SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (NO 2-55725)
UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 69 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (NO 811-2720) [x]
Amendment No.
Fidelity Municipal Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, MA 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number (617) 563-7000
Arthur S. Loring, Secretary
82 Devonshire Street,
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b)
( ) on pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
(X) on February 20, 1996 pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file the notice required by
such Rule before February 28, 1996.
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. *
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment Principles and
Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment Principles
and Risks
5 a .............................. Charter
b i............................. Cover Page; The Funds at a Glance; Charter;
Doing Business with Fidelity
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. Charter
d .............................. Charter; Breakdown of Expenses
e .............................. Cover Page; Charter
f .............................. Expenses
g i............................. Charter
ii............................ *
5 A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions
iii.......................... Charter
b ............................. Charter
c .............................. Transaction Details; Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Cover Page; Charter
b .............................. Expenses; How to Buy Shares; Transaction Details
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trusts
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i ............................ FMR; Portfolio Transactions
ii ............................ Trustees and Officers
iii ............................ Management Contracts
b ............................ Management Contracts
c, d ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Interests of FMR Affiliates
17 a ............................ Portfolio Transactions
b ............................ Portfolio Transactions
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ Performance
b ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
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
the funds' most recent financial reports and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated February 20,
1996 . The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference (legally forms a
part of the prospectus). For a free copy of either document, call Fidelity
at 1-800-544-8888.
Investments in the money market funds are neither insured nor guaranteed by
the U.S. government, and there can be no assurance that a fund will
maintain a stable $1.00 share price.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, the Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal amount invested .
FIDELITY MICHIGAN,
MINNESOTA, AND
OHIO MUNICIPAL
FUNDS
Each of these funds seeks a high level of current income free from federal
income tax and the income tax of its state. The MONEY MARKET FUNDS are
designed to maintain a stable $1.00 share price. The BOND FUNDS seek to
provide higher yields by investing in a broader range of municipal
securities.
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.
OMM-pro-296
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
PROSPECTUS
FEBRUARY 20, 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
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FTX), a subsidiary
of FMR, chooses investments for for the money market funds.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
MICHIGAN MONEY MARKET
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Michigan residents while maintaining
a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and Michigan
income tax.
OHIO MONEY MARKET
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Ohio residents while maintaining a
stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and Ohio
individual income tax.
MICHIGAN MUNICIPAL INCOME
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Michigan residents.
STRATEGY: Invests mainly in longer-term, investment grade municipal
securities whose interest is free from federal income tax and Michigan
income tax.
MINNESOTA MUNICIPAL INCOME
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Minnesota residents.
STRATEGY: Invests mainly in longer-term, investment grade municipal
securities whose interest is free from federal income tax and Minnesota
personal income tax.
OHIO MUNICIPAL INCOME
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Ohio residents.
STRATEGY: Invests mainly in longer-term, investment grade municipal
securities whose interest is free from federal income tax and Ohio
individual income tax.
WHO MAY WANT TO INVEST
These non-diversified funds may be appropriate for investors in higher tax
brackets who seek high current income that is free from federal income tax
and Ohio, Michigan, or Minnesota income taxes. Each fund's level of risk
and potential reward, depend on the quality and maturity of its
investments. Each money market fund 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
bond fund shares they may be worth more or less than what you paid for
them. By themselves, these funds do not constitute a balanced
investmentplan.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or
hold shares of a fund. See page 33 for more information about these fees.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Exchange fee None
Annual account maintenance fee
(for accounts under $2,500) $12.00
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports. A fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (see page 20).
The operating expenses on page 22 are projections based on historical
expenses, and are calculated as a percentage of average net assets.
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 chart shows how much you would pay in total
expenses if you close your account after the number of years indicated.
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary. .
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
MICHIGAN MONEY MARKET
MICHIGAN MUNICIPAL INCOME
Operating expenses Example
Management fee __% After 1 year $__
12b-1 fee None After 3 $__
years
Other expenses __% After 5 $__
years
Total fund operating expenses __% After 10 $__
years
OHIO MONEY MARKET
MICHIGAN MUNICIPAL INCOME
Operating expenses Example
Management fee __% After 1 year $ __
12b-1 fee None After 3 $__
years
Other expenses __% After 5 $__
years
Total fund operating expenses __% After 10 $__
years
MICHIGAN MUNICIPAL INCOME
MICHIGAN MUNICIPAL INCOME
Operating expenses Example
s
Management fee __% After 1 year $ __
12b-1 fee None After 3 $__
years
Other expenses __% After 5 $__
years
Total fund operating expenses __% After 10 $__
years
MINNESOTA MUNICIPAL INCOME
MICHIGAN MUNICIPAL INCOME
Operating expenses Example
Management fee __% After 1 year $ __
12b-1 fee None After 3 $__
years
Other expenses __% After 5 $__
years
Total fund operating expenses __% After 10 $__
years
OHIO MUNICIPAL INCOME
MICHIGAN MUNICIPAL INCOME
Operating expenses Example
Management fee __% After 1 year $__
12b-1 fee None After 3 $__
years
Other expenses __% After 5 $__
years
Total fund operating expenses __% After 10 $__
years
FINANCIAL HIGHLIGHTS
The tables that follow are included in each fund's Annual Report and have
been audited by i ndependent 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.
[Financial Highlights to be filed by subsequent amendment.]
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results.
Each fund's fiscal year runs from January 1 through December 31. The table
below shows each fund's performance over past fiscal years compared to a
measure of inflation.
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)
TOTAL RETURNS
MICHIGAN MUNICIPAL INCOME
Average Annual Total Return Cumulative Total Return
Fiscal periods Past 1 Past 5 Life of Past 1 Past 5 Life of
ended year years fund year years fund
December 31,
1995
Michigan __% __ ___% __% __ __%A
Municipal A
Money Market
Ohio Municipal __% __% __%B __% __% __%B
Money Market
Michigan __% __% __%C __% __% __%C
Municipal
Income
Minnesota __% __% __%D __% __% __%D
Municipal
Income
Ohio Municipal __% __% __% __% __% __%E
E
Income
Consumer __% __% __ % __% __% __%
Price
Index
A FROM COMMENCEMENT OF OPERATIONS (JANUARY 12, 1990)
B FROM COMMENCEMENT OF OPERATIONS (AUGUST 29, 1989)
C FROM COMMENCEMENT OF OPERATIONS (NOVEMBER 12, 1985)
D FROM COMMENCEMENT OF OPERATIONS (NOVEMBER 21, 1985)
E FROM COMMENCEMENT OF OPERATIONS (NOVEMBER 15, 1985)
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 CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment thHighat pools shareholders'
money and invests it toward a specified goal. In technical terms, Ohio
Municipal Income, Michigan Municipal Income, and Minnesota Municipal Income
are currently non-diversified funds of Fidelity Municipal Trust. Michigan
Municipal Money Market and Ohio Municipal Money Market are currently
non-diversified funds of Fidelity Municipal Trust II . Both trusts are
open-end management investment companies. Fidelity Municipal Trust was
organized as a Maryland corporation on November 22, 1976, and reorganized
as a Massachusetts business trust on June 22, 1984. Fidelity Municipal
Trust II was organized as a Delaware business trust on June 20, 1991.
There is a remote possibility that one fund might become liable for a
misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. For the money market funds
you are entitled to one vote for each share you own. For the bond funds
the number of votes you are entitled to is based upon the dollar value of
your investment.
FMR AND ITS AFFILIATES
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over
(solid bullet) Assets in Fidelity mutual
funds: over billion
(solid bullet) Number of shareholder
accounts: over million
(solid bullet) Number of investment
analysts and portfolio
managers: over
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FTX, located in Irving, Texas, has primary
responsibility for providing investment management services for the money
market funds.
Steven Harvey is manager of Ohio Municipal Income, which he has managed
since July 1994. Mr. Harvey also manages Massachusetts Tax-Free High
Yield, Spartan Maryland Municipal Income, and Spartan Pennsylvania
Municipal Hgh Yield. Previously, he managed
Minnesota Municipal Income and was an analyst following tax-free bonds. Mr.
Harvey joined Fidelity in 1986.
Maureen Newman is manager of Michigan Municipal Income , which she
has managed since July 1994. She also manages Spartan New Jersey High
Yield, Spartan Connecticut Municipal High Yield, and Spartan Florida
Municipal Income. Previously, she managed Spartan Aggressive Municipal
and Spartan Arizona Municipal Income and was a bond analyst for the
fixed-income department. Ms. Newman joined Fidelity in 1985.
Jonathan Short is manager of Minnesota Municipal Income, which he has
managed since October 1995. Mr. Short also manages Spartan Arizona
Municipal Income, California Tax-Free High Yield, California Tax-Free
Insured, Spartan California Municipal High Yield, and Spartan California
Intermediate Municipal. Previously, he was a municipal bond analyst. Mr.
Short joined Fidelity in 1990, after receiving his MBA from the
Massachusetts Institute of Technology.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR and FTX. Members of the
Edward C. Johnson 3d family are the predominant owners of a class of shares
of common stock representing approximately 49% of the voting power of FMR
Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of
a company is presumed where one individual or group of individuals owns
more than 25% of the voting stock of that company; therefore, the Johnson
family may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for the funds. It is located at 1010 Grand Avenue,
Kansas City, Missouri.
To carry out the funds' transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that a fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
MICHIGAN MUNICIPAL MONEY MARKET and OHIO MUNICIPAL MONEY MARKET seek to
earn high current income that is free from federal income tax, its state
income tax, and other taxes in Michigan and Ohio, while maintaining a
stable $1.00 share price by investing in high-quality, short-term municipal
money market securities of all types. FMR normally invests so that at least
80% of each fund's income distributions are free from federal and state
income taxes.
When you sell your shares, they should be worth the same amount as when you
bought them. Of course, there is no guarantee that the fund will maintain a
stable $1.00 share price. The funds follow industry-standard guidelines on
the quality and maturity of its investments, which are designed to help
maintain a stable $1.00 share price. Each 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.
M ICHIGAN MUNICIPAL INCOME, MINNESOTA MUNICIPAL INCOME, and OHIO
MUNICIPAL INCOME seek high current income that is free from federal income
tax, its state income tax, and other taxes in Michigan, Minnesota, and Ohio
by investing mainly in municipal securities judged by FMR to be of
investment-grade quality, although they can also invest in lower-quality
securities. Although the funds can invest in securities of any maturity,
FMR seeks to manage the funds so that they generally react to changes in
interest rates similarly to municipal bonds with maturities between 8 and
18 years. As of December 31, 1995, the dollar-weighted average maturities
were __, __, and __ years for Michigan Municipal Income, Minnesota
Municipal Income, and Ohio Municipal Income, respectively. FMR
normally invests so that at least 80% of each fund's income is free from
both federal and state income taxes.
EACH FUND'S performance is affected by the economic and political
conditions within its respective state. Michigan's economy is dominated by
automobile-related industries, which tend to be especially vulnerable to
economic downturns. Also, the state's unemployment rate is typically higher
than average, although this was not the case in 1994. Minnesota has been
experiencing a decline in jobs in mining and agriculture, but accompanied
by an increase in the service sector and the maintenance of a strong
manufacturing base. Ohio's economy, like that of other industrially
developed states, tends to be more cyclical and vulnerable to economic
downturns than the economies of some other states and the United States as
a whole.
The money market funds stress preservation of capital, liquidity, and
income. 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 o f 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 the funds invest only in the
highest-yielding bonds available, or that they can avoid risks to
principal. In selecting investments for each bondfund, 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
funds.
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 e ach fund may invest all of its assets in m unicipal
securities issued to finance p rivate 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. However, during periods when FMR believes that state
tax-free obligations that meet fund standards are not available, each bond
fund may invest 20% of its assets in obligations whose interest payments
are only federally tax-exempt. 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 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, and strategies FMR may employ in
pursuit of a fund's investment objectives and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's policies and limitations and more
detailed information about the funds' investments is contained in the
funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that they are consistent
with a fund's investment objective and policies and that doing so will help
a fund achieve its goal. Current holdings and recent investment
strategies are detailed in each funds' 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.
Lower-quality debt securities (sometimes called "municipal junk bonds")
are considered to have speculative characteristics, and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. 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 following tables provide a summary of ratings assigned to debt holdings
(not including money market instruments) in each bond fund's portfolio.
These figures are dollar-weighted averages of month-end portfolio holdings
during fiscal 1995, and are presented as a percentage of total security
investments. These percentages are historical and do not necessarily
indicate a fund's current or future debt holdings.
MICHIGAN MUNICIPAL INCOME
Fiscal 1995 Debt Holdings, by Rating MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC.
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa __% AA __%
Upper-medium grade A A
Medium grade Baa __% BBB __%
LOWER QUALITY
Moderately speculative Ba __% BB __%
Speculative B __% B __%
Highly speculative Caa __% CCC __%
Poor quality Ca __% CC __%
Lowest quality, no interest C C
In default, in arrears -- D __%
__% __%
MINNESOTA MUNICIPAL INCOME
Fiscal 1995 Debt Holdings, by Rating MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC.
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa __% AA __%
Upper-medium grade A A
Medium grade Baa __% BBB __%
LOWER QUALITY
Moderately speculative Ba __% BB __%
Speculative B __% B __%
Highly speculative Caa __% CCC __%
Poor quality Ca __% CC __%
Lowest quality, no interest C C
In default, in arrears -- D __%
__% __%
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO __% FOR MICHIGAN MUNICIPAL INCOME AND __% FOR
MINNESOTA MUNICIPAL INCOME. THIS MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR
HAS DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER-QUALITY ACCOUNT FOR
__% AND ___%, RESPECTIVELY OF EACH FUND'S TOTAL SECURITY INVESTMENTS.
REFER TO THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION FOR A MORE
COMPLETE DISCUSSION OF THESE RATINGS.
OHIO MUNICIPAL INCOME
Fiscal 1995 Debt Holdings, by Rating MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC.
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa __% AA __%
Upper-medium grade A A
Medium grade Baa __% BBB __%
LOWER QUALITY
Moderately speculative Ba __% BB __%
Speculative B __% B __%
Highly speculative Caa __% CCC __%
Poor quality Ca __% CC __%
Lowest quality, no interest C C
In default, in arrears -- D __%
__% __%
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO __% FOR OHIO MUNICIPAL INCOME. THIS MAY INCLUDE
SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS
UNRATED SECURITIES. FMR HAS DETERMINED THAT UNRATED SECURITIES THAT ARE
LOWER-QUALITY ACCOUNT FOR __% OF THE FUND'S SECURITY INVESTMENTS. REFER TO
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE
DISCUSSION OF THESE RATINGS.
RESTRICTIONS: Each bond fund may not invest more than one-third of its
assets in bonds judged by FMR to be equivalent to those rated Ba or lower
by Moody's or BB or lower by S&P, and may not invest in securities of
equivalent quality to those rated lower than B. The funds do not currently
intend to invest in bonds rated below Caa by Moody's or CCC by S&P.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
municipalities, local and state governments, and other entities. These
obligations may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets so that
they are eligible investments for money market funds. If the structure does
not perform as intended, adverse tax or investment consequences may
result.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. 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, or governmental developments
which might affect its ability to honor its commitment.
STATE TAX-FREE SECURITIES include municipal obligations issued by a state
or its counties, municipalities, authorities, or other subdivisions. The
ability of issuers to repay their debt can be affected by many factors that
impact the economic vitality of either the state or a region within the
state.
Other state tax-free securities include obligations of the U.S. territories
and possessions such as Guam, the Virgin Islands, and Puerto Rico, and
their political subdivisions and public corporations. The economy of Puerto
Rico is closely linked to the U.S. economy, and will be affected by the
strength of the U.S. dollar, interest rates, the price stability of oil
imports, and the continued existence of favorable tax incentives. Recent
legislation revised these incentives, but the government of Puerto Rico
anticipates only a slight reduction in the average real growth rates for
the economy.
ASSET-BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by municipalities. These
securities usually rely on continued payments by a municipality, and may
also be subject to prepayment risk.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
RESTRICTIONS: The money market funds may not purchase certain types of
variable and floating rate securities which are inconsistent with each
fund's goal of maintaining a stable share price.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or a financial intermediary. In exchange for this benefit, the funds
may pay periodic fees or accept a lower interest rate. The credit quality
of the investment may be affected by the creditworthiness of the put
provider. Demand features, standby commitments, and tender options are
types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
RESTRICTIONS: The money market fund may not use investment techniques which
are inconsistent with the fund's goal of maintaining a stable share price.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may
be subject to legal restrictions. Difficulty in selling securities may
result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield or the market value of its assets.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: The funds are considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, a fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any one issuer. These limitations do not apply to U.S. government
securities. A fund may invest more than 25% of its total assets in tax-free
securities that finance similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a bond fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: A fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
MICHIGAN MUNICIPAL MONEY MARKET seeks as high a level of current income,
exempt from federal income tax and Michigan personal income tax, as is
consistent with the preservation of capital. The fund will normally invest
so that at least 80% of its income distributions are exempt from federal
and state income tax.
OHIO MUNICIPAL MONEY MARKET seeks as high a level of current income, exempt
from federal income tax and from Ohio personal income tax, as is consistent
with the preservation of capital. The fund will normally invest so that at
least 80% of its income distributions are exempt from federal and state
income tax.
MICHIGAN MUNICIPAL INCOME seeks a high level of current income exempt from
federal income tax and Michigan personal income tax by investing primarily
in investment-grade municipal bonds. The fund also seeks income exempt from
certain business or corporate taxes. The fund will normally invest so that
at least 80% of its income is exempt from federal and state income taxes.
During periods when FMR believes that state tax-free obligations that meet
the fund's standards are not available, the fund may invest up to 20% of
its assets in obligations whose interest payments are only federally
tax-exempt. The fund may invest up to one-third of its assets in bonds
judged by FMR to be of equivalent quality to those rated lower than BBB or
Baa but not lower than B.
MINNESOTA MUNICIPAL INCOME seeks a high level of current income exempt from
federal income tax and Minnesota personal income tax by investing primarily
in investment-grade municipal bonds. The fund will normally invest so that
at least 80% of its income is exempt from federal and state income taxes.
During periods when FMR believes that state tax-free obligations that meet
the fund's standards are not available, the fund may invest up to 20% of
its assets in obligations whose interest payments are only federally
tax-exempt. The fund may invest up to one-third of its assets in bonds
judged by FMR to be of equivalent quality to those rated lower than BBB or
Baa but not lower than B.
OHIO MUNICIPAL INCOME seeks a high level of current income exempt from
federal income tax and Ohio personal income tax by investing primarily in
investment-grade municipal bonds. The fund also seeks income exempt from
certain business or corporate taxes. The fund will normally invest so that
at least 80% of its income is exempt from federal and state income taxes.
During periods when FMR believes that state tax-free obligations that meet
the fund's standards are not available, the fund may invest up to 20% of
its assets in obligations whose interest payments are only federally
tax-exempt. The fund may invest up to one-third of its assets in bonds
judged by FMR to be of equivalent quality to those rated lower than BBB or
Baa but not lower than B.
Each fund may borrow only 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. Each fund also pays OTHER EXPENSES, which
are explained on page 21.
FMR may, from time to time, agree to reimburse the funds for management
fees and other expenses 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 fee is
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets under management increase.
For December 1995, the group fee rate was __ %. Each fund's
individual fund fee rate is .25%. The total management fee rates for
fiscal 1995 are presented in the following table.
MANAGEMENT FEES
MICHIGAN MUNICIPAL INCOME
Michigan Municipal %
Money Market
Ohio Municipal Money %
Market
Michigan Municipal %
Income
Minnesota Municipal %
Income
Ohio Municipal Income %
FMR HAS SUB-ADVISORY AGREEMENTS with FTX, which has primary responsibility
for providing investment management for the money market funds, while FMR
retains responsibility for providing other management services. FMR pays
FTX 50% of its management fee (before expense reimbursements) for these
services. FMR paid FTX __% of Fidelity Michigan Municipal Money
Market Fund's and __ % of Fidelity Ohio Municipal Money Market Fund's
average net assets for fiscal 1 995 .
UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in
FMR's total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will
pay a lower rate as FMR's
assets under management
increase.
(checkmark)
OTHER EXPENSES
While the management fee is a significant component of the funds' annual
operating costs, the funds have other expenses as well.
FSC performs many transaction and accounting functions. These services
include processing shareholder transactions, valuing each fund's
investments, and handling securities loans. In fiscal 1 995 , FSC
received fees equal to the following percentage of each fund's average net
assets:
Michigan Municipal %
Money Market
Ohio Municipal Money %
Market
Michigan Municipal %
Income
Minnesota Municipal %
Income
Ohio Municipal Income %
The funds also pay other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
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 bond fund's portfolio turnover rate for fiscal
1995. These rates vary from year to year.
PORTFOLIO TURNOVER RATES
MICHIGAN MUNICIPAL INCOME
Michigan Municipal ___
Income %
Minnesota Municipal ___
Income %
Ohio Municipal Income ___
%
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. You can
choose a money market fund as your core account for your Fidelity Ultra
Service Account(registered trademark) or FidelityPlusSM 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. Each money market fund 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
MICHIGAN MUNICIPAL INCOME
TO OPEN AN ACCOUNT $2,500
For the money market funds $5,000
TO ADD TO AN ACCOUNT $250
Through automatic investment plans $100
For the money market funds $500
MINIMUM BALANCE $1,000
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the product materials for details.
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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>
<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>
<TABLE>
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Wire (wire_graphic) (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.
</TABLE>
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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.
TO SELL SHARES THROUGH YOUR FIDELITY ULTRA SERVICE OR FIDELITYPLUS ACCOUNT,
call 1-800-544-6262 to receive a handbook with instructions.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $1,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, 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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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.
</TABLE>
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Check (check_graphic) All account types (small solid bullet) Minimum check: $500.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
</TABLE>
<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 BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing.
Note that exchanges out of a fund are limited to four per calendar year
(except for the money market funds), 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 35.
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
<TABLE>
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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>
<TABLE>
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<S> <C> <C>
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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>
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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.
</TABLE>
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 February and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. Each fund offers four
options (three for the money market funds):
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 the money market
funds.
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, or longer for a December
ex-dividend date.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the funds' tax implications.
TAXES ON DISTRIBUTIONS. Interest income that a fund earns is distributed to
shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each fund may invest up to 100% of its
assets in these securities. Individuals who are subject to the tax must
report this interest on their tax returns.
To the extent that each fund's distributions are derived from state
tax-free obligations of its respective state, its income dividends will be
exempt from state taxes. For Ohio residents, dividends will be free from
the Ohio individual income tax, a school district tax, and the net income
base of the Ohio corporation franchise tax. For Michigan residents,
dividends will be free from the Michigan income, intangibles, and single
business taxes. For Minnesota residents dividends will be free from the
Minnesota personal income tax.
Unless 95% or more of Minnesota Municipal Income's tax-exempt
dividends are derived from obligations of the State of Minnesota or its
political subdivisions, all of the fund's dividends will be subject to the
Minnesota tax. FMR intends to meet the 95% requirement, but there is no
assurance it will do so.
During fiscal 1995, 100 % of each fund's income dividends was free
from federal and state income taxes. The table below shows the percentage
of each fund's income dividends that was subject to the federal alternative
minimum tax.
ALTERNATIVE MINIMUM TAX
MICHIGAN MUNICIPAL INCOME
Michigan Municipal Money Market __%
Ohio Municipal Money Market __%
Michigan Municipal Income __%
Minnesota Municipal Income __%
Ohio Municipal Income __%
TAXES ON TRANSACTIONS. Your bond fund redemptions - including exchanges to
other Fidelity funds - are subject to capital gains tax. A capital gain or
loss is the difference between the cost of your shares and the price you
receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a fund deducts a
capital gain distribution from its NAV, you will pay the full price for
the shares and then receive a portion of the price back in the form of a
taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The money market funds value the securities they own on the basis of
amortized cost. This method minimizes the effect of changes in a security's
market value and helps the fund to maintain a stable $1.00 share price. For
the bond funds, assets are valued primarily on the basis of market
quotations, if available. Since market quotations are often unavailable,
assets are usually valued by a method that the Board of Trustees believes
accurately reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page __. Purchase orders may be refused if, in FMR's opinion, they
would disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUNDS THROUGH A BROKER, who may charge
you a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
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, core accounts for a
Fidelity Ultra Service Account or a FidelityPlus brokerage account, 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 $1,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the funds without
reimbursement from the funds. Qualified recipients are securities dealers
who have sold fund shares or others, including banks and other financial
institutions, under special arrangements in connection with FDC's sales
activities. In some instances, these incentives may be offered only to
certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of shares.
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 bond 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.
From Filler pages
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL M ONEY MARKET FUND
FUNDS OF FIDELITY MUNICIPAL TRUST II
FIDELITY MICHIGAN M UNICIPAL INCOME FUND
FIDELITY MINNESOTA M UNICIPAL INCOME FUND
FIDELITY OHIO M UNICIPAL INCOME FUND
FUNDS OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 20, 1996
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated February 20, 1996). Please retain this
document for future reference. The funds' financial statements and
financial highlights, included in the Annual Report for the fiscal year
ended December 31, 1995, are incorporated herein by reference. To obtain an
additional copy of the Prospectus or the Annual Report, please call
Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Michigan
Special Considerations Affecting Minnesota
Special Considerations Affecting Ohio
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts 35
Distribution and Service Plans
Contracts with FMR Affiliates 40
Description of the Trusts 40
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FTX) (money market funds)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
Fidelity Service Co. (FSC)
OMM-ptb-296
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
A fund's fundamental investment policies and limitations cannot be changed
without approval by a "majority of the outstanding voting securities" (as
defined in the Investment Company Act of 1940) of the fund. However, except
for the fundamental investment limitations listed below, the investment
policies and limitations described in this Statement of Additional
Information are not fundamental and may be changed without shareholder
approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
INVESTMENT LIMITATIONS OF THE MICHIGAN MUNICIPAL MONEY MARKET FUND
(THE MICHIGAN MONEY MARKET FUND)
THE FOLLOWING ARE THE MICHIGAN MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that
Fidelity Municipal Trust II may issue additional series of shares in
accordance with the Trust Instrument;
(2) sell securities short, unless it owns, or by virtue of ownership of
other securities has the right to obtain, securities equivalent in kind and
amount to the securities sold short;
(3) purchase securities on margin, except that the fund may obtain such
short-term credits as are necessary for the clearance of transactions;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets (less liabilities other
than borrowings). Any borrowings that come to exceed 33 1/3% of the value
of the fund's total assets by reason of a decline in total assets will be
reduced within three days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(5) underwrite securities issued by others (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies,
instrumentalities, territories, or possessions, or issued or guaranteed by
a state government or political subdivision thereof) if, as a result, more
than 25% of the value of its total assets would be invested in securities
of companies having their principal business activities in the same
industry;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities; or
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to the purchase of debt securities or to
repurchase agreements).
(10) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-ended management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer; and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund may borrow money only (a) from a bank or from a registered
investment company or fund for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (4)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iii) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
( i v) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(v) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vi) The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(vii) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
( viii ) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment company
with substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (viii), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page 13.
INVESTMENT LIMITATIONS OF FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
(THE OHIO MONEY MARKET FUND)
THE FOLLOWING ARE THE OHIO MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that
Fidelity Municipal Trust II may issue additional series of shares in
accordance with the Trust Instrument;
(2) sell securities short, unless it owns, or by virtue of ownership of
other securities has the right to obtain, securities equivalent in kind and
amount to the securities sold short;
(3) purchase securities on margin, except that the fund may obtain such
short-term credits as are necessary for the clearance of transactions;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets (less liabilities other
than borrowings). Any borrowings that come to exceed 33 1/3% of the value
of the fund's total assets by reason of a decline in total assets will be
reduced within three days (exclusive of Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;
(5) underwrite securities issued by others (except to the extent that the
fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies,
instrumentalities, territories, or possessions, or issued or guaranteed by
a state government or political subdivision thereof) if, as a result, more
than 25% of the value of its total assets would be invested in securities
of companies having their principal business activities in the same
industry;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities; or
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this
limitation does not apply to purchases of debt securities or to repurchase
agreements).
(10) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-ended management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund may borrow money only (a) from a bank or from a registered
investment company or fund for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (4)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iii) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
( i v) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(v) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vi) The fund does not currently intend to (a) purchase securities of other
investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(vii) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
( viii ) The fund does not currently intend to invest all of its
assets in the securities of a single open-end management investment company
with substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitation (viii), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's policies on quality and maturity, see the section entitled
"Quality and Maturity" on page 13.
INVESTMENT LIMITATIONS OF FIDELITY MICHIGAN MUNICIPAL INCOME FUND
(THE MICHIGAN MUNICIPAL INCOME )
THE FOLLOWING ARE THE MICHIGAN MUNICIPAL INCOME FUND'S FUNDAMENTAL
INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements, or
(8) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or fund for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
borrow from other funds advised by FMR or its affiliates if total
outstanding borrowings immediately after such borrowing would exceed 15% of
the fund's total assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal, or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
( viii ) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases;
( ix ) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
For purposes of limitations (4) and (ii), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page 10.
INVESTMENT LIMITATIONS OF FIDELITY MINNESOTA MUNICIPAL INCOME FUND
(THE MINNESOTA MUNICIPAL INCOME FUND)
THE FOLLOWING ARE THE MINNESOTA MUNICIPAL INCOME FUND'S FUNDAMENTAL
INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements, or
(8) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or fund for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
borrow from other funds advised by FMR or its affiliates if total
outstanding borrowings immediately after such borrowing would exceed 15% of
the fund's total assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal, or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
( viii ) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
( ix ) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page 10.
INVESTMENT LIMITATIONS OF FIDELITY OHIO MUNICIPAL INCOME FUND
(THE OHIO MUNICIPAL INCOME FUND)
THE FOLLOWING ARE THE OHIO MUNICIPAL INCOME FUND'S FUNDAMENTAL
INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities);
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements, or
(8) invest in companies for the purpose of exercising control or
management.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or fund for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
borrow from other funds advised by FMR or its affiliates if total
outstanding borrowings immediately after such borrowing would exceed 15% of
the fund's total assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal, or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
( viii ) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
( ix ) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a government
body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page 10.
Each fund's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the funds.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established
and periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. Michigan
Municipal Income , Minnesota Municipal Income , and Ohio
Municipal Income may receive fees for entering into delayed-delivery
transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do
not intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond funds' standards for high-quality, taxable obligations
are essentially the same as those described by Moody's Investors Service,
Inc. (Moody's) in rating corporate obligations within its two highest
ratings of Prime-1 and Prime-2, and those described by Standard & Poor's
Corporation (S&P) in rating corporate obligations within its two highest
ratings of A-1 and A-2. The money market funds will purchase taxable
obligations only if they meet its quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before the Michigan, Minnesota,
and Ohio legislatures that would affect the state tax treatment of the
funds' distributions. If such proposals were enacted, the availability of
municipal obligations and the value of the funds' holdings would be
affected and the Trustees would reevaluate the funds' investment objectives
and policies.
FUTURES AND OPTIONS. The following sections pertain to futures
and options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures Margin
Payments, Limitations on Futures and Options Transactions, Liquidity of
Options and Futures Contracts, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each bond fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and option premiums.
In addition, each fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
For the money market funds, FMR may determine some restricted securities
and municipal lease obligations to be illiquid.
