SPARTAN(registered trademark) BOND STRATEGIST(trademark)
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 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 18, 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 18, 1996 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
Synopsis
Comparison of Principal Risk Factors
The Proposed Transaction
Additional Information About Spartan Municipal Income Fund
Miscellaneous
Exhibit 1 - Form of Agreement and Plan of Reorganization
SPARTAN 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 item 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 Bond Strategist into Municipal
Income, 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, Bond Strategist and
Municipal Income (individually a Fund and collectively the Funds) have
had 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.
The redemption fee is payable to each 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 August 31 , 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.
Bond Strategist Municipal Pro Forma
Income Expenses
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 Total 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 S 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 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.
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 Bond Strategist Municipal Income
December 31,
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.
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 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.
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 pre-tax value of a hypothetical
$10,000 investment in each Fund made on September 9, 1993, assuming 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 relative volatility of their performance over
shorter time periods .
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, is 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 $ 19,438,677 as of December
31, 1995 and August 31, 1996 , 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 between August 31, 2003 and August 31,
2004 .
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 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 received 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 made in connection with
the Reorganization, FMR believed that such costs would be minimal and would
be counterbalanced by the reduction in the management fee rate
former Bond Strategist shareholders would pay as shareholders of Municipal
Income.
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 its 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.
The foregoing opinion, however, does not address whether Bond
Strategist will recognize gain or loss under Section 1256 of the Code on
the transfer, if any, of futures, forwards, or options to Municipal Income
in connection with 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
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1.Years ended 1996 1995 1994D 1993 1992 1991 1990E
August 31
2.Net asset $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 $ 10.000
value,
beginning of
period
3.Income from . 537 .587 .611 .663 .704 .739 .187
Investment
Operations
Net interest
income
4. Net realized . 039 .189 (.752) .727 .387 .463 (.120)
and
unrealized
gain (loss)
on
investments
5. Total from . 576 .776 (.141) 1.390 1.091 1.202 .067
investment
operations
6.Less (. 537 ) G (.587) (.611) (.663) (.704) (.739) (.187)
Distributions
From net
interest
income
7. From net -- (.080) (.550) (.070) (.040) -- --
realized
gain on
investments
8. Total (. 537 ) (.667) (1.161) (.733) (.744) (.739) (.187)
distributions
9. Redemption .001 .001 .002 .003 .003 .007 .010
fees
added to paid
in
capital
10.Net asset $ 10. 220 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890
value,
end of period
11.Total 5. 7 4% 8.20 (1.42) 13.55 10.93 12.65 .76%
returnB,C % % % % %
</TABLE>
RATIOS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
12.Net assets, $ 540,983 $ 574,056 $ 680,176 $ 912,710 $ 870,664 $ 550,930 $ 93,118
end of period
(000 omitted)
13.Ratio of .5 4 %F .55 .55% .47 .36 .23 --F
expenses to % %F %F %F
average net
assets
14.Ratio of net 5.1 8 % 5.99 5.76% 6.09 6.68 7.24 7.91%
interest % % % % A
income to
average net
assets
15.Portfolio 4 9% 69 48% 50 62 78 116%
turnover rate % % % % 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 THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
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 have been 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,
whose report thereon is included in the Annual Report to Shareholders for
the fiscal year ended August 31, 199 6 . 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 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
FORM OF
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 Statement 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 Union 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 Statement 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 on
some other date and at some other 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 of Bond Strategist and the net asset value of Municipal Income
is impracticable, 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 on 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 on 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 either 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
SBS-PXS-1096 CUSIP #31638R105/FUND #447
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 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,
Edward C. Johnson 3d
President
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(registered trademark) BOND
STRATEGIST(trademark)
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 # 31638R105/fund# 447
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
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 reports and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated October 18, 1996.
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is available along with other related materials on the SEC's Internet
Web site (http://www.sec.gov). The SAI 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.
