SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-55725)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 84 [X]
and
REGISTRATION STATEMENT (No. 811-2720)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 84 [X]
Fidelity Municipal Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
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)(1).
(X) on February 26, 1998 pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) 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.
FIDELITY MUNICIPAL TRUST:
SPARTAN AGGRESSIVE MUNICIPAL FUND
SPARTAN 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 .............................. **
b .............................. *
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; 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
h .............................. *
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
**To be filed by subsequent amendment
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 Trust
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 Contract
b ............................ Management Contract
c, d ............................ Contracts with FMR Affiliates
e ............................ *
f ............................ Distribution and Service Plan
g ............................ *
h ............................ Description of the Trust
i ............................ Contracts with FMR Affiliates
17 a - c ............................ Portfolio Transactions
d, e ............................ *
18 a ............................ Description of the Trust
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 ............................ **
</TABLE>
* Not Applicable
** To be filed by subsequent amendment
SPARTAN AGGRESSIVE MUNICIPAL
FUND
(FUND NUMBER 012, TRADING SYMBOL FATFX)
SPARTAN INSURED MUNICIPAL INCOME
FUND
(FUND NUMBER 013, TRADING SYMBOL FMUIX)
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how
each fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can
obtain a copy of each fund's most recent financial report and
portfolio listing, or a copy of the Statement of Additional
Information (SAI) dated February 26,1998. The SAI has been
filed with the Securities and Exchange Commission (SEC) and is
available along with other related materials on the SEC's Internet Web
site (http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either
document, call Fidelity at 1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
Each fund seeks a high level of current income free from federal
income tax. The funds have different strategies, however, and carry
varying degrees of risk and yield potential.
PROSPECTUS
FEBRUARY 26, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON,
MA 02109
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FAT-pro-0298
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
KEY FACTS
THE FUNDS AT A GLANCE
SPARTAN AGGRESSIVE
GOAL: High current income free from federal income tax.
STRATEGY: Invests primarily in investment-grade municipal securities.
FMR uses the Lehman Brothers Municipal Bond Index as a guide in
structuring the fund and selecting its investments.
SIZE: As of December 31, 1997 , the fund had over $__
[m/b]illion in assets.
SPARTAN INSURED
GOAL: High current income free from federal income tax with
preservation of capital.
STRATEGY: Invests mainly in investment-grade municipal
securities that are covered by insurance guaranteeing the timely
payment of principal and interest. FMR uses the Lehman Brothers
Insured Municipal Bond Index as a guide in structuring the fund and
selecting its investments.
SIZE: As of December 31, 1997 , the fund had over $__
[m/b]illion in assets.
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.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors in higher tax
brackets who seek high current income that is free from federal income
tax. Each fund's level of risk and potential reward depend on
the quality and maturity of its investments. Spartan Aggressive
Municipal may invest in lower-quality investments, which typically
carry the most risk and the highest yield potential. Spartan Insured
Municipal Income invests in securities that, because of insurance
coverage, have an extra degree of credit safety. Insurance covers the
timely payment of principal and interest, but does not guarantee the
market value of a security or the fund's share price. 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 may pay when you buy
or sell shares of a fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page __, for an explanation of how and when
these charges apply.
Sales charge on purchases
None
and reinvested distributions
Deferred sales charge on redemptions 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 "Breakdown of
Expenses" page ).
The following figures are based on historical expenses, adjusted to
reflect current fees, of each fund and are calculated as a
percentage of average net assets of each fund . [FUND REPORTING
WILL DETERMINE IF ANY OF THE FOLLOWING IS APPROPRIATE. IF YOU ARE
A-FILING, INCLUDE THE LANGUAGE: A portion of the brokerage commissions
that a fund pays is used to reduce that fund's expenses. In addition,
each fund has entered into arrangements with its custodian and
transfer agent whereby credits realized as a result of uninvested cash
balances are used to reduce custodian and transfer agent expenses.
Including these reductions, the total fund operating expenses
presented in the table would have been __% for Spartan Aggressive
Municipal and __% for Spartan Insured Municipal Income.]
SPARTAN AGGRESSIVE
Management fee (after reimbursement) %
12b-1 fee None
Other expenses %
Total fund operating expenses %
(after reimbursement)
SPARTAN INSURED
Management fee (after reimbursement) %
12b-1 fee None
Other expenses %
Total fund operating expenses %
(after reimbursement)
EXAMPLES: Let's say, hypothetically, that each fund's annual
return is 5% and that your shareholder transaction expenses and
each fund's annual 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:
SPARTAN AGGRESSIVE
1 year $
3 years $
5 years $
10 years $
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of expenses
for portfolio management,
shareholder statements, tax
reporting, and other services.
These expenses are paid from
each fund's assets, and their
effect is already factored into
any quoted share price or
return. Also, as an investor,
you may pay certain expenses
directly.
(checkmark)
FMR has voluntarily agreed to reimburse Spartan Aggressive
Municipal through December 31, 1999 to the extent that total operating
expenses exceed 0.53% of its average net assets. FMR has voluntarily
agreed to reimburse Spartan Insured Municipal Income to the extent
that total operating expenses exceed 0.55% of its average net assets.
If these agreements were not in effect, the management fee, other
expenses, and total operating expenses would have been __%, __%, and
__%, respectively for Spartan Aggressive Municipal and __%, __%, and
__%, respectively for Spartan Insured Municipal Income. Expenses
eligible for reimbursement do not include interest, taxes, brokerage
commissions, or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been
audited by , independent accountants. The
funds' financial highlights, financial statements, and
reports of the auditor are included in each fund's
Annual Report , and are incorporated by reference into (are
legally a part of) the funds' SAI. Contact Fidelity for a free copy of
an Annual Report or the SAI.
[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.
Each fund's fiscal year runs from January 1 through December
31. The tables below show each fund's performance over past
fiscal years compared to different measures, including a comparative
index and a competitive funds average. The charts on page present
calendar year performance.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan Aggressive % % %
Lehman Brothers Municipal Bond Index % % %
Lipper High Yld. Muni. Debt Funds Average % % %
Spartan Insured % % %
Lehman Bros. Ins. Muni. Bond Index % % %
Lipper Insured Municipal Debt Funds Average % % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan Aggressive % % %
Lehman Brothers Municipal Bond Index % % %
Lipper High Yld. Muni. Debt Funds Average % % %
Spartan Insured % % %
Lehman Bros. Ins. Muni. Bond Index % % %
Lipper Insured Municipal Debt Funds Average % % %
If FMR had not reimbursed certain fund expenses during these
periods, yields and total returns would have been lower.
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 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.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Spartan Aggressive
Municipal % % % % % % % % % %
Lipper High Yld. Muni. Debt
Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan Aggressive
Municipal
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Spartan Insured Municipal Income % % % % % % % % % %
Lipper Ins. Muni. Debt Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan Insured
Municipal Income
LEHMAN BROTHERS MUNICIPAL BOND INDEX is a total return performance
benchmark for investment-grade municipal bonds with maturities of at
least one year.
LEHMAN BROTHERS INSURED MUNICIPAL BOND INDEX is a total return
performance benchmark for municipal bonds that are backed by insurers
with Aaa/AAA ratings and have maturities of at least one year.