For the bond funds, investments currently considered to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments for the money
market funds are valued for purposes of monitoring amortized cost
valuation, and for the bond funds are priced at fair value as determined in
good faith by a committee appointed by the Board of Trustees. If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. A fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Indexed securities may
have principal payments as well as coupon payments that depend on the
performance of one or more interest rates. Their coupon rates or principal
payments may change by several percentage points for every 1% interest rate
change. One example of indexed securities is inverse floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING PROGRAM. Pursuant to an exemptive order issued by the
SEC, each fund has received permission to lend money to, and borrow money
from, other funds advised by FMR or its affiliates, but will participate in
the interfund borrowing program only as a borrower. Interfund borrowings
normally extend overnight, but can have a maximum duration of seven days. A
fund will borrow through the program only when the costs are equal to or
lower than the costs of bank loans. Loans may be called on one day's
notice, and a fund may have to borrow from a bank at a higher interest rate
if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move
in the opposite direction from prevailing short-term interest rate levels -
rising when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. The bond funds may invest a portion of
their assets in lower-quality municipal securities as described in the
Prospectus.
While the market for Michigan, Minnesota, and Ohio municipals is considered
to be adequate, adverse publicity and changing investor perceptions may
affect the ability of outside pricing services used by a fund to value its
portfolio securities, and the fund's ability to dispose of lower-quality
bonds. The outside pricing services are monitored by FMR and reported to
the Board to determine whether the services are furnishing prices that
accurately reflect fair value. The impact of changing investor perceptions
may be especially pronounced in markets where municipal securities are
thinly traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal securities or
the rights of municipal securities holders in the event of a bankruptcy.
Municipal bankruptcies are relatively rare, and certain provisions of the
U.S. Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market funds fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the funds.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. The electric utilities industry has been
experiencing, and will continue to experience, increased competitive
pressures. Federal legislation in the last two years will open transmission
access to any electricity supplier, although it is not presently known to
what extent competition will evolve. Other risks include: (a) the
availability and cost of fuel, (b) the availability and cost of capital,
(c) the effects of conservation on energy demand, (d) the effects of
rapidly changing environmental, safety, and licensing requirements, and
other federal, state, and local regulations, (e) timely and sufficient rate
increases, and (f) opposition to nuclear power.
HEALTH CARE. The health care industry is subject to regulatory
action by a number of private and governmental agencies, including federal,
state, and local governmental agencies. A major source of revenues for the
health care industry is payments from the Medicare and Medicaid programs.
As a result, the industry is sensitive to legislative changes and
reductions in governmental spending for such programs. Numerous other
factors may affect the industry, such as general and local economic
conditions; demand for services; expenses (including malpractice insurance
premiums); and competition among health care providers. In the future, the
following elements may adversely affect health care facility operations:
adoption of legislation proposing a national health insurance program;
other state or local health care reform measures; medical and technological
advances which dramatically alter the need for health services or the way
in which such services are delivered; changes in medical coverage which
alter the traditional fee-for-service revenue stream; and efforts by
employers, insurers, and governmental agencies to reduce the costs of
health insurance and health care services.
HOUSING. Housing revenue bonds are generally issued by a state,
county, city, local housing authority, or other public agency. They
generally are secured by the revenues derived from mortgages purchased with
the proceeds of the bond issue. It is extremely difficult to predict the
supply of available mortgages to be purchased with the proceeds of an issue
or the future cash flow from the underlying mortgages. Consequently, there
are risks that proceeds will exceed supply, resulting in early retirement
of bonds, or that homeowner repayments will create an irregular cash flow.
Many factors may affect the financing of multi-family housing projects,
including acceptable completion of construction, proper management,
occupancy and rent levels, economic conditions, and changes to current laws
and regulations.
EDUCATION. In general, there are two types of education-related
bonds; those issued to finance projects for public and private colleges and
universities, and those representing pooled interests in student loans.
Bonds issued to supply educational institutions with funds are subject to
the risk of unanticipated revenue decline, primarily the result of
decreasing student enrollment or decreasing state and federal funding.
Among the factors that may lead to declining or insufficient revenues are
restrictions on students' ability to pay tuition, availability of state and
federal funding, and general economic conditions. Student loan revenue
bonds are generally offered by state (or substate) authorities or
commissions and are backed by pools of student loans. Underlying student
loans may be guaranteed by state guarantee agencies and may be subject to
reimbursement by the United States Department of Education through its
guaranteed student loan program. Others may be private, uninsured loans
made to parents or students which are supported by reserves or other forms
of credit enhancement. Recoveries of principal due to loan defaults may be
applied to redemption of bonds or may be used to re-lend, depending on
program latitude and demand for loans. Cash flows supporting student loan
revenue bonds are impacted by numerous factors, including the rate of
student loan defaults, seasoning of the loan portfolio, and student
repayment deferral periods of forbearance. Other risks associated with
student loan revenue bonds include potential changes in federal legislation
regarding student loan revenue bonds, state guarantee agency reimbursement
and continued federal interest and other program subsidies currently in
effect.
TRANSPORTATION. Transportation debt may be issued to finance the
construction of airports, toll roads, highways, or other transit
facilities. Airport bonds are dependent on the general stability of the
airline industry and on the stability of a specific carrier who uses the
airport as a hub. Air traffic generally follows broader economic trends and
is also affected by the price and availability of fuel. Toll road bonds are
also affected by the cost and availability of fuel as well as toll levels,
the presence of competing roads and the general economic health of an area.
Fuel costs and availability also affect other transportation-related
securities, as do the presence of alternate forms of transportation, such
as public transportation.
WATER AND SEWER. Water and sewer revenue bonds are often considered
to have relatively secure credit as a result of their issuer's importance,
monopoly status, and generally unimpeded ability to raise rates. Despite
this, lack of water supply due to insufficient rain, run-off, or snow pack
is a concern that has led to past defaults. Further, public resistance to
rate increases, costly environmental litigation, and Federal environmental
mandates are challenges faced by issuers of water and sewer bonds.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the funds will not
hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
PUT FEATURES entitle the holder to sell a security back to the issuer or a
third party at any time or at specified intervals. They are subject to the
risk that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other
entities. Demand features, standby commitments, and tender options are
types of put features.
QUALITY AND MATURITY (MONEY MARKET FUNDS ONLY). Pursuant to procedures
adopted by the Board of Trustees, the fund[s] may purchase only
high-quality securities that FMR believes present minimal credit risks. To
be considered high-quality, a security must be rated in accordance with
applicable rules in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by
one, if only one rating service has rated the security); or, if unrated,
judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1 or SP-1), and second tier
securities are those deemed to be in the second highest rating category
(e.g., Standard & Poor's A-2 or SP-2).
The funds currently intends to limit their investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, a fund may look to an interest rate reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued basis
in connection with the refinancing of an issuer's outstanding indebtedness.
Refunding contracts require the issuer to sell and the fund to buy refunded
municipal obligations at a stated price and yield on a settlement date that
may be several months or several years in the future. A fund generally will
not be obligated to pay the full purchase price if it fails to perform
under a refunding contract. Instead, refunding contracts generally provide
for payment of liquidated damages to the issuer (currently 15-20% of the
purchase price). A fund may secure its obligations under a refunding
contract by depositing collateral or a letter of credit equal to the
liquidated damages provisions of the refunding contract. When required by
SEC guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from the risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market funds anticipate
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation of
the credit of a bank or another entity in determining whether to purchase a
security supported by a letter of credit guarantee, insurance or other
source of credit or liquidity.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal instruments, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit a fund to sell them at
par value plus accrued interest on short notice.
In many instances bonds and participation interests have tender options or
demand features that permit a fund to tender (or put) the bonds to an
institution at periodic intervals and to receive the principal amount
thereof. A fund considers variable rate instruments structured in this way
(Participating VRDOs) to be essentially equivalent to other VRDOs it
purchases. The IRS has not ruled whether the interest on Participating
VRDOs is tax-exempt and, accordingly, a fund intends to purchase these
instruments based on opinions of bond counsel. A fund may also invest in
fixed-rate bonds that are subject to third party puts and in participation
interests in such bonds held by a bank in trust or otherwise.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
SPECIAL FACTORS AFFECTING MICHIGAN
The following only highlights some of Michigan's more significant financial
trends and problems, and is based in part on information drawn from
official statements and prospectuses relating to securities offerings of
the State of Michigan, its agencies and instrumentalities as available on
the date of this Statement of Additional Information. FMR has not
independently verified any of the information contained in such official
statements and other publicly available documents, but is not aware of any
fact that would render such information inaccurate.
CONSTITUTIONAL STATE REVENUE LIMITATIONS. In 1978 the Michigan Constitution
was amended to limit the amount of total State revenues raised from taxes
and other sources. State revenues (excluding federal aid and revenues for
payment of principal and interest on general obligation bonds) in any
fiscal year are limited to a fixed percentage of State personal income in
the prior calendar year or average of the prior three calendar years,
whichever is greater. The percentage is fixed by the amendment to equal
the ratio of the 1978-79 fiscal year revenues to total 1977 State personal
income.
If any fiscal year revenues exceed the revenue limitation by one percent or
more, the entire amount of such excess shall be rebated in the following
fiscal year's personal income tax or single business tax. Any excess of
less than one percent may be transferred to the State's Budget
Stabilization Fund.
The State may raise taxes in excess of the limit for emergencies when
deemed necessary by the Governor and two-thirds of the members of each
house of the Legislature. The foregoing revenue limit does not apply to
taxes imposed for the payment of principal of and interest on bonds of the
State, if the bonds are approved by voters and authorized by a vote at the
request of two-thirds of the members of each House of the Legislature.
The State Constitution provides that the proportion of State spending paid
to all units of local government to total State spending may not be reduced
below the proportion in effect in the 1978-79 fiscal year. The State has
determined that proportion to be 41.6 percent. If such spending does not
meet the required level in a given year, an additional appropriation for
local government units is required by the "following fiscal year," which
means the year following the determination of the shortfall, according to
an opinion issued by the State's Attorney General.
The State Constitution also requires the State to finance any new or
expanded activity of local governments mandated by State law. Any
expenditures required by this provision would be counted as State spending
for local units of government for purposes of determining compliance with
the provision cited above.
CONSTITUTIONAL LOCAL TAX LIMITATIONS. Under the Michigan Constitution, the
total amount of general ad valorem taxes imposed on taxable property in any
year cannot exceed certain millage limitations specified by the
Constitution, statute or charter. The Constitution was amended by popular
vote in November 1978 (effective December 23, 1978) to prohibit local units
of government from levying any tax not authorized by law or charter, or
from increasing the rate of an existing tax above the rate authorized by
law or charter, at the time the amendments were ratified, without the
approval of a majority of the electors of the local unit voting on the
question.
Local units of government and local authorities are authorized to issue
bonds and other evidences of indebtedness in a variety of situations
without the approval of electors, but the ability of the obligor to levy
taxes for the payment of such obligations is subject to the foregoing
limitations unless the obligations were authorized before December 23, 1978
or approved by the electors.
The 1978 amendments to the Constitution also contain millage reduction
provisions. Under such provisions, should the value of taxable property
(exclusive of new construction and improvements) increase at a percentage
greater than the percentage increase in the Consumer Price Index, the
maximum authorized tax rate would be reduced by a factor which would result
in the same maximum potential tax revenues to the local taxing unit as if
the valuation of taxable property (less new construction and improvements)
had grown only at the Consumer Price Index rate instead of at the higher
actual growth rate. Thus, if taxable property values rise faster than
consumer prices, the maximum authorized tax rate would be reduced
accordingly.
RECENT MICHIGAN SCHOOL FINANCE AND PROPERTY TAX CHANGES. On August 19,
1993, the Governor of Michigan signed into law Act 145, Public Acts of
Michigan, 1993 ("Act 145"), a measure which would have significantly
impacted financing of primary and secondary school operations and which has
resulted in additional property tax and school finance reform legislation.
Act 145 would have exempted all property in the State of Michigan from
millage levied for local and intermediate school districts operating
purposes, other than millage levied for community colleges, effectively
July 1, 1994. In order to replace local property tax revenues lost as a
result of Act 145, the Michigan Legislature, in December 1993, enacted
several statutes which address property tax and school finance reform.
Education reform legislation not dealing with school finance was also
enacted.
The property tax and school finance reform measures included a ballot
proposal ("Proposal A") which was subject to voter approval and in fact
approved on March 15, 1994, and a statutory proposal which would have
automatically taken effect if Proposal A had not been approved. Under
Proposal A as approved, effective May 1, 1994, the State sales and use tax
was increased from 4% to 6%, the State income tax was decreased from 4.6%
to 4.4%, the cigarette tax was increased from $.25 to $.75 per pack and an
additional tax of 16% of the wholesale price was imposed on certain other
tobacco products. A 0.75% real estate transfer tax was effective January
1, 1995. Beginning in 1994, a State property tax of 6 mills will be
imposed on all real and personal property currently subject to the general
property tax. The ability of school districts to levy property taxes for
school operating purposes will be partially restored. A school board will,
with voter approval, be able to levy up to the lesser of 18 mills or the
number of mills levied in 1993 for school operating purposes, on
non-homestead property. Proposal A contains additional provisions
regarding the ability of local school districts to levy taxes as well as a
limit on assessment increases for each parcel of property, beginning in
1995 to the lesser of 5% or the rate of inflation. When property is
subsequently sold, its assessed value will revert to the current assessment
level of 50% of true cash value. Under Proposal A, much of the additional
revenue generated by the new taxes will be dedicated to the State School
Aid Fund.
Proposal A contains a system of financing local school operating costs
which relies upon a foundation allowance amount which may vary by district
based upon historical spending levels. State funding will provide each
school district an amount equal to the difference between its foundation
allowance and the revenues generated by its local property tax levy. Under
Proposal A, a local school district will also be entitled to levy
supplemental property taxes to generate additional revenues if its
foundation allowance is less than its historical per pupil expenditures.
Proposal A also contains provisions which allow for the levy of a limited
number of enhancement mills on regional and local district bases.
Proposal A shifts significant portions of the cost of local school
operations from local districts to the State and raises additional State
revenues to fund these additional State expenses. These additional
revenues will be included within the State's constitutional revenue
limitations and may impact the State's ability to raise additional revenues
in the future. See, "Constitutional State Revenue Limitations."
EFFECT OF LIMITATIONS ON ABILITY TO PAY BONDS. The ability of the State of
Michigan to pay the principal of and interest on its general obligation
bonds may be affected by the limitations described above under
"Constitutional State Revenue Limitations:" and "Recent Michigan School
Finance and Property Tax Changes." Similarly, the ability of local units
of government to levy taxes to pay the principal of and interest on their
general obligation bonds is subject to the constitutional, statutory, and
charter limitations described above under "Constitutional Local Tax
Limitations" and "Recent Michigan School Finance and Property Tax Changes."
In general, revenue bonds issued by the State, by local units of
government, or by authorities created by the State or local units of
government are payable solely from such specified revenues (other than tax
revenues) as are pledged for that purpose, and such authorities generally
have no taxing power.
EFFECT OF GENERAL ECONOMIC CONDITIONS IN MICHIGAN. Michigan is an
industrialized state, whose economy is dominated by the automobile industry
and related industries. It tends to be more vulnerable to economic
downturns than the economies of many other states and the nation as a
whole. Over the past fifteen years, during recessions these industries
have been characterized as having excess capacity, resulting in plant
closings and reductions in the work force, many of which have occurred in
Michigan. Tourism and agriculture are two other important, but less
significant industries in the State, both of which have been affected
adversely by prior recessions.
Over the past fifteen years the Michigan unemployment rate typically has
been higher than the national rate, however, this was not the case for 1994
and in particular the State's seasonally adjusted December 1994
unemployment rate was 4.5% compared to the seasonally adjusted national
rate of 5.4%. The table below shows the State and national unemployment
rates published by the Michigan Employment Security Commission and the U.S.
Bureau of Labor Statistics, respectively, for the years indicated.
Period Michigan United States
1984 11.2% 7.4%
1985 9.9% 7.1%
1986 8.8% 6.9%
1987 8.2% 6.1%
1988 7.6% 5.5%
1989 7.1% 5.3%
1990 7.5% 5.5%
1991 9.2% 6.7%
1992 8.8% 7.4%
1993 7.0% 6.8%
1994 5.9% 6.1%
1995
Although most of the bonds in the Michigan fund are expected to be
obligations of local units of government or local authorities in the State,
rather than general obligations of the State itself, there can be no
assurance that the same factors that adversely affect the economy of the
State generally will not also affect adversely the market value or
marketability of obligations issued by local units of government or local
authorities in the State or the ability of the obligors to pay the
principal of or interest on such obligations.
STATE LITIGATION. A significant number of lawsuits, involving substantial
dollars, have been filed against the State and are pending. These include
tax refund claims, including claims for Single Business Taxes, condemnation
actions, claims relating to funding for county courts, and other types of
actions. The extent to which parties will ultimately prevail against the
State cannot be predicted at this time.
SPECIAL FACTORS AFFECTING MINNESOTA
The following only highlights some of the more significant financial trends
and problems affecting Minnesota, and is based on information drawn from
official statements and prospectuses relating to securities offerings of
the State of Minnesota, its agencies, and instrumentalities as available on
the date of this Statement of Additional Information. FMR has not
independently verified any of the information contained in such official
statements and other publicly available documents, but is not aware of any
fact which would render such information inaccurate.
CONSTITUTIONAL STATE REVENUE LIMITATIONS. Minnesota's constitutionally
prescribed fiscal period is a biennium, and the state operates on a
biennial budget basis. An agency or other entity may not expend monies in
excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, the State's Commissioner of Finance,
with the approval of the Governor, is required to reduce allotments to the
extent necessary to balance expenditures and forecast available resources
for the then current biennium. The Governor may seek legislative action
when a large reduction in expenditures appears necessary, and if the
State's legislature is not in session the Governor is empowered to convene
a special session.
EFFECT OF LIMITATIONS ON ABILITY TO PAY BONDS. There are no constitutional
or statutory provisions which would impair the ability of Minnesota
municipalities to meet their bond obligations if the bonds have been
properly issued.
MINNESOTA'S ECONOMY. Minnesota's seasonally adjusted October 1994
unemployment rate was 3.7 percent which was lower than the seasonally
adjusted national rate of 5.8 percent for the month. Non-agricultural
employment in the state increased 20.3% from 1980 to 1990 but only
increased 5.3% from 1990 to 1993. A major continuing trend for Minnesota,
as for the nation, is the large employment gain in the service industries.
In 1993, almost all private sector jobs added had been in services and in
finance, insurance and real estate. Accompanying this was a decline in
jobs in construction and mining.
Minnesota resident population grew from 4,142,000 in 1983 or, at an average
annual compound rate of .8 percent. In comparison, U.S. population grew at
an annual compound rate of 1 percent during this period. Minnesota
population is currently forecast to grow at an annual compound rate of .6
percent between 1990 and 2000. In the period 1990 to 1993, Minnesota's
overall employment growth increased 4.3% compared to national growth of
.9%.
Manufacturing has proven to be a strong sector, with Minnesota employment
growth in this area outperforming its U.S. counterpart in both the
1980-1990 and 1990-1993 periods. Minnesota's manufacturing industries
accounted for 17.4 percent of the state's employment mix in 1993. In the
durable goods industries, the state's employment in 1993 was highly
concentrated in the industrial machinery, fabricated metals, instrument and
miscellaneous categories. Of particular importance is the industrial
machinery category in which 32.8% of the state's durable goods employment
was concentrated in 1993, as compared to 18.9% for the United States as a
whole. The emphasis is partly explained by the location in the state of
Ceridian, Unisys, IBM, Cray Research, and other computer equipment
manufacturers which are included in the industrial machinery
classification.
The importance of the state's rich resource base for overall employment is
apparent in the employment mix in non-durable goods industries. In 1993,
29.4% of the state's non-durable goods employment was concentrated in food
and kindred industries, and 19.1% in paper and allied industries. This
compares to 21.5% and 8.9%, respectively, for comparable sectors in the
national economy. Both of these rely heavily on renewable resources in the
state. Over half of the state's acreage is devoted to agricultural
purposes, and nearly one-third to forestry. Printing and publishing is
also relatively more important in Minnesota than in the U.S.
The state is situated in the midst of the family farm belt. Although a
decline in jobs in agriculture is forecasted due to technological
improvements and the trend away from small family farms, in 1993 Minnesota
ranked seventh among all states in total cash receipts derived from
agricultural products and seventh among all states in percentage of income
derived from farming. In order of receipts, the six major agricultural
products in 1993 were dairy, corn, soybeans, cattle and calves, hogs and
wheat.
Minnesota ranks seventh among all states in agricultural exports. The
state's major agricultural commodities exported in 1993, were in order of
value, feed grains and products, soybeans and products, wheat and wheat
products, live animals and meat, vegetables and feed and fodder. The
average Minnesota farm had gross farm income of $81,671 in 1993; however,
expenses used up $79,457 of the income leaving the average farm net income
in 1993 at $2,214, compared to the 1992 average farm net income of $17,352.
Mining is currently a less significant factor in the state economy than it
once was. Mining employment, primarily in the iron ore or taconite
industry, dropped from 17.3 thousand in 1979 to 7.5 thousand in 1993. It
is not expected that mining employment will return to 1979 levels.
However, Minnesota retains vast quantities of taconite as well as copper,
nickel, cobalt, and peat, which may be utilized in the future.
The fastest growing sector of the economy in Minnesota and the rest of the
country is the service sector. Business services employment is projected
to increase by 23% from 1989 to 1996, and health care services (exclusive
of hospitals and nursing homes) is projected to grow by 18%.
In 1993, 29 Minnesota based public companies and nine private companies
reported revenues of $600 million or more. These companies are involved in
a varied group of industries including agricultural and industrial
commodities, manufacturing, food and kindred products and services.
Since 1980, state per capita personal income has been within three
percentage points of national per capita personal income. In 1993,
Minnesota per capita personal income was 101.1 percent of its U.S.
counterpart.
Minnesota's economy has been strong during 1994 and that strength is
expected to continue through the end of the current biennium. The State's
budget is also expected to be strong during this time period in that slight
improvements in the Fiscal Year 1994-95 forecast increase the expected June
30, 1995 ending balance by $138 million, over the end-of-session estimate.
This gain, along with a $160 million net improvement in the Fiscal Year
1996-97 outlook results in a total improvement of $298 million.
SPECIAL FACTORS AFFECTING OHIO
The following only highlights some of Ohio's more significant financial
trends and problems, and is based on information drawn from official
statements and prospectuses relating to securities offerings of the State
of Ohio, its agencies, and instrumentalities as available on the date of
this Statement of Additional Information. FMR has not independently
verified any of the information contained in such official statements and
other publicly available documents, but is not aware of any fact that would
render such information inaccurate.
The State of Ohio operates on the basis of a fiscal biennium for its
appropriations and expenditures. Under current law the biennium for
operating purposes runs from July 1 in an odd-numbered year to June 30 in
the next odd-numbered year with fiscal years within a fiscal biennium
running from July 1 to June 30 (references to a particular fiscal year
refer to the fiscal year ending on June 30 of each year). The State is
effectively precluded by law from ending a fiscal year or a biennium in a
deficit position. The Governor has the power to order state agencies to
operate within their means. The State carries out most of its operations
through the general revenue fund (GRF) which receives general State
revenues not otherwise dedicated. GRF revenues are derived mainly from
personal income, sales/use, corporate, and corporation franchise taxes.
There is no present constitutional limit on the rates of state-levied
taxes, except for taxes on intangible property.
Economic activity in Ohio, as in many other industrially developed states,
tends to be more cyclical than in some other states and the nation as a
whole. In the 1980's Ohio experienced an unemployment rate generally
higher than the United States average, largely due to the importance of
heavy industry and manufacturing to Ohio's economy. This trend has not
continued in the 1990's. Although manufacturing (including
automobile-related manufacturing) in Ohio remains an important part of the
state's economy, the greatest growth in employment in Ohio in recent years,
consistent with national trends, has been in the non-manufacturing areas.
The State's experience is similar to that of other midwestern states with
comparable economic structures.
Budgetary shortfalls in recessionary periods have required emergency
spending reductions by the Governor and the adoption of temporary and
permanent tax increases and/or new tax measures by the General Assembly to
meet the State's constitutional requirement that the State end each year
without a deficit. No appropriations for debt service, however, were
affected by the spending reductions, and the State has, in fact, ended each
fiscal year with a budget surplus.
The 1989-91 recession in the United States has had an adverse effect on
both the economy in Ohio and the financial condition of the State of Ohio
and its underlying municipalities. In December of 1991, the Ohio Office of
Budget and Management (OBM) projected a 1992 fiscal year imbalance in the
GRF. As an initial action, the Governor ordered most state agencies to
reduce GRF appropriations spending in the final six months of fiscal year
1992, by approximately $184 million and the General Assembly authorized the
OBM to transfer to the GRF the $100.4 million balance in the Budget
Stabilization Fund. Other revenue and spending actions, legislative and
administrative, resolved the remaining GRF imbalance for fiscal year 1992.
In response to OBM's projections of a $520 million GRF shortfall for fiscal
year 1993, the Governor ordered, effective July 1, 1992; selected GRF
appropriations reductions totalling $300 million. Subsequent executive and
legislative actions - including tax revisions that produced an additional
$194.5 million in fiscal 1993, and an additional $50 million in
appropriations spending reductions - resulted in positive biennium-ending
GRF balances. Appropriations for debt service were expressly excluded from
the Governor's appropriation orders.
The GRF appropriations bill for the 1994-95 biennium was passed on June 30,
1993, and signed, with selective vetoes, by the Governor. The
appropriations acts as passed and signed include all necessary
appropriations for debt service on State obligations.
A number of local Ohio communities and school districts have also faced
significant financial problems. The State has established procedures for
municipal fiscal emergencies, under which joint state/local commissions are
established to monitor the fiscal affairs of a financially troubled
municipality, and the municipality must develop a financial plan to
eliminate deficits and cure any defaults. Since their adoption in 1979,
these procedures have been applied to twenty-three cities and villages,
including the City of Cleveland; in eighteen of these communities, the
fiscal situation has been resolved and the procedures terminated.
Local school districts in Ohio receive a major portion of their operational
funds from state subsidies, but are dependent upon local taxes for
significant portions of their budgets. Local school districts are also
authorized to submit for voter approval an income tax on the district
income of individuals and estates. In part because of provisions of some
State laws, such as the law partially limiting (without voter approval) the
increase in property tax collections that would otherwise result from
increased assessed valuations, some school districts in recent years have
experienced difficulty in meeting mandated and discretionary increased
costs. In addition, the Governor's appropriations reduction orders
described above have, in some instances, included reductions in
appropriations for state school subsidy programs. A small number of local
school districts have required emergency advances from the State in order
to prevent year-end deficits. The number of districts applying for aid has
fluctuated over the years; during the 1979 fiscal year through the 1989
fiscal year, a total of 143 loans totaling $137.4 million had been made to
school districts (with enhanced provisions for individual district
borrowing) replaced the emergency advance loan program for fiscal years
subsequent to fiscal year 1989. In fiscal year 1993, there were 43 loans
made for an aggregate amount of $94.5 million (including one loan of $75
million to the Cleveland City School District). As of December 30, 1993,
twelve school districts have approval for loans totaling $5.7 million in
fiscal 1994.
Litigation contesting the Ohio system of school funding is pending in two
Ohio courts. One case, brought by among others, the Cleveland City School
District, is stated to be in the nature of a class action on behalf of all
similarly situated Ohio school districts. Named as defendants in both
actions are the state and several state agencies and officials. Among other
relief sought, the complaints request decrees as may be required to compel
the State and the General Assembly to devise and enact a constitutionally
acceptable system of school funding. In one of the pending cases, the
Perry County Common Pleas Court issued a judgment declaring Ohio's method
of funding public education to be unconstitutional. The State has appealed
that judgment to the Perry County Court of Appeals. It is not possible at
this time to predict the outcome of the appeal or, should the judgment be
upheld on appeal, the effect on the State's present school funding system.
Ohio's general obligation bonds are currently rated Aa and AA by Moody's
Investors Service, Inc. and Standard & Poor's Corporation, respectively,
except that Highway Obligations are rated AAA by Standard & Poor's
Corporation.
Although most of the bonds in the Ohio fund are expected to be obligations
of local units of government or local authorities in the State, rather than
general obligations of the State itself, there can be no assurance that the
same factors that adversely affect the economy of the State generally
will not also affect adversely the market value or marketability of
obligations issued by local units of government or local authorities in the
State, or the ability of the obligors to pay the principal of or interest
on such obligations. Investment policies of local units of government or
local authorities may also effect adversely the ratings of obligations of
current or future issues.
SPECIAL FACTORS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the "Commonwealth"
or "Puerto Rico"), and is based on information drawn from official
statements and prospectuses relating to the securities offerings of Puerto
Rico and its agencies and instrumentalities, as available on the date of
this Statement of Additional Information. FMR has not independently
verified any of the information contained in such official statements,
prospectuses, and other publicly available documents, but is not aware of
any fact which would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1993 trade with the United States accounted for
approximately 86% of Puerto Rico's exports and approximately 69% of its
imports. In this regard, in fiscal 1993 Puerto Rico experienced a $2.5
billion positive adjusted merchandise trade balance. Since fiscal 1987,
personal income, both aggregate and per capita, has increased consistently
each year. In fiscal 1993 aggregate personal income was $24.1 billion and
personal per capita income was $6,760. Gross domestic product in fiscal
1991, 1992, and 1993 was $22.8 billion, $23.5 billion, and $25 billion,
respectively. For fiscal 1994, an increase in gross domestic product of
2.9% over fiscal 1993 is forecasted. However, actual growth in the Puerto
Rico economy will depend on several factors, including the condition of the
U.S. economy, the exchange rate for the U.S. dollar and the price stability
of oil imports and interest rates. Due to these factors, there is no
assurance that the economy of Puerto Rico will continue to grow.
Puerto Rico's economy continued to expand throughout the five-year period
from fiscal 1989 through fiscal 1993. While trends in the Puerto Rico
economy generally follow those of the United States, Puerto Rico did not
experience a recession primarily because of its strong manufacturing base,
which has a large component of non-cyclical industries. Other factors
behind the continued expansion included Commonwealth-sponsored economic
development programs, stable prices of oil imports, low exchange rates for
the U.S. dollar, and the relatively low cost of borrowing funds during the
period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the U.S. average and has been increasing
in recent years. Despite long-term improvements the unemployment rate rose
from 16.5% to 17.5% from fiscal 1992 to fiscal 1993. However, by the end of
January 1994, the unemployment rate had dropped to 16.3%.
The economy of Puerto Rico has undergone a transformation in the later half
of this century from one centered around agriculture to one dominated by
the manufacturing and service industries. Manufacturing is the cornerstone
of Puerto Rico's economy, accounting for $14.1 billion or 39.4% of gross
domestic product in fiscal 1993. However, manufacturing has experienced a
basic change over the years as a result of the influx of higher wages, high
technology industries such as the pharmaceutical industry, electronics,
computers, micro processors, scientific instruments, and high technology
machinery. The service sector, which employs the largest number of people,
includes wholesale and retail trade, finance, and real estate, and ranks
second in its contribution to gross domestic product. In fiscal 1993, the
service sector generated $14.0 billion in gross domestic product or 39.1%
of the total and employed over 467,000 workers providing 46.7% of total
employment. The government sector of the Commonwealth plays an important
role in Puerto Rico's economy. In fiscal year 1993, the government
accounted for $3.9 billion of Puerto Rico's gross domestic product and
provided 21.7% of the total employment. Tourism also contributes
significantly to the island economy, accounting for $1.6 billion of gross
domestic product in fiscal 1993.