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, Federal
Reserve Board, or any other agency, and are subject to investment risks,
including possible loss of principal amount invested.
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-1096
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(registered trademark)
MUNICIPAL
FUNDS
SPARTAN MUNICIPAL MONEY FUND
SPARTAN SHORT-INTERMEDIATE
MUNICIPAL INCOME FUND
SPARTAN INTERMEDIATE
MUNICIPAL INCOME FUND
SPARTAN MUNICIPAL
INCOME FUND
SPARTAN AGGRESSIVE
MUNICIPAL FUND
PROSPECTUS
OCTOBER 18, 1996(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 man ager. FMR Texas Inc. (FMR Texas), 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 of
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 OTHER FUNDS IN THIS FAMILY.
<TABLE>
<CAPTION>
<S> <C> <C>
Spartan Invests normally in high-quality, Because this fund seeks
Municipal short-term municipal securities to maintain a stable
Money with an average maturity of $1.00 share price, it is
90 days or less. the safest and lowest
yielding fund in the
family.
(low risk graphic)
Spartan Invests under normal With its emphasis on
Short-Interme conditions in investment-grade short maturities, this is
diate municipal securities while the most conservative
Municipal normally maintaining an bond fund in the family.
average maturity of two to five
years.
(low to medium risk graphic)
Spartan Invests under normal conditions With its emphasis on
Intermediate in investment-grade municipal intermediate maturities,
Municipal securities while normally this is the moderate
maintaining an average maturity member of the family.
of between three and 10 years.
(medium risk graphic)
Spartan Invests under normal conditions With its emphasis on
Municipal in municipal securities of longer-term maturities,
Income investment-grade quality. this is the moderately
Although the fund can invest in aggressive member of
securities of any maturity, FMR the family.
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)
Spartan Allowed to invest in With its ability to invest in
Aggressive lower-quality municipal lower-quality securities
Municipal securities. Although the fund with longer-term
can invest in securities of any maturities, this is the
maturity, FMR seeks to most aggressive fund in
manage the fund so that it the family.
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>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or
hold shares of a fund. See page s and - for more information about
these fees.
<TABLE>
<CAPTION>
<S> <C>
Maximum sales charge on purchases None
and reinvested distributions
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, $2.00
Spartan Short-Intermediate Municipal Income, and Spartan Intermediate
Municipal Income)
Account closeout fee $5.00
Annual account maintenance fee (for accounts under $2,500) $12.0
0
</TABLE>
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 following figures on page are based on historical expenses adjusted
to reflect current fees, and are calculated as a percentage of average net
assets. Each fund has entered into arrangements on behalf of the fund with
its custodian and transfer agent whereby interest earned on uninvested cash
balances is used to reduce custodian and transfer agent 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.
FMR has voluntarily agreed to reimburse Spartan Municipal Money to the
extent that total operating expenses exceed .40% of its average net assets.
If this agreement were not in effect, the management fee, other expenses,
and total operating expenses would have been .50%, .00%, and .50%
respectively. Expenses eligible for reimbursement do not include interest,
taxes, brokerage commissions, or extraordinary expenses.
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 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 INTERMEDIATE 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 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 $ 38
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
1.Selected Per-Share Data and Ratios
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
17.Years ended August
31 1996 1995 1994 1993 1992 1991C
18.Income from
Investment .034 .035 .025 .026 .038 .030
Operations
Net interest income
19.Less Distributions (.034) (.035) (.025) (.026) (.038) (.030)
From net interest income
20.Net asset value, end
of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
21.Total returnA 3.41% 3.59% 2.50% 2.66% 3.91% 3.03%
22.Net assets, end of
period $ 2,380 $ 2,206 $ 2,288 $ 1,696 $ 1,303 $ 424
(In millions)
23.Ratio of expenses
to .39% .40% .33% .27% .20% .09%B
average net assets B B B B B ,D
24.Ratio of net
interest 3.36% 3.53% 2.48% 2.61% 3.67% 4.69%
income D
to average net assets
</TABLE>
A TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS
OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL RETURNS WOULD HAVE BEEN
LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
B 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.
