August 31 Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ 9,980 $ 5,543 $ 14 $ 15,537 $ 30,050 $ 31,797 $ 13,837
1994 $ 9,840 $ 4,810 $ 14 $ 14,664 $ 24,743 $ 26,306 $ 13,484
1993 $ 10,090 $ 4,279 $ 0 $ 14,369 $ 23,460 $ 23,884 $ 13,104
1992 $ 9,840 $ 3,543 $ 0 $ 13,383 $ 20,359 $ 20,689 $ 12,751
1991 $ 9,640 $ 2,805 $ 0 $ 12,445 $ 18,863 $ 18,768 $ 12,362
1990 $ 9,450 $ 2,040 $ 0 $ 11,490 $ 14,863 $ 15,552 $ 11,910
1989 $ 9,450 $ 1,394 $ 0 $ 10,844 $ 15,644 $ 15,674 $ 11,276
1988 $ 9,470 $ 785 $ 0 $ 10,255 $ 11,236 $ 11,213 $ 10,769
1987* $ 9,660 $ 285 $ 0 $ 9,945 $ 13,666 $ 14,188 $ 10,353
</TABLE>
* From December 24, 1986 (commencement of operations).
Explanatory Notes: With an initial investment of $10,000 made on December
24, 1986, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $15,393.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $4,278 for dividends and $10 for
capital gain distributions. Tax consequences of different investments have
not been factored into the above figures. The figures in the table do not
reflect the effect of the fund's $5.00 account closeout fee.
SPARTAN INTERMEDIATE MUNICIPAL FUND. During the period from April 26, 1993
(commencement of operations) to August 31, 1 995 , a hypothetical
$10,000 investment in Spartan Intermediate Municipal Fund would have grown
to $11,370, assuming all distributions were reinvested. This was a period
of fluctuating interest rates and bond prices and the figures below should
not be considered representative of the dividend income or capital gain or
loss that could be realized from an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Spartan Intermediate Municipal Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
August 31 Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ 10,060 $ 1,270 $ 40 $ 11,370 $ 13,737 $ 14,381 $ 10,618
1994 $ 9,840 $ 697 $ 39 $ 10,576 $ 11,311 $ 11,897 $ 10,347
1993* $ 10,340 $ 182 $ 0 $ 10,522 $ 10,725 $ 10,802 $ 10,056
</TABLE>
* From April 26, 1993 (commencement of operations).
Explanatory Notes: With an initial investment of $10,000 made on April 26,
1993, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $11,295.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $1,181 for dividends and $40 for
capital gain distributions. Tax consequences of different investments have
not been factored into the above figures. The figures in the table do not
reflect the effect of the fund's $5.00 account closeout fee.
SPARTAN MUNICIPAL INCOME FUND. During the period from June 4, 1990
(commencement of operations) to August 31, 1995, a hypothetical $10,000
investment in Spartan Municipal Income Fund would have grown to $15,251,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
Spartan Municipal Income Fund INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
August 31 Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ 10,180 $ 4,182 $ 889 $ 15,251 $ 18,106 $ 18,604 $ 11,834
1994 $ 10,070 $ 3,263 $ 762 $ 14,095 $ 14,908 $ 15,391 $ 11,533
1993 $ 11,370 $ 2,790 $ 137 $ 14,297 $ 14,135 $ 13,974 $ 11,207
1992 $ 10,710 $ 1,835 $ 46 $ 12,591 $ 12,267 $ 12,105 $ 10,906
1991 $ 10,360 $ 990 $ 0 $ 11,350 $ 11,365 $ 10,981 $ 10,573
1990* $ 9,890 $ 186 $ 0 $ 10,076 $ 8,955 $ 9,099 $ 10,186
</TABLE>
* From June 4, 1990 (commencement of operations).
Explanatory Notes: With an initial investment of $10,000 made on June 4,
1990, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $15,188.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $3,491 for dividends and $740 for
capital gain distributions. Tax consequences of different investments have
not been factored into the above figures. The figures in the table do not
reflect the effect of the fund's $5.00 account closeout fee or the fund's
.50% redemption fee applicable to shares held less than 180 days.
S PARTAN AGGRESSIVE MUNICIPAL FUND . During the period from April 29,
1993 (commencement of operations) to August 31, 1995 , a
hypothetical $10,000 investment in Spartan Aggressive Municipal Fund would
have grown to $11,475, assuming all distributions were reinvested. This was
a period of fluctuating interest rates and bond prices and the figures
below should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in the fund
today.
Spartan Aggressive Municipal Fund INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Ended Value of Value of Value of Total S&P 500 DJIA Cost of
August 31 Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ 9,930 $ 1,525 $ 20 $ 11,475 $ 13,704 $ 14,378 $ 10,618
1994 $ 9,790 $ 819 $ 19 $ 10,629 $ 11,284 $ 11,895 $ 10,347
1993* $ 10,350 $ 214 $ 0 $ 10,564 $ 10,699 $ 10,800 $ 10,056
</TABLE>
* From April 29, 1993 (commencement of operations).
Explanatory Notes: With an initial investment of $10,000 made on April 29,
1993, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $11,538.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $1,414 for dividends and $20 for
capital gain distributions. Tax consequences of different investments have
not been factored into the above figures. The figures in the table do not
reflect the effect of the fund's $5.00 account closeout fee or the fund's
1.00% redemption fee applicable to shares held less than 180 days.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, a fund's performance may be
compared to stock, bond, and money market mutual fund performance indices
prepared by Lipper or other organizations. When comparing these indices, it
is important to remember the risk and return characteristics of each type
of investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND
AVERAGES(trademark)/All-Tax-Free, which is reported in the MONEY FUND
REPORT(registered trademark), covers over 389 tax-free money market funds.
The Bond Fund Report AverageS(trademark)/All-Tax-Free, which is reported in
the BOND FUND REPORT(registered trademark), covers over 569 tax-free bond
funds. When evaluating comparisons to money market funds, investors should
consider the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. Bond funds,
however, invest in longer-term instruments and their share prices change
daily in response to a variety of factors.
A fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals, including model portfolios or allocations, as
they relate to current economic and political conditions, fund management,
portfolio composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services and
products. Fidelity may also reprint, and use as advertising and sales
literature, articles from Fidelity Focus, a quarterly magazine provided
free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of August 31, 1995 , FMR advised over $26.5 billion in tax-free
fund assets, $79 billion in money market fund assets, $218 billion in
equity fund assets, $56 billion in international fund assets, and $23
billion in Spartan fund assets. The funds may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management figure
represents the largest amount of equity fund assets under management by a
mutual fund investment adviser in the United States, making FMR America's
leading equity (stock) fund manager. FMR, its subsidiaries, and affiliates
maintain a worldwide information and communications network for the purpose
of researching and managing investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1995: New Year's
Day (observed), Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day. Although FMR expects the same holiday schedule to be observed in the
future, the NYSE may modify its holiday schedule at any time. In addition,
the funds will not process wire purchases and redemptions on days when the
Federal Reserve Wire System is closed.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
Each fund purchases municipal securities that are free from federal income
tax based on opinions of bond counsel regarding their tax status. These
opinions generally will be based on covenants by the issuers or other
parties regarding continuing compliance with federal tax requirements. If
at any time the covenants are not complied with, distribution to
shareholders of interest on a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structured securities, opinions of counsel may also be based on the effect
of the structure on the federal tax treatment of the income.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the Spartan Municipal Money, Spartan
Short-Intermediate Municipal, and Spartan Municipal Income funds' policies
of investing so that at least 80% of their income is free from federal
income tax. Interest from private activity securities will be considered
tax-exempt for purposes of Spartan Intermediate Municipal and Spartan
Aggressive Municipal funds' policies of investing so that at least 80% of
their assets are invested in municipal securities whose interest is free
from federal income tax. Interest from private activity securities is a tax
preference item for the purposes of determining whether a taxpayer is
subject to the AMT and the amount of AMT to be paid, if any. Private
activity securities issued after August 7, 1986 to benefit a private or
industrial user or to finance a private facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by each fund are taxable
to shareholders as dividends, not as capital gains. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased with market discount after April 30, 1993 are not considered
income for purposes of Spartan Municipal Money, Spartan Short-Intermediate
Municipal, and Spartan Municipal Income funds' policies of investing so
that at least 80% of their income is free from federal income tax. Spartan
Municipal Money may distribute any net realized short-term capital gains
and taxable market discount once a year or more often, as necessary, to
maintain its net asset value at $1.00 per share.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of a fund, and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
each fund are taxable to shareholders as dividends, not as capital gains.
As of August 31, 1995, Spartan Municipal Money had a capital loss
carryforward aggregating approximately $73,900. This loss carryforward, of
which $900, $700, $45,800, and $26,500 will expire on August 31, 199 9,
2001, 2002, and 2003 , respectively, is available to offset
future capital gains.
The table below shows the approximate capital loss carryforward available
to offset future capital gains as of August 31, 1995 for each of the bond
funds. Each fund's loss carryforward will expire on August 31, 2003.
Spartan Spartan Spartan Spartan
Short-Intermediate Intermediate Municipal Aggressive
Municipal Municipal Income Municipal
$ 5,803,000 $ 3,556,000 $ 2,188,000 $ 1,047,000
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
each fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. Each fund intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some futures contracts and options are included in this 30%
calculation, which may limit a fund's investments in such instruments.
Spartan Municipal Money is treated as a separate entity from the other
funds of Fidelity Union Street Trust II and Spartan Short-Intermediate
Municipal, Spartan Intermediate Municipal, Spartan Municipal Income, and
Spartan Aggressive Municipal are treated as separate entities from the
other funds of Fidelity Union Street Trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trusts are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. Trustees and officers elected or
appointed to Fidelity Union Street Trust II II prior to the money market
fund's conversion from a series of a Massachusetts business trust
served Fidelity Union Street Trust in identical capacities. All persons
named as Trustees also serve in similar capacities for other funds advised
by FMR. The business address of each Trustee and officer who is an
"interested person" (as defined in the Investment Company Act of 1940) is
82 Devonshire Street, Boston, Massachusetts 02109, which is also the
address of FMR. The business address of all the other Trustees is Fidelity
Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235. Those
Trustees who are "interested persons" by virtue of their affiliation with
either the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (65), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (54), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (63), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores, 1990), and she previously
served as a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco
Brands, Inc. In addition, she is a member of the President's Advisory
Council of The University of Vermont School of Business Administration.
RICHARD J. FLYNN (71), Trustee, is a financial consultant. Prior to
September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton
Company (manufacturer of industrial devices). He is currently a Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc, and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (67), Trustee (1990). Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990),
and he previously served as a Director of NACCO Industries, Inc. (mining
and marketing, 1985-1995) and Hyster-Yale Materials Handling,
Inc.(1985-1995). In addition, he serves as a Trustee of First Union Real
Estate Investments, a Trustee and member of the Executive Committee of the
Cleveland Clinic Foundation, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (62), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Vice Chairman of the Board of Directors of the
National Arts Stabilization Fund, Vice Chairman of the Board of Trustees of
the Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (52), Trustee (1990) is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield and Society for the
Preservation of New England Antiquities, and as an Overseer of the Museum
of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (66), Trustee, is Chairman of G.M. Management Group
(strategic advisory services). Prior to his retirement in July 1988, he was
Chairman and Chief Executive Officer of Leaseway Transportation Corp.
(physical distribution services). Mr. McDonough is a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products), Brush-Wellman Inc. (metal refining), York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (70), Trustee. Prior to his retirement in 1985, Mr. Malone
was Chairman, General Electric Investment Corporation and a Vice President
of General Electric Company. He is a Director of Allegheny Power Systems,
Inc. (electric utility), General Re Corporation (reinsurance) and Mattel
Inc. (toy manufacturer). In addition, he serves as a Trustee of Corporate
Property Investors, the EPS Foundation at Trinity College, the Naples
Philharmonic Center for the Arts, and Rensselaer Polytechnic Institute, and
he is a member of the Advisory Boards of Butler Capital Corporation Funds
and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board, President,
and Chief Executive Officer of Lexmark International, Inc. (office
machines, 1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet (1990).
THOMAS R. WILLIAMS (66), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR.(56), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
NORMAN LIND (39), is manager and Vice President of Spartan
Short-Intermediate Municipal and Spartan Intermediate Municipal, both of
which he has managed since October 1995. Mr. Lind also manages Advisor
Short-Intermediate Tax-Exempt, New York Tax-Free High Yield, New York
Tax-Free Insured, Spartan New York Intermediate Municipal, and Spartan New
York Municipal High Yield. Previously, he managed Spartan Municipal Income,
and he served as a municipal research analyst. Mr. Lind joined Fidelity in
1986.
DAVID MURPHY (47), is manager and Vice President of Spartan Municipal
Income, which he has managed since October 1995. Mr. Murphy also manages
High Yield Tax-Free, Limited Term Municipals, Advisor Limited Term
Tax-Exempt: Class A, and Advisor Limited Term Tax-Exempt: Institutional
Class. Previously, he managed Spartan Short-Intermediate Municipal, Spartan
Intermediate Municipal, Spartan New Jersey Municipal High Yield, Spartan
New York Intermediate Municipal, and Advisor Short-Intermediate Tax-Exempt.
Mr. Murphy joined Fidelity in 1989.
SCOTT ORR (33), is manager and Vice President of Spartan Municipal Money
Market, which he has managed since June 1995. He also manages Institutional
Tax-Exempt Cash Portfolios, Daily Tax Exempt Money, and Spartan Arizona
Municipal Money Market. Previously he managed Connecticut Municipal Money
Market, Michigan Municipal Money Market, New Jersey Tax-Free Money Market,
Spartan Connecticut Municipal Money Market, and Spartan New Jersey
Municipal Money Market, and he served as a municipal bond analyst. Mr. Orr
joined Fidelity in 1989.
ARTHUR S. LORING (47), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995).
THOMAS D. MAHER (50), Assistant Vice President (1990), is Assistant Vice
President of Fidelity's money market funds and Vice President and Associate
General Counsel of FMR Texas Inc. (1990). Prior to 1990, Mr. Maher was an
employee of FMR.
JOHN H. COSTELLO (48), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (49), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial
Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice
President, Assistant Controller, and Director of the Accounting Department
- - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current trustee of each fund for his or her services as trustee for
the fiscal year ended August 31, 1995.
COMPENSATION TABLE
Aggregate Compensation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Gary Ralph F. Phyllis Richard Edward C. E. Donald Peter S. Gerald C. Edward Marvin L. Thomas
Burkhead** Cox Burke J. Flynn Johnson 3d** Bradley J. Kirk Lynch** McDonough H. Mann R.
Davis Jones Malone Williams
Spartan $ 0 $ 1,032 $ 994 $ 1,288 $ 0 $ 1,032 $ 1,046 $ 0 $ 1,032 $ 1,032 $ 1,032 $ 1,022
Municipal
Money
Spartan $ 0 $ 440 $ 424 $ 550 $ 0 $ 440 $ 446 $ 0 $ 440 $ 440 $ 441 $ 436
Short-Interm
ediate
Municipal
Spartan $ 0 $ 101 $ 98 $ 126 $ 0 $ 101 $ 103 $ 0 $ 101 $ 101 $ 101 $ 100
Intermediate
Municipal
Spartan $ 0 $ 266 $ 256 $ 332 $ 0 $ 266 $ 270 $ 0 $ 266 $ 266 $ 267 $ 263
Municipal
Income
Spartan $ 0 $ 27 $ 26 $ 33 $ 0 $ 27 $ 27 $ 0 $ 27 $ 27 $ 27 $ 27
Aggressive
Municipal
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Pension or Estimated Annual Total
Retirement Benefits Upon Compensation
Benefits Accrued Retirement from from the Fund
as Part of Fund the Fund Complex*
Expenses from the Complex*
Fund Complex*
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox 5,200 52,000 125,000
Phyllis Burke Davis 5,200 52,000 122,000
Richard J. Flynn 0 52,000 154,500
Edward C. Johnson 3d** 0 0 0
E. Bradley Jones 5,200 49,400 123,500
Donald J. Kirk 5,200 52,000 125,000
Peter S. Lynch** 0 0 0
Gerald C. McDonough 5,200 52,000 125,000
Edward H. Malone 5,200 44,200 128,000
Marvin L. Mann 5,200 52,000 125,000
Thomas R. Williams 5,200 52,000 126,500
</TABLE>
* Information is as December 31, 1994 for 206 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
Under a retirement program adopted in July 1988, the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments are not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-interested Trustees, receive retirement benefits under the program.
As of August 31, 1995, approximately 3.7% of Spartan Municipal Money Fund's
total outstanding shares were held by an FMR affiliate, FMR Corp. Mr.
Edward C. Johnson 3d, President and Trustee of the fund, is a member of a
group which, by virtue of its owning approximately 49% of the voting
securities of FMR Corp., may be deemed to form a controlling group with
respect to FMR Corp. Therefore, based on his membership in this group, Mr.
Edward C. Johnson 3d may be deemed to own beneficially 3.7% of the fund.
Also as of this date, with the exception of Mr. Johnson 3d's ownership of
Spartan Municipal Money Fund's shares, the Trustees and officers of the
funds owned, in the aggregate, less than 1% of each fund's total
outstanding shares.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
FMR is responsible for the payment of all expenses of each fund with
certain exceptions. Specific expenses payable by FMR include, without
limitation, expenses for the typesetting, printing, and mailing proxy
materials to shareholders; legal expenses, and the fees of the custodian,
auditor and non-interested Trustees; costs of typesetting, printing, and
mailing prospectuses and statements of additional information, notices and
reports to shareholders; each fund's proportionate share of insurance
premiums and Investment Company Institute dues. FMR also provides for
transfer agent and dividend disbursing services and portfolio and general
accounting record maintenance through FSC.
FMR pays all other expenses of each fund with the following exceptions:
fees and expenses of all Trustees of the trust who are not "interested
persons" of the trust or FMR (the non-interested Trustees); interest on
borrowings; taxes; brokerage commissions (if any); and such nonrecurring
expenses as may arise, including costs of any litigation to which a fund
may be a party, and any obligation it may have to indemnify the officers
and Trustees with respect to litigation.
FMR is Spartan Municipal Money's manager pursuant to a management contract
dated February 28, 1992. The contract was approved by Fidelity Union Street
Trust as the then sole shareholder of Spartan Municipal Money on February
28, 1992, in conjunction with an Agreement and Plan to convert the fund
from a series of a Massachusetts business trust to a series of a Delaware
trust. The Agreement and Plan of Conversion was approved by public
shareholders of the fund on December 11, 1991. Besides reflecting the
fund's conversion, the February 28, 1992 contract is identical to the
fund's prior management contract with FMR, which was approved by
shareholders on December 11, 1991.
FMR is Spartan Short-Intermediate Municipal's manager pursuant to a
management contract dated October 18, 1993. The contract was approved by
Fidelity Municipal Trust as the then sole shareholder of the fund on
October 18, 1993, in conjunction with an Agreement and Plan to convert the
fund from a series of one Massachusetts business trust to a series of
another Massachusetts business trust. The Agreement and Plan of Conversion
was approved by public shareholders of the fund on August 18, 1993. Besides
reflecting the fund's conversion, the October 18, 1993 contract is
identical to the fund's prior management contract with FMR, which was
approved by shareholders on November 13, 1991.
FMR is Spartan Municipal Income's manager pursuant to a management contract
dated April 19, 1990, which was approved by shareholders on December 12,
1990, and Spartan Intermediate Municipal's and Spartan Aggressive
Municipal's manager pursuant to management contracts dated March 18, 1993,
which were approved by FMR, the then sole shareholder of each fund on April
8, 1993.
For the services of FMR under each management contract, the funds pay FMR a
monthly management fee at the annual rate of .50% (Spartan Municipal
Money), .55% (Spartan Short-Intermediate Municipal), .55% (Spartan
Intermediate Municipal), .55% (Spartan Municipal Income), and .60% (Spartan
Aggressive Municipal) of average net assets throughout the month. The
management fee paid to FMR is reduced by an amount equal to the fees and
expenses of the non-interested Trustees. Fees received by FMR, after
reduction of fees and expenses of the non-interested Trustees, for the last
three fiscal years are shown in the following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Fiscal Spartan Spartan Spartan Spartan Spartan
Year Ended Municipal Short-Intermediate Intermediate Municipal Aggressive
August 31 Money Municipal Municipal Income Municipal
1995 $ 11,137,523 $ 5,253,000 $ 1,213,370 $ 3,224,403 $ 383,028
1994 $ 10,606,957 $ 6,100,246 $ 1,459,525 $ 4,332,192 $ 243,521
1993 $ 7,796,644 $ 2,998,716* $ 159,379** $ 4,777,234 $ 13,061***
</TABLE>
* For the eight months ended August 31, 1993
** From April 26, 1993 (commencement of operations)
*** From April 29, 1993 (commencement of operations)
FMR may, from time to time, voluntarily reimburse all or a portion of each
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase each fund's total returns and yield and repayment of
the reimbursement by each fund will lower its total returns and yield.
During the fiscal periods reported, FMR voluntarily agreed to reimburse
certain funds to the extent that the fund's aggregate operating expenses
were in excess of an annual rate of its average net assets. The tables
below identify the funds in reimbursement; the levels of and periods for
such reimbursement; and the dollar amount reimbursed by FMR, if any, for
each period.
SPARTAN MUNICIPAL MONEY:
From To Expense Limitation
August 1, 1994 - .40%
July 1, 1994 July 31, 1994 .35%
June 1, 1993 June 30, 1994 .32%
April 1, 1993 May 31, 1993 .28%
November 1, 1992 March 31, 1993 .25%
September 1, 1992 October 31, 1992 .23%
Amount of
Fiscal Year Reimbursement
1995 $2,229,935
1994 $3,602,545
1993 $3,563,280
SPARTAN SHORT-INTERMEDIATE MUNICIPAL:
From To Expense Limitation
June 1, 1994 July 31, 1994 .45%
January 10, 1994 May 31, 1994 .40%
Amount of
Fiscal Year Reimbursement
1995 $0
1994 $866,308
1993* $0
* For the eight months ended August 31, 1993
SPARTAN INTERMEDIATE MUNICIPAL:
From To Expense Limitation
February 1, 1995 - .45%
October 1, 1994 January 31, 1995 .40%
August 1, 1994 September 31, 1994 .30%
June 1, 1994 July 31, 1994 .25%
November 1, 1993 May 31, 1994 .20%
October 18, 1993 October 31, 1993 .15%
September 1, 1993 October 17, 1993 .10%
April 26, 1993 August 31, 1993 .00%
Amount of
Fiscal Year Reimbursement
1995 $289,444
1994 $916,717
1993* $159,379
* From April 26, 1993 (commencement of operations).
SPARTAN MUNICIPAL INCOME:
From To Expense Limitation
November 1, 1992 May 31, 1993 .45%
September 1, 1992 October 31, 1992 .43%
Amount of
Fiscal Year Reimbursement
1995 $0
1994 $0
1993 $708,981
To defray shareholder service costs, FMR or its affiliates also collect
each fund's $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for
wire purchases and redemptions, and Spartan Municipal Money's, Spartan
Short-Intermediate Municipal's, and Spartan Intermediate Municipal's $2.00
checkwriting charge. Spartan Municipal Income's .50% and Spartan Aggressive
Municipal's 1.00% redemption fee on shares held less than 180 days is
retained by each fund, it is not collected by FMR. Shareholder transaction
fees and charges collected by FMR are indicated in the table below.
SPARTAN MUNICIPAL MONEY
Year Ended Account Checkwriting
August 31 Exchange Fees Closeout Fees Wire Fees Charge
1995 $13,120 $3,274 $3,005 $16,448
1994 $21,336 $3,303 $3,155 $16,370
1993 $40,785 $2,948 $7,385 $23,971
SPARTAN SHORT-INTERMEDIATE MUNICIPAL
Period Ended Account Checkwriting
August 31 Exchange Fees Closeout Fees Wire Fees Charge
1995 $11,545 $3,806 $770 $2,454
1994 $20,989 $3,308 $1,805 $3,341
1993* $12,330 $1,215 $1,325 $708
* For the eight months ended August 31, 1993
SPARTAN INTERMEDIATE MUNICIPAL
Period Ended Account Checkwriting
August 31 Exchange Fees Closeout Fees Wire Fees Charge
1995 $3,750 $1,100 $245 $600
1994 $6,631 $885 $435 $730
1993* $920 $45 $185 $22
* From April 26, 1993 (commencement of operations)
SPARTAN MUNICIPAL INCOME
Year Ended Account
August 31 Exchange Fees Closeout Fees Wire Fees
1995 $8,145 $2,875 $665
1994 $16,475 $2,985 $1,110
1993 $23,542 $2,275 $2,135
SPARTAN AGGRESSIVE MUNICIPAL
Period Ended Account
August 31 Exchange Fees Closeout Fees Wire Fees
1995 $1,000 $215 $50
1994 $775 $145 $80
1993* $20 $0 $30
* From April 29, 1993 (commencement of operations)
SUB-ADVISER. On behalf of Spartan Municipal Money Fund, FMR has entered
into a sub-advisory agreement with FTX pursuant to which FTX has primary
responsibility for providing portfolio investment management services to
the fund.
Under the sub-advisory agreement, dated February 28, 1992, which was
approved by Fidelity Union Street Trust as the then sole shareholder of the
fund in conjunction with an Agreement and Plan to convert the fund to a
series of a Delaware business trust, as approved by public shareholders on
December 11, 1991, FMR pays FTX fees equal to 50% of the management fee
payable to FMR under its management contract with the fund. The fees paid
to FTX are not reduced by any voluntary or mandatory expense reimbursements
that may be in effect from time to time. On behalf of the money market
fund, for fiscal 1995, 1994, and 1993, FMR paid FTX fees of $5,568,762,
$5,503,479 and $3,898,322 respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of the
funds (the Plans) pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plan. Each Plan also specifically
recognizes that FMR, either directly or through FDC, may use its management
fee revenue, past profits, or other resources, without limitation, to pay
promotional and administrative expenses in connection with the offer and
sale of shares of each fund. In addition, each Plan provides that FMR may
use its resources, including its management fee revenues, to make payments
to third parties that assist in selling shares of each fund, or to third
parties, including banks, that render shareholder support services.
The Trustees have not authorized such payments to date.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the fund and its shareholders. In particular, the Trustees noted that the
Plans do not authorize payments by a fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plan by local entities with whom shareholders have
other relationships.
Spartan Municipal Money's Plan was approved by Fidelity Union Street Trust
on February 28, 1992, as the then sole shareholder of the fund, pursuant to
an Agreement and Plan of Conversion approved by public shareholders of the
fund on December 11, 1991. Spartan Short-Intermediate Municipal's Plan was
approved by Fidelity Municipal Trust on October 20, 1993, as the then sole
shareholder of the fund pursuant to an Agreement and Plan of Conversion
approved by public shareholders of the fund on August 18, 1993. The Plan
for Spartan Municipal Income was approved by shareholders on December 12,
1990. The Plans for Spartan Intermediate Municipal and Spartan Aggressive
Municipal were approved by FMR, the then sole shareholder of each fund, on
April 8, 1993.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent. UMB has
entered into sub-contracts with FSC, an affiliate of FMR, under the terms
of which FSC performs the processing activities associated with providing
transfer agent and shareholder servicing functions for each fund. Under
this arrangement, FSC receives annual account fees and asset-based fees for
each retail account and certain institutional accounts based on account
size. In addition, the fees for retail accounts are subject to increase
based on postal rate changes. With respect to certain institutional
retirement accounts, FSC receives asset-based fees only. With respect to
certain other institutional retirement accounts, FSC receives annual
account fees and asset based fees based on fund type. FSC also collects
small account fees from certain accounts with balances of less than $2,500.
UMB has additional sub-contracts with FSC, pursuant to which FSC performs
the calculations necessary to determine each fund's net asset value per
share and dividends and maintains each fund's accounting records. Under
this arrangement, FSC receives a fee based on each fund's average net
assets. UMB is entitled to reimbursement from FMR for fees paid to FSC
since FMR must bear these costs pursuant to its management contract with
each fund.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan Short-Intermediate Municipal Fund, Spartan
Intermediate Municipal Fund, Spartan Municipal Income Portfolio, and
Spartan Aggressive Municipal Fund are funds of Fidelity Union Street Trust
(the Massachusetts Trust), an open-end management investment company
organized as a Massachusetts business trust on March 1, 1974 as Fidelity
Daily Income Trust. The trust's name was changed to Fidelity Union Street
Trust by a supplement to the Declaration of Trust dated and filed with the
Commonwealth of Massachusetts on April 30, 1990. Currently, there are eight
funds of the Massachusetts trust: Spartan Municipal Income Portfolio,
Spartan Ginnie Mae Fund, Spartan Maryland Municipal Income Fund, Spartan
Aggressive Municipal Fund, Spartan Intermediate Municipal Fund, Spartan
Short-Intermediate Municipal Fund, Spartan Arizona Municipal Income
Portfolio, and Fidelity Export Fund. Spartan Short-Intermediate Municipal
Fund entered into an agreement to acquire all of the assets of Spartan
Short-Intermediate Municipal Fund, a series of Fidelity Municipal Trust on
October 20, 1993. The Massachusetts trust's Declaration of Trust permits
the Trustees to create additional funds.
Spartan Municipal Money Fund is a fund of Fidelity Union Street Trust II
(the Delaware Trust), an open-end management investment company organized
as a Delaware business trust on June 20, 1991. Currently there are four
funds of the Delaware trust: Spartan Municipal Money Fund, Fidelity Daily
Income Trust, Spartan Arizona Municipal Money Market Portfolio, and Spartan
World Money Market Fund. Spartan Municipal Money Fund entered into an
agreement to acquire all of the assets of Spartan Municipal Money Fund, a
series of Fidelity Union Street Trust, on February 28, 1992. The Delaware
trust's Trust Instrument permits the Trustees to create additional funds.
In the event that FMR ceases to be investment adviser to a trust or any of
its funds, the right of the trust or the fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn. There is a remote possibility
that one fund might become liable for any misstatement in its prospectus or
statement of additional information about another fund.
The assets of each trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general expenses of their respective trusts. Expenses with respect to
the trusts are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of the trusts, subject to the general
supervision of the Boards of Trustees, have the power to determine which
expenses are allocable to a given fund, or which are general or allocable
to all of the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund available
for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The Massachusetts
trust is an entity of the type commonly known as "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable for the obligations of the
trust. The Declaration of Trust provides that the Massachusetts trust shall
not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the Massachusetts trust or its
Trustees shall include a provision limiting the obligations created thereby
to the Massachusetts trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust is a
business trust organized under Delaware law. Delaware law provides that
shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
courts of some states, however, may decline to apply Delaware law on this
point. The Trust Instrument contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
Delaware trust and requires that a disclaimer be given in each contract
entered into or executed by the Delaware trust or its Trustees. The Trust
Instrument provides for indemnification out of each fund's property of any
shareholder or former shareholder held personally liable for the
obligations of the fund. The Trust Instrument also provides that each fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the fund is unable to meet its obligations. FMR believes that,
in view of the above, the risk of personal liability to shareholders is
extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any conduct
whatsoever, provided that Trustees are not protected against any liability
to which they would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. For the bond funds, as a shareholder, you receive one
vote for each dollar value of net asset value you own. For the money market
fund you receive one vote for each share you own. The shares have no
preemptive or conversion rights; voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the Prospectus.
Shares are fully paid and nonassessable, except as set forth under the
respective "Shareholder and Trustee Liability" headings above. Shareholders
representing 10% or more of a trust or one of its funds may, as set forth
in the Declaration of Trust or Trust Instrument, call meetings of the trust
or fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of an entire trust, the purpose on
voting on removal of one or more Trustees.
A trust or any fund may be terminated upon the sale of its assets to (or,
in the case of the Delaware trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations for
the money market fund must be approved by vote of the holders of a majority
of the outstanding shares of the trust or the fund. Whereas such
terminations for the bond funds must be approved by vote of the holders of
a majority of the trust or fund, as determined by the current value of each
shareholder's investment in the fund or trust; however, the Trustees of the
Delaware trust may, without prior shareholder approval, change the form of
the organization of the Delaware trust by merger, consolidation, or
incorporation. If not so terminated or reorganized, the trusts and their
funds will continue indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the Delaware trust to merge or consolidate into one or more trusts,
partnerships, or corporations, so long as the surviving entity is an
open-end management investment company that will succeed to or assume the
Delaware trust registration statement, or cause the Delaware trust to be
incorporated under Delaware law. Each fund of the Massachusetts and
Delaware trusts may also invest all of its assets in another investment
company.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri 64106,
is custodian of the assets of each fund. The custodian is responsible for
the safekeeping of a fund's assets and the appointment of the subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian. Morgan Guaranty Trust Company of New York, The Bank of New York,
and Chemical Bank, each headquartered in New York, also may serve as a
special purpose custodian of certain assets in connection with pooled
repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts (bond funds) and 1999 Bryan Street, Dallas, Texas (money
market fund) serves as the trusts' independent accountant. The auditor
examines financial statements for the funds and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the fiscal
year ended August 31, 1995 are included in its Annual Report, which are
separate reports supplied with this Statement of Additional Information.
Each fund's financial statements and financial highlights are incorporated
herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
The descriptions that follow are examples of eligible ratings for the bond
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND
MUNICIPAL NOTES:
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade (MIG, or VMIG for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important in the short
run. Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is
present strong protection by established cash flows, superior liquidity
support, or demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG-3/VMIG-3 - This designation denotes favorable quality. All
security elements are accounted for, but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
MIG-4/VMIG-4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and,
although not distinctly or predominantly speculative, there is specific
risk.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF STATE AND MUNICIPAL NOTES:
SP-1 - Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt service is given a
plus (+) designation.
S P-2 - Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 - Speculative capacity to pay principal and interest.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times in the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments of or maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds which are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
There are nine basic rating categories for long-term obligations. They
range from AAA (highest quality) to C (lowest quality). Those bonds within
the AA, A, BAA, BA, and B categories that Moody's believes possess the
strongest credit attributes within those categories are designated by the
symbols AA1, A1, BAA1, BA1, and B1.
DESCRIPTION OF STANDARD & POOR'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned on actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
SUPPLEMENT TO
SPARTAN(registered trademark) BOND STRATEGIST(trademark)
PROSPECTUS
DATED FEBRUARY 20, 1996
PROPOSED REORGANIZATION. The Board of Trustees of Spartan Bond Strategist
has unanimously approved an Agreement and Plan of Reorganization
("Agreement") between Spartan Bond Strategist and Spartan Municipal Income
Fund, a fund of Fidelity Fidelity Union Street Trust.
The Agreement provides for transfer of substantially all of the assets and
the assumption of all of the liabilities of Spartan Bond Strategist solely
in exchange for the number of shares of Spartan Municipal Income Fund equal
in value to the relative net asset value of the outstanding shares of
Spartan Bond Strategist. Following such exchange, Spartan Bond Strategist
will distribute the Spartan Municipal Income Fund shares to its
shareholders pro rata, in liquidation of Spartan Bond Strategist as
provided in the Agreement (the transactions contemplated by the Agreement
referred to as the "Reorganization").
The Reorganization can be consummated only if, among other things, it is
approved by a majority vote of shareholders. A Special Meeting (the
"Meeting") of the Shareholders of Spartan Bond Strategist will be held on
December 18, 1996, and approval of the Agreement will be voted on at that
time. In connection with the Meeting, Spartan Bond Strategist will be
filing with the Securities and Exchange Commission and delivering to its
shareholders of record a Proxy Statement describing the Reorganization and
a Prospectus for Spartan Municipal Income Fund.
If the Agreement is approved at the Meeting and certain conditions required
by the Agreement are satisfied, the Reorganization is expected to become
effective on or about December 30, 1996. If shareholder approval of the
Agreement is delayed due to failure to meet a quorum or otherwise, the
Reorganization will become effective, if approved, as soon as practicable
thereafter.
In the event Spartan Bond Strategist shareholders fail to approve the
Agreement, Spartan Bond Strategist will continue to engage in business as a
registered investment company and the Board of Trustees will consider other
proposals for the reorganization or liquidation of Spartan Bond Strategist.
Effective on or about September 16, 1996, the fund will be closed to all
new and subsequent purchases except for reinvestment of dividends or other
distributions pending the Reorganization.
The following information replaces in its entirety the fourth paragraph of
the "Investment Principles and Risks" section beginning on page 9.
The fund's level of risk and potential reward depend on the quality and
maturity of its investments. The fund invests in investment-grade
securities under normal conditions. Although the fund can invest in
securities of any maturity, FMR seeks to manage the fund so that it
generally reacts to changes in interest rates similarly to bonds with
maturities between 8 and 18 years. As of December 31, 1995, the fund's
dollar-weighted average maturity was approximately 11.4 years.
The following information replaces the similar information found under
"Debt Securities" in the "Securities and Investment Practices" section
beginning on page 10.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Investment-grade debt securities are medium- and high-quality securities.
Some, however, may possess speculative characteristics, and may be more
sensitive to economic changes and to changes in the financial condition of
issuers.