The present administration, which took office in January 1993, envisions
major economic reforms and has developed a new economic development program
to be implemented in the next few years. This program is based on the
premise that the private sector will be the primary vehicle for economic
development and growth. The program promotes changing the role of the
government from one of being a provider of most basic services to one of
being a facilitator for private sector initiatives and will encourage
private sector investment by reducing regulatory restraints. The program
contemplates the development of initiatives that will foster private
investment, both external and internal, in areas that are served more
efficiently and effectively by the private sector. The program also
contemplates a general revision of the tax system to expand the tax base,
reduce top personal and corporate tax rates, and simplify a highly complex
system. Other important goals for the new program are to reduce the size of
the government's direct contribution to gross domestic product and, to
facilitate private sector development and growth which would be realized
through a reduction in government consumption and an increase in government
investment in order to improve and expand Puerto Rico's infrastructure.
Much of the development of the manufacturing sector of the economy of
Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application, a credit against their U.S. corporate income tax
on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico ("active income"), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
sources investment income ("passive income"). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
Pursuant to recently enacted amendments to the Internal Revenue Code (the
"Code"), and for taxable years commencing after 1993, two alternative
limitations will apply to the Section 936 credit against active business
income and sale of assets as previously described. The first option will
limit the credit against such income to 40% of the credit allowed under
current law, with a five-year phase-in period starting at 60% of the
current credit. The second option will limit the allowable credit to the
sum of (i) 60% of qualified compensation paid to employees (as defined in
the Code); (ii) a specified percentage of depreciation deductions; and
(iii) a portion of the Puerto Rico income taxes paid by the Section 936
corporation, up to a 9% effective tax rate.
At present, it is difficult to forecast what the short- and long-term
effects of the new limitations to the Section 936 credit will be on the
economy of Puerto Rico. However, preliminary econometric studies by the
government of Puerto Rico and private sector economists (assuming no
enhancements to the existing Industrial Incentives Program) project only a
slight reduction in average real growth rates for the economy of Puerto
Rico. These studies also show that particular industry groups will be
affected differently. For example, manufacturers of pharmaceuticals and
beverages may suffer a larger reduction in tax benefits due to their
relatively higher profit margins. In addition, the above limitations are
not expected to reduce the tax credit currently enjoyed by labor-intensive,
lower profit margin industries, which represent approximately 40% of the
total employment by Section 936 corporations in Puerto Rico.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
management contract. In the case of the money market funds, FMR has granted
investment management authority to the sub-adviser (see the section
entitled "Management Contracts"), and the sub-adviser is authorized to
place orders for the purchase and sale of portfolio securities, and will do
so in accordance with the policies described below. FMR is also responsible
for the placement of transaction orders for other investment companies and
accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by the money market funds generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). FMR
maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
funds are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
The bond funds' annual portfolio turnover rates for the fiscal years ended
December 31, 1995 and 1994 are shown in the following table:
ANNUAL PORTFOLIO TURNOVER RATE FOR MUNICIPAL INCOME FUNDS
Fiscal Year Michigan Minnesota Ohio Municipal
Ended Municipal Municipal Income
December 31 Income Fund Income Fund
Fund
1995 __% __% __%
1994 18% 26% 22%
For fiscal 1995, the funds paid brokerage commissions of ______,
______, and ______, respectively For fiscal 1994 and 1993, the funds
paid no brokerage commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
MONEY MARKET FUNDS. The money market funds value their investments on the
basis of amortized cost. This technique involves valuing an instrument at
its cost as adjusted for amortization of premium or accretion of discount
rather than its value based on current market quotations or appropriate
substitutes which reflect current market conditions. The amortized cost
value of an instrument may be higher or lower than the price the money
market fund would receive if it sold the instrument.
Valuing a fund's instruments on the basis of amortized cost and use of the
term "money market fund" are permitted by Rule 2a-7 under the 1940 Act.
Each money market fund must adhere to certain conditions under Rule 2a-7.
The Board of Trustees of the money market funds oversee FMR's adherence to
SEC rules concerning money market funds, and has established procedures
designed to stabilize each fund's NAV at $1.00. At such intervals as they
deem appropriate, the Trustees consider the extent to which NAV calculated
by using market valuations would deviate from $1.00 per share. If the
Trustees believe that a deviation from the fund's amortized cost per share
may result in material dilution or other unfair results to shareholders,
the Trustees have agreed to take such corrective action, if any, as they
deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action could
include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding
dividends; redeeming shares in kind; establishing NAV by using available
market quotations; and such other measures as the Trustees may deem
appropriate.
During periods of declining interest rates, each money market fund's yield
based on amortized cost may be higher than the yield based on market
valuations. Under these circumstances, a shareholder in the fund would be
able to obtain a somewhat higher yield than would result if the fund
utilized market valuations to determine its NAV. The converse would apply
in a period of rising interest rates.
BOND FUNDS. Valuations of portfolio securities furnished by the pricing
service employed by the bond funds are based upon a computerized matrix
system or appraisals by the pricing service, in each case in reliance upon
information concerning market transactions and quotations from recognized
municipal securities dealers. The methods used by the pricing service and
the quality of valuations so established are reviewed by officers of the
funds and FSC under the general supervision of the Board of Trustees. There
are a number of pricing services available and the Trustees, or officers
acting on behalf of the Trustees, on the basis of on-going evaluation of
these services, may use other pricing services or discontinue the use of
any pricing service in whole or in part.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. A bond fund's share price, and each
fund's yield and total return fluctuate in response to market conditions
and other factors, and the value of a bond fund's shares when redeemed may
be more or less than their original cost.
YIELD CALCULATIONS. To compute a money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. A
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, a money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market funds
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond funds, yields are computed by dividing a fund's interest
income for a given 30-day or one-month period, net of expenses, by the
average number of shares entitled to receive dividends during the period,
dividing this figure by the fund's net asset value per share (NAV) at the
end of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of a bond fund's yield quotations in accordance
with standardized methods applicable to all stock and bond funds. In
general, interest income is reduced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds trading at
a discount by adding a portion of the discount to daily income. Capital
gains and losses generally are excluded from the calculation.
Income calculated for the purposes of determining a bond fund's
yield differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a bond fund's yield
may not equal its distribution rate, the income paid to your account, or
the income reported in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's
tax-free yield. Tax-equivalent yields are calculated by dividing a fund's
yield by the result of one minus a stated federal or combined federal and
state and city tax rate. If only a portion of a fund's yield is tax-exempt,
only that portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
effective yield under federal and state income tax laws for 1996.
The second table shows the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent
to those of hypothetical tax-exempt obligations yielding from _% to _%. Of
course, no assurance can be given that a fund will achieve any specific
tax-exempt yield. While the funds invest principally in obligations whose
interest is exempt from federal and state income tax, other income received
by the funds may be taxable. The tables do not take into account local
taxes, if any, payable on fund distributions.
Use the first table to find your approximate effective tax bracket taking
into account federal and state taxes for 1996 .
1995 TAX RATES FOR MICHIGAN
Combined
Federal State Michigan and
Taxable Income* Income Tax Marginal Federal Effective
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Single Return Joint Return Bracket Rate Tax Bracket**
$ 23,351 to 56,550 $ 39,001 to 94,250 28.0% 4.4% 31.17%
$ 56,551 to 117,950 $ 94,251 to 143,600 31.0% 4.4% 34.04%
$ 117,951 to 256,500 $ 143,601 to 256,500 36.0% 4.4% 38.82%
$ 256,501 + Above $ 256,501 + Above 39.6% 4.4% 42.26%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following table to
determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in 1995 is:
31.17% 34.04% 38.82% 42.26%
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
2% 2.91% 3.03% 3.27% 3.46%
3% 4.36% 4.55% 4.90% 5.20%
4% 5.81% 6.06% 6.54% 6.93%
5% 7.26% 7.58% 8.17% 8.66%
6% 8.72% 9.10% 9.81% 10.39%
7% 10.17% 10.61% 11.44% 12.12%
1995 TAX RATES FOR MINNESOTA
Combined
Federal State Minnesota and
Taxable Income* Income Tax Marginal Federal Effective
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Single Return Joint Return Bracket Rate Tax Bracket**
$ 23,351 to 51,330 $ 39,001 to 90,760 28.0% 8.0% 33.76%
$ 51,331 to 56,550 $ 90,761 to 94,250 28.0% 8.5% 34.12%
$ 56,551 to 117,950 $ 94,251 to 143,600 31.0% 8.5% 36.87%
$ 117,951 to 256,500 $ 143,601 to 256,500 36.0% 8.5% 41.44%
$ 256,501 + Above $ 256,501 + Above 39.6% 8.5% 44.73%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following table to
determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in 1995 is:
33.76% 34.12% 36.87% 41.44% 44.73%
<TABLE>
<CAPTION>
<S> <C> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
2% 3.02% 3.04% 3.17% 3.42% 3.62%
3% 4.53% 4.55% 4.75% 5.12% 5.43%
4% 6.04% 6.07% 6.34% 6.83% 7.24%
5% 7.55% 7.59% 7.92% 8.54% 9.05%
6% 9.06% 9.11% 9.50% 10.25% 10.86%
7% 10.57% 10.63% 11.09% 11.95% 12.67%
1995 TAX RATES FOR OHIO
Combined
Federal State Ohio and
Taxable Income* Income Tax Marginal Federal Effective
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Single Return Joint Return Bracket Rate Tax Bracket**
$ 23,351 to 40,000 $ 39,001 to 40,000 28.0% 4.457% 31.21%
$ 40,001 to 56,550 $ 40,001 to 80,000 28.0% 5.201% 31.74%
$ 80,001 to 94,250 28.0% 5.943% 32.28%
$ 56,551 to 80,000 28.0% 5.201% 34.59%
$ 80,001 to 100,000 $ 94,251 to 100,000 31.0% 5.943% 35.10%
$ 100,001 to 117,950 $ 100,001 to 143,600 31.0% 6.900% 36.78%
$ 117,951 to 200,000 $ 143,601 to 200,000 36.0% 6.900% 40.42%
$ 200,001 to 256,500 $ 200,001 to 256,500 36.0% 7.500% 40.80%
$ 256,501 + Above $ 256,501 + Above 39.6% 7.500% 44.13%
</TABLE>
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following table to
determine the tax-equivalent yield for a given tax-free yield.
If your effective combined federal and state personal tax rate in 1995 is:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31.21% 31.74% 32.28% 34.59% 35.10% 36.78% 40.42% 40.80% 44.13%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2% 2.91% 2.93% 2.95% 3.06% 3.08% 3.11% 3.36% 3.38% 3.58%
3% 4.35% 4.39% 4.43% 4.59% 4.62% 4.67% 5.04% 5.07% 5.37%
4% 5.81% 5.86% 5.91% 6.12% 6.16% 6.23% 6.71% 6.76% 7.16%
5% 7.27% 7.32% 7.38% 7.64% 7.70% 7.78% 8.39% 8.45% 8.95%
6% 8.72% 8.79% 8.86% 9.17% 9.24% 9.34% 10.07% 10.14% 10.74%
7% 10.18% 10.25% 10.34% 10.70% 10.79% 10.90% 11.75% 11.82% 12.53%
</TABLE>
Each fund may invest a portion of its assets in obligations that are
subject to state or federal income taxes. When a fund invests in these
obligations, its tax-equivalent yield will be lower. In the tables above,
the tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's net asset
value (NAV ) over a stated period. Average annual total returns are
calculated by determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then calculating
the annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in
ten years. While average annual tota l returns are a convenient means
of comparing investment alternatives, investors should realize that a
fund's performance is not constant over time, but changes from year to
year, and that average annual total returns represent averaged figures as
opposed to the actual year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show each money market fund's
7-day yields, each bond fund's 30-day yields, each fund's tax-equivalent
yields, and total returns for periods ended December 31, 19 95.
The tax-equivalent yields are based on combined effective federal and state
income tax rates of __% (Michigan), __% (Minnesota), and __% (Ohio), and
reflects that, as of December 31, 1995, [none/ an estimated __%] of
the fund's income was subject to state taxes. Note that each fund may
invest in securities whose income is subject to the federal alternative
minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven-Day Tax- One Five Life of One Five Life of
Yield Equivalent Year Years Fund Year Years Fund
Yield
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michigan Money % % % % %* % % %*
Market
Ohio Money % % % % %** % % %**
Market
</TABLE>
* From commencement of operations, January 12, 1990.
** From commencement of operations, August 29, 1989.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty-Da Tax- One Five Life of One Five Life of
y Equivalent Year Years Fund Year Years Fund
Yield Yield
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Michigan % % % % %* % % %*
Muni Income
Minnesota % % % % %** % % %**
Muni Income
Ohio Muni % % % % %*** % % %***
Income
</TABLE>
* From commencement of operations, November 12, 1985.
** From commencement of operations, November 21, 1985.
*** From commencement of operations, November 15, 1985.
The following table shows the income and capital elements of each fund's
cumulative total return. The table compares each fund's return to the
record of the Standard & Poor's Composite Index of 500 Stocks (S&P 500),
the Dow Jones Industrial Average (DJIA), and the cost of living (measured
by the Consumer Price Index, or CPI) over the same period. The CPI
information is as of the month end closest to the initial investment date
for each fund. The S&P 500 and DJIA comparisons are provided to show how
each fund's total return compared to the record of a broad average of
common stocks and a narrower set of stocks of major industrial companies,
respectively, over the same period. Of course, since each money market fund
invests in short-term fixed-income securities, common stocks represent a
different type of investment from the fund. Common stocks generally offer
greater growth potential than the funds, but generally experience greater
price volatility, which means greater potential for loss. In addition,
common stocks generally provide lower income than a fixed-income investment
such as the funds. Figures for the S&P 500 and DJIA are based on the prices
of unmanaged groups of stocks and, unlike the funds' returns, do not
include the effect of paying brokerage commissions or other costs of
investing.
During the ten-year period ended December 31, 1995, a hypothetical $10,000
investment in Ohio Municipal Income would have grown to $______, assuming
all distributions were reinvested. This was a period of fluctuating
interest rates and bond prices and the figures below should not be
considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Ohio Municipal Income Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
1987 $ $ $ $ $ $ $
1986 $ $ $ $ $ $ $
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 1,
1986, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $______.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $______ for dividends and $_____ for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
During the ten-year period ended December 31, 1995, a hypothetical $10,000
investment in Minnesota Municipal Income would have grown to $______,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Minnesota Municipal Income Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living[**]
$10,000 Dividend Capital Gain
Investment Distributions Distributions
</TABLE>
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
1987 $ $ $ $ $ $ $
1986 $ $ $ $ $ $ $
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 1,
1986, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $______.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $______ for dividends and $_____ for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
During the ten-year period ended December 31, 1995, a hypothetical $10,000
investment in Michigan Municipal Income would have grown to $______,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Michigan Municipal Income Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living[**]
$10,000 Dividend Capital Gain
Investment Distributions Distributions
</TABLE>
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
1987 $ $ $ $ $ $ $
1986 $ $ $ $ $ $ $
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 1,
1986, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $______.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $______ for dividends and $_____ for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
During the period from January 12, 1990 (commencement of operations) to
December 31, 1995, a hypothetical $10,000 investment in Michigan Municipal
Money Market would have grown to $______, assuming all distributions were
reinvested. This was a period of fluctuating interest rates and bond prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Michigan Municipal Money Market Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living[**]
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990* $ $ $ $ $ $ $
</TABLE>
* From January 12, 1990 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
12, 1990, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $______.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $______ for dividends and $_____ for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
During the period from August 29, 1989 (commencement of operations) to
December 31, 1995, a hypothetical $10,000 investment in Ohio Municipal
Money Market would have grown to $______, assuming all distributions were
reinvested. This was a period of fluctuating interest rates and bond prices
and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Ohio Municipal Money Market Fund INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living[**]
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989* $ $ $ $ $ $ $
</TABLE>
* From August 29, 1989 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August 29,
1989, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $______.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $______ for dividends and $_____ for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, a fund's performance may be
compared to stock, bond, and money market mutual fund performance indices
prepared by Lipper or other organizations. When comparing these indices, it
is important to remember the risk and return characteristics of each type
of investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the Consumer Price Index), and
combinations of various capital markets. The performance of these capital
markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All
Tax-Free, which is reported in the MONEY FUND REPORT(registered trademark),
covers over ___ tax-free money market funds. The Bond Fund Report
AverageS(trademark)/Tax-Free, which is reported in the BOND FUND
REPORT(registered trademark), covers over ___ tax-free bond funds.
When evaluating comparisons to money market funds, investors should
consider the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. Bond funds,
however, invests in longer-term instruments and its share price changes
daily in response to a variety of factors.
A fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Fidelity services and products. Fidelity may also reprint,
and use as advertising and sales literature, articles from Fidelity Focus,
a quarterly magazine provided free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of December 31, 1995, FMR advised over $__ billion in tax-free fund
assets, $__ billion in money market fund assets, $___ billion in equity
fund assets, $__ billion in international fund assets, and $___ billion in
Spartan fund assets. The funds may reference the growth and variety of
money market mutual funds and the adviser's innovation and participation in
the industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock) fund manager. FMR, its subsidiaries, and affiliates maintain
a worldwide information and communications network for the purpose of
researching and managing investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Ea ch fund is open for business and its net asset value per share (NAV)
is calculated each day the New York Stock Exchange (NYSE) is open for
trading. The NYSE has designated the following holiday closings for 1996:
New Year's Day, Presidents' Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day. Although FMR expects the same holiday schedule to be observed in the
future, the NYSE may modify its holiday schedule at any time. In addition,
the funds will not process wire purchases and redemptions on days when the
Federal Reserve Wire System is closed.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the
1940 Act) , each fund is required to give shareholders at least 60 days'
notice prior to terminating or modifying its exchange privilege. Under the
Rule, the 60-day notification requirement may be waived if (i) the only
effect of a modification would be to reduce or eliminate an administrative
fee, redemption fee, or deferred sales charge ordinarily payable at the
time of an exchange, or (ii) the fund suspends the redemption of the shares
to be exchanged as permitted under the 1940 Act or the rules and
regulations thereunder, or the fund to be acquired suspends the sale of its
shares because it is unable to invest amounts effectively in accordance
with its investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
Each fund purchases municipal securities that are free from federal
income tax based on opinions of counsel regarding their tax status. These
opinions generally will be based on covenants by the issuers or other
parties regarding continuing compliance with federal tax requirements. If
at any time the covenants are not complied with, distribution to
shareholders of interest on a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structure securities, opinions of counsel may also be based on the effect
of the structure on the federal and state tax treatment of the income.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of each fund's policies of investing so
that at least 80% of its income is free from federal income tax. Interest
from private activity securities is a tax preference item for the purposes
of determining whether a taxpayer is subject to the AMT and the amount of
AMT to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by each fund are taxable
to shareholders as dividends, not as capital gains. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased with market discount after April 30, 1993 are not considered
income for purposes of each fund's policy of investing so that at least 80%
of its income is free from federal income tax. The money market funds may
distribute any net realized short-term capital gains and taxable market
discount once a year or more often, as necessary, to maintain its net asset
value at $1.00 per share.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
MICHIGAN TAXES. Under a ruling of the Michigan Department of Treasury,
shareholders of the Michigan Money Market Fund and the Michigan Municipal
Income fund who are subject to the Michigan income tax or single business
tax will not be subject to the Michigan income tax or single business tax
on their Michigan fund dividends to the extent that such distributions are
exempt-interest dividends for federal income tax purposes and are
attributable to interest on tax-exempt obligations of the State of
Michigan, its political or governmental subdivisions, or its governmental
agencies or instrumentalities (as well as certain federally tax-exempt
obligations of territories and possessions of the United States). Such
distributions will also not be subject to city income taxes imposed by
certain Michigan cities. Any distributions with respect to shares of each
Michigan fund other than those described in the preceding sentence,
including, but not limited to, long or short-term capital gains, will be
subject to the Michigan income tax or single business tax and may be
subject to the city income taxes imposed by certain Michigan cities. The
Michigan Court of Appeals has ruled that shares of a mutual fund such as
the Michigan money market and municipal income funds are exempt from the
Michigan intangibles tax to the extent the funds invest in obligations
exempt from the intangibles tax.
MINNESOTA TAXES. FMR understands that shareholders of the Minnesota
tax-free fund who are individuals, estates or trusts and who are subject to
Minnesota personal income tax will not be subject to such tax on
distributions with respect to shares of the Minnesota tax-free fund to the
extent that such distributions are exempt-interest dividends for federal
income tax purposes, are attributable to interest on tax-exempt obligations
of the State of Minnesota, or its political or governmental subdivisions,
or any of its municipalities or its governmental agencies or
instrumentalities and the portion of the exempt-interest dividends from
Minnesota that are paid equals or exceeds 95% of all exempt-interest
dividends paid. In addition, distributions with respect to interest derived
from obligations of the United States will not be subject to the Minnesota
personal income tax. Any distributions with respect to shares of the
Minnesota tax-free fund other than those described in the preceding
sentences, including, but not limited to, long or short-term capital gains,
may be subject to the Minnesota personal income tax. Capital gain
distributions paid will be taxed in Minnesota at the same rate as other
income. Distributions derived from private activity bonds included in
federal minimum taxable income and tax-exempt dividends may generate
Minnesota alternative minimum tax. The Minnesota tax-free fund will not be
subject to the Minnesota corporate franchise tax except to the extent that
it has federal taxable income.
OHIO TAXES. FMR understands that shareholders of the Ohio Money market and
the Ohio municipal income fund who are otherwise subject to Ohio personal
income tax, a school district income tax, or the net income base of the
Ohio corporation franchise tax will not be subject to such taxes on
distributions with respect to shares of each Ohio fund to the extent that
such distributions are exempt-interest dividends for federal income tax
purposes and are attributable to interest on tax-exempt obligations of the
State of Ohio or its political subdivisions or authorities (as well as any
tax-exempt obligations of territories or possessions of the United States).
Any distributions with respect to shares of each Ohio fund other than those
described in the preceding sentence may be subject to the Ohio personal
income tax or the net income base of the Ohio corporation franchise tax.
Distributions received by shareholders will be exempt from an income tax
levied by an Ohio municipal corporation unless the shareholder is subject
to a municipal income tax that includes "intangible income" in the tax base
in accordance with Ohio Revenue Code (sub-section)718.02(G). Distributions
represented by interest from obligations held by each Ohio fund, which
interest is specifically exempt under Ohio law from an income tax imposed
by a political subdivision of the State of Ohio, will be exempt from a
municipal income tax that includes "intangible income" in the tax base in
accordance with Ohio Revenue Code (sub-section)718.02(G) when received by a
shareholder.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of a fund, and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
each fund are taxable to shareholders as dividends, not as capital gains.
The money market funds do not anticipate distributing long-term capital
gains.
As of December 31, 199 _, the fund hereby designates approximately
$_______ as a capital gain dividend for the purpose of the dividend-paid
deduction.
As of December 31, 199_, the money market fund had capital loss
carryforward aggregating approximately $____. This loss
carryforward s , of which $___, $___, and $___will expire on December
31, 199 5 , ___, and ____ , and is a vailable to offset future
capital gains.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
each fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. Each bond fund intends to comply with other tax
rules applicable to regulated investment companies, including a requirement
that capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some futures contracts and options are included in this 30%
calculation, which may limit a fund's investments in such instruments.
Each money market fund is treated as a separate entity from the other funds
of Fidelity Municipal Trust II and each bond fund is treated as a separate
entity from the other funds of Fidelity Municipal Trust .
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect to FMR
Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. Trustees and officers elected or
appointed to Fidelity Municipal Trust II prior to the money market funds'
conversion from a series of a Massachusetts business Trust
served in identical capacities. All persons named as Trustees also
serve in similar capacities for other funds advised by FMR. The business
address of each Trustee and officer who is an "interested person" (as
defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments, P.O.
Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who are
"interested persons" by virtue of their affiliation with either the trust
or FMR are indicated by an asterisk ( *).
*EDWARD C. JOHNSON 3d (65) , Trustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman and a
Director of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD (54) , Trustee and Senior Vice President, is
President of FMR; and President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity Management & Research (Far
East) Inc.
RALPH F. COX (63) , Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (64) , Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores, 1990), and previously served as
a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (71) , Trustee, is a financial consultant. Prior to
September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton
Company (manufacturer of industrial devices). He is currently a Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc., and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (68) , Trustee (1990). Prior to his retirement in
1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel
Company. He is a Director of TRW Inc. (original equipment and replacement
products), Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation,
Birmingham Steel Corporation, and RPM, Inc. (manufacturer of chemical
products, 1990), and he previously served as a Director of NACCO
Industries, Inc. (mining and marketing, 1985-1995) and Hyster-Yale
Materials Handling, Inc. (1985-1995). In addition, he serves as a Trustee
of First Union Real Estate Investments, a Trustee and member of the
Executive Committee of the Cleveland Clinic Foundation, a Trustee and
member of the Executive Committee of University School (Cleveland), and a
Trustee of Cleveland Clinic Florida.
DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business and a financial consultant.
From 1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the
National Arts Stabilization Fund, Vice Chairman of the Board of Trustees of
the Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (52 ), Trustee (1990) is Vice Chairman and Director
of FMR (1992). Prior to May 31, 1990, he was a Director of FMR and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals) and Morrison Knudsen Corporation (engineering
and construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (66 ), Trustee, is Chairman of G.M. Management
Group (strategic advisory services). Prior to his retirement in July 1988,
he was Chairman and Chief Executive Officer of Leaseway Transportation
Corp. (physical distribution services). Mr. McDonough is a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products), Brush-Wellman Inc. (metal refining), York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (71) , Trustee. Prior to his retirement in 1985, Mr.
Malone was Chairman, General Electric Investment Corporation and a Vice
President of General Electric Company. He is a Director of Allegheny Power
Systems, Inc. (electric utility), General Re Corporation (reinsurance) and
Mattel Inc. (toy manufacturer). In addition, he serves as a Trustee of
Corporate Property Investors, the EPS Foundation at Trinity College, the
Naples Philharmonic Center for the Arts, and Rensselaer Polytechnic
Institute, and he is a member of the Advisory Boards of Butler Capital
Corporation Funds and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board,
President, and Chief Executive Officer of Lexmark International, Inc.
(office machines, 1991). Prior to 1991, he held the positions of Vice
President of International Business Machines Corporation ("IBM") and
President and General Manager of various IBM divisions and subsidiaries.
Mr. Mann is a Director of M.A. Hanna Company (chemicals, 1993) and Infomart
(marketing services, 1991), a Trammell Crow Co. In addition, he serves as
the Campaign Vice Chairman of the Tri-State United Way (1993) and is a
member of the University of Alabama President's Cabinet (1990).
THOMAS R. WILLIAMS (67) , Trustee, is President of The Wales Group,
Inc. (management and financial advisory services). Prior to retiring in
1987, Mr. Williams served as Chairman of the Board of First Wachovia
Corporation (bank holding company), and Chairman and Chief Executive
Officer of The First National Bank of Atlanta and First Atlanta Corporation
(bank holding company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (56), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
JANICE BRADBURN (44) is manager and Vice President of Ohio Municipal
Money Market, which she has managed since September 1989. Ms. Bradburn also
manages New York Tax-Free Money Market, Massachusetts Tax-Free Money
Market, Spartan Massachusetts Municipal Money Market, Spartan Florida
Municipal Money Market, and Spartan New York Municipal Money Market. She
joined Fidelity in 1989.
ARTHUR S. LORING (48) , Secretary, is Senior Vice President (1993)
and General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48) , Treasurer (1995), is Treasurer of the
Fidelity funds and is an employee of FMR (1995). Before joining FMR, Mr.
Rathgeber was a Vice President of Goldman Sachs & Co. (1978-1995), where he
served in various positions, including Vice President of Proprietary
Accounting (1988-1992), Global Co-Controller (1992-1994), and Chief
Operations Officer of Goldman Sachs (Asia) LLC (1994-1995)
THOMAS D. MAHER (50) , Assistant Vice President (1990), is Assistant
Vice President of Fidelity's money market funds and Vice President and
Associate General Counsel of FMR Texas Inc. (1990). Prior to 1990, Mr.
Maher was an employee of FMR.
JOHN H. COSTELLO (49 ), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (49) , Assistant Treasurer (1994), is an employee of
FMR (1994). Prior to becoming Assistant Treasurer of the Fidelity funds,
Mr. Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993); and
Vice President, Assistant Controller, and Director of the Accounting
Department - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current trustee of each fund for his or her services as trustee for
the fiscal year ended December 31, 1995.
COMPENSATION TABLE
Aggregate Compensation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Gary Ralph F. Phyllis Richard Edward C. E. Donald Peter S. Gerald C. Edward Marvin L. Thomas
Burkhead** Cox Burke J. Flynn Johnson 3d** Bradley J. Kirk Lynch** McDonough H. Mann R.
Davis Jones Malone Williams
Michigan $ $ $ $ $ $ $ $ $ $ $
Money
Market $
Ohio Money
Market
Michigan
Muni Income
Minnesota
Muni Income
Ohio Muni
Income
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Pension or
Estimated Annual Total
Retirement Benefits Upon Compensation
Benefits Accrued Retirement from from the Fund
as Part of Fund the Fund Complex*
Expenses from the Complex*
Fund Complex*
J. Gary Burkhead** $ $ $
Ralph F. Cox
Phyllis Burke Davis
Richard J. Flynn
Edward C. Johnson 3d**
E. Bradley Jones
Donald J. Kirk
Peter S. Lynch**
Gerald C. McDonough
Edward H. Malone
Marvin L. Mann
Thomas R. Williams
</TABLE>
* Information is as December 31, 1995 for __ funds in the complex.
** Interested trustees of the fund are compensated by FMR.
The non-interested Trustess may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the "Plan"). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee. The amount paid to the Trustee under the Plan
will be determined based upon the performance of such investments.
Deferral of Trustees' fees in accordance with the Plan will have a
negligible effect on the fund's assets, liabilities, and net income per
share, and will not obligate the fund to retain the services of any Trustee
or to pay any particular level of compensation to the Trustee. The fund
may invest in such designated securities without shareholder approval.
Under a retirement program adopted in July 1988, the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments is not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-interested Trustees, receive retirement benefits under the program.
On December 31, 1995, the Trustees and officers of each fund owned, in the
aggregate, less than __% of each fund's total outstanding shares.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
In addition to the management fee payable to FMR and the fees payable to
UMB, each fund pays all of its expenses, without limitation, that are not
assumed by those parties. Each fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although each
fund's current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders, the trust, on behalf of
each fund has entered into a revised transfer agent agreement with UMB,
pursuant to which UMB bears the costs of providing these services to
existing shareholders. Other expenses paid by each fund include interest,
taxes, brokerage commissions, and each fund's proportionate share of
insurance premiums and Investment Company Institute dues. Each fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which each fund may be a party, and any obligation it may
have to indemnify its officers and Trustees with respect to litigation.
FMR is each money market fund's manager pursuant to management contracts
dated February 28, 1992, which were approved by Fidelity Municipal Trust as
sole shareholder of each fund on February 28, 1992, in conjunction with an
Agreement and Plan to convert each fund from a series of a Massachusetts
business trust to a series of a Delaware business trust. The Agreement and
Plan of Conversion was approved by shareholders on December 11, 1991. The
contracts are identical to the funds' prior contracts with FMR, which were
approved by shareholders on September 19, 1990. FMR is each bond fund's
manager pursuant to management contracts which were approved by
shareholders on December 15, 1993.
For the services of FMR under the contract, each fund pays FMR a monthly
management fee composed of the sum of two elements: a group fee rate and an
individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $___ billion of group net assets
- - the approximate level for December 1995 - was ___ %, which is the
weighted average of the respective fee rates for each level of group net
assets up to $__ billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Under each money market fund's current management contract with FMR, the
group fee rate is based on a schedule with breakpoints ending at .1500% for
average group assets in excess of $84 billion. The group fee rate
breakpoints shown above for average group assets in excess of $120 billion
and under $228 billion were voluntarily adopted by FMR on January 1, 1992.
The additional breakpoints shown above for average group assets in excess
of $228 billion were voluntarily adopted by FMR on November 1, 1993.