C FOR THE PERIOD JANUARY 14, 1991 (COMMENCEMENT OF OPERATIONS) TO AUGUST
31, 1991
D ANNUALIZED
SPARTAN SHORT-INTERMEDIATE MUNICIPAL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25.Selected Per-Share Data and
Ratios
26.Years
ended 1996 1995 1994D 1993F 1992E 1991E 1990E 1989E 1988E 1987E
August 31
27.Net asset
value, $ 9.98 $ 9.84 $ 10.0 $ 9.88 $ 9.78 $ 9.52 $ 9.49 $ 9.45 $ 9.51 $ 9.92
beginning of
period 0 0 90 0 0 0 0 0 0 0
28.Income
from .418 .429 .443 .303 .490 .559 .562 .536 .516 .433
Investment
Operations
Net interest income
29. Net
realized (.050) .140 (.240) .210 .100 .260 .030 .040 (.060) (.410)
and
unrealized gain
(loss)
30. Total
from .368 .569 .203 .513 .590 .819 .592 .576 .456 .023
investment
operations
31.Less (.418) (.429) (.443) (.303) (.490) (.559) (.562) (.536) (.516) (.433)
Distributions
From net interest
income
32. In excess of
net -- -- (.010) -- -- -- -- -- -- --
realized gain
33. Total (.418) (.429) (.453) (.303) (.490) (.559) (.562) (.536) (.516) (.433)
distributions
34.Net asset
value, $ 9.93 $ 9.98 $ 9.84 $ 10.0 $ 9.88 $ 9.78 $ 9.52 $ 9.49 $ 9.45 $ 9.51
end of
period 0 0 0 90 0 0 0 0 0 0
35.Total
returnB,C 3.75 5.95 2.05 5.25 6.18 8.85 6.42 6.30 4.89 .26%
% % % % % % % % %
36.Net assets,
end $ 791 $ 909 $ 1,08 $ 967 $ 659 $ 244 $ 59 $ 58 $ 77 $ 59
of period 3
(In millions)
37.Ratio of .54% .55% .47% .55% .55% .55% .60% .58% .35% .60%
expenses to G G A G G G G G
average net assets
38.Ratio of
net 4.17 4.38 4.45 4.55 4.95 5.68 5.90 5.69 5.48 4.58
interest income
to % % % %A % % % % % %
average net assets
39.Portfolio
turnover 78% 51% 44% 56%A 28% 59% 75% 82% 96% 180%
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 YEARS ENDED DECEMBER 31
F FOR THE EIGHT MONTHS ENDING AUGUST 31, 1993
G 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.
SPARTAN INTERMEDIATE MUNICIPAL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
40.Selected Per-Share Data and Ratios
41.Years ended August 31 1996 1995 1994D 1993E
42.Net asset value, beginning of period $ 10.060 $ 9.840 $ 10.340 $ 10.000
43.Income from Investment Operations .486 .490 .514 .177
Net interest income
44. Net realized and unrealized gain (loss) (.010) .220 (.460) .340
45. Total from investment operations .476 .710 .054 .517
46.Less Distributions (.486) (.490) (.514) (.177)
From net interest income
47. From net realized gain -- -- (.010) --
48. In excess of net realized gain -- -- (.030) --
49. Total distributions (.486) (.490) (.554) (.177)
50.Net asset value, end of period $ 10.050 $ 10.060 $ 9.840 $ 10.340
51.Total returnB,C 4.80% 7.50% .52% 5.22%
52.Net assets, end of period (000 omitted) $ 216,121 $ 219,711 $ 256,269 $ 219,400
53.Ratio of expenses to average net assets .50% .42% .20% --F
F F F
54.Ratio of net interest income to average 4.81% 5.04% 5.09% 5.20%
net assets A
55.Portfolio turnover rate 64% 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
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.