Unlike each fund's returns, the total returns of each
comparative index do not include the effect of any brokerage
commissions, transaction fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGES are the Lipper High Yield
Municipal Debt Funds Average and Lipper Insured Municipal Debt Funds
Average for Spartan Aggressive Municipal and Spartan Insured Municipal
Income, respectively. As of December 31, 1997, the averages
reflected the performance of ___ and ___ mutual funds with similar
investment objectives, respectively. These a verages , published
by Lipper Analytical Services, Inc., exclude the effect of
sales loads.
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.
Each fund is a diversified fund of Fidelity Municipal Trust, an
open-end management investment company organized as a Massachusetts
business trust on June 22, 1984.
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 periodically throughout the
year to oversee the funds' activities, review contractual arrangements
with companies that provide services to the funds , and review
the funds' performance. The trustees serve as trustees for
other Fidelity funds. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER MEETINGS AND MAIL PROXY
MATERIALS. These meetings may be called to elect or remove trustees,
change fundamental policies, approve a management contract, or for
other purposes. Shareholders not attending these meetings are
encouraged to vote by proxy. Fidelity will mail proxy materials in
advance, including a voting card and information about the proposals
to be voted on. The number of votes you are entitled to is based upon
the dollar value of your investment.
FMR AND ITS AFFILIATES
The funds are managed by FMR, which chooses their investments
and handles their business affairs.
David Murphy is Vice President and manager of Spartan Aggressive
Municipal, which he has managed since April 1997.He also manages
several other Fidelity funds. Mr. Murphy joined Fidelity as a
portfolio manager in 1989.
George Fischer is manager of Spartan Insured Municipal Income,
which he has managed since August 1995. He also manages several other
Fidelity funds. Since joining Fidelity in 1989, Mr. Fischer has worked
as an analyst and manager.
Fidelity investment personnel may invest in securities for their own
accounts 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.
UMB Bank, n.a. (UMB) is each fund's transfer agent, and is
located at 1010 Grand Avenue, Kansas City, Missouri. UMB employs
Fidelity Service Company, Inc. (FSC) to perform transfer agent
servicing functions for each 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.
[NOTE: INCLUDE ONLY IF FMR AND ITS AFFILIATES TOGETHER HAVE GREATER
THAN 25% OWNERSHIP IN THE FUND(S). THIS TILE MAY REQUIRE TAILORING
DEPENDING ON THE THE NUMBER OF FUNDS IN WHICH FMR OR AN AFFILIATE HAS
BENEFICIAL OWNERSHIP: As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO
SEC FILING DATE], approximately ____% and ____% of each of [NAME OF
FUND]'s and [NAME OF FUND]'s total outstanding shares, respectively,
were held by [FMR/FMR and [an] FMR affiliate[s]/[an] FMR
affiliate[s].]
[NOTE: INCLUDE ONLY IF A SHAREHOLDER (OTHER THAN FMR OR AN FMR
AFFILIATE) HAS GREATER THAN 25% OWNERSHIP IN THE FUND[S]. THIS TILE
MAY REQUIRE TAILORING DEPENDING ON THE THE NUMBER OF FUNDS IN WHICH A
SHAREHOLDER HAS BENEFICIAL OWNERSHIP: As of [DATE NOT EARLIER THAN 30
DAYS PRIOR TO SEC FILING DATE], approximately ____% of [NAME OF
FUND]'s total outstanding shares were held by [NAME OF SHAREHOLDER];
approximately ___% of [NAME OF FUND]'s total outstanding shares were
held by [NAME OF SHAREHOLDER]; and approximately ___% of [NAME OF
FUND]'s total outstanding shares were held by [NAME OF SHAREHOLDER].]
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
The total return from a bond includes both income and price gains or
losses. While income is the most important component of bond returns
over time, a bond fund's emphasis on income does not mean the fund
invests only in the highest-yielding bonds available, or that it can
avoid losses of principal.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity
that issued them and/or other revenue streams. Municipal security
values may be significantly affected by political changes as well as
uncertainties in the municipal market related to taxation or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. In managing bond funds, FMR
selects a benchmark index which is representative of the universe of
securities in which a fund invests. FMR uses this benchmark as a guide
in structuring the fund and selecting its investments.
FMR allocates assets among different market sectors (for example,
general obligation bonds of a state or bonds financing a specific
project) and different maturities based on its view of the relative
value of each sector or maturity.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the universe of securities in which the fund invests. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
SPARTAN AGGRESSIVE MUNICIPAL seeks high current income that is free
from federal income tax by investing primarily in investment-grade
municipal securities. The fund will limit its investments in below
investment-grade securities to 35% of its assets. The benchmark index
for the fund is the Lehman Brothers Municipal Bond Index, a benchmark
of investment-grade municipal bonds with maturities of one year or
more. FMR manages the fund to have similar overall interest rate risk
to the Index. As of December 31, 1997, the dollar-weighted average
maturity of the fund and the Index was approximately ___ and ___
years, respectively.
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is free from federal income tax.
SPARTAN INSURED MUNICIPAL INCOME seeks high current income that is
free from federal income tax, consistent with preservation of capital,
by investing primarily in municipal bonds that are covered by
insurance guaranteeing the timely payment of interest and principal.
FMR normally invests 65% of the fund's total assets in these
securities. The balance, however, may be invested in other types of
securities, including uninsured municipal bonds.
The insurance coverage for municipal bonds 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, and the
insurance increases the credit safety of the fund's investments but
decreases the fund's yield. It is important to note that the insurance
does not guarantee the market value of a security or the fund's
shares. As a result of the fund's emphasis on insured securities, the
fund's performance may be affected by conditions affecting the
municipal bond insurance industry generally. Insurance companies
that issue municipal insurance include: AMBAC Indemnity Corporation,
Connie Lee, Financial Guaranty Insurance Company, Financial Security
Assurance, Inc., and Municipal Bond Investors Assurance. Adverse
changes in the financial condition of a single insurance company could
have a significant impact on municipal security values and the value
of the fund's holdings.
The benchmark index for the fund is the Lehman Brothers Insured
Municipal Bond Index, a benchmark of municipal bonds that are backed
by insurers with Aaa/AAA ratings and have maturities of one year or
more. FMR manages the fund to have similar overall interest rate risk
to the Index. As of December 31, 1997, the dollar-weighted average
maturity of the fund and the Index was approximately ___ and ___
years, respectively.
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is free from federal income tax.
FMR may invest all of each fund's assets in municipal
securities issued to finance private activities. The interest from
these securities is a tax-preference item for purposes of the federal
alternative minimum tax.
FMR may use various techniques to hedge a portion of a fund's
risks, but there is no guarantee that these strategies will work as
intended. When you sell your shares of a fund, they may be
worth more or less than what you paid for them.
FMR normally invests eac h 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. Any restrictions listed supplement those discussed
earlier in this section. A complete listing of each fund's
limitations and more detailed information about each fund's
investments are contained in a fund's SAI. Policies and
limitations are considered at the time of purchase; the sale of
instruments is not required in the event of a subsequent change in
circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a
fund's investment objective and policies and that doing so will help a
fund achieve its goal. Fund holdings and recent investment strategies
are detailed in each fund's financial reports, which are sent
to shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating 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 sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
Lower-quality debt securities (sometimes called "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 table provides a summary of ratings assigned to debt
holdings (not including money market instruments) in Spartan
Aggressive Municipal's portfolio. These figures are dollar-weighted
averages of month-end portfolio holdings during the fiscal year ended
December 1997, and are presented as a percentage of total security
investments. These percentages are historical and do not necessarily
indicate the fund's current or future debt holdings.