Under each bond fund's current management contract with FMR, the group fee
rate is based on a schedule with breakpoints ending at .1400% for average
group assets in excess of $174 billion. Prior to January 1, 1994, the group
fee rate breakpoints shown above for average group assets in excess of $120
billion and under $228 billion were voluntarily adopted by FMR, and went
into effect on January 1, 1992. The additional breakpoints shown above for
average group assets in excess of $228 billion were voluntarily adopted by
FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints. The revised group fee
rate schedule provides for lower management fee rates as FMR's assets under
management increase. The revised group fee rate schedule is identical to
the above schedule for average group assets under $156 billion. For average
group assets in excess of $156 billion, the group fee rate schedule
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
Over 372 .1200 325 .1514
350 .1494
375 .1476
400 .1459
Each fund's individual fund fee rate is .25%. Based on the average group
net assets of the funds advised by FMR for December 19 95, the annual
management fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate
Management Fee Rate
._______% + ._______%
= ._______%
One-twelfth of this annual management fee rate is applied to each fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
The table below shows the management fees paid to FMR by each fund for the
last three fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C>
MICHIGAN MONEY MARKET Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1995 $_____ $____
1994 803,963 .4082
1993 670,133 * .4155
</TABLE>
* Michigan Money Market was in reimbursement for a portion of 1993
during that time the fund was reimbursed $3,437.
<TABLE>
<CAPTION>
<S> <C> <C>
OHIO MONEY MARKET Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1995 $_____ $____
1994 1,161,251 .4078
1993 1,015,231 .4154
MICHIGAN MUNICIPAL INCOME Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1995 $_____ $____
1994 2,071,121 .4090
1993 2,196,049 .4152
MINNESOTA MUNICIPAL INCOME Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1995 $_____ $____
1994 1,277,538 .4089
1993 1,328,626 .4152
OHIO MUNICIPAL INCOME Management Fees as a
Years Ended December 31 Management Fees % of Average Net Assets
1995 $_____ $____
1994 1,643,714 .4090
1993 1,801,750 .4076
</TABLE>
FMR may, from time to time, voluntarily reimburse all or a portion of each
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase each fund's total returns and repayment of the
reimbursement by each fund will lower its total returns and yield.
SUB-ADVISER. On behalf of the money market funds, FMR has entered into a
sub-advisory agreement with FTX pursuant to which FTX has primary
responsibility for providing portfolio investment management services to
each fund.
Under the sub-advisory agreements, dated February 28, 1992, which were
approved by Fidelity Municipal Trust as the sole shareholder of each fund
on February 28, 1992, FMR pays FTX fees equal to 50% of the management fee
payable to FMR under its management contract with each money market fund.
The fees paid to FTX are not reduced by any voluntary or mandatory expense
reimbursements that may be in effect from time to time. The following table
shows fees FMR paid to FTX on behalf of each money market fund:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FEES PAID TO FTX
1995 1994 1993
MICHIGAN MONEY MARKET $ __ $392,312 $335,067
OHIO MONEY MARKET __ 535,819 507,616
</TABLE>
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of the
funds (the Plans) pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plans. Each Plan also
specifically recognizes that FMR, either directly or through FDC, may use
its management fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection
with the offer and sale of shares of each fund. In addition, each Plan
provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that assist in selling shares
of each fund, or to third parties, including banks, that render shareholder
support services.
Under the Plans, payments made by FMR to third parties during the fiscal
years ended 1995 and 1994 amounted to the following:
Third Party Payments
1995 1994 1993
Michigan Money Market $ -- $ 19,339 $ 20,701
Ohio Money Market $ -- $ 89,613 $ 101,895
Michigan Muni Income $ -- $ 31,879 $ 28,862
Minnesota Muni Income $ -- $ 28,477 $ 36,021
Ohio Muni Income $ -- $ 3,073 $ 2,753
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the fund and its shareholders. In particular, the Trustees noted that the
Plans do not authorize payments by a fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders have
other relationships.
The Plans for the money market funds were approved by FM R as sole
shareholder of each fund on February 28, 1992 , pursuant to an
Agreement and Plan of Conversion approved by public shareholders of each
fund on December 11, 1991. The Plans for the bond funds were approved by
shareholders of each fund at a special meeting of shareholders on December
30, 1986.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent.
UMB has entered into sub-contracts with FSC, an affiliate of FMR, under the
terms of which FSC performs the processing activities associated with
providing transfer agent and shareholder servicing functions for each fund.
Under the sub-contracts, FSC bears the expense of typesetting, printing,
and mailing prospectuses, statements of additional information, and all
other reports, notices, and statements to shareholders, with the exception
of proxy statements. FSC also pays all out-of-pocket expenses associated
with transfer agent services.
Under this arrangement, FSC receives annual account fees and asset-based
fees for each retail account and certain institutional accounts based on
account size. In addition, the fees for retail accounts are subject to
increase based on postal rate changes. With respect to certain
institutional retirement accounts, FSC receives asset-based fees only. With
respect to certain other institutional retirement accounts, FSC receives
annual account fees and asset based fees based on fund type. FSC collects
small account fees from certain accounts with balances of less than
$2,500.
UMB has an additional sub-contract with FSC, pursuant to which FSC performs
the calculations necessary to determine each fund's net asset value per
share and dividends and maintains each fund's accounting records. The
annual fee rates for these pricing and bookkeeping services are based on
each fund's average net assets, and are presented in the table below.
Pricing and Bookkeeping Annual Fee Rates
$0 - $500 Greater Than Minimum Maximum
Million $500 Million Per Year Per Year
Money Market Funds .0175% .0075% $ 20,000 $ 750,000
Bond Funds .04% .02% 45,000 750,000
Pricing and bookkeeping fees, including reimbursement for out-of-pocket
expenses, paid to FSC for fiscal 1995, 1994, and 1993 are indicated in the
table below.
Pricing and Bookkeeping Fees
1995 1994 1993
Michigan Money Market $ -- $ 40,958 $ 33,742
Ohio Money Market -- 60,657 53,555
Michigan Muni Income -- 216,724 230,745
Minnesota Muni Income -- 135,450 126,835
Ohio Muni Income -- 178,407 176,640
The pricing and bookkeeping fees described above are paid to FSC by UMB,
which is entitled to reimbursement from the funds for these expenses.
For the money market funds, FSC has entered into an agreement with Fidelity
Brokerage Services, Inc. (FBSI), a subsidiary of FMR Corp., pursuant to
which FBSI performs certain recordkeeping, communication, and other
services for money market fund shareholders participating in the Fidelity
Ultra Service Account program. FBSI directly charges a monthly
administrative fee to each Ultra Service Account client that chooses
certain additional feature which is in addition to the transfer agency fee
received by FSC.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Fidelity Michigan Municipal Income Fund ,
Fidelity Minnesota Municipal Income Fund , and Fidelity Ohio
Municipal Income Fund are funds (series) of Fidelity Municipal Trust
(the Massachusetts trust), which is an open-end management
investment company originally organized as a Maryland corporation on
November 22, 1976 and was reorganized as a Massachusetts business trust, at
which time its name changed from Fidelity Municipal Bond Fund, Inc. to
Fidelity Municipal Bond Fund. On March 1, 1986, the trust's name was
changed to Fidelity Municipal Trust to reflect the multiple funds within
the trust. Currently, there are seven funds of the trust: Fidelity
Municipal Bond Fund, Fidelity Aggressive Tax-Free Fund, Fidelity
Insured Tax-Free Fund, Fidelity Ohio Municipal Income Fund,
Fidelity Michigan Municipal Income Fund, Fidelity Minnesota
Municipal Income Fund, and Spartan Pennsylvania Municipal
HighYield Fund. The Declaration of Trust permits the Trustees to
create additional funds.
Fidelity Michigan Municipal Money Market Fund and Fidelity Ohio
Municipal Money Market Fund are funds (series) of Fidelity Municipal
Trust II (the Delaware trust) an open-end management investment company
organized as a Delaware business trust on June 20, 1991. The funds acquired
all of the assets of Fidelity Ohio Municipal Money Market Fund and Fidelity
Michigan Municipal Money Market Fund, respectively, of Fidelity Municipal
Trust on February 28, 1992. Currently there are three funds of Fidelity
Municipal Trust II: Fidelity Ohio Municipal Money Market Fund, Fidelity
Michigan Municipal Money Market Fund, and Spartan Pennsylvania Municipal
Money Market Fund. The Trust Instrument permits the Trustees to create
additional funds.
In the event that FMR ceases to be investment adviser to a trust or any of
its funds, the right of the trust or the fund to use the identifying names
"Fidelity" may be withdrawn. There is a remote possibility that one fund
might become liable for ant misstatement in its prospectus or statement of
additional information about another fund.
The assets of each trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general expenses of their respective trusts. Expenses with respect to
the trusts are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of the trusts, subject to the general
supervision of the Boards of Trustees, have the power to determine which
expenses are allocable to a given fund, or which are general or allocable
to all of the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund available
for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The Massachusetts
trust is an entity of the type commonly known as "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable for the obligations of the
trust. The Declaration of Trust provides that the Massachusetts trust shall
not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the Massachusetts trust or its
Trustees shall include a provision limiting the obligations created thereby
to the Massachusetts trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust is a
business trust organized under Delaware law. Delaware law provides that
shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
courts of some states, however, may decline to apply Delaware law on this
point. The Trust Instrument contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
Delaware trust and requires that a disclaimer be given in each contract
entered into or executed by the Delaware trust or its Trustees. The Trust
Instrument provides for indemnification out of each fund's property of any
shareholder or former shareholder held personally liable for the
obligations of the fund. The Trust Instrument also provides that each fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the fund is unable to meet its obligations. FMR believes that,
in view of the above, the risk of personal liability to shareholders is
extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any conduct
whatsoever, provided that Trustees are not protected against any liability
to which they would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. A s a shareholder of the Massachusetts business
trust, you receive one vote for each dollar value of net asset value you
own. The shares have no preemptive or conversion rights; voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the respective "Shareholder and Trustee
Liability" headings above. Shareholders representing 10% or more of a trust
or one of its funds may, as set forth in the Declaration of Trust or Trust
Instrument, call meetings of the trust or fund for any purpose related to
the trust or fund, as the case may be, including, in the case of a meeting
of an entire trust, the purpose on voting on removal of one or more
Trustees.
A trust or any fund may be terminated upon the sale of its assets to (or,
in the case of the Delaware trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations
must be approved by vote of the holders of a majority of ( money market
funds: the outstanding shares o f ) the trust or the fund as
determined by the current value of each shareholder's investment in the
fund or trust; however, the Trustees of the Delaware trust may, without
prior shareholder approval, change the form of the organization of the
Delaware trust by merger, consolidation, or incorporation. If not so
terminated or reorganized, the trusts and their funds will continue
indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the Delaware trust to merge or consolidate into one or more trusts,
partnerships, or corporations, so long as the surviving entity is an
open-end management investment company that will succeed to or assume the
Delaware trust registration statement, or cause the Delaware trust to be
incorporated under Delaware law. Each fund of the Delaware trust may also
invest all of its assets in another investment company.
CUSTODIAN. UMB Bank, n.a. 1010 Grand Avenue, Kansas City, Missouri,
is custodian of the assets of the funds. The custodian is responsible for
the safekeeping of a fund's assets and the appointment of the subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR: To come
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the fiscal
year ended December 31, 1995 are included in the fund's Annual Report,
which is a separate report supplied with this Statement of Additional
Information. Each fund's financial statements and financial highlights are
incorporated herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if its is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND
MUNICIPAL NOTES:
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade (MIG, or VMIG for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important in the short
run. Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG-3/VMIG-3 - This designation denotes favorable quality. All security
elements are accounted for, but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG-4/VMIG-4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and,
although not distinctly or predominantly speculative, there is specific
risk.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS OF STATE AND
MUNICIPAL NOTES:
SP-1 - Strong capacity to pay principal and interest. An issue determined
to possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 - Speculative capacity to pay principal and interest.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds which are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
There are nine basic rating categories for long-term obligations. They
range from AAA (highest quality) to C (lowest quality). Those bonds within
the AA, A, BAA, BA and B categories that Moody's believes possess the
strongest credit attributes within those categories are designated by the
symbols AA1, A1, BAA1, BA1 and B1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
FIDELITY INSURED MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Fund at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. Financial Highlights
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Fund at a Glance; Investment Principles and
Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment Principles
and Risks
5 a .............................. Charter
b i............................. Cover Page; The Fund at a Glance; Doing
Business with Fidelity; Charter
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c Charter
d .............................. Charter; Breakdown of Expenses
e .............................. Cover Page; Charter
f .............................. Expenses
g .............................. *
5A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions
iii.......................... *
b ............................. *
c .............................. Transaction Details; Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Charter; Cover Page
b .............................. Expenses; How to Buy Shares; Transaction Details
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FIDELITY INSURED MUNICIPAL INCOME FUND
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ *
13 a - c ............................ Investment Policies and Limitations
d ............................ *
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i........................... FMR
ii.......................... Trustees and Officers
iii......................... Management Contracts
b ............................ Management Contracts
c, d ............................ Interest of FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trust
i ............................ Interest of FMR Affiliates
17 a ............................ Portfolio Transactions
b ............................ *
c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Interest of FMR Affiliates
c ............................ *
22 ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a copy of
the fund's most recent financial report and portfolio listing, or a c opy
of the Statement of Additional Information (SAI) dated February 20, 1996.
The SAI has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal amount invested.
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
ITP-pro-296
FIDELITY INSURED
MUNICIPAL INCOME
FUND
Insured Municipa l seeks a high level of current income free from
federal income tax with preservation of capital by investing primarily in
municipal securities whose interest and principal payments are insured.
PROSPECTUS
FEBRUARY 20, 1996 (FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
CONTENTS
KEY FACTS THE FUND AT A GLANCE
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly
operating expenses.
FINANCIAL HIGHLIGHTS A summary
of the fund's financial data.
PERFORMANCE How the fund has
done over time.
THE FUND IN DETAIL CHARTER How the fund is
organized.
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different
ways to set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS, AND
ACCOUNT POLICIES TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current income free from federal income tax with preservation of
capital. As with any mutual fund, there is no assurance that the fund will
achieve its goal.
STRATEGY: Invests mainly in long-term, investment grade, municipal
securities that are covered by insurance guaranteeing the timely payment of
principal and interest.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
SIZE: As of December 31, 199 5, the fund had over $__ [m/b]illion in
assets.
WHO MAY WANT TO INVEST
The fund may be appropriate for investors in higher tax brackets who seek
high current income that is free from federal income tax. The fund is
designed for those who want to pursue this goal through investments that,
because of the insurance coverage, have an extra degree of credit safety.
Insurance covers the timely payment of principal and interest, but its cost
lowers the fund's yield.
The value of the fund's investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other economic and political news. When you sell your sh ar es,
they may be worth more or less than what you paid for them. By itself, the
fund does not constitute a balan ced investment plan.
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. Insured
Municipal is in the INCOME
category.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, s ell
or hold shares of a fund. See page , and 23-26 for more information about
these fees.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Exchange fee None
Annual account maintenance fee
(for accou nts under $2,500) $12.00
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund
pays a management fee to FMR. It also incurs other expenses for services
such as maintaining shareholder records and furnishing shareholder
statements and financial reports. The fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (s ee page ).
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
Management fee %
12b-1 fee None
Other expenses %
Total fund operating expenses %
EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses if you
close your account after the number of years indicated:
After 1 year $
After 3 years $
After 5 years $
After 10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
FINANCIAL HIGHLIGHTS
The table that follows is included in the fund's Annual Report and has been
audited by Coopers & Lybrand L.L.P., independent accountants. Their report
on the financial statements and financial highlights is included in the
Annual Report. The financial statements and financial highlights are
incorporated by reference into (are legally a part of) the fund's Statement
of Additional Information.
[Financial Highlights to be filed by subsequent amendment.]
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The total
returns t hat follo w are based on historical fund results.
The fund's fiscal year runs from January 1 through December 31. The tables
below show the fund's performance over past fiscal years compared to a
measure of inflatio n.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods Pas Past Past
ended
t 1
5
10
December 31 , yea year year
1995 r s s
Insured
Municipal
Consumer
Price
Index
CUMULATIVE TOTAL RETURNS
Fiscal periods Pas Past Past
ended
t 1
5
10
December 31 , yea year year
1995 r s s
Insured
Municipal
Consumer
Price
Index
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions and
any change in a fund's share
price.
(checkmark)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. A
TAX-EQUIVALENT YIELD shows what an investor would have to earn before taxes
to equal a tax-free yield. Yields are calculated according to a standard
that is required for all stock and bond funds. Because this differs from
other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
INSURED MUNICIPAL IS A MU TUAL FU ND: an investment that pools
shareholders' money and invests it toward a specified goal. In technical
terms, the fund is currently a diversified fund of Fidelity Municipal
Trust, an open-end management investment company organized as a
Massachusetts business trust on June 22, 1984.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Fidelity will
mail proxy materials in advance, including a voting card and information
about the proposals to be v oted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over ___
(solid bullet) Assets in Fidelity mutual
funds: over $___ billion
(solid bullet) Number of shareholder
accounts: over __ million
(solid bullet) Number of investment
analysts and portfolio
managers: over ___
(checkmark)
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs.
George Fischer is manager of Insured Municipal, which he has managed
since August 1995. He also manages Spartan Bond Strategist and various
trust accounts. Mr. Fischer joined Fidelity in 1989, after receiving an
M.B.A. from the University of Pennsylvania.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR. Members of the Edward
C. Johnson 3d family are the predominant owners of a class of shares of
common stock representing approximately 49% of the voting power of FMR
Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of
a company is presumed where one individual or group of individuals owns
more than 25% of the voting stock of that company; therefore, the Johnson
family may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
UMB Bank, n.a., is the fun d's transfer agent, although it employs FSC
to perform these functions for the fund. It is located at 1010 Grand
Avenue, Kansas City, Missouri.
To carry out the fund's transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that the fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
THE FUND SEEKS A HIGH LEVEL OF FEDERALLY TAX-FREE INCOME as is
consistent with preservation of capital by investing primarily in municipal
bonds that are covered by insurance guaranteeing the timely payment of
interest and principal.
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 8 and 18 years. As of
December 1995, the fund's dollar-weighted average maturity was __years.
FMR normally invests so that at least 80% of the fund's assets are invested
in municipal securities whose interest is free from federal income tax.
The insurance coverage for the fund's investments is obtained either by the
bond's issuer or underwriter, or purchased by the fund. The fund pays
premiums for the insurance either directly or indirectly, which increases
the credit safety of the fund's investments, but decreases its yield. It
is important to note that the insurance does not guarantee the market value
of a security or the fund's shares.
The insurance feature provides high credit quality to the fund's portfolio,
but the fund may also invest in some uninsured securities that are judged
by FMR to be of investment-grade quality.
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 fund's emphasis on income does not mean that the fund
invests only in the highest-yielding bonds available, or that it can avoid
risks to principal. In selecting investments for the 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.
The fund's yield and share price change daily and are based on changes
in inte rest 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. FMR may use various
investment techniques to hedg e a portion of the fund's risks, but
there is no guarantee that these strategies will work as intended. When you
sell your shares of the fund, they may be worth more or less than what you
paid for them.
If you are subject to the federal alternative minimum tax, you should
note that the fund may invest all of its assets in municipal securities
issued to finance private activities. The interest from these investments
is a tax-preference item for purposes of the tax.
FMR normally invests the fund's assets according to its investment strategy
and does not expect to invest in federally taxable obligations. The 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 the fund may invest, strat egies FMR may employ
in pursuit of the fund's investmen t objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in this
section. A complete listing of the fund's limitations and more detailed
information about the fund's investments are co ntained in the fund's
SAI. Policies and limitations are considered at the time of purchase; the
sale of instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with the fund's investment
objective and policies and that do ing so will help the fund achieve its
goal. Current holdings and recent investment strategies are described in
the fund's financial reports which are sent to shareholders twice a year.
For a free SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Lower-quality debt securities are
sometimes called "junk bonds." Longer-term bonds are generally more
sensitive to interest rate changes than short-term bonds.
Investment-grade debt securities are medium- and high-quality securities.
Some, however, may possess speculative characteristics and may be more
sensitive to economic changes and to changes in the financial condition of
issuers.
RESTRICTIONS: The fund may not invest more than 35% of its total assets in
uninsured obligations, and may not invest in uninsured securities judged by
FMR to be below investment-grade quality. The fund does not currently
intend to invest more than 5% of its assets in securities rated below Baa
by Moody's Investors Service, Inc. or below BBB by Standard & Poor's
Corporation, and does not currently intend to invest in uninsured
securities rated lower than B.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
o r p rivate pu rposes, including general financing for state and
local governments, or financing for specific projects or public
fa cilities. The y may be issued in anticipation of future revenues
and may be backed by the full taxing power of a municipality, the revenues
from a specific project, or the credit of a private organization. A
security's credit may be enhanced by a bank, insurance company, or othe r
entity. The value of some or all municipal securities may be affected by
uncertainties in the municipal market related to legislation or litigation
involving the taxation of municipal securities or the rights of municipal
securities holders. T he fund may own a municipal security directly or
through a participation interest.
ASSET-BACKED SECURITIES i nclude 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.
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 SECURI TIES 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 FEATURE S entitle the holder to put (sell back) a security to the
issuer or a financial intermediary. In exchange for this benefit, the fund
may pay periodic fees or accept a lower interest rate. Demand features and
standby commitments are types of put features .
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, entering into currency exchange contracts or swap
agreements, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AN D RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be illiquid,
which means that they may be difficult to sell promptly at an acceptable
price. The sale of some illiquid securities and some other securities may
be subject to legal restrictions. Difficulty in selling securities may
result in a loss or may be costly to the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the fund's yield.
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.
RESTRICTIONS: With respect to 75% of assets, the fund may not invest more
than 5% of its total assets in any one issuer. This limitation does not
apply to U.S. government securities. The fund may invest more than 25% of
its total assets in tax-free securities that finance similar types of
projects. The fund may also invest more than 25% of its assets in bonds
insured by the same insurance company.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph s restates all those that are fundamental. All
policies stated throughout this prospectus, other than those identified in
the following paragraph s , can be changed without shareholder
approval.
The fund seeks to provide as high a level of federally tax-free income as
is consistent with preservation of capital by investing primarily in a
portfolio of municipal bonds that are covered by insurance guaranteeing the
timely payment of principal and interest. FMR will invest the fund's
assets primarily in municipal bonds that are: (1) insured under an
insurance policy obtained by the issuer or underwriter; or (2) insured
under an insurance policy purchased by the fund. Insurance will cover the
timely payment of interest and principal on municipal obligations and will
be obtained from recognized insurers. The fund may invest in uninsured
municipal obligations judged to be of quality equivalent to the four
highest rating assigned by Moody's and S&P (Baa, BBB, or better). Under
normal market conditions, such uninsured obligations may not exceed 35% of
the fund's total assets. The fund may enter into futures contracts solely
as a hedge against the effect that anticipated interest rate variations may
have on the value of its holdings. The fund will normally invest at least
80% of its assets in municipal securities whose interest is exempt from
federal taxes. During periods when FMR determines that a temporary
defensive posture in the market is appropriate, it will consider
investments in cash or cash equivalent short-term obligations, including
short-term municipal obligations as well as those which may be federally
taxable.
With respect to 75% of total assets, the fund may not invest more than 5%
of its total assets in any one issuer. The fund may borrow only for
temporary or emergency purposes, but not in an amount exceeding 33% of its
total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. The fund also pays OTHER EXPENSES, which are explained
on page__.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fee is
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets under management increase.
For December 1995, the group fee rate was __%. The individual fund fee
rate is .25 %. The total management fee rate for fiscal 1995 was __.
UNDERSTANDING THE
MANAGEMENT FEE
The management fee FMR
receives is designed to be
responsive to changes in
FMR's total assets under
management. Building this
variable into the fee
calculation assures
shareholders that they will
pay a lower rate as FMR's
assets under management
increase.
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OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FSC performs many transaction and accounting functions. These services
include processing shareholder transactions, valuing the fund's
investments, and handling securities loans. In fiscal 1995, FSC receiv ed
fees equal to __% of the fund's aver age net assets.
The fund also pays other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
The fund has adopted a Distribution and Service Plan. This plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. It is important to
note, however, that the fund does not pay FMR any separate fees for this
service.
The fund's portfolio turnover rate for fi scal 1995 was __%. This rate
varies from year to year.
YOUR ACCOUNT
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 8 0 walk -in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in the fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed in t he table that follows .
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
THE FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. The fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $2,500
TO ADD TO AN ACCOUNT $250
Through automatic investment plans $100
MINIMUM BALANCE $1,000
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the product materials for details.
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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 "Fi delity
check payable to Insured Municipal
"Fi delity Insured Income Fun d." Indicate
Municipal Income your fund account
Fund ." Mail to the number on your check
address indicated on and mail to the address
the application. printed on your account
statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
</TABLE>
<TABLE>
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Wire (wire_graphic) (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 "F idelity
Bank Routing Insured Municipal
#021001033, Income Fun d" and
Account #00163053. include your account
Specify "Fid elity number and your
Insured Municipal name.
Income 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 $1,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the
t able that follo ws.
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, 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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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: $500.
(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 BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing.
Note that exchanges out of the fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 Monthly or (small solid bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
</TABLE>
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<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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>
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
</TABLE>
<TABLE>
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<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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.
</TABLE>
A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in February
and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The fund offers four
options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of
the month. Capital gain distributions will be reinvested at the NAV as of
the date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days, or longer for a December
ex-dividend date.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
The fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the fund's tax implications.
TAXES ON DISTRIBUTIONS. Interest income that the fund earns is distributed
to shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. The fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
During fiscal 1995, 100% of the fund's income dividends was free from
federal income tax and __% of the fund's income dividends was subject to
the federal alternative minimum tax.
A portion of the fund's dividends may be free from state or local taxes.
Income from investments in your state are often tax-free to you. Each year,
Fidelity will send you a breakdown of the fund's income from each state to
help you calculate your taxes.
Duri ng fiscal 1995, __% of the fund's i ncome dividends was free from
federal income tax.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or loss
is the difference between the cost of your shares and the price you receive
when you sell them.
Whenever you sell shares of the fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before the fund deducts a
capital gain distribution from its NAV, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market quotations,
if available. Since market quotations are often unavailable, assets are
usually valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of the fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) The fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees the fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUND THROUGH A BROKER, who may charge you
a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when the fund is priced on
the following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect the fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) The fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(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.
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 ret irement 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 $1,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the fund without reimbursement
from the fund. Qualified recipients are securities dealers who have sold
fund shares or others, including banks and other financial institutions,
under special arrangements in connection with FDC's sales activities. In
some instances, these incentives may be offered only to certain
institutions whose representatives provide services in connection with the
sale or expected sale of significant amounts of shares.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of the fund
for shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be registered
for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, the fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) The fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if the
fund receives or anticipates simultaneous orders affecting significant
portions of the fund's assets. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
fund reserves the right to terminate or modify the exchange privilege in
the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
From Filler pages
FIDELITY INSURED MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 20, 1996
This Statement is not a prospectus but should be read in conjunction with
the fund's current Prospectus (dated February 20, 1996). Please retain this
document for future reference. The fund's financial statements and
financial highligh ts, included in the Annual Report for the fiscal year
ended December 31, 1995, are incorporated herein b y ref erence. To
obtain an additional copy of the Prospectus or the Annual Report, please
call Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contract
Distribution and Service Plan
Contracts with FMR Affiliates
Description of the Trust
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. ( UMB ) and Fidelity Service Company
( FSC )
ITP -ptb- 296
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the fund's investment
policies and limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer (except the United States
government, its agencies or its instrumentalities) if, with respect to 75%
of its assets, it would cause more than 5% of its total assets to be
invested in the securities of that issuer (As used in this document and in
the Prospectus, the entity which has the ultimate responsibility for the
payment of interest and principal on a particular security will be treated
as its issuer.);
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) With respect to 75% of its total assets, the fund does not currently
intend to purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, the fund would own more than 10% of the
outstanding voting securities of such issuer.
(ii) The fund does not currently intend to sell securities short, unless
it owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to (a) purchase securities
of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid, or (b) purchase
or retain securities issued by other open-end investment companies.
Limitations (a) and (b) do not apply to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger.
( viii) The fund does not currently intend to purch ase the securities
of any issuer (other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as a result,
more than 5% of its total assets would be invested in the securities of
business enterprises that, including predecessors, have a record of less
than three years of continuous operation.
(ix) T he fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(x) The fund do es not currently intend to purchase the securitie s of
any issuer if those officers and Trustees of the trust and those officers
and directors of FMR who individually own more than 1/2 of 1% of the
securities of such issuer together own more than 5% of such issuer's
securities.
For purposes of limitations (1), (5) and (i), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (viii), pass-through entities and other
special purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" on page
__.
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term cur rency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial i nstitutions.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the cust omary settlement period for that type of security. Typically, no
inter est accrues to the purchaser until the security is delivered. The
fund may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If the fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the fund does
not intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, the fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should the fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The fund's standards for high-quality, taxable obligations are
essentially the same as those described by Moody's Investors Service, Inc.
(Moody's) in rating corporate obligations within its two highest ratings of
Prime-1 and Prime-2, and those described by Standard & Poor's Corporation
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before state legislatures that
would affect the state tax treatment of the fund's distributions. If such
proposals were enacted, the availability of municipal obligations and the
value of the fund's holdings would be affected and the Trustees would
reevaluate the fund's investment objective and policies.
FUTURES AND OPTIONS. The following sections pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures Margin
Payments, Limitations on Futures and Options Transactions, Liquidity of
Options and Futures Contracts, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply with
guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of
the fund's assets could impede portfolio management or the fund's ability
to meet redemption requests or other current obligations.
COMBINED POSITIONS. The fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, the fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the fund's current or
anticipated investments exactly. The fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
FUTURES CONTRACTS. When the fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
the fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of the fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of the fund, the fund may
be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the fund can
commit assets to initial margin deposits and option premiums.
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the fund's investments in futures contracts and
options, and the fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, the fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, the fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. The fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by the fund to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options the fund writes, all or a portion of
the value of the underlying instrument may be illiquid depending on the
assets held to cover the option and the nature and terms of any agreement
the fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees. If through a change in values, net assets, or other
circumstances, the fund were in a position where more than 10% of its net
assets was invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
INDEXED SECURITIES. The fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INSURANCE FEATURE. Unde r normal market conditions, the insured fund will
invest primarily in municipal bonds that, at the time of purchase, either
(1) are insured under fund insurance issued to the fund by an insurer or
(2) are insured under an insurance policy obtained by the issuer or
underwriter of such municipal bonds at the time of original issuance
thereof (issuer insurance). If a municipal bond is already covered by
issuer insurance when acquired by the fund, then coverage will not be
duplicated by fund insurance; if a municipal bond is not covered by issuer
insurance, it may be covered by fund insurance purchased by the fund. The
fund may also purchase municipal notes that are insured, although, in
general, municipal notes are not presently issued with issuer insurance,
and the fund does not generally expect to cover municipal notes under its
fund insurance. Accordingly, the fund does not presently expect that any
significant portion of the municipal notes it purchases will be covered by
insurance. Securities other than municipal bonds and notes purchased by the
fund will not be covered by insurance. Based upon the expected composition
of the fund, FMR estimates that the annual premiums for fund insurance will
range from .10% to .35% of the fund's average net assets. During the fiscal
year Fiscal Year Beginning 2 , 199_ to Fiscal Year End 2 ,
199_, the fund purchased $_____ of insurance. Although the insurance
feature reduces certain financial risks, the premiums for fund insurance,
which are paid from the fund's assets, and the restrictions on investments
imposed by fund insurance guidelines, reduce the fund's current yield.