SPARTAN MUNICIPAL INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
56.Selected Per-Share Data
and Ratios
57.Years ended
1996 1995 1994C 1993 1992 1991 1990E
August 31
58.Net asset value,
$ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890 $ 10.000
beginning of period
59.Income from
.537 .587 .611 .663 .704 .739 .187
Investment Operations
Net interest income
60. Net realized and
.039 .189 (.752) .727 .387 .463 (.120)
unrealized
gain (loss)
61. Total from
.576 .776 (.141) 1.390 1.091 1.202 .067
investment operations
62.Less Distributions
(.537) (.587) (.611) (.663) (.704) (.739) (.187)
From net interest
F
income
63. From net
-- (.080) (.550) (.070) (.040) -- --
realized gain
64. Total
(.537) (.667) (1.161) (.733) (.744) (.739) (.187)
distributions
65. Redemption fees
.001 .001 .002 .003 .003 .007 .010
added
to paid in capital
66.Net asset value,
$ 10.220 $ 10.180 $ 10.070 $ 11.370 $ 10.710 $ 10.360 $ 9.890
end of period
67.Total returnA,B
5.74 8.20 (1.42) 13.55 10.93 12.65 .76
% % % % % % %
68.Net assets, end of
$ 540,98 $ 574,05 $ 680,17 $ 912,71 $ 870,66 $ 550,93 $ 93,118
period
3 6 6 0 4 0
(000 omitted)
69.Ratio of expenses
.54% .55 .55 .47% .36% .23% --D,
to
D % % D D D G
average net assets
70.Ratio of net
5.18 5.99 5.76 6.09 6.68 7.24 7.91%
interest income to
% % % % % % G
average net assets
71.Portfolio turnover
49 69 48 50 62 78 116%
rate
% % % % % % G
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
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 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.
E FOR THE PERIOD JUNE 4, 1990 (COMMENCEMENT OF OPERATIONS) TO AUGUST
31,1990
F THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
G ANNUALIZED
SPARTAN AGGRESSIVE MUNICIPAL
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
72.Selected Per-Share Data and Ratios
73.Years ended August 31 1996 1995 1994D 1993E
74.Net asset value, beginning of period $ 9.930 $ 9.790 $ 10.350 $ 10.000
75.Income from Investment Operations .566 .602 .603 .209
Net interest income
76. Net realized and unrealized gain (.034) .125 (.564) .346
(loss)
77. Total from investment operations .532 .727 .039 .555
78.Less Distributions (.566) (.602) (.603) (.209)
From net interest income
79. From net realized gain -- -- (.010) --
80. In excess of net realized gain -- -- (.010) --
81. Total distributions (.566) (.602) (.623) (.209)
82. Redemption fees added to paid in .004 .015 .024 .004
capital
83.Net asset value, end of period $ 9.900 $ 9.930 $ 9.790 $ 10.350
84.Total returnB,C 5.48% 7.97% .61% 5.64%
85.Net assets, end of period (000 $ 91,319 $ 74,563 $ 61,673 $ 17,267
omitted)
86.Ratio of expenses to average net .60% .60% .60% .60%A
assets
87.Ratio of net interest income to 5.65% 6.24% 6.03% 6.24%A
average net assets
88.Portfolio turnover rate 45% 51% 64% 53%A
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
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 FOR THE PERIOD APRIL 29, 1993 (COMMENCEMENT OF SALE OF SHARES) 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 tables
below show each fund's performance over past fiscal years with each bond
fund's compared to different measures, including a comparative index
and competitive funds average. For Spartan Short-Intermediate Municipal
and Spartan Intermediate Municipal, data for the comparative indexes is
available only from June 30, 1993 to the present. Data for the comparative
index for Spartan Aggressive Municipal is available only from September 1,
1995 to the present. The charts on page s and present
calendar year performance for the bond funds, and do not reflect the
effect of the $5 account closeout fee.