RESTRICTIONS: The fund normally invests in investment-grade securities, but
reserves the right to invest up to 5% of its assets in below
investment-grade securities (sometimes called "junk bonds"). A security is
considered to be investment-grade if it is rated investment-grade by
Moody's Investors Service, Standard & Poor's, Duff & Phelps Credit Rating
Co., or Fitch Investors Service, L.P., or is unrated but judged by FMR to
be of equivalent quality.
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing, or a copy of
the Statement of Additional Information (SAI) dated February 20, 1996. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
incorporated herein by reference (legally forms a part of the prospectus).
For a free copy of either document, call Fidelity at 1-800-544-8888.
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.
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SMU-pro-1095
Spartan Bond Strategist seeks maximum total return, after federal income
tax, by investing in a combination of taxable and tax-exempt debt
securities.
SPARTAN(REGISTERED TRADEMARK)
BOND
STRATEGIST(trademark)
PROSPECTUS
OCTOBER 25, 1995(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
PERFORMANCE How the fund has
done over time.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: Maximum total investment return after the effect of federal income
tax (after-tax total return). As with any mutual fund, there is no
assurance that the fund will achieve its goal.
STRATEGY: Invests in a combination of taxable and tax-free debt securities,
focusing on medium and long-term bonds.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. Foreign affiliates of FMR may help
choose investments for the fund.
SIZE: As of August 31, 1995 , the fund had over $18 million in
assets.
WHO MAY WANT TO INVEST
This non-diversified fund may be appropriate for investors in higher tax
brackets who want to maximize after-tax total return. The fund is designed
for those who want to pursue this goal through an investment in both
taxable and tax-exempt debt securities. Because the fund seeks to maximize
total return after the effect of federal income tax, it may not be
appropriate for those who are looking for an investment that focuses on
high current taxable or tax-exempt income.
The value of the fund's investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other economic and political news. When you sell your shares, they may
be worth more or less than what you paid for them. By itself, the fund does
not constitute a balanced investment plan.
The Spartan family of funds is designed for cost-conscious investors
looking for higher yields through lower costs. The Spartan
Approach(registered trademark) requires investors to make high minimum
investments and, in some cases, to pay for individual transactions.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Spartan
Municipal Money is in the
INCOME category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly
in stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or
hold shares of a fund. See p age and pages through f or more
information about these fees.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Redemption fee (as a % of amount redeemed
on shares held less than 180 days) .50%
Exchange and wire transaction fees $5.00
Account closeout fee $5.00
Annual account maintenance fee
(for accounts under $2500) $12.00
THESE FEES ARE WAIVED (except for the redemption fee) if your account
balance at the time of the transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund
pays a management fee to FMR. Expenses are factored into the fund's share
price or dividends and are not charged directly to shareholder accounts
(see page ).
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
Management fee .70%
12b-1 fee None
Other expenses .00 %
Total fund operating expenses .70%
EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses after
the number of years indicated, first assuming that you leave your account
open, and then assuming that you close your account at the end of the
period:
Account Account
open closed
After 1 year $ 7 $ 12
After 3 years $ 22 $ 27
After 5 years $ 39 $ 44
After 10 years $ 87 $ 92
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FINANCIAL HIGHLIGHTS
The table that follows is included in the fund's Annual Report and has been
audited by Coopers & Lybrand, independent accountants. Their report on the
financial statements and financial highlights is included in the Annual
Report. The financial statements and financial highlights are incorporated
by reference into (are legally a part of) the fund's Statement of
Additional Information.
SELECTED PER-SHARE DATA
101.Years ended December 31 1995 1994 1993D
102.Net asset value, beginning of period $ 8.740 $ 9.980 $ 10.000
103.Income from Investment Operations .491 .481 .130
Net investment income
104. Net realized and unrealized gain .924 (1.244) (.011)C
(loss)
105. Total from investment operations 1.415 (.763) .119
106.Less Distributions (.475) (.486) (.130)
From net investment income
107. In excess of net investment income -- -- (.011)
108. Total distributions (.475) (.486) (.141)
109. Redemption fees added to paid in .000 .009 .002
capital
110.Net asset value, end of period $ 9.680 $ 8.740 $ 9.980
111.Total returnB 16.52% (7.65)% 1.23%
112.Ratios and Supplemental Data
113.Net assets, end of period (000 $ 18,118 $ 17,722 $ 21,080
omitted)
114.Ratio of expenses to average net .70% .70% .70%A
assets
115.Ratio of net investment income to 5.10% 5.26% 4.44%A
average net assets
116.Portfolio turnover rate 79% 168% 275%A
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
D FOR THE PERIOD SEPTEMBER 9, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1993.
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results and do not reflect
the effect of any transaction fees you may have paid. The figures would be
lower if fees were taken into account.
The fund's fiscal year runs from January 1 through August 31. The tables
below show the fund's performance over past fiscal years compared to a
measure of inflation.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods Past Life
ended 1 of
August 31, 1995 year fund
A
Bond 16.52 3.77
Strategist % %
Consumer 2.54 2.53
Price % %
Index
CUMULATIVE TOTAL RETURNS
Fiscal periods Past Life
ended 1 of
August 31, 1995 year fund
A
Bond 16.52 8.93
Strategist % %
Consumer 2.54 6.01
Price % %
Index
A FROM SEPTEMBER 9, 1993
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions and
any change in a fund's share
price.
(checkmark)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results. Total returns may be quoted on a before-tax
or after-tax basis.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. A
TAX-EQUIVALENT YIELD shows what an investor would have to earn before taxes
to equal a tax-free yield. Yields are calculated according to a standard
that is required for all stock and bond funds. Because this differs from
other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
SPARTAN MUNICIPAL MONEY IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. In technical
terms, the fund is currently a non-diversified fund of Fidelity Union
Street Trust II, an open-end management investment company organized as a
Delaware business trust on September 10, 1976.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Fidelity will
mail proxy materials in advance, including a voting card and information
about the proposals to be voted on. The number of votes you are entitled to
is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.), in London, England, and Fidelity Management & Research (Far
East) Inc. (FMR Far East), in Tokyo, Japan, assist FMR with foreign
investments.
George Fischer is manager of Spartan Bond Strategist, which he has managed
since September 1993. He also manages Municipal Bond, Insured Municipal
Income, and various trust accounts. Mr. Fischer joined Fidelity in 1989.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the fund.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
FMR Corp. is the ultimate parent company of FMR, FMR U.K., and FMR Far
East. Members of the Edward C. Johnson 3d family are the predominant owners
of a class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940 (the
1940 Act), control of a company is presumed where one individual or group
of individuals owns more than 25% of the voting stock of that company;
therefore, the Johnson family may be deemed under the 1940 Act to form a
controlling group with respect to FMR Corp.
As of December 31, 1995, approximately 42.1% of the fund's total
outstanding shares were held by an FMR affiliate, FMR Corp. Mr. Edward C.
Johnson 3d, President and Trustee of the fund, is a member of a group
which, by virtue of its owning approximately 49% of the voting securities
of FMR Corp., may be deemed under the 1940 Act to form a controlling group
with respect to FMR Corp. Therefore, based on his membership in this group,
Mr. Edward C. Johnson 3d may be deemed to own beneficially 42.1% of the
fund.
To carry out the fund's transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that the fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
THE FUND SEEKS MAXIMUM TOTAL INVESTMENT RETURN AFTER THE EFFECT OF FEDERAL
INCOME TAX by investing primarily in taxable and tax-exempt debt
instruments. FMR normally invests at least 65% of the fund's total assets
in these securities.
Most bond funds focus on yield, which is one component of total return, and
invest in either taxable or tax-free bonds. Spartan Bond Strategist has the
flexibility to invest in a combination of these securities, which have
varying maturities and levels of credit quality. The fund varies its
proportion in each bond market to pursue high after-tax total return, which
is the combination of income and changes in value after the effect of
federal income tax. When choosing the fund's investments, FMR looks at
expected federal tax rates on income and capital gains and considers the
potential effect of taxes, assuming a high tax bracket. The federal
alternative minimum tax and state and local taxes are not considered.
FMR studies interest rates, credit conditions, and other factors, and may
use a variety of techniques to adjust the fund's exposure to the taxable
and tax-exempt bond markets. FMR relies on fundamental research to select
domestic and foreign investments, and may also use computer-aided analysis.
The fund's strategy does not restrict its ability to invest in either bond
market. However, in order to distribute its tax free income to shareholders
on a tax-free basis, the fund must invest at least 50% of its total assets
in municipal securities at the end of each calendar quarter. This
requirement may mean missing an investment opportunity in the taxable bond
market.
The fund's level of risk and potential reward depend on the quality and
maturity of its investments. Lower-quality, longer-term investments
typically carry the most risk and the highest performance potential. The
fund focuses on investment-grade securities, but may also invest in
lower-quality securities. Although the fund can invest in securities of any
maturity, FMR seeks to manage the fund so that it generally reacts to
changes in interest rates similarly to bonds with maturities between 8 and
18 years. As of December 31, 1995, the fund's dollar-weighted average
maturity was approximately 11.4 years.
The fund's yield and share price change daily and are based on changes in
interest rates, market conditions, other economic and political news, and
on the quality and maturity of its investments. In general, bond prices
rise when interest rates fall, and vice versa. This effect is usually more
pronounced for longer-term securities. Lower-quality securities offer
higher yields, but also carry more risk. FMR may use various investment
techniques to hedge a portion of the fund's risks, but there is no
guarantee that these strategies will work as intended. When you sell your
shares of the fund, they may be worth more or less than what you paid for
them.
If you are subject to the federal alternative minimum tax, you should note
that the fund may invest all of its assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
short-term instruments, investment-grade money market instruments, or to
hold a substantial amount of uninvested cash for temporary, defensive
purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies FMR may employ in
pursuit of the fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of the fund's limitations and more detailed information
about the fund's investments are contained in the fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that doing so will help the fund achieve its
goal. Current holdings and recent investment strategies are described in
the fund's financial reports which are sent to shareholders twice a year.
For a free SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Taxable lower-quality debt securities (sometimes called "junk bonds") and
tax-exempt lower-quality debt securities (sometimes called "municipal junk
bonds") are considered to have speculative characteristics and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness, or they may already be in default. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general or regional economic
difficulty.
Lower-quality foreign government securities are considered to have
speculative characteristics and involve greater risk of default or price
changes, or they may already be in default. These risks are in addition to
the general risks associated with foreign securities.
FISCAL 1995 DEBT HOLDINGS, BY RATING
MOODY'S
INVESTORS SERVICE, INC. STANDARD & POOR'S
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa 53.32% AAA 44.85%
High quality Aa 9.39% AA 18.85%
Upper-medium grade A 11.97% A 12.61%
Medium grade Baa 8.92% BBB 8.59%
LOWER QUALITY
Moderately speculative Ba 1.32% BB 1.32%
Speculative B 0.00% B 0.00%
Highly speculative Caa 0.00% CCC 0.00%
Poor quality Ca 0.00% CC 0.00%
Lowest quality, no interest C C
In default, in arrears -- D 0.00%
84.92% 86.22%
A F OR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS
OF THE
SOVEREIGN CREDIT OF THE ISSUING GOVERNMENT. THE DOLLAR-WEIGHTED AVERAGE
OF DEBT SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO 3.37%. THIS
MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING
SERVICES,
AS WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES
THAT ARE LOWER QUALITY ACCOUNT FOR 3.01% OF THE FUND'S SECURITY
INVESTMENTS.
REFER TO THE FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE
COMPLETE DISCUSSION OF THESE RATINGS.
The following table provides a summary of ratings assigned to debt holdings
(not including money market instruments) in the fund's portfolio. These
figures are dollar-weighted averages of month-end portfolio holdings during
fiscal 1995, and are presented as a percentage of total security
investments. These percentages are historical and do not necessarily
indicate the fund's current or future debt holdings.
RESTRICTIONS: Purchase of a debt security is consistent with the fund's
debt quality policy if it is rated at or above the stated level by Moody's
or rated in the equivalent categories by S&P, or is unrated but judged to
be of equivalent quality by FMR. The fund currently intends to limit its
investments in lower than Baa-quality debt securities to less than 35% of
its assets. In addition, the fund currently intends to limit its
investments in corporate or municipal debt securities to those of B-quality
or above and does not intend to limit the quality of its foreign government
securities investments.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
the U.S. Government, corporations, financial institutions, and other
entities. These obligations may carry fixed, variable, or floating interest
rates.
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government. Not all U.S. government securities are backed by the full
faith and credit of the United States. For example, securities issued by
the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. The value of some or all municipal
securities may be affected by uncertainties in the municipal market related
to legislation or litigation involving the taxation of municipal securities
or the rights of municipal securities holders. The fund may own a municipal
security directly or through a participation interest.
CREDIT SUPPORT. Issuers may employ various forms of credit enhancement,
including letters of credit, guarantees, or insurance from a bank,
insurance company, or other entity. These arrangements expose the fund to
the credit risk of the entity. In the case of foreign entities, extensive
public information about the entity may be be available and the entity may
be subject to unfavorable political, economic, or governmental developments
which might affect its ability to honor its commitment.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve additional risks and considerations. These include risks relating
to political or economic conditions in foreign countries, fluctuations in
foreign currencies, withholding or other taxes, operational risks,
increased regulatory burdens, and the potentially less stringent investor
protection and disclosure standards of foreign markets. Additionally,
governmental issuers of foreign securities may be unwilling to repay
principal and interest when due, and may require that the conditions for
payment be renegotiated. All of these factors could make foreign
investments, especially those in developing countries, more volatile.
ASSET-BACKED AND MORTGAGE SECURITIES include interests in pools of the
following: purchase contracts, financing leases, or sales agreements
entered into by municipalities; lower-rated debt securities; consumer loans
or mortgages; or complex instruments such as collateralized mortgage
obligations and stripped mortgage-backed securities. The value of these
securities may be significantly affected by changes in interest rates, the
market's perception of the issuers, and the creditworthiness of the parties
involved. Some securities may have a structure that makes their reaction to
interest rates and other factors difficult to predict, making their value
highly volatile. These securities may also be subject to prepayment risk.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
STRIPPED SECURITIES are the separate income or principal components of a
debt security. Their risks are similar to those of other debt securities,
although they may be more volatile and the value of certain types of
stripped securities may move in the same direction as interest rates.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
OTHER MUNICIPAL SECURITIES may include obligations of U.S. territories and
possessions such as Guam, the Virgin Islands, and Puerto Rico, and their
political subdivisions and public corporations.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or a financial intermediary. In exchange for this benefit, the fund may pay
periodic fees or accept a lower interest rate. Demand features and standby
commitments are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into currency exchange contracts or swap agreements, and
purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for the fund, or there may be a
requirement that a fund supply additional cash to a borrower on demand.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may
be subject to legal restrictions. Difficulty in selling securities may
result in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the fund's yield.
OTHER INSTRUMENTS may include convertible bonds, preferred stocks, and
warrants.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: The fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, the fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any one issuer. These limitations do not apply to U.S. government
securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
LENDING. Lending securities to broker-dealers and institutions, including
Fidelity Brokerage Services, Inc. (FBSI), an affiliate of FMR, is a means
of earning income. This practice could result in a loss or a delay in
recovering the fund's securities. The fund may also lend money to other
funds advised by FMR.
RESTRICTIONS: Loans, in the aggregate, may not exceed 33% of the fund's
total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
The fund seeks maximum total investment return after the effect of federal
income taxes, by investing primarily in taxable and tax-exempt debt
instruments. The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets. Loans, in the
aggregate, may not exceed 33% of the fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn may pay fees to affiliates who provide
assistance with these services.
FMR may, from time to time, agree to reimburse the fund for management fees
above a specified limit. FMR retains the ability to be repaid by the fund
if expenses fall below the specified limit prior to the end of the fiscal
year. Reimbursement arrangements, which may be terminated at any time
without notice, can decrease the fund's expenses and boost its performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fund pays
the fee at the annual rate of .70% of its average net assets.
FMR HAS SUB-ADVISORY AGREEMENTS with FMR U.K. and FMR Far East. These
sub-advisers provide FMR with investment research and advice on issuers
based outside the United States. Under the sub-advisory agreements, FMR
pays FMR U.K. and FMR Far East fees equal to 110% and 105%, respectively,
of the costs of providing these services.
The sub-advisers may also provide investment management services. In
return, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
management fee rate with respect to the fund's investments that the
sub-adviser manages on a discretionary basis.
FSC performs many transaction and accounting functions for the fund. These
services include processing shareholder transactions and calculating the
fund's share price. FMR, and not the fund, pays for these services.
To offset shareholder service costs, FMR or its affiliates also collect the
fund's $5.00 exchange fee, $5.00 account closeout fee, and $5.00 fee for
wire purchases and redemptions. For fiscal 1995, these fees amounted to
$285, $130, and $30, respectively.
The fund has adopted a Distribution and Service Plan. This plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. It is important to
note, however, that the fund does not pay FMR any separate fees for this
service.
The fund's portfolio turnover rate for fiscal 1995 was 79%. This rate
varies from year to year.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in the fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
THE FUND'S SHARE PRICE, called net asset v alue (NAV), is calculated
every business day. The fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
TO ADD TO AN ACCOUNT $1,000
Through automatic investment plans $500
MINIMUM BALANCE $5,000
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the program materials for details.
UNDERSTANDING THE
SPARTAN APPROACH(registered trademark)
Fidelity's Spartan Approach is
based on the principle that
lower fund expenses can
increase returns. The Spartan
funds keep expenses low in
two ways. First, higher
investment minimums reduce
the effect of a fund's fixed
costs, many of which are paid
on a per-account basis.
Second, unlike most mutual
funds that include transaction
costs as part of overall fund
expenses, Spartan
shareholders pay directly for
the transactions they make.
(checkmark)
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
Phone 1-800-544-777 (phone_graphic) (small solid bullet) Exchange from another (small solid bullet) Exchange from another
Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(small solid bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
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Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check
application. Make your payable to "Spartan
check payable to Bond Strategist."
"Spartan Bond Indicate your fund
Strategist." Mail to the account number on
address indicated on your check and mail to
the application. the address printed on
your account statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
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Wire (wire_graphic) (small solid bullet) There may be a $5.00 (small solid bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(small solid bullet) Call 1-800-544-7777 to (small solid bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify "Spartan Bond
Bank Routing Strategist" and include
#021001033, your account number
Account #00163053. and your name.
Specify "Spartan Bond
Strategist" and include
your new account
number and your
name.
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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOU SELL SHARES OF THE FUND AFTER HOLDING THEM LESS THAN 180 DAYS, THE FUND WILL
DEDUCT A REDEMPTION FEE EQUAL TO .50% OF THE VALUE OF THOSE SHARES. IF YOUR ACCOUNT
BALANCE IS LESS THAN $50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION TRANSACTIONS:
$5.00 FOR EACH EXCHANGE, BANK WIRE, AND ACCOUNT CLOSEOUT.
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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
$100,000.
(small solid bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: $100,000.
(small solid bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (small solid bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Trust names appear on the
account.
(small solid bullet) The trustee must sign the
letter indicating capacity as
Business or trustee. If the trustee's name
Organization is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
(small solid bullet) At least one person
Executor, authorized by corporate
Administrator, resolution to act on the
Conservator, account must sign the letter.
Guardian (small solid bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(small solid bullet) Call 1-800-544-6666 for
instructions.
Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire
feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
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INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of the fund, unless you place your transaction on
Fidelity's automated exchange services.
Note that exchanges out of the fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (small solid bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (small solid bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(small solid bullet) Changes require a new authorization
form.
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FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (small solid bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (small solid bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
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A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in February
and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The fund offers four
options:
5. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
6. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
7. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
8. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of the
date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days, or longer for a December
ex-dividend date.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
The fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
(checkmark)
TAXES
As with any investment, you should consider how an investment in the fund
could affect you. Below are some of the fund's tax implications.
TAXES ON DISTRIBUTIONS. Distributions may be subject to federal income tax
and may also be subject to state or local taxes. However, interest that is
federally tax-free remains tax-free when it is distributed. If you live
outside the United States, your distributions from the fund could also be
taxed by the country in which you reside.
For federal tax purposes, the fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions
are taxed as long-term capital gains. Gain on the sale of tax-free bonds
results in taxable distributions. However, short-term capital gains and a
portion of the gain on bonds purchased at a discount are taxed as
dividends. These distributions are taxable when they are paid, whether you
take them in cash or reinvest them. However, distributions declared in
December and paid in January are taxable as if they were paid on December
31. Fidelity will send you and the IRS a statement showing the tax status
of the distributions paid to you in the previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. The fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
A portion of the fund's dividends may be free from state or local taxes.
Income from investments in your state are often tax-free to you. Each year,
Fidelity will send you a breakdown of the fund's income from each state to
help you calculate your taxes.
During fiscal 1995, 90.3% of the fund's income dividends was free from
federal income tax. 8.93% of the fund's income dividends was subject to the
federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or loss
is the difference between the cost of your shares and the price you receive
when you sell them.
Whenever you sell shares of the fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before the fund deducts a
capital gain distribution from its NAV, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
EFFECT OF FOREIGN TAXES. Foreign governments may impose taxes on the fund
and its investments and these taxes generally will reduce the fund's
distributions. However, an offsetting tax credit or deduction may be
available to you. If so, your tax statement will show more taxable income
or capital gains than were actually distributed by the fund, but will also
show the amount of the available offsetting credit or deduction.
There are tax requirements that all funds must follow in order to avoid
federal taxation. In its effort to adhere to these requirements, the fund
may have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market quotations,
if available. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates. If
quotations are not readily available, or if the values have been materially
affected by events occurring after the closing of a foreign market, assets
are valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) The fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees the fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUND THROUGH A BROKER, who may charge you
a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when the fund is priced on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) The fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
THE REDEMPTION FEE, if applicable, will be deducted from the amount of your
redemption. This fee is paid to the fund rather than FMR, and it does not
apply to shares that were acquired through reinvestment of distributions.
If shares you are redeeming were not all held for the same length of time,
those shares you held longest will be redeemed first for purposes of
determining whether the fee applies.
THE FEES FOR INDIVIDUAL TRANSACTIONS are waived if your account balance at
the time of the transaction is $50,000 or more. Otherwise, you should note
the following:
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the amount of
your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $60.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. The fee will not be
deducted from retirement accounts (except non-prototype retirement
accounts), accounts using regular investment plans, or if total assets in
Fidelity funds exceed $50,000. Eligibility for the $50,000 waiver is
determined by aggregating Fidelity mutual fund accounts maintained by FSC
or FBSI which are registered under the same social security number or which
list the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed and the $5.00 account closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of the fund
for shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be registered
for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, the fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) The fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if the
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
fund reserves the right to terminate or modify the exchange privilege in
the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(Registered trademark) BOND STRATEGIST(trademark)
A FUND OF FIDELITY UNION STREET TRUST II
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 25, 1995
This Statement is not a prospectus but should be read in conjunction with
the fund's current Prospectus (dated October 25, 1995) . P lease
retain this document for future reference. The fund's financial statements
and financial highlights, included in the Annual Report for the fiscal year
ended December 31, 19 9 5, are incorporated herein by reference. To
obtain an additional copy of the Prospectus or the Annual Report, please
call Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Portfolio Transactions 12
Valuation of Portfolio Securities 13
Performance 14
Additional Purchase and Redemption Information 18
Distributions and Taxes 18
FMR 19
Trustees and Officers 20
Management Contract
Distribution and Service Plan
Contracts with FMR Affiliates
Description of the Trust
Financial Statements 25
Appendix 25
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc. (FMR U.K.)
Fidelity Management & Research (Far East) Inc. (FMR Far East)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Service Co. (FSC)
SMU -ptb- 1095
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations listed below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) With respect to 75% of its total assets, the fund does not currently
intend to purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, the fund would hold more than 10% of
the outstanding voting securities of that issuer.
(iii) The fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iv) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(v) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(vi) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vii) The fund does not currently intend to invest in interests in real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(viii) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment adviser or (b) acquiring
loans, loan participations, or other forms of direct debt instruments and,
in connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
(ix) The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(x) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(xi) The fund does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 5% of the fund's net assets. Included
in that amount, but not to exceed 2% of the fund's net assets, may be
warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the fund in units or attached to
securities are not subject to these restrictions.
(xii) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xiii) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (x), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" on page
6.
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
ASSET-BACKED SECURITIES include pools of mortgages, loans, receivables or
other assets. Payment of principal and interest may be largely dependent
upon the cash flows generated by the assets backing the securities and, in
certain cases, supported by letters of credit, surety bonds, or other
credit enhancements. The value of asset-backed securities may also be
affected by the creditworthiness of the servicing agent for the pool, the
originator of the loans or receivables, or the entities providing the
credit support.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The fund
may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If the fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations may
involve significant risks in addition to the risks inherent in U.S.
investments. The value of securities denominated in foreign currencies and
of dividends and interest paid with respect to such securities will
fluctuate based on the relative strength of the U.S. dollar.
Foreign investments involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments,
and may be affected by actions of foreign governments adverse to the
interests of U.S. investors. Such actions may include the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
is no assurance that FMR will be able to anticipate these potential events
or counter their effects. These risks are magnified for investments in
developing countries, which may have relatively unstable governments,
economies based on only a few industries, and securities markets that trade
a small number of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States. Foreign
markets may offer less protection to investors than U.S. markets. It is
anticipated that in most cases the best available market for foreign
securities will be on an exchange or in over-the-counter markets located
outside of the United States. Foreign stock markets, while growing in
volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those
located in developing countries) may be less liquid and more volatile than
securities of comparable U.S. issuers. Foreign security trading practices,
including those involving securities settlement where fund assets may be
released prior to receipt of payment, may result in increased risk in the
event of a failed trade or the insolvency of a foreign broker-dealer, and
may involve substantial delays. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions and custodial
costs, are generally higher than for U.S. investors. In general, there is
less overall governmental supervision and regulation of securities
exchanges, brokers, and listed companies than in the United States. It may
also be difficult to enforce legal rights in foreign countries. Foreign
issuers are generally not bound by uniform accounting, auditing, and
financial reporting requirements and standards of practice comparable to
those applicable to U.S. issuers.
Some foreign securities impose restrictions on transfer within the United
States or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
American Depository Receipts (ADR's) as well as other "hybrid" forms of
ADRs including European Depository Receipts (EDRs) and Global Depository
Receipts (GDRs), are certificates evidencing ownership of shares of a
foreign issuer. These certificates are issued by depository banks and
generally trade on an established market in the United States or elsewhere.
The underlying shares are held in trust by a custodian bank or similar
financial institution in the issuer's home country. The depository bank may
not have physical custody of the underlying securities at all times and may
charge fees for various services, including forwarding dividends and
interest and corporate actions. ADRs are an alternative to directly
purchasing the underlying foreign securities in their national markets and
currencies. However, ADRs continue to be subject to many of the risks
associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks
of the underlying issuer's country.
FOREIGN CURRENCY TRANSACTIONS. The fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The fund will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the fund at one rate, while offering a lesser
rate of exchange should the fund desire to resell that currency to the
dealer. Forward contracts are generally traded in an interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
The fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be
used by the fund. The fund may also use swap agreements, indexed
securities, and options and futures contracts relating to foreign
currencies for the same purposes.
When the fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example,
if the fund owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The fund could also hedge the
position by selling another currency expected to perform similarly to the
pound sterling - for example, by entering into a forward contract to sell
Deutschemarks or European Currency Units in return for U.S. dollars. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if the fund held investments denominated in
Deutschemarks, the fund could enter into forward contracts to sell
Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is
purchased, much as if the fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause the fund to assume the risk of fluctuations in the
value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the fund will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The fund will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on FMR's skill
in analyzing and predicting currency values. Currency management strategies
may substantially change the fund's investment exposure to changes in
currency exchange rates, and could result in losses to the fund if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged the fund by selling that currency
in exchange for dollars, the fund would be unable to participate in the
currency's appreciation. If FMR hedges currency exposure through proxy
hedges, the fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if FMR increases the fund's exposure to a foreign
currency, and that currency's value declines, the fund will realize a loss.
There is no assurance that FMR's use of currency management strategies will
be advantageous to the fund or that it will hedge at an appropriate time.
FUND'S RIGHTS AS A SHAREHOLDER. The fund does not intend to direct or
administer the day-to-day operations of any company. The fund, however, may
exercise its rights as a shareholder and may communicate its views on
important matters of policy to management, the Board of Directors, and
shareholders of a company when FMR determines that such matters could have
a significant effect on the value of the fund's investment in the company.
The activities that the fund may engage in, either individually or in
conjunction with others, may include, among others, supporting or opposing
proposed changes in a company's corporate structure or business activities;
seeking changes in a company's directors or management; seeking changes in
a company's direction or policies; seeking the sale or reorganization of
the company or a portion of its assets; or supporting or opposing third
party takeover efforts. This area of corporate activity is increasingly
prone to litigation and it is possible that the fund could be involved in
lawsuits related to such activities. FMR will monitor such activities with
a view to mitigating, to the extent possible, the risk of litigation
against the fund and the risk of actual liability if the fund is involved
in litigation. No guarantee can be made, however, that litigation against
the fund will not be undertaken or liabilities incurred.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, Options and Futures Relating to Foreign Currencies, OTC
Options, Purchasing Put and Call Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply with
guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require will
set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be
sold while the futures or option strategy is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the fund's assets could impede
portfolio management or the fund's ability to meet redemption requests or
other current obligations.
COMBINED POSITIONS. The fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, the fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the fund's current or
anticipated investments exactly. The fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
FUTURES CONTRACTS. When the fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
the fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of the fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of the fund, the fund may
be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the fund can
commit assets to initial margin deposits and option premiums.
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets.
The above limitations on the fund's investments in futures contracts and
options, and the fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, may be
changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, the fund's access to other assets held to cover its options or
futures positions could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The fund
may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign
currencies. The fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect
the fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the fund's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the fund's investments exactly over
time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, the fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. The fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by the fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments,
emerging market securities, and swap agreements to be illiquid. However,
with respect to over-the-counter options the fund writes, all or a portion
of the value of the underlying instrument may be illiquid depending on the
assets held to cover the option and the nature and terms of any agreement
the fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees. If through a change in values, net assets, or other
circumstances, the fund were in a position where more than 10% of its net
assets was invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
INDEXED SECURITIES. The fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price
of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness
deteriorates. Recent issuers of indexed securities have included banks,
corporations, and certain U.S. government agencies. Indexed securities may
be more volatile than the underlying instruments.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive order
issued by the SEC, the fund has received permission to lend money to, and
borrow money from, other funds advised by FMR or its affiliates. Interfund
loans and borrowings normally extend overnight, but can have a maximum
duration of seven days. Loans may be called on one day's notice. A fund
will lend through the program only when the returns are higher than those
available from other short-term instruments (such as repurchase
agreements), and will borrow through the program only when the costs are
equal to or lower than the cost of bank loans. A fund may have to borrow
from a bank at a higher interest rate if an interfund loan is called or not
renewed. Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower
to lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments are subject to the fund's policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If the fund does not receive scheduled interest
or principal payments on such indebtedness, the fund's share price and
yield could be adversely affected. Loans that are fully secured offer the
fund more protections than an unsecured loan in the event of non-payment of
scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral could be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater
risks and may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a small
fraction of the amount owed. Direct indebtedness of developing countries
also involves a risk that the governmental entities responsible for the
repayment of the debt may be unable, or unwilling, to pay interest and
repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the fund.
For example, if a loan is foreclosed, the fund could become part owner of
any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the fund could be held
liable as a co-lender. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt
instruments that are not in the form of securities may offer less legal
protection to the fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, the fund relies on FMR's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or
other indebtedness, the fund has direct recourse against the borrower, it
may have to rely on the agent to apply appropriate credit remedies against
a borrower. If assets held by the agent for the benefit of the fund were
determined to be subject to the claims of the agent's general creditors,
the fund might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness purchased by the fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the fund to pay additional cash on demand. These commitments may
have the effect of requiring the fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
The fund will set aside appropriate liquid assets in a segregated custodial
account to cover its potential obligations under standby financing
commitments.
The fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations (4) and (i).
For purposes of these limitations, the fund generally will treat the
borrower as the "issuer" of indebtedness held by the fund. In the case of
loan participations where a bank or other lending institution serves as
financial intermediary between the fund and the borrower, if the
participation does not shift to the fund the direct debtor-creditor
relationship with the borrower, SEC interpretations require the fund, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating a
financial intermediary as an issuer of indebtedness may restrict the fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
LOWER-QUALITY DEBT SECURITIES. While the market for high-yield corporate
debt securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic increase in the
use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of
the future performance of the high-yield bond market, especially during
periods of economic recession.
The market for lower-quality debt securities may be thinner and less active
than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing
high-yield corporate debt securities than is the case for securities for
which more external sources for quotations and last-sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-quality debt
securities and the fund's ability to dispose of these securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by the fund. In considering
investments for the fund, FMR will attempt to identify those issuers of
high-yielding securities whose financial condition is adequate to meet
future obligations, has improved, or is expected to improve in the future.
FMR's analysis focuses on relative values based on such factors as interest
or dividend coverage, asset coverage, earnings prospects, and the
experience and managerial strength of the issuer.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the fund's shareholders.
MORTGAGE-BACKED SECURITIES. The fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed
security may be an obligation of the issuer backed by a mortgage or pool of
mortgages or a direct interest in an underlying pool of mortgages. Some
mortgage-backed securities, such as collateralized mortgage obligations or
CMOs, make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate
and repay principal at maturity (like a typical bond). Mortgage-backed
securities are based on different types of mortgages including those on
commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
fund may invest in them if FMR determines they are consistent with the
fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment
risk. Prepayment, which occurs when unscheduled or early payments are made
on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the fund will not hold
such obligations directly as a lessor of the property, but will purchase a
participation interest in a municipal obligation from a bank or other third
party. A participation interest gives the fund a specified, undivided
interest in the obligation in proportion to its purchased interest in the
total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities may be
affected by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcy are unclear and remain untested.
Further, the application of state law to municipal issuers could produce
varying results among the states or among municipal securities issuers
within a state. These legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or
the relative credit quality of particular securities. Any of these effects
could have a significant impact on the prices of some or all of the
municipal securities held by a fund.
REFUNDING CONTRACTS. The fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the fund
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
The fund generally will not be obligated to pay the full purchase price if
it fails to perform under a refunding contract. Instead, refunding
contracts generally provide for payment of liquidated damages to the issuer
(currently 15-20% of the purchase price). The fund may secure its
obligations under a refunding contract by depositing collateral or a letter
of credit equal to the liquidated damages provisions of the refunding
contract. When required by SEC guidelines, the fund will place liquid
assets in a segregated custodial account equal in amount to its obligations
under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to the fund in connection with
bankruptcy proceedings), it is the fund's current policy to engage in
repurchase agreement transactions with parties whose creditworthiness has
been reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the fund might obtain
a less favorable price than prevailed when it decided to seek registration
of the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of the fund's
assets and may be viewed as a form of leverage.
SECURITIES LENDING. The fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange and
a subsidiary of FMR Corp.
Securities lending allows the fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a fund
may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the fund must be able to terminate
the loan at any time; (4) the fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which the fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. The fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily the fund will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third
party at any time. The fund may purchase standby commitments separate from
or in conjunction with the purchase of securities subject to such
commitments. In the latter case, the fund would pay a higher price for the
securities acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the fund; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease the fund's exposure to long- or
short-term interest rates (in the United States or abroad), foreign
currency values, mortgage securities, corporate borrowing rates, or other
factors such as security prices or inflation rates. Swap agreements can
take many different forms and are known by a variety of names. The fund is
not limited to any particular form of swap agreement if FMR determines it
is consistent with the fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift the fund's investment exposure from one
type of investment to another. For example, if the fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from the fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses. The fund expects to be able to eliminate
its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.
The fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If the fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of the fund's accrued
obligations under the swap agreement over the accrued amount the fund is
entitled to receive under the agreement. If the fund enters into a swap
agreement on other than a net basis, it will segregate assets with a value
equal to the full amount of the fund's accrued obligations under the
agreement.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, the fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the fund, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not
pay current income, their prices can be very volatile when interest rates
change. In calculating its dividends, the fund takes into account as income
a portion of the difference between a zero coupon bond's purchase price and
its face value.
A broker-dealer creates a DERIVATIVE ZERO by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. ORIGINAL ISSUE ZEROS are zero coupon securities
originally issued by the U.S. government, a government agency, or a
corporation in zero coupon form.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the fund by FMR pursuant to authority contained in the management
contract. If FMR grants investment management authority to the sub-advisers
(see the section entitled "Management Contract"), the sub-advisers are
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described below.
FMR is also responsible for the placement of transaction orders for other
investment companies and accounts for which it or its affiliates act as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, FMR considers various relevant
factors, including, but not limited to: the size and type of the
transaction; the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability, and
financial condition of the broker-dealer firm; the broker-dealer's
execution services rendered on a continuing basis; and the reasonableness
of any commissions. Commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may not be
subject to negotiation.
The fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). The
selection of such broker-dealers generally is made by FMR (to the extent
possible consistent with execution considerations) based upon the quality
of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the fund may be useful to FMR in rendering investment management
services to the fund or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the fund or shares of other Fidelity funds
to the extent permitted by law. FMR may use research services provided by
and place agency transactions with Fidelity Brokerage Services, Inc. (FBSI)
and Fidelity Brokerage Services (FBS), subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. From
September 1992 through December 1994, FBS operated under the name Fidelity
Brokerage Services Limited, Inc. (FBSL). As of January 1995, FBSL was
converted to an unlimited liability company and assumed the name FBS. Prior
to September 4, 1992, FBSL operated under the name Fidelity Portfolio
Services, Ltd. (FPSL) as a wholly owned subsidiary of Fidelity
International Limited (FIL). Edward C. Johnson 3d is Chairman of FIL. Mr.
Johnson 3d, Johnson family members, and various trusts for the benefit of
the Johnson family own, directly or indirectly, more than 25% of the voting
common stock of FIL.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
fund and review the commissions paid by the fund over representative
periods of time to determine if they are reasonable in relation to the
benefits to the fund.
For the fiscal years ended August 31, 1995 and 1994, the fund's portfolio
turnover rates were 79 % and 168 %, respectively. Because a
high turnover rate increases transaction costs and may increase taxable
gains, FMR carefully weighs the anticipated benefits of short-term
investing against these consequences.
For fiscal 1995, 1994, and 1993, the fund paid no brokerage commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the fund is concerned. In other cases,
however, the ability of the fund to participate in volume transactions will
produce better executions and prices for the fund. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to the fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
Securities owned by the fund are appraised by various methods depending on
the market or exchange on which they trade. Securities traded on the New
York Stock Exchange or the American Stock Exchange are appraised at the
last sale price, or if no sale has occurred, at the closing bid price.
Securities traded on other exchanges are appraised as nearly as possible in
the same manner. Securities and other assets for which exchange quotations
are not readily available are valued on the basis of closing
over-the-counter bid prices, if available, or at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
Foreign securities are valued at the last sale price in the principal
market where they are traded, or, if last sale prices are unavailable, at
the last bid price available prior to the time the fund's net asset value
per share (NAV) is determined. Foreign security prices are furnished by
quotation services who express the value of securities in their local
currency. FSC translates the value of foreign securities from the local
currency into U.S. dollars at current exchange rates. Any changes in the
value of forward contracts due to exchange rate fluctuations are included
in the determination of NAV.
The fund's bond investments are valued primarily on the basis of valuations
furnished by a pricing service that uses both dealer-supplied valuations
and electronic data processing techniques that take into account
appropriate factors such as institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data, without exclusive reliance upon
quoted prices or exchanges or over-the-counter prices, since such
valuations are believed to reflect more accurately the fair value of such
securities. Use of the pricing service has been approved by the Board of
Trustees.
The fund's portfolio securities with remaining maturities of less than 60
days are valued on the basis of amortized cost. This technique involves
valuing an instrument at its cost as adjusted for amortization of premium
or accretion of discount rather than its value based on current market
quotations or appropriate substitutes which reflect current market
conditions. The amortized cost value of an instrument may be higher or
lower than the price the fund would receive if it sold the instrument.
PERFORMANCE
The fund may quote performance in various ways. All performance information
supplied by the fund in advertising is historical and is not intended to
indicate future returns. The fund's share price, yield, and total return
fluctuate in response to market conditions and other factors, and the value
of fund shares when redeemed may be more or less than their original cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing the fund's
interest and dividend income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the fund's net asset value
(NAV) at the end of the period, and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate.
Yields do not reflect the fund's 1.00% redemption fee, which applies to
shares held less than 180 days. Income is calculated for purposes of yield
quotations in accordance with standardized methods applicable to all stock
and bond funds. Dividends from equity investments are treated as if they
were accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with respect to bonds
trading at a premium over their par value by subtracting a portion of the
premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. For the fund's investments denominated in foreign currencies,
income and expenses are calculated first in their respective currencies,
and are then converted to U.S. dollars, either when they are actually
converted or at the end of the 30-day or one month period, whichever is
earlier. Capital gains and losses generally are excluded from the
calculation as are gains and losses from currency exchange rate
fluctuations.
Income calculated for the purposes of calculating the fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, the fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements.
Yield information may be useful in reviewing the fund's performance and in
providing a basis for comparison with other investment alternatives.
However, the fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates the
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
The fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing the fund's yield by
the result of one minus a stated federal or combined federal and state tax
rate. If only a portion of the fund's yield is tax-exempt, only that
portion is adjusted in the calculation.
The following table shows the effect of a shareholder's tax status on
effective yield under federal income tax laws for 1996. It shows the
approximate yield a taxable security must provide at various income
brackets to produce after-tax yields equivalent to those of hypothetical
tax-exempt obligations yielding from 4% to 8%. Of course, no assurance can
be given that the fund will achieve any specific tax-exempt yield. While
the fund intends to invest at least 50% of its assets in obligations whose
interest is exempt form federal income tax, other income received by the
fund may be taxable.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1996 TAX RATES AND TAX-EQUIVALENT YIELDS
Federal If individual tax-exempt yield is:
Taxable Income* Tax 4% 5% 6% 7% 8%
Single Return Joint Return Bracket** Then taxable equivalent yield is
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28% 5.56% 6.94% 8.33% 9.72% 11.11%
$ 58,151 - $ 121,300 $ 96,901 - $ 147,700 31% 5.80% 7.25% 8.70% 10.14% 11.59%
$ 121,301 - $ 263,750 $ 147,701 - $ 263,750 36% 6.25% 7.81% 9.38% 10.94% 12.50%
$ 263,751 and above $ 263,751 and above 39.6% 6.62% 8.28% 9.93% 11.59% 13.25%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
The fund may invest a portion of its assets in obligations that are subject
to federal income tax. When the fund invests in these obligations, its
tax-equivalent yields will be lower. In the table above, tax-equivalent
yields are calculated assuming investments are 100% federally tax-free.
During fiscal 1995, 90.3% of the fund's income was free from federal income
tax.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in
the fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may or may not include the effect of the
fund's 1.00% redemption fee on shares held less than 180. After-tax total
returns reflect the total return of a hypothetical account after payment of
federal and/or state taxes using assumed tax rates. After-tax total returns
may assume that taxes are paid at the time of distribution or once each
year or are paid in cash or by redeeming shares, that shares are held
through the entire period or redeemed on the last day of the period, and
that distributions are reinvested or paid in cash. Excluding the fund's
redemption fee from a total return calculation produces a higher total
return figure. Total returns, yields, and other performance information may
be quoted numerically or in a table, graph, or similar illustration, and
may omit or include the effect of the $5.00 account closeout fee.
NET ASSET VALUE. Charts and graphs using the fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the fund
and reflects all elements of its return. Unless otherwise indicated, the
fund's adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show the fund's yields,
tax-equivalent yields, and total returns for periods ended August 31,
1995 . Total return figures include the effect of the $5.00 account
closeout fee based on an average size account, but not the fund's 1.00%
redemption fee, applicable to shares held less than 180. The tax-equivalent
yield is based on a 36% federal income tax rate. Note that the fund may
invest in securities whose income is subject to federal and state income
taxes and to the federal alternative minimum tax.
SPARTAN BOND STRATEGIST
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Cumulative
Total Returns Total Returns Average Annual Cumulative
After-Tax After-Tax
Total Returns** Total Returns**
30-Day Tax-Equivalent One Life of One Life of One Life of One Life of
Yield Yield Year Fund* Year Fund* Year Fund* Year Fund*
4.51% 6.92% 16.51% 3.77% 16.51% 8.92% 12.33% 3.77% 12.33% 8.93%
</TABLE>
* From September 9, 1993 (commencement of operations).
** After-tax total returns reflect what you would have after taxes (at the
36% federal tax rate for income and short-term gains and 28% federal tax
rate for long-term gains). They assume that money was withdrawn from the
fund to pay for taxes in the year that the distributions, if any, were
taxable, and that you closed the account at the end of the period. If you
did not close your account, the after-tax return would have been 16.29%
for t he past year and 8.17 % for the life of the fund. These
returns are lower because they do not include the tax benefit of realizing
a capital loss upon closing your account.
The following table shows the income and capital elements of the
fund's cumulative total return. The table compares the fund's return to the
record of the Standard & Poor's Composite Index of 500 Stocks (S&P
500(Registered trademark)), the Dow Jones Industrial Average (DJIA), and
the cost of living (measured by the Consumer Price Index, or CPI) over the
same period. The CPI information is as of the month end closest to the
initial investment date. The S&P 500 and DJIA comparisons are provided to
show how the fund's total return compared to the record of a broad average
of common stocks and a narrower set of stocks of major industrial
companies, respectively, over the same period. Of course, since the fund
invests in fixed-income securities, common stocks represent a different
type of investment from the fund. Common stocks generally offer greater
growth potential than the fund, but generally experience greater price
volatility, which means greater potential for loss. In addition, common
stocks generally provide lower income than a fixed-income investment such
as the fund. Figures for the S&P 500 and DJIA are based on the prices of
unmanaged groups of stocks and, unlike the fund's returns, do not include
the effect of paying brokerage commissions or other costs of investing.
During the period from September 9, 1993 (commencement of operations) to
August 31, 1995 , a hypothetical $10,000 investment in Spartan Bond
Strategist would have grown to $ 10,893, as suming all distributions
were reinvested. This was a period of fluctuating interest rates and bond
prices and the figures below should not be considered representative
of the dividend income or capital gain or loss that could be realized from
an investment in the fund today.
Spartan Bond Strategist INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ 9,680 $ 1,213 $ 0 $ 10,893 $ 14,358 $ 15,139 $ 10,601
1994 $ 8,740 $ 608 $ 0 $ 9,348 $ 10,437 $ 11,073 $ 10,338
1993* $ 9,980 $ 143 $ 0 $ 10,123 $ 10,301 $ 10,548 $ 10,069
</TABLE>
* From September 9, 1993 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on September
9, 1993, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $11,167.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $1,102 for dividends and $0 for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures. T he figures shown above do not
reflect the fund's 1.00% redemption fee applicable to shares held less
than 180 days or the fund's $5.00 account closeout fee.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, the fund's performance may
be compared to stock, bond, and money market mutual fund performance
indices prepared by Lipper or other organizations. When comparing these
indices, it is important to remember the risk and return characteristics of
each type of investment. For example, while stock mutual funds may offer
higher potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, the fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
The fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, the
fund may offer greater liquidity or higher potential returns than CDs, the
fund does not guarantee your principal or your return, and fund shares are
not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All
Tax-Free, which is reported in the MONEY FUND REPORT(registered trademark),
covers over 395 tax-free money market funds and the IBC/Donoghue's MONEY
FUND AVERAGES(trademark)/All Taxable covers over 771 taxable money market
funds. The Bond Fund Report AverageS(trademark)/All Tax-Free, which is
reported in the BOND FUND REPORT(registered trademark), covers over 559
tax-free bond funds and the BOND FUND REPORT AVERAGES(trademark)/All
Taxable covers over 539 taxable bond funds. When evaluating comparisons to
money market funds, investors should consider the relevant differences in
investment objectives and policies. Specifically, money market funds invest
in short-term, high-quality instruments and seek to maintain a stable $1.00
share price. The fund, however, invests in longer-term instruments and its
share price changes daily in response to a variety of factors.
The fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Fidelity services and products. Fidelity may also reprint,
and use as advertising and sales literature, articles from Fidelity
Focus(Registered trademark), a quarterly magazine provided free of charge
to Fidelity fund shareholders.
The fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. The fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, the fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program,
an investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of August 31, 1995, FMR advised over $26.5 billion in tax-free
fund assets, $81 billion in money market fund assets, $240 billion in
equity fund assets, $49 billion in international fund assets, and $23
billion in Spartan fund assets. The fund may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management figure
represents the largest amount of equity fund assets under management by a
mutual fund investment adviser in the United States, making FMR America's
leading equity (stock) fund manager. FMR, its subsidiaries, and affiliates
maintain a worldwide information and communications network for the purpose
of researching and managing investments abroad.
In addition to performance rankings, the fund may compare its total expense
ratio to the average total expense ratio of similar funds tracked by
Lipper. A fund's total expense ratio is a significant factor in comparing
bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1996: New Year's
Day, President's Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Although
FMR expects the same holiday schedule to be observed in the future, the
NYSE may modify its holiday schedule at any time. In addition, the fund
will not process wire purchases and redemptions on days when the Federal
Reserve Wire System is closed.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed , the fund's NAV
may be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of the fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), the fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, the fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that the fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. A portion of the fund's dividends derived from
certain U.S. government obligations may be exempt from state and local
taxation. Gains (losses) attributable to foreign currency fluctuations are
generally taxable as ordinary income, and therefore will increase
(decrease) dividend distributions. Short-term capital gains are distributed
as dividend income and will be taxed as ordinary income. The fund will send
each shareholder a notice in January describing the tax status of dividends
and capital gain distributions for the prior year.
A portion of the fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the fund's
income is derived from qualifying dividends. Because the fund may earn
other types of income, such as interest, income from securities loans,
non-qualifying dividends, and short-term capital gains, the percentage of
dividends from the fund that qualifies for the deduction generally will be
less than 100%. The fund will notify corporate shareholders annually of the
percentage of fund dividends that qualifies for the dividends-received
deduction.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
The fund purchases municipal securities that are free from federal income
tax based on opinions of bond counsel regarding their tax status. These
opinions generally will be based on covenants by the issuers or other
parties regarding continuing compliance with federal tax requirements. If
at any time the covenants are not complied with, distribution to
shareholders of interest on a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structure securities, opinions of bond counsel may also be based on the
effect of the structure on the federal tax treatment of the income.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities is a tax
preference item for the purposes of determining whether a taxpayer is
subject to the AMT and the amount of AMT to be paid, if any. Private
activity securities issued after August 7, 1986 to benefit a private or
industrial user or to finance a private facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by the fund are taxable
to shareholders as dividends, not as capital gains.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund, and such shares are held
six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
the fund are taxable to shareholders as dividends, not as capital gains.
As of August 31, 1995, the fund had a capital loss carryforward
aggregating approximately $1,755,000. This loss carryforward, of which
$26,000, $1,196,000, and $533,000 will expire on August 31 , 2001,
2002, and 2003, respectively, is available to offset future capital gains.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Foreign governments may
also impose taxes on other payments or gains with respect to foreign
securities. If at the close of its fiscal year, more than 50% of the fund's
total assets are invested in securities of foreign issuers, the fund may
elect to pass through foreign taxes paid and thereby allow shareholders to
take a credit or deduction on their individual tax returns.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
the fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. The fund intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some forward currency contracts, futures contracts, and options
are included in this 30% calculation, which may limit the fund's
investments in such instruments.
If the fund purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the Internal
Revenue Code, it may be subject to U.S. federal income tax on a portion of
any excess distribution or gain from the disposition of such shares.
Interest charges may also be imposed on the fund with respect to deferred
taxes arising from such distributions or gains. Generally, the fund will
elect to mark-to-market any PFIC shares. Unrealized gains will be
recognized as income for tax purposes and must be distributed to
shareholders as dividends.
The fund is treated as a separate entity from the other funds of Fidelity
Union Street Trust II for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether the fund is suitable to their particular tax
situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the 1940 Act, control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company. Therefore, through their ownership of voting common
stock and the execution of the shareholders' voting agreement, members of
the Johnson family may be deemed, under the 1940 Act, to form a controlling
group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. The
business address of each Trustee and officer who is an "interested person"
(as defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees is Fidelity Investments, P.O. Box 9235,
Boston, Massachusetts 02205-9235. Those Trustees who are "interested
persons" by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (65), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (54), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (64), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores, 1990), and previously served as
a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (71), Trustee, is a financial consultant. Prior to
September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton
Company (manufacturer of industrial devices). He is currently a Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc., and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (68), Trustee (1990). Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc. (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990),
and he previously served as a Director of NACCO Industries, Inc. (mining
and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc.
(1985-1995). In addition, he serves as a Trustee of First Union Real Estate
Investments, a Trustee and member of the Executive Committee of the
Cleveland Clinic Foundation, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the
Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (52), Trustee (1990) is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (66), Trustee, is Chairman of G.M. Management Group
(strategic advisory services). Prior to his retirement in July 1988, he was
Chairman and Chief Executive Officer of Leaseway Transportation Corp.
(physical distribution services). Mr. McDonough is a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products), Brush-Wellman Inc. (metal refining), York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (71), Trustee. Prior to his retirement in 1985, Mr. Malone
was Chairman, General Electric Investment Corporation and a Vice President
of General Electric Company. He is a Director of Allegheny Power Systems,
Inc. (electric utility), General Re Corporation (reinsurance) and Mattel
Inc. (toy manufacturer). In addition, he serves as a Trustee of the Naples
Philharmonic Center for the Arts and Rensselaer Polytechnic Institute, and
he is a member of the Advisory Boards of Butler Capital Corporation Funds
and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board, President,
and Chief Executive Officer of Lexmark International, Inc. (office
machines, 1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet (1990).
THOMAS R. WILLIAMS (67), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (56), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President - Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995)
JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (49), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial
Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice
President, Assistant Controller, and Director of the Accounting Department
- - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current Trustee of the fund for his or her services as trustee for the
fiscal year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
from Benefits Accrued Retirement from from the Fund
the Fund as Part of Fund the Complex*
Expenses from the Fund Complex*
Fund Complex*
J. Gary Burkhead ** $ 0 $ 0 $ 0 $ 0
Ralph F. Cox 8 5,200 52,000 128,000
Phyllis Burke Davis 7 5,200 52,000 125,000
Richard J. Flynn 10 0 52,000 160,500
Edward C. Johnson 3d ** 0 0 0 0
E. Bradley Jones 8 5,200 49,400 128,000
Donald J. Kirk 8 5,200 52,000 129,500
Peter S. Lynch ** 0 0 0 0
Gerald C. McDonough 8 5,200 52,000 128,000
Edward H. Malone 8 5,200 44,200 128,000
Marvin L. Mann 8 5,200 52,000 128,000
Thomas R. Williams 7 5,200 52,000 125,000
</TABLE>
* Information is as of December 31, 1995 for 219 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the Plan). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee (designated securities). The amount paid to the
Trustee under the Plan will be determined based upon the performance of
such investments. Deferral of Trustees' fees in accordance with the Plan
will have a negligible effect on the fund's assets, liabilities, and net
income per share, and will not obligate the fund to retain the services of
any Trustee or to pay any particular level of compensation to the Trustee.
The fund may invest in such designated securities without shareholder
approval.
Under a retirement program adopted in July 1988, the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments is not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-interested Trustees, receive retirement benefits under the program.
As of December 31, 1995, approximately 42.1% of the fund's total
outstanding shares were held by an FMR affiliate, FMR Corp. Mr. Edward C.
Johnson 3d, President and Trustee of the fund, is a member of a group
which, by virtue of its owning approximately 49% of the voting securities
of FMR Corp., may be deemed under the 1940 Act to form a controlling group
with respect to FMR Corp. Therefore, based on his membership in this group,
Mr. Edward C. Johnson 3d may be deemed to own beneficially 42.1% of the
fund. As of this date, with the exception of Mr. Johnson 3d's ownership of
the fund's shares, the Trustees and officers of the fund owned, in the
aggregate, less than 1% of the fund's total outstanding shares.
A shareholder owning of record or beneficially more than 25% of a fund's
outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholder's meeting than votes of other shareholders.
MANAGEMENT CONTRACT
The fund employs FMR to furnish investment advisory and other services.
Under its management contract with the fund, FMR acts as investment adviser
and, subject to the supervision of the Board of Trustees, directs the
investments of the fund in accordance with its investment objective,
policies, and limitations. FMR also provides the fund with all necessary
office facilities and personnel for servicing the fund's investments,
compensates all officers of the fund and all Trustees who are "interested
persons" of the trust or of FMR, and all personnel of the fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the fund. These services include providing facilities
for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the fund's
records and the registration of the fund's shares under federal and state
laws; developing management and shareholder services for the fund; and
furnishing reports, evaluations, and analyses on a variety of subjects to
the Trustees.
FMR is responsible for the payment of all expenses of the fund with certain
exceptions. Specific expenses payable by FMR include, without limitation,
expenses for the typesetting, printing, and mailing proxy materials to
shareholders; legal expenses, and the fees of the custodian, auditor and
non-interested Trustees; costs of typesetting, printing, and mailing
prospectuses and statements of additional information, notices and reports
to shareholders; the fund's proportionate share of insurance premiums and
Investment Company Institute dues. FMR also provides for transfer agent and
dividend disbursing services and portfolio and general accounting record
maintenance through FSC.
FMR pays all other expenses of the fund with the following exceptions: fees
and expenses of all Trustees of the trust who are not "interested persons"
of the trust or FMR (the non-interested Trustees); interest on borrowings;
taxes; brokerage commissions (if any); and such nonrecurring expenses as
may arise, including costs of any litigation to which a fund may be a
party, and any obligation it may have to indemnify the officers and
Trustees with respect to litigation.
FMR is the fund's manager pursuant to a management contract dated July 15,
1993, which was approved by FMR, the then sole shareholder of the fund on
August 30, 1993. The management fee paid to FMR is reduced by an amount
equal to the fees and expenses of the non-interested Trustees.
For the services of FMR under the contract, the fund pays FMR a monthly
management fee at the annual rate of .70% of the average net assets of the
fund throughout the month. For the fiscal years ended December 31, 1995,
1994, and 1993, FMR received $127,871, $150,625, and $33,664, respectively,
after reduction of fees and expenses of the non-interested Trustees.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase the fund's total returns and yield and repayment of
the reimbursement by the fund will lower its total returns and yield.
To defray shareholder service costs, FMR or its affiliates also collect the
fund's $5.00 exchange fee, $5.00 account closeout fee, and $5.00 fee for
wire purchases and redemptions. Shareholder transaction fees and charges
collected by FMR are indicated in the table below.
Period Ended Account
December 31 Exchange Fees Closeout Fees Wire Fees
1995 $285 $130 $30
1994 $740 $175 $40
1993 $5 $0 $0
SUB-ADVISERS. FMR has entered into sub-advisory agreements with FMR U.K.
and FMR Far East. Pursuant to the sub-advisory agreements, FMR may receive
investment advice and research services outside the United States from the
sub-advisers. FMR may also grant the sub-advisers investment management
authority as well as the authority to buy and sell securities if FMR
believes it would be beneficial to the fund.
Currently, FMR U.K. and FMR Far East each focus on issuers in countries
other than the United States such as those in Europe, Asia, and the Pacific
Basin.
FMR U.K. and FMR Far East, which were organized in 1986, are wholly owned
subsidiaries of FMR. Under the sub-advisory agreements FMR pays the fees of
FMR U.K. and FMR Far East. For providing non-discretionary investment
advice and research services, FMR pays FMR U.K. and FMR Far East fees equal
to 110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services.
For providing discretionary investment management and executing portfolio
transactions, FMR pays FMR U.K. and FMR Far East a fee equal to 50% of its
monthly management fee rate with respect to the fund's average net assets
managed by the sub-adviser on a discretionary basis.
For the fiscal years ended December 31, 1995, 1994, and 1993, no fees were
paid by FMR to FMR U.K. and FMR Far East on behalf of the fund.
DISTRIBUTION AND SERVICE PLAN
The Trustees have approved a Distribution and Service Plan on behalf of the
fund (the Plan) pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is primarily
intended to result in the sale of shares of a fund except pursuant to a
plan approved on behalf of the fund under the Rule. The Plan, as approved
by the Trustees, allows the fund and FMR to incur certain expenses that
might be considered to constitute indirect payment by the fund of
distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR is
deemed to be indirect financing by the fund of the distribution of its
shares, such payment is authorized by the Plan. The Plan also specifically
recognizes that FMR, either directly or through FDC, may use its management
fee revenue, past profits, or other resources, without limitation, to pay
promotional and administrative expenses in connection with the offer and
sale of shares of the fund. In addition, the Plan provides that FMR may use
its resources, including its management fee revenues, to make payments to
third parties that assist in selling shares of the fund, or to third
parties, including banks, that render shareholder support services.
No third party payments were made in fiscal 1995.
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the the fund and its shareholders. In particular, the Trustees noted that
the Plan does not authorize payments by the fund other than those made to
FMR under its management contract with the fund. To the extent that the
Plan gives FMR and FDC greater flexibility in connection with the
distribution of shares of the fund, additional sales of fund shares may
result. Furthermore, certain shareholder support services may be provided
more effectively under the Plan by local entities with whom shareholders
have other relationships.
The Plan was approved by FMR as the then sole shareholder of the fund on
August 30, 1993.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
The fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plan. No
preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
FSC performs transfer agency, dividend disbursing, and shareholder
servicing functions for the fund. The costs of these services are borne by
FMR pursuant to its management contract with the fund. Under this
arrangement, FSC receives annual account fees and asset-based fees for each
retail account and certain institutional accounts based on account size.
With respect to certain institutional retirement accounts, FSC receives
asset-based fees only. With respect to certain other institutional
retirement accounts, FSC receives annual account fees and asset based fees
based on fund type. In addition, these fees are subject to increase based
on postal rate changes. FSC also collects small account fees from certain
accounts with balances of less than $2,500. FSC also calculates the fund's
net asset value per share and dividends, maintains the fund's general
accounting records, and administers the fund's securities lending program.
Under this arrangement, FSC receives a fee based on the fund's average net
assets. The costs of these services are also borne by FMR pursuant to its
management contract with the fund.
The fund has a distribution agreement with FDC, a Massachusetts corporation
organized on July 18, 1960. FDC is a broker-dealer registered under the
Securities and Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of the fund, which are continuously offered
at net asset value. Promotional and administrative expenses in connection
with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Spartan Bond Strategist is a fund of Fidelity Union
Street Trust II (the trust), an open-end management investment company
organized as a Massachusetts business trust on September 10, 1976 under the
name Fidelity Municipal Bond Fund. The trust's name was changed to Fidelity
Mid-Term Municipals on February 28, 1977. The trust's name was later
changed to Fidelity Limited-Term Municipals on April 15, 1977 and to
Fidelity School Street Trust on June 17, 1993. Currently, there are two
funds of the trust: Fidelity Limited Term Municipal Income Fund and Spartan
Bond Strategist. The Declaration of Trust permits the Trustees to create
additional funds.
In the event that FMR ceases to be the investment adviser to the trust or a
fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the trust. Expenses with respect to the trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of
Trust provides that the trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
trust or the Trustees include a provision limiting the obligations created
thereby to the trust and its assets. The Declaration of Trust provides for
indemnification out of each fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of Trust
also provides that each fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the fund
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which a fund itself would be unable to meet its
obligations. FMR believes that, in view of the above, the risk of personal
liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value you own. The shares have no preemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the heading "Shareholder
and Trustee Liability" above. Shareholders representing 10% or more of the
trust or a fund may, as set forth in the Declaration of Trust, call
meetings of the trust or a fund for any purpose related to the trust or
fund, as the case may be, including, in the case of a meeting of the entire
trust, the purpose of voting on removal of one or more Trustees. The trust
or any fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and
distribution of its assets, if approved by vote of the holders of a
majority of the trust or the fund, as determined by the current value of
each shareholder's investment in the fund or trust. If not so terminated,
the trust and its funds will continue indefinitely. Each fund may invest
all of its assets in another investment company.
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, N.Y., is
custodian of the assets of the fund. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of the subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian. Chemical Bank, headquartered in New York, also may serve as a
special purpose custodian of certain assets in connection with pooled
repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts serves as the trust's independent accountant. The auditor
examines financial statements for the fund and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal
year ended August 31, 1995 are included in the fund's Annual Report,
which is a separate report supplied with this Statement of Additional
Information. The fund's financial statements and financial highlights are
incorporated herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds. Also, the maturities of mortgage-backed securities
and some asset-backed securities, such as collateralized mortgage
obligations, are determined on a weighted average life basis, which is the
average time for principal to be repaid. For a mortgage security, this
average time is calculated by estimating the timing of principal payments,
including unscheduled prepayments, during the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds which are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
There are nine basic rating categories for long-term obligations. They
range from AAA (highest quality) to C (lowest quality). Those bonds within
the AA, A, BAA, BA and B categories that Moody's believes possess the
strongest credit attributes within those categories are designated by the
symbols AA1, A1, BAA1, BA1 and B1.
DESCRIPTION OF STANDARD & POOR'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to D may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds which are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through C in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB-rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to D may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.
(2_FIDELITY_LOGOS)
SPARTAN(registered trademark)
BOND STRATEGIST(trademark)
ANNUAL REPORT
DECEMBER 31, 1995
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on bond market
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 19 Notes to the financial statements.
REPORT OF INDEPENDENT 23 The auditors' opinion.
ACCOUNTANTS
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
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
DEAR SHAREHOLDER:
Although the markets were fairly positive in 1995, no one can predict what
lies ahead for investors. The previous year, stocks posted below-average
returns and bonds had one of the worst years in history. This downturn
followed a period in which the investing environment was generally very
positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving
for a college education, enables you to weather these ups and downs in a
long-term fund, which has higher potential returns. An intermediate-length
fund could be appropriate if your investment horizon is two to four years,
and a short-term bond fund could be the right choice if you need your money
in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in a fund's share price, plus reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value) and the effect of the fund's
$5 account closeout fee. You can also look at the fund's income to measure
performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1995 PAST 1 YEAR LIFE OF FUND
Spartan Bond Strategist 16.51% 8.92%
Spartan Bond Strategist - After Taxes 12.33% 8.93%
Lehman Brothers Municipal Bond Index 17.45% n/a
Lehman Brothers Aggregate Bond Index 18.47% n/a
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
September 9, 1993. For example, if you invested $1,000 in a fund that had a
5% return over the past year, the value of your investment would be $1,050.
After-tax returns reflect what you would have after taxes (at the 36%
federal tax rate for income and short-term gains and 28% for long-term
gains). They assume that taxes were withdrawn in the year that any
distributions were taxable, and that you closed the account at the end of
the period. If you did not close your account, the after-tax return would
have been 16.29% for the past year and 8.17% for the life of the fund. The
life of fund after-tax return is higher if you closed your account because
you would have realized a capital loss which is a tax benefit. You can
compare the fund's returns to those of the Lehman Brothers Municipal Bond
Index - a broad gauge of the municipal bond market, or to the Lehman
Brothers Aggregate Bond Index - a broad measure of the taxable bond market.
These benchmarks include reinvested dividends and capital gains, if any.
Recent U.S. Consumer Price Index (CPI) information is not available from
the U.S. Department of Labor. Therefore, the CPI comparison has not been
included in this report.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1995 PAST 1 YEAR LIFE OF FUND
Spartan Bond Strategist 16.51% 3.77%
Spartan Bond Strategist - After Taxes 12.33% 3.77%
Lehman Brothers Municipal Bond Index 17.45% n/a
Lehman Brothers Aggregate Bond Index 18.47% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the
fund had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
Spartan Bond StratLB Municipal BLB Aggregate Bon
09/30/93 10000.00 10000.00 10000.00
10/31/93 10005.23 10019.30 10037.37
11/30/93 9900.08 9931.03 9951.98
12/31/93 10199.26 10140.67 10005.92
01/31/94 10322.83 10256.48 10141.01
02/28/94 9981.38 9990.84 9964.83
03/31/94 9479.35 9584.01 9719.16
04/30/94 9459.72 9665.28 9641.55
05/31/94 9596.28 9749.08 9640.19
06/30/94 9521.87 9689.51 9618.89
07/31/94 9720.61 9867.12 9809.95
08/31/94 9752.57 9901.26 9822.13
09/30/94 9603.82 9755.91 9677.56
10/31/94 9424.85 9582.65 9668.94
11/30/94 9233.36 9409.39 9647.46
12/31/94 9418.81 9616.49 9714.08
01/31/95 9692.14 9891.33 9906.33
02/28/95 9939.45 10178.97 10141.86
03/31/95 10031.59 10295.93 10204.08
04/30/95 10053.47 10308.08 10346.62
05/31/95 10392.81 10637.01 10747.00
06/30/95 10302.48 10543.94 10825.80
07/31/95 10401.43 10643.89 10801.62
08/31/95 10534.20 10778.86 10931.98
09/30/95 10576.53 10847.09 11038.33
10/31/95 10710.20 11004.80 11181.88
11/30/95 10886.66 11187.37 11349.44
12/29/95 10986.38 11294.88 11508.72
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Bond
Strategist on September 30, 1993, shortly after the fund started. As the
chart shows, by December 31, 1995, the value of your investment, with
dividends reinvested, would have grown to $10,975 - a 9.75% increase on
your initial investment. This assumes you still owned the fund on December
31, 1995 and therefore does not include the effect of the $5 account
closeout fee. For comparison, look at how the Lehman Brothers Municipal
Bond Index and Lehman Brothers Aggregate Bond Index did over the same
period. With dividends reinvested, the same $10,000 investment would have
grown to $11,295 and $11,509 - a 12.95% and 15.09% increase, respectively.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
INCOME
1995 TOTAL PERCENT
TAX-FREE
January $.044 89.75%
February $.038 86.63%
March $.045 73.42%
April $.040 88.96%
May $.039 98.30%
June $.038 92.17%
July $.039 94.43%
August $.040 92.75%
September $.038 89.65%
October $.039 91.04%
November $.037 96.14%
December $.038 94.37%
The amounts shown above reflect the total income distributed for each fund
share and the percentage that was federally tax-free.
YIELD
PERIOD ENDED DECEMBER 31, 1995
30-day annualized yield 4.51%
Tax-equivalent yield 6.92%
The 30-day annualized yield is a standard formula for all bond funds based
on the yields of the bonds in the fund, averaged over the past 30 days. It
helps you compare funds from different companies on an equal basis. The
tax-equivalent yield shows what you would have to earn on a taxable
investment to equal the fund's yield, if you're in the 36% federal tax
bracket.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
In sharp contrast to much of 1994,
the municipal bond market posted
strong returns for the 12 months
ended December 31, 1995. For
the period, the Lehman Brothers
Municipal Bond Index - a broad
measure of the tax-free market -
had a total return of 17.45%. By
comparison, the Lehman Brothers
Aggregate Bond Index - a proxy
for investment-grade taxable
bonds - had a total return of
18.47%. Tax-free bonds kicked
off 1995 by surging ahead of
their taxable counterparts in the
first quarter on signs of a slowing
economy and tamer inflation
expectations. By spring, however,
the muni bond market began to
underperform U.S. Treasury
securities when Congress began
consideration of tax-code changes,
some of which threatened the
tax-exempt status of municipal
securities. This threat of tax reform
dampened enthusiasm in the
municipal bond market, stalling
the rally and helping shorter
maturity bonds to outperform their
longer counterparts throughout
the spring and summer months.
By the fourth quarter, historically
attractive valuations relative to
Treasuries, continued low
issuance, and stronger demand
from insurance companies and
retail buyers helped longer-term
tax-free bonds rebound.
An interview with George Fischer, Portfolio Manager of Spartan Bond
Strategist
Q. GEORGE, HOW DID THE FUND DO?
A. For the 12 months ended December 31, 1995, Spartan Bond Strategist
returned 16.51%. During the same time period, the Lehman Brothers Aggregate
Bond Index, which tracks taxable issues, had a total return of 18.47%
before taxes. The Lehman Brothers Municipal Bond Index, which measures
tax-free bond performance, returned 17.45%. The fund's strategy is to
maximize after-tax returns for investors in the 36% tax bracket. This
after-tax return was 12.33% for the same 12-month period.
Q. WHY DID YOU KEEP THE FUND NEARLY FULLY INVESTED IN MUNICIPAL SECURITIES
DURING THE YEAR?
A. My view was that, on an after-tax basis, municipal bonds continued to
represent a good value for investors in the 36% and above tax brackets
throughout the year. With 1995's strong bond market rally, corporate bonds
traded at historically rich values - that is, expensive relative to what I
believed their value to be. What's more, Treasury bonds didn't offer as
much yield - on an after-tax basis - relative to municipals.
Q. WHAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. While the fund's performance was helped by the overall rise in the
municipal market, there were some specific holdings that did particularly
well. Philadelphia general obligation bonds were one example. I purchased
these bonds in 1994 in anticipation of the city receiving a credit upgrade.
When that upgrade materialized in 1995, the fund's Philadelphia holdings
appreciated significantly. The fund also benefited from my trading in and
out of New York City bonds. The supply of New York City municipals issued
tends to fluctuate quite significantly and, as a result, price
inefficiencies tend to develop. We were successful in buying New York City
bonds at times when supply was heavy and their prices were cheap, and
selling them once supply diminished and their prices appreciated. While New
York City's bonds were downgraded by one of the major credit rating
agencies last year, it didn't seem to have much of an impact on the City's
bonds, since the downgrade had been anticipated and already had been
factored into prices.