RESTRICTIONS: Spartan Aggressive Municipal currently intends to limit
its investments in below investment-grade securities to less than 35%
of its assets and does not currently intend to invest more than 10% of
its total assets in bonds that are in default. A security is
considered to be investment-grade if it is rated investment-grade by
Moody's Investors Service, Standard & Poor's, Duff & Phelps Credit
Rating Co., or Fitch Investors Service, L.P., or is unrated but judged
by FMR to be of equivalent quality.
Spartan Insured Municipal Income invests only in investment-grade
securities. A security is considered to be investment-grade if it
is judged by FMR to be of equivalent quality to securities rated
Baa or BBB or higher by Moody's Investors Service or Standard &
Poors, respectively.
SPARTAN AGGRESSIVE
FISCAL YEAR ENDED DECEMBER 1997 DEBT HOLDINGS, BY RATING
MOODY'S INVESTORS STANDARD & POOR'S
SERVICE
(AS A % OF INVESTMENTS) (AS A % OF INVESTMENTS)
RATING AVERAGE OF RATING AVERAGE OF
TOTAL INVESTMENTS TOTAL INVESTMENTS
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 %
REFER TO THE FUND'S SAI FOR A MORE COMPLETE DISCUSSION OF THESE
RATINGS.
THE FUND DOES NOT NECESSARILY RELY ON THE RATINGS OF MOODY'S OR S&P TO
DETERMINE COMPLIANCE WITH ITS DEBT QUALITY
POLICY. SECURITIES NOT RATED BY MOODY'S OR S&P AMOUNTED TO __% OF THE
FUND'S INVESTMENTS. THIS PERCENTAGE MAY
INCLUDE SECURITIES RATED BY OTHER NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATIONS, AS WELL AS UNRATED
SECURITIES. UNRATED LOWER-QUALITY SECURITIES AMOUNTED TO __% OF THE
FUND'S INVESTMENTS.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose a fund to the credit risk of
the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security
and a fund's share price. In addition, in the case of foreign
providers of credit or liquidity support, extensive public information
about the provider may not be available, and unfavorable political,
economic, or governmental developments could affect its ability to
honor its commitment.
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 fully or partially backed by the local government, or by
the credit of a private issuer or the current or anticipated revenues
from specific projects or assets. Because many municipal securities
are issued to finance similar types of projects, especially those
relating to education, health care, housing, transportation, and
utilities, the municipal markets can be affected by conditions in
those sectors. In addition, all municipal securities may be affected
by uncertainties regarding their tax status, legislative changes, or
rights of municipal securities holders. A municipal security may be
owned directly or through a participation interest.
ASSET-BACKED SECURITIES include interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities . The value of these securities depends on many
factors, including changes in interest rates, the availability of
information concerning the pool and its structure, the credit quality
of the underlying assets, the market's perception of the servicer of
the pool, and any credit enhancement provided. In addition, these
securities may 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 SECURITIES may include obligations of U.S. territories
and possessions such as Guam, the Virgin Islands, and Puerto Rico, and
their political subdivisions and public corporations.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund
may accept a lower interest rate. 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, entering into swap
agreements, and purchasing indexed securities.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR
judges market conditions incorrectly or employs a strategy that does
not correlate well with a fund's investments, these techniques
could result in a loss, regardless of whether the intent was to reduce
risk or increase return. These techniques may increase the volatility
of a fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities and some
other securities may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a
fund.
RESTRICTIONS: A fund may not purchase a security if, as a
result, more than 10% of its assets would be invested in illiquid
securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The
market value of the security could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities
and in a money market fund available only to funds and accounts
managed by FMR or its affiliates, whose goal is to seek a high level
of current income exempt from federal income tax while maintaining a
stable $1.00 share price. A major change in interest rates or a
default on the money market fund's investments could cause its share
price to change.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry
or type of project. Economic, business, or political changes can
affect all securities of a similar type.
RESTRICTIONS: With respect to 75% of its total assets, Spartan
Aggressive Municipal may not purchase a security if, as a result, more
than 5% would be invested in the securities of any one issuer. This
limitation does not apply to U.S. Government securities.
With respect to 75% of its assets, Spartan Insured Municipal Income
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 also invest more than 25% of its assets in bonds insured by the
same insurance company.
Each fund may invest more than 25% of its total assets in
tax-free securities that finance similar types of projects.
BORROWING. Each fund may borrow from banks or from other funds
advised by FMR, or through reverse repurchase agreements. If a
fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If a fund makes
additional investments while borrowings are outstanding, this may be
considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or
emergency purposes, but not in an amount exceeding 331/3% of its total
assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
SPARTAN AGGRESSIVE MUNICIPAL seeks to provide a high current yield,
exempt from federal income tax.
Spartan Aggressive Municipal will normally invest at least 80% of its
assets in municipal securities whose interest is exempt from federal
tax.
With respect to 75% of its total assets, Spartan Aggressive Municipal
may not purchase a security if, as a result, more than 5% would be
invested in the securities of any one issuer.
SPARTAN INSURED MUNICIPAL INCOME 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 ratings 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 its assets, the fund may not invest more than
5% of its total assets in any one issuer.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% 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 on page .
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 0.37%, and it
drops as total assets under management increase.
FMR has voluntarily agreed to limit Spartan Aggressive Municipal's
total operating expenses to an annual rate of 0.53% of average net
assets. This agreement will continue until December 31, 1999.
For December 1997, the group fee rate was __%. The individual fund fee
rate is 0.25% for Spartan Aggressive Municipal and 0.25% for Spartan
Insured Municipal Income.
Because of a reimbursement arrangement, the total management fee rate
for the fiscal year ended December 1997 was __% for Spartan Aggressive
and __% for Spartan Insured Municipal Income.
OTHER EXPENSES
While the management fee is a significant component of the
funds' annual operating costs, the funds have other
expenses as well.
UMB is the transfer and service agent for each fund. UMB has
entered into sub-agreements with FSC under which FSC performs transfer
agency, dividend disbursing, shareholder servicing, and accounting
functions for the funds. These services include processing
shareholder transactions, valuing each fund's investments,
and calculating each fund's share price and dividends.
Under the terms of the sub-agreements, FSC receives all related
fees paid to UMB by each fund.
For the fiscal year ended December 1997, transfer agency and pricing
and bookkeeping fees paid (as a percentage of average net assets)
amounted to the following. [FUND REPORTING TO ADD AS APPROPRIATE:
These amounts are before expense reductions, if any.]
Transfer Agency and
Pricing and Bookkeeping Fees
Paid by Fund
Spartan Aggressive Municipal %
Spartan Insured Municipal Income %
Each fund also pays other expenses, such as legal, audit, and
custodian fees; in some instances, proxy solicitation costs;
and the compensation of trustees who are not affiliated with Fidelity.