TOTAL RETURNS
Average Annual Total Return Cumulative Total Return
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal periods ended Past 1 Past 5 Life of Past 1 Past 5 Life of
August 31, 1996 year years fund year years fund
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Spartan Municipal 3.41 3.21 3.39 3.41% 17.14 20.68
Money % % % A % % A
Spartan 3.75 5.31 5.05 3.75% 29.53 61.19
Short-Intermediate % % %B % %B
Municipal Income
Lehman Brothers 1-5 3.90 n/a n/a 3.90% n/a n/a
Year %
Municipal Bond Index
Lipper Short 3.33 5.54 n/a 3.33 % 30.93 n/a
Municipal Debt % % % C
Funds Average
Spartan Intermediate 4.80 n/a 5.36 4.80% n/a 19.15
Municipal % %C % C
Income
Lehman Brothers 4.52 n/a n/a 4.52% n/a n/a
1-17 Year %
Municipal Bond Index
Lipper Intermediate 3.89 n/a n/a 3.89 % n/a n/a
Municipal Debt Funds %
Average
Spartan Municipal 5.74 7.28 7.95 5.74% 42.08 61.26
Income % % %D % %D
Lehman Brothers 5.24 7.43 n/a 5.24% 43.10 n/a
Municipal % % %
Bond Index
Lipper General 4.68 6.93 n/a 4.68 % 39.84 n/a
Municipal Debt Funds % % %
Average
Spartan Aggressive 5.48 n/a 5.88 5.48% n/a 21.04
Municipal % %E %E
Lehman Brothers 5.24 n/a n/a 5.24% n/a n/a
Municipal %
Bond Index
Lipper High Yield 5.43 n/a n/a 5.43% n/a n/a
Municipal Debt Funds %
Average
</TABLE>
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
TOTAL 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 LEHMAN BROTHERS MUNICIPAL BOND INDEX is a total return
performance benchmark for investment-grade municipal bonds with maturities
of at least one year.
THE LEHMAN BROTHERS 1-5 YEAR MUNICIPAL BOND INDEX is a total return
performance benchmark for investment-grade municipal bonds with maturities
between one and five years.
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 LEHMAN BROTHERS 1-17 YEAR MUNICIPAL BOND INDEX is a total return
performance benchmark for investment-grade municipal bonds with maturities
between one and 17 years.
Unlike the bond fund's returns, the total returns of each comparative index
do not include the effect of any brokerage commissions, transaction fees,
or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The competitive funds averages are the Lipper Short Municipal Debt Funds
Average for Spartan Short-Intermediate Municipal Income, the Lipper
Intermediate Municipal Debt Funds Average for Spartan Intermediate
Municipal Income, the Lipper General Municipal Debt Funds Average for
Spartan Municipal Income and Lipper High Yield Municipal Debt Funds Average
for Spartan Aggressive Municipal, which currently reflect the performance
of over 26, 147, 237, and 43 with similar investment objectives,
respectively. These averages, published by Lipper Analytical Services,
Inc., exclude the effect of sales charges.