Q. WHAT WAS YOUR STRATEGY?
A. Throughout the year, the fund had a heavy emphasis on municipal bonds
with maturities between 10 and 20 years. In my view, securities in that
maturity range offered a good combination of yield relative to the risk
involved. Bonds with shorter maturities tended to offer much less
incremental yield, while many bonds with longer-maturities carried the risk
that they would be called, or redeemed early, by their issuer.
Q. THE FUND'S STAKE IN BONDS ISSUED IN TEXAS HAS GROWN OVER THE PERIOD.
WHAT TYPES OF BONDS WERE ATTRACTIVE?
A. Bonds backed by the Texas Permanent School Fund, which made up about 8%
of the fund's investments at the end of the year. This program allows Texas
school districts to borrow and get a guarantee from this state entity,
which serves as a type of insurance that the bond's principal and interest
payments will be paid. In my view, these bonds are very high-quality, but
generally traded cheaper than the other higher-rated bonds. In light of
that, I believed that they offered good value.
Q. DO YOU HAVE ANY REGRETS?
A. Although California bonds made up 5.4% of the fund's investments at the
end of the period, the fund was underweighted - relative to the Lehman
Brothers Municipal Bond Index - in bonds issued in the state. These bonds
tended to do well last year. Their performance was driven primarily by
improvements in the state's economy. California has recouped nearly all of
the job losses it had sustained as a result of the defense industry's
downsizing in the previous few years. Also, the state's fiscal situation
improved throughout 1995, which proved to be a pleasantly surprising
development.
Q. WHAT'S YOUR OUTLOOK?
A. The value of municipals has a lot to do with tax policy. With tax reform
a hot topic of debate, the performance of municipals could be uncertain
until the issue is resolved or fades from view. In light of that, the
municipal market could face some continued volatility over the foreseeable
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: maximum total return
after federal income taxes by
investing in both taxable and
tax-free bonds
START DATE: September 9,
1993
SIZE: as of December 31,
1995, more than $18 million
MANAGER: George Fischer,
since September 1993;
manager, Fidelity Municipal
Bond Fund, since October 1,
1995; Fidelity Insured Municipal
Income Fund, since August
1995; municipal bond analyst
1989 to 1993; joined Fidelity in
1989
(checkmark)
GEORGE FISCHER ON HIS
INVESTMENT STRATEGY:
"There are a variety of ways
investors approach the
municipal market. One
strategy is to try to buy the
highest yielding bonds in an
attempt to maximize tax-free
income. The problem with
emphasizing income is that
investors often are tempted to
do it at the expense of total
return. In other words,
investors may own bonds
that carry a high level of
income, but not enough to
justify the risk to principal
those bonds may carry. I
focus on total return,
emphasizing bonds whose
return justifies the risks
taken."
DISTRIBUTIONS
A total of 16.46% 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 notified shareholders
in January 1996 of the
applicable percentage for use
in preparing 1995 income tax
returns.
INVESTMENT CHANGES
TOP TEN FIXED-INCOME SECURITIES AS OF DECEMBER 31, 1995
(BY ISSUER) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Knox County, Tennessee, Health Educational & 6.2 5.9
Housing Facilities Board
Georgia, General Obligation 6.2 5.9
Lakeland, Florida, Electric & Water 5.7 5.4
Connecticut, General Obligation 5.6 0.0
New York, United Nations Development 5.4 5.4
Gainesville, Georgia, Water & Sewer 5.2 4.9
Leander, Texas, Independent School 5.0 4.8
Niagara Falls, New York, Public Improvement 3.2 3.1
Austin, Texas, Independent School 3.1 3.0
Indiana, Health Facilities Financing Authority 3.0 2.8
AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1995
6 MONTHS AGO
Years 11.4 12.0
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF DECEMBER 31, 1995
6 MONTHS AGO
Years 7.4 7.6
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES.
IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY
TO LOSE ABOUT 5% OF ITS VALUE.
OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND
FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION
AS OF DECEMBER 31, 1995 AS OF JUNE 30, 1995
Row: 1, Col: 1, Value: 5.5
Row: 1, Col: 2, Value: 54.5
Row: 1, Col: 3, Value: 40.0
Municipal
securities 96.2%
Short-term taxable
investments 3.8%
Municipal
securities 94.5%
Short-term taxable
investments 5.5%
Row: 1, Col: 1, Value: 3.8
Row: 1, Col: 2, Value: 56.2
Row: 1, Col: 3, Value: 40.0
INVESTMENTS DECEMBER 31, 1995
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL BONDS - 94.5%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
ARIZONA - 2.6%
Arizona Trans. Board Hwy. Rev. Sub-Series A,
5% 7/1/09 Aa $ 500,000 $ 498,125
CALIFORNIA - 5.4%
Alameda County Ctfs. of Prtn. Rfdg.
(Santa Rita Jail Proj.) 5.375% 6/1/09,
(MBIA Insured) Aaa 500,000 511,875
Rancho Wtr. Dist. Fing. Auth. Rev. Rfdg.
5.875% 11/1/10, (FGIC Insured) Aaa 500,000 530,000
1,041,875
COLORADO - 2.7%
Aurora Ctfs. of Prtn. Rfdg. 6% 12/1/06 A 500,000 526,875
CONNECTICUT - 8.1%
Connecticut Gen. Oblig. Series A,
6.10% 3/15/02 Aa 1,000,000 1,088,750
Connecticut Health & Ed. Facs. Auth. Rev. Rfdg.
(Quinnipiac College) Series D, 6% 7/1/13 BBB- 500,000 486,875
1,575,625
FLORIDA - 8.5%
Broward County Resources Recovery Rev.
(SES Broward Co. LP South Proj.)
7.95% 12/1/08 A 490,000 550,025
Lakeland Elec. & Wtr. Rev. Rfdg. (Jr. Sub. Lien)
6.50% 10/1/06, (FGIC Insured) (d) Aaa 1,000,000 1,110,000
1,660,025
GEORGIA - 11.3%
Gainsville Wtr. & Swr. Rev. Rfdg.
5.25% 11/15/10, (FGIC Insured) Aaa 1,000,000 1,006,250
Georgia Gen. Oblig. Impt. Series B,
7.20% 3/1/05 Aaa 1,000,000 1,198,750
2,205,000
INDIANA - 3.0%
Indiana Health Facs. Fing. Auth. Hosp. Rev. Rfdg.
(Columbus Gen'l. Hosp.) 7% 8/15/15,
(Cap. Guaranty Insured) Aaa 500,000 590,625
KENTUCKY - 2.6%
Owensboro Elec. Lt. & Pwr. Rev. Rfdg. Series B,
0% 1/1/08, (AMBAC Insured) Aaa 925,000 497,187
MASSACHUSETTS - 4.8%
Massachusetts Gen. Oblig. Consolidated
Loan Series C, 5.625% 8/1/13, (MBIA Insured) Aaa 500,000 513,125
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
MASSACHUSETTS - CONTINUED
Massachusetts Ind. Fin. Agcy. Rev.
(Massachusetts Biomedical Research)
Series A-1, 7.10% 8/1/99 A1 $ 400,000 $ 427,000
940,125
MICHIGAN - 1.3%
Michigan Strategic Fund Ltd. Gen. Oblig. Rev.
(Great Lakes Pulp & Fiber Proj.) 10.25%
12/1/16 (b) - 250,000 258,438
NEW JERSEY - 2.8%
Union County Util. Auth. Solid Waste Rev.
Series A, 7.15% 6/15/09 (b) A- 500,000 535,000
NEW YORK - 13.9%
Hempstead Town Ind. Dev. Agcy. Resources
Recovery Rev. (American Rfdg. Fuel Co.)
7.40% 12/1/10 Baa1 500,000 521,240
New York State Dorm. Auth. Rev. (Consolidated
City Univ. Sys.) 2nd Gen. Series A,
5.75% 7/1/09 Baa1 500,000 509,375
Niagra Fall Pub Impt. 7.50% 3/1/18,
(MBIA Insured) Aaa 500,000 628,750
United Nations Dev. Corp. Rev. Rfdg.
(Phase 2&3 Sr. Lien) Series A, 7.875%
7/1/26, (BIG Insured) (Pre-Refunded to
7/1/96 @ 102) (c) Aaa 1,000,000 1,040,790
2,700,155
PENNSYLVANIA - 2.7%
Philadelphia Muni. Auth. Rev. Rfdg. Lease
Series D, 6% 7/15/03 Baa 500,000 516,250
SOUTH CAROLINA - 2.2%
South Carolina Pub. Svc. Auth. Rev. Rfdg.
Series A, 6.50% 1/1/08, (MBIA Insured) (d) Aaa 400,000 437,500
TENNESSEE - 6.2%
Knox County Health Ed. & Hsg. Facs. Board.
Hosp. Facs. Rev. Rfdg. (Ft. Sanders Alliance)
Series C, 7.25% 1/1/09, (MBIA Insured) Aaa 1,000,000 1,211,250
TEXAS - 11.0%
Austin Independent School Dist. School Bldg.
8.125% 8/1/01, (PSF Guaranteed) Aaa 500,000 595,000
Leander Independant School Dist. Unltd. Tax
7.50% 8/15/08, (PSF Guaranteed) Aaa 800,000 980,000
San Antonio Elec. & Gas Rev. 6.375% 2/1/06 Aa1 500,000 561,875
2,136,875
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
VIRGINIA - 2.5%
Virginia Beach Dev. Auth. Hosp. Facs. Rev.
(Virginia Beach Gen. Hosp. Proj.)
5.125% 2/15/18, (AMBAC Insured) Aaa $ 500,000 $ 487,500
WASHINGTON - 2.9%
Washington Pub. Pwr. Supply Sys. Nuclear
Proj. #1 Rev. Rfdg. Series A, 7% 7/1/08 Aa 500,000 568,125
TOTAL MUNICIPAL BONDS
(Cost $17,723,311) 18,386,555
REPURCHASE AGREEMENTS - 5.5%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 5.88%,
dated 12/29/95 due 1/2/96 $ 1,061,693 1,061,000
TOTAL INVESTMENTS IN SECURITIES - 100%
(Cost $18,784,311) $ 19,447,555
LEGEND
1. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
2. Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals.
3. Security collateralized by an amount sufficient to pay interest and
principal.
4. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 80.0% AAA, AA, A 80.1%
Baa 8.0% BBB 7.8%
Ba 0.0% BB 0.0%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 1.3%
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
General Obligation 31.0%
Health Care 14.0
Others (individually less than 10%) 49.5
Repurchase Agreements 5.5
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1995, the aggregate cost of investment securities for
income tax purposes was $18,784,311. Net unrealized appreciation aggregated
$663,244, of which $718,020 related to appreciated investment securities
and $54,776 related to depreciated investment securities.
At December 31, 1995, the fund had a capital loss carryforward of
approximately $1,755,000 of which $26,000, $1,196,000, and $533,000 will
expire on December 31, 2001, 2002, and 2003, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1995
ASSETS
Investment in securities, at value (including repurchase $ 19,447,555
agreements of $1,061,000) (cost $18,784,311) -
See accompanying schedule
Cash 717
Interest receivable 363,773
TOTAL ASSETS 19,812,045
LIABILITIES
Payable for investments purchased $ 1,473,673
Delayed delivery
Payable for fund shares redeemed 209,168
Distributions payable 888
Accrued management fee 10,751
TOTAL LIABILITIES 1,694,480
NET ASSETS $ 18,117,565
Net Assets consist of:
Paid in capital $ 19,210,434
Distributions in excess of net investment income (1,359)
Accumulated undistributed net realized gain (loss) on (1,755,144)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 663,634
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 1,871,239 shares outstanding $ 18,117,565
NET ASSET VALUE, offering price and redemption price per $9.68
share ($18,117,565 (divided by) 1,871,239 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
INVESTMENT INCOME $ 1,060,506
Interest
EXPENSES
Management fee $ 127,871
Non-interested trustees' compensation 87
TOTAL EXPENSES 127,958
NET INVESTMENT INCOME 932,548
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (368,289)
Futures contracts 2,630 (365,659)
Change in net unrealized appreciation (depreciation) on 2,247,015
investment securities
NET GAIN (LOSS) 1,881,356
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 2,813,904
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
INCREASE (DECREASE) IN NET ASSETS
Operations $ 932,548 $ 1,131,884
Net investment income
Net realized gain (loss) (365,659) (1,199,686)
Change in net unrealized appreciation (depreciation) 2,247,015 (1,860,879)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,813,904 (1,928,681)
FROM OPERATIONS
Distributions to shareholders from net investment income (933,950) (1,135,626)
Share transactions 1,122,275 11,393,624
Net proceeds from sales of shares
Reinvestment of distributions 849,550 999,399
Cost of shares redeemed (3,456,410) (12,707,084)
Redemption fees 484 20,540
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (1,484,101) (293,521)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 395,853 (3,357,828)
NET ASSETS
Beginning of period 17,721,712 21,079,540
End of period (including distributions in excess of net $ 18,117,565 $ 17,721,712
investment income of $1,359 and $33,070,
respectively)
OTHER INFORMATION
Shares
Sold 120,939 1,183,452
Issued in reinvestment of distributions 90,999 109,164
Redeemed (369,485) (1,376,527)
Net increase (decrease) (157,547) (83,911)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEARS ENDED SEPTEMBER 9, 1993
DECEMBER 31, (COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31,
1995 1994 1993
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 8.740 $ 9.980 $ 10.000
Income from Investment Operations .491 .481 .130
Net investment income
Net realized and unrealized .924 (1.244) (.011)
gain (loss)
Total from investment operations 1.415 (.763) .119
Less Distributions (.475) (.486) (.130)
From net investment income
In excess of net investment income - - (.011)
Total distributions (.475) (.486) (.141)
Redemption fees added to paid in capital .000 .009 .002
Net asset value, end of period $ 9.680 $ 8.740 $ 9.980
TOTAL RETURN B 16.52% (7.65)% 1.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 18,118 $ 17,722 $ 21,080
Ratio of expenses to average net assets .70% .70% .70% A
Ratio of net investment income to average 5.10% 5.26% 4.44% A
net assets
Portfolio turnover rate 79% 168% 275% A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Bond Strategist (the fund) is a fund of Fidelity School Street
Trust (the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
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."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
generally accepted accounting principles. These differences, which may
result in distribution reclassifications, are primarily due to differing
treatments for futures transactions and market discount.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions may include temporary book
and tax basis differences that will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in the
following year.
REDEMPTION FEES. Shares held in the fund less than 180 days are subject to
a redemption fee equal to .50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
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 that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. 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.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment 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. Losses
may arise due to changes in the market value of the underlying securities
or if the counterparty does not perform under the contract.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the bond markets and to fluctuations in
interest rates. Buying futures, writing puts, and buying calls tend to
increase the fund's exposure to the underlying instrument. Selling futures,
buying puts, and writing calls tend to decrease the fund's exposure to the
underlying instrument, or hedge other fund investments. Losses may arise
from changes in the value of the underlying instruments, if there is an
illiquid secondary market for the contracts, or if the counterparties do
not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $14,052,158 and $14,453,209, respectively, of which U.S.
government and government agency obligations aggregated $3,100,109 and
$3,111,328, respectively.
The market value of futures contracts opened and closed during the period
amounted to $6,104,344 and $6,166,813, respectively.
4. 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
.70% of the fund's average net assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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
$445 for the period.
5. BENEFICIAL INTEREST.
At the end of the period, FMR or its affiliates were record owner of
approximately 42% of the total outstanding shares.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity School Street Trust and the Shareholders of
Spartan Bond Strategist:
We have audited the accompanying statement of assets and liabilities of
Fidelity School Street Trust: Spartan Bond Strategist, including the
schedule of portfolio investments, as of December 31, 1995, 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 September 9, 1993 (commencement of operations) to December
31, 1993. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our 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 December 31, 1995 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 School Street Trust: Spartan Bond Strategist as of December 31,
1995, 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 September 9, 1993 (commencement of operations) to December
31, 1993, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 1, 1996
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call -
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios(registered trademark).
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* 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
100 Crosby Parkway - KP2C
Covington, KY 41015-4399
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
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
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
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 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
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
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
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
2701 Drexel Drive
Houston, TX
1010 Lamar Street
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, 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
1775 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
(registered trademark)
(2_FIDELITY_LOGOS)
SPARTAN(registered trademark)
BOND STRATEGIST(trademark)
SEMIANNUAL REPORT
JUNE 30, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on bond market
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 14 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 18 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, 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
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first six
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in bond markets so far this year. In 1995,
both stock and bond markets posted strong results, while the year before,
stocks posted below-average returns and bonds had one of the worst years in
history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving for a college education, enables you to weather these ups and
downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and a short-term bond fund could be the right choice if
you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in share price, plus reinvestment of any dividends
(or income) and capital gains (the profits the fund earns when it sells
securities that have grown in value) and the effect of the $5 account
closeout fee on an average size account. You can also look at the fund's
income to measure performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 6 PAST 1 LIFE OF
MONTHS YEAR FUND
Spartan Bond Strategist -0.63% 5.86% 8.24%
Spartan Bond Strategist - After Taxes 0.39% 5.43% 9.31%
Lehman Brothers Municipal Bond -0.45% 6.64% n/a
Index
Lehman Brothers Aggregate Bond Index -1.21% 5.02% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, or since the fund
started on September 9, 1993. For example, if you invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment would
be $1,050. After-tax returns reflect what you would have after taxes (at
the 36% federal tax rate for income and short-term gains and 28% for
long-term gains). They assume that taxes were withdrawn in the year that
any distributions were taxable, and that you closed the account at the end
of the period. If you did not close your account, the after-tax return
would have been -0.69% for the past six months, 5.73% for the past year and
7.64% for the life of the fund. The life of fund after-tax return is higher
if you closed your account because you would have realized a capital loss
which is a tax benefit. You can compare the fund's returns to those of the
Lehman Brothers Municipal Bond Index, which reflects the performance of the
investment-grade municipal bond market, or to the Lehman Brothers Aggregate
Bond Index, which includes investment-grade fixed-rate debt issues,
including government, corporate, asset-backed, and mortgage-backed
securities. These benchmarks include reinvested dividends and capital
gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1996 PAST 1 LIFE OF
YEAR FUND
Spartan Bond Strategist 5.86% 2.86%
Spartan Bond Strategist - After Taxes 5.43% 3.22%
Lehman Brothers Municipal Bond Index 6.64% n/a
Lehman Brothers Aggregate Bond Index 5.02% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have
happened if the fund had performed at a constant rate each year.
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960630 19960716 091923 S00000000000001
SPART. BOND STRAT LB AGGREGAT LB Municipal Bond
00447 LB001 LB015
1993/09/30 10000.00 10000.00 10000.00
1993/10/31 10005.23 10037.37 10019.30
1993/11/30 9900.08 9951.98 9931.03
1993/12/31 10199.26 10005.92 10140.67
1994/01/31 10322.83 10141.01 10256.48
1994/02/28 9981.38 9964.83 9990.84
1994/03/31 9479.35 9719.16 9584.01
1994/04/30 9459.72 9641.55 9665.28
1994/05/31 9596.28 9640.19 9749.08
1994/06/30 9521.87 9618.89 9689.51
1994/07/31 9720.61 9809.95 9867.12
1994/08/31 9752.57 9822.13 9901.26
1994/09/30 9603.82 9677.56 9755.91
1994/10/31 9424.85 9668.94 9582.65
1994/11/30 9233.36 9647.46 9409.39
1994/12/31 9418.81 9714.08 9616.49
1995/01/31 9692.14 9906.33 9891.33
1995/02/28 9939.45 10141.86 10178.97
1995/03/31 10031.59 10204.08 10295.93
1995/04/30 10053.47 10346.62 10308.08
1995/05/31 10392.81 10747.00 10637.01
1995/06/30 10302.48 10825.80 10544.47
1995/07/31 10401.43 10801.62 10644.43
1995/08/31 10534.20 10931.98 10779.40
1995/09/30 10576.53 11038.33 10847.63
1995/10/31 10710.20 11181.88 11005.36
1995/11/30 10886.66 11349.44 11187.94
1995/12/31 10975.09 11508.72 11295.45
1996/01/31 11041.57 11585.14 11380.73
1996/02/29 10979.59 11383.76 11303.91
1996/03/31 10852.84 11304.63 11159.45
1996/04/30 10793.21 11241.06 11127.87
1996/05/31 10804.59 11218.23 11123.42
1996/06/30 10907.18 11368.89 11244.55
IMATRL PRASUN SHR__CHT 19960630 19960716 091928 R00000000000123
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Bond Strategist on September 30, 1993, shortly after
the fund started. As the chart shows, by June 30, 1996, the value of the
investment, with dividends reinvested, would have grown to $10,907 - a
9.07% increase on the initial investment. This assumes the fund was still
owned on June 30, 1996 and therefore does not include the effect of the $5
account closeout fee. For comparison, look at how the Lehman Brothers
Municipal Bond Index and Lehman Brothers Aggregate Bond Index did over the
same period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment would have grown to $11,245 and $11,370 - a 12.45% and
13.70% increase, respectively.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
INCOME
1996 TOTAL PERCENT
TAX-FREE
January $.039 95.80%
February $.035 94.82%
March $.039 93.66%
April $.038 88.69%
May $.040 84.75%
June $.039 92.19%
The amounts shown above reflect the total income distributed for each fund
share and the percentage that was federally tax-free.
YIELD
PERIOD ENDED JUNE 30, 1996
30-day annualized yield 5.08%
Tax-equivalent yield 7.73%
The 30-day annualized yield is a standard formula for all bond funds based
on the yields of the bonds in the fund, averaged over the past 30 days. It
helps you compare funds from different companies on an equal basis. The
tax-equivalent yield shows what you would have to earn on a taxable
investment to equal the fund's yield, if you're in the 36% federal tax
bracket, but does not reflect payment of the federal alternative minimum
tax, if applicable.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with George Fischer, Portfolio Manager of Spartan Bond
Strategist
Q. HOW HAS THE FUND PERFORMED, GEORGE?
A. For the six- and 12-month periods ended June 30, 1996, the fund had
total returns of -0.63% and 5.86%, respectively. For the same six- and
12-month periods, the Lehman Brothers Aggregate Bond Index, which tracks
taxable securities, had total returns of -1.21% and 5.02%, respectively,
before taxes. The Lehman Brothers Municipal Bond Index, which measures
tax-free bond performance, returned -0.45% for the six-month period and
6.64% for the 12-month period. The fund's strategy is to maximize after-tax
returns for investors in the 36% federal tax bracket. For the six-month
period, the fund's after-tax return was 0.39%; for the 12-month period, it
was 5.43%.
Q. WHAT IS MEANT BY TOTAL RETURN?
A. Total return is the "total" amount of return to the fund's shareholders,
and reflects both income and changes in share price. Interest income is the
main source of return for a bond fund over the long term. In addition, the
change in a bond fund's share price plays a role based on appreciation or
depreciation of the fund's holdings. Let's look at an example. If someone
invested $100 in this fund 12 months ago, reinvested the dividends and
capital gains, and didn't sell before the end of the period, the investment
would have been worth $105.87 as of June 30, 1996. That is what is meant by
a total return of 5.87%. This return is slightly higher than the 5.86%
return I provided earlier, which includes the effect of the $5 account
closeout fee.
Q. SO FAR IN 1996, THE BOND MARKETS HAVEN'T ENJOYED THE GAINS THEY DID IN
1995. WHAT FACTORS LED TO THE MARKETS' PERFORMANCE FOR THE FIRST HALF OF
THIS YEAR?
A. Basically, bond holders became increasingly more concerned that the
economy was strengthening. In February and March, investors reacted to
surprisingly good economic news, particularly on the employment front, by
sending yields higher and bond prices lower. The February employment
statistics revealed that more than 700,000 jobs were created at a level not
seen in more than a decade. A faster-growing economy tends to provoke fears
of inflation - which hadn't been much of a worry in 1995 - and rising
interest rates. Bond holders demanded higher yields because they worried
that inflation would eat away at the value of their fixed-income
investment. However, during the second quarter, the economic news was
mixed, and bond prices ended the quarter roughly where they had begun.
Q. THE FUND CAN INVEST IN BOTH TAXABLE AND TAX-FREE SECURITIES, WHY DID YOU
CONTINUE TO KEEP THE FUND MOSTLY INVESTED IN MUNICIPAL SECURITIES
THROUGHOUT THE PAST SIX MONTHS?
A. When viewed on an after-tax basis, I felt that municipal bonds would
continue to represent a good value for investors in the 36% and above tax
brackets. At the beginning of the period in January, municipals looked
relatively cheap when compared to taxable U.S. Treasury securities. In my
view, that was because the municipal market seemed to be overestimating the
likelihood of a flat tax, which if enacted, could affect the tax-exempt
status of municipal bonds. As fears of a flat tax abated, municipal bonds
rallied and, for the most recent six-month period, generally performed
better than Treasury securities.
Q. THE FUND CONTINUED TO HAVE A BIAS TOWARD BONDS WITH MATURITIES RANGING
FROM 10 TO 15 YEARS. WHAT WAS THE ATTRACTION OF THESE BONDS?
A. I felt that securities in that maturity range offered a good combination
of yield relative to the risk involved. Bonds with shorter maturities
tended to offer much less incremental yield. On the other hand, bonds with
longer maturities carried more interest-rate risk; that is, the risk that
they will decline in value as a result of a rise in interest rates. That
said, I did take advantage of opportunities to buy a few longer-term bonds
when they appeared to be cheap late in the first quarter of the year.
Q. DID YOU MAKE ANY CHANGES TO THE WAY THE FUND IS DISTRIBUTED ACROSS BONDS
WITH VARIOUS CREDIT QUALITIES?
A. Yes, I did. I eliminated the fund's stake in bonds with
below-investment-grade ratings - those that are rated below Baa by Moody's
Investors Services. Additionally, the fund's position in bonds rated Baa
increased over the past six months. That was in large part due to the
addition of bonds issued by New York City. At the time I bought these New
York City securities, they were in fairly abundant supply and, as a result,
their prices appeared cheap relative to what I thought their real value to
be.
Q. GEORGE, WE UNDERSTAND THERE WERE SOME INVESTMENT POLICY CHANGES . . .
A. As of June 24, 1996, the fund reserves the right to invest up to 5% of
its assets - down from 35% - in below-investment-grade securities. The fund
does not intend to seek out the lower-quality, below-investment-grade
bonds. Instead, this change gives the fund additional flexibility under
unusual circumstances. Fidelity also will use two additional agencies -
Duff & Phelps Rating Co. and Fitch Investors Service, L.P. as well as
Moody's Investors Services and Standard & Poor's which the fund already
uses - to determine the credit quality of the fund's bonds.
Q. WHAT'S YOUR OUTLOOK?
A. Of course, the direction of interest rates - which is impossible to
predict - will have a significant bearing on the bond market's performance.
But supply and demand could also be a factor. The municipal market recently
has benefited from a favorable supply/demand situation. The available
supply of municipals is quite low and there's not a tremendous amount of
new issuance. Additionally, the municipal market has experienced rising
demand. If those technical factors hold, they could help the municipal bond
market, which, in turn, may help the fund.
FUND FACTS
GOAL: maximum total return
after federal income taxes by
investing in both taxable and
tax-free bonds
START DATE: September 9,
1993
SIZE: as of June 30, 1996,
more than $8 million
MANAGER: George Fischer,
since 1993; manager,
Fidelity Municipal Bond
Fund, since 1995; Fidelity
Insured Municipal Income
Fund, since August 1995;
municipal bond analyst 1989
to 1993; joined Fidelity in
1989
(checkmark)
GEORGE FISCHER ON HIS
INVESTMENT STRATEGY:
"The supply of municipals
has been relatively tight
throughout the first six months
of 1996. That has diminished
somewhat the opportunities to
find the types of bonds I want
to own at attractive prices. So
I'm trying to avoid pressing
and I'm resisting the
temptation to buy bonds at
any price. Instead, I've taken a
more patient approach by
waiting for opportunities to
develop.
"Generally speaking, I try to
find bonds that have
asymmetric performance
characteristics. By that I
mean I target bonds that
theoretically won't do as badly
in a down market as they will
do well in an up market.
Sometimes this has to do with a
bond's call features (whether
or not it can be redeemed by
its issuer prior to maturity), tax
consequences, or other
factors."
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.
INVESTMENT CHANGES
TOP TEN FIXED-INCOME SECURITIES AS OF JUNE 30, 1996
(BY ISSUER) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Niagara Falls, New York, Public Improvement 7.4 3.2
Austin, Texas, Independent School 7.1 3.1
Indiana Health Facilities Financing Authority 6.9 3.0
Washington Public Power 6.8 2.9
Rancho, California, Water District Financing 6.3 2.7
Authority
New York Dormitory Authority 6.0 2.6
Massachusetts Industrial Finance Agency 5.1 2.2
New York City, New York, General Obligation 4.9 0.0
Alameda County, California 4.8 2.6
Leander, Texas, Independent School 4.3 5.0
AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1996
6 MONTHS AGO
Years 11.8 11.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF JUNE 30, 1996
6 MONTHS AGO
Years 7.0 7.4
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES.
IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY
TO LOSE ABOUT 5% OF ITS VALUE.
OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND
FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. BEGINNING WITH THE
REPORTING CYCLE OF JUNE, 1996, THE MODEL USED TO CALCULATE DURATIONS MAY BE
SLIGHTLY MODIFIED IN ORDER TO FURTHER REFINE THIS INFORMATION. THESE
CHANGES IN METHODOLOGY MAY PRODUCE ADJUSTMENTS IN HISTORICAL DURATION
FIGURES.
ASSET ALLOCATION
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
Row: 1, Col: 1, Value: 5.3
Row: 1, Col: 2, Value: 44.7
Row: 1, Col: 3, Value: 50.0
Municipal
securities 94.5%
Short-term taxable
investments 5.5%
Municipal
securities 94.7%
Short-term taxable
investments 5.3%
Row: 1, Col: 1, Value: 5.5
Row: 1, Col: 2, Value: 44.5
Row: 1, Col: 3, Value: 50.0
INVESTMENTS JUNE 30, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL BONDS - 94.7%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
ARIZONA - 3.6%
Arizona Trans. Board Hwy. Rev. Sub-Series A,
5% 7/1/09 Aa $ 300,000 $ 290,625
CALIFORNIA - 11.1%
Alameda County Ctfs. of Prtn. Rfdg.
(Santa Rita Jail Proj.) 5.375% 6/1/09
(MBIA Insured) Aaa 400,000 394,500
Rancho Wtr. Dist. Fing. Auth. Rev. Rfdg.
5.875% 11/1/10 (FGIC Insured) Aaa 500,000 510,625
905,125
COLORADO - 3.8%
Aurora Ctfs. of Prtn. Rfdg. 6% 12/1/06 A 300,000 304,500
CONNECTICUT - 2.9%
Connecticut Health & Edl. Facs. Auth. Rev.
Rfdg.
(Quinnipiac College) Series D, 6% 7/1/13 BBB- 250,000 237,188
DISTRICT OF COLUMBIA - 1.7%
District of Columbia Redev. Land Agcy. Spl.
Tax Rev. (Washington D.C. Sports Arena)
5.625% 11/1/10 Baa 150,000 141,375
FLORIDA - 3.4%
Broward County Resources Recovery Rev.
(SES Broward Co. LP South Proj.)
7.95% 12/1/08 A 250,000 275,000
INDIANA - 6.9%
Indiana Health Facs. Fing. Auth. Hosp. Rev.
Rfdg.
(Columbus Reg'l. Hosp.) 7% 8/15/15
(FSA Insured) Aaa 500,000 557,500
KENTUCKY - 3.9%
Owensboro Elec. Lt. & Pwr. Rev. Rfdg. Series B,
0% 1/1/08 (AMBAC Insured) Aaa 600,000 315,000
MASSACHUSETTS - 5.1%
Massachusetts Ind. Fin. Agcy. Rev.
(Massachusetts Biomedical Research)
Series A-1, 7.10% 8/1/99 A1 400,000 419,000
NEW YORK - 18.3%
New York City Gen. Oblig. Series B,
5.50% 8/15/01 Baa1 400,000 400,500
New York State Dorm. Auth. Rev.
(Consolidated City Univ. Sys.) 2nd Gen.
Series A, 5.75% 7/1/09 Baa1 500,000 490,000
Niagara Falls Pub. Impt. 7.50% 3/1/18
(MBIA Insured) Aaa 500,000 601,875
1,492,375
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
PENNSYLVANIA - 3.1%
Philadelphia Muni. Auth. Rev. Rfdg. Lease
Series D, 6% 7/15/03 Baa $ 250,000 $ 250,000
SOUTH CAROLINA - 2.7%
South Carolina Pub. Svc. Auth. Rev. Rfdg.
Series A, 6.50% 1/1/08 (MBIA Insured) Aaa 200,000 217,750
TEXAS - 15.4%
Austin Independent School Dist. School Bldg.
8.125% 8/1/01 (PSF Guaranteed) Aaa 500,000 573,750
Leander Independent School Dist. Unltd. Tax
7.50% 8/15/08 (PSF Guaranteed) Aaa 300,000 354,000
San Antonio Elec. & Gas Rev. 6.375% 2/1/06 Aa1 300,000 325,125
1,252,875
VIRGINIA - 6.0%
Fairfax County Econ. Dev. Auth. Resource
Recovery Rev. (Ogden Martin Sys. Proj.)
Series A, 7.75% 2/1/11 (b) A1 200,000 216,250
Virginia Beach Dev. Auth. Hosp. Facs. Rev.
(Virginia Beach Gen. Hosp. Proj.)
5.125% 2/15/18 (AMBAC Insured) Aaa 300,000 272,250
488,500
WASHINGTON - 6.8%
Washington Pub. Pwr. Supply Sys. Nuclear
Proj. #1 Rev. Rfdg. Series A, 7% 7/1/08 Aa 500,000 556,250
TOTAL MUNICIPAL BONDS
(Cost $7,698,197) 7,703,063
REPURCHASE AGREEMENTS - 5.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.46%, dated
6/28/96 due 7/1/96 $ 435,198 435,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $8,133,197) $ 8,138,063
LEGEND
1. Standard & Poor's credit ratings are used
in the absence of a rating by Moody's Investors Service, Inc.
2. Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 76.0% AAA, AA, A 76.0%
Baa 15.8% BBB 16.9%
Ba 0.0% BB 0.0%
B 0.0% B 1.7%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.0%
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
General Obligation 34.6%
Electric Revenue 17.4
Health Care 15.3
Lease Revenue 8.6
Water and Sewer 6.3
Resources Recovery 6.0
Repurchase Agreements 5.3
Others (individually less than 5%) 6.5
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30,1996, the aggregate cost of investment securities for income tax
purposes was $8,133,197. Net unrealized appreciation aggregated $4,866, of
which $161,092 related to appreciated investment securities and $156,226
related to depreciated investment securities.
At December 31, 1995, the fund had a capital loss carryforward of
approximately $1,755,000 of which $26,000, $1,196,000, and $533,000 will
expire on December 31, 2001, 2002, and 2003, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 8,138,063
agreements of $435,000) (cost $8,133,197) -
See accompanying schedule
Cash 35,373
Receivable for investments sold 1,103,820
Interest receivable 160,902
TOTAL ASSETS 9,438,158
LIABILITIES
Payable for investments purchased $ 1,053,380
Accrued management fee 5,146
TOTAL LIABILITIES 1,058,526
NET ASSETS $ 8,379,632
Net Assets consist of:
Paid in capital $ 10,025,645
Distributions in excess of net investment income (1,956)
Accumulated undistributed net realized gain (loss) on (1,649,313)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) 5,256
on investments
NET ASSETS, for 892,569 shares outstanding $ 8,379,632
NET ASSET VALUE, offering price and redemption price $9.39
per share ($8,379,632 (divided by) 892,569 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
INVESTMENT INCOME $ 432,045
Interest
EXPENSES
Management fee $ 54,711
Non-interested trustees' compensation 35
TOTAL EXPENSES 54,746
NET INVESTMENT INCOME 377,299
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 70,722
Futures contracts 35,109 105,831
Change in net unrealized appreciation (depreciation) on (658,378)
investment securities
NET GAIN (LOSS) (552,547)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (175,248)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 377,299 $ 932,548
Net investment income
Net realized gain (loss) 105,831 (365,659)
Change in net unrealized appreciation (depreciation) (658,378) 2,247,015
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (175,248) 2,813,904
FROM OPERATIONS
Distributions to shareholders from net investment income (377,896) (933,950)
Share transactions 492,393 1,122,275
Net proceeds from sales of shares
Reinvestment of distributions 341,355 849,550
Cost of shares redeemed (10,023,556) (3,456,410)
Redemption fees 5,019 484
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (9,184,789) (1,484,101)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (9,737,933) 395,853
NET ASSETS
Beginning of period 18,117,565 17,721,712
End of period (including distributions in excess of net $ 8,379,632 $ 18,117,565
investment income of $1,956 and $1,359,
respectively)
OTHER INFORMATION
Shares
Sold 51,255 120,939
Issued in reinvestment of distributions 35,991 90,999
Redeemed (1,065,916) (369,485)
Net increase (decrease) (978,670) (157,547)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEARS ENDED SEPTEMBER 9, 1993
ENDED DECEMBER 31,
JUNE 30, 1996 (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
(UNAUDITED) 1995 1994 1993
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.680 $ 8.740 $ 9.980 $ 10.000
Income from Investment Operations .228 .491 .481 .130
Net investment income
Net realized and unrealized gain (loss) (.291) .924 (1.244) (.011)
Total from investment operations (.063) 1.415 (.763) .119
Less Distributions (.230) (.475) (.486) (.130)
From net investment income
In excess of net investment income - - - (.011)
Total distributions (.230) (.475) (.486) (.141)
Redemption fees added to paid in capital .003 .000 .009 .002
Net asset value, end of period $ 9.390 $ 9.680 $ 8.740 $ 9.980
TOTAL RETURN B (.62)% 16.52% (7.65)% 1.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 8,380 $ 18,118 $ 17,722 $ 21,080
Ratio of expenses to average net assets .70 A .70% .70% .70%
A
Ratio of net investment income to 4.82% A 5.10% 5.26% 4.44%
average A
net assets
Portfolio turnover rate 41% A 79% 168% 275%
A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Bond Strategist (the fund) is a fund of Fidelity School Street
Trust (the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The 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. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
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."