A broker-dealer may use a portion of the commissions paid by a fund
to reduce that fund's custodian or transfer agent fee.
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)
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each
plan recognizes that FMR may use its management fee revenues, as
well as its past profits or its resources from any other source, to
pay FDC for expenses incurred in connection with the distribution
of fund shares. FMR directly, or through FDC, may make payments
to third parties, such as banks or broker-dealers, that engage in the
sale of, or provide shareholder support services for, the
fund's shares. Currently, the Board of Trustees has not authorized
such payments.
For the fiscal year ended December 1997, the portfolio turnover rates
for Spartan Aggressive Municipal and Spartan Insured Municipal Income
were __% and __%, respectively. These rates vary from year to year.
[IF RATE IS 100% OR MORE: 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.
You may purchase or sell shares of the funds through an
investment professional, including a broker, who may charge you a
transaction fee for this service. If you invest through FBSI, another
financial institution, or an investment professional, read their
program materials for any special provisions, additional service
features or fees that may apply to your investment in a fund.
Certain features of the fund, such as the minimum initial or
subsequent investment amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset
value per share (NAV). Each fund's shares are sold without a sales
charge.
You r shares will be purchased at the next NAV calculated
after your investment is received and accepted. Each fund's NAV
is normally calculated each business day at 4:00 p.m. Eastern
time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no application
accompanying this prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $ 10,000
TO ADD TO AN ACCOUNT $ 1,000
Through regular investment plans* $500
MINIMUM BALANCE $ 5,000
*For more information about regular investment plans, please refer to
"Investor Services," page __.
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE 1-800-544-7777
(PHONE_GRAPHIC) (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER
FIDELITY FUND (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME REGISTRATION, ACCOUNT WITH THE SAME REGISTRATION,
INCLUDING NAME, ADDRESS, AND INCLUDING 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: UP TO
$100,000.
</TABLE>
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MAIL
(MAIL_GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE
APPLICATION. (SMALL SOLID BULLET) MAKE YOUR CHECK PAYABLE TO THE
MAKE YOUR CHECK PAYABLE TO THE COMPLETE NAME OF THE FUND. INDICATE
COMPLETE NAME OF THE FUND. MAIL TO YOUR FUND ACCOUNT NUMBER ON YOUR
THE ADDRESS INDICATED ON THE CHECK AND MAIL TO THE ADDRESS PRINTED
APPLICATION. ON 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
AND CHECK TO A (SMALL SOLID BULLET) BRING YOUR CHECK TO A FIDELITY INVESTOR
FIDELITY INVESTOR CENTER. CALL CENTER. CALL 1-800-544-9797 FOR THE
1-800-544-9797 FOR THE CENTER CENTER NEAREST YOU.
NEAREST YOU.
</TABLE>
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WIRE (WIRE_GRAPHIC) (SMALL SOLID BULLET) CALL 1-800-544-7777 TO SET UP YOUR (SMALL SOLID BULLET) WIRE TO:
ACCOUNT AND TO ARRANGE A WIRE BANKERS TRUST COMPANY,
TRANSACTION. BANK ROUTING #021001033,
(SMALL SOLID BULLET) WIRE WITHIN 24 HOURS TO: ACCOUNT #00163053.
BANKERS TRUST COMPANY, SPECIFY THE COMPLETE NAME OF THE
BANK ROUTING #021001033, FUND AND INCLUDE YOUR ACCOUNT
ACCOUNT #00163053. NUMBER AND YOUR NAME.
SPECIFY THE COMPLETE NAME OF THE
FUND AND INCLUDE YOUR NEW ACCOUNT
NUMBER AND YOUR NAME.
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AUTOMATICALLY
(AUTOMATIC_GRAPHIC) (SMALL SOLID BULLET) NOT AVAILABLE. (SMALL SOLID BULLET) USE FIDELITY AUTOMATIC ACCOUNT
BUILDER. SIGN UP FOR THIS SERVICE
WHEN OPENING YOUR ACCOUNT, OR CALL
1-800-544-6666 TO ADD IT.
</TABLE>
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(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your
order is received and accepted. Each fund's NAV is normally
calculated each business day at 4:00 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$5,000 worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account in Spartan Insured Municipal
Income, you may write an unlimited number of checks. Do not, however,
try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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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: UP TO $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 TENANT, (SMALL SOLID BULLET) THE LETTER OF INSTRUCTION MUST BE SIGNED BY ALL
SOLE PROPRIETORSHIP, PERSONS REQUIRED TO SIGN FOR TRANSACTIONS,
UGMA, UTMA EXACTLY AS THEIR NAMES APPEAR ON THE ACCOUNT.
TRUST (SMALL SOLID BULLET) THE TRUSTEE MUST SIGN THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF THE TRUSTEE'S NAME IS NOT
IN THE ACCOUNT REGISTRATION, PROVIDE A COPY OF THE
TRUST DOCUMENT CERTIFIED WITHIN THE LAST 60 DAYS.
BUSINESS OR ORGANIZATION (SMALL SOLID BULLET) AT LEAST ONE PERSON AUTHORIZED BY CORPORATE
RESOLUTION TO ACT ON THE ACCOUNT MUST SIGN THE
LETTER.
(SMALL SOLID BULLET) INCLUDE A CORPORATE RESOLUTION WITH CORPORATE
SEAL OR A SIGNATURE GUARANTEE.
EXECUTOR, ADMINISTRATOR, (SMALL SOLID BULLET) CALL 1-800-544-6666 FOR INSTRUCTIONS.
CONSERVATOR, GUARDIAN
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
AND ACCEPTED BY FIDELITY BEFORE 4:00 P.M.
EASTERN TIME FOR MONEY TO BE WIRED ON THE
NEXT BUSINESS DAY.
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CHECK (CHECK_GRAPHIC) ALL ACCOUNT TYPES (SMALL SOLID BULLET) MINIMUM CHECK: $1,000.
(SMALL SOLID BULLET) ALL ACCOUNT OWNERS MUST SIGN A SIGNATURE CARD
TO RECEIVE A CHECKBOOK.
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(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
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INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone or in writing.
Note that exchanges out of a fund are limited to four per
calendar year, and that they may have tax consequences for you. For
details on policies and restrictions governing exchanges, including
circumstances under which a shareholder's exchange privilege may be
suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer
money by phone between your bank account and your fund account. Most
transfers are complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for a home, educational expenses, and other
long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 MONTHLY OR QUARTERLY (SMALL SOLID BULLET) FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE SECTION ON THE FUND
APPLICATION.
(SMALL SOLID BULLET) FOR EXISTING ACCOUNTS, CALL 1-800-544-6666 FOR AN APPLICATION.
(SMALL SOLID BULLET) TO CHANGE THE AMOUNT OR FREQUENCY OF YOUR INVESTMENT, CALL
1-800-544-6666 AT LEAST THREE BUSINESS DAYS PRIOR TO YOUR NEXT
SCHEDULED INVESTMENT DATE.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 EVERY PAY PERIOD (SMALL SOLID BULLET) CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION, OR CALL
1-800-544-6666 FOR AN AUTHORIZATION FORM.
(SMALL SOLID BULLET) CHANGES REQUIRE A NEW AUTHORIZATION FORM.