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.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL INCOME
Calendar year total returns 1987 1988 1989 1990 1991 1992 1993 1994 1995
Spartan Short-Intermediate .26% 4.89% 6.30% 6.42% 8.85% 6.18% 7.12% -0.09
% 8.47%
Lipper Short Municipal Debt Funds Average 2.56% 5.94% 7.36% 6.53% 9.15%
6.92% 7.42
% -.84% 8.32%
Lehman Brothers 1-5 Year Municipal Bond Index n/a n/a n/a n/a n/a n/a
n/a .48% 9.02%
Consumer Price Index 4.43% 4.42% 4.65% 6.11% 3.06% 2.90% 2.75% 2.67% 2.54
%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.26
Row: 3, Col: 1, Value: 4.89
Row: 4, Col: 1, Value: 6.3
Row: 5, Col: 1, Value: 6.42
Row: 6, Col: 1, Value: 8.850000000000001
Row: 7, Col: 1, Value: 6.18
Row: 8, Col: 1, Value: 7.119999999999999
Row: 9, Col: 1, Value: -0.09
Row: 10, Col: 1, Value: 8.470000000000001
(LARGE SOLID BOX) Spartan
Short-
Intermediate
Municipal
Income
SPARTAN INTERMEDIATE MUNICIPAL INCOME
Calendar year total returns 1994 1995
Spartan Intermediate Municipal Income
- -5.03% 14.44%
Lipper Intermediate Municipal Debt Funds Average
- -3.51% 12.89%
Lehman Brothers 1-17 Year Municipal Bond Index
- -3.36% 14.91%
Consumer Price Index 2.67% 2.54
%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: -5.03
Row: 10, Col: 1, Value: 14.44
(LARGE SOLID BOX) Spartan
Intermediate
Municipal
Income
SPARTAN MUNICIPAL INCOME
Calendar year total returns 1991 1992 1993 1994 1995
Spartan Municipal Income 12.69% 8.38% 14.31% -8.1
0% 18.58%
Lipper General Municipal Debt Funds Average 12.09% 8.79
% 12.47% -6.5% 16.84%
Lehman Brothers Municipal Bond Index 12.14% 8.81
% 12.29% -5.17% 17.45%
Consumer Price Index 3.06% 2.90% 2.75% 2.67% 2.54
%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 12.69
Row: 7, Col: 1, Value: 8.380000000000001
Row: 8, Col: 1, Value: 14.31
Row: 9, Col: 1, Value: -8.1
Row: 10, Col: 1, Value: 18.58
(LARGE SOLID BOX) Spartan
Municipal
Income
SPARTAN AGGRESSIVE MUNICIPAL
Calendar year total returns 1994 1995
Spartan Aggressive Municipal -6.11
% 17.73%
Lipper High Yield Municipal Debt
4.67% 15.98%
Lehman Brothers Municipal Bond Index
- -5.17 17.45
Consumer Price Index 2.67% 2.54
%
Percentage (%)
Row: 1, Col: 1, Value: 0.0
Row: 2, Col: 1, Value: 0.0
Row: 3, Col: 1, Value: 0.0
Row: 4, Col: 1, Value: 0.0
Row: 5, Col: 1, Value: 0.0
Row: 6, Col: 1, Value: 0.0
Row: 7, Col: 1, Value: 0.0
Row: 8, Col: 1, Value: 0.0
Row: 9, Col: 1, Value: -6.109999999999999
Row: 10, Col: 1, Value: 17.73
(LARGE SOLID BOX) Spartan
Aggressive
Municipal
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. is currently a diversified fund of
Fidelity Union Street Trust II. Spartan Short-Intermediate Municipal
Income, Spartan Intermediate Municipal Income, 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 the funds' 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
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FMR Texas, 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 Income Fund and Spartan Intermediate Municipal Income Fund, both
of which he has managed since October 1995. Mr. Lind also manages Advisor
Short-Intermediate Municipal Income Fund, New York Municipal Income Fund,
New York Insured Municipal Income Fund, Spartan New York Intermediate
Municipal Income Fund, and Spartan New York Municipal Income Fund.
Previously, he managed Spartan Municipal Income Fund, 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
Fund, which he has managed since October 1995. Mr. Murphy also manages
Michigan Municipal Income, Municipal Income, Limited Term Municipal Income
Fund, and Advisor Intermediate Municipal Income Fund. Previously he managed
Spartan Short-Intermediate Municipal Income Fund, Spartan Intermediate
Municipal Income Fund, Spartan New Jersey Municipal Income Fund, Spartan
New York Intermediate Municipal Income Fund, and Advisor Short-Intermediate
Municipal Income Fund. 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 Fund
and Aggressive Municipal Fund. Previously, she managed Municipal Bond Fund
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 Corp. (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 FMR Texas. 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., (UMB) is each fund's transfer agent, although it employs
FSC to perform these functions for each fund. UMB is located at 1010 Grand
Avenue, Kansas City, Missouri.