INVESTMENT INCOME. Interest income, which includes 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for futures
and options transactions and market discount.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions may include temporary book
and tax basis differences that will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in the
following year.
REDEMPTION FEES. Shares held in the fund less than 180 days are subject to
a redemption fee equal to .50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
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 that mature in
60 days or less from the date of purchase 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.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment 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. Losses
may arise due to
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the bond market and to fluctuations in
interest rates. Buying futures, writing puts, and buying calls tend to
increase the fund's exposure to the underlying instrument. Selling futures,
buying puts, and writing calls tend to decrease the fund's exposure to the
underlying instrument, or hedge other fund investments. Losses may arise
from changes in the value of the underlying instruments, if there is an
illiquid secondary market for the contracts, or if the counterparties do
not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,992,681 and $13,065,531, respectively, of which U.S.
government and government agency obligations aggregated $1,000,331 and
$999,605, respectively.
The market value of futures contracts opened and closed during the period
amounted to $2,751,204 and $2,785,671, respectively.
4. 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
.70% 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
$355 for the period.
OTHER TRANSACTIONS. At the commencement of the period, FMR and its
affiliates were record owners of approximately 42% of the total outstanding
shares of the fund. These shares were redeemed during the period.
5. PROPOSED REORGANIZATION.
The Board of Trustees of Spartan Bond Strategist has approved an Agreement
and Plan of Reorganization ("Agreement") between the fund and Spartan
Municipal Income Fund ("Reorganization"). The Agreement provides for the
transfer of substantially all of the assets and the assumption of
substantially all of the liabilities of the fund to Spartan
5. PROPOSED REORGANIZATION - CONTINUED
Municipal Income Fund in exchange solely for the number of shares of
Spartan Municipal Income Fund having the same aggregate net asset value as
the outstanding shares of the fund at the close of business on the day that
the Reorganization is effective. The Reorganization can be consummated only
if, among other things, it is approved by the vote of a majority (as
defined by the Investment Company Act of 1940) of outstanding voting
securities of the fund. A Special Meeting of Shareholders ("Meeting") of
the fund will be held on December 18, 1996 to vote on the Agreement. A
detailed description of the proposed transaction and voting information
will be sent to shareholders of the fund in October 1996. If the Agreement
is approved at the Meeting, the Reorganization is expected to become
effective on or about December 31, 1996.
Effective September 16, 1996, the fund's shares will no longer be available
for purchase or exchange. However, existing shareholders of the fund may
continue to purchase additional shares through the reinvestment of
dividends and other distributions.
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call -
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios(registered trademark).
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* 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
100 Crosby Parkway - KP2C
Covington, KY 41015-4399
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
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
(registered trademark)
(2_FIDELITY_LOGOS)SPARTAN(registered trademark)
MUNICIPAL INCOME
FUND
(FORMERLY SPARTAN MUNICIPAL INCOME PORTFOLIO)
SEMIANNUAL REPORT
FEBRUARY 29, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 25 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 29 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
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
DEAR SHAREHOLDER:
Although the markets were fairly positive during 1995, no one can predict
what lies ahead for investors. The previous year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving for a college education, enables you to weather these ups and
downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and a short-term bond fund could be the right choice if
you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in a fund's share price, reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value), and the effect of the $5 account
closeout fee on an average sized account. You can also look at the fund's
income to measure performance. If Fidelity had not reimbursed certain fund
expenses during the periods shown, the total returns and dividends would
have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Spartan Municipal Income 5.44% 11.52% 49.95% 60.80%
Lehman Brothers Municipal Bond 4.87% 11.05% 50.71% n/a
Index
General Municipal Debt Funds Average 4.99% 9.87% 47.30% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on June 4, 1990. For example, if you invested $1,000 in a
fund that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance of
the Lehman Brothers Municipal Bond Index, which reflects the performance of
the investment-grade municipal bond market. To measure how the fund's
performance stacked up against its peers, you can compare it to the general
municipal debt funds average, which reflects the performance of 238 funds
with similar objectives tracked by Lipper Analytical Services over the past
six months. Both benchmarks include reinvested dividends and capital gains,
if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Municipal Income 11.52% 8.44% 8.62%
Lehman Brothers Municipal Bond 11.05% 8.55% n/a
Index
General Municipal Debt Funds Average 9.87% 8.04% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Spartan MunicipLB Municipal Bo
06/30/90 10000.00 10000.00
07/31/90 10181.47 10147.50
08/31/90 9974.13 10000.16
09/30/90 10017.45 10005.86
10/31/90 10121.86 10187.36
11/30/90 10359.04 10392.23
12/31/90 10425.75 10437.44
01/31/91 10552.62 10577.51
02/28/91 10615.55 10669.53
03/31/91 10668.63 10673.37
04/30/91 10826.11 10815.86
05/31/91 10964.35 10912.02
06/30/91 10953.33 10901.21
07/31/91 11104.20 11033.99
08/31/91 11235.65 11179.31
09/30/91 11366.05 11324.86
10/31/91 11464.38 11426.79
11/30/91 11473.44 11458.67
12/31/91 11749.13 11704.57
01/31/92 11748.25 11731.26
02/29/92 11767.00 11735.01
03/31/92 11790.50 11739.35
04/30/92 11901.94 11843.83
05/31/92 12060.81 11983.24
06/30/92 12251.66 12184.31
07/31/92 12617.10 12549.60
08/31/92 12463.72 12427.24
09/30/92 12528.58 12508.52
10/31/92 12314.68 12385.56
11/30/92 12593.65 12607.38
12/31/92 12733.75 12736.10
01/31/93 12911.12 12884.22
02/28/93 13428.86 13350.25
03/31/93 13302.85 13209.13
04/30/93 13405.29 13342.41
05/31/93 13522.57 13417.40
06/30/93 13771.87 13641.34
07/31/93 13813.52 13659.21
08/31/93 14152.89 13943.59
09/30/93 14341.53 14102.41
10/31/93 14355.75 14129.63
11/30/93 14225.03 14005.14
12/31/93 14556.48 14300.79
01/31/94 14731.96 14464.11
02/28/94 14312.81 14089.49
03/31/94 13549.60 13515.76
04/30/94 13630.73 13630.38
05/31/94 13756.37 13748.55
06/30/94 13646.90 13664.55
07/31/94 13923.30 13915.02
08/31/94 13952.58 13963.17
09/30/94 13717.14 13758.19
10/31/94 13384.65 13513.84
11/30/94 13046.95 13269.51
12/31/94 13377.33 13561.57
01/31/95 13835.66 13949.16
02/28/95 14273.14 14354.80
03/31/95 14444.05 14519.74
04/30/95 14453.93 14536.87
05/31/95 14932.12 15000.75
06/30/95 14780.26 14869.49
07/31/95 14908.87 15010.45
08/31/95 15096.82 15200.78
09/30/95 15238.94 15297.00
10/31/95 15441.75 15519.42
11/30/95 15716.87 15776.89
12/31/95 15863.39 15928.51
01/31/96 16007.18 16048.77
02/29/96 15918.95 15940.44
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Municipal Income Fund on June 30, 1990, shortly after the fund started. As
the chart shows, by February 29, 1996, the value of your investment would
have grown to $15,919 - a 59.19% increase on your initial investment. This
assumes you still owned the fund on February 29, 1996, and therefore does
not include the effect of the $5 account closeout fee on an average sized
account. For comparison, look at how the Lehman Brothers Municipal Bond
Index did over the same period. With dividends reinvested, the same $10,000
would have grown to $15,940 - a 59.40% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
YEARS ENDED AUGUST 31,
SIX MONTHS
ENDED
FEBRUARY 29,
1996 1995 1994 1993 1992 1991
Dividend return 2.68% 6.26% 5.54% 6.69% 7.15% 7.90%
Capital appreciation return 2.76% 1.93% -6.96% 6.86% 3.77% 4.74%
Total return 5.44% 8.19% -1.42% 13.55% 10.92% 12.64%
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by
the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested. Capital appreciation and total returns include the effect of
the $5 account closeout fee on an average sized account.
DIVIDENDS AND YIELD
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED FEBRUARY 29, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.18(cents) 26.84(cents) 55.33(cents)
Annualized dividend rate 4.98% 5.18% 5.41%
30-day annualized yield 4.77% - -
30-day annualized tax-equivalent yield 7.45% - -
</TABLE>
DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $10.56 over
the past month, $10.40 over the past six months and $10.23 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis. The tax-equivalent yield shows what you would have to
earn on a taxable investment to equal the fund's tax-free yield, if you're
in the 36% federal tax bracket, but does not reflect payment of the federal
alternative minimum tax, if applicable.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with David Murphy, Portfolio Manager of Spartan Municipal
Income Fund
Q. DAVID, HOW DID THE FUND PERFORM?
A. Quite well. For the six- and 12-month periods ended February 29, 1996,
the fund had total returns of 5.44% and 11.52%, respectively. For the same
periods, the general municipal debt funds average returned 4.99% and 9.87%,
as tracked by Lipper Analytical Services. The Lehman Brothers Municipal
Bond Index returned 4.87% and 11.05%, for the same six- and 12-month
periods.
Q. WHAT KIND OF PERIOD WAS IT FOR MUNICIPAL BONDS?
A. It was generally a good period for municipal bonds. Interest rates
continued to decline, although not to the same extent that they had fallen
in the previous six months. Inflation remained low and the economy was
growing at a slow but steady pace. In the last month of the period,
municipal bonds outperformed Treasuries. Municipals had lagged Treasuries
during much of 1995, primarily because of fears that the flat tax proposal
could hurt the prices of municipals. Recently, however, investors appear to
be less concerned that the more dramatic proposals - those that have the
potential to hurt municipal bonds the most - will be enacted.
Q. WHAT CONTRIBUTED TO THE FUND'S SUCCESS?
A. One of the primary factors was the fund's growing stake in
investment-grade bonds, which performed better than non-investment grade
bonds during the period. The term "investment-grade" refers to ratings
given by Moody's Investors Service, Inc. and other rating agencies of an
issuer's ability to pay a bond's principal and interest in a timely
fashion. Bonds below the Moody's rating "Baa" are considered speculative,
or non-investment grade. Last fall, I began to reduce the fund's holdings
in securities rated below investment-grade and replace them with
investment-grade securities. In my view, an investor was not rewarded with
enough incremental yield for taking on the additional risk of the
non-investment grade bonds.
Q. DID ANY INDIVIDUAL BONDS HELP PERFORMANCE DURING THE PERIOD?
A. The Space Center Houston - whose tax-exempt bonds are issued under the
authority of the Harris County Cultural and Educational Facilities -
enjoyed a turnaround and the bonds were some of the fund's best performers
during the period. The bonds had gone into technical default last year,
which meant that for a time they were paying interest out of a debt service
reserve fund. In a restructuring move, the issuer offered to exchange its
existing holdings for cash or new securities, a transaction known as a
tender offer. This tender successfully lowered the Center's debt costs,
which in turn led to price appreciation for the new bonds.
Q. THROUGHOUT THE PERIOD, THERE WAS AN INCREASE IN THE FUND'S INVESTMENTS
IN GENERAL OBLIGATION BONDS (GOS). WHAT MADE THEM ATTRACTIVE?
A. GOs are backed by the full faith and credit (which includes the taxing
and further borrowing power) of a municipality or state. GOs in general
have benefited from the improving economy as tax revenues have risen. For
example, I bought bonds issued by the state of California, which is
enjoying an economic turnaround that I believed could soon be reflected in
the state's fiscal health. I focused on buying bonds issued by the state
because that's where the effects of an improving economy will be noticeable
first. State revenues, including income taxes, tend to be more economically
sensitive than local revenues, such as property taxes. The fund's
California bonds performed well during the past six months. I also
increased the fund's stake in New York City bonds, which are attractive
partly because of their relatively high yields. Even though the city is not
really experiencing a strong economic recovery, it has been able to
successfully manage its budget to yield a surplus for many years. In light
of that factor and other fiscal safeguards, I view New York City as a
stable situation.
Q. ON THE OTHER HAND, THE FUND'S INVESTMENTS IN HEALTH CARE BONDS DECLINED
DURING THE PERIOD. WHAT PROMPTED THAT MOVE?
A. I sold some of our health care bonds at attractive prices. In addition,
one of the fund's holdings - HealthOne, a Denver-based hospital - recently
was acquired by the corporate healthcare chain Columbia/HCA. Most of our
HealthOne holdings were bought by Columbia at a substantial gain for the
fund.
Q. WHEN SELECTING INVESTMENTS FOR THE FUND, DID YOU CONCENTRATE ON ANY
PARTICULAR MATURITY RANGE?
A. Yes. I focused on buying bonds with intermediate maturities between five
and 15 years. Longer-maturity bonds are generally more sensitive to
changing interest rates than intermediate-maturity bonds. But in my
opinion, the incremental yield that 20- to 30-year bonds offered during the
period wasn't enough to compensate for their additional interest rate risk.
Q. WHAT'S YOUR OUTLOOK?
A. There are several developments I'll be watching in 1996. One is the
political scene. While tax reform fears seem to have abated at this
juncture, the issue could re-emerge as the presidential campaign continues.
Another is the supply of municipal bonds. I anticipate that new-issue
supply will be more or less equal to last year's new-issue supply, although
the total outstanding amount of municipal bonds available should decline as
issuers redeem bonds or as the bonds mature. That decline in supply could
provide some support for the municipal market this year.
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 high
current income exempt from
federal income taxes
START DATE: June 4, 1990
SIZE: as of February 29,
1996, more than $578 million
MANAGER: David Murphy,
since October 1, 1995;
manager, Fidelity High Yield
Tax-Free Fund, since
October, 1995; Fidelity Limited
Term Municipal Income Fund,
since 1989; Fidelity Advisor
Intermediate Municipal
Income Fund, since March
1995; Spartan Intermediate
Municipal Income and
Spartan New York
Intermediate Municipal Income
funds, 1993 to 1995;
Spartan Short-Intermediate
Municipal Income Fund, 1989
to 1995; joined Fidelity in
1989
(checkmark)
DAVID MURPHY ON HIS
INVESTMENT STYLE:
"I describe myself as a total
return investor. That means I
focus both on income and the
effects of price changes of
bonds in the portfolio. Income
is, of course, extremely
important both as a
component of total return and
for its tax advantages to
municipal bond investors. I
only go after bonds whose
return justifies the risks taken.
My goal is to provide returns
that are higher than the
overall market.
"In determining the risks and
rewards available in the
market, I use the Lehman
Brothers Municipal Bond
Index as a proxy for the
overall market. I believe this
index is the best available
benchmark for managing a
national municipal bond fund."
INVESTMENT CHANGES
TOP FIVE STATES AS OF FEBRUARY 29, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
New York 12.4 9.7
Texas 11.2 4.1
California 10.9 6.2
Florida 6.1 3.6
Washington 5.3 8.8
TOP FIVE SECTORS AS OF FEBRUARY 29, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
General Obligation 34.1 22.8
Electric Revenue 11.0 18.6
Industrial Development 8.3 9.2
Water and Sewer 7.8 6.6
Special Tax 7.2 4.1
AVERAGE YEARS TO MATURITY AS OF FEBRUARY 29, 1996
6 MONTHS AGO
Years 13.3 14.6
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF FEBRUARY 29, 1996
6 MONTHS AGO
Years 7.6 7.7
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
QUALITY DIVERSIFICATION (MOODY'S RATINGS)
AS OF FEBRUARY 29, 1996 AS OF AUGUST 31, 1995
Row: 1, Col: 1, Value: 6.4
Row: 1, Col: 2, Value: 3.4
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 15.6
Row: 1, Col: 5, Value: 74.59999999999999
Row: 1, Col: 1, Value: 5.3
Row: 1, Col: 2, Value: 10.7
Row: 1, Col: 3, Value: 1.8
Row: 1, Col: 4, Value: 17.0
Row: 1, Col: 5, Value: 65.2
Aaa, Aa, A 74.6%
Baa 15.6%
Ba, B 0.0%
Non-rated 3.4%
Short-term
investments 6.4%
Aaa, Aa, A 66.2%
Baa 17.0%
Ba, B 0.8%
Non-rated 10.7%
Short-term
investments 5.3%
SHOWN AS A PERCENTAGE OF THE FUND'S INVESTMENTS. WHERE MOODY'S RATINGS ARE
NOT AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW ACCOUNTED FOR 1.9% AND 9.3% OF THE FUND'S
INVESTMENTS ON FEBRUARY 29, 1996, AND AUGUST 31, 1995, RESPECTIVELY.
INVESTMENTS FEBRUARY 29, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL BONDS - 93.6%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
ALABAMA - 0.6%
Alabama State Gen. Oblig. Rfdg. 6% 3/1/00 Aaa $ 3,420,000 $ 3,638,025
ALASKA - 1.1%
Alaska Student Loan Corp. Student Loan Rev.
Series A (c):
7.30% 7/1/00, (AMBAC Insured) Aaa 1,100,000 1,192,125
5.90% 7/1/03, (AMBAC Insured) Aaa 1,070,000 1,099,425
North Slope Borough Gen. Oblig.
(Cap. Appreciation):
Series A, 0% 6/30/99, (MBIA Insured) Aaa 3,500,000 3,031,875
Series B, 0% 6/30/05,
(Cap. Guaranty Insured) Aaa 2,500,000 1,578,125
6,901,550
ARIZONA - 2.6%
Arizona State Univ. Rev. Rfdg. Sys. 6% 7/1/07 A1 1,250,000 1,370,313
Chandler:
7.375% 7/1/09, (FGIC Insured) Aaa 1,000,000 1,220,000
4.375% 7/1/12, (FGIC Insured) Aaa 1,000,000 871,250
Maricopa County Series C, 8.90% 7/1/99 A 3,950,000 4,522,750
Pima County Unified School Dist. Tucson Proj.
of 1989 Series G, 8% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,465,000
Tucson Ltd. Tax Rfdg. 7.50% 7/1/01 A1 2,525,000 2,900,594
Tucson Wtr. Rev. Series D:
9.75% 7/1/07 A1 500,000 701,875
9.75% 7/1/08 A1 500,000 712,500
9.75% 7/1/09 A1 750,000 1,081,875
15,846,157
ARKANSAS - 0.3%
Arkansas State College Savings (Cap. Appreciation)
Series A:
0% 6/1/03 Aa 1,280,000 897,600
0% 6/1/04 Aa 1,110,000 733,988
1,631,588
CALIFORNIA - 10.9%
California Gen. Oblig.:
6.50% 3/1/02, (AMBAC Insured) Aaa 2,525,000 2,790,125
6.75% 5/1/03 A1 1,000,000 1,130,000
6.60% 2/1/10 A1 5,205,000 5,927,194
5.25% 10/1/16 A1 3,200,000 3,064,000
5.25% 10/1/17 A1 3,500,000 3,325,000
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
CALIFORNIA - CONTINUED
California Hsg. Fin. Agcy. Rev. (Home Mtg.):
Series 1983 A, 0% 2/1/15 Aa $ 187,000 $ 29,116
Series A, 5.30% 8/1/14, (MBIA Insured) (b) Aaa 1,000,000 985,000
California Pub. Wks. Board Lease Rev.:
(California University Proj.) Series A,
5.50% 6/1/14 A1 5,500,000 5,390,000
(Secretary of State) Series A, 6% 5/1/13 A1 3,500,000 3,552,500
(Various California State Univ. Projs.) Series B:
5.55% 6/6/10 A1 1,500,000 1,526,250
6% 10/1/14 A 1,000,000 1,016,250
California Rural Home Mtg. Fin. Auth. Lease
Rev. Series A, 4.45% 8/1/01, (MBIA Insured) Aaa 1,000,000 993,750
Contra Costa Trans. Auth. Sales Tax Rev.
Series A, 6% 3/1/07, (FGIC Insured) (b) Aaa 3,500,000 3,819,375
East Bay Mun. Util. Dist. Wtr. Sys. Rev. Rfdg.
6.10% 6/1/07 A1 1,250,000 1,346,875
Industry Urban Ind. Dev. Agcy. Rev. (Civic
Recreational Proj. #1-B) 7.375% 5/1/15 - 1,140,000 1,194,150
Long Beach Harbor Rev. (c):
9% 5/15/02, (MBIA Insured) Aaa 1,275,000 1,568,250
8.50% 5/15/03, (MBIA Insured) Aaa 1,235,000 1,512,875
Sacramento Pwr. Auth. (Cogeneration Proj.)
5.875% 7/1/15 BBB- 1,600,000 1,550,000
San Francisco City & County Swr. Rev. Rfdg.
5.90% 10/1/08, (AMBAC Insured) Aaa 5,000,000 5,306,250
San Joaquin County Ctfs. of Prtn. (Cap. Facs. Proj.)
4.90% 11/15/08, (MBIA Insured) Aaa 4,000,000 3,920,000
South Orange County Pub. Fing. Auth. Spl. Tax
Rev. (Foothill Area) Series C,
7.50% 8/15/07, (FGIC Insured) Aaa 2,500,000 3,037,500
University of California Rev. Rfdg. (Multiple
Purp. Projs.) Series C, 5.125% 9/1/13,
(AMBAC Insured) Aaa 1,800,000 1,723,500
West & Central Basin Fin. Auth. Series C (e):
5.20% 8/1/07, (AMBAC Insured) Aaa 5,800,000 5,901,500
5.25% 8/1/08, (AMBAC Insured) Aaa 6,100,000 6,183,875
66,793,335
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
COLORADO - 2.9%
Adams County Single Family Mtg. Rev. Rfdg.
Series A-2, 8.70% 6/1/12, (FSA Insured) Aaa $ 100,000 $ 109,125
Colorado Health Facs. Auth. Rev. (Rocky
Mountain Adventist) 6.625% 2/1/13 Baa 7,500,000 7,687,500
Denver City & County Arpt. Rev. (c):
Series A:
6.60% 11/15/97 Baa 1,000,000 1,028,750
6.90% 11/15/98 Baa 1,000,000 1,048,750
(Cap. Appreciation):
0% 11/15/02, (MBIA Insured) Aaa 4,900,000 3,534,125
0% 11/15/05, (MBIA Insured) Aaa 3,000,000 1,826,250
Series D, 7% 11/15/25 Baa 2,500,000 2,768,750
18,003,250
CONNECTICUT - 1.4%
Connecticut Gen. Oblig. Series A, 7% 3/15/03 Aa 3,000,000 3,438,750
Connecticut Health & Ed. Facs. Auth. Rev.
(St. Raphael Hosp.) 5.30% 7/1/10,
(AMBAC Insured) Aaa 2,990,000 3,016,163
Connecticut Spl. Tax Oblig. Rev. Rfdg.
(Trans. Infrastructure) Series A,
5.25% 9/1/07, (MBIA Insured) Aaa 1,750,000 1,813,438
8,268,351
DISTRICT OF COLUMBIA - 1.8%
District of Columbia Hosp. Rev. (Hosp. for
Sick Children) Series A, 8.875% 1/1/21 - 3,395,000 3,662,356
District of Columbia Redev. Land Agcy. Spl.
Tax Rev. (Washington D.C. Sports Arena):
4.50% 11/1/96 Baa 1,700,000 1,700,459
5.40% 11/1/00 Baa 1,000,000 1,002,500
5.625% 11/1/10 Baa 1,250,000 1,217,188
Metropolitan Washington Arpt. Auth. Gen. Arpt.
Rev. Series A, 7.25% 10/1/10,
(FGIC Insured) (c) Aaa 3,000,000 3,333,750
10,916,253
FLORIDA - 5.5%
Broward County Resource Recovery Rev.
(SES Broward Co. LP South Proj.) 7.95% 12/1/08 A 3,335,000 3,706,019
Florida Board of Ed. Cap. Outlay (Pub. Ed.)
Series C, 5.40% 6/1/10, (MBIA Insured) Aaa 2,300,000 2,317,250
Florida Muni. Pwr. Agcy. Rev. Rfdg.
(Stanton II Proj.) 4.50% 10/1/16,
(AMBAC Insured) Aaa 3,000,000 2,628,750
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FLORIDA - CONTINUED
Jacksonville Port Auth. Rev. (b)(c):
5.75% 11/1/09, (MBIA Insured) Aaa $ 1,000,000 $ 1,022,500
5.625% 11/1/12, (MBIA Insured) Aaa 2,155,000 2,114,594
5.625% 11/1/18, (MBIA Insured) Aaa 3,000,000 2,906,250
Lakeland Elec. & Wtr. Rev. Rfdg. Jr. Sub. Lien (b):
6.50% 10/1/04, (FGIC Insured) Aaa 13,755,000 15,250,856
6.50% 10/1/06, (FGIC Insured) Aaa 1,000,000 1,111,250
6.50% 10/1/09, (FGIC Insured) Aaa 2,500,000 2,768,750
33,826,219
GEORGIA - 3.4%
Fulton County School Dist. Rfdg. 6.375% 5/1/14 Aa 2,000,000 2,230,000
Fulton Wtr. & Swr. 6.25% 1/1/08, (FGIC Insured) Aaa 2,100,000 2,336,250
Georgia Gen. Oblig.:
Series B, 7.20% 3/1/06 Aaa 5,000,000 6,018,750
Series C, 7.70% 4/1/96 Aaa 1,500,000 1,505,460
Series D, 6.50% 8/1/02 Aaa 2,000,000 2,242,500
Series E, 6.75% 12/1/01 Aaa 3,585,000 4,046,569
Georgia Residential Fin. Auth. Home
Ownership Mtg. (Cap. Appreciation)
Series 1984 B, 0% 12/1/15 Aa 22,505,000 2,646,138
21,025,667
HAWAII - 0.3%
Hawaii Arpts. Sys. Rev. 2nd Series,
7.50% 7/1/20, (FGIC Insured) (c) Aaa 1,500,000 1,674,375
IDAHO - 0.6%
Idaho Falls Elec. Rfdg. 0% 4/1/07,(FGIC Insured)Aaa 2,500,000 1,459,375
Idaho Hsg. Agcy. Single Family Mtg.
Series 1991 B, 7.50% 7/1/24 (c) AA 2,240,000 2,340,800
3,800,175
ILLINOIS - 3.9%
Chicago Gen. Oblig. Rfdg. Series B,
5.125% 1/1/15, (AMBAC Insured) Aaa 2,250,000 2,171,250
Chicago O'Hare Int'l. Arpt.:
Rev. Rfdg.:
2nd Lien (Gen. Arpt. Projs.) Series A,
6.375% 1/1/15, (MBIA Insured) Aaa 1,500,000 1,586,250
Sr. Lien Series A, 5% 1/1/12 A1 4,500,000 4,314,375
Spl. Facs. Rev. (United Airlines, Inc.)
8.25% 5/1/99 (c) Baa3 3,650,000 3,964,813
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
ILLINOIS - CONTINUED
Chicago Park Dist. Rfdg. (b):
5.50% 1/1/99, (FGIC Insured) Aaa $ 1,000,000 $ 1,036,250
5.50% 1/1/00, (FGIC Insured) Aaa 500,000 520,625
6.25% 1/1/09, (FGIC Insured) Aaa 750,000 818,438
Chicago Residential Mtg. Rev. Rfdg. (Cap.
Appreciation) Series B, 0% 10/1/09,
(MBIA Insured) Aaa 8,530,000 3,348,025
Chicago Single Family Mtg. Rev. (Cap.
Appreciation) Series A, 0% 12/1/16,
(FGIC Insured) Aaa 13,450,000 1,832,563
DeKalb Single Family Mtg. Rev. 7.45% 12/1/09,
(GNMA Coll.) (c) Aaa 1,780,000 1,889,025
Metropolitan Pier & Exposition Auth. Dedicated
Tax Rev. 0% 6/15/00, (AMBAC Insured) Aaa 2,700,000 2,224,125
23,705,739
INDIANA - 0.2%
Indianapolis Resource Recovery Rev. Rfdg.
(Ogden Martin Sys. Inc. Proj.) 6.75% 12/1/06,
(AMBAC Insured) (b) Aaa 1,000,000 1,121,250
IOWA - 0.1%
Iowa Fin. Auth. Rev. (Iowa State Revolving Fund)
4.95% 5/1/07 A 750,000 757,500
KANSAS - 0.9%
Johnson County Unified School Dist. #512
(Shawnee Mission):
8% 10/1/03 Aa1 1,015,000 1,247,181
8% 10/1/04 Aa1 1,225,000 1,526,656
8% 10/1/05 Aa1 1,250,000 1,575,000
Reno County Mtg. Rev. Rfdg. (Single Family)
Series B, 8.70% 9/1/11 Aa 810,000 872,775
5,221,612
KENTUCKY - 1.1%
Kentucky Tpk. Auth. Toll Rd. Rev.
Series A, 8.50% 7/1/96
(Pre-Refunded to 7/1/96 @ 102) (d) Aaa 5,000,000 5,183,550
Owensboro Elec. Lt. & Pwr. Rev. Series B,
0% 1/1/10, (AMBAC Insured) Aaa 4,000,000 1,870,000
7,053,550
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
LOUISIANA - 1.4%
Louisiana Gen. Oblig. Series A,
6.75% 5/15/04, (MBIA Insured) Aaa $ 7,865,000 $ 8,995,594
MARYLAND - 1.6%
Baltimore Pub. Impt. 7.25% 10/15/05,
(FGIC Insured) Aaa 3,100,000 3,704,500
Maryland Health & Higher Ed. Facs. Auth. Rev.
Rfdg. (Doctors Commty. Hosp.):
5.75% 7/1/13 Baa 2,000,000 1,847,500
5.50% 7/1/24 Baa 1,500,000 1,291,875
Montgomery County (Construction & Pub. Impt.)
Series B, 6.80% 11/1/06
(Pre-Refunded to 11/1/99 @ 102) (d) Aaa 2,660,000 2,945,950
9,789,825
MASSACHUSETTS - 5.3%
Massachusetts Bay Trans. Auth. Rfdg. (Gen.
Trans. Sys.) Series A, 5.50% 3/1/12 A1 5,000,000 5,056,250
Massachusetts Edl. Loan Auth. (Edl. Loan Rev.)
Issue E, Series B (c):
5.75% 7/1/05, (AMBAC Insured) Aaa 3,090,000 3,229,050
5.85% 7/1/06, (AMBAC Insured) Aaa 3,680,000 3,859,400
5.95% 7/1/09, (AMBAC Insured) Aaa 3,980,000 4,174,025
Massachusetts Gen. Oblig.:
Rfdg. Series A, 6.25% 7/1/03 A1 1,600,000 1,760,000
Consolidated Loan Series A, 6% 6/1/11 A1 1,400,000 1,442,000
Massachusetts Ind. Fin. Agcy. Rev. (Reeds Landing
Proj.) 8.625% 10/1/23 - 1,445,000 1,524,475
Massachusetts Wtr. Poll. Abatement Trust Rev.
(Massachusetts Wtr. Resource Auth. Loan Prog.)
Series A, 5.45% 2/1/13 Aa 5,825,000 5,781,313
New England Edl. Loan Marketing Corp. Rev.
Rfdg. (Student Loan):
Series A, 5.70% 7/1/05 (c) A1 4,375,000 4,457,031
Series B, 5.40% 6/1/00 A1 1,000,000 1,031,250
32,314,794
MICHIGAN - 0.2%
Michigan Hosp. Fin. Auth. Rev. Rfdg. (Pontiac
Osteopathic Hosp.) Series A, 6% 2/1/14 Baa1 1,500,000 1,381,875
MINNESOTA - 0.4%
Minneapolis Rfdg. (Sports Arena Proj.) (Cap.
Appreciation) Series B, 0% 12/1/03 Aaa 1,175,000 815,156
Northern Minnesota Muni. Pwr. Agcy. Elec.
Sys. Rev. Rfdg. Series A, 7.25% 1/1/16 A 1,700,000 1,814,750
2,629,906
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
MISSISSIPPI - 0.3%
Mississippi Hosp. Equip. & Facs. Auth. Rev.
(Rush Med. Foundation Proj.) Series A,
8.75% 1/1/16 Baa $ 1,500,000 $ 1,650,000
MISSOURI - 0.4%
Missouri Reg'l. Convention & Sports Complex
Auth. Rfdg. (Convention & Sports Proj.)
Series A, 5.50% 8/15/13 A1 2,000,000 1,935,000
St. Louis Regional Convention & Sports
Complex Auth. Series C, 7.75% 8/15/01 - 770,000 814,275
2,749,275
MONTANA - 1.6%
Montana Board of Investment Payroll Tax
(Workers Compensation):
6.875% 6/1/20, (MBIA Insured)
(Escrowed to Maturity) (d) Aaa 2,005,000 2,273,169
6.875% 6/1/20, (MBIA Insured) Aaa 5,125,000 5,611,875
Montana Coal Severance Tax Rfdg.
(Broadwater Pwr. Proj.) Series A,
6.875% 12/1/11 (c) A1 2,000,000 2,122,500
10,007,544
NEBRASKA - 0.9%
Omaha Pub. Pwr. Dist. Elec. Rev. Series C,
5.50% 2/1/14 Aa 5,650,000 5,699,438
NEW JERSEY - 1.1%
Camden County Impt. Auth. Lease Rev.
(Dockside Refrigerated Holt)
8.40% 4/1/24 (c) - 3,000,000 3,063,750
New Jersey State Trans. Trust Fund Auth. Rfdg.
Series B, 6.50% 6/15/10, (MBIA Insured) Aaa 3,000,000 3,401,250
6,465,000
NEW MEXICO - 1.0%
Albuquerque Arpt. Rev. Series A, 6.60% 7/1/16,
(AMBAC Insured) (c) Aaa 2,375,000 2,565,000
Hobbs Single Family Mtg. Rev. Rfdg. 8.75% 7/1/11 A 1,605,000 1,733,400
New Mexico Edl. Assistance Foundation Student
Loan Rev. Series B, 5.25% 4/1/05,
(AMBAC Insured) (c) Aaa 1,600,000 1,598,000
5,896,400
NEW YORK - 12.4%
Metropolitan Trans. Auth Svc. Contract
Rfdg. (Trans. Facs.) Series O, 5.75% 7/1/08 Baa1 3,840,000 3,892,800
New York City Gen. Oblig.:
Series A, 7.75% 8/15/07 Baa1 4,000,000 4,525,000
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NEW YORK - CONTINUED
New York City Gen. Oblig.: - continued
Series B:
5.70% 8/15/02 Baa1 $ 2,000,000 $ 2,035,000
7.50% 2/1/04 Baa1 1,500,000 1,657,500
Series E, 5.40% 2/15/03 Baa1 2,285,000 2,273,575
Series G:
5.40% 2/1/01 Baa1 3,000,000 3,015,000
5.60% 2/1/02 Baa1 1,875,000 1,896,094
7.50% 2/1/03 Baa1 5,000,000 5,550,000
New York City Ind. Dev. Agcy. Spl. Facs. Rev.
(Terminal One Group Assoc. Proj.) (c):
6% 1/1/19 A 5,000,000 5,012,500
6.125% 1/1/24 A 1,000,000 1,007,500
New York City Muni. Wtr. Fin. Auth. Wtr. & Swr.
Sys. Rev., Series C, 6.50% 6/15/21,
(AMBAC Insured) Aaa 2,460,000 2,555,325
New York State Dorm. Auth. Rev.:
Rfdg. (State Univ. Edl. Facs.) Series A:
5.50% 5/15/09 Baa1 4,000,000 3,940,000
5.50% 5/15/13 Baa1 13,100,000 12,657,875
5.875% 5/15/17 Baa1 5,890,000 5,897,363
(Suffolk County Judicial Facs.) Series A,
9.50% 4/15/14 Baa1 7,000,000 8,157,170
New York State Local Gov't. Assistance Corp. Rfdg.:
Series B, 6% 4/1/18 A 1,500,000 1,535,625
Series C, 5.50% 4/1/17 A 5,000,000 4,912,500
Series E, 5.25% 4/1/16 A 4,075,000 3,886,531
Triborough Bridge & Tunnel Auth. Rev.