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, bimonthly, (small solid bullet) To establish, call 1-800-544-6666 after both accounts are
quarterly, or annually opened.
(small solid bullet) To change the amount or frequency of your investment, call
1-800-544-6666.
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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 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:
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 distributed as dividends and
taxed as ordinary income. 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 a statement
showing the tax status of distributions, and will report to the IRS
the amount of any taxable distributions, paid to you in the previous
year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each fund may invest up to 100% of its
assets in these securities. Individuals who are subject to the tax
must report this interest on their tax returns.
A portion of a fund's dividends may be free from state or local
taxes. Income from investments in your state are often tax-free to
you. Each year, Fidelity will send you a breakdown of your
fund's income from each state to help you calculate your taxes.
During the fiscal year ended December 1997, __% of each fund's income
dividends was free from federal income tax and __% of Spartan
Aggressive Municipal's and __% of Spartan Insured Municipal Income's
income dividends 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 when a fund has realized
but not yet distributed income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back in
the form of a taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV
as of the close of business of the NYSE, normally 4:00 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
information furnished by a pricing service or market
quotations, if available, or by another method that the Board of
Trustees believes accurately reflects fair value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions through the Internet, Fidelity recommends the
use of an Internet browser with 128-bit encryption. 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 shares will be purchased
at the next NAV calculated after your investment 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 canceled 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.
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 order 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 $24.00 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. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 , you will be given
30 days' notice to reestablish the minimum balance. If you do not
increase your balance, Fidelity reserves the right to close your
account and send the proceeds to you. Your shares will be redeemed at
the NAV on the day your account is closed.
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
available 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
fees of up to 1.00% on purchases , administrative fees of up to
$7.50, and trading fees of up to 1.50% on exchanges. Check each fund's
prospectus for details.
From Filler pages
SPARTAN AGGRESSIVE MUNICIPAL FUND
AND
SPARTAN INSURED MUNICIPAL INCOME FUND
FUNDS OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current
Prospectus (dated February 26, 1998). Please retain this document for
future reference. The funds' Annual Reports are separate
documents supplied with this SAI. To obtain a free additional copy
of the Prospectus or an Annual Report, please call Fidelity at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
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, Inc. (FSC)
FAT -ptb 0298 -
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 (1940
Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN AGGRESSIVE 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 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 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.
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 the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page __.
INVESTMENT LIMITATIONS OF SPARTAN INSURED MUNICIPAL INCOME
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) 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 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.
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 the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page __.
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. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
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. 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 funds' standards for
high-quality, taxable obligations are essentially the same as those
described by Moody's Investors Service, Inc. (Moody's) in rating
corporate obligations within its two highest ratings of Prime-1 and
Prime-2, and those described by Standard & Poor's (S&P) in rating
corporate obligations within its two highest ratings of A-1 and A-2.
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 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 SAI, 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.
INSURANCE FEATURE. Under 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 y ea r ended December 31, 1997, the
fund did not purchase any portfolio 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. AMBAC Indemnity Corporation (AMBAC Indemnity)
is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia, and
the Commonwealth of Puerto Rico, with admitted assets of approximately
$5.69 billion (unaudited) and statutory capital of approximately
$1.384 billion (unaudited) as of June 30, 1996. Statutory capital
consists of AMBAC Indemnity's policyholders' surplus and statutory
contingency reserve. AMBAC Indemnity is a wholly owned subsidiary of
AMBAC Inc., a 100% publicly-held company. Moody's and S&P have both
assigned a triple-A claims-paying ability rating to AMBAC Indemnity.
Financial Security Assurance (FSA) is a "Aaa/AAA" rated monoline stock
insurance company incorporated in the State of Maryland. FSA is a
publicly owned company whose shares are traded on the New York Stock
Exchange.
FSA is authorized to provide insurance in 49 states, the District of
Columbia and three U.S. territories. FSA focuses on insuring municipal
securities. Their policies guarantee the timely payment of principal
and interest when due for payment on new issue and secondary market
issue municipal bond transactions. FSA's claims-paying ability is
rated "Triple-A" by both Moody's and Standard & Poor's. Therefore, if
FSA insures an issue with a stand alone rating of less than
"Triple-A", such issue would be "upgraded" to "Aaa/AAA" by virtue of
FSA's insurance.
As of June 30, 1996, FSA had $53.3 billion in net exposure
outstanding. The total statutory policyholders' surplus and
contingency reserve of FSA was $661.7 million (unaudited) and the
total assets were $1.516 billion (unaudited) as of June 30, 1996.
FGIC Corporation, through its wholly owned subsidiary Financial
Guaranty Insurance Company, is a leading insurer of municipal bonds,
including new issues and bonds held in unit investment trusts and
mutual funds. Municipal bonds insured by Financial Guaranty are rated
Aaa/AAA/AAA by Moody's, S&P, and Fitch, respectively. In accordance
with statutory accounting principles, Financial Guaranty's capital
base as of June 30, 1996 totalled $1.485 billion (unaudited),
comprised of capital and surplus of $1.069 billion and a contingency
reserve of $4.5 million.
Municipal Bond Investors Assurance Corporation (MBIA) is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed
company. MBIA Inc. is not obligated to pay debts of, or claims against
MBIA. MBIA is a limited liability corporation rather than a several
liability association. MBIA is domiciled in the state of New York and
licensed to do business in all 50 states, the District of Columbia,
and the Commonwealth of Puerto Rico. Moody's rates all bond issues
insured by MBIA "Aaa" and short-term loans "MIG-1," both designated to
be of the highest quality; S&P rates all new issues insured by MBIA
"AAA" Prime Grade. As of June 30, 1996, MBIA had total assets of
$7.869 billion (unaudited) and total capital and surplus of $2.189
billion (unaudited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities.
INTERFUND BORROWING AND LENDING 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 each fund currently intends to participate in this
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. A 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 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 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.
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.
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.
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.
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 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.
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 National Financial Services Corporation (NFSC), an indirect
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 NFSC to execute portfolio
transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of
its responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions
paid by each fund over representative periods of time to
determine if they are reasonable in relation to the benefits to the
fund.
For the fiscal periods ended December 31, 1997 and 1996, the
portfolio turnover rates were ___% and ___%, respectively for Spartan
Aggressive Municipal and ___% and ___%, respectively for Spartan
Insured Municipal Income. [EQUITY OR BOND FUNDS WITH A PORTFOLIO
TURNOVER RATE OVER 100%: 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.] [EQUITY OR BOND FUNDS WITH A SUBSTANTIAL (SEE YOUR SPM
TO DETERMINE) VARIANCE IN PORTFOLIO TURNOVER RATES: 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 the fiscal years ended December 1997 , 1996, and 1995,
Spartan Aggressive Municipal paid [no brokerage commissions/ brokerage
commissions of $____, $______, and $______, respectively; and Spartan
Insured Municipal Income paid [no brokerage commissions/brokerage
commissions of $____, $______, and $______, respectively]. [IF
APPROPRIATE: During the fiscal year ended [month] 199_, this amounted
to approximately __% and __%, respectively, of the aggregate brokerage
commissions paid by each fund involving approximately __% and __%,
respectively, of the aggregate dollar amount of transactions for which
the funds paid brokerage commissions.]