A broker-dealer may use a portion of the commissions paid by the bond
funds, to reduce custodian or transfer agent fees for the funds. FMR may
use its broker-dealer affiliates and other firms that sell fund shares to
carry out a fund's transactions, provided that the fund receives brokerage
services and commission rates comparable to those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
EACH FUND'S INVESTMENT APPROACH
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 of the money market fund, 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 money market
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 Municipal Money may not use investment techniques which are
inconsistent with the fund's goal of maintaining a stable share price.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL INCOME 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. As of August 31, 1996, the fund's
dollar-weighted average maturity was approximately 3.3 years. The fund
normally invests so that 80% or more of its income is free from federal
income tax.
SPARTAN INTERMEDIATE MUNICIPAL INCOME 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. As
of August 31, 1996, the fund's dollar-weighted average maturity was
approximately 7.8 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. As of August 31, 1996, the fund's
dollar-weighted average maturity was approximately 13.8 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. As of August 31, 1996, the
fund's dollar-weighted average maturity was approximately 15 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 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.
The total return from a bond is a combination of income and price gains or
losses. While income is the most important component of bond returns over
time, the bond funds' emphasis on income does not mean that a fund invests
only in the highest-yielding bonds available, or that it can avoid risks to
principal. In selecting investments for a fund, FMR considers a bond's
income potential together with its potential for price gains or losses. FMR
focuses on assembling a portfolio of income-producing securities that it
believes will provide the best tradeoff between risk and return within the
range of securities that are eligible investments for the fund.
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, and the bond funds do not expect to invest in state 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 each 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 a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Fund holdings and recent investment strategies are detailed 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 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 table on page provides a summary of ratings assigned to debt holdings
(not including money market instruments) in the Spartan Aggressive
Municipal's portfolio. These figures are dollar-weighted averages of
month-end portfolio holdings during fiscal 1996, 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.
RESTRICTIONS: Spartan Short-Intermediate Municipal Income, Spartan
Intermediate Municipal Income, 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 and
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.
SPARTAN AGGRESSIVE MUNICIPAL
Fiscal 1996 Debt Holdings, by Rating MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(AS A % OF INVESTMENTS) (AS A % OF
INVESTMENTS)
Rating Average Rating Average
INVESTMENT GRADE
Highest quality Aaa 25.81% AAA 24.38%
High quality Aa 3.80% AA 3.51%
Upper-medium grade A 12.27% A 12.64%
Medium grade Baa 15.53% BBB 19.47%
LOWER QUALITY
Moderately speculative Ba 7.54% BB 10.01%
Speculative B 0.10% B .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 -- D 0.00%
65.05% 70.71%
(AS A % OF INVESTMENTS)
SECURITIES NOT RATED BY MOODY'S OR S&P(dagger)
Investment Grade (double dagger) 1.42%
Lower Quality (double dagger) 16.85%
Total 18.27%
(dagger) THE DOLLAR-WEIGHTED AVERAGE PERCENTAGES REFLECTED IN THE TABLE MAY
INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING SERVICES, AS
WELL AS UNRATED SECURITIES.
(double dagger) AS DETERMINED BY FMR
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. A 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 not be available and the entity may
be subject to unfavorable political, economic, governmental developments
which might affect its ability to honor its commitment.
MONEY MARKET SECURITIES are high quality, short term instruments issued by
municipalities, local and state governments, and other entities. These
securities may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or 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.
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: Spartan Municipal Money may not purchase certain types of
variable and floating rate securities which are inconsistent with the funds
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 another party. In exchange for this benefit, a fund may 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, 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 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 a
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 a 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.