(Gen. Purp.) Series X, 6% 1/1/14 Aa 1,575,000 1,624,219
76,031,577
NORTH CAROLINA - 1.1%
North Carolina Eastern Muni. Pwr. Agcy. Pwr.
Sys. Rev. Rfdg. Series C, 7% 1/1/07 A 2,000,000 2,212,500
North Carolina Muni. Pwr. Agcy. #1 Catawba
Elec. Rev. 5.25% 1/1/09, (MBIA Insured) Aaa 4,655,000 4,719,006
6,931,506
NORTH DAKOTA - 1.2%
Mercer County Poll. Cont. Rev. Rfdg.
(Basin Electric Pwr.):
(Antelope Valley Station Proj.)
7.20% 6/30/13, (AMBAC Insured) Aaa 5,000,000 6,050,000
2nd Series, 6.05% 1/1/19,
(AMBAC Insured) Aaa 1,000,000 1,031,250
7,081,250
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
OHIO - 2.4%
Bedford Hosp. Impt. Rev. Rfdg. (Bedford
Commty. Hosp.) Series 1990, 8.50% 5/15/09,
(Escrowed to Maturity) (d) - $ 1,020,000 $ 1,173,000
Euclid City School Dist. (Cap. Appreciation):
0% 12/1/02, (AMBAC Insured) Aaa 1,265,000 934,519
0% 12/1/03, (AMBAC Insured) Aaa 1,265,000 885,500
Ohio Hsg. Fin. Agcy. Mtg. Rev. (Oakleaf-Toledo
Apts. Proj.) 10.25% 12/20/25, (GNMA Coll.) Aaa 1,585,000 1,826,713
Ohio State Bldg. Auth.:
(Adult Correctional Facs.) Series A,
5.95% 10/1/14, (MBIA Insured) Aaa 4,000,000 4,140,000
(Workers Compensation Bldg. A)
4.75% 4/1/14 A 5,000,000 4,587,500
Ohio Wtr. Dev. Auth. Rev. Rfdg. (Impt. Pure
Wtr.) 5.75% 6/1/06, (MBIA Insured) Aaa 1,000,000 1,053,750
14,600,982
OREGON - 1.5%
Port Morrow Poll. Ctr. Rev. (Pacific Northwest)
Series A, 8% 7/15/11 AA- 3,420,000 3,950,100
Portland Series B:
7% 6/1/00 Aaa 1,385,000 1,540,813
7% 6/1/01 Aaa 1,480,000 1,674,250
Portland Swr. Sys. Rev. Series A, 6.25% 6/1/15 A1 1,875,000 1,999,219
9,164,382
PENNSYLVANIA - 3.5%
Clarion County Hosp. Auth. Hosp. Rev.
(Clarion Hosp. Proj.) 8.50% 7/1/21 BBB- 2,500,000 2,750,000
Pennsylvania Intergovernmental Coop Spl.
Tax Rev. Rfdg. Series A, 5% 6/15/13 A 3,000,000 2,808,750
Philadelphia Hosp. & Higher Ed. Facs. Auth.
Hosp. Rev. (Temple Univ. Hosp.) Series A,
6.50% 11/15/08 Baa1 2,000,000 2,102,500
Philadelphia Wtr. & Wastewtr. Rev. 5.65%
6/15/12, (FGIC Insured) Aaa 12,000,000 12,060,000
Somerset County Pennsylvania Hosp. Auth. Rev.
(Health Care 1st Mtg.) 8.50% 6/1/24 - 2,000,000 2,060,000
21,781,250
TENNESSEE - 0.4%
Tennessee Gen. Oblig. Series B, 6.10% 6/1/00 Aaa 2,025,000 2,169,281
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TEXAS - 9.1%
Austin Arpt. Sys. Rev. Series A,
6.20% 11/15/15, (MBIA Insured) (c) Aaa $ 3,400,000 $ 3,531,750
Austin Indpt. School Dist. Rfdg. (Cap.
Appreciation) 0% 8/1/02, (PSF Guaranteed) Aaa 2,100,000 1,559,250
Austin Util. Sys. Rev. Rfdg. (Cap. Appreciation):
Series A, 0% 11/15/08, (MBIA Insured) Aaa 3,895,000 1,991,319
0% 11/15/09, (AMBAC Insured) Aaa 4,000,000 1,915,000
Corpus Christi Indpt. School Dist. Rfdg.
(Cap. Appreciation):
0% 8/15/01, (PSF Guaranteed) Aaa 1,535,000 1,201,138
0% 8/15/02, (PSF Guaranteed) Aaa 2,165,000 1,607,513
Cypress-Fairbanks Indpt. School Dist. Unltd.
Tax Rfdg. (Cap. Appreciation)
0% 2/1/04, (PSF Guaranteed) Aaa 1,250,000 854,688
Dallas-Fort Worth Int'l. Arpt. Facs. Impt.
Corp. Rev. (AMR Corp. Guaranteed)
7.50% 11/1/25 (c) Baa2 7,000,000 7,463,750
Dallas-Fort Worth Reg. Arpt. Rev. Rfdg.
Series A, 5.75% 11/1/02, (MBIA Insured) Aaa 1,750,000 1,874,688
Dallas Indpt. School Dist. Rfdg.
0% 8/15/07, (PSF Guaranteed) Aaa 1,000,000 556,250
East Texas Health Facs. Dev. Corp. Hosp. Rev.
(Palestine) 7.80% 8/15/18 - 3,000,000 2,647,500
El Paso Prop. Fin. Auth. Single Family Mtg. Rev.
Series A, 8.70% 12/1/18, (GNMA Coll.) (c) Aaa 1,275,000 1,375,406
Grapevine-Colleyville Indpt. School Dist. Rfdg.
(Cap. Appreciation) 0% 8/15/06 Aaa 2,580,000 1,525,425
Harris County Cultural & Edl. Facs. Fin. Corp. Rev.
Rfdg. (Space Ctr. Houston Proj.):
Series A, 9.25% 8/15/23 - 940,000 928,250
Series B, 0% 8/15/23 - 2,375,000 644,219
Houston Indpt. School Dist. Rfdg.
(Cap. Appreciation) Series A, 0% 8/15/11,
(PSF Guaranteed) Aaa 6,400,000 2,768,000
Lower Colorado River Auth. Rev. Rfdg. (Cap.
Appreciation) 0% 1/1/09, (MBIA Insured) Aaa 1,000,000 520,000
Lower Neches Valley Ind. Dev. Rev. (Mobil Oil
Refining Corp. Proj.) 6.40% 3/1/30 (c) Aa2 8,785,000 9,125,419
Midlothian Indpt. School Dist. Rfdg.
(Cap. Appreciation):
0% 2/15/07, (PSF Guaranteed) Aaa 1,935,000 1,110,206
0% 2/15/08, (PSF Guaranteed) Aaa 1,520,000 818,900
0% 2/15/10, (PSF Guaranteed) Aaa 1,525,000 726,281
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TEXAS - CONTINUED
San Antonio Elec. & Gas Rev. Rfdg. Series B,
0% 2/1/09, (FGIC Insured) Aaa $ 2,000,000 $ 1,000,000
Spring Branch Indpt. School Dist. Rfdg.
(Cap. Appreciation) 0% 2/1/05,
(PSF Guaranteed) (b) Aaa 5,725,000 3,706,938
Spring Indpt. School Dist. 4.875% 8/15/10,
(PSF Guaranteed) Aaa 2,500,000 2,393,750
Texas A&M Univ. Permanent Univ. Fund
5.50% 7/1/04 (b) Aaa 1,275,000 1,332,375
Univ. of Texas Univ. Rev. Rfdg. (Fing. Sys.)
Series A:
6% 8/15/04 Aa1 1,170,000 1,285,538
6% 8/15/05 Aa1 1,000,000 1,100,000
Winters Wtrwks. & Swr. Sys. Rev. Rfdg.
8.50% 8/1/17, (Pre-Refunded to
8/1/03 @ 100) (d) - 500,000 619,375
56,182,928
UTAH - 3.2%
Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev.
Rfdg. Series B, 5.55% 7/1/11 Aa 10,000,000 9,987,500
Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev.
Rfdg. Series B (b):
6.50% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,235,000
6.50% 7/1/05, (MBIA Insured) Aaa 4,000,000 4,475,000
6.50% 7/1/10, (MBIA Insured) Aaa 1,500,000 1,687,500
Utah Hsg. Fin. Agcy.:
(Residential Mtg.) (Cap. Appreciation)
Series 1983 A, 0% 7/1/16 A+ 4,035,042 509,424
(Single Family Mtg.) Series G, 9.25% 7/1/19,
(FHA Guaranteed) (c) Aaa 810,000 875,813
19,770,237
VERMONT - 0.7%
Vermont Hsg. Fin. Agcy. Single Family Series 2,
7.30% 5/1/25 (c) A1 1,500,000 1,556,250
Vermont Ind. Dev. Auth. Ind. Dev. Rev.
(Radisson Hotel) Series B-1, 7.75% 11/15/15 - 2,350,000 2,582,063
4,138,313
VIRGINIA - 1.0%
Richmond Rfdg. Series B, 5.50% 1/15/05,
(FGIC Insured) Aaa 1,600,000 1,688,000
Virginia Hsg. Dev. Auth. Residential Mtg.
(Single Family Mtg.) (Cap. Appreciation)
Series 1983 B, 0% 9/1/14 Aaa 2,430,000 364,500
Virginia State Pub. Facs. Gen. Oblig. 6%
6/1/03 Aaa 4,000,000 4,390,000
6,442,500
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
WASHINGTON - 5.3%
Douglas County Pub. Util. Dist. #1 Wells
Hydroelec. Rev. Rfdg. (Pacific Pwr. & Lt. Co.)
8.75% 9/1/18 A $ 1,395,000 $ 1,780,369
Washington Gen. Oblig. Series 96 A,
6.75% 7/1/02 Aa 3,560,000 4,018,350
Washington Motor Vehicle Fuel Tax Gen. Oblig.
Series B, 6.50% 9/1/03 Aa 5,000,000 5,631,250
Washington Pub. Pwr. Supply Sys. Rev.
Nuclear Proj. #2:
Rfdg. Series C, 0% 7/1/05, (MBIA Insured) Aaa 11,000,000 6,875,000
5.40% 7/1/12 Aa 10,000,000 9,650,000
Nuclear Proj. #3 5.40% 7/1/12 Aa 5,000,000 4,750,000
32,704,969
TOTAL MUNICIPAL BONDS
(Cost $559,567,396) 574,763,422
MUNICIPAL NOTES (E) - 6.4%
ALABAMA - 0.2%
Phenix City Ind. Dev. Board Envir. Impt. (Mead
Coated Board Proj.) 3.55%, LOC Toronto
Dominion Bank, VRDN (c) A-1+ 1,300,000 1,300,000
ARIZONA - 0.3%
Coconino County Poll. Cont. Corp. Rev.
(Arizona Pub. Svc. Co. Navajo Proj.) Series A,
3.60%, LOC Bank of America Nat'l. Trust &
Savings, VRDN P-1 2,200,000 2,200,000
COLORADO - 0.7%
Colorado Gen. Oblig. TRAN 4.50%, 6/27/96 SP-1+ 4,300,000 4,314,953
DELAWARE - 0.2%
Delaware Econ. Dev. Auth. (Delmarva Pwr. &
Light Proj.) Series 1994, 3.60%, VRDN (c) VMIG 1 1,000,000 1,000,000
FLORIDA - 0.6%
Sunshine St. Gov't. Fin. Comm. Rev. Series B,
LOC Union Bank of Switzerland
3.70% 4/4/96 CP A-1+ 4,000,000 4,001,800
KENTUCKY - 0.6%
Daviess County Solid Wst. Disp. Facs. Rev.
(Scott Paper Co.) Series 1993-B, 3.60%,
LOC ABN AMRO Bank, VRDN (c) VMIG 1 3,600,000 3,600,000
MUNICIPAL NOTES (E) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
LOUISIANA - 0.2%
Plaquemines Parish Environmental Rev.
(BP Expl. & Oil, Inc. Proj.) Series 1994,
3.60%, VRDN (c) P-1 $ 1,400,000 $ 1,400,000
MISSOURI - 0.7%
Missouri Higher Ed. Loan Auth. Student Loan Rev.
Series B, 3.20%, LOC Nat'l Westminster
Bank, VRDN (c) VMIG 1 4,000,000 4,000,000
SOUTH CAROLINA - 0.4%
South Carolina Jobs Econ. Dev. Auth. (Wellman,
Inc. Proj.) Series 1992, 3.50%, LOC
Wachovia Bank & Trust NA, VRDN (c) - 2,200,000 2,200,000
TEXAS - 2.1%
Brazos River Auth. Poll. Cont. Rev. Rfdg. (Texas
Utils. Elec. Co. Proj.) (c):
Series 1995-A, 3.55%, LOC Morgan
Guaranty Trust Co., VRDN VMIG 1 1,500,000 1,500,000
Series 1995-C, 3.55%, LOC Swiss Bank,
VRDN VMIG 1 3,800,000 3,800,000
Brazos River Hbr. Navigation Dist. of Brazoria
(Dow Chemical Co. Proj.) Series 1993,
3.60%, VRDN (c) P-1 600,000 600,000
Gulf Coast Waste Disp. Auth. Poll. Cont. Rev.
(AMOCO Oil Co. Proj.) 3.55%, VRDN (c) A-1+ 300,000 300,000
Harris County Ind. Dev. Corp. Poll. Cont. Rev.
(Exxon Proj.) Series 1987, 3.55%, VRDN (c) A-1+ 1,900,000 1,900,000
Texas Gen. Oblig. TRAN Series 1995 A, 4.75%
8/30/96 MIG 1 1,000,000 1,007,310
Texas Pub. Fin. Auth. Series 1993-A,
3.60% 4/4/96 CP P-1 4,000,000 4,001,440
13,108,750
WEST VIRGINIA - 0.4%
West Virginia Pub. Energy Auth. Rev.
(Morgantown Energy Assoc. Proj. A) 3.40%,
LOC Swiss Bank, VRDN (c) A-1+ 2,500,000 2,500,250
TOTAL MUNICIPAL NOTES
(Cost $39,625,764) 39,625,753
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $599,193,160) $ 614,389,175
SECURITY TYPE ABBREVIATIONS
CP - Commercial Paper
TRAN - Tax and Revenue Anticipation Notes
VRDN - Variable Rate Demand Notes
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
3. Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals.
4. Security collateralized by an amount sufficient to pay interest and
principal.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 72.9% AAA, AA, A 73.0%
Baa 14.9% BBB 11.5%
Ba 0.0% BB 1.9%
B 0.0% B 0.2%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 3.4%.
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
General Obligation 34.1%
Electric Revenue 11.0
Industrial Development 8.3
Water and Sewer 7.8
Special Tax 7.2
Transportation 7.0
Other 5.7
Health Care 5.1
Others (individually less than 5%) 13.8
TOTAL 100.0%
INCOME TAX INFORMATION
At February 29, 1996, the aggregate cost of investment securities for
income tax purposes was $599,193,160. Net unrealized appreciation
aggregated $15,196,015, of which $18,259,095 related to appreciated
investment securities and $3,063,080 related to depreciated investment
securities.
At August 31, 1995, the fund had a capital loss carryforward of
approximately $2,188,000 which will expire on August 31, 2003.
The fund intends to elect to defer to its fiscal year ending August 31,
1996 approximately $21,291,000 of losses recognized during the period
November 1, 1994 to August 31, 1995.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
FEBRUARY 29, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (cost $599,193,160) - $ 614,389,175
See accompanying schedule
Receivable for investments sold 5,468,035
Interest receivable 7,413,292
TOTAL ASSETS 627,270,502
LIABILITIES
Payable to custodian bank $ 42,064
Payable for investments purchased 2,585,700
Regular delivery
Delayed delivery 45,321,360
Payable for fund shares redeemed 231,071
Distributions payable 611,060
Accrued management fee 253,751
TOTAL LIABILITIES 49,045,006
NET ASSETS $ 578,225,496
Net Assets consist of:
Paid in capital $ 583,190,175
Accumulated undistributed net realized gain (loss) on (20,160,694)
investments
Net unrealized appreciation (depreciation) on 15,196,015
investments
NET ASSETS, for 55,266,970 shares outstanding $ 578,225,496
NET ASSET VALUE, offering price and redemption price per $10.46
share ($578,225,496 (divided by) 55,266,970 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
INTEREST INCOME $ 16,460,004
EXPENSES
Management fee $ 1,582,806
Non-interested Trustees' compensation 1,072
Total expenses before reductions 1,583,878
Expense reductions (59,880) 1,523,998
NET INTEREST INCOME 14,936,006
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 3,700,086
Futures contracts 190,018 3,890,104
Change in net unrealized appreciation (depreciation) on:
Investment securities 11,997,230
Futures contracts (108,178) 11,889,052
NET GAIN (LOSS) 15,779,156
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 30,715,162
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED FEBRUARY AUGUST 31,
29,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 14,936,006 $ 35,085,345
Net interest income
Net realized gain (loss) 3,890,104 (23,234,406)
Change in net unrealized appreciation (depreciation) 11,889,052 27,681,497
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 30,715,162 39,532,436
FROM OPERATIONS
Distributions to shareholders (14,936,006) (35,181,331)
From net interest income
From net realized gain (112,137) (5,213,637)
TOTAL DISTRIBUTIONS (15,048,143) (40,394,968)
Share transactions 29,322,815 82,506,178
Net proceeds from sales of shares
Reinvestment of distributions 11,070,201 29,999,336
Cost of shares redeemed (51,899,606) (217,831,944)
Redemption fees 8,949 69,284
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (11,497,641) (105,257,146)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,169,378 (106,119,678)
NET ASSETS
Beginning of period 574,056,118 680,175,796
End of period $ 578,225,496 $ 574,056,118
OTHER INFORMATION
Shares
Sold 2,812,912 8,465,664
Issued in reinvestment of distributions 1,062,370 3,070,143
Redeemed (4,983,660) (22,701,405)
Net increase (decrease) (1,108,378) (11,165,598)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED AUGUST 31,
ENDED FEBRUARY
29, 1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890
beginning of period
Income from .268 .587 .611 .663 .704 .739
Investment
Operations
Net interest income
Net realized .282 .189 (.752) .727 .387 .463
and unrealized
gain (loss)
Total from .550 .776 (.141) 1.390 1.091 1.202
investment
operations
Less Distributions (.268) (.587) (.611) (.663) (.704) (.739)
From net interest
income
From net (.002) (.080) (.550) (.070) (.040) -
realized gain
Total distributions (.270) (.667) (1.161) (.733) (.744) (.739)
Redemption fees - .001 .002 .003 .003 .007
added to paid in
capital
Net asset value, end $ 10.460 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360
of period
TOTAL RETURN B, C 5.45% 8.20% (1.42) 13.55% 10.93% 12.65%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 578,225 $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930
period (000 omitted)
Ratio of expenses to .53% A, .55% .55% .47% .36% .23%
average net assets E E E E
Ratio of net interest 5.19% A 5.99% 5.76% 6.09% 6.68% 7.24%
income to average
net assets
Portfolio turnover rate 69% A 69% 48% 50% 62% 78%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E 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 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended February 29, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Municipal Income Fund (the fund) (formerly Spartan Municipal Income
Portfolio) is a fund of Fidelity Union Street Trust (the trust) and is
authorized to issue an unlimited number of shares. The trust is registered
under the Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The 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. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which quotations are not readily
available through the pricing service are valued at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
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. Distributions are declared daily and paid
monthly from net interest income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for futures
and options transactions and market discount.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net interest income and realized
and unrealized gain (loss). Accumulated undistributed net realized gain
(loss) on investments may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REDEMPTION FEES. Shares held in the fund less than 180 days are subject to
a redemption fee equal to .50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment 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 value of the securities purchased or sold on a when-issued or
forward commitment basis are identified as such in the fund's schedule of
investments. The fund may receive compensation for interest forgone in the
purchase of a delayed delivery security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does
not perform under the contract.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the bond market and to fluctuations in
interest rates. Buying futures, writing puts, and buying calls tend to
increase the fund's exposure to the underlying instrument. Selling futures,
buying puts, and writing calls tend to decrease the fund's exposure to the
underlying instrument, or hedge other fund investments. Losses may arise
from changes in the value of the underlying instruments, if there is an
illiquid secondary market for the contracts, or if the counterparties do
not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $195,279,201 and $196,313,261, respectively.
The market value of futures contracts opened and closed during the period
amounted to $35,329,423 and $43,908,629, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) pays all expenses, except the compensation of the
non-interested Trustees and certain exceptions such as interest, taxes,
brokerage commissions and extraordinary expenses. FMR receives a fee that
is computed daily at an annual rate of .55% of the fund's average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
MANAGEMENT FEE - CONTINUED
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
$3,010 for the period.
5. EXPENSE REDUCTIONS.
FMR agreed to reimburse a portion of the fund's expenses. For the period,
the reimbursement reduced expenses by $59,880.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
David Murphy, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
and
UMB Bank, n.a.
Kansas City, MO
(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
CUSTODIAN
UMB Bank, n.a.
Kansas City, MO
FIDELITY'S TAX-FREE BOND FUNDS
Aggressive Municipal
California Insured Municipal Income
California Municipal Income
High Yield Tax-Free
Insured Municipal Income
Limited Term Municipal Income
Massachusetts Municipal Income
Michigan Municipal Income
Minnesota Municipal Income
Municipal Bond
New York Insured Municipal Income
New York Municipal Income
Ohio Municipal Income
Spartan Aggressive Municipal
(registered trademark)
Spartan Arizona Municipal Income
Spartan California Intermediate Municipal
Spartan California Municipal Income
Spartan Connecticut Municipal Income
Spartan Florida Municipal Income
Spartan Intermediate Municipal Income
Spartan Maryland Municipal Income
Spartan Municipal Income
Spartan New Jersey Municipal Income
Spartan New York Intermediate Municipal
Spartan New York Municipal Income
Spartan Pennsylvania Municipal Income
Spartan Short-Intermediate Municipal
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)SPARTAN(registered trademark)
MUNICIPAL INCOME
FUND
(FORMERLY SPARTAN MUNICIPAL INCOME PORTFOLIO)
SEMIANNUAL REPORT
FEBRUARY 29, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 25 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 29 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
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
DEAR SHAREHOLDER:
Although the markets were fairly positive during 1995, no one can predict
what lies ahead for investors. The previous year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving for a college education, enables you to weather these ups and
downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and a short-term bond fund could be the right choice if
you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in a fund's share price, reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value), and the effect of the $5 account
closeout fee on an average sized account. You can also look at the fund's
income to measure performance. If Fidelity had not reimbursed certain fund
expenses during the periods shown, the total returns and dividends would
have been lower.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Spartan Municipal Income 5.44% 11.52% 49.95% 60.80%
Lehman Brothers Municipal Bond 4.87% 11.05% 50.71% n/a
Index
General Municipal Debt Funds Average 4.99% 9.87% 47.30% n/a
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, five years or since
the fund started on June 4, 1990. For example, if you invested $1,000 in a
fund that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance of
the Lehman Brothers Municipal Bond Index, which reflects the performance of
the investment-grade municipal bond market. To measure how the fund's
performance stacked up against its peers, you can compare it to the general
municipal debt funds average, which reflects the performance of 238 funds
with similar objectives tracked by Lipper Analytical Services over the past
six months. Both benchmarks include reinvested dividends and capital gains,
if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Municipal Income 11.52% 8.44% 8.62%
Lehman Brothers Municipal Bond 11.05% 8.55% n/a
Index
General Municipal Debt Funds Average 9.87% 8.04% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Spartan MunicipLB Municipal Bo
06/30/90 10000.00 10000.00
07/31/90 10181.47 10147.50
08/31/90 9974.13 10000.16
09/30/90 10017.45 10005.86
10/31/90 10121.86 10187.36
11/30/90 10359.04 10392.23
12/31/90 10425.75 10437.44
01/31/91 10552.62 10577.51
02/28/91 10615.55 10669.53
03/31/91 10668.63 10673.37
04/30/91 10826.11 10815.86
05/31/91 10964.35 10912.02
06/30/91 10953.33 10901.21
07/31/91 11104.20 11033.99
08/31/91 11235.65 11179.31
09/30/91 11366.05 11324.86
10/31/91 11464.38 11426.79
11/30/91 11473.44 11458.67
12/31/91 11749.13 11704.57
01/31/92 11748.25 11731.26
02/29/92 11767.00 11735.01
03/31/92 11790.50 11739.35
04/30/92 11901.94 11843.83
05/31/92 12060.81 11983.24
06/30/92 12251.66 12184.31
07/31/92 12617.10 12549.60
08/31/92 12463.72 12427.24
09/30/92 12528.58 12508.52
10/31/92 12314.68 12385.56
11/30/92 12593.65 12607.38
12/31/92 12733.75 12736.10
01/31/93 12911.12 12884.22
02/28/93 13428.86 13350.25
03/31/93 13302.85 13209.13
04/30/93 13405.29 13342.41
05/31/93 13522.57 13417.40
06/30/93 13771.87 13641.34
07/31/93 13813.52 13659.21
08/31/93 14152.89 13943.59
09/30/93 14341.53 14102.41
10/31/93 14355.75 14129.63
11/30/93 14225.03 14005.14
12/31/93 14556.48 14300.79
01/31/94 14731.96 14464.11
02/28/94 14312.81 14089.49
03/31/94 13549.60 13515.76
04/30/94 13630.73 13630.38
05/31/94 13756.37 13748.55
06/30/94 13646.90 13664.55
07/31/94 13923.30 13915.02
08/31/94 13952.58 13963.17
09/30/94 13717.14 13758.19
10/31/94 13384.65 13513.84
11/30/94 13046.95 13269.51
12/31/94 13377.33 13561.57
01/31/95 13835.66 13949.16
02/28/95 14273.14 14354.80
03/31/95 14444.05 14519.74
04/30/95 14453.93 14536.87
05/31/95 14932.12 15000.75
06/30/95 14780.26 14869.49
07/31/95 14908.87 15010.45
08/31/95 15096.82 15200.78
09/30/95 15238.94 15297.00
10/31/95 15441.75 15519.42
11/30/95 15716.87 15776.89
12/31/95 15863.39 15928.51
01/31/96 16007.18 16048.77
02/29/96 15918.95 15940.44
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Municipal Income Fund on June 30, 1990, shortly after the fund started. As
the chart shows, by February 29, 1996, the value of your investment would
have grown to $15,919 - a 59.19% increase on your initial investment. This
assumes you still owned the fund on February 29, 1996, and therefore does
not include the effect of the $5 account closeout fee on an average sized
account. For comparison, look at how the Lehman Brothers Municipal Bond
Index did over the same period. With dividends reinvested, the same $10,000
would have grown to $15,940 - a 59.40% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED AUGUST 31,
SIX MONTHS
ENDED
FEBRUARY 29,
1996 1995 1994 1993 1992 1991
Dividend return 2.68% 6.26% 5.54% 6.69% 7.15% 7.90%
Capital appreciation return 2.76% 1.93% -6.96% 6.86% 3.77% 4.74%
Total return 5.44% 8.19% -1.42% 13.55% 10.92% 12.64%
</TABLE>
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by
the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested. Capital appreciation and total returns include the effect of
the $5 account closeout fee on an average sized account.
DIVIDENDS AND YIELD
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED FEBRUARY 29, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.18(cents) 26.84(cents) 55.33(cents)
Annualized dividend rate 4.98% 5.18% 5.41%
30-day annualized yield 4.77% - -
30-day annualized tax-equivalent yield 7.45% - -
</TABLE>
DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $10.56 over
the past month, $10.40 over the past six months and $10.23 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis. The tax-equivalent yield shows what you would have to
earn on a taxable investment to equal the fund's tax-free yield, if you're
in the 36% federal tax bracket, but does not reflect payment of the federal
alternative minimum tax, if applicable.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with David Murphy, Portfolio Manager of Spartan Municipal
Income Fund
Q. DAVID, HOW DID THE FUND PERFORM?
A. Quite well. For the six- and 12-month periods ended February 29, 1996,
the fund had total returns of 5.44% and 11.52%, respectively. For the same
periods, the general municipal debt funds average returned 4.99% and 9.87%,
as tracked by Lipper Analytical Services. The Lehman Brothers Municipal
Bond Index returned 4.87% and 11.05%, for the same six- and 12-month
periods.
Q. WHAT KIND OF PERIOD WAS IT FOR MUNICIPAL BONDS?
A. It was generally a good period for municipal bonds. Interest rates
continued to decline, although not to the same extent that they had fallen
in the previous six months. Inflation remained low and the economy was
growing at a slow but steady pace. In the last month of the period,
municipal bonds outperformed Treasuries. Municipals had lagged Treasuries
during much of 1995, primarily because of fears that the flat tax proposal
could hurt the prices of municipals. Recently, however, investors appear to
be less concerned that the more dramatic proposals - those that have the
potential to hurt municipal bonds the most - will be enacted.
Q. WHAT CONTRIBUTED TO THE FUND'S SUCCESS?
A. One of the primary factors was the fund's growing stake in
investment-grade bonds, which performed better than non-investment grade
bonds during the period. The term "investment-grade" refers to ratings
given by Moody's Investors Service, Inc. and other rating agencies of an
issuer's ability to pay a bond's principal and interest in a timely
fashion. Bonds below the Moody's rating "Baa" are considered speculative,
or non-investment grade. Last fall, I began to reduce the fund's holdings
in securities rated below investment-grade and replace them with
investment-grade securities. In my view, an investor was not rewarded with
enough incremental yield for taking on the additional risk of the
non-investment grade bonds.
Q. DID ANY INDIVIDUAL BONDS HELP PERFORMANCE DURING THE PERIOD?
A. The Space Center Houston - whose tax-exempt bonds are issued under the
authority of the Harris County Cultural and Educational Facilities -
enjoyed a turnaround and the bonds were some of the fund's best performers
during the period. The bonds had gone into technical default last year,
which meant that for a time they were paying interest out of a debt service
reserve fund. In a restructuring move, the issuer offered to exchange its
existing holdings for cash or new securities, a transaction known as a
tender offer. This tender successfully lowered the Center's debt costs,
which in turn led to price appreciation for the new bonds.
Q. THROUGHOUT THE PERIOD, THERE WAS AN INCREASE IN THE FUND'S INVESTMENTS
IN GENERAL OBLIGATION BONDS (GOS). WHAT MADE THEM ATTRACTIVE?
A. GOs are backed by the full faith and credit (which includes the taxing
and further borrowing power) of a municipality or state. GOs in general
have benefited from the improving economy as tax revenues have risen. For
example, I bought bonds issued by the state of California, which is
enjoying an economic turnaround that I believed could soon be reflected in
the state's fiscal health. I focused on buying bonds issued by the state
because that's where the effects of an improving economy will be noticeable
first. State revenues, including income taxes, tend to be more economically
sensitive than local revenues, such as property taxes. The fund's
California bonds performed well during the past six months. I also
increased the fund's stake in New York City bonds, which are attractive
partly because of their relatively high yields. Even though the city is not
really experiencing a strong economic recovery, it has been able to
successfully manage its budget to yield a surplus for many years. In light
of that factor and other fiscal safeguards, I view New York City as a
stable situation.
Q. ON THE OTHER HAND, THE FUND'S INVESTMENTS IN HEALTH CARE BONDS DECLINED
DURING THE PERIOD. WHAT PROMPTED THAT MOVE?
A. I sold some of our health care bonds at attractive prices. In addition,
one of the fund's holdings - HealthOne, a Denver-based hospital - recently
was acquired by the corporate healthcare chain Columbia/HCA. Most of our
HealthOne holdings were bought by Columbia at a substantial gain for the
fund.
Q. WHEN SELECTING INVESTMENTS FOR THE FUND, DID YOU CONCENTRATE ON ANY
PARTICULAR MATURITY RANGE?
A. Yes. I focused on buying bonds with intermediate maturities between five
and 15 years. Longer-maturity bonds are generally more sensitive to
changing interest rates than intermediate-maturity bonds. But in my
opinion, the incremental yield that 20- to 30-year bonds offered during the
period wasn't enough to compensate for their additional interest rate risk.
Q. WHAT'S YOUR OUTLOOK?
A. There are several developments I'll be watching in 1996. One is the
political scene. While tax reform fears seem to have abated at this
juncture, the issue could re-emerge as the presidential campaign continues.
Another is the supply of municipal bonds. I anticipate that new-issue
supply will be more or less equal to last year's new-issue supply, although
the total outstanding amount of municipal bonds available should decline as
issuers redeem bonds or as the bonds mature. That decline in supply could
provide some support for the municipal market this year.
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 high
current income exempt from
federal income taxes
START DATE: June 4, 1990
SIZE: as of February 29,
1996, more than $578 million
MANAGER: David Murphy,
since October 1, 1995;
manager, Fidelity High Yield
Tax-Free Fund, since
October, 1995; Fidelity Limited
Term Municipal Income Fund,
since 1989; Fidelity Advisor
Intermediate Municipal
Income Fund, since March
1995; Spartan Intermediate
Municipal Income and
Spartan New York
Intermediate Municipal Income
funds, 1993 to 1995;
Spartan Short-Intermediate
Municipal Income Fund, 1989
to 1995; joined Fidelity in
1989
(checkmark)
DAVID MURPHY ON HIS
INVESTMENT STYLE:
"I describe myself as a total
return investor. That means I
focus both on income and the
effects of price changes of
bonds in the portfolio. Income
is, of course, extremely
important both as a
component of total return and
for its tax advantages to
municipal bond investors. I
only go after bonds whose
return justifies the risks taken.
My goal is to provide returns
that are higher than the
overall market.
"In determining the risks and
rewards available in the
market, I use the Lehman
Brothers Municipal Bond
Index as a proxy for the
overall market. I believe this
index is the best available
benchmark for managing a
national municipal bond fund."
INVESTMENT CHANGES
TOP FIVE STATES AS OF FEBRUARY 29, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
New York 12.4 9.7
Texas 11.2 4.1
California 10.9 6.2
Florida 6.1 3.6
Washington 5.3 8.8
TOP FIVE SECTORS AS OF FEBRUARY 29, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
General Obligation 34.1 22.8
Electric Revenue 11.0 18.6
Industrial Development 8.3 9.2
Water and Sewer 7.8 6.6
Special Tax 7.2 4.1
AVERAGE YEARS TO MATURITY AS OF FEBRUARY 29, 1996
6 MONTHS AGO
Years 13.3 14.6
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF FEBRUARY 29, 1996
6 MONTHS AGO
Years 7.6 7.7
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
QUALITY DIVERSIFICATION (MOODY'S RATINGS)
AS OF FEBRUARY 29, 1996 AS OF AUGUST 31, 1995
Row: 1, Col: 1, Value: 6.4
Row: 1, Col: 2, Value: 3.4
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 15.6
Row: 1, Col: 5, Value: 74.59999999999999
Row: 1, Col: 1, Value: 5.3
Row: 1, Col: 2, Value: 10.7
Row: 1, Col: 3, Value: 1.8
Row: 1, Col: 4, Value: 17.0
Row: 1, Col: 5, Value: 65.2
Aaa, Aa, A 74.6%
Baa 15.6%
Ba, B 0.0%
Non-rated 3.4%
Short-term
investments 6.4%
Aaa, Aa, A 66.2%
Baa 17.0%
Ba, B 0.8%
Non-rated 10.7%
Short-term
investments 5.3%
SHOWN AS A PERCENTAGE OF THE FUND'S INVESTMENTS. WHERE MOODY'S RATINGS ARE
NOT AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW ACCOUNTED FOR 1.9% AND 9.3% OF THE FUND'S
INVESTMENTS ON FEBRUARY 29, 1996, AND AUGUST 31, 1995, RESPECTIVELY.
INVESTMENTS FEBRUARY 29, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
MUNICIPAL BONDS - 93.6%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
ALABAMA - 0.6%
Alabama State Gen. Oblig. Rfdg. 6%
3/1/00 Aaa $ 3,420,000 $ 3,638,025
ALASKA - 1.1%
Alaska Student Loan Corp. Student Loan Rev.
Series A (c):
7.30% 7/1/00, (AMBAC Insured) Aaa 1,100,000 1,192,125
5.90% 7/1/03, (AMBAC Insured) Aaa 1,070,000 1,099,425
North Slope Borough Gen. Oblig.