During the fiscal year ended December 1997 , Spartan Aggressive
Municipal paid $__ in commissions to brokerage firms that provided
research services involving approximately $___of transactions; during
the fiscal year ended December 1997, Spartan Insured Municipal Income
paid $__ in commissions to brokerage firms that provided research
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. [IF APPLICABLE:During the fiscal year
ended December 1997, the fund(s) paid no fees to brokerage firms that
provided research services.]
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 e ach 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 fo r 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
Fidelity Service Company, Inc. (FSC) normally determines
each fund's net asset value per share (NAV) as of the close of
the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern time).
The valuation of portfolio securities is determined as of this time
for the purpose of computing each fund's NAV.
Portfolio securities are valued by various methods. If quotations
are not available, fixed-income securities are usually valued on
the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services
or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Securities and other assets for which there is no readily available
market value are valued in good faith by a committee appointed by the
Board of Trustees. The procedures set forth above need not be used to
determine the value of the securities owned by a fund if, in
the opinion of a committee appointed by the Board of Trustees, some
other method would more accurately reflect the fair market value of
such securities.
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. 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.
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
inte rest 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 income tax rate. If only a portion of a fund's yield is
tax-exempt, only that portion is adjusted in the calculation.
The following table shows the effect of a shareholder's tax status on
effective yield under federal income tax laws for 1998. 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 _% 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 income tax, other
income received by the funds may be taxable.
1998 TAX RATES AND TAX-EQUIVALENT YIELDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal If individual tax-exempt yield is:
Taxable Income* Marginal % % % % % % % %
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Return Joint Return Rate** Then taxable-equivalent yield is
</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.
Each 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, 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
December 31, 199 7.
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-Day Tax- One Five One Five Ten Years
Yield Equivalent Year Years Ten Years Year Years
Yield
Spartan % % % % % % % %
Aggressive
Municipal
Spartan Insured % % % % % % % %
Municipal Income
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, each fund's yields and total returns would have been
lower.
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each
fund's return to the record of the Standard & Poor's 500 Index (S&P
500), the Dow Jones Industrial Average (DJIA), and the cost of living,
as measured by the Consumer Price Index (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 unmanaged index of common stocks and a narrower
set of stocks of major industrial companies, respectively, over the
same period. Because each fund invests in fixed-income
securities, common stocks represent a different type of investment
from the funds . Common stocks generally offer greater growth
potential than the funds , but generally experience greater
price volatility, which means greater potential for loss. In addition,
common stocks generally provide lower income than fixed-income
investments such as the funds . The S&P 500 and DJIA returns are
based on the prices of unmanaged groups of stocks and, unlike
each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended
December 31, 1997 assuming all distributions were reinvested. The
figures below reflect the fluctuating interest rates and bond prices
of the specified periods and should not be considered representative
of the dividend income or capital gain or loss that could be realized
from an investment in a fund today. Tax consequences of different
investments have not been factored into the figures below.
During the 10-year period ended December 31, 1997, a hypothetical
$10,000 investment in Spartan Aggressive Municipal would have grown to
$______.
SPARTAN AGGRESSIVE MUNICIPAL INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1997 $ $ $ $ $ $ $
1996 $ 9,827 $ 10,420 $ 786 $ 21,033 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,095 $ 9,415 $ 800 $ 20,310 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,351 $ 7,586 $ 741 $ 17,678 $ 24,531 $ 26,244 $ 13,548
1993 $ 10,666 $ 7,336 $ 768 $ 18,770 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,277 $ 5,986 $ 255 $ 16,518 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,208 $ 4,846 $ 77 $ 15,131 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,888 $ 3,649 $ 0 $ 13,537 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,939 $ 2,655 $ 0 $ 12,594 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,801 $ 1,700 $ 0 $ 11,501 $ 12,275 $ 12,222 $ 10,905
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Aggressive Municipal on January 1, 1988 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
gain distributions.
During the 10-year period ended December 31, 1997, a hypothetical
$10,000 investment in Spartan Insured Municipal Income would have
grown to $______.
SPARTAN INSURED MUNICIPAL INCOME INDICES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Living
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1997 $ $ $ $ $ $ $
1996 $ 10,494 $ 8,656 $ 705 $ 19,855 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,627 $ 7,809 $ 714 $ 19,150 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,435 $ 6,078 $ 623 $ 16,136 $ 24,531 $ 26,244 $ 13,548
1993 $ 10,918 $ 6,021 $ 549 $ 17,488 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,344 $ 4,865 $ 152 $ 15,361 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,265 $ 3,961 $ 9 $ 14,235 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,788 $ 2,961 $ 9 $ 12,758 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,753 $ 2,153 $ 9 $ 11,915 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,515 $ 1,363 $ 8 $ 10,886 $ 12,275 $ 12,222 $ 10,905
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Insured Municipal Income on January 1, 1988 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
gain distributions.
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. Generally,
Lipper rankings are based on total return, assume reinvestment of
distributions, do not take sales charges or trading fees into
consideration, and are 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's performance may also be compared to that of a
benchmark index representing the universe of securities in which the
fund may invest. The total return of a benchmark index reflects
reinvestment of all dividends and capital gains paid by securities
included in the index. Unlike a fund's returns, however, the
index returns do not reflect brokerage commissions, transaction fees,
or other costs of investing directly in the securities included in the
index.
The funds may compare to the Lehman Brothers Municipal Bond
Index, a total return performance benchmark for investment-grade
municipal bonds with maturities of at least one year. In addition,
Spartan Insured Municipal Income may compare its performance to that
of the Lehman Brothers Insured Municipal Bond Index, a total return
performance benchmark for municipal bonds that are backed by insurers
with Aaa/AAA ratings and have maturities of at least one year.
Issues included in each index have been issued after December 31,
1990 and have an outstanding par value of at least $50 million.
Subsequent to December 31, 1995, zero coupon bonds and issues subject
to the alternative minimum tax are included in each index.
A fund may be compared in advertising to Certificates of
Deposit (CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, a fund may offer greater liquidity or
higher potential returns than CDs, a fund does not guarantee
your principal or your return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
A fund may compare and contrast in advertising the relative
advantages of investing in a mutual fund versus an individual
municipal bond. Unlike tax-free mutual funds, individual municipal
bonds offer a stated rate of interest and, if held to maturity,
repayment of principal. Although some individual municipal bonds might
offer a higher return, they do not offer the reduced risk of a mutual
fund that invests in many different securities. The initial investment
requirements and sales charges of many tax-free mutual funds are lower
than the purchase cost of individual municipal bonds, which are
generally issued in $5,000 denominations and are subject to direct
brokerage costs.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals;
charitable giving; and the Fidelity credit card. In addition, Fidelity
may quote or reprint financial or business publications and
periodicals as they relate to current economic and political
conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a
particular mutual fund, and Fidelity services and products. Fidelity
may also reprint, and use as advertising and sales literature,
articles from Fidelity Focus(Registered trademark), a quarterly
magazine provided free of charge to Fidelity fund shareholders.
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, 1997 , 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
shar e (NAV) is calculated each day the New York Stock Exchange
(NYSE) is open for trading. The NYSE has designated the following
holiday closings for 1997 and 1998 : New Year's Day, Martin
Luther King's Birthday (in 1998 ), Presidents' Day, Good Friday,
Memorial Day, 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 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.