Insurance will cover the timely payment of interest and principal on
municipal obligations and will be obtained from recognized insurers. In
order to be considered as eligible insurance by the fund, such insurance
policies must guarantee the timely payment of all principal and interest on
the municipal bonds as they become due. However, such insurance may provide
that in the event of non-payment of interest or principal when due, with
respect to an insured municipal bond, the insurer is not obligated to make
such payment until a specified time period (which may be thirty days or
more) after it has been notified by the fund that such non-payment has
occurred. For these purposes, a payment of principal is due only at final
maturity of the municipal bond and not at the time any earlier sinking fund
payment is due. The insurance does not guarantee the market value of the
municipal bonds or the value of the shares of the fund and, except as
described below and in the section entitled "Valuation of Portfolio
Securities," has no effect on the price or redemption value of fund shares.
Municipal bonds are generally eligible for insurance under fund insurance
if, at the time of purchase by the fund, they are identified separately or
by category in qualitative guidelines furnished by the fund insurer and are
in compliance with the aggregate limitations on amounts set forth in such
guidelines. Premium variations are based in part on the rating of the
municipal bond being insured at the time the fund purchases the bond. The
insurer may prospectively withdraw particular municipal bonds from the
classifications of bonds eligible for insurance or change the aggregate
amount limitation of each issue or category of eligible municipal bonds,
but must continue to insure the full amount of such bonds previously
acquired which the insurer has indicated are eligible so long as they
remain in the fund. The qualitative guidelines and aggregate amount
limitations established by the insurer from time to time will not
necessarily be the same as those the fund or FMR would use to govern
selection of municipal bonds for the fund's investments. Therefore, from
time to time such guidelines and limitations may affect investment
decisions.
Because coverage under the fund insurance terminates upon sale of a
municipal bond from the fund, the insurance does not have any effect on the
resale value of such a bond. Therefore, FMR may decide to retain any
insured municipal bonds which are in default or, in FMR's view, in
significant risk of default, and place a value on the insurance. This value
will be equal to the difference between the market value of the defaulted
municipal bond and the market value of similar municipal bonds that are not
in default. As a result, FMR may be limited in its ability to manage the
fund to the extent that it holds defaulted municipal bonds, which will
limit its ability in certain circumstances to purchase other municipal
bonds. While a defaulted municipal bond is held by the fund, the fund
continues to pay the insurance premium thereon but also collects interest
payments from the insurer and retains the right to collect the full amount
of principal from the insurer when the municipal bond comes due. The fund
expects that the market value of a defaulted municipal bond covered by
issuer insurance will generally be greater than the market value of an
otherwise comparable defaulted municipal bond covered by fund insurance.
Principal Bond Insurers. To be updated.
INTERFUND BORROWING PROGRAM. Pursuant to an exemptive order issued by the
SEC, the fund has received permission to lend money to, and borrow money
from, other funds advised by FMR or its affiliates, but will participate in
the interfund borrowing program only as a borrower. Interfund borrowings
normally extend overnight, but can have a maximum duration of seven days. A
fund will borrow through the program only when the costs are equal to or
lower than the costs of bank loans. Loans may be called on one day's
notice, and a fund may have to borrow from a bank at a higher interest rate
if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. The fund may invest a portion of its
assets in lower-quality municipal securities as described in the
Prospectus.
While the market for municipals is considered to be substantial, adverse
publicity and changing investor perceptions may affect the ability of
outside pricing services used by the fund to value its portfolio
securities, and the fund's ability to dispose of lower-quality bonds. The
outside pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal
securities may be affected by uncertainties in the municipal market related
to legislation or litigation involving the taxation of municipal securities
or the rights of municipal securities holders in the event of a bankruptcy.
Municipal bankruptcies are relatively rare, and certain provisions of the
U.S. Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund.
MUNICIPAL SECTORS:
HEALTH CARE. The health care industry is subject to regulatory action by a
number of private and governmental agencies, including federal, state, and
local governmental agencies. A major source of revenues for the health care
industry is payments from the Medicare and Medicaid programs. As a result,
the industry is sensitive to legislative changes and reductions in
governmental spending for such programs. Numerous other factors may affect
the industry, such as general and local economic conditions; demand for
services; expenses (including malpractice insurance premiums); and
competition among health care providers. In the future, the following
elements may adversely affect health care facility operations: adoption of
legislation proposing a national health insurance program; other state or
local health care reform measures; medical and technological advances which
dramatically alter the need for health services or the way in which such
services are delivered; changes in medical coverage which alter the
traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance
and health care services.]
MUNICIPAL LEASES and p articipation interests therein may take the form
of a lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the fund will not hold
such obligations directly as a lessor of the property, but will purchase a
participation interest in a municipal obligation from a bank or other third
party. A participation interest gives the fund a specified, undivided
interest in the obligation in proportion to its purchased interest in the
total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
REFUNDING CONTRACTS. The fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the fund
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
The fund generally will not be obligated to pay the full purchase price if
it fails to perform under a refunding contract. Instead, refunding
contracts generally provide for payment of liquidated damages to the issuer
(currently 15-20% of the purchase price). The fund may secure its
obligations under a refunding contract by depositing collateral or a letter
of credit equal to the liquidated damages provisions of the refunding
contract. When required by SEC guidelines, the fund will place liquid
assets in a segregated custodial account equal in amount to its obligations
under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the fund
from risk that the original seller will not fulfill its obligation, the
securities are held in an account of the fund at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus the
accrued incremental amount. While it does not presently appear possible to
eliminate all risks from these transactions (particularly the possibility
that the value of the underlying security will be less than the resale
price, as well as delays and costs to the fund in connection with
bankruptcy proceedings), it is the fund's current policy to engage in
repurchase agreement transactions with parties whose creditworthiness has
been reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the fund might obtain
a less favorable price than prevailed when it decided to seek registration
of the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of the fund's
assets and may be viewed as a form of leverage.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. The fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily the fund will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third
party at any time. The fund may purchase standby commitments separate from
or in conjunction with the purchase of securities subject to such
commitments. In the latter case, the fund would pay a higher price for the
securities acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the fund; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, the fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the fund, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal instruments, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit the fund to sell them at
par value plus accrued interest on short notice.
In many instances bonds and participation interests have tender options or
demand features that permit the fund to tender (or put) the bonds to an
institution at periodic intervals and to receive the principal amount
thereof. The fund considers variable rate instruments structured in this
way (Participating VRDOs) to be essentially equivalent to other VRDOs it
purchases. The IRS has not ruled whether the interest on Participating
VRDOs is tax-exempt and, accordingly, the fund intends to purchase these
instruments based on opinions of bond counsel. A fund may also invest in
fixed-rate bonds that are subject to third party puts and in participation
interests in such bonds held by a bank in trust or otherwise.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, the fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the funds by FMR pursuant to authority contained in the fund's
man agement contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for which it
or its affiliates act as investment adviser. In selecting broker-dealers,
subject to applicable limitations of the federal securities laws, FMR
considers various relevant factors, including, but not limited to, the size
and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). The
selection of such broker-dealers generally is made by FMR (to the extent
possible consistent with execution considerations) based upon the quality
of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the fund may be useful to FMR in rendering investment
management services to the fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying out
its obligations to the fund. The receipt of such research has not reduced
FMR's normal independent research activities; however, it enables FMR to
avoid the additional expenses that could be incurred if FMR tried to
develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the fund, or shares of other
Fidelity funds to the extent permitted by law. FMR may use research
services provided by and place agency transactions with Fidelity Brokerage
Services, Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are
fair, reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms fo r similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing ex change transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC
rules.
The Trustees periodically review FMR's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of
the f und and review the commissions paid by the fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For the fiscal peri ods ended December 31, 1995 and 1994, the fund's
portfolio turnover rates were ___% and 56%, respectively.
F or fiscal 1995, 1994, and 1993, the fund paid [no brokerage
commissions/ brokerage commissions of $____, $______, and $______,
respectively]. [IF APPROPRIATE:During fiscal 199_, this amounted to
approximately __% of the aggregate brokerage commissions paid by the fund
involving approximately __% of the aggregate dollar amount of transactions
for which the fund paid brokerage com missions.]
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the
fund are made in dependently from those of other funds managed by FMR or
accounts managed by FMR affiliates. It sometimes happens that the same
security is held in the portfolio of more than one of these funds or
accounts. Simultaneous transactions ar e inevitable when several funds
a nd accounts are managed by the same investment adviser, particularly
when the same security is suitable for the investment objective of more
than one fund or account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the fund is concerned. In other cases,
however, the ability of the fund to participate in volume transactions will
produce better executions and prices for the fund. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to the fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
Valuations of portfolio securities furnished by the pricing service
employed by the fund are based upon a computerized matrix system or
appraisals by the pricing service, in each case in reliance upon
information concerning market transactions and quotations from recognized
municipal securities dealers. The methods used by the pricing service and
the quality of valuations so established are reviewed by officers of the
fund and FSC under the general supervision of the Trustees. There are a
number of pricing services available and the Trustees, on the basis of
on-going evaluation of these services, may use other pricing services or
discontinue the use of any pricing service in whole or in part.
The portfolio insurance of the fund may affect the value of the fund's
shares under certain circumstances. Unless a secondary market insurance
policy is purchased with respect to the portfolio security, the fund
intends to hold any defaulted securities or securities for which there is a
significant risk of default in its portfolio until the default has been
cured or the principal and interest are paid by the issuer or the insurer.
In such circumstances, the fund's Board of Trustees has instructed FMR to
consider in its evaluation of these securities the value of the insurance
guaranteeing the interest and principal payments, as well as the market
value of the portfolio securities and the market value of the securities of
similar issuers whose securities carry similar interest rates. Absent any
unusual or unforeseen circumstances, as a result of the insurance policy
FMR would likely recommend that the fund value the defaulted securities, or
securities for which there is a significant risk of default, at the same
price as securities of a similar nature which are not in default.
PERFORMANCE
The fund may quote performance in various ways. All performance information
supplied by the fund in advertising is historical and is not intended to
indicate future returns. The fund's share price, yield, and total return
fluctuate in response to market conditions and other factors, and the
value of fund shares when redeemed may be more or less than their original
cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing the
fund's interest income for a given 30-day or one-month period, net of
e xpenses, by the average number of shares entitled to receive
distributions during the period, dividing this figure by the fund's net
asset value (NAV) at the end of the period, and annualizing the result
(assuming compounding of income) in order to arrive at an annual percentage
rate. Income is calculated for purposes of yield quotations in accordance
with standardized meth ods applicable to all stock and bond funds. In
general, interest income is re duced with respect to bonds trading at a
premium over their par value by subtracting a portion of the premium from
income on a daily basis, and is increased with respect to bonds trading at
a discount by adding a portion of the discount to daily income. Capital
gains and losses generally are excluded from the calculation.
Income calculated for the purposes of calculating the fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, the fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements.
Yield information may be useful in reviewing the fund's performance and in
providing a basis for comparison with other investment alternatives.
However, the fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates the
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
Th e fund's tax-equivalent yield is the rate an investor would have to
earn from a fully taxable investment before taxes to equal the fund's
tax-free yield. Tax-equivalent yields are calculated by dividing the fund's
yield by the result of one minus a stated federal or combined federal and
state tax rate. If only a portion of the fund's yield is tax-exempt, only
that portion is adjusted in the calculation.
The following table shows the effect of a shareholder's tax status on
effectiv e yield under federal income tax laws for 1996. It shows the
approximate yield a taxable security must provide at various income
brackets to produce after-tax yields equivalent to those of hypothetical
tax-exempt obligations yielding from 3% to 8%. Of course, no assurance can
be given that the fund will achieve any specific tax-exempt yield. While
the fund invests principally in obligations whose interest is exempt from
federal income tax, other income received by the fund may be taxable.
1996 TAX RATES AND TAX-E QUIVALENT YIELDS
TO BE UPDATED!
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
The fund may invest a portion of its assets in obligations that are subject
to federal income tax. When the fund invests in these obligations, its
tax-equivalent yields will be lower. In the table above, tax-equivalent
yields are calculated assuming investments are 100% federally tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's return, including the effect of reinvesting
dividends and capital g ain distributions, and any change in the fund's
NAV over a stated period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over
the period. For example, a cumulative total return of 100% over ten years
would produce an average annual total return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in
ten years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that the fund's
performance is not constant over time, but changes from year to year, and
that average annual total returns represent a veraged figures as opposed
to the actual year-to-year performance of the fund.
In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using the fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the fund
and reflects all elements of its return. Unless otherwise indicated, the
fund's adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. Th e following tables show the fund's
yields, tax-equivalent yields, and total returns for periods ended December
31, 1995.
The tax-equival ent yield is based on a 36% federal income tax rate.
Note that the fund may invest in securities whose income is subject to the
federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-Day Tax- One Five One Five
Yield Equivalent Year Years Ten Years Year Years Ten Years
Yield
30-Day Tax- One Five One Five
Yield Equivalent Year Years Ten Years Year Years Ten Years
Yield
Insured
Municipal % % % % % % % %
The following table shows the income and capital elements of the fund's
cumulative total return. The table compares the fund's return to the record
of the Standard & Poor's Composite Index of 500 Stocks (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living (measured by the
Consumer Price Index, or CPI) over the same period. The CPI information is
as of the month end closest to the initial investment date for each fund.
The S&P 500 and DJIA comparisons are provided to show how the fund's total
return compared to the record of a broad average of common stocks and a
narrower set of stocks of major industrial companies, respectively, over
the same period. Of course, since the fund invests in fixed-income
securities, common stocks represent a different type of investment from the
fund. Common stocks generally offer greater growth potential than the fund,
but generally experience greater price volatility, which means greater
potential for loss. In addition, common stocks generally provide lower
income than a fixed-income investment such as the fund. Figures for the S&P
500 and DJIA are based on the prices of unmanaged groups of stocks and,
unlike the fund's returns, do not include the effect of paying brokerage
commissions or other costs of investing.
During t he ten year period ended December 31, 1995, a hypothetical
$10,000 investment in Insured Municipal would have grown to $______,
assuming all distributions were reinvested. This w as a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or
loss that could be realized from an investment in the fund today.
Insured Municipal INDEX
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested Cost
Period Ended $10,000 Dividend Capital Gain Total of
December 31 Investment Distributio Distributions Value S&P 500 DJIA Living**
ns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1995
1994 10,690 8,221 759 19,670 31,215 36,160 13,772
1993 12,370 8,278 670 21,318 30,809 34,447 13,413
1992 11,720 6,820 185 18,725 27,988 29,444 13,054
1991 11,630 5,712 11 17,353 26,001 27,441 12,686
1990 11,090 4,452 10 15,552 19,927 22,069 12,309
1989 11,050 3,464 10 14,524 20,568 22,188 11,601
1988 10,780 2,480 10 13,270 15,619 16,840 11,086
1987 10,360 1,565 10 11,935 13,394 14,527 10,616
1986 11,330 860 0 12,190 12,725 13,778 10,166
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January 1,
1986, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $______.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $______ for dividends and $_____ for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, the fund's performance may
be compared to stock, bond, and money market mutual fund performance
indices prepared by Lipper or other organizations. When comparing these
indices, it is important to remember the risk and return characteristics of
each type of investment. For example, while stock mutual funds may offer
higher potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the highe r potential returns
available from stock mutual funds.
From time to time, the fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
The fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, the
fund may offer greater liquidity or higher potential returns than CDs, the
fund does not guarantee your principal or your return, and fund shares are
not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help creat e a personal
financial profile; worksheets used to project savings need s based on
assumed rates of inflation and hypothetical rates of return; and action
plans offering investment alternatives. Materials may also include
discussions of Fidelity's asset allocation funds and other Fidelity funds,
products, and services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term gov ernment bonds, Treasury
bills, the U.S. ra te of inflation (based on the CPI), and combinations
of various capital markets. The performance of these capital markets is
based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compar e its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/Municipal,
which is reported in the MONEY FUND REPORT(registered trademark), covers
over ___ tax-free money market funds. The Bond Fund Report
AverageS(trademark)/Municipal, which is reported in the BOND FUND
REPORT(registered trademark), covers over ___ tax-free bond funds. When
evaluati ng comparisons to money market funds, investors should consider
the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. The fund,
however, invests in longer-term instruments and its share price changes
daily in response to a variety of factors.
The fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of ownin g a
particular mutual fund, and Fidelity services and products. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus, a quarterly magazine provided free of charge to Fidelity
fund shareholders.
The fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. The fund may quote various measures of volati lity and
benchmark correlation in advertising. In addition, the fund may compare
these measures to those of other funds. Measures of volatility seek to
compare the fund's historical share price fluctuations or total returns to
those of a benchmark. Measures of benchmark correlation indicate how valid
a comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, the fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program,
an investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of December 31, 1995, FMR advised over $__ billion in tax-free fund
assets , $__ billion in money market fund assets, $___ billion in equity
fund assets, $__ billion in international fund assets, and $___ billion in
Spartan fund assets. The fund may reference the growth and variety of
money market mutual funds and the adviser's innovation and participation in
the industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock ) fu nd manager. FMR, its subsidiaries, and affiliates
maintain a worldwide information and communications network for the purpose
of researching and managing investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for b usiness and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1996: New
Year's Day, President's Day (observed), Good Friday, Memorial Day
(observed), Independence Day (observed), Labor Day, Thanksgiving Day, and
Christmas Day. Although FMR expects the same holiday schedule to be
observed in the future, the NYSE may modify its holiday schedule at any
time. In addition, the fund will not process wire purchases and redemptions
on days when the Federal Reserve Wire System is closed.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NA V may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
Securities and Exchange Commission (SEC). To the extent that portfolio
securities are traded in other markets on days when the NYSE is closed ,
the fund's NAV may be affected on days when investors do not have access to
the fund to purchase or redeem shares. In addition, trading in some of the
fund's portfolio securities may not occur on days when the fund is open
for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Invest ment Company Act of 194 0 (the
1940 Act), the fund is required to give shareholders at least 60 days'
notice prior to terminating or modifying its exchange privilege. Under the
Rule, the 60-day notification requirement may be waived if (i) the only
effect of a modification would be to reduce or eliminate an administrative
fee, redemption fee, or deferred sales charge ordinarily payable at the
time of an exchange, or (ii) the fund suspends the redemption of the shares
to be exchanged as permitted under the 1940 Act or the rules and
regulations thereunder, or the fund to be acquired suspends the sale of its
shares because it is unable to invest amounts effectively in accordance
with its investment objective and policies.
In the Prospectus, the fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that the fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. The fund will send each shareholder
a notice in January describing the tax status of dividend and capital gain
distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
The fund purchases municipal securities that are free from federal
income tax based on opinions of counsel regarding their tax status. These
opinions generally will be based on covenants by the issuers or other
parties regarding continuing compliance with federal tax requirements. If
at any time the covenants are not complied with, distribution to
shareholders of interest on a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structure securities, opinions of counsel may also be based on the effect
of the structure on the federal tax treatment of the income.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will
be considered tax-exempt for purposes of the fund's policies of investing
so that at least 80% of its assets is invested in municipal securities
whose interest is exempt from federal taxes. Interest from private
activity securities is a tax preference item for the purposes of
determining whether a taxpayer is subject to the AMT and the amount of AMT
to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by the fund are
taxable to shareholders as dividends, not as capital gains.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallow ed to the
extent of the amount of exempt-interest dividend.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federal ly
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund, and such shares are held
six months or less and are sold at a loss, the portion of the loss equal
to the amount of the long-term capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by the fund are taxable to shareholders as dividends, not as
capital gains.
As of December 31, 1995, the fu nd hereby designates approxi mately
$_______ as a capital gain dividend for the purpose of the dividend-paid
deduction.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable f or federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
the fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. The fund intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some futures contracts and options are included in this 30%
calculation, which may limit the fund's investments in such
instruments.
The fund is treated as a separate entity from the other funds of Fidelity
Municipal Trust for tax p urposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether the fund is suitable to their particular tax
situation.
FMR
All o f the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the 1940 Act, control of a company is presumed where
one individual or group of individuals owns more than 25% of the voting
stock of that company. Therefore, through their ownership of voting common
stock and the execution of the shareholders' voting agreement, members of
the Johnson family may be deemed, under the 1940 Act, to form a controlling
group with respect to FMR Co rp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures
for personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years . All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. The
business address of each Trustee and officer who is an "interested person"
(as defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments, P.O.
Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who are
"interested persons" by virtue of their affiliation with either the trust
or F MR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (_), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman
of the Board and of the Executive Committee of FMR; Chairman and a Director
of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (_), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (_), Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (_), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores, 1990), and previously served as
a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (_), Trustee, is a financial consultant. Prior to
September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton
Company (manufacturer of industrial devices). He is currently a Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc., and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (_), Trustee (1990). Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990),
and he previously served as a Director of NACCO Industries, Inc. (mining
and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc.
(1985-1995). In addition, he serves as a Trustee of First Union Real Estate
Investments, a Trustee and member of the Executive Committee of the
Cleveland Clinic Foundation, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (_), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the
Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (_), Trustee (1990) is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (_), Trustee, is Chairman of G.M. Management Group
(strategic advisory services). Prior to his retirement in July 1988, he was
Chairman and Chief Executive Officer of Leaseway Transportation Corp.
(physical distribution services). Mr. McDonough is a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products), Brush-Wellman Inc. (metal refining), York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (_), Trustee. Prior to his retirement in 1985, Mr. Malone
was Chairman, General Electric Investment Corporation and a Vice President
of General Electric Company. He is a Director of Allegheny Power Systems,
Inc. (electric utility), General Re Corporation (reinsurance) and Mattel
Inc. (toy manufacturer). In addition, he serves as a Trustee of Corporate
Property Investors, the EPS Foundation at Trinity College, the Naples
Philharmonic Center for the Arts, and Rensselaer Polytechnic Institute, and
he is a member of the Advisory Boards of Butler Capital Corporation Funds
and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (_), Trustee (1993) is Chairman of the Board, President, and
Chief Executive Officer of Lexmark International, Inc. (office machines,
1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet (1990).
THOMAS R. WILLIAMS (_), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (_), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
ARTHUR S. LORING (_), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (__), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995)
JOHN H. COSTELLO (_), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (_), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial
Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice
President, Assistant Controller, and Director of the Accounting Department
- - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current Trustee of the fund for his or her services as trustee for the
fiscal year ended December 31, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate
Pension or
Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
from
Benefits Accrued Retirement from from the Fund
the Fund as Part of Fund the Fund Complex*
Expenses from the Complex*
Fund Complex*
J. Gary Burkhead ** $ 0 $ 0 $ 0 $ 0
Ralph F. Cox 5,200 52,000 125,000
Phyllis Burke Davis 5,200 52,000 122,000
Richard J. Flynn 0 52,000 154,500
Edward C. Johnson 3d ** 0 0 0 0
E. Bradley Jones 5,200 49,400 123,500
Donald J. Kirk 5,200 52,000 125,000
Peter S. Lynch ** 0 0 0 0
Gerald C. McDonough 5,200 52,000 125,000
Edward H. Malone 5,200 44,200 128,000
Marvin L. Mann 5,200 52,000 125,000
Thomas R. Williams 5,200 52,000 126,500
</TABLE>
* Information is as of December 31, 1994 for 206 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the "Plan"). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or m ore funds in the complex
designated by such Trustee. The amount paid to the Trustee under the Plan
will be determ ined based upon the performance of such investments.
Deferral of Trustees' fees in accordance with the Plan will have a
negligible effect on the fund's assets, liabilities, and net income per
share, and will not obligate the fund to retain the services of any Trustee
or to pay any particular level of compensation to the Trustee. The fund
may invest in such designated securities without share holder approval.
Under a retirement program adopted in July 1988 , the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments is not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-inte rested Trustees, receive retirement benefits under the program.
On December 31, the Trustees and officer s of the fund owned, in the
a ggregate, less than __% of the fund's total outstanding shares.
MANAGEMENT CONTRACT
The fund employs FMR to f urnish investment advisory and other services.
Under its management contract with the fund, FMR acts as investment adviser
and, subject to the supervision of the Board of Trustees, directs the
investments of the fund in accordance with its investment objective,
policies, and limitations. FMR also provides the fund with all necessary
office facilities and personnel for servicing the fund's investments,
compensates all officers of the fund and all Trustees who are "interested
persons" of the trust or of FMR, and all personnel of the fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the fund. These services include providing facilities
for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the fund's
records and the registration of the fund's shares under federal and state
laws; developing management and shareholder services for the fund; and
furnishing reports, evaluations, and analyses on a variety of subjects to
the Trustees.
In addition to the management fee payable to FMR and the fees payable to
UMB, the fund pays all of its expenses, without limitation, that are not
assumed by those parties. The fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although the
fund's current management contract provides that the fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders, the trust, on behalf of
the fund has entered into a revised transfer agent agreement with UMB,
pursuant to which UMB bears the costs of providing these services to
existing shareholders. Other expenses paid by the fund include interest,
taxes, brokerage commissions, and the fund's proportionate share of
insurance premiums and Investment Company Institute dues. The fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which the fund may be a party, and any obligation it may have
to indemnify its officers and Trustees with respect to litigation.
FMR is the fund's manager pursuant to a management contract dated January
1, 1994, which was approved by shareholders on December 15, 1993.
For the services of FMR under the contract, the fund pays FMR a monthly
management fee composed of the sum of two elements: a group fee rate and an
individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels, which is the
result of cumulatively applying the annualized rates on the left. For
example, the effective annual fee rate at $___ billion of group net assets
- - the approximate level for December 1995 - was ___%, which is the weighted
average of the respective fee rates for each level of group net assets up
to $__ billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
0 - $3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
* Prior to January 1, 1994, the group fee rate was based on a schedule with
breakpoints ending at .1500% for average group assets in excess of $84
billion. The group fee breakpoints shown for average group assets between
$120 billion and under $228 billion were voluntarily adopted by FMR on
January 1, 1992. The additional breakpoints shown above for average group
assets in excess of $228 billion were voluntarily adopted by FMR on
November 1, 1993. The fund's current management contract reflects these
extensions of the group fee rate schedule.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints, The revised group fee
rate schedule provides for lower management fee rates as FMR's assets under
management increase. The revised group fee rate schedule is identical to
the above schedule for average group assets under $156 billion. For average
group assets in excess of $156 billion, the group fee rate schedule
voluntarily adopted by FMR is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
Over 372 .1200 325 .1514
350 .1494
375 .1476
400 .1459
The individual fund fee rate is .25%. Based on the average group net
assets of the funds advised by FMR for December 1995, the annual management
fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate
Management Fee rate
._______% + .25%
= ._______%
One-twelfth of this an nual management fee rate is applied to the fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
During the fiscal years ended December 31, 1995, 1994, 1993, FMR received
$_______, $1,589,774 and $1,770,056, respectively, for its services as
investment adviser to the fund. These fees were equivalent to __%, .41%,
and .42%, respectively, of the average net assets of the fund for each of
those years.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase the fund's total returns and yield and repayment of
the reimbursement by the fund will lower its total returns and yield.
To co mply with the California Code of Regulations, FMR will reimburse
the fund if and to the extent that the fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The
applicable percentages are 2 1/2% of the first $30 million, 2% of the next
$70 million, and 1 1/2% of average net assets in excess of $100 million.
When calculating the fund's expenses for purposes of this regulation, the
fund may exclude interest, taxes, brokerage commissions, and extraordinary
expenses, as well as a portion of its distribution plan expen ses and
custodian fees attributable to investments in foreign securities.
DISTRIBUTION AND SERVICE PLAN
The Trustees have approved a Distribution and Service Plan on behalf of
the fund (the Plan) pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plan, as approved by the Trustees, allows the fund and FMR to incur certain
expenses that might be considered to constitute indirect payment by the
fund of distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR is
deemed to be indirect financing by the fund of the distribution of its
shares, such payment is authorized by the Plan. The Plan also specifically
recognizes that FMR, either directly or through FDC, may use its management
fee revenue, past profits, or other resources, without limitation, to pay
promotional and administrative expenses in connection with the offer and
sale of shares of the fund. In addition, the Plan provides that FMR may use
its resources, including its management fee revenues, to make payments to
third parties that assist in selling shares of the fund, or to third
parties, including banks, that render shareholder support services.
Payments made by FMR to third parties during the fiscal year ended December
31, 1995 amounted to $______ .
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the the fund and its shareholders. In particular, the Trustees noted that
the Plan does not authorize payments by the fund other than those made to
FMR under its management contract with the fund. To the extent that the
Plan gives FMR and FDC greater flexibility in connection with the
distribution of shares of the fund, additional sales of fund shares may
result. Furthermore, certain shareholder support services may be provided
more effectively under the Plan by local entities with whom shareholders
have other relationships.
The Plan was approved by shareholders on December 30, 1986.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all o r a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
The fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plan. No
preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n. a. (UMB) is the fund's custodian and transfer agent. UMB has
entered into a sub-contract with FSC, an affiliate of FMR, under the terms
of which FSC perfor ms the processing activities associated with
providing transfer agent and shareholder servicing functions for the fund.
Under the sub-contract, FSC bears the expense of typesetting, printing, and
mailing prospectuses, statements of additional information, and all other
reports, notices, and statements to shareholders, with the exception of
proxy statements. FSC also pays all out-of-pocket expenses associated with
transfer agent services.
Under this arrangement, FSC receives annual account fees and asset-based
fees for each retail account and certain institutional accounts based on
account size. In addition, the fees for retail accounts are subject to
increase based on postal rate changes. With respect to certain
institutional retirement accounts, FSC receives asset-based fees only. With
respect to certain other institutional retirement accounts, FSC receives
annual account fees and asset based fees based on fund type. FSC also
collects small account fees from certain accounts with balances of less
than $2,500.
UMB has an additional sub-contract with FSC, pursuant to which FSC performs
the calculations necessary to determine the fund's net asset value per
share and dividends and maintains the fund's accounting records. The annual
fee rates for these pricing and bookkeeping services are based on the
fund's average net assets, specifically, .04% for the first $500 million of
average net assets and .02% for average net assets in excess of $500
million. The fee is limited to a minimum of $45,000 and a maximum of
$750,000 per year.
Pricing and bookkeeping fees, including reimbursement for out-of-pocket
expenses, paid to FSC for fiscal 1995, 1994, and 1993 were $____, $170,087,
and $171,146, respectively. The transfer agent fee and charges and pricing
and bookkeeping fees described above are paid to FSC by UMB Bank, n.a.,
which is entitled to reimbursement from the fund for these expenses.
The fund has a distribution agreement with FDC, a Massachusetts corporation
organized on July 18, 1960. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The distribution agreement calls for FDC to use
all reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered at net
asset value. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Insured Munic ipal Income Fund (formerly
known as Fidel ity Insured Tax-Free Portfolio) is a fund of Fidelity
Municipal Trust, an open-end management investment company originally
organized as a Maryland corporation on November 22, 1976 and reorganized as
a Massachusetts business trust on June 22, 1984, at which time its name
changed from Fidelity Municipal Bond Fund, Inc. to Fidelity Municipal Bond
Fund. On March 1, 1986, the trust's name was changed to Fidelity Municipal
Trust. Currently, there are seven funds of the trust: Fidelity Municipal
Income Fund ; Fidelity Aggressive Municipal Fund ; Fidelity
Insured Municipal Income Fund; Fidelity Ohio Municipal Income Fund;
Fidelity Michigan Municipal Income Fund; Fidelity Minnesota
Municipal Income Fund ; and Spartan Pennsylvania Municipal Income
Fund . The Declaration of Trust permits the Trustees to create
additional funds.