(Cap. Appreciation):
Series A, 0% 6/30/99, (MBIA Insured) Aaa 3,500,000 3,031,875
Series B, 0% 6/30/05,
(Cap. Guaranty Insured) Aaa 2,500,000 1,578,125
6,901,550
ARIZONA - 2.6%
Arizona State Univ. Rev. Rfdg. Sys. 6%
7/1/07 A1 1,250,000 1,370,313
Chandler:
7.375% 7/1/09, (FGIC Insured) Aaa 1,000,000 1,220,000
4.375% 7/1/12, (FGIC Insured) Aaa 1,000,000 871,250
Maricopa County Series C, 8.90% 7/1/99 A 3,950,000 4,522,750
Pima County Unified School Dist. Tucson Proj.
of 1989 Series G, 8% 7/1/04, (MBIA
Insured) Aaa 2,000,000 2,465,000
Tucson Ltd. Tax Rfdg. 7.50% 7/1/01 A1 2,525,000 2,900,594
Tucson Wtr. Rev. Series D:
9.75% 7/1/07 A1 500,000 701,875
9.75% 7/1/08 A1 500,000 712,500
9.75% 7/1/09 A1 750,000 1,081,875
15,846,157
ARKANSAS - 0.3%
Arkansas State College Savings (Cap. Appreciation)
Series A:
0% 6/1/03 Aa 1,280,000 897,600
0% 6/1/04 Aa 1,110,000 733,988
1,631,588
CALIFORNIA - 10.9%
California Gen. Oblig.:
6.50% 3/1/02, (AMBAC Insured) Aaa 2,525,000 2,790,125
6.75% 5/1/03 A1 1,000,000 1,130,000
6.60% 2/1/10 A1 5,205,000 5,927,194
5.25% 10/1/16 A1 3,200,000 3,064,000
5.25% 10/1/17 A1 3,500,000 3,325,000
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
CALIFORNIA - CONTINUED
California Hsg. Fin. Agcy. Rev. (Home Mtg.):
Series 1983 A, 0% 2/1/15 Aa $ 187,000 $ 29,116
Series A, 5.30% 8/1/14,
(MBIA Insured)(b) Aaa 1,000,000 985,000
California Pub. Wks. Board Lease Rev.:
(California University Proj.) Series A,
5.50% 6/1/14 A1 5,500,000 5,390,000
(Secretary of State) Series A, 6% 5/1/13 A1 3,500,000 3,552,500
(Various California State Univ. Projs.) Series B:
5.55% 6/6/10 A1 1,500,000 1,526,250
6% 10/1/14 A 1,000,000 1,016,250
California Rural Home Mtg. Fin. Auth. Lease
Rev. Series A, 4.45% 8/1/01, (MBIA
Insured) Aaa 1,000,000 993,750
Contra Costa Trans. Auth. Sales Tax Rev.
Series A, 6% 3/1/07, (FGIC Insured) (b) Aaa 3,500,000 3,819,375
East Bay Mun. Util. Dist. Wtr. Sys. Rev. Rfdg.
6.10% 6/1/07 A1 1,250,000 1,346,875
Industry Urban Ind. Dev. Agcy. Rev. (Civic
Recreational Proj. #1-B) 7.375% 5/1/15 - 1,140,000 1,194,150
Long Beach Harbor Rev. (c):
9% 5/15/02, (MBIA Insured) Aaa 1,275,000 1,568,250
8.50% 5/15/03, (MBIA Insured) Aaa 1,235,000 1,512,875
Sacramento Pwr. Auth. (Cogeneration Proj.)
5.875% 7/1/15 BBB- 1,600,000 1,550,000
San Francisco City & County Swr. Rev. Rfdg.
5.90% 10/1/08, (AMBAC Insured) Aaa 5,000,000 5,306,250
San Joaquin County Ctfs. of Prtn. (Cap.
Facs. Proj.)
4.90% 11/15/08, (MBIA Insured) Aaa 4,000,000 3,920,000
South Orange County Pub. Fing. Auth. Spl.
Tax
Rev. (Foothill Area) Series C,
7.50% 8/15/07, (FGIC Insured) Aaa 2,500,000 3,037,500
University of California Rev. Rfdg.
(Multiple
Purp. Projs.) Series C, 5.125% 9/1/13,
(AMBAC Insured) Aaa 1,800,000 1,723,500
West & Central Basin Fin. Auth. Series C (e):
5.20% 8/1/07, (AMBAC Insured) Aaa 5,800,000 5,901,500
5.25% 8/1/08, (AMBAC Insured) Aaa 6,100,000 6,183,875
66,793,335
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
COLORADO - 2.9%
Adams County Single Family Mtg. Rev. Rfdg.
Series A-2, 8.70% 6/1/12, (FSA Insured) Aaa $ 100,000 $ 109,125
Colorado Health Facs. Auth. Rev. (Rocky
Mountain Adventist) 6.625% 2/1/13 Baa 7,500,000 7,687,500
Denver City & County Arpt. Rev. (c):
Series A:
6.60% 11/15/97 Baa 1,000,000 1,028,750
6.90% 11/15/98 Baa 1,000,000 1,048,750
(Cap. Appreciation):
0% 11/15/02, (MBIA Insured) Aaa 4,900,000 3,534,125
0% 11/15/05, (MBIA Insured) Aaa 3,000,000 1,826,250
Series D, 7% 11/15/25 Baa 2,500,000 2,768,750
18,003,250
CONNECTICUT - 1.4%
Connecticut Gen. Oblig. Series A, 7%
3/15/03 Aa 3,000,000 3,438,750
Connecticut Health & Ed. Facs. Auth. Rev.
(St. Raphael Hosp.) 5.30% 7/1/10,
(AMBAC Insured) Aaa 2,990,000 3,016,163
Connecticut Spl. Tax Oblig. Rev. Rfdg.
(Trans. Infrastructure) Series A,
5.25% 9/1/07, (MBIA Insured) Aaa 1,750,000 1,813,438
8,268,351
DISTRICT OF COLUMBIA - 1.8%
District of Columbia Hosp. Rev. (Hosp. for
Sick Children) Series A, 8.875% 1/1/21 - 3,395,000 3,662,356
District of Columbia Redev. Land Agcy. Spl.
Tax Rev. (Washington D.C. Sports Arena):
4.50% 11/1/96 Baa 1,700,000 1,700,459
5.40% 11/1/00 Baa 1,000,000 1,002,500
5.625% 11/1/10 Baa 1,250,000 1,217,188
Metropolitan Washington Arpt. Auth. Gen. Arpt.
Rev. Series A, 7.25% 10/1/10,
(FGIC Insured) (c) Aaa 3,000,000 3,333,750
10,916,253
FLORIDA - 5.5%
Broward County Resource Recovery Rev.
(SES Broward Co. LP South Proj.) 7.95%
12/1/08 A 3,335,000 3,706,019
Florida Board of Ed. Cap. Outlay (Pub. Ed.)
Series C, 5.40% 6/1/10, (MBIA Insured) Aaa 2,300,000 2,317,250
Florida Muni. Pwr. Agcy. Rev. Rfdg.
(Stanton II Proj.) 4.50% 10/1/16,
(AMBAC Insured) Aaa 3,000,000 2,628,750
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FLORIDA - CONTINUED
Jacksonville Port Auth. Rev. (b)(c):
5.75% 11/1/09, (MBIA Insured) Aaa $ 1,000,000 $ 1,022,500
5.625% 11/1/12, (MBIA Insured) Aaa 2,155,000 2,114,594
5.625% 11/1/18, (MBIA Insured) Aaa 3,000,000 2,906,250
Lakeland Elec. & Wtr. Rev. Rfdg. Jr. Sub. Lien (b):
6.50% 10/1/04, (FGIC Insured) Aaa 13,755,000 15,250,856
6.50% 10/1/06, (FGIC Insured) Aaa 1,000,000 1,111,250
6.50% 10/1/09, (FGIC Insured) Aaa 2,500,000 2,768,750
33,826,219
GEORGIA - 3.4%
Fulton County School Dist. Rfdg. 6.375%
5/1/14 Aa 2,000,000 2,230,000
Fulton Wtr. & Swr. 6.25% 1/1/08, (FGIC
Insured) Aaa 2,100,000 2,336,250
Georgia Gen. Oblig.:
Series B, 7.20% 3/1/06 Aaa 5,000,000 6,018,750
Series C, 7.70% 4/1/96 Aaa 1,500,000 1,505,460
Series D, 6.50% 8/1/02 Aaa 2,000,000 2,242,500
Series E, 6.75% 12/1/01 Aaa 3,585,000 4,046,569
Georgia Residential Fin. Auth. Home
Ownership Mtg. (Cap. Appreciation)
Series 1984 B, 0% 12/1/15 Aa 22,505,000 2,646,138
21,025,667
HAWAII - 0.3%
Hawaii Arpts. Sys. Rev. 2nd Series,
7.50% 7/1/20, (FGIC Insured) (c) Aaa 1,500,000 1,674,375
IDAHO - 0.6%
Idaho Falls Elec. Rfdg. 0% 4/1/07, (FGIC
Insured) Aaa 2,500,000
1,459,375
Idaho Hsg. Agcy. Single Family Mtg.
Series 1991 B, 7.50% 7/1/24 (c) AA 2,240,000 2,340,800
3,800,175
ILLINOIS - 3.9%
Chicago Gen. Oblig. Rfdg. Series B,
5.125% 1/1/15, (AMBAC Insured) Aaa 2,250,000 2,171,250
Chicago O'Hare Int'l. Arpt.:
Rev. Rfdg.:
2nd Lien (Gen. Arpt. Projs.) Series A,
6.375% 1/1/15, (MBIA Insured) Aaa 1,500,000 1,586,250
Sr. Lien Series A, 5% 1/1/12 A1 4,500,000 4,314,375
Spl. Facs. Rev. (United Airlines, Inc.)
8.25% 5/1/99 (c) Baa3 3,650,000 3,964,813
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
ILLINOIS - CONTINUED
Chicago Park Dist. Rfdg. (b):
5.50% 1/1/99, (FGIC Insured) Aaa $ 1,000,000 $ 1,036,250
5.50% 1/1/00, (FGIC Insured) Aaa 500,000 520,625
6.25% 1/1/09, (FGIC Insured) Aaa 750,000 818,438
Chicago Residential Mtg. Rev. Rfdg. (Cap.
Appreciation) Series B, 0% 10/1/09,
(MBIA Insured) Aaa 8,530,000 3,348,025
Chicago Single Family Mtg. Rev. (Cap.
Appreciation) Series A, 0% 12/1/16,
(FGIC Insured) Aaa 13,450,000 1,832,563
DeKalb Single Family Mtg. Rev. 7.45% 12/1/09,
(GNMA Coll.) (c) Aaa 1,780,000 1,889,025
Metropolitan Pier & Exposition Auth. Dedicated
Tax Rev. 0% 6/15/00, (AMBAC Insured) Aaa 2,700,000 2,224,125
23,705,739
INDIANA - 0.2%
Indianapolis Resource Recovery Rev. Rfdg.
(Ogden Martin Sys. Inc. Proj.) 6.75% 12/1/06,
(AMBAC Insured) (b) Aaa 1,000,000 1,121,250
IOWA - 0.1%
Iowa Fin. Auth. Rev. (Iowa State Revolving Fund)
4.95% 5/1/07 A 750,000 757,500
KANSAS - 0.9%
Johnson County Unified School Dist. #512
(Shawnee Mission):
8% 10/1/03 Aa1 1,015,000 1,247,181
8% 10/1/04 Aa1 1,225,000 1,526,656
8% 10/1/05 Aa1 1,250,000 1,575,000
Reno County Mtg. Rev. Rfdg. (Single Family)
Series B, 8.70% 9/1/11 Aa 810,000 872,775
5,221,612
KENTUCKY - 1.1%
Kentucky Tpk. Auth. Toll Rd. Rev.
Series A, 8.50% 7/1/96
(Pre-Refunded to 7/1/96 @ 102) (d) Aaa 5,000,000 5,183,550
Owensboro Elec. Lt. & Pwr. Rev. Series B,
0% 1/1/10, (AMBAC Insured) Aaa 4,000,000 1,870,000
7,053,550
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
LOUISIANA - 1.4%
Louisiana Gen. Oblig. Series A,
6.75% 5/15/04, (MBIA Insured) Aaa $ 7,865,000 $ 8,995,594
MARYLAND - 1.6%
Baltimore Pub. Impt. 7.25% 10/15/05,
(FGIC Insured) Aaa 3,100,000 3,704,500
Maryland Health & Higher Ed. Facs. Auth. Rev.
Rfdg. (Doctors Commty. Hosp.):
5.75% 7/1/13 Baa 2,000,000 1,847,500
5.50% 7/1/24 Baa 1,500,000 1,291,875
Montgomery County (Construction & Pub. Impt.)
Series B, 6.80% 11/1/06
(Pre-Refunded to 11/1/99 @ 102) (d) Aaa 2,660,000 2,945,950
9,789,825
MASSACHUSETTS - 5.3%
Massachusetts Bay Trans. Auth. Rfdg. (Gen.
Trans. Sys.) Series A, 5.50% 3/1/12 A1 5,000,000 5,056,250
Massachusetts Edl. Loan Auth. (Edl. Loan Rev.)
Issue E, Series B (c):
5.75% 7/1/05, (AMBAC Insured) Aaa 3,090,000 3,229,050
5.85% 7/1/06, (AMBAC Insured) Aaa 3,680,000 3,859,400
5.95% 7/1/09, (AMBAC Insured) Aaa 3,980,000 4,174,025
Massachusetts Gen. Oblig.:
Rfdg. Series A, 6.25% 7/1/03 A1 1,600,000 1,760,000
Consolidated Loan Series A, 6% 6/1/11 A1 1,400,000 1,442,000
Massachusetts Ind. Fin. Agcy. Rev. (Reeds Landing
Proj.) 8.625% 10/1/23 - 1,445,000 1,524,475
Massachusetts Wtr. Poll. Abatement Trust Rev.
(Massachusetts Wtr. Resource Auth. Loan Prog.)
Series A, 5.45% 2/1/13 Aa 5,825,000 5,781,313
New England Edl. Loan Marketing Corp. Rev.
Rfdg. (Student Loan):
Series A, 5.70% 7/1/05 (c) A1 4,375,000 4,457,031
Series B, 5.40% 6/1/00 A1 1,000,000 1,031,250
32,314,794
MICHIGAN - 0.2%
Michigan Hosp. Fin. Auth. Rev. Rfdg. (Pontiac
Osteopathic Hosp.) Series A, 6% 2/1/14 Baa1 1,500,000 1,381,875
MINNESOTA - 0.4%
Minneapolis Rfdg. (Sports Arena Proj.) (Cap.
Appreciation) Series B, 0% 12/1/03 Aaa 1,175,000 815,156
Northern Minnesota Muni. Pwr. Agcy. Elec.
Sys. Rev. Rfdg. Series A, 7.25% 1/1/16 A 1,700,000 1,814,750
2,629,906
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
MISSISSIPPI - 0.3%
Mississippi Hosp. Equip. & Facs. Auth. Rev.
(Rush Med. Foundation Proj.) Series A,
8.75% 1/1/16 Baa $ 1,500,000 $ 1,650,000
MISSOURI - 0.4%
Missouri Reg'l. Convention & Sports Complex
Auth. Rfdg. (Convention & Sports Proj.)
Series A, 5.50% 8/15/13 A1 2,000,000 1,935,000
St. Louis Regional Convention & Sports
Complex Auth. Series C, 7.75% 8/15/01 - 770,000 814,275
2,749,275
MONTANA - 1.6%
Montana Board of Investment Payroll Tax
(Workers Compensation):
6.875% 6/1/20, (MBIA Insured)
(Escrowed to Maturity) (d) Aaa 2,005,000 2,273,169
6.875% 6/1/20, (MBIA Insured) Aaa 5,125,000 5,611,875
Montana Coal Severance Tax Rfdg.
(Broadwater Pwr. Proj.) Series A,
6.875% 12/1/11 (c) A1 2,000,000 2,122,500
10,007,544
NEBRASKA - 0.9%
Omaha Pub. Pwr. Dist. Elec. Rev. Series C,
5.50% 2/1/14 Aa 5,650,000 5,699,438
NEW JERSEY - 1.1%
Camden County Impt. Auth. Lease Rev.
(Dockside Refrigerated Holt)
8.40% 4/1/24 (c) - 3,000,000 3,063,750
New Jersey State Trans. Trust Fund Auth. Rfdg.
Series B, 6.50% 6/15/10, (MBIA Insured) Aaa 3,000,000 3,401,250
6,465,000
NEW MEXICO - 1.0%
Albuquerque Arpt. Rev. Series A, 6.60% 7/1/16,
(AMBAC Insured) (c) Aaa 2,375,000 2,565,000
Hobbs Single Family Mtg. Rev. Rfdg.
8.75% 7/1/11 A 1,605,000 1,733,400
New Mexico Edl. Assistance Foundation Student
Loan Rev. Series B, 5.25% 4/1/05,
(AMBAC Insured) (c) Aaa 1,600,000 1,598,000
5,896,400
NEW YORK - 12.4%
Metropolitan Trans. Auth Svc. Contract
Rfdg. (Trans. Facs.) Series O, 5.75%
7/1/08 Baa1 3,840,000 3,892,800
New York City Gen. Oblig.:
Series A, 7.75% 8/15/07 Baa1 4,000,000 4,525,000
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
NEW YORK - CONTINUED
New York City Gen. Oblig.: - continued
Series B:
5.70% 8/15/02 Baa1 $ 2,000,000 $ 2,035,000
7.50% 2/1/04 Baa1 1,500,000 1,657,500
Series E, 5.40% 2/15/03 Baa1 2,285,000 2,273,575
Series G:
5.40% 2/1/01 Baa1 3,000,000 3,015,000
5.60% 2/1/02 Baa1 1,875,000 1,896,094
7.50% 2/1/03 Baa1 5,000,000 5,550,000
New York City Ind. Dev. Agcy. Spl. Facs. Rev.
(Terminal One Group Assoc. Proj.) (c):
6% 1/1/19 A 5,000,000 5,012,500
6.125% 1/1/24 A 1,000,000 1,007,500
New York City Muni. Wtr. Fin. Auth. Wtr. & Swr.
Sys. Rev., Series C, 6.50% 6/15/21,
(AMBAC Insured) Aaa 2,460,000 2,555,325
New York State Dorm. Auth. Rev.:
Rfdg. (State Univ. Edl. Facs.) Series A:
5.50% 5/15/09 Baa1 4,000,000 3,940,000
5.50% 5/15/13 Baa1 13,100,000 12,657,875
5.875% 5/15/17 Baa1 5,890,000 5,897,363
(Suffolk County Judicial Facs.) Series A,
9.50% 4/15/14 Baa1 7,000,000 8,157,170
New York State Local Gov't. Assistance Corp. Rfdg.:
Series B, 6% 4/1/18 A 1,500,000 1,535,625
Series C, 5.50% 4/1/17 A 5,000,000 4,912,500
Series E, 5.25% 4/1/16 A 4,075,000 3,886,531
Triborough Bridge & Tunnel Auth. Rev.
(Gen. Purp.) Series X, 6% 1/1/14 Aa 1,575,000 1,624,219
76,031,577
NORTH CAROLINA - 1.1%
North Carolina Eastern Muni. Pwr. Agcy. Pwr.
Sys. Rev. Rfdg. Series C, 7% 1/1/07 A 2,000,000 2,212,500
North Carolina Muni. Pwr. Agcy. #1 Catawba
Elec. Rev. 5.25% 1/1/09, (MBIA Insured) Aaa 4,655,000 4,719,006
6,931,506
NORTH DAKOTA - 1.2%
Mercer County Poll. Cont. Rev. Rfdg.
(Basin Electric Pwr.):
(Antelope Valley Station Proj.)
7.20% 6/30/13, (AMBAC Insured) Aaa 5,000,000 6,050,000
2nd Series, 6.05% 1/1/19,
(AMBAC Insured) Aaa 1,000,000 1,031,250
7,081,250
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
OHIO - 2.4%
Bedford Hosp. Impt. Rev. Rfdg. (Bedford
Commty. Hosp.) Series 1990, 8.50% 5/15/09,
(Escrowed to Maturity) (d) - $ 1,020,000 $ 1,173,000
Euclid City School Dist. (Cap. Appreciation):
0% 12/1/02, (AMBAC Insured) Aaa 1,265,000 934,519
0% 12/1/03, (AMBAC Insured) Aaa 1,265,000 885,500
Ohio Hsg. Fin. Agcy. Mtg. Rev. (Oakleaf-Toledo
Apts. Proj.) 10.25% 12/20/25, (GNMA Coll.)Aaa 1,585,000 1,826,713
Ohio State Bldg. Auth.:
(Adult Correctional Facs.) Series A,
5.95% 10/1/14, (MBIA Insured) Aaa 4,000,000 4,140,000
(Workers Compensation Bldg. A)
4.75% 4/1/14 A 5,000,000 4,587,500
Ohio Wtr. Dev. Auth. Rev. Rfdg. (Impt. Pure
Wtr.) 5.75% 6/1/06, (MBIA Insured) Aaa 1,000,000 1,053,750
14,600,982
OREGON - 1.5%
Port Morrow Poll. Ctr. Rev. (Pacific Northwest)
Series A, 8% 7/15/11 AA- 3,420,000 3,950,100
Portland Series B:
7% 6/1/00 Aaa 1,385,000 1,540,813
7% 6/1/01 Aaa 1,480,000 1,674,250
Portland Swr. Sys. Rev. Series A, 6.25%
6/1/15 A1 1,875,000 1,999,219
9,164,382
PENNSYLVANIA - 3.5%
Clarion County Hosp. Auth. Hosp. Rev.
(Clarion Hosp. Proj.) 8.50% 7/1/21 BBB- 2,500,000 2,750,000
Pennsylvania Intergovernmental Coop Spl.
Tax Rev. Rfdg. Series A, 5% 6/15/13 A 3,000,000 2,808,750
Philadelphia Hosp. & Higher Ed. Facs. Auth.
Hosp. Rev. (Temple Univ. Hosp.) Series A,
6.50% 11/15/08 Baa1 2,000,000 2,102,500
Philadelphia Wtr. & Wastewtr. Rev. 5.65%
6/15/12, (FGIC Insured) Aaa 12,000,000 12,060,000
Somerset County Pennsylvania Hosp. Auth. Rev.
(Health Care 1st Mtg.) 8.50% 6/1/24 - 2,000,000 2,060,000
21,781,250
TENNESSEE - 0.4%
Tennessee Gen. Oblig. Series B, 6.10%
6/1/00 Aaa 2,025,000 2,169,281
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TEXAS - 9.1%
Austin Arpt. Sys. Rev. Series A,
6.20% 11/15/15, (MBIA Insured) (c) Aaa $ 3,400,000 $ 3,531,750
Austin Indpt. School Dist. Rfdg. (Cap.
Appreciation) 0% 8/1/02, (PSF Guaranteed) Aaa 2,100,000 1,559,250
Austin Util. Sys. Rev. Rfdg. (Cap. Appreciation):
Series A, 0% 11/15/08, (MBIA Insured) Aaa 3,895,000 1,991,319
0% 11/15/09, (AMBAC Insured) Aaa 4,000,000 1,915,000
Corpus Christi Indpt. School Dist. Rfdg.
(Cap. Appreciation):
0% 8/15/01, (PSF Guaranteed) Aaa 1,535,000 1,201,138
0% 8/15/02, (PSF Guaranteed) Aaa 2,165,000 1,607,513
Cypress-Fairbanks Indpt. School Dist. Unltd.
Tax Rfdg. (Cap. Appreciation)
0% 2/1/04, (PSF Guaranteed) Aaa 1,250,000 854,688
Dallas-Fort Worth Int'l. Arpt. Facs. Impt.
Corp. Rev. (AMR Corp. Guaranteed)
7.50% 11/1/25 (c) Baa2 7,000,000 7,463,750
Dallas-Fort Worth Reg. Arpt. Rev. Rfdg.
Series A, 5.75% 11/1/02, (MBIA Insured) Aaa 1,750,000 1,874,688
Dallas Indpt. School Dist. Rfdg.
0% 8/15/07, (PSF Guaranteed) Aaa 1,000,000 556,250
East Texas Health Facs. Dev. Corp. Hosp. Rev.
(Palestine) 7.80% 8/15/18 - 3,000,000 2,647,500
El Paso Prop. Fin. Auth. Single Family Mtg. Rev.
Series A, 8.70% 12/1/18, (GNMA Coll.)(c) Aaa 1,275,000 1,375,406
Grapevine-Colleyville Indpt. School Dist. Rfdg.
(Cap. Appreciation) 0% 8/15/06 Aaa 2,580,000 1,525,425
Harris County Cultural & Edl. Facs. Fin. Corp. Rev.
Rfdg. (Space Ctr. Houston Proj.):
Series A, 9.25% 8/15/23 - 940,000 928,250
Series B, 0% 8/15/23 - 2,375,000 644,219
Houston Indpt. School Dist. Rfdg.
(Cap. Appreciation) Series A, 0% 8/15/11,
(PSF Guaranteed) Aaa 6,400,000 2,768,000
Lower Colorado River Auth. Rev. Rfdg. (Cap.
Appreciation) 0% 1/1/09, (MBIA Insured) Aaa 1,000,000 520,000
Lower Neches Valley Ind. Dev. Rev. (Mobil Oil
Refining Corp. Proj.) 6.40% 3/1/30 (c) Aa2 8,785,000 9,125,419
Midlothian Indpt. School Dist. Rfdg.
(Cap. Appreciation):
0% 2/15/07, (PSF Guaranteed) Aaa 1,935,000 1,110,206
0% 2/15/08, (PSF Guaranteed) Aaa 1,520,000 818,900
0% 2/15/10, (PSF Guaranteed) Aaa 1,525,000 726,281
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
TEXAS - CONTINUED
San Antonio Elec. & Gas Rev. Rfdg. Series B,
0% 2/1/09, (FGIC Insured) Aaa $ 2,000,000 $ 1,000,000
Spring Branch Indpt. School Dist. Rfdg.
(Cap. Appreciation) 0% 2/1/05,
(PSF Guaranteed) (b) Aaa 5,725,000 3,706,938
Spring Indpt. School Dist. 4.875% 8/15/10,
(PSF Guaranteed) Aaa 2,500,000 2,393,750
Texas A&M Univ. Permanent Univ. Fund
5.50% 7/1/04 (b) Aaa 1,275,000 1,332,375
Univ. of Texas Univ. Rev. Rfdg. (Fing. Sys.)
Series A:
6% 8/15/04 Aa1 1,170,000 1,285,538
6% 8/15/05 Aa1 1,000,000 1,100,000
Winters Wtrwks. & Swr. Sys. Rev. Rfdg.
8.50% 8/1/17, (Pre-Refunded to
8/1/03 @ 100) (d) - 500,000 619,375
56,182,928
UTAH - 3.2%
Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev.
Rfdg. Series B, 5.55% 7/1/11 Aa 10,000,000 9,987,500
Intermountain Pwr. Agcy. Pwr. Supply Sys. Rev.
Rfdg. Series B (b):
6.50% 7/1/04, (MBIA Insured) Aaa 2,000,000 2,235,000
6.50% 7/1/05, (MBIA Insured) Aaa 4,000,000 4,475,000
6.50% 7/1/10, (MBIA Insured) Aaa 1,500,000 1,687,500
Utah Hsg. Fin. Agcy.:
(Residential Mtg.) (Cap. Appreciation)
Series 1983 A, 0% 7/1/16 A+ 4,035,042 509,424
(Single Family Mtg.) Series G, 9.25% 7/1/19,
(FHA Guaranteed) (c) Aaa 810,000 875,813
19,770,237
VERMONT - 0.7%
Vermont Hsg. Fin. Agcy. Single Family Series 2,
7.30% 5/1/25 (c) A1 1,500,000 1,556,250
Vermont Ind. Dev. Auth. Ind. Dev. Rev.
(Radisson Hotel) Series B-1, 7.75%
11/15/15 - 2,350,000 2,582,063
4,138,313
VIRGINIA - 1.0%
Richmond Rfdg. Series B, 5.50% 1/15/05,
(FGIC Insured) Aaa 1,600,000 1,688,000
Virginia Hsg. Dev. Auth. Residential Mtg.
(Single Family Mtg.) (Cap. Appreciation)
Series 1983 B, 0% 9/1/14 Aaa 2,430,000 364,500
Virginia State Pub. Facs. Gen. Oblig.
6% 6/1/03 Aaa 4,000,000 4,390,000
6,442,500
MUNICIPAL BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
WASHINGTON - 5.3%
Douglas County Pub. Util. Dist. #1 Wells
Hydroelec. Rev. Rfdg. (Pacific Pwr. & Lt. Co.)
8.75% 9/1/18 A $ 1,395,000 $ 1,780,369
Washington Gen. Oblig. Series 96 A,
6.75% 7/1/02 Aa 3,560,000 4,018,350
Washington Motor Vehicle Fuel Tax Gen. Oblig.
Series B, 6.50% 9/1/03 Aa 5,000,000 5,631,250
Washington Pub. Pwr. Supply Sys. Rev.
Nuclear Proj. #2:
Rfdg. Series C, 0% 7/1/05, (MBIA
Insured) Aaa 11,000,000 6,875,000
5.40% 7/1/12 Aa 10,000,000 9,650,000
Nuclear Proj. #3 5.40% 7/1/12 Aa 5,000,000 4,750,000
32,704,969
TOTAL MUNICIPAL BONDS
(Cost $559,567,396) 574,763,422
MUNICIPAL NOTES (E) - 6.4%
ALABAMA - 0.2%
Phenix City Ind. Dev. Board Envir. Impt. (Mead
Coated Board Proj.) 3.55%, LOC Toronto
Dominion Bank, VRDN (c) A-1+ 1,300,000 1,300,000
ARIZONA - 0.3%
Coconino County Poll. Cont. Corp. Rev.
(Arizona Pub. Svc. Co. Navajo Proj.) Series A,
3.60%, LOC Bank of America Nat'l. Trust &
Savings, VRDN P-1 2,200,000 2,200,000
COLORADO - 0.7%
Colorado Gen. Oblig. TRAN 4.50%, 6/27/96 SP-1+ 4,300,000 4,314,953
DELAWARE - 0.2%
Delaware Econ. Dev. Auth. (Delmarva Pwr. &
Light Proj.) Series 1994, 3.60%, VRDN (c) VMIG 1 1,000,000 1,000,000
FLORIDA - 0.6%
Sunshine St. Gov't. Fin. Comm. Rev. Series B,
LOC Union Bank of Switzerland
3.70% 4/4/96 CP A-1+ 4,000,000 4,001,800
KENTUCKY - 0.6%
Daviess County Solid Wst. Disp. Facs. Rev.
(Scott Paper Co.) Series 1993-B, 3.60%,
LOC ABN AMRO Bank, VRDN (c) VMIG 1 3,600,000 3,600,000
MUNICIPAL NOTES (E) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
LOUISIANA - 0.2%
Plaquemines Parish Environmental Rev.
(BP Expl. & Oil, Inc. Proj.) Series 1994,
3.60%, VRDN (c) P-1 $ 1,400,000 $ 1,400,000
MISSOURI - 0.7%
Missouri Higher Ed. Loan Auth. Student Loan Rev.
Series B, 3.20%, LOC Nat'l Westminster
Bank, VRDN (c) VMIG 1 4,000,000 4,000,000
SOUTH CAROLINA - 0.4%
South Carolina Jobs Econ. Dev. Auth. (Wellman,
Inc. Proj.) Series 1992, 3.50%, LOC
Wachovia Bank & Trust NA, VRDN (c) - 2,200,000 2,200,000
TEXAS - 2.1%
Brazos River Auth. Poll. Cont. Rev. Rfdg. (Texas
Utils. Elec. Co. Proj.) (c):
Series 1995-A, 3.55%, LOC Morgan
Guaranty Trust Co., VRDN VMIG 1 1,500,000 1,500,000
Series 1995-C, 3.55%, LOC Swiss Bank,
VRDN VMIG 1 3,800,000 3,800,000
Brazos River Hbr. Navigation Dist. of Brazoria
(Dow Chemical Co. Proj.) Series 1993,
3.60%, VRDN (c) P-1 600,000 600,000
Gulf Coast Waste Disp. Auth. Poll. Cont. Rev.
(AMOCO Oil Co. Proj.) 3.55%, VRDN (c) A-1+ 300,000 300,000
Harris County Ind. Dev. Corp. Poll. Cont. Rev.
(Exxon Proj.) Series 1987, 3.55%, VRDN(c) A-1+ 1,900,000 1,900,000
Texas Gen. Oblig. TRAN Series 1995 A, 4.75%
8/30/96 MIG 1 1,000,000 1,007,310
Texas Pub. Fin. Auth. Series 1993-A,
3.60% 4/4/96 CP P-1 4,000,000 4,001,440
13,108,750
WEST VIRGINIA - 0.4%
West Virginia Pub. Energy Auth. Rev.
(Morgantown Energy Assoc. Proj. A) 3.40%,
LOC Swiss Bank, VRDN (c) A-1+ 2,500,000 2,500,250
TOTAL MUNICIPAL NOTES
(Cost $39,625,764) 39,625,753
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $599,193,160) $ 614,389,175
SECURITY TYPE ABBREVIATIONS
CP - Commercial Paper
TRAN - Tax and Revenue Anticipation Notes
VRDN - Variable Rate Demand Notes
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
3. Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals.
4. Security collateralized by an amount sufficient to pay interest and
principal.
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 72.9% AAA, AA, A 73.0%
Baa 14.9% BBB 11.5%
Ba 0.0% BB 1.9%
B 0.0% B 0.2%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 3.4%.
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
General Obligation 34.1%
Electric Revenue 11.0
Industrial Development 8.3
Water and Sewer 7.8
Special Tax 7.2
Transportation 7.0
Other 5.7
Health Care 5.1
Others (individually less than 5%) 13.8
TOTAL 100.0%
INCOME TAX INFORMATION
At February 29, 1996, the aggregate cost of investment securities for
income tax purposes was $599,193,160. Net unrealized appreciation
aggregated $15,196,015, of which $18,259,095 related to appreciated
investment securities and $3,063,080 related to depreciated investment
securities.
At August 31, 1995, the fund had a capital loss carryforward of
approximately $2,188,000 which will expire on August 31, 2003.
The fund intends to elect to defer to its fiscal year ending August 31,
1996 approximately $21,291,000 of losses recognized during the period
November 1, 1994 to August 31, 1995.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
FEBRUARY 29, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (cost $599,193,160) - $ 614,389,175
See accompanying schedule
Receivable for investments sold 5,468,035
Interest receivable 7,413,292
TOTAL ASSETS 627,270,502
LIABILITIES
Payable to custodian bank $ 42,064
Payable for investments purchased 2,585,700
Regular delivery
Delayed delivery 45,321,360
Payable for fund shares redeemed 231,071
Distributions payable 611,060
Accrued management fee 253,751
TOTAL LIABILITIES 49,045,006
NET ASSETS $ 578,225,496
Net Assets consist of:
Paid in capital $ 583,190,175
Accumulated undistributed net realized gain (loss) on (20,160,694)
investments
Net unrealized appreciation (depreciation) on 15,196,015
investments
NET ASSETS, for 55,266,970 shares outstanding $ 578,225,496
NET ASSET VALUE, offering price and redemption price per $10.46
share ($578,225,496 (divided by) 55,266,970 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
INTEREST INCOME $ 16,460,004
EXPENSES
Management fee $ 1,582,806
Non-interested Trustees' compensation 1,072
Total expenses before reductions 1,583,878
Expense reductions (59,880) 1,523,998
NET INTEREST INCOME 14,936,006
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 3,700,086
Futures contracts 190,018 3,890,104
Change in net unrealized appreciation (depreciation) on:
Investment securities 11,997,230
Futures contracts (108,178) 11,889,052
NET GAIN (LOSS) 15,779,156
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 30,715,162
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED FEBRUARY AUGUST 31,
29,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 14,936,006 $ 35,085,345
Net interest income
Net realized gain (loss) 3,890,104 (23,234,406)
Change in net unrealized appreciation (depreciation) 11,889,052 27,681,497
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 30,715,162 39,532,436
FROM OPERATIONS
Distributions to shareholders (14,936,006) (35,181,331)
From net interest income
From net realized gain (112,137) (5,213,637)
TOTAL DISTRIBUTIONS (15,048,143) (40,394,968)
Share transactions 29,322,815 82,506,178
Net proceeds from sales of shares
Reinvestment of distributions 11,070,201 29,999,336
Cost of shares redeemed (51,899,606) (217,831,944)
Redemption fees 8,949 69,284
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (11,497,641) (105,257,146)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,169,378 (106,119,678)
NET ASSETS
Beginning of period 574,056,118 680,175,796
End of period $ 578,225,496 $ 574,056,118
OTHER INFORMATION
Shares
Sold 2,812,912 8,465,664
Issued in reinvestment of distributions 1,062,370 3,070,143
Redeemed (4,983,660) (22,701,405)
Net increase (decrease) (1,108,378) (11,165,598)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED AUGUST 31,
ENDED FEBRUARY
29, 1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890
beginning of period
Income from .268 .587 .611 .663 .704 .739
Investment
Operations
Net interest income
Net realized .282 .189 (.752) .727 .387 .463
and unrealized
gain (loss)
Total from .550 .776 (.141) 1.390 1.091 1.202
investment
operations
Less Distributions (.268) (.587) (.611) (.663) (.704) (.739)
From net interest
income
From net (.002) (.080) (.550) (.070) (.040) -
realized gain
Total distributions (.270) (.667) (1.161) (.733) (.744) (.739)
Redemption fees - .001 .002 .003 .003 .007
added to paid in
capital
Net asset value, end $ 10.460 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360
of period
TOTAL RETURN B, C 5.45% 8.20% (1.42) 13.55% 10.93% 12.65%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 578,225 $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930
period (000 omitted)
Ratio of expenses to .53% A, .55% .55% .47% .36% .23%
average net assets E E E E
Ratio of net interest 5.19% A 5.99% 5.76% 6.09% 6.68% 7.24%
income to average
net assets
Portfolio turnover rate 69% A 69% 48% 50% 62% 78%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D EFFECTIVE SEPTEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E 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 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended February 29, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Municipal Income Fund (the fund) (formerly Spartan Municipal Income
Portfolio) is a fund of Fidelity Union Street Trust (the trust) and is
authorized to issue an unlimited number of shares. The trust is registered
under the Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The 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. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which quotations are not readily
available through the pricing service are valued at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
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. Distributions are declared daily and paid
monthly from net interest income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for futures
and options transactions and market discount.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net interest income and realized
and unrealized gain (loss). Accumulated undistributed net realized gain
(loss) on investments may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REDEMPTION FEES. Shares held in the fund less than 180 days are subject to
a redemption fee equal to .50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment 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 value of the securities purchased or sold on a when-issued or
forward commitment basis are identified as such in the fund's schedule of
investments. The fund may receive compensation for interest forgone in the
purchase of a delayed delivery security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does
not perform under the contract.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the bond market and to fluctuations in
interest rates. Buying futures, writing puts, and buying calls tend to
increase the fund's exposure to the underlying instrument. Selling futures,
buying puts, and writing calls tend to decrease the fund's exposure to the
underlying instrument, or hedge other fund investments. Losses may arise
from changes in the value of the underlying instruments, if there is an
illiquid secondary market for the contracts, or if the counterparties do
not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $195,279,201 and $196,313,261, respectively.