A fund purchases municipal securities whose interest FMR
believes is free from federal income tax. Generally, issuers or other
parties have entered into covenants requiring continuing compliance
with federal tax requirements to preserve the tax-free status of
interest payments over the life of the security. If at any time the
covenants are not complied with, or if the IRS otherwise determines
that the issuer did not comply with relevant tax requirements,
interest payments from a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structured securities, the tax status of the pass-through of tax-free
income may also be based on the federal tax treatment of the
structure.
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 invested in municipal securities whose interest is free
from federal income tax. Interest from private activity securities is
a tax preference item for the purposes of determining whether a
taxpayer is subject to the AMT and the amount of AMT to be paid, if
any. Private activity securities issued after August 7, 1986 to
benefit a private or industrial user or to finance a private facility
are affected by this rule.
A portion of the gain on bonds purchased with market discount
after April 30, 1993 and short-term capital gains distributed by each
fund are taxable to shareholders as dividends, not as capital gains.
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 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 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.
[FOR FUNDS DECLARING A CAPITAL GAIN DIVIDEND: As of December 31, 1997,
the fund hereby designates approximately $_______ as a capital gain
dividend for the purpose of the dividend-paid deduction.]
(USE THIS PARAGRAPH ONLY FOR FUNDS WITH A CAPITAL LOSS CARRYOVER) As
of December 31, 1997, [the fund/[Name(s) of Fund(s)] had a capital
loss 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, and intends to comply
with other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds
in 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 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 its division, 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
accounts 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, Members of the Advisory Board , 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 and
Members of the Advisory Board also serve in similar capacities
for other funds advised by FMR. The business address of each Trustee,
Member of the Advisory Board , 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 (67), 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 (56), Member of the Advisory Board (1997 ),
is Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to
February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). Until March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources
Company (exploration and production). He is a Director of USA Waste
Services, Inc. (non-hazardous waste, 1993), CH2M Hill Companies
(engineering), Rio Grande, Inc. (oil and gas production), and Daniel
Industries (petroleum measurement equipment manufacturer). In
addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (66), 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),
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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70), Trustee. 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), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a
Trustee of First Union Real Estate Investments. In addition, he serves
as a Trustee of the Cleveland Clinic Foundation, where he has also
been a member of the Executive Committee as well as Chairman of the
Board and President, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (65), 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, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, 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). 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.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (64), 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), Imation Corp. (imaging and information storage, 1997 ),
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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, group
leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR
(1995). Before assuming his current responsibilities, Mr. Henning
was head of Fidelity's Money Market Division.
NOTE: ADD PORTFOLIO MANAGER BIO IF THE MGR IS VP OF THE FUND. PLEASE
REFER TO THE MOST RECENT BOARD MEMO FOR A LIST OF VPS. BEFORE INITIAL
CIRCULATION, PLEASE SUBMIT A COPY OF THE BIO IN THE CURRENT SAI TO
DAVID JAMES FOR HIS REVIEW.
ARTHUR S. LORING (50), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice
President of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds and Vice President and Associate General Counsel of
FMR Texas Inc.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (51), 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)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
THOMAS J. SIMPSON (37), Assistant Treasurer, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money market
funds (1996) and an employee of FMR (1996). Prior to joining FMR, Mr.
Simpson was Vice President and Fund Controller of Liberty Investment
Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Aggregate Aggregate Total
and Compensation Compensation Compensation
Members of the Advisory Board from from from the
Spartan Aggressive Spartan Insured Fund Complex*
Municipal[B,]C Municipal A
[,+] Income[B,]D
[,+]
J. Gary Burkhead ** $ $ $ 0
Ralph F. Cox $ $ 137,700
Phyllis Burke Davis $ $ 134,700
Robert M. Gates *** $ $ 0
Edward C. Johnson 3d ** $ $ 0
E. Bradley Jones $ $ 134,700
Donald J. Kirk $ $ 136,200
Peter S. Lynch ** $ $ 0
William O. McCoy**** $ $ 85,333
Gerald C. McDonough $ $ 136,200
Marvin L. Mann $ $ 134,700
Robert C. Pozen** $ $ 0
Thomas R. Williams $ $ 136,200
</TABLE>
* Information is for the calendar year ended December 31, 1997 for
____ funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
*** Mr. Gates was appointed to the Board of Trustees effective March
1, 1997.
**** Mr. McCoy was appointed to the Board of Trustees effective
January 1, 1997.
[TREASURER'S OFFICE WILL ANCHOR THIS FOOTNOTE AS APPROPRIATE FOR YOUR
FUND(S): A Compensation figures include cash, a pro rata portion of
benefits accrued under the retirement program for the period ended
December 30, 1996 and required to be deferred, and may include amounts
deferred at the election of Trustees.]
[TREASURER'S OFFICE WILL ANCHOR THIS FOOTNOTE AS APPROPRIATE FOR YOUR
FUND(S):B Compensation figures include cash, and may include amounts
required to be deferred, a pro rata portion of benefits accrued under
the retirement program for the period ended December 30, 1996 and
required to be deferred, and amounts deferred at the election of
Trustees.]]
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__,] E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__,] Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin
L. Mann, $__, and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, [FOR FUNDS
WHOSE TRUSTS ARE ABLE TO APPOINT OR HAVE ELECTED MR. GATES AS TRUSTEE:
Robert M. Gates, $__,] E. Bradley Jones, $__, Donald J. Kirk, $__,
[FOR FUNDS WHOSE TRUSTS ARE ABLE TO APPOINT OR HAVE ELECTED MR. MCCOY
AS TRUSTEE: William O. McCoy, $__,] Gerald C. McDonough, $__, Edward
H. Malone, $__, Marvin L. Mann, $__, and Thomas R. Williams, $__.
[TREASURER'S OFFICE WILL ANCHOR THIS FOOTNOTE AS APPROPRIATE FOR YOUR
FUND(S): F For the fiscal year ended _____, 199_, certain of the
non-interested Trustees' aggregate compensation from [the/a] fund
includes accrued voluntary deferred compensation as follows: [trustee
name, dollar amount of deferred compensation, fund name]; [trustee
name, dollar amount of deferred compensation, fund name]; and [trustee
name, dollar amount of deferred compensation, fund name].]
[USE THIS VERSION OF THE TRUSTEE COMPENSATION TABLE FOR COMBO SAIS
THAT INCLUDE FOUR OR MORE FUNDS:]
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not
obligate a fund to retain the services of any Trustee or to pay any
particular level of compensation to the Trustee. A fund may
invest in the Reference Funds under the Plan without shareholder
approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had
been invested in shares of the Reference Funds. The amounts
ultimately received by the Trustees in connection with the credits to
their Plan accounts will be directly linked to the investment
performance of the Reference Funds. The termination of the retirement
program and related crediting of estimated benefits to the Trustees'
Plan accounts did not result in a material cost to the funds.