In the event that FMR ceases to be the investment adviser to the trust or a
fund, the right of the trust or fund to use the identifying name "Fidelity"
and "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the trust. Expenses with respect to the trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of
Trust provides that the trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
trust or the Trustees include a provision limiting the obligations created
thereby to the trust and its assets. The Declaration of Trust provides for
indemnification out of each fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of Trust
also provides that each fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the fund
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which a fund itself would be unable to meet its
obligations. FMR believes that, in view of the above, the risk of personal
liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capita l consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value you own. The shares have no p reemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the heading "Shareholder
and Trustee Liability" above. Shareholders representing 10% or more of the
trust or a fund may, as set forth in the Declaration of Trust, call
meetings of the trust or a fund for any purpose related to the trust or
fund, as the case may be, including, in the case of a meeting of the entire
trust, the purpose of voting on removal of one or more Trustees. The trust
or any fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and
distribution of its assets, if approved by vote of the holders of a
majority of the trust or the fund, as determined by the current value of
each shareholder's investment in the fund or trust. If not so terminated,
the trust and its funds will continue indefinitely.
CUSTODIAN. UMB B ank, n.a., 1010 Grand Avenue, Kansas City, Missouri is
custodian of the assets of the fund. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of the subcustodian
banks and clearing agencies. The custodian takes no part in determining
the investment policies of a fund or in deciding which securities are
purchased or sold by a fund. However, a fund may invest in obligations of
the custodian and may purchase securities from or sell securities to the
custodian. The Bank of New York and Chemical Bank, each headquartered in
New York, also may serve as a special purpose custodian of certain assets
in connection with pooled repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
in cluding banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions
of those transactions were not influenced by existing or potential
custodial or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts serves as the trust's independent accountant. The auditor
examines financial statements for the fund and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal
year ended December 31, 1995 are includ ed in the fund's Annual
Report, which is a separate report supplied with this Statement of
Additional Information. The fund's financial statements and financial
highlights are incorporated herein by reference.
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA - Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
C - Bonds which are rated C are the lowest-rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
There are nine basic rating categories for long-term obligations. They
range from AAA (highest quality) to C (lowest quality). Those
bonds within the AA, A, BAA, BA and B categories that Moody's
believes possess the strongest credit attributes within those categories
are designated by the symbols AA1, A1, BAA1, BA1 and B1 .
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND
RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher-rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will likely
impair capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB- rating.
FIDELITY MUNICIPAL TRUST:
FIDELITY AGGRESSIVE MUNICIPAL FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page
2 a .............................. Expenses
b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest
3 a .............................. Financial Highlights
b .............................. *
c, d .............................. Performance
4 a i............................. Charter
ii........................... The Funds at a Glance; Investment Principles and
Risks
b .............................. Investment Principles and Risks
c .............................. Who May Want to Invest; Investment Principles
and Risks
5 a .............................. Charter
b i............................. Cover Page: The Funds at a Glance; Charter;
Doing Business with Fidelity
ii........................... Charter
iii.......................... Expenses; Breakdown of Expenses
c .............................. Charter
d .............................. Charter; Breakdown of Expenses
e .............................. Cover Page; Charter
f .............................. Expenses
g i............................. Charter
ii............................ *
5A .............................. Performance
6 a i............................. Charter
ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions
iii.......................... Charter
b ............................. *
c .............................. Transaction Details; Exchange Restrictions
d .............................. *
e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, and Taxes
7 a .............................. Cover Page; Charter
b .............................. Expenses; How to Buy Shares; Transaction Details
c .............................. *
d .............................. How to Buy Shares
e .............................. *
f .............................. Breakdown of Expenses
8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9 .............................. *
</TABLE>
* Not Applicable
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page
12 ............................ Description of the Trusts
13 a - c ............................ Investment Policies and Limitations
d ............................ Portfolio Transactions
14 a - c ............................ Trustees and Officers
15 a, b ............................ *
c ............................ Trustees and Officers
16 a i........................... FMR, Portfolio Transactions
ii.......................... Trustees and Officers
iii......................... Management Contracts
b ............................ Management Contracts
c, d ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plans
g ............................ *
h ............................ Description of the Trusts
i ............................ Contracts with FMR Affiliates
17 a - c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trusts
b ............................ *
19 a ............................ Additional Purchase and Redemption Information
b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ *
b ............................ Performance
23 ............................ Financial Statements
</TABLE>
* Not Applicable
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
the funds' most recent financial reports and portfolio listing, or a copy
of the Statement of Additional Informati on (SAI) dated February 20,
1996. The SAI has been filed with the Securities and Exchange Commission
(SEC) and is incorporated herein by reference (legally forms a part of the
prospectus). For a free copy of either document, call Fidelity at
1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, the Federal
Reserve Board, or any other agency, and are subject to investment risk,
including the possible loss of principal.
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.
MUB-pro-296
FIDELITY'S
MUNICIPAL
FUNDS
Each of these funds seeks a high level of current income free from federal
income tax.
FIDELITY LIMITED T ERM
MUNICIPAL INCOME FUND stresses preservation of capital by investing
mainly in investment grade municipal securities.
FIDELITY HIGH YIELD TAX-FREE FUND focuses on long-term,
medium-quality municipal securities.
FIDELITY AGGRESSIVE MUNICIPAL FUND invests mainly in medium-
and lower-quality municipal securities.
PROSPECTUS
FEBRUARY 20, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS THE FUNDS AT A GLANCE
3 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, AND
ACCOUNT POLICIES TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
LIMITED TERM MUNICIPAL
GOAL: High current income free from federal income tax with preservation of
capital.
STRATEGY: Invests in investment-grade quality municipal securities while
maintaining an average maturity of 12 years or less.
SIZE: As of December 31, 199_, the fund h ad over $__
m/billion in ass et s.
HIGH YIELD TAX-FREE
GOAL: High current income free from federal income tax.
STRATEGY: Invests mainly in long-term, medium-quality municipal securities.
SIZE: As of December 31, 199_, t he fund had over $__ m/billion in
assets.
AGGRESSIVE MUNICIPAL
GOAL: High current income free from federal income tax.
STRATEGY: Invests mainly in medium- and lower-quality municipal securities,
normally with maturities over 20 years.
SIZE: As of December 31, 199_, t he fund had over $__ m/billion in
assets.
WHO MAY WANT TO INVEST
Any of the funds may be appropriate for investors in higher tax brackets
who seek high current income that is free from federal income tax. Each
fund's level of risk and potential reward depend on the quality and
maturity of its investments. Lower-quality, longer-term investments
typically carry the most risk and the highest yield potential. 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 economic and political news When you sell your shares, they may
be worth more or less than what you paid for them. By themselves, the funds
do not constitute a balanced investment plan.
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.
(solid bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(right arrow) INCOME Seeks income by
investing in bonds.
(solid bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(solid bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or
hold shares of a fund. See page for more information about these fees.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Redemption fee (as a % of amount redeemed on
shares held less than 180 days) for Limited Term
Municipals and High Yield Tax-Free None
for Aggressive Municipal 1%
Exchange fee None
Annual account maintenance fee
(for accounts under $2500) $12.00
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports. A fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The following are projections based on historical expenses, adjusted to
reflect current fees, and are calculated as a percentage of average net
assets.
LIMITED TERM MUNICIPAL
Management fee %
12b-1 fee None
Other expenses %
Total fund operating expenses %
HIGH YIELD TAX-FREE
Management fee %
12b-1 fee None
Other expenses %
Total fund operating expenses %
AGGRESSIVE MUNICIPAL FUND
Management fee %
12b-1 fee None
Other expenses %
Total fund operating expenses %
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses if you
close your account after the number of years indicated:
LIMITED TERM MUNICIPAL
After 1 year $
After 3 years $
After 5 years $
After 10 years $
HIGH YIELD TAX-FREE
After 1 year $
After 3 years $
After 5 years $
After 10 years $
AGGRESSIVE MUNICIPAL FUND
After 1 year $
After 3 years $
After 5 years $
After 10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FINANCIAL HIGHLIGHTS
[Financial Highlights to be filed by subsequent amendment.]
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results.
High Yield Tax-Free's fiscal year runs from December 1 through November
30. The fiscal year for Limited Term Municipal and Aggressive Municipal
runs from January 1 through December 31. The tables below show each
fund's performance over past fiscal years compared to a measure of
inflation. The charts on page 10 help you compare the yields of these funds
to those of their competitors.
LIMITED TERM MUNICIPAL
F is cal periods Pas Past Past
ended t 1 5 10
December 31, yea year year
1995 r s s
Average
annual
total return
Cumulative
total return
Consumer
Price
Index C
HIGH YIELD TAX-FREE
Fiscal periods Pas Past Past
ended t 1 5 10
November 30, yea year year
1995 r s s
Average
annual
total return
Cumulative
total return
Consumer
Price
Index C
AGGRESSIVE MUNICIPAL FUND
Fiscal periods Pas Past Past
ended t 1 5 10
December 31, yea year year
1995 r s s
Average
annual
total return
Cumulative
total return
Consumer
Price
Index C
C CUMULATIVE TOTAL RETURN
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions and
any change in a fund's share
price.
(checkmark)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in 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. A
TAX-EQUIVALENT YIELD shows what an investor would have to earn before taxes
to equal a tax-free yield. Yields are calculated according to a standard
that is required for all stock and bond funds. Because this differs from
other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The 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.
THE FUNDS IN DETAIL
CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. In technical terms, Limited Term
Municipal is currently a diversified fund of Fidelity School Street
Trust, High Yield Tax-Free is currently a diversified fund of Fidelity
Court Street Trust, and Aggressive Municipal is currently a diversified
fund of Fidelity Municipal Trust. Each trust is an open-end management
investment company. Fidelity School Street Trust was organized as a
Massachusetts business trust on September 10, 1976. Fidelity Court Street
Trust was organized as a Massachusetts business trust on April 21, 1977.
Fidelity Municipal Trust was organized as a Massachusetts business trust on
June 22, 1984. There is a remote possibility that one fund might become
liable for a misstatement in the prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. The number of votes you are
entitled to is based upon the dollar value of your investment.
FMR AND ITS AFFILIATES
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(solid bullet) Number of Fidelity mutual
funds: over ___
(solid bullet) Assets in Fidelity mutual
funds: over $___ billion
(solid bullet) Number of shareholder
accounts: over __ million
(solid bullet) Number of investment
analysts and portfolio
managers: over ___
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs.
David Murphy is manager and Vice President of Limited Term Municipal s
and High Yield Municipal , which he has managed since December 1989
and October 1995, respectively. Mr. Murphy also manages Spartan Municipal
Income, Advisor Limited Term Tax-Exempt: Class A, and Advisor Limited Term
Tax-Exempt: Institutional Class. Previously, he managed Spartan California
Intermediate Municipal, Spartan Short-Intermediate Municipal, Spartan
Intermediate Municipal, Spartan New Jersey High Yield Municipal, Spartan
New York Intermediate Municipal, and Advisor Short-Intermediate
Tax-Exempt. Mr. Murphy joined Fidelity in 1989.
Tanya Roy is manager of Aggressive Tax-Free, which she has managed since
October 1995. Ms. Roy also manages Advisor High Income Municipal and
Spartan Aggressive Municipal. Previously, she managed Municipal Bond and
was a municipal bond analyst. Ms. Roy joined Fidelity in 1989.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR. Members of the Edward
C. Johnson 3d family are the predominant owners of a class of shares of
common stock representing approximately 49% of the voting power of FMR
Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of
a company is presumed where one individual or group of individuals owns
more than 25% of the voting stock of that company; therefore, the Johnson
family may be deemed under the 1940 Act to form a controlling group with
respect to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for the funds. It is located at 1010 Grand Avenue,
Kansas City, Missouri.
To carry out the funds' transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that a fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
LIMITED TERM MUNICIPAL seek s high current income that is free from
federal income tax, and preservation of capital, by focusing on municipal
securities rated at least Baa by Moody's or BBB by S&P, or, if unrated,
judged by FMR to be of equivalent quality. Although the fund can invest
in securities of any maturity, the fund maintains a dollar-weighted average
maturity of 12 years or less 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 7 and 10 years. As of December
31, 1995, the fund's dollar- weighted average maturity was approximately __
years. FMR normally invests at least 80% of the fund's assets in
federally tax-free municipal securities.
If you are subject to the federal alternative minimum tax, you should note
that the fund may invest all of its assets in municipal securities
issued to finance private activities. The interest from these investments
is a tax-preference item for the purpose of the tax.
HIGH YIELD TAX-FREE seeks high current income that is free from federal
income tax by investing at least 65% of its total assets in high yielding
municipal securities, focusing on municipal bonds rated A or Baa by
Moody's, A or BBB by S&P, or, if unrated, judged by FMR to be of equivalent
quality. 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 8 and 18 years.
As of November 30, 1995, the fund's dollar- weighted average maturity was
__ years. FMR normally invests so that at least 80% of the fund's income
is free from federal income tax.
If you are subject to the federal alternative minimum tax, you should note
that the fund may invest up to 20% of its assets in municipal securities
issued to finance private activities. The interest from these investments
is a tax-preference item for the purpose of the tax.
AGGRESSIVE MUNICIPAL seeks high current income that is free from federal
income tax by normally investing at least 65% of its total assets in
securities rated A or lower by Moody's or S&P or, if unrated, judged by FMR
to be of equivalent quality. 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 15 and 20 years. As of December 31, 1995,
the fund's dollar-weighted average maturity was __ years . FMR normally
invests at least 80% of the fund's assets in federally tax-free municipal
securities.
If you are subject to the federal alternative minimum tax, you should note
that the fund may invest all of its assets in municipal securities
issued to finance private activities. The interest from these investments
is a tax-preference item for the purpose of the tax.
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, a fund's 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 the funds, 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 funds.
Each fund's yield and share price change daily and are based on changes in
interest rates, market conditions, other economic and political news, and
on the quality and maturity of their 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 funds' risks, but there is no
guarantee that these strategies will work as intended. When you sell your
shares of the funds, they may be worth more or less than what you paid for
them.
FMR normally invests each fund's assets according to its investment
strategy and does not expect to invest in federally taxable obligations.
Each fund also reserves the right to invest without limitation in
short-term instruments, to hold a substantial amount of uninvested cash, or
to invest more than normally permitted in federally taxable obligations for
temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
A ny restrictions listed supplement those discussed earlier in this
section. A complete listing of each fund's limitations and more
detailed information about the funds' investments are contained in the
funds' SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its
goal. Current holdings and recent investment strategies are described in
each fund's financial reports which are sent to shareholders twice a year.
For a free SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "municipal junk bonds") are
considered to have speculative characteristics, and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness,
or they may already be in default. The market prices of these securities
may fluctuate more than higher-quality securities and may decline
significantly in periods of general or regional economic difficulty.
The following tables provide a summary of ratings assigned to debt holdings
(not including money market instruments) in High Yield Tax-Free's and
Aggressive Municipal's portfolios. These figures are dollar-weighted
averages of month-end portfolio holdings during fiscal 1995, and are
presented as a percentage of total security investments. These percentages
are historical and do not necessarily indicate a fund's current or future
debt holdings.
HIGH YIELD TAX-FREE FUND
FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa % AAA %
High quality Aa % AA %
Upper-medium grade A % A %
Medium grade Baa % BBB %
LOWER QUALITY
Moderately speculative Ba % BB %
Speculative B % B %
Highly speculative Caa % CCC %
Poor quality Ca % CC %
Lowest quality, no interest C C
In default, in arrears -- D %
% %
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO __% FORHIGH YIELD TAX-FREE AND __% FOR AGGRESSIVE
MUNICIPAL. THIS MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED
RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT
UNRATED SECURITIES THAT ARE LOWER QUALITY ACCOUNT FOR __% OF HIGH YIELD
TAX-FREE'S A ND __% OF AGGRESSIVE MUNICIPAL'S TOTAL SECURITY
INVESTMENTS.
REFER TO THE FUND'S STATEMENT OF ADDITIONAL INFORMATION FOR A MORE
COMPLETE DISCUSSION OF THESE RATINGS.
RESTRICTIONS: Purchase of a debt security is consistent with a fund's debt
quality policy if it is rated at or above the stated level by Moody's or
rated in the equivalent categories by S&P, or is unrated but judged to be
of equivalent quality by FMR. Limited Term Municipal currently
intends to limit its investments in debt securities to those of Baa-quality
or above, and currently intends to limit its investments in debt
securities of Baa-qualit y to 25% of its assets. High Yield
Tax-Free currently intends to limit its investments in lower than
Baa-quality debt securities to 25% of its total assets and in lower than
Ba-quality debt securities to 10% of its total assets. Aggressive Municipal
does not currently intend to invest more than 10% of its total assets in
bonds that are in default.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. A security's credit may be
enhanced by a bank, insurance company, or other entity. The value of
some or all municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the
taxation of municipal securities or the rights of municipal securities
holders. A fund may own a municipal security directly or through a
participation interest.
AGGRESSIVE TAX-FREE
FISCAL 1995 DEBT HOLDINGS, BY RATING MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Average A Rating Averag
e A
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa % AA %
Upper-medium grade A A
Medium grade Baa % BBB %
LOWER QUALITY
Moderately speculative Ba % BB %
Speculative B % B %
Highly speculative Caa % CCC %
Poor quality Ca % CC %
Lowest quality, no interest C C
In default, in arrears -- D %
% %
ATHE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO __% FOR HIGH YIELD TAX-FREE AND __% FOR AGGRESSIVE
MUNICIPAL. THIS MAY INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED
RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR HAS DETERMINED THAT
UNRATED SECURITIES THAT ARE LOWER QUALITY ACCOUNT FOR ___% OF HIGH YIELD
TAX-FREE'S AND __% OF AGGRESSIVE MUNICIPAL'S TOTAL SECURITIES
INVESTMENTS. REFER TO THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION FOR A
MORE COMPLETE DISCUSSION OF THESE RATINGS.
ASSET-BACKED SECURITIES include interests in pools o f 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 securit y's market
value more volatile.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
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.
The economy of Puerto Rico is closely linked to the U. S. economy, and will
be affected by the strength of the U.S. dollar, interest rates, the price
stability of oil imports, and the continued existence of favorable tax
incentives. Recent legislation revised these incentives, but the
government of Puerto Rico anticipates only a slight reduction in the
average real growth rates for the economy.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or a financial intermediary. In exchange for this benefit, a fund
may pay periodic fees or accept a lower interest rate. Demand features and
standby commitments are types of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may
be subject to legal restrictions. Difficulty in selling securities may
result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield.
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.
RESTRICTIONS: With respect to 75% of its total assets, a fund may not
invest more than 5% of its total assets in any one issuer. These
limitations do not apply to U.S. government securities. A fund may invest
more than 25% of its total assets in tax-free securities that finance
similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: A fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
LIMITED TERM MUNICIPAL seeks t he highest level of income exempt from
federal income tax that can be obtained, consistent with the preservation
of capital, from a diversified portfolio of investment-grade obligations.
The fund will normally invest so that at least 80% of its assets are
invested in municipal securities whose interest is free from federal income
tax.
HIGH YIELD TAX-FREE seeks to provide a high current yield exempt from
federal income tax. The fund will normally invest so that at least 80% of
its income is exempt from federal income tax.
AGGRESSIVE MUNICIPAL s eeks to provide a high current yield, exempt
from federal income tax, by investing primarily in medium and lower quality
municipal bonds. The fund will normally invest at least 80% of its assets
in municipal securities whose interest is exempt from federal tax.
Each Fund, with respect to 75% of total assets, may not invest more than
5% of its total assets in any one issuer. Each may not invest more than 25%
of its total assets in any one industry. The funds may borrow only 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. Each fund also pays OTHER EXPENSES, which are explained
at right.
FMR may, from time to time, agree to reimburse the funds for management
fees and other expenses 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.
LIMITED TERM MUNICIPAL'S mana gement fee is calculated at an annual
rate of .10% of the fund's average net assets plus 5% of gross income.
The total management fee for fiscal 1995 was___%.
HIGH YIELD TAX-FREE'S AND AGGRESSIVE MUNICIPAL'S m anagement fee is
calculated by adding a group fee rate to an individual fund fee rate, and
multiplying the result by the fund's average net assets.
The group fee rate is based on the average net assets of all the mutual
funds advised by FMR. This rate cannot rise above .37%, and it drops as
total assets under management increase.
For December 1995, the group fee rate was __%. The individual fund fee
rate is .25% for High Yield Tax-Free and .30% for Aggressive Municipal. The
total management fee rates for fiscal 1995 fo High Yield Tax-Free and
Aggressive Municipal were __% and __%, respectively. These rates were
higher than those of most other mutual funds.
OTHER EXPENSES
While the management fee is a significant component of the funds' annual
operating costs, the funds have other expenses as well.
FSC performs many transaction and accounting functions. These services
include processing shareholder transactions, valuing each fund's
investments, and handling securities loans. In fiscal 1995, FSC received
fees equal to __%, __% and __%, respectively, of Limited Term
Municipal Income Fund an d High Yield Tax-Free Fund's and Aggressive
Municipal Fund's av erage net assets.
The funds also pay other expenses, such as legal, audit, and custodian
fees; proxy solicitation costs; and the compensation of trustees who are
not affiliated with Fidelity.
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.
For fiscal 1995, the portfolio turnover rates f or Limited Term
Municipal Income Fund, High Yield Tax-Free Fund, and Aggressive
Muni cipal Fund were __%, __%, and __%, respectively. These rates
vary from year to year. High turnover rates increase transaction costs and
may increase taxable capital gains. FMR considers these effects when
evaluating the anticipated benefits of short-term investing.
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 __ 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. 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 $2,500
TO ADD TO AN ACCOUNT $250
Through automatic investment plans $100
MINIMUM BALANCE $1,000
These minimums may vary for investments through Fidelity Portfolio
Advisory Services or a Fidelity Payroll Deduction Program account in the
fund. Refer to the program materials for details.
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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>
<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>
<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>
<TABLE>
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Wire (wire_graphic) (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.
</TABLE>
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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>
<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 $1,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your acco unt i n Limited Term Municipal
Income Fund or High Yield Tax-Free Fund, yo u 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 SHARE S O F AGGRESSIVE MUNICIPAL AFTER HOLDING THEM LESS THAN 180 DAYS, THE
FUND WILL DEDUCT A REDEMPTION FEE EQUAL TO 1% OF THE VALUE OF THOSE SHARES.
</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.
</TABLE>
<TABLE>
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Check (check_graphic) All account types (small solid bullet) Minimum check: $500.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.
</TABLE>
<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 BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing.
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
$100 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>
<TABLE>
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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>
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 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.
</TABLE>
A BECAUSE THEIR SHARE PRICES FLUCTUATE, THESE 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 to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in January
and December for High Yield Municipal and in February and December for
Limited Term Municipal and Aggressive Municipal .
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:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of the
date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days, or longer for a December
ex-dividend date.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
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.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the funds' tax implications.
TAXES ON DISTRIBUTIONS. Interest income that a fund earns is distributed to
shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Limited Term Municipal and Agressive Municipal may
invest up to 100% of their assets in these securities. High Yield Tax-Free
may invest a portion of its assets in these securities. Individuals who are
subject to the tax must report this interest on their tax returns.
A portion of a fund's dividends may be free from state or local taxes.
Income from investments in your state are often tax-free to you. Each year,
Fidelity will send you a breakdown of your fund's income from each state to
help you calculate your taxes.
During fiscal 19 95, __% of each fund's income dividends was free
from federal income tax and _%,_%, and _% of Aggressive Municipal
Fund's , High Yield Tax-Free Fund's, a nd Limited Term
Municipal Incom e Fund's income dividends, respectively, were
subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or loss
is the difference between the cost of your shares and the price you receive
when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a fund deducts a capital
gain distribution from its NAV, you will pay the full price for the shares
and then receive a portion of the price back in the form of a taxable
distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Each fund's assets are valued primarily on the basis of market quotations,
if available. Since market quotations are often unavailable, assets are
usually valued by a method that the Board of Trustees believes accurately
reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUNDS THROUGH A BROKER, who may charge
you a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
THE REDEMPTION FEE for 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.
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 $1,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
FDC may, at its own expense, provide promotional incentives to qualified
recipients who support the sale of shares of the funds without
reimbursement from the funds. Qualified recipients are securities dealers
who have sold fund shares or others, including banks and other financial
institutions, under special arrangements in connection with FDC's sales
activities. In some instances, these incentives may be offered only to
certain institutions whose representatives provide services in connection
with the sale or expected sale of significant amounts of shares.
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.
From Filler pages
FIDELITY'S MUNICIPAL FUNDS
FIDELITY LIMITED TERM MUNICIPAL INCOME FUND
A FUND OF FIDELITY SCHOOL STREET TRUST
FIDELITY HIGH YIELD TAX-FREE FUND
A FUND OF FIDELITY COURT STREET TRUST
FIDELITY AGGRESSIVE MUNICIPAL FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 20, 1996
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated February 20, 1996). Please retain this
document for future reference. The funds' financial statements and
financial highlights included in the Annual Reports, for the fiscal years
ended November 30, 1995 (Fidelity High Yield Tax-Free Fund), and December
31, 1995 (Fidelity Aggressive Municipal Fund and Fidelity Limited Term
Municipal Income Fund), are incorporated herein by reference. To obtain
additional copies of the Prospectus or an Annual Report, please call
Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts 23
Distribution and Service Plans
Contracts with FMR Affiliates 26
Description of the Trust 27
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
Fidelity Service Company (FSC)
MUB-ptb-295
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in
values, net assets, or other circumstances will not be considered when
determining whether the investment complies with the fund's investment
policies and limitations.
Each fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, with respect to Aggressive Municipal and High Yield Tax-Free,
except for the fundamental investment limitations listed below the
investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMIT ATIO NS OF FIDELITY LIMITED TERM MUNICIPAL INCOME
FUND
(LIMITE D T ERM MUNICIPAL)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(9) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser, or (b) by engaging in reverse repurchase agreements
with any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vi) The fund does not currently intend to invest more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vii) The fund does not currently intend to invest in interests of real
estate investment trusts that are not readily marketable, or to invest in
interests of real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
(xii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (1) and (5) FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (ix), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises. "
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" on page
9 .
INVESTMENT LIMITATIONS OF FIDELITY HIGH YIELD TAX-FREE FUND
(HIGH YIELD TAX-FREE )
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested the securities of companies whose
principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(9) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to invest more than 25% of its total
assets in industrial revenue bonds related to a single industry.
(vi) The fund does not currently intend to invest in interests of real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(vii) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
(xii) The fund does not currently intend to invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (1) and (5), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (ix), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" on page
9.
INVE STMENT LIMITATIONS OF FIDELITY AGGRESSIVE MUNICIPAL FUND
(AGG RESSIVE MUNICIPAL)
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) with respect to 75% of the fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities) if, as a result,
(a) more than 5% of the fund's total assets would be invested in the
securities of that issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of that issuer;
(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(3) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(4) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested the securities of companies whose
principal business activities are in the same industry;
(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(8) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(ii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to invest more than 25% of its total
assets in industrial revenue bonds related to a single industry.
(vi) The fund does not currently intend to invest in interests of real
estate investment trusts that are not readily marketable, or to invest in
interests in real estate limited partnerships that are not listed on the
New York Stock Exchange or the American Stock Exchange or traded on the
NASDAQ National Market System.
(vii) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than
5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three
years of continuous operation.
(x) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
(xi) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
For purposes of limitations (1) and (5), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For purposes of limitation (ix), pass-through entities and other special
purpose vehicles or pools of financial assets, such as issuers of
asset-backed securities or investment companies, are not considered
"business enterprises."
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" on page
9.
Each fund's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the funds.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The
funds may receive fees for entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. U nder normal conditions , the funds do
not intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The funds' standards for high-quality, taxable obligations are
essentially the same as those described by Moody's Investors Service, Inc.
(Moody's) in rating corporate obligations within its two highest ratings of
Prime-1 and Prime-2, and those described by Standard & Poor's Corporation
(S&P) in rating corporate obligations within its two highest ratings of A-1
and A-2.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before state legislatures that
would affect the state tax treatment of the funds' distributions. If such
proposals were enacted, the availability of municipal obligations and the
value of the funds' holdings would be affected and the Trustees would
reevaluate the funds' investment objectives and policies.
FUTURES AND OPTIONS. The following sections pertain to futures and
options: Asset Coverage for Futures and Options Positions, Combined
Positions, Correlation of Price Changes, Futures Contracts, Futures Margin
Payments, Limitations on Futures and Options Transactions, Liquidity of
Options and Futures Contracts, OTC Options, Purchasing Put and Call
Options, and Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures market. The funds intend to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the funds can
commit assets to initial margin deposits and option premiums.
In addition, each fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures contracts and
options, and the funds' policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, are not
fundamental policies and may be changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by the funds to be illiquid include
over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees. If through a change in values, net assets, or other
circumstances, a fund were in a position where more than 10% of its net
assets was invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
INDEXED SECURITIES. Each fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING PROGRAM. Pursuant to an exemptive order issued by
the SEC, each fund has received permission to lend money to, and borrow
money from, other funds advised by FMR or its affiliates, but will
participate in the interfund borrowing program only as a borrower.
Interfund borrowings normally extend overnight, but can have a maximum
duration of seven days. A fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and a fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
INVERSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters considerably
more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. Aggressive Municipal and High
Yield Municipal may invest a portion of its assets in lower-quality
municipal securities as described in the Prospectus.
While the market for municipals is considered to be adequate, adverse
publicity and changing investor perceptions may affect the ability of
outside pricing services used by a fund to value its portfolio securities,
and the fund's ability to dispose of lower-quality bonds. The outside
pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be
affected by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund.
MUNICIPAL SECTORS:
ELECTRIC UTILITIES. The electric utilities industry has been experiencing,
and will continue to experience, increased competitive pressures. Federal
legislation in the last two years will open transmission access to any
electricity supplier, although it is not presently known to what extent
competition will evolve. Other risks include: (a) the availability and cost
of fuel, (b) the availability and cost of capital, (c) the effects of
conservation on energy demand, (d) the effects of rapidly changing
environmental, safety, and licensing requirements, and other federal,
state, and local regulations, (e) timely and sufficient rate increases, and
(f) opposition to nuclear power.
HEALTH CARE. The health care industry is subject to regulatory action by a
number of private and governmental agencies, including federal, state, and
local governmental agencies. A major source of revenues for the health care
industry is payments from the Medicare and Medicaid programs. As a result,
the industry is sensitive to legislative changes and reductions in
governmental spending for such programs. Numerous other factors may affect
the industry, such as general and local economic conditions; demand for
services; expenses (including malpractice insurance premiums); and
competition among health care providers. In the future, the following
elements may adversely affect health care facility operations: adoption of
legislation proposing a national health insurance program; other state or
local health care reform measures; medical and technological advances which
dramatically alter the need for health services or the way in which such
services are delivered; changes in medical coverage which alter the
traditional fee-for-service revenue stream; and efforts by employers,
insurers, and governmental agencies to reduce the costs of health insurance
and health care services .
TRANSPORTATION. Transportation debt may be issued to finance the
construction of airports, toll roads, highways, or other transit
facilities. Airport bonds are dependent on the general stability of the
airline industry and on the stability of a specific carrier who uses the
airport as a hub. Air traffic generally follows broader economic trends and
is also affected by the price and availability of fuel. Toll road bonds are
also affected by the cost and availability of fuel as well as toll levels,
the presence of competing roads and the general economic health of an area.
Fuel costs and availability also affect other transportation-related
securities, as do the presence of alternate forms of transportation, such
as public transportation.