The market value of futures contracts opened and closed during the period
amounted to $35,329,423 and $43,908,629, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) pays all expenses, except the compensation of the
non-interested Trustees and certain exceptions such as interest, taxes,
brokerage commissions and extraordinary expenses. FMR receives a fee that
is computed daily at an annual rate of .55% of the fund's average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
MANAGEMENT FEE - CONTINUED
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
$3,010 for the period.
5. EXPENSE REDUCTIONS.
FMR agreed to reimburse a portion of the fund's expenses. For the period,
the reimbursement reduced expenses by $59,880.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Fred L. Henning, Jr., Vice President
David Murphy, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
and
UMB Bank, n.a.
Kansas City, MO
(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
CUSTODIAN
UMB Bank, n.a.
Kansas City, MO
FIDELITY'S TAX-FREE BOND FUNDS
Aggressive Municipal
California Insured Municipal Income
California Municipal Income
High Yield Tax-Free
Insured Municipal Income
Limited Term Municipal Income
Massachusetts Municipal Income
Michigan Municipal Income
Minnesota Municipal Income
Municipal Bond
New York Insured Municipal Income
New York Municipal Income
Ohio Municipal Income
Spartan Aggressive Municipal
(registered trademark)
Spartan Arizona Municipal Income
Spartan California Intermediate Municipal
Spartan California Municipal Income
Spartan Connecticut Municipal Income
Spartan Florida Municipal Income
Spartan Intermediate Municipal Income
Spartan Maryland Municipal Income
Spartan Municipal Income
Spartan New Jersey Municipal Income
Spartan New York Intermediate Municipal
Spartan New York Municipal Income
Spartan Pennsylvania Municipal Income
Spartan Short-Intermediate Municipal
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
PART C. OTHER INFORMATION
Item 15. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present Trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit, or
proceeding in which he is involved by virtue of his service as a Trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless disregard
of the duties involved in the conduct of the particular office involved.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against any
loss, liability, claim, damages or expense arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information, shareholder
reports or other information filed or made public by the Registrant
included a materially misleading statement or omission. However, the
Registrant does not agree to indemnify the Distributor or hold it harmless
to the extent that the statement or omission was made in reliance upon, and
in conformity with, information furnished to the Registrant by or on behalf
of the Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the
obligations and duties under the Distribution Agreement.
Pursuant to the agreement by which Fidelity Service Company ("Service") is
appointed sub-transfer agent, the Transfer Agent agrees to indemnify
Service for its losses, claims, damages, liabilities and expenses to the
extent the Transfer Agent is entitled to and receives indemnification from
the Registrant for the same events. Under the Transfer Agency Agreement,
the Registrant agrees to indemnify and hold the Transfer Agent harmless
against any losses, claims, damages, liabilities, or expenses resulting
from:
(1) any claim, demand, action or suit brought by any person other than the
Registrant, which names the Transfer Agent and/or the Registrant as a party
and is not based on and does not result from the Transfer Agent's willful
misfeasance, bad faith, negligence or reckless disregard of its duties, and
arises out of or in connection with the Transfer Agent's performance under
the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent contributed to
by the Transfer Agent's willful misfeasance, bad faith, negligence or
reckless disregard of its duties) which results from the negligence of the
Registrant, or from the Transfer Agent's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of the Transfer
Agent's acting in reliance upon advice reasonably believed by the Transfer
Agent to have been given by counsel for the Registrant, or as a result of
the Transfer Agent's acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust, dated September 14, 1995, is
incorporated herein by reference to Exhibit (1) of Post-Effective Amendment
No. 92.
(2) By-laws of the Trust, as amended, are incorporated herein by reference
to Exhibit 2(a) of Post-Effective Amendment No. 87.
(3) Not applicable.
(4) Agreement and Plan of Reorganization between Fidelity Union Street
Trust: Spartan Municipal Income Fund and Fidelity School Street Trust:
Spartan Bond Strategist is filed herein as Exhibit 1 to the Proxy Statement
and Prospectus.
(5) Not applicable.
(6)(a) Management Contract, dated April 19, 1990, between Spartan Municipal
Income Portfolio and Fidelity Management & Research Company is incorporated
herein by reference to Exhibit 5(a) to Post-Effective Amendment No. 89.
(b) Management Contract, dated December 13, 1990, between Spartan Ginnie
Mae Fund and Fidelity Management & Research Company is incorporated herein
by reference to Exhibit 5(b) to Post-Effective Amendment No. 89.
(c) Management Contract, dated March 18, 1993, between Spartan Maryland
Municipal Income Fund and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(c) to Post-Effective
Amendment No. 89.
(d) Management Contract, dated March 18, 1993, between Spartan Aggressive
Municipal Fund and Fidelity Management & Research Company is incorporated
herein by reference to Exhibit 5(f) to Post-Effective Amendment No. 84.
(e) Management Contract, dated March 18, 1993, between Spartan Intermediate
Municipal Fund and Fidelity Management & Research Company is incorporated
herein by reference to Exhibit 5(g) to Post-Effective Amendment No. 84.
(f) Management Contract, dated October 18, 1993, between Spartan
Short-Intermediate Municipal Fund and Fidelity Management & Research
Company is incorporated herein by reference to Exhibit 5(f) to
Post-Effective Amendment No. 89.
(g) Management Contract, dated July 14, 1994, between Fidelity Export Fund
and Fidelity Management & Research Company is incorporated herein by
reference to Exhibit 5(g) to Post-Effective Amendment No. 89.
(h) Sub-Advisory Agreement, dated July 14, 1994, between Fidelity
Management & Research Company, Fidelity Management & Research Company
(U.K.) Inc., and Fidelity Union Street Trust on behalf of Fidelity Export
Fund is incorporated herein by reference to Exhibit 5(h) to Post-Effective
Amendment No. 89.
(i) Sub-Advisory Agreement, dated July 14, 1994, between Fidelity
Management & Research Company, Fidelity Management & Research Company (Far
East) Inc., and Fidelity Union Street Trust on behalf of Fidelity Export
Fund is incorporated herein by reference to Exhibit 5(i) to Post-Effective
Amendment No. 89.
(j) Management Contract, dated September 16, 1994, between Spartan Arizona
Municipal Income Portfolio and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(j) to Post-Effective
Amendment No. 89.
(7)(a) General Distribution Agreement, dated April 19, 1990, between
Fidelity Union Street Trust, on behalf of Spartan Municipal Income
Portfolio and Fidelity Distributors Corporation is incorporated herein by
reference to Exhibit 6(a) to Post-Effective Amendment No. 89.
(b) General Distribution Agreement, dated December 13, 1990, between
Fidelity Union Street Trust, on behalf of Spartan Ginnie Mae Fund and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(b) to Post-Effective Amendment No. 84.
(c) Amendment, dated May 10, 1994, to the General Distribution Agreement,
dated December 13, 1990, between Spartan Ginnie Mae Fund and Fidelity
Distributors Corporation is incorporated herein by reference to Exhibit
6(c) to Post-Effective Amendment No. 89.
(d) General Distribution Agreement, dated March 18, 1993, between Fidelity
Union Street Trust, on behalf of Spartan Maryland Municipal Income Fund
and Fidelity Distributors Corporation is incorporated herein by reference
to Exhibit 6(d) to Post-Effective Amendment No. 89.
(e) General Distribution Agreement, dated March 18, 1993, between Fidelity
Union Street Trust, on behalf of Spartan Aggressive Municipal Fund and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(e) to Post-Effective Amendment No. 84.
(f) Amendment, dated May 10, 1994, to the General Distribution Agreement,
dated March 18, 1993, between Spartan Aggressive Municipal Fund and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(f) to Post-Effective Amendment No. 89.
(g) General Distribution Agreement, dated March 18, 1993, between Fidelity
Union Street Trust, on behalf of Spartan Intermediate Municipal Fund and
Fidelity Distributors Corporation is incorporated herein by reference to
Exhibit 6(f) to Post-Effective Amendment No. 84.
(h) Amendment, dated May 10, 1994, to the General Distribution Agreement,
dated March 18, 1993, between Fidelity Union Street Trust, on behalf of
Spartan Intermediate Municipal Fund and Fidelity Distributors Corporation
is incorporated herein by reference to Exhibit 6(h) to Post-Effective
Amendment No. 89.
(i) General Distribution Agreement, dated July 14, 1994, between Fidelity
Union Street Trust, on behalf of Fidelity Export Fund, and Fidelity
Distributors Corporation is incorporated herein by reference to Exhibit
6(i) to Post-Effective Amendment No. 92.
(j) General Distribution Agreement, dated September 16, 1994, between
Fidelity Union Street Trust, on behalf of Spartan Arizona Municipal Income
Portfolio, and Fidelity Distributors Corporation is incorporated herein by
reference to Exhibit 6(j) to Post-Effective Amendment No. 91.
(k) General Distribution Agreement, dated October 18, 1993, between
Fidelity Union Street Trust, on behalf of Spartan Short-Intermediate
Municipal Fund, and Fidelity Distributors Corporation is incorporated
herein by reference to Exhibit 6(k) to Post-Effective Amendment No. 92.
(8)(a) Retirement Plan for Non-Interested Person Trustees, Directors, or
General Partners is incorporated herein by reference to Exhibit 7 of Post
Effective Amendment No. 87 (File No. 2-50318).
(b) The Fee Deferral Plan for Non-Interested Person Directors and Trustees
of the Fidelity Funds, effective as of December 1, 1995, is incorporated
herein by reference to Exhibit 7(b) of Fidelity School Street Trust's (File
No. 2-57167) Post-Effective Amendment No. 47.
(9)(a) Custodian Agreement, Appendix A, and Appendix C, dated December 1,
1994, between The Bank of New York and Fidelity Union Street Trust on
behalf of Spartan Ginnie Mae Fund is incorporated herein by reference to
Exhibit 8(a) to Fidelity Hereford Street Trust's Post-Effective Amendment
No. 4 (File No. 33-52577).
(b) Appendix B, dated April 20, 1995, to the Custodian Agreement, dated
December 1, 1994, between The Bank of New York and Fidelity Union Street
Trust on behalf of Spartan Ginnie Mae Fund is incorporated herein by
reference to Exhibit 8(b) to Fidelity Hereford Street Trust's
Post-Effective Amendment No. 5 (File No. 33-52577).
(c) Custodian Agreement, Appendix A, Appendix B, and Appendix C, dated
December 1, 1994, between UMB Bank, n.a. and Fidelity Union Street Trust on
behalf of Spartan Short-Intermediate Municipal Fund, Spartan Aggressive
Municipal Fund, Spartan Intermediate Municipal Fund, Spartan Municipal
Income Portfolio, Spartan Maryland Municipal Income Fund, and Spartan
Arizona Municipal Income Portfolio is incorporated herein by reference to
Exhibit 8 to Fidelity California Municipal Trust's Post-Effective Amendment
No. 28 (File No. 2-83367).
(d) Custodian Agreement, Appendix A, and Appendix C, dated August 1, 1994,
between The Chase Manhattan Bank, N.A. and Fidelity Union Street Trust on
behalf of Fidelity Export Fund is incorporated herein by reference to
Exhibit 8(a) to Fidelity Investment Trust's Post-Effective Amendment No. 59
(File No. 2-90649).
(e) Appendix B, dated April 20, 1995, to the Custodian Agreement, dated
August 1, 1994, between The Chase Manhattan Bank, N.A. and Fidelity Union
Street Trust on behalf of Fidelity Export Fund is incorporated herein be
reference to Exhibit 8(b) to Fidelity Investment Trusts Post-Effective
Amendment No. 59 (File No. 2-90649).
(10) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Municipal Income Portfolio is incorporated herein by reference to Exhibit
15(a) to Post-Effective Amendment No. 89.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan Ginnie
Mae Fund is incorporated herein by reference to Exhibit 15(b) to
Post-Effective Amendment No. 89.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Maryland Municipal Income Fund is incorporated herein by reference to
Exhibit 15(c) to Post-Effective Amendment No. 83.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Aggressive Municipal Fund is incorporated herein by reference to Exhibit
15(d) to Post-Effective Amendment No. 89.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Intermediate Municipal Fund is incorporated herein by reference to Exhibit
15(e) to Post-Effective Amendment No. 89.
(f) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Arizona Municipal Income Portfolio is incorporated herein by reference to
Exhibit 15(f) of Post-Effective Amendment No. 92.
(g) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Short-Intermediate Municipal Fund is incorporated herein by reference to
Exhibit 15(g) to Post-Effective Amendment No. 89.
(11) Opinion and consent of Kirkpatrick & Lockhart LLP as to the legality
of shares being registered if filed herein as Exhibit 11.
(12) Opinion and Consent of Kirkpatrick & Lockhart LLP as to tax matters in
connection with the reorganization of Spartan Bond Strategist is filed
herein as Exhibit 12.
(13) Not applicable.
(14) Consent of Coopers & Lybrand L.L.P. is filed herein as Exhibit 14.
(15) Not applicable.
(16) Powers of Attorney, dated December 15, 1994, are filed herein as
Exhibit 16.
(17) Rule 24f-2 Notice for Registrant's most recent fiscal year ended
August 31, 1995 is filed herein as Exhibit 17.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a
part of this Registration Statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities Act
of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reoffering by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, each Post-Effective Amendment shall be deemed to be a new
Registration Statement for the securities offered therein, and the offering
of securities at that time shall be deemed to be the initial bona fide
offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boston, and Massachusetts, on the
6th day of September 1996.
FIDELITY UNION STREET TRUST
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
(Signature) (Title) (Date)
/s/Edward C. Johnson 3d(dagger) President and Trustee September 6, 1996
Edward C. Johnson 3d (Principal Executive Officer)
/s/Kenneth A. Rathgeber Treasurer September 6, 1996
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee September 6, 1996
J. Gary Burkhead
/s/Ralph F. Cox * Trustee September 6, 1996
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee September 6, 1996
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee September 6, 1996
Richard J. Flynn
/s/E. Bradley Jones * Trustee September 6, 1996
E. Bradley Jones
/s/Donald J. Kirk * Trustee September 6, 1996
Donald J. Kirk
/s/Peter S. Lynch * Trustee September 6, 1996
Peter S. Lynch
/s/Edward H. Malone * Trustee September 6, 1996
Edward H. Malone
/s/Marvin L. Mann_____ * Trustee September 6, 1996
Marvin L. Mann
/s/Gerald C. McDonough* Trustee September 6, 1996
Gerald C. McDonough
/s/Thomas R. Williams * Trustee September 6, 1996
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated December 15, 1994 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 15, 1994 and filed herewith.
</TABLE>
Exhibit 11
August 30, 1996
Fidelity Union Street Trust
82 Devonshire Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
You have requested our opinion regarding certain matters in connection
with the issuance of shares of Spartan Municipal Income Fund ("Municipal
Income"), a series of Fidelity Union Street Trust (the "Trust"), pursuant
to a Registration Statement to be filed by the Trust on Form N-14
("Registration Statement") under the Securities Act of 1933 ("1933 Act").
These shares will be issued in connection with the proposed acquisition by
Municipal Income of all of the assets of Spartan Bond Strategist ("Bond
Strategist"), a series of Fidelity School Street Trust, and the assumption
by Municipal Income of the liabilities of Bond Strategist solely in
exchange for Municipal Income shares.
In connection with our services as counsel for the Trust, we have
examined, among other things, originals or copies of such documents,
certificates and corporate and other records as we deemed necessary or
appropriate for purposes of this opinion. We have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us, the
conformity to original documents of all documents presented to us as copies
thereof and the authenticity of the original documents from which any such
copies were made, which assumptions we have not independently verified. As
to various matters of fact material to this opinion, we have relied upon
statements and certificates of officers of the Trust. Based upon this
examination, we are of the opinion that the shares to be issued pursuant to
the Registration Statement, when issued upon the terms provided in the
Registration Statement, subject to compliance with the 1933 Act, the
Investment Company Act of 1940, and applicable state law regulating the
offer and sale of securities, will be legally issued, fully paid, and
non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a business trust
may be held personally liable for the obligations of the Trust. The
Trust's Declaration of Trust provides that the Trustees shall have no power
to bind any shareholder personally or to call upon any shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
shareholder may at any time personally agree to pay by way of subscription
for any shares or otherwise. The Declaration of Trust also requires that
every note, bond, contract or other undertaking issued by or on behalf of
the Trust or the Trustees relating to the Trust include a recitation
limiting the obligation represented thereby to the Trust and its assets
(although the omission of such recitation shall not operate to bind any
shareholder). The Declaration of Trust provides that: (i) in case any
shareholder or any former shareholder of any Series of the Trust shall be
held to be personally liable solely by reason of his being or having been a
shareholder and not because of his acts or omissions or for some other
reason, the shareholder or former shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets belonging to the applicable Series to
be held harmless from and indemnified against all loss and expense arising
from such liability; and (ii) a Series shall, upon request by the
shareholder, assume the defense of any claim made against the shareholder
for any act or obligation of the Series and satisfy any judgment thereon.
We hereby consent to the reference to our firm under the captions "Federal
Income Tax Consequences of the Reorganization," "Federal Income Tax
Considerations" and "Legal Matters" in the Proxy Statement and Prospectus
which constitute a part of the Registration Statement. We further consent
to your filing a copy of this opinion as an exhibit to the Registration
Statement.
Yours truly,
/s/Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 12
September 6, 1996
Fidelity School Street Trust
Fidelity Union Street Trust
82 Devonshire Street
Boston, MA 02109
Ladies and Gentlemen:
Fidelity School Street Trust ("FSST"), a Massachusetts business trust, on
behalf of Spartan Bond Strategist ("Acquired"), a series of FSST, and
Fidelity Union Street Trust ("FUST"), a Massachusetts business trust, on
behalf of Spartan Municipal Income Fund ("Acquiring"), a series of FUST,
have requested our opinion as to certain federal income tax consequences of
a transaction ("Reorganization") in which Acquiring will acquire all of the
assets and assume all of the liabilities of Acquired in exchange solely for
shares of beneficial interest in Acquiring ("Acquiring Shares") pursuant to
an Agreement and Plan of Reorganization ("Agreement") to be entered into
between Acquired and Acquiring on October 18, 1996.
In rendering this opinion, we have examined a draft of the Agreement
("Draft Agreement"), the prospectus/proxy statement to be filed with the
Securities and Exchange Commission in connection with the Reorganization,
the currently effective prospectuses and statements of additional
information of Acquired and Acquiring, and such other documents as we have
deemed necessary. We have also relied, with your consent, on certificates
of officers of FSST and FUST.
OPINION
Based solely on the facts and representations set forth in the reviewed
documents and the certificates of officers of FSST and FUST, and assuming
that (i) those representations are true on the date of the Reorganization,
(ii) the Reorganization is consummated in accordance with the Agreement,
and (iii) the Agreement does not differ materially from the Draft
Agreement, our opinion with respect to the federal income tax consequences
of the Reorganization is as follows.
1. The Reorganization will be a reorganization under section 368(a)(1)(C)
of the Internal Revenue Code of 1986, as amended ("Code"), and Acquired and
Acquiring will each be parties to the Reorganization under section 368(b)
of the Code.
2. No gain or loss will be recognized by Acquired upon the transfer of all
of its assets to Acquiring in exchange solely for Acquiring Shares and
Acquiring's assumption of Acquired's liabilities followed by the
distribution of those Acquiring Shares to the Acquired shareholders in
liquidation of Acquired.
3. No gain or loss will be recognized by Acquiring on the receipt of
Acquired's assets in exchange solely for Acquiring Shares and the
assumption of Acquired's liabilities.
4. The basis of Acquired's assets in the hands of Acquiring will be the
same as the basis of such assets in Acquired's hands immediately prior to
the Reorganization.
5. Acquiring's holding period in the assets to be received from Acquired
will include Acquired's holding period in such assets.
6. The Acquired shareholders will recognize no gain or loss on the
exchange of the shares of beneficial interest in Acquired ("Acquired
Shares") solely for the Acquiring Shares in the Reorganization.
7. The Acquired shareholders' basis in the Acquiring Shares to be received
by them will be the same as their basis in the Acquired Shares to be
surrendered in exchange therefor.
8. The holding period of the Acquiring Shares to be received by the
Acquired shareholders will include the holding period of the Acquired
Shares to be surrendered in exchange therefor, provided those Acquired
Shares were held as capital assets on the date of the Reorganization.
The foregoing opinion is based on, and is conditioned on the continued
applicability of, the provisions of the Code and the regulations
thereunder, case law precedent, and the Internal Revenue Service
pronouncements in existence at the date hereof. We express no opinion as
to whether Acquired will recognize gain or loss under section 1256 of the
Code on the transfer, if any, of futures, forwards or options to Acquiring
in the Reorganization. Nor do we express any opinion other than those
contained herein.
We consent to the inclusion of this opinion in the registration statement
on Form N-14 filed with the Securities and Exchange Commission and the
inclusion of the name "Kirkpatrick & Lockhart LLP" in the "Comparison of
Other Policies of the Funds -- Federal Income Tax Consequences of the
Reorganization" and "The Proposed Transaction -- Federal Income Tax
Considerations" sections of that registration statement.
Very truly yours,
/s/Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP
Exhibit 14
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Proxy
Statement and Prospectus (the Proxy/Prospectus) constituting part of this
Registration Statement on Form N-14 (the Registration Statement) of
Fidelity Union Street Trust: Spartan Municipal Income Fund, of our report
dated October 2, 1995 on the financial statements and financial highlights
included in the August 31, 1995 Annual Report to Shareholders of Fidelity
Union Street Trust: Spartan Municipal Income Fund.
We also consent to the incorporation by reference in the Registration
Statement, of our report dated February 1, 1996 on the financial statements
and financial highlights included in the December 31, 1995 Annual Report to
Shareholders of Fidelity School Street Trust: Spartan Bond Strategist.
We further consent to the references to our Firm under the headings
"Experts" and "Financial Highlights" in the Proxy/Prospectus and to the
references to our Firm under the headings "Financial Highlights" in the
Prospectuses and "Auditor" in the Statements of Additional Information for
Fidelity Union Street Trust: Spartan Municipal Income Fund and Fidelity
School Street Trust: Spartan Bond Strategist, which are also incorporated
by reference into the Proxy/Prospectus.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 6, 1996
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Income Fund
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Djinis, each of them singly, our true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for us and in our names in the appropriate capacities, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this fifteenth day of December, 1994.
/s/Edward C. Johnson 3d /s/Donald J. Kirk
Edward C. Johnson 3d Donald J. Kirk
/s/J. Gary Burkhead /s/Peter S. Lynch
J. Gary Burkhead Peter S. Lynch
/s/Ralph F. Cox /s/Marvin L. Mann
Ralph F. Cox Marvin L. Mann
/s/Phyllis Burke Davis /s/Edward H. Malone
Phyllis Burke Davis Edward H. Malone
/s/Richard J. Flynn /s/Gerald C. McDonough
Richard J. Flynn Gerald C. McDonough
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
Exhibit 16
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Institutional Trust
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series II Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Exchange Fund Fund
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as President and Board Member (collectively, the "Funds"), hereby
severally constitute and appoint J. Gary Burkhead, my true and lawful
attorney-in-fact, with full power of substitution, and with full power to
sign for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorney-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission. I hereby ratify
and confirm all that said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d December 15, 1994
Edward C. Johnson 3d
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
"Rule 24f-2 Notice"
Fidelity Union Street Trust
(Name of Registrant)
File No. 2-50318
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Aggressive Municipal Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
No shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
No shares
(iv) Number of Securities Sold During Fiscal Year
4,907,461 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
4,907,461 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 4,907,461 $47,030,882
Redemptions: (3,987,462) $ (37,965,544)
Net Sales Pursuant to Rule 24f-2: 919,999 $ 9,065,338
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $3,125.98
Fidelity Union Street Trust
:
Spartan Aggressive Municipal Fund
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Ginnie Mae Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
19,100,968 shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
27,366,726 shares
(iv) Number of Securities Sold During Fiscal Year
10,429,984 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
10,429,984 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 10,429,984 $ 101,131,175
Redemptions See Note (2) : (10,429,984) $ (101,131,175)
Note (2) : The total number
of shares redeemed for the total
dollar amount of redemptions for
the fiscal period ended August
31, 1995 , aggregated 12,104,724
and $115,626,833 , respectively.
An additional filing pursuant to
Rule 24e-2 can be
made to register a number of
shares additional filing that
will include the share redemptions
not utilized under Rule 24f-2.
Net Sales Pursuant to Rule 24f-2: 0 $0
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $0
Fidelity Union Street Trust
:
Spartan Ginnie Mae Fund
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Intermediate Municipal Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
No shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
No shares
(iv) Number of Securities Sold During Fiscal Year
18,707,976 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
18,707,976 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 18,707,976 $ 180,517,302
Redemptions See Note (2) : (18,707,976) $ (180,517,302)
Note (2) : The total number
of shares redeemed for the
total dollar amount of
redemptions for the fiscal
period ended August 31, 1995
, aggregated
23,828,782
and $229,621,967
, respectively. An additional
filing
pursuant to Rule 24e-2 can be
made to register a number of shares
that will include the share
redemptions not utilized under
Rule 24f-2.
Net Sales Pursuant to Rule 24f-2: 0 $ 0
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $0
Fidelity Union Street Trust
:
Spartan Intermediate Municipal Fund
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Maryland Municipal Income Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
No shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
No shares
(iv) Number of Securities Sold During Fiscal Year
1,239,543 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
1,239,543 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 1,239,543 $ 11,716,389
Redemptions See Note (2) : (1,239,543) $ (11,716,389)
Note (2) : The total number
of shares redeemed for the
total dollar amount of
redemptions for the fiscal
period ended August 31, 1995
, aggregated
1,306,266
and $12,168,591
, respectively. An additional
filing
pursuant to Rule 24e-2 can be
made to register a number of shares
that will include the share
redemptions not utilized under
Rule 24f-2.
Net Sales Pursuant to Rule 24f-2: 0 $ 0
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $0
Fidelity Union Street Trust
:
Spartan Maryland Municipal Income Fund
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Municipal Income Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
5,280,074 shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
19,301,475 shares
(iv) Number of Securities Sold During Fiscal Year
8,465,664 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
8,465,664 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 8,465,664 $ 82,506,178
Redemptions See Note (2) : (8,465,664) $ (82,506,178)
Note (2) : The total number
of shares redeemed for the
total dollar amount of
redemptions for the fiscal
period ended August 31, 1995
, aggregated
22,701,405
and $217,831,944
, respectively. An additional
filing
pursuant to Rule 24e-2 can be
made to register a number of shares
that will include the share
redemptions not utilized
under Rule 24f-2.
Net Sales Pursuant to Rule 24f-2: 0 $ 0
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $0
Fidelity Union Street Trust
:
Spartan Municipal Income Fund
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Arizona Municipal Income Portfolio
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
No shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
No shares
(iv) Number of Securities Sold During Fiscal Year
1,696,864 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
1,696,864 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 1,696,864 $ 17,301,630
Redemptions: (463,503) $ (4,737,604)
Net Sales Pursuant to Rule 24f-2: 1,233,361 $ 12,564,026
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $4,332.42
Fidelity Union Street Trust
:
Spartan Arizona Municipal Income Portfolio
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Spartan Short-Intermediate Municipal Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
No shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
No shares
(iv) Number of Securities Sold During Fiscal Year
36,590,978 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
36,590,978 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 36,590,978 $ 358,751,471
Redemptions See Note (2) : (36,590,978) $ (358,751,471)
Note (2) : The total number
of shares redeemed for the
total dollar amount of
redemptions for the fiscal
period ended August 31, 1995
, aggregated
59,215,038
and $577,976,090
, respectively. An additional
filing
pursuant to Rule 24e-2 can be
made to register a number of shares
that will include the share
redemptions not utilized under
Rule 24f-2.
Net Sales Pursuant to Rule 24f-2: 0 $ 0
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $0
Fidelity Union Street Trust
:
Spartan Short-Intermediate Municipal Fund
By John H. Costello
Assistant Treasurer
</PAGE>
<PAGE>
FILE NO. 2-50318
Fidelity Union Street Trust
: Fidelity Export Fund
RULE 24F-2 - FILED PURSUANT TO RULE
24f-2(b)(1) OF THE INVESTMENT COMPANY ACT OF 1940
(i) Fiscal Year for Which Notice Filed
Fiscal year ended August 31, 1995
(ii) Number of Securities Which Remained Unsold at Beginning of Fiscal
Year
Registered Other Than Pursuant to Rule 24f-2
No shares
(iii) Number of Securities Registered During Fiscal Year Other Than
Pursuant
to Rule 24f-2
No shares
(iv) Number of Securities Sold During Fiscal Year
59,469,006 shares
For information relating to the calculation of the filing fee,
see Note (1) below.
(v) Number of Securities Sold During Fiscal Year Pursuant to Rule 24f-2
59,469,006 shares
<TABLE>
<CAPTION>
Number of Shares Aggregate Price
<S> <C> <C>
Sales Pursuant to Rule 24f-2: 59,469,006 $ 727,157,181
Redemptions: (24,071,563) $ (293,873,568)
Net Sales Pursuant to Rule 24f-2: 35,397,443 $ 433,283,613
</TABLE>
Note (1) : Pursuant to Rule 24f-2(c), the filing fee, calculated in the
manner specified in Section 6(b) of the Securities Act
of 1933, amounted to: $149,408.14
Fidelity Union Street Trust
:
Fidelity Export Fund
By John H. Costello
Assistant Treasurer
Fidelity
Investments
Fidelity Management & Research Co.
82 Devonshire Street
Boston, MA 02109
617 570 7000
September 28, 1995
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
RE: Rule 24f-2 Notice
Fidelity Union Street Trust
File No. 2-50318
Gentlemen:
Pursuant to Rule 24f-2(b)(1) under the Investment Company Act of 1940,
enclosed herewith on behalf of the above fund is a Rule 24f-2 Notice for
the fiscal year ended August 31, 1995
. In accordance with Rule 24f-2(c), the
required filing fee of $156,866.54
was wired to Mellon Bank, in Pittsburgh,
Pennsylvania on September 28, 1995 and October 10, 1995.
.
Very truly yours,
Fidelity Union Street Trust
By John H. Costello
Assistant Treasurer
Enclosures
FMR Corp.
82 Devonshire Street
Boston MA 02109-3614
617 563 7000
September 28, 1995
Mr. John Costello, Assistant Treasurer
Fidelity Union Street Trust (the trust)
Spartan Ginnie Mae Fund
Spartan Maryland Municipal Income Fund
Spartan Short-Intermediate Municipal Fund
Spartan Municipal Income Portfolio
Spartan Aggressive Municipal Fund
Spartan Arizona Municipal Income Portfolio
Spartan Intermediate Municipal Fund
Fidelity Export Fund (the funds)
82 Devonshire Street
Boston, Massachusetts 02109
Dear Mr. Costello:
Fidelity Union Street Trust (the Trust) is a Massachusetts business
trust initially created under the name of Fidelity Daily Income Trust
under a written Declaration of Trust dated March 1, 1974 and
executed and delivered in Boston, Massachusetts. A supplement to
the Declaration of Trust was adopted March 6, 1975 and delivered
in Boston Massachusetts. A supplement to the Declaration of Trust
was adopted by the Trustees of the Trust on October 12, 1979 and
filed with the Secretary of the Commonwealth of Massachusetts on
December 26, 1979. A Supplement to the Declaration of Trust was
adopted by the Trust's Trustees on July 17, 1980 and executed on
January 20, 1981. A supplement to the Declaration of Trust was
adopted by the Trust's Trustees on October 22, 1982 and filed with
the City of Boston on May 11, 1983. The Declaration of Trust was
amended, restated and executed on November 18, 1986 and
delivered in Boston, Massachusetts on November 21, 1986. A
supplement to the Declaration of Trust was executed and filed with
the Secretary of the Commonwealth of Massachusetts on January
12, 1990. An additional supplement to the Declaration of Trust,
changing the name of the Trust from Fidelity Daily Income Trust to
Fidelity Union Street Trust was dated and filed with the Secretary
of the Commonwealth of Massachusetts on April 30, 1990. The
Declaration of Trust was amended, restated and executed on
September 14, 1995 and will be filed with the Secretary of the
Commonwealth of Massachusetts.
I have conducted such legal and factual inquiry as I have deemed
necessary for the purpose of rendering this opinion.
Capitalized terms used herein, and not otherwise herein defined, are
used as defined in the Declaration of Trust.
Under Article III, Section 1, of the Declaration of Trust, the
beneficial interest in the trust shall be divided into such transferable
Shares of one or more separate and distinct Series as the trustees
shall from time to time create and establish. The number of Shares
is unlimited and each Share shall be without par value and shall be
fully paid and non assessable. The trustees shall have full power
and authority, in their sole discretion and without obtaining any
prior authorization or vote of the Shareholders of the trust to create
and establish (and to change in any manner) Shares with such
preferences, voting powers, rights, and privileges as the trustees
may from time to time determine, to divide or combine the Shares
into a greater or lesser number, to classify or reclassify any issued
Shares into one or more Series of Shares, to abolish any one or
more Series of Shares, and to take such other action with respect to
the Shares as the trustees may deem desirable.
Under Article III, Section 4, the trustees shall accept investments in
the trust from such persons and on such terms as they may from
time to time authorize. Such investments may be in the form of
cash or securities in which the appropriate Series is authorized to
invest, valued as provided in Article X, Section 3. After the date of
the initial contribution of capital, the number of Shares to represent
the initial contribution may in the trustees' discretion be considered
as outstanding and the amount received by the trustees on account
of the contribution shall be treated as an asset of the trust.
Subsequent investments in the trust shall be credited to each
Shareholder's account in the form of full Shares of the trust at the
Net Asset Value per Share next determined after the investment is
received; provided, however, that the trustees may, in their sole
discretion, (a) impose a sales charge upon investments in the trust
and (b) issue fractional Shares.
By a vote adopted on October 1, 1984, and amended on February
22, 1985, the Board of Trustees authorized the issue and sale, from
time to time, of an unlimited number of shares of beneficial interest
of the trust in accordance with the terms included in the current
Registration Statement and subject to the limitations of the
Declaration of Trust and any amendments thereto.
I understand from you that, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, the trust has registered an
indefinite amount of shares of beneficial interest under the
Securities Act of 1933. I further understand that, pursuant to the
provisions of Rule 24f-2, the trust intends to file with the
Securities and Exchange Commission a Notice making definite the
registration of 141,507,476 shares of the trust (the "Shares") sold in
reliance upon Rule 24f-2 during the fiscal year ended August 31,
1995.
I am of the opinion that all necessary trust action precedent to the
issue of Shares has been duly taken, and that all the Shares were
legally and validly issued, and are fully paid and non assessable,
except as described in the fund's Statement of Additional
Information under the heading "Shareholder and Trustee Liability."
In rendering this opinion, I rely on the representation by the trust
that it or its agent received consideration for the Shares in
accordance with the Declaration of Trust and I express no opinion
as to compliance with the Securities Act of 1933, the Investment
Company Act of 1940 or applicable state "Blue Sky" or securities
laws in connection with sales of the Shares.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission in connection with a Rule 24f-2 Notice
which you are about to file under the 1940 Act with said
commission.
Sincerely,
/s/Arthur S. Loring
Arthur S. Loring
Vice President-Legal