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.
CASH MANAGEMENT. A fund may invest in money market securities, and in a
money market fund, available only to funds and accounts managed by FMR or
its affiliates whose goal is to seek a high level of current income exempt
from federal income tax while maintaining a stable $1.00 share price. A
major change in interest rates or a default on the money market fund's
investments could cause its share price to change.
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
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 Income, Spartan Intermediate Municipal Income,
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. Each fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If a fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% 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 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 purchase a
security if, as a result, more than 5% would be invested in the securities
of any one issuer.
SPARTAN SHORT-INTERMEDIATE MUNICIPAL INCOME 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 INCOME 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% if 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
below, shows the annual rate of each funds management fee as a percentage
of average net assets for the fiscal year ended 1996.
FMR has voluntarily agreed to limit Spartan Municipal Money's total
operating expenses to an annual rate of .40% of average net assets for the
fiscal year ended 1996.
MANAGEMENT AND TRANSACTION FEES
MANAGEMENT FEES TRANSACTIONS FEES
Before After Exchang Closeout Wire Checkwriti
reimbursement reimbursemen e ng
t
Spartan .50% .40% $10,4 $2,6 $2,30 $14,2
Municipal 44 84 5 81
Money
Spartan Short- .55% n/a $7,79 $2,3 $590 $1,65
Intermediate 0 35 3
Municipal
Spartan .55% .50% $1,80 $685 $545 $446
Intermediate 5
Municipal
Spartan .55% n/a $3,85 $1,7 $425 n/a
Municipal 5 65
Income
Spartan .60% n/a $665 $175 $45 n/a
Aggressive
Municipal
FMR HAS A SUB-ADVISORY AGREEMENT with FMR Texas, which has primary
responsibility for providing investment management for Spartan Municipal
Money, while FMR retains responsibility for providing other management
services. FMR pays FMR Texas 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 close out fee, $5.00 fee for wire
purchases and redemptions, and for Spartan Municipal Money, Spartan
Short-Intermediate Municipal Income, and Spartan Intermediate Municipal
Income, the $2.00 check writing charge. The table on page shows what these
fees amounted for the fiscal year ended 1996.
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 turnover rate for the fiscal year ended
1996. These rates vary from year to year.
PORTFOLIO TURNOVER RATES
Spartan Municipal Money n/a
Spartan Short-Intermediate Municipal 78%
Spartan Intermediate Municipal 64%
Spartan Municipal Income 49%
Spartan Aggressive Municipal 45%
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 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
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 $25,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans* $500
MINIMUM BALANCE $5,000
For $10,000
* FOR MORE INFORMATION ABOUT REGULAR INVESTMENT PLANS, PLEASE REFER TO THE
"INVESTOR SERVICES" SECTION BEGINNING ON PAGE .
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.
</TABLE>
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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.
</TABLE>
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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.
</TABLE>
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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.
</TABLE>
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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118
</TABLE>
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 ) 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
CHECKWRITING
If you have a checkbook for your account in Spartan Municipal Money,
Spartan Short-Intermediate Municipal Income, or Spartan Intermediate
Municipal Income, 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.
</TABLE>
<TABLE>
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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.
</TABLE>
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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.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
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 and
prospectuses 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, prospectuses, 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.
</TABLE>
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.
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
<TABLE>
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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.
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.
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)
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 the fiscal year ended 1996, 100% of each fund's income dividends was
free from federal income tax, 77.63%, 21.11%, 32.80%, 16.55% and 21.67% 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 when a fund has realized but not
distributed income or capital gains, 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 AN INVESTMENT PROFESSIONAL,
INCLUDING A BROKER, who may charge you a transaction fee for this service.
If you invest through an investment professional, read your investment
professional's program materials for any additional service features or
fees that may apply. Certain features of the fund, such as the minimum
initial or subsequent investment amounts, may be modified.
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) 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.