MUNICIPAL LEASE S and participation interests therein may take the
form of a lease, an installment purchase, or a conditional sale contract
and are issued by state and local governments and authorities to acquire
land or a wide variety of equipment and facilities. Generally, the funds
will not hold such obligations directly as a lessor of the property, but
will purchase a participation interest in a municipal obligation from a
bank or other third party. A participation interest gives a fund a
specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
REFUNDING CONTRACTS. The funds may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the fund
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
The funds generally will not be obligated to pay the full purchase price if
they fail to perform under a refunding contract. Instead, refunding
contracts generally provide for payment of liquidated damages to the issuer
(currently 15-20% of the purchase price). A fund may secure its obligations
under a refunding contract by depositing collateral or a letter of credit
equal to the liquidated damages provisions of the refunding contract. When
required by SEC guidelines, each fund will place liquid assets in a
segregated custodial account equal in amount to its obligations under
refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incre mental amount which is unrelated
to the coupon rate or maturity of the purchased security. To protect the
fund from the risk that the original seller will not fulfill its
obligation, the securities are held in an account of the fund at a bank,
marked-to-market daily, and maintained at a value at least equal to the
sale price plus the accrued incremental amount. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility that the value of the underlying security
will be less than the resale price, as well as delays and costs to a fund
in connection with bankruptcy proceedings), it is each fund's current
policy to engage in repurchase agreement transactions with parties whose
creditworthiness has been reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain participation
interests in municipal instruments, have interest rate adjustment formulas
that help stabilize their market values. Many variable and floating rate
instruments also carry demand features that permit a fund to sell them at
par value plus accrued interest on short notice.
In many instances bonds and participation interests have tender options or
demand features that permit a fund to tender (or put) the bonds to an
institution at periodic intervals and to receive the principal amount
thereof. A fund considers variable rate instruments structured in this way
(Participating VRDOs) to be essentially equivalent to other VRDOs it
purchases. The IRS has not ruled whether the interest on Participating
VRDOs is tax-exempt and, accordingly, a fund intends to purchase these
instruments based on opinions of bond counsel. A fund may also invest in
fixed-rate bonds that are subject to third party puts and in participation
interests in such bonds held by a bank in trust or otherwise.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and accounts for which it
or its affiliates act as investment adviser. In selecting broker-dealers,
subject to applicable limitations of the federal securities laws, FMR
considers various relevant factors, including, but not limited to, the size
and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition, such
broker-dealers may furnish analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy,
and performance of accounts; effect securities transactions, and perform
functions incidental thereto (such as clearance and settlement). The
selection of such broker-dealers generally is made by FMR (to the extent
possible consistent with execution considerations) based upon the quality
of research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For th e fiscal periods ended November 30, 1995 and 1994 the
portfolio turnover rates were__% and ___% respectively for High Yield
Tax-Free. F or t he fiscal period ended December 31, 1995 and 1994
the portfolio turnover rates were ___% and ___%, respec tively fo r
Limited Term Municipa l and ___% and ___% respectively for Aggressive
Municipal Because a high turnover rate increases transaction costs and
may increase taxable gains, FMR carefully weighs the anticipated benefits
of short-term investing against these consequences. An increased turnover
rate is due to a greater volume of shareholder purchase orders, short-term
interest rate volatility and other special market conditions.
For fiscal 1995, Limited Term Municipa l paid brokerage commissions
of $____, $___ ___, and $______, respectively; High Yield
Tax-Free paid brokerage commissions of $____, $______, and
$___ __ _, respectively; and Aggressive Municipal paid brokerage
commissions of $____, $______, and $______, respectively. F or fiscal
1994 and 1993, the funds paid no brokerage commissions. During fiscal
1995, this amounted to approximately __% an d __%, respectively, of
the aggregate brokerage commissions paid by each fund involving
approximately __% an d __%, respectively, of the aggregate dollar
amount of transactions for which the funds paid brokerage
co mmissions.
Dur ing fiscal 1995, the Limited Term Municipa l paid $__ in
commissions to brokerage firms that provided research services involving
approximately $___of trans actions; during fiscal 199_, the High
Yield Tax-Free paid $__ in commissions to brokerage firms that
provided resear ch services involving approximately $___of transactions.
The provision of research services was not necessarily a factor in the
placement of all this business with such firms.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
Valuations of portfolio securities furnished by the pricing service
employed by the funds are based upon a computerized matrix system or
appraisals by the pricing service, in each case in reliance upon
information concerning market transactions and quotations from recognized
municipal securities dealers. The methods used by the pricing service and
the quality of valuations so established are reviewed by officers of the
funds and FSC under the general supervision of the Trustees. There are a
number of pricing services available and the Trustees, on the basis of
on-going evaluation of these services, may use other pricing services or
discontinue the use of any pricing service in whole or in part.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future returns. Each fund's share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of fund shares when redeemed may be more or less than their
original cost.
YIELD CALCULATIONS. Yields for a fund are computed by dividing the fund's
interest income for a given 30-day or one-month period, net of expenses, by
the average number of shares entitled to receive distributions during the
period, dividing this figure by the fund's net asset value (NAV) at the end
of the period, and annualizing the result (assuming compounding of income)
in order to arrive at an annual percentage rate. Yields do not reflect
Fidelity Aggressive Municipal Fund's 1% redemption fee, which
applies to shares held less than 180 days. Income is calculated for
purposes of yield quotations in accordance with standardized methods
applicable to all stock and bond funds. In general, interest income is
reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are
excluded from the calculation.
Income calculated for the purposes of calculating a fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, a fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements.
In calculating the fund's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in order
to reflect the risk premium on that security. This practice will have the
effect of reducing the fund's yield.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's tax-free
yield. Tax-equivalent yields are calculated by dividing a fund's yield by
the result of one minus a stated federal or combined federal and state tax
rate. If only a portion of a fund's yield is tax-exempt, only that portion
is adjusted in the calculation.
The fo llowing table shows the effect of a shareholder's tax status
on effective yield under federal income tax laws for 1995. It shows the
approximate yield a taxable security must provide at various income
brackets to produce after-tax yields equivalent to those of hypothetical
tax-exempt obligations yielding from 4% to 8%. Of course, no assurance can
be given that a fund will achieve any specific tax-exempt yield. While the
funds invests principally in obligations whose interest is exempt from
federal income tax, other income received by the funds may be taxable.
199 6 T AX RATES AND TAX-EQUIVALENT YIELDS
Federal If individual tax-exempt yield is:
Taxable Income* Tax 4% 5% 6% 7% 8%
Single Return Joint Return Bracket** Then taxable-equivalent yield is:
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28% 5.56% 6.94% 8.33% 9.72%
11.11%
$ 58,151 - $121,300 $ 96,901 - $147,700 31% 5.80 7.25 8.70 10.14 11.59
$121,301 - $263,750 $147,701 - $263,750 36% 6.25 7.81 9.38 10.94 12.50
$263,750 + above $263,751 + above 39.6% 6.62 8.28 9.93 11.59 13.25
* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
A fund may invest a portion of its assets in obligations that are subject
to federal income tax. When a fund invests in these obligations, its
tax-equivalent yields will be lower. In the table above, tax-equivalent
yields are calculated assuming investments are 100% federally tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that a fund's performance
is not constant over time, but changes from year to year, and that average
annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns quoted for Aggressive
Municipal may or may not include the effect of the fund's 1%
redemption fee on shares held less than 180 days days. Excluding a fund's
redemption fee from a total return calculation produces a higher total
return figure. Total returns, yields, and other performance information may
be quoted numerically or in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show each fund's yields,
tax-equivalent yields, and total returns for periods ended November 30,
1995 ( High Yield Tax-Free) and December 31, 1995 (Limited Term and
Aggressive Municipal) Total return figures for Aggressive Municipal
do not include the effect of the fund's 1% redemption fee, applicable to
shares held less than 180 days days.
The tax-equivalent yield is based on a __% federal income tax rate.
Note that each fund may invest in securities whose income is subject to the
federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty- Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Limited Term % % % % % % % %
Municipal
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty-Da Tax- One Five Ten One Five Ten
y Equivalent Year Years Years Year Years Years
Yield Yield
High Yield % % % % % % % %
Tax-Free
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ThirtyDay Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Aggressive % % % % % % % %
Municipal
</TABLE>
If FMR had not reimbursed certain fund expenses during these periods,
Aggressive Municipal 's and Limited Term Municipal's funds' total
returns would have been lower.
The following table shows the income and capital elements of each fund's
cumulative total return. The table compares each fund's return to the
record of the Standard & Poor's Composite Index of 500 Stocks (S&P 500),
the Dow Jones Industrial Average (DJIA), and the cost of living (measured
by the Consumer Price Index, or CPI) over the same period. The CPI
information is as of the month end closest to the initial investment date
for each fund. The S&P 500 and DJIA comparisons are provided to show how
each fund's total return compared to the record of a broad average of
common stocks and a narrower set of stocks of major industrial companies,
respectively, over the same period. Of course, since each fund invests in
fixed-income securities, common stocks represent a different type of
investment from the fund. Common stocks generally offer greater growth
potential than the funds, but generally experience greater price
volatility, which means greater potential for loss. In addition, common
stocks generally provide lower income than a fixed-income investment such
as the funds. Figures for the S&P 500 and DJIA are based on the prices of
unmanaged groups of stocks and, unlike the funds' returns, do not include
the effect of paying brokerage commissions or other costs of investing.
LIMITED TERM. During the ten year period ended December 31, 1995, a
hypothetical $10,000 investment in Limited Term would have grown to
$21,932, assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
LIMITED TERM INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested Cost
Year Ended $10,000 Dividend Capital Gain Total S&P of
December 31 Investment Distributions Distributions Value 500 DJIA Living
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ $ $ $ $ $ $
1994 11,031 9,809 1,092 21,932 38,358 44,527 14,217
1993 12,258 9,603 1,167 23,028 37,859 42,418 13,846
1992 11,779 8,136 602 20,517 34,393 36,257 13,476
1991 11,681 6,900 387 18,968 31,951 33,791 13,096
1990 11,374 5,594 91 17,059 24,486 27,176 12,707
1989 11,423 4,525 0 15,948 25,274 27,323 11,975
1988 11,325 3,466 0 14,791 19,193 20,737 11,443
1987 11,166 2,502 0 13,668 16,459 17,889 10,959
1986 11,755 1,759 0 13,513 15,636 16,967 10,494
1985 10,896 836 0 11,732 13,175 13,356 10,380
</TABLE>
Explanatory Notes: With an initial investment of $10,000 made on December
31, 1984, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $21,365.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $7,200 for dividends and $687 for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
HIGH YIELD TAX-FREE. During the ten year period ended November 30, 1995, a
hypothetical $10,000 investment in High Yield Tax-Free would have grown to
$23,757, assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
HIGH YIELD TAX-FREE INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested Cost
Year Ended $10,000 Dividend Capital Gain Total S&P of
November 30 Investment Distributions Distributions Value 500 DJIA Living
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ $ $ $ $ $ $
1994 10,036 11,043 2,678 23,757 38,795 44,332 14,236
1993 12,027 11,511 2,212 25,751 38,394 42,501 13,846
1992 11,564 9,667 1,779 23,009 34,872 37,054 13,485
1991 11,536 8,223 1,503 21,263 29,428 31,509 13,086
1990 11,464 6,800 1,134 19,398 24,451 26,939 12,707
1989 11,636 5,582 593 17,811 25,333 27,398 11,956
1988 11,100 4,165 553 15,818 19,361 20,628 11,425
1987 10,682 2,918 532 14,131 15,699 17,258 10,959
1986 12,518 2,228 43 14,789 16,469 17,477 10,484
</TABLE>
Explanatory Notes: With an initial investment of $10,000 made on November
30, 1984, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $25,577.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $7,988 for dividends and $1,855 for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
AGGRESSIVE MUNICIPAL . During the period from September 13, 1985
(commencement of operations) to December 31, 1995, a hypothetical $10,000
investment in Aggressive Municipal would have grown to $22,862,
assuming all distributions were reinvested. This was a period of
fluctuating interest rates and bond prices and the figures below should not
be considered representative of the dividend income or capital gain or loss
that could be realized from an investment in the fund today.
AGGRESSIVE MUNICIPAL INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of
Initial Reinvested Reinvested Cost
Period Ended $10,000 Dividend Capital Gain Total S&P of
December 31 Investment Distributions Distributions Value 500 DJIA Living**
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ $ $ $ $ $
1994 10,810 11,094 958 22,862 33,897 39,775 13,861
1993 12,330 10,951 994 24,275 33,456 37,891 13,500
1992 11,880 9,152 330 21,362 30,393 32,388 13,139
1991 11,800 7,669 99 19,568 28,234 30,185 12,769
1990 11,430 6,077 0 17,507 21,638 24,276 12,389
1989 11,490 4,798 0 16,288 22,334 24,407 11,676
1988 11,330 3,544 0 14,874 16,961 18,524 11,157
1987 10,820 2,296 0 13,116 14,545 15,979 10,685
1986 11,560 1,373 0 12,933 13,818 15,156 10,231
</TABLE>
**From month end closest to investment date
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, a fund's performance may be
compared to stock, bond, and money market mutual fund performance indices
prepared by Lipper or other organizations. When comparing these indices, it
is important to remember the risk and return characteristics of each type
of investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (Consumer Price Index), and combinations
of various capital markets. The performance of these capital markets is
based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND
AVERAGES(trademark)/Municipal, which is reported in the MONEY FUND
REPORT(registered trademark), covers over ___tax-free money market funds.
The Bond Fund Report AverageS(trademark)(checkmark) Municipal which is
reported in the BOND FUND REPORT(registered trademark), covers over ___
Tax-Free bond funds. Wh en evaluating comparisons to money market funds,
investors should consider the relevant differences in investment objectives
and policies. Specifically, money market funds invest in short-term,
high-quality instruments and seek to maintain a stable $1.00 share price.
Bond funds, however, invests in longer-term instruments and its share price
changes daily in response to a variety of factors.
A fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Fidelity services and products. Fidelity may also reprint,
and use as advertising and sales literature, articles from Fidelity Focus,
a quarterly magazine provided free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, a fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of December 31, 1995, FMR advised over $__ billion in tax -free fund
assets, $__ billion in money market fund assets, $___ billion in equity
fund assets, $__ billion in international fund assets, and $___ billion
in Spartan fund assets. The funds may reference the growth and variety of
money market mutual funds and the adviser's innovation and participation in
the industry. The equity funds under management figure represents the
largest amount of equity fund assets under management by a mutual fund
investment adviser in the United States, making FMR America's leading
equity (stock) fund manager. FMR, its subsidiaries, and affiliates maintain
a worldwide information and communications network for the purpose of
researching and managing investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1996: New Year's
Day , Presidents' Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Although
FMR expects the same holiday schedule to be observed in the future, the
NYSE may modify its holiday schedule at any time. In addition, the funds
will not process wire purchases and redemptions on days when the Federal
Reserve Wire System is closed.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not occur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
Each fund purchases municipal securities that are free from federal income
tax based on opinions of counsel regarding their tax status. These opinions
generally will be based on covenants by the issuers or other parties
regarding continuing compliance with federal tax requirements. If at any
time the covenants are not complied with, distribution to shareholders of
interest on a security could become federally taxable retroactive to the
date the security was issued. For certain types of structure securities,
opinions of counsel may also be based on the effect of the structure on the
federal tax treatment of the income.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of each fund's policies of investing so
that at least 80% of its assets are fully invested in federally tax-exempt
municipal securities (Limited term Municipal and Aggressive
Municipal ), and at least 80% of its income is free from federal
income tax (High Yield Tax-Free). Interest from private activity securities
is a tax preference item for the purposes of determining whether a taxpayer
is subject to the AMT and the amount of AMT to be paid, if any. Private
activity securities issued after August 7, 1986 to benefit a private or
industrial user or to finance a private facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by each fund are taxable
to shareholders as dividends, not as capital gains. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased with market discount after April 30, 1993 are not considered
income for purposes of High Yield Tax-Free fund's policy of investing so
that at least 80% of its income is free from federal income tax.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of a fund, and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
each fund are taxable to shareholders as dividends, not as capital gains.
As of November 30,1995 Limited Term Municipal her eby designates
approximately $_______ as a capital gain dividend for the purpose of the
dividend-paid deduction.
As of December 31, 1995, High Yield Tax-Free hereby designates
approximately $_______ as a capital gain dividend for the purpose of the
dividend-paid deduction.
As of December 31, 1995, Aggressive Municipal hereby designates
approximately $_______ as a capital gain dividend for the purpose of the
dividend-paid deduction.
As of December 31, 1995, Limited Term Municipal had a capital loss
carryfo rward aggregating approximately $____. This loss carryforward, of
which $___, $___, and $___will expire on December 31, 199_, ____, and
____ , respectively, is available to offset future capital gains.
As of December 31, 199_, High Yield Tax-Free had a capital lo ss
carryforward aggregating approximately $____. This loss carryforward, of
which $___, $___, and $___will expire on December 31, 199_, ____, and
____ , respectively, is available to offset future capital gains.
As of December 31, 1995 Aggressive Municipal had a capital los s
carryforward aggregating approximately $____. This loss carryforward, of
which $___, $___, and $___will expire on December 31, 199_, ____, and
____ , respectively, is available to offset future capital gains.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
each fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. Each fund intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some futures contracts, and options are included in this 30%
calculation, which may limit a fund's investments in such instruments.
Limited Term is treated as a separate entity from the other funds of
Fidelity School Street Trust for tax purposes. High Yield Tax-Free is
treated as a separate entity from the other funds of Fidelity Court Street
Trust for tax purposes. Aggressive Municipal is treated as a
separate entity from the other funds of Fidelity Municipal Trust for
tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (1940 Act) ,
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respe ct to
FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of personal investing in relation to trades by Fidelity funds and on
short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. The
business address of each Trustee and officer who is an "interested person"
(as defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The
business address of all the other Trustees is Fidelity Investments, P.O.
Box 9235, Boston, Massachusetts 02205-9235. Those Trustees who are
"interested persons" by virtue of their affiliation with either the trust
or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (65), Trustee and President, is Chairman, Chief
Executive Officer and a Director of FMR Corp.; a Director and Chairman of
the Board and of the Executive Committee of FMR; Chairman and a Director of
FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (54), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (63), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores, 1990), and previously served as
a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (71), Trustee, is a financial consultant. Prior to
September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton
Company (manufacturer of industrial devices). He is currently a Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc., and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (68), Trustee (1990). Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990),
and he previously served as a Director of NACCO Industries, Inc. (mining
and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc.
(1985-1995). In addition, he serves as a Trustee of First Union Real Estate
Investments, a Trustee and member of the Executive Committee of the
Cleveland Clinic Foundation, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the
Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (52), Trustee (1990) is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (66), Trustee, is Chairman of G.M. Management Group
(strategic advisory services). Prior to his retirement in July 1988, he was
Chairman and Chief Executive Officer of Leaseway Transportation Corp.
(physical distribution services). Mr. McDonough is a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products), Brush-Wellman Inc. (metal refining), York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (71), Trustee. Prior to his retirement in 1985, Mr. Malone
was Chairman, General Electric Investment Corporation and a Vice President
of General Electric Company. He is a Director of Allegheny Power Systems,
Inc. (electric utility), General Re Corporation (reinsurance) and Mattel
Inc. (toy manufacturer). In addition, he serves as a Trustee of Corporate
Property Investors, the EPS Foundation at Trinity College, the Naples
Philharmonic Center for the Arts, and Rensselaer Polytechnic Institute, and
he is a member of the Advisory Boards of Butler Capital Corporation Funds
and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board, President,
and Chief Executive Officer of Lexmark International, Inc. (office
machines, 1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet (1990).
THOMAS R. WILLIAMS (67), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (56), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
DAVID MURPHY, is manager and Vice President of Limited Term Municipal,
which he has managed since December 1989. Mr. Murphy also manages Spartan
California Intermediate Municipal, Spartan Intermediate Municipal, Spartan
New Jersey High Yield Portfolio, Spartan New York Intermediate Municipal,
and Spartan Short-Intermediate Municipal. Mr. Murphy joined Fidelity in
1989.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995)
JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (49), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial
Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice
President, Assistant Controller, and Director of the Accounting Department
- - First Boston Corp. (1986-1990).
The following table sets forth information describing the compensation of
each current non-interested trustee of each fund for his or her services as
trustee for the fiscal year ended December 31, 1995 (Limited Term and
Aggressive Municipal) and November 30, 1995 (High Yield Municipal).
COMPENSATION TABLE
Aggregate Compensation
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J. Gary Ralph F. Phyllis Richard Edward C. E. Donald Peter S. Gerald C. Edward Marvin L. Thomas
Burkhead** Cox Burke J. Flynn Johnson 3d** Bradley J. Kirk Lynch** McDonough H. Mann R.
Davis Jones Malone Williams
Limited $ $ $ $ $ $ $ $ $ $ $ $
Term
Municipa l
High Yield
Tax-Free
Aggressive
Municipal
</TABLE>
<TABLE>
<S> <C> <C> <C>
Trustees Pension or Estimated Annual Total
Retirement Benefits Upon Compensation
Benefits Accrued Retirement from from the Fund
as Part of Fund the Fund Complex*
Expenses from the Complex*
Fund Complex*
J. Gary Burkhead** $ 0 $ 0 $ 0
Ralph F. Cox 5,200 52,000 125,000
Phyllis Burke Davis 5,200 52,000 122,000
Richard J. Flynn 0 52,000 154,500
Edward C. Johnson 3d** 0 0 0
E. Bradley Jones 5,200 49,400 123,500
Donald J. Kirk 5,200 52,000 125,000
Peter S. Lynch** 0 0 0
Gerald C. McDonough 5,200 52,000 125,000
Edward H. Malone 5,200 44,200 128,000
Marvin L. Mann 5,200 52,000 125,000
Thomas R. Williams 5,200 52,000 126,500
</TABLE>
* Infor mation is as December 31, 1995 for 206 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the "Plan"). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee. The amount paid to the Trustee under the Plan
will be determined based upon the performance of such investments. Deferral
of Trustees' fees in accordance with the Plan will have a negligible effect
on the fund's assets, liabilities, and net income per share, and will not
obligate the fund to retain the services of any Trustee or to pay any
particular level of compensation to the Trustee. The fund may invest in
such designated securities without shareholder approval.
On December 31, 1995, th e Trustees and officers of each fund owned,
in the aggregate, less than __% of each fund's total outstanding shares.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
In addition to the management fee payable to FMR and the fees payable to
UMB, each fund pays all of its expenses, without limitation, that are not
assumed by those parties. Each fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although each
fund's current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders, the trust, on behalf of
each fund has entered into a revised transfer agent agreement with UMB,
pursuant to which UMB bears the costs of providing these services to
existing shareholders. Other expenses paid by each fund include interest,
taxes, brokerage commissions, and each fund's proportionate share of
insurance premiums and Investment Company Institute dues. Each fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which each fund may be a party, and any obligation it may
have to indemnify its officers and Trustees with respect to litigation.
In addition to the management fee payable to FMR and the fees payable to
FSC, each fund pays all of its expenses, without limitation, that are not
assumed by those parties. Each fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although each
fund's current management contract provides that each fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders, the trust, on behalf of
each fund has entered into a revised transfer agent agreement with FSC,
pursuant to which FSC bears the costs of providing these services to
existing shareholders. Other expenses paid by each fund include interest,
taxes, brokerage commissions, and each fund's proportionate share of
insurance premiums and Investment Company Institute dues. Each fund is also
liable for such non-recurring expenses as may arise, including costs of any
litigation to which each fund may be a party, and any obligation it may
have to indemnify its officers and Trustees with respect to litigation.
FMR is Limited Term Municipal 's manager pursuant to a management
contract dated January 1, 1995, which was approved by shareholders on
December 14, 1994. FMR is High Yield Tax-Free 's manager pursuant to
a management contract dated December 1, 1994, which was approved by
shareholders on November 16, 1994. FMR is Aggressive Municipal 's
manager pursuant to a management contract dated March 1, 1993, which was
approved by shareholders on February 17, 1993.
For the services of FMR under its management contract, Limited Term pays a
monthly management fee to FMR at the annual rate of .10% of the fund's
average net assets throughout the month plus 5% of the fund's gross income
throughout the month. For this purpose, gross income includes interest
accrued on portfolio obligations, adjusted for amortization of purchase
premium, but excludes adjustments for purchase discount on portfolio
obligations. Prior to January 1, 1995, the date of the contract, Limited
Term Municipal paid FMR a monthly management fee at an annual rate of
.15% of its average net assets throughout the month plus 5% of its gross
income throughout the month. Effective July 1, 1993, FMR voluntarily agreed
to limit the management fee of Limited Term Municipal to that reflected in
its current management contract.
For the services of FMR under the contract, Aggressive Municipal and High
Yield Tax-Free each pays FMR a monthly management fee composed of the sum
of two elements: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all of the
registered investment companies with which FMR has management contracts and
is calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. The schedule below on the right shows the
effective annual group fee rate at various asset levels which is the result
of cumulatively applying the annualized rates on the left. For example, the
effective annual fee rate at $_____ billion of group net assets - their
appro ximate level for December 1995 - was _____%, which is the weighted
average of the respective fee rates for each level of group net assets up
to $_____ billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
$ 0 - 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1695
24 - 30 .1800 200 .1658
30 - 36 .1750 225 .1629
36 - 42 .1700 250 .1604
42 - 48 .1650 275 .1583
48 - 66 .1600 300 .1565
66 - 84 .1550 325 .1548
84 - 120 .1500 350 .1533
120 - 174 .1450 400 .1507
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
Prior to December 1, 1994 fo r High Yield Tax-Free and under Aggressive
Municipal' s current management contract with FMR, the group fee rate is
based on a schedule with breakpoints ending at .1400% for average group
assets in excess of $174 billion. The group fee rate breakpoints shown
above for average group assets in excess of $120 billion and under $228
billion were voluntarily adopted by FMR, and went into effect on January 1,
1992. The additional breakpoints shown above for average group assets in
excess of $228 billion were voluntarily adopted by FMR on November 1, 1993.
On August 1, 1994, FMR voluntarily revised the prior extensions to the
group fee rate schedule, and added new breakpoints. The revised group fee
rate schedule provides for lower management fee rates as FMR's assets under
management increase. High Yield Tax-Free's current management contract and
the revised group fee rate schedule for Aggressive Municipal is
identical to the above group fee rate schedule for average group assets
under $156 billion and to the group fee rate schedule shown on page for
average group assets in excess of $156 billion.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
Over 372 .1200 325 .1514
350 .1494
375 .1476
400 .1459
The individual fund fee rate is.30% for Aggressive Municipal and
.25% for High Yield Tax-Free. Based on the average group net assets of the
funds advised by FMR for December 1995, the annual management fee rate
would be calculated as follows:
High Yield Tax-Free
Group Fee Rate Individual Fund Fee Rate
Management Fee rate
._______% + ._______%
= ._______%
Aggressive Municipal
Group Fee Rate Individual Fund Fee Rate
Management Fee rate
._______% + ._______%
= ._______%
One-twelfth of this annual management fee rate is applied to each fund's
net assets averaged for the most recent month, giving a dollar amount,
which is the fee for that month.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $_______, $___________ and $___________, respectively, for its
services as investment adviser to Limited Term Municipal. These fees were
equivalent to __%, __%, and __%, respectiv ely, of the average net
assets of Limited Term Municipal for each of those years.
During the fi scal years ended November 30, 1995, 1994, and 1993, FMR
received $_______, $___________ and $___________, respectively, for its
services as investment adviser to High Yield Tax-Free. These fees were
equivalent to __%, __%, and __%, respectively, of the average net assets of
High Yield Tax-Free for each of those years.
During the fiscal years ended December 31, 1995, 1994, and 1993, FMR
received $_______, $___________ and $___________, respectively, for its
services as investment adviser to Aggressive Municipal. These fees were
equivalent to __%, __%, and __%, respectively, of th e average net
assets of Aggressive Municipal. for each of those years.
The table below shows the management fees paid to FMR by each fund for the
last three fiscal years.
Limited Term Municipal Management Fees as a
Years Ended, December 31 Management Fees % of Average Net Assets
199 5 $
1994 $
1993 $
High Yield Tax-Free Management Fees as a
Years Ended, November 30 Management Fees % of Average Net Assets
19 95 $
1994 $
1993 $
Aggressive Municipal Management Fees as a
Years Ended, December 31 Management Fees % of Average Net Assets
1 995 $
1994 $
1993 $
FMR may, from time to time, voluntarily reimburse all or a portion of each
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase each fund's total returns and yield and repayment of
the reimbursement by each fund will lower its total returns and yield.
To comply with the California Code of Regulations, FMR will reimburse each
fund if and to the extent that each fund's aggregate annual operating
expenses exceed specified percentages of its average net assets. The
applicable percentages are 2 1/2% of the first $30 million, 2% of the next
$70 million, and 1 1/2% of average net assets in excess of $100 million.
When calculating each fund's expenses for purposes of this regulation, each
fund may exclude interest, taxes, brokerage commissions, and extraordinary
expenses, as well as a portion of its distribution plan expenses and
custodian fees attributable to investments in foreign securities.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
the funds (the Plans) pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the Rule). The Rule provides in substance that a mutual
fund may not engage directly or indirectly in financing any activity that
is primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plans. Each Plan also
specifically recognizes that FMR, either directly or through FDC, may use
its management fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection
with the offer and sale of shares of each fund. In addition, each Plan
provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that assist in selling shares
of each fund, or to third parties, including banks, that render shareholder
support services.
Payments made by FMR to third parties during the fiscal year ended
December 31, 1995 amounted to $______Aggressive Municipal , and
$_______ Limited Term Municipal . No third party payments were made
in fiscal 199__.
Payments made by FMR to third parties during the fiscal year ended
November 30, 1995 amounted to $____ __High Yield Tax-Free .
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the fund and its shareholders. In particular, the Trustees noted that the
Plans do not authorize payments by a fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders have
other relationships.
Each plan was approved by shareholders on December 30, 1986 (Aggressive
Municipal ), January 20, 1987 (High Yield Tax-Free), and February 24,
1987 (Limited Term Municipal).
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent. UMB has
entered into sub-contracts with FSC, an affiliate of FMR, under the terms
of which FSC performs the processing activities associated with providing
transfer agent and shareholder servicing functions for each fund. Under the
sub-contracts, FSC bears the expense of typesetting, printing, and mailing
prospectuses, statements of additional information, and all other reports,
notices, and statements to shareholders, with the exception of proxy
statements. FSC also pays all out-of-pocket expenses associated with
transfer agent services.
Under this arrangement, FSC receives annual account fees and asset-based
fees for each retail account and certain institutional accounts based on
account size. In addition, the fees for retail accounts are subject to
increase based on postal rate changes. With respect to certain
institutional retirement accounts, FSC receives asset-based fees only. With
respect to certain other institutional retirement accounts, FSC receives
annual account fees and asset based fees based on fund type. FSC collects
small account fees from certain accounts with balances of less than $2,500.
UMB has an additional sub-contract with FSC, pursuant to which FSC performs
the calculations necessary to determine each fund's net asset value per
share and dividends and maintains each fund's accounting records. The
annual fee rates for these pricing and bookkeeping services are based on
each fund's average net assets, and are presented in the table below.
Pricing and Bookkeeping Annual Fee Rates
$0 - $500 Greater Than Minimum Maximum
Million $500 Million Per Year Per Year
.0175% .0075% $ 20,000 $ 750,000
.04% .02% 45,000 750,000
Pricing and bookkeeping fees, including reimbursement for out-of-pocket
expenses, paid to FSC for fiscal 1995, 1994, and 1993 are indicated in the
table below.
Pricing and Bookkeeping Fees
1995_ 1994 1993
Fidelity Limited Term Municipal $ $ $
Income Fund
Fidelity High Yield Tax-Free Fund $ $ $
Fidelity Aggressive Municipal $ $ $
Fund
The pricing and bookkeeping fees described above are paid to FSC by UMB,
which is entitled to reimbursement from the funds for these expenses.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Fidelity Aggressive Municipal Fund is a fund of
Fidelity Municipal Trust, an open-end management investment company
originally organized as a Maryland corporation on November 22, 1976 and
reorganized as a Massachusetts business trust on June 22, 1984, at which
time its name changed from Fidelity Municipal Bond Fund, Inc. to Fidelity
Municipal Bond Fund. On March 1, 1986, the trust's name was changed to
Fidelity Municipal Trust. Currently, there are seven funds of Fidelity
Municipal Trust: Fidelity Municipal Bond Portfolio; Fidelity Aggressive
Municipal Fund; Fidelity Insured Tax-Free Portfolio; Fidelity Ohio Tax-Free
High Yield Fund; Fidelity Michigan Tax-Free High Yield Fund; Fidelity
Minnesota Tax-Free Portfolio; and Spartan Pennsylvania High Yield Municipal
Portfolio.
Fidelity High Yield Tax-Free Fund is a fund of Fidelity Court Street Trust,
an open-end management investment company organized as a Massachusetts
business trust on April 21, 1977. On August 1, 1987, the trust's name was
changed from Fidelity High Yield Municipals to Fidelity Court Street Trust.
Currently, there are four funds of the trust: Fidelity High Yield Tax-Free
Fund, Spartan Connecticut Municipal High Yield Portfolio, Spartan New
Jersey Municipal High Yield Portfolio, and Spartan Florida Municipal Income
Portfolio.
Fidelity Limited Term Municipal Fund is a fund of Fidelity School Street
Trust, an open-end management investment company organized as a
Massachusetts business trust on September 10, 1976 under the name Fidelity
Municipal Bond Fund. The trust's name was changed to Fidelity Mid-Term
Municipals on February 28, 1977. The trust's name was later changed to
Fidelity Limited-Term Municipals on April 15, 1977 and to Fidelity School
Street Trust on June 17, 1993. Currently, there are two funds of the
trust: Fidelity Limited Term Municipal Income Fund and Spartan Bond
Strategist. The Declarations of trust permit the Trustees to create
additional funds.
In the event that FMR ceases to be the investment adviser to a trust or a
fund, the right of the trust or fund to use the identifying name
"Fidelity"may be withdrawn. There is a remote possibility that one fund
might become liable for any misstatement in its prospectus or statement of
additional information about another fund.
The assets of each trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general liabilities of their respective trusts. Expenses with respect
to each trust are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of each trust, subject to the general
supervision of the Boards of Trustees, have the power to determine which
expenses are allocable to a given fund, or which are general or allocable
to all of the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund available
for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. Each trust is an entity of the type
commonly known as "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. Each Declaration of
Trust provides that the trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
trust or its Trustees shall include a provision limiting the obligations
created thereby to the trust and its assets. Each Declaration of Trust
provides for indemnification out of each fund's property of any shareholder
held personally liable for the obligations of the fund. Each Declaration of
Trust also provides that its funds shall, upon request, assume the defense
of any claim made against any shareholder for any act or obligation of the
fund and satisfy any judgment thereon. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its
obligations. FMR believes that, in view of the above, the risk of personal
liability to shareholders is remote.
Each Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declarations of trust protect Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar value of
net asset value you own. The shares have no preemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully
paid and nonassessable, except as set forth under the heading "Shareholder
and Trustee Liability" above. Shareholders representing 10% or more of a
trust or fund may, as set forth in the Declarations of trust, call meetings
of a trust or fund for any purpose related to the trust or fund, as the
case may be, including, in the case of a meeting of an entire trust, the
purpose of voting on removal of one or more Trustees. Each trust or fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of its
assets, if approved by vote of the holders of a majority of the trust or
the fund, as determined by the current value of each shareholder's
investment in the fund or trust. If not so terminated, each trust or fund
will continue indefinitely. Each fund of Fidelity Court Street Trust and
Fidelity School Street Trust may invest all of its assets in another
investment company.
CUSTODIAN. UMB Bank , 1010 Grand Avenue, Kansas City, Missouri is
custodian of the assets of the fund. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of the subcustodian
banks and clearing agencies. The custodian takes no part in determining
the investment policies of a fund or in deciding which securities are
purchased or sold by a fund. However, a fund may invest in obligations of
the custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions
of those transactions were not influenced by existing or potential
custodial or other fund relationships.
AUDITOR. Will be filed by a separate amendment
FINANCIAL STATEMENTS
Each funds' financial statements and financial highlights for the fiscal
years ended November 30, 1995 (High Yield Tax-Free) and December 31, 1995
(Aggressive Municipal and Limited Term Municipal ) are included in the
fund's Annual Report, which are separate reports supplied with this
Statement of Additional Information. The funds' financial statements and
financial highlights are incorporated herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if its is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
short-comings.
C - Bonds which are rated C are the lowest-rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
There are nine basic rating categories for long-term obligations. They
range from AAA (highest quality) to C (lowest quality). Those bonds within
the AA, A, BAA, BA and B categories that Moody's believes possess the
strongest credit attributes within those categories are designated by the
symbols AA1, A1, BAA1, BA1 and B1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will
also be used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
FIDELITY MUNICIPAL TRUST
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Not applicable.
(b) Exhibits.
1. Declaration of Trust of Registrant, dated as of March 17, 1994, is
filed herein as Exhibit 1.
2. Bylaws of the Trust, as amended, are incorporated herein by reference
to Exhibit 2(a) to Fidelity Union Street Trust (File No. 2-50318)
Post-Effective Amendment No. 87.
3. Not applicable.
4. Not applicable.
5. (a) Management Contract, dated January 1, 1994, between Fidelity
Aggressive Tax-Free Portfolio (currently known as Fidelity Aggressive
Municipal Fund) and Fidelity Management & Research Company is incorporated
herein by reference to Exhibit 5(a) to Post-Effective Amendment No. 67.
(b) Management Contract, dated January 1, 1994, between Fidelity
Municipal Bond Portfolio and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(b) to Post-Effective
Amendment No. 67.
(c) Management Contract, dated January 1, 1994, between Fidelity Insured
Tax-Free Portfolio (currently known as Fidelity Insured Municipal Income
Fund) and Fidelity Management & Research Company is filed herein as Exhibit
5(c).
(d) Management Contract, dated January 1, 1994, between Fidelity Michigan
Tax-Free High Yield Portfolio (currently known as Fidelity Michigan
Municipal Income Fund) and Fidelity Management & Research Company is
incorporated herein by reference as Exhibit 5(d) to Post-Effective
Amendment No. 64.
(e) Management Contract, dated January 1, 1994, between Fidelity
Minnesota Tax-Free Portfolio (currently known as Fidelity Minnesota
Municipal Income Fund) and Fidelity Management & Research Company is
incorporated herein by reference as Exhibit 5(e) to Post-Effective
Amendment No. 64.
(f) Management Contract, dated January 1, 1994, between Fidelity Ohio
Tax-Free High Yield Portfolio (currently known as Fidelity Ohio Municipal
Income Fund) and Fidelity Management & Research Company is incorporated
herein by reference as Exhibit 5(f) to Post-Effective Amendment No. 64.
(g) Management Contract, dated August 1, 1990, between Spartan
Pennsylvania Municipal High Yield Portfolio (currently known as Spartan
Pennsylvania Municipal Income Fund) and Fidelity Management & Research
Company is incorporated herein by reference to Exhibit 5(e) to
Post-Effective Amendment No. 67.
6. (a) General Distribution Agreement between Fidelity Insured Tax-Free
Portfolio (currently known as Fidelity Insured Municipal Income Fund) and
Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(a) to Post-Effective Amendment No. 67.
(b) General Distribution Agreement between Fidelity Aggressive Tax-Free
Portfolio (currently known as Fidelity Aggressive Municipal Fund) and
Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(b) to Post-Effective Amendment No. 44.
(c) General Distribution Agreement between Fidelity Municipal Bond
Portfolio and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(c) to Post-Effective
Amendment No. 67.
(d) General Distribution Agreement between Fidelity Ohio Tax-Free High
Yield Portfolio (currently known as Fidelity Ohio Municipal Income Fund)
and Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(d) to Post-Effective Amendment No. 67.
(e) General Distribution Agreement between Fidelity Michigan Tax-Free
High Yield Portfolio (currently known as Fidelity Michigan Municipal Income
Fund) and Fidelity Distributors Corporations, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(e) to Post-Effective
Amendment No. 67.
(f) General Distribution Agreement between Fidelity Minnesota Tax-Free
Portfolio (currently known as Fidelity Minnesota Municipal Income Fund) and
Fidelity Distributors Corporation, dated April 1, 1987, is incorporated
herein by reference to Exhibit 6(f) to Post-Effective Amendment No. 67.
(g) General Distribution Agreement between Fidelity Pennsylvania
Municipal High Yield Portfolio (currently known as Spartan Pennsylvania
Municipal Income Fund) and Fidelity Distributors Corporation, dated April
1, 1987, is incorporated herein by reference to Exhibit 6(g) to
Post-Effective Amendment No. 67.
(h) Amendment to General Distribution Agreement, dated January 1, 1988,
between Fidelity Municipal Trust: Fidelity Insured Tax-Free Portfolio
(currently known as Fidelity Insured Municipal Income Fund); Fidelity
Aggressive Tax-Free Portfolio (currently known as Fidelity Aggressive
Municipal Fund); Fidelity Municipal Bond Portfolio; Fidelity Ohio Tax-Free
High Yield Portfolio (currently known as Fidelity Ohio Municipal Income
Fund); Fidelity Michigan Tax-Free High Yield (currently known as Fidelity
Michigan Municipal Income Fund); Fidelity Minnesota Tax-Free Portfolio
(currently known as Fidelity Minnesota Municipal Income Fund); and Fidelity
Pennsylvania Municipal High Yield Portfolio (currently known as Spartan
Pennsylvania Municipal Income Fund) and Fidelity Distributors Corporation
is incorporated herein by reference to Exhibit 6(h) to Post-Effective
Amendment No. 67.
7. (a) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, is incorporated herein by reference to Exhibit 7 to
Fidelity Union Street Trust's (File No. 2-50318) Post-Effective Amendment
No. 87.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of December 1,1995 is
incorporated herein by reference to Exhibit 7(b) to Fidelity School Street
Trust's (File No. 2-57167) Post-Effective Amendment No. 47.
8. Custodian Agreement, Appendix A, Appendix B, and Appendix C, dated
December 1, 1994, between UMB Bank, n.a. and the Registrant is incorporated
herein by reference to Exhibit 8 to Fidelity California Municipal Trust's
Post-Effective Amendment No. 28 (File No. 2-83367).
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
13. Not applicable.
14. (a) Fidelity Individual Retirement Account Custodial Agreement and
Disclosure Statement, as currently in effect, is incorporated herein by
reference to Exhibit 14(a) to Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
(b) Fidelity Institutional Individual Retirement Account Custodial
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(d) to Fidelity Union Street Trust's (File
No. 2-50318) Post-Effective Amendment No. 87.
(c) National Financial Services Corporation Individual Retirement
Account Custodial Agreement and Disclosure Statement, as currently in
effect, is incorporated herein by reference to Exhibit 14(h) to Fidelity
Union Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(d) Fidelity Portfolio Advisory Services Individual Retirement Account
Custodial Agreement and Disclosure Statement, as currently in effect, is
incorporated herein by reference to Exhibit 14(i) to Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(e) Fidelity 403(b)(7) Custodial Account Agreement, as currently in
effect, is incorporated herein by reference to Exhibit 14(e) to Fidelity
Union Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(f) National Financial Services Corporation Defined Contribution
Retirement Plan and Trust Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(k) to Fidelity Union Street
Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(g) The CORPORATEplan for Retirement Profit Sharing/401K Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(l)
to Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(h) The CORPORATEplan for Retirement Money Purchase Pension Plan, as
currently in effect, is incorporated herein by reference to Exhibit 14(m)
to Fidelity Union Street Trust's (File No. 2-50318) Post-Effective
Amendment No. 87.
(i) Fidelity Investments Section 403(b)(7) Individual Custodial
Account Agreement and Disclosure Statement, as currently in effect, is
incorporated herein by reference to Exhibit 14(f) to Fidelity Commonwealth
Trust's (File No. 2-52322) Post Effective Amendment No. 57.
(j) Plymouth Investments Defined Contribution Retirement Plan and
Trust Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(o) to Fidelity Commonwealth Trust's (File No.
2-52322) Post Effective Amendment No. 57.
(k) The Fidelity Prototype Defined Benefit Pension Plan and Trust
Basic Plan Document and Adoption Agreement, as currently in effect, is
incorporated herein by reference to Exhibit 14(d) to Fidelity Securities
Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(l) The Institutional Prototype Plan Basic Plan Document, Standardized
Adoption Agreement, and Non-Standardized Adoption Agreement, as currently
in effect, is incorporated herein by reference to Exhibit 14(o) to Fidelity
Securities Fund's (File No. 2-93601) Post Effective Amendment No. 33.
(m) The CORPORATEplan for Retirement 100SM Profit Sharing/401(k) Basic
Plan Document, Standardized Adoption Agreement, and Non-Standardized
Adoption Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(f) to Fidelity Securities Fund's (File No. 2-93601)
Post Effective Amendment No. 33.
(n) The Fidelity Investments 401(a) Prototype Plan for Tax-Exempt
Employers Basic Plan Document, Standardized Profit Sharing Plan Adoption
Agreement, Non-Standardized Discretionary Contribution Plan No. 002
Adoption Agreement, and Non-Standardized Discretionary Contribution Plan
No. 003 Adoption Agreement, as currently in effect, is incorporated herein
by reference to Exhibit 14(g) to Fidelity Securities Fund's (File No.
2-93601) Post Effective Amendment No. 33.
(o) Fidelity Investments 403(b) Sample Plan Basic Plan Document and
Adoption Agreement, as currently in effect, is incorporated herein by
reference to Exhibit 14(p) to Fidelity Securities Fund's (File No. 2-93601)
Post Effective Amendment No. 33.
(p) Fidelity Defined Contribution Retirement Plan and Trust Agreement,
as currently in effect, is incorporated herein by reference to Exhibit
14(c) to Fidelity Securities Fund's (File No. 2-93601) Post Effective
Amendment No. 33.
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Insured Tax-Free Portfolio (currently known as Fidelity Insured Municipal
Income Fund) is incorporated herein by reference to Exhibit 15(a) to
Post-Effective Amendment No. 67.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Ohio Tax-Free High Yield Portfolio (currently known as Fidelity Ohio
Municipal Income Fund) is incorporated herein by reference to Exhibit 15(b)
to Post-Effective Amendment No. 67.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Michigan Tax-Free High Yield Portfolio (currently known as Fidelity
Michigan Municipal Income Fund) is incorporated herein by reference to
Exhibit 15(c) to Post-Effective Amendment No. 67.
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Minnesota Tax-Free Portfolio (currently known as Fidelity Minnesota
Municipal Income Fund) is incorporated herein by reference to Exhibit 15(d)
to Post-Effective Amendment No. 67.
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Pennsylvania Municipal High Yield Portfolio (currently known as Spartan
Pennsylvania Municipal Income Fund) is incorporated herein by reference to
Exhibit 15(e) to Post-Effective Amendment No. 67.
(f) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Municipal Bond Portfolio is incorporated herein by reference to Exhibit
15(f) to Post-Effective Amendment No. 67.
(g) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Aggressive Tax-Free Portfolio (currently known as Fidelity Aggressive
Municipal Fund) is incorporated herein by reference to Exhibit 15(j) to
Post-Effective Amendment No. 43.
16. Not applicable.
17. Not applicable.
Item 25. Persons Controlled by or under Common Control with Registrant
The Board of Trustees of the Registrant is substantially the same as the
boards of other funds advised by FMR, each of which has Fidelity Management
& Research Company as its investment adviser. In addition, the officers of
these funds are substantially identical. Nonetheless, Registrant takes the
position that it is not under common control with these other funds since
the power residing in the respective boards and officers arises as the
result of an official position with the respective funds.
Item 26. Number of Holders of Securities
October 31, 1995
Title of Class: Shares of Beneficial Interest
Title of Series: Number of Record Holders
Fidelity Aggressive Municipal Fund (formerly Fidelity 26,198
Aggressive Tax-Free Portfolio):
Fidelity Municipal Bond Portfolio: 24,675
Fidelity Insured Municipal Income Fund (formerly 10,244
Fidelity Insured Tax-Free Portfolio):
Fidelity Ohio Municipal Income Fund (formerly Fidelity 10,535
Ohio Tax-Free High Yield Portfolio):
Fidelity Michigan Municipal Income Fund (formerly 13,548
Fidelity Michigan Tax-Free High Yield Portfolio):
Fidelity Minnesota Municipal Income Fund (formerly 8,610
Fidelity Minnesota Tax-Free Portfolio):
Spartan Pennsylvania Municipal Income Fund (formerly 5,875
Spartan Pennsylvania Municipal High Yield Portfolio):
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present Trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit or
proceeding in which he is involved by virtue of his service as a trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless disregard
of the duties involved in the conduct of the particular office involved.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman of
the Board and a Director of FMR, FMR Corp., FMR Texas
Inc., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.; President
and Trustee of funds advised by FMR.
J. Gary Burkhead President of FMR; Managing Director of FMR Corp.;
President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.; Senior Vice
President and Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman and Director of FMR.
Robert Beckwitt Vice President of FMR and of funds advised by FMR.
David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.
Stephan Campbell Vice President of FMR (1993).
Dwight Churchill Vice President of FMR (1993).
William Danoff Vice President of FMR (1993) and of a fund advised by
FMR.
Scott DeSano Vice President of FMR (1993).
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Larry Domash Vice President of FMR (1993).
George Domolky Vice President of FMR (1993) and of a fund advised by
FMR.
Robert K. Duby Vice President of FMR.
Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.
Kathryn L. Eklund Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Daniel R. Frank Vice President of FMR and of funds advised by FMR.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Lawrence Greenberg Vice President of FMR (1993).
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Equity Division Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Richard Haberman Senior Vice President of FMR (1993).
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curtis Hollingsworth Vice President of FMR (1993).
Stephen P. Jonas Treasurer and Vice President of FMR (1993)); Treasurer of
FMR Texas Inc. (1993), Fidelity Management & Research
(U.K.) Inc. (1993), and Fidelity Management & Research
(Far East) Inc. (1993).
David B. Jones Vice President of FMR (1993).
Steven Kaye Vice President of FMR (1993) and of a fund advised by
FMR.
Frank Knox Vice President of FMR (1993).
Robert A. Lawrence Senior Vice President of FMR (1993); High Income
Division Leader.
Alan Leifer Vice President of FMR and of a fund advised by FMR.
Harris Leviton Vice President of FMR (1993) and of a fund advised by
FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Malcolm W. MacNaught III Vice President of FMR (1993).
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Andrew Offit Vice President of FMR (1993).
Judy Pagliuca Vice President of FMR (1993).
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Lee Sandwen Vice President of FMR (1993).
Patricia A. Satterthwaite Vice President of FMR (1993) and of a fund advised by
FMR.
Thomas T. Soviero Vice President of FMR (1993).
Richard Spillane Vice President of FMR; Senior Vice President and Director
of Operations and Compliance of FMR U.K. (1993).
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised
by FMR.
Gary L. Swayze Vice President of FMR and of funds advised by FMR;
Tax-Free Fixed-Income Group Leader.
Thomas Sweeney Vice President of FMR (1993).
Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised
by FMR.
Joel Tillinghast Vice President of FMR (1993) and of a fund advised by
FMR.
Robert Tucket Vice President of FMR (1993).
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR; Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Arthur S. Loring Senior Vice President (1993), Clerk, and General Counsel
of FMR; Vice President, Legal of FMR Corp.; Secretary of
funds advised by FMR.
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer None
Thomas W. Littauer Senior Vice President None
Arthur S. Loring Vice President and Clerk Secretary
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity Service
Co., 82 Devonshire Street, Boston, MA 02109, or the funds' custodian UMB
Bank, n.a., 1010 Grand Avenue, Kansas City, MO.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(1) The Registrant on behalf of Fidelity Aggressive Municipal Fund,
Fidelity Municipal Income Fund, Fidelity Insured Municipal Income Fund,
Fidelity Ohio Municipal Income Fund, Fidelity Michigan Municipal Income
Fund, Fidelity Minnesota Municipal Income Fund, and Spartan Pennsylvania
Municipal Income Fund, undertakes to deliver to each person to who has
received the prospectus or annual or semiannual financial report for a fund
in an electronic format, upon his or her request and without charge, a
paper copy of the prospectus or annual or semiannual financial report for
the fund.
(2) The Registrant on behalf of Fidelity Aggressive Municipal Fund,
Fidelity Municipal Income Fund, Fidelity Insured Municipal Income Fund,
Fidelity Ohio Municipal Income Fund, Fidelity Michigan Municipal Income
Fund, Fidelity Minnesota Municipal Income Fund, and Spartan Pennsylvania
Municipal Income Fund, provided the information required by Item 5A is
contained in the annual report, undertakes to furnish each person to whom a
prospectus has been delivered, upon their request and without charge, a
copy of the Registrant's latest annual report to shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 69 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, and Massachusetts, on the 1st day of December, 1995.
Fidelity Municipal Trust
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d(dagger) President and Trustee December 1, 1995
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Kenneth A. Rathgeber Treasurer December 1, 1995
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee December 1, 1995
J. Gary Burkhead
/s/Ralph F. Cox * Trustee December 1, 1995
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee December 1, 1995
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee December 1, 1995
Richard J. Flynn
/s/E. Bradley Jones * Trustee December 1, 1995
E. Bradley Jones
/s/Donald J. Kirk * Trustee December 1, 1995
Donald J. Kirk
/s/Peter S. Lynch * Trustee December 1, 1995
Peter S. Lynch
/s/Edward H. Malone * Trustee December 1, 1995
Edward H. Malone
/s/Marvin L. Mann * Trustee December 1, 1995
Marvin L. Mann
/s/Gerald C. McDonough* Trustee December 1, 1995
Gerald C. McDonough
/s/Thomas R. Williams * Trustee December 1, 1995
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated December 15, 1994 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 15, 1994 and filed herewith.
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Income Fund
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Djinis, each of them singly, our true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for us and in our names in the appropriate capacities, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this fifteenth day of December, 1994.
/s/Edward C. Johnson 3d /s/Donald J. Kirk
Edward C. Johnson 3d Donald J. Kirk
/s/J. Gary Burkhead /s/Peter S. Lynch
J. Gary Burkhead Peter S. Lynch
/s/Ralph F. Cox /s/Marvin L. Mann
Ralph F. Cox Marvin L. Mann
/s/Phyllis Burke Davis /s/Edward H. Malone
Phyllis Burke Davis Edward H. Malone
/s/Richard J. Flynn /s/Gerald C. McDonough
Richard J. Flynn Gerald C. McDonough
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Institutional Trust
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series II Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Exchange Fund Fund
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as President and Board Member (collectively, the "Funds"), hereby
severally constitute and appoint J. Gary Burkhead, my true and lawful
attorney-in-fact, with full power of substitution, and with full power to
sign for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorney-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission. I hereby ratify
and confirm all that said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d December 15, 1994
Edward C. Johnson 3d
MANAGEMENT CONTRACT
between
Fidelity municipal Trust:
FIDELITY INSURED TAX-FREE PORTFOLIO
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
Modification made this 1st day of January 1994 by and between Fidelity
Municipal Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the"Fund"), on
behalf of Fidelity Insured Tax-Free Portfolio (hereinafter called
the"Portfolio"), and Fidelity Management & Research Company, a
Massachusetts corporation (hereinafter called the"Adviser").
Required authorization and approval by shareholders and Trustees having
been obtained, the Fund, on behalf of the Portfolio, and the Advisor hereby
consent, pursuant to Paragraph 6 of the existing Management Contract
modified March 1, 1989, to a modification of said Contract in the manner
set forth below. The Modified Management Contract shall, when executed by
duly authorized officers of the Fund and the Adviser, take effect on the
later of January 1, 1994 or the first day of the month following approval.
1. (a) Investment Advisory Services. The Adviser undertakes to act as
investment adviser of the Portfolio and shall, subject to the supervision
of the Fund's Board of Trustees, direct the investments of the Portfolio in
accordance with the investment objective, policies and limitations as
provided in the Portfolio's Prospectus or other governing instruments, as
amended from time to time, the Investment Company Act of 1940 and rules
thereunder, as amended from time to time (the "1940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser. The Adviser shall also furnish for the use of the Portfolio office
space and all necessary office facilities, equipment and personnel for
servicing the investments of the Portfolio; and shall pay the salaries and
fees of all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all personnel of
the Fund or the Adviser performing services relating to research,
statistical and investment activities. The Adviser is authorized, in its
discretion and without prior consultation with the Portfolio, to buy, sell,
lend and otherwise trade in any stocks, bonds and other securities and
investment instruments on behalf of the Portfolio. The investment policies
and all other actions of the Portfolio are and shall at all times be
subject to control and direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for the
performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund. The Adviser shall,
subject to the supervision of the Board of Trustees, perform various
services for the Portfolio, including but not limited to: (i) providing the
Portfolio with office space, equipment and facilities (which may be its
own) for maintaining its organization; (ii) on behalf of the Portfolio,
supervising relations with, and monitoring the performance of, custodians,
depositories, transfer and pricing agents, accountants, attorneys,
underwriters, brokers and dealers, insurers and other persons in any
capacity deemed to be necessary or desirable; (iii) preparing all general
shareholder communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered, maintaining
the registration and qualification of the Portfolio's shares under federal
and state law; and (vii) investigating the development of and developing
and implementing, if appropriate, management and shareholder services
designed to enhance the value or convenience of the Portfolio as an
investment vehicle.
The Adviser shall also furnish such reports, evaluations, information or
analyses to the Fund as the Fund's Board of Trustees may request from time
to time or as the Adviser may deem to be desirable. The Adviser shall make
recommendations to the Fund's Board of Trustees with respect to Fund
policies, and shall carry out such policies as are adopted by the Trustees.
The Adviser shall, subject to review by the Board of Trustees, furnish such
other services as the Adviser shall from time to time determine to be
necessary or useful to perform its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or dealers
selected by the Adviser, which may include brokers or dealers affiliated
with the Adviser. The Adviser shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the Portfolio
and at commission rates which are reasonable in relation to the benefits
received. In selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide brokerage
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) to the Portfolio and/or the other accounts
over which the Adviser or its affiliates exercise investment discretion.
The Adviser is authorized to pay a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This determination may
be viewed in terms of either that particular transaction or the overall
responsibilities which the Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Trustees of
the Fund shall periodically review the commissions paid by the Portfolio to
determine if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor. The
Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of the
Fund are or may be or become interested in the Adviser as directors,
officers or otherwise and that directors, officers and stockholders of the
Adviser are or may be or become similarly interested in the Fund, and that
the Adviser may be or become interested in the Fund as a shareholder or
otherwise.
3. The Adviser will be compensated on the following basis for the services
and facilities to be furnished hereunder. The Adviser shall receive a
monthly management fee, payable monthly as soon as practicable after the
last day of each month, composed of a Group Fee Rate and an Individual Fund
Fee Rate.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the monthly
average of the net assets of the registered investment companies having
Advisory and Service or Management Contracts with the Adviser (computed in
the manner set forth in the charter of each investment company) determined
as of the close of business on each business day throughout the month. The
Group fee rate shall be determined on a cumulative basis pursuant to the
following schedule.
Average Annualized
Net Fee Rate
Assets (for each level)
0 - $3 billion .3700%
3 - 6 .3400
6 - 9 .3100
9 - 12 .2800
12 - 15 .2500
15 - 18 .2200
18 - 21 .2000
21 - 24 .1900
24 - 30 .1800
30 - 36 .1750
36 - 42 .1700
42 - 48 .1650
48 - 66 .1600
66 - 84 .1550
84 - 120 .1500
120 - 174 .1450
174 - 228 .1400
228 - 282 .1375
282 - 336 .1350
Over 336 .1325
(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
.25%.
The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute the
annual management fee rate. One twelfth of the annual management fee shall
be applied to the average of the net assets of the Portfolio (computed in
the manner set forth in the Declaration of Trust of the Fund) determined as
of the close of business on each business day throughout the month.
(c) In case of termination of this Contract during any month, the fee
for that month shall be reduced proportionately on the basis of the number
of business days during which it is in effect, and the fee computed upon
the average net assets for the business days it is so in effect for that
month.
4. It is understood that the Portfolio will pay all its expenses other
than those expressly stated to be payable by the Adviser hereunder, which
expenses payable by the Portfolio shall, include, without limitation, (i)
interest and taxes; (ii) brokerage commissions and other costs in
connection with the purchase or sale of securities and other investment
instruments; (iii) fees and expenses of the Fund's Trustees other than
those who are "interested persons" of the Fund or the Adviser; (iv) legal
and audit expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses relating to the registration and
qualification of the Fund and the Portfolio's shares for distribution under
state and federal securities laws; (vii) expenses of printing and mailing
reports and notices, and proxy material to shareholders of the Portfolio;
(viii) all other expenses incidental to holding meetings of the Portfolio's
shareholders, including proxy solicitations therefor; (ix) a pro rata
share, based on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management Contracts
with the Adviser, of 50% of insurance premiums for fidelity and other
coverage; (x) its proportionate share of association membership dues; (xi)
expenses of typesetting for printing Prospectuses and Statements of
Additional Information and supplements thereto; (xii) expenses of printing
and mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a party
and the legal obligation which the Portfolio may have to indemnify the
Fund's Trustees and officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage
in other activities, provided, however, that such other services and
activities do not, during the term of this Contract, interfere, in a
material manner, with the Adviser's ability to meet all of its obligations
with respect to rendering services to the Portfolio hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser,
the Adviser shall not be subject to liability to the Portfolio or to any
shareholder of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
6. (a) Subject to prior termination as provided in sub-paragraph (d) of
this paragraph 6, this Contract shall continue in force until June 30, 1994
and indefinitely thereafter, but only so long as the continuance after such
date shall be specifically approved at least annually by vote of the
Trustees of the Fund or by vote of a majority of the outstanding voting
securities of the Portfolio.
(b) This Contract may be modified by mutual consent, such consent on the
part of the Fund to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 6, the terms of any continuance or modification of this
Contract must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to the Contract or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract without payment of any
penalty, by action of its Trustees or Board of Directors, as the case may
be, or with respect to the Portfolio by vote of a majority of the
outstanding voting securities of the Portfolio. This Contract shall
terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust or
other organizational document and agrees that the obligations assumed by
the Fund pursuant to this Contract shall be limited in all cases to the
Portfolio and its assets, and the Adviser shall not seek satisfaction of
any such obligation from the shareholders or any shareholder of the
Portfolio or any other Portfolios of the Fund. In addition, the Adviser
shall not seek satisfaction of any such obligation from the Trustees or any
individual Trustee. The Adviser understands that the rights and obligations
of any Portfolio under the Declaration of Trust are separate and distinct
from those of any and all other Portfolios.
8. This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Massachusetts.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have the
respective meanings specified in the 1940 Act, as now in effect or as
hereafter amended, and subject to such orders as may be granted by the
Securities and Exchange Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be signed in
their behalf by their respective officers thereunto duly authorized, and
their respective seals to be hereunto affixed, all as of the date written
above.
FIDELITY MUNICIPAL TRUST
on behalf of Fidelity Insured Tax-Free Portfolio
By /s/J. Gary Burkhead
J. Gary Burkhead
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By /s/J. Gary Burkhead
J. Gary Burkhead
President