[IF EITHER FMR OR AN FMR AFFILIATE IS DEEMED TO OWN 1% OR MORE OF A
FUND'S SHARES: As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC
FILING DATE], approximately __% of [Fund Name]'s total outstanding
shares was held by [an] FMR affiliate[s]. FMR Corp. is the ultimate
parent company of [this/these] FMR affiliate[s]. By virtue of his
ownership interest in FMR Corp., as described in the "FMR" section on
page ___, Mr. Edward C. Johnson 3d, President and Trustee of the fund,
may be deemed to be a beneficial owner of these shares. As of the
above date, with the exception of Mr. Johnson 3d's deemed ownership of
[Fund Name]'s shares, the Trustees, Members of the Advisory Board, and
officers of the funds owned, in the aggregate, less than __% of each
fund's total outstanding shares.]
[IF NEITHER FMR NOR AN FMR AFFILIATE IS DEEMED TO OWN 1% OR MORE OF
THE FUND'S SHARES: As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC
FILING DATE], the Trustees, Members of the Advisory Board, and
officers of each fund owned, in the aggregate, less than __% of each
fund's total outstanding shares.]
[REVISE AS APPROPRIATE; REQUEST INFORMATION FROM KENDRA
MCGEORGE/ANTHONY AMADOR: As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO
SEC FILING DATE], the following owned of record or beneficially 5% or
more of a fund's outstanding shares:]
[REQUEST INFORMATION FROM KENDRA MCGEORGE/ANTHONY AMADOR (IF FUND HAS
A SHAREHOLDER WHO OWNS 25% OR MORE): A shareholder owning of record or
beneficially more than 25% of a fund's outstanding shares may be
considered a controlling person. That shareholder's vote could have a
more significant effect on matters presented at a shareholders'
meeting than votes of other shareholders.]
MANAGEMENT CONTRACTS
FMR is manager of Spartan Aggressive Municipal and Spartan Insured
Municipal Income pursuant to management contracts dated March 1, 1993
and January 1, 1994, respectively, which were approved by shareholders
on February 17, 1993 and December 15, 1993, respectively.
MANAGEMENT SERVICES. Each fund employs FMR to furnish
investment advisory and other services. Under the terms of 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 the fund in accordance with its investment
objective, policies, and limitations. FMR also provides each fund with
all necessary office facilities and personnel for servicing the fund's
investments, compensates all officers of each fund and all Trustees
who are "interested persons" of the trust 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 securities laws and making necessary filings under state
securities laws; developing management and shareholder services for
each fund; and furnishing reports, evaluations, and analyses on
a variety of subjects to the Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing,
and shareholder servicing agent, and pricing and bookkeeping agent,
each fund pays all of its expenses 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.
Each fund's management contract further provides that the fund
will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders; however, under the terms of each fund's transfer
agent agreement, the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by each
fund include interest, taxes, brokerage commissions, the fund's
proportionate share of insurance premiums and Investment Company
Institute dues, and the costs of registering shares under federal
securities laws and making necessary filings under state securities
laws. Each 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.
MANAGEMENT FEES. For the services of FMR under the management
contract, each fund pays FMR a monthly management fee which has
two components: 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.
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
SPARTAN AGGRESSIVE MUNICIPAL: Under the 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. 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 for average group
assets in excess of $156 billion and under $372 billion as shown in
the schedule below. The revised group fee rate schedule is identical
to the above schedule for average group assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion,
pending shareholder approval of a new management contract reflecting
the revised schedule and additional breakpoints. The revised group fee
rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. For average group
assets in excess of $156 billion, the revised group fee rate schedule
with additional breakpoints voluntarily adopted by FMR is as follows:
SPARTAN INSURED MUNICIPAL INCOME: 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 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. 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 for average
group assets in excess of $156 billion and under $372 billion as shown
in the schedule below. The revised group fee rate schedule is
identical to the above schedule for average group assets under $156
billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion,
pending shareholder approval of a new management contract reflecting
the revised schedule and additional breakpoints. The revised group fee
rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. For average group
assets in excess of $156 billion, the revised group fee rate schedule
with additional breakpoints 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
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above 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 1997 - was ___%, which is the weighted average of the
respective fee rates for each level of group net assets up to $__
billion.
The individual fund fee rates for Spartan Aggressive Municipal and
Spartan Insured Municipal Income are 0.25% and 0.25%, respectively.
Based on the average group net assets of the funds advised by FMR for
December 1997, each fund's annual management fee rate would be
calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management
Fee Rate
Spartan Aggressive 0.___% + 0.25% = 0.___%
Municipal
Spartan Insured 0.___% + 0.25% = 0.___%
Municipal Income
</TABLE>
Effective March 1, 1997, FMR voluntarily reduced the individual fund
fee rate for Spartan Aggressive Municipal from 0.30% to 0.25%.
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 following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years.
Fund
Fiscal Years Ended Management Fees
Paid to FMR
Spartan Aggressive Municipal 1997 $
1996 $
1995 $
Spartan Insured Municipal Income 1997 $
1996 $
1995 $
FMR may, from time to time, voluntarily reimburse all or a portion of
a 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 a fund's total returns and
yield, and repayment of the reimbursement by a fundwill lower its
total returns and yield.
During the past three fiscal years, FMR voluntarily agreed, subject to
revision or termination, to reimburse the funds (through December 31,
1999 for Spartan Aggressive Municipal) if and to the extent that the
the fund's aggregate operating expenses, including management fees,
were in excess of an annual rate of its average net assets. The tables
below show the periods of reimbursement and levels of expense
limitations; the dollar amount of management fees incurred under
each fund's contract before reimbursement; and the dollar amount of
management fees reimbursed by FMR under the expense reimbursement for
each period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Periods of Aggregate
Expense Limitation Operating Fiscal Years Management Fee Amount of
From To Expense Ended Before Management Fee
Limitation December 31 Reimbursement Reimbursement
Spartan August 1, current 0.53% $[*] $
Aggressive 1997
Municipal
April 1, 1997 July 31, 1997 0.55% 1997
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Period of Aggregate
Expense Limitation Operating Fiscal Years Management Fee Amount of
From To Expense Ended Before Management Fee
Limitation December 31 Reimbursement Reimbursement
Spartan Insured April 1, 1997 current 0.55% 1997 $[*] $
Municipal
Income
</TABLE>
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on
behalf of each fund (the Plans) pursuant to Rule 12b-1 under
the 1940 Act (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 the 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 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.
Each Plan specifically recognizes that FMR may use its management
fee revenue, as well as its past profits or its other resources, to
pay FDC for expenses incurred in connection with the distribution of
fund shares. In addition, each Plan provides that FMR, directly or
through FDC, may make payments to third parties, such as banks or
broker-dealers, that engage in the sale of fund shares, or provide
shareholder support services. Currently, the Board of Trustees has not
authorized such payments for shares.
[IF FMR MADE ANY DEFENSIVE THIRD PARTY PAYMENTS IN CALENDAR YEAR:
Payments made by FMR [FOR DEFENSIVE PLANS ONLY: either directly or]
through [FDC/NFSC] to third parties for the [FOR ADVISOR FUNDS AND VIP
FUNDS PRINTING PRIOR TO 1998: calendar/ FOR ALL OTHER FUNDS: fiscal]
year ended 19__ amounted to $____ [for [Fund/Class Name]], $____ [for
[Fund/Class Name]], and $_____ [for [Fund/Class Name]].
[IF FMR DID NOT MAKE ANY DEFENSIVE THIRD PARTY PAYMENTS IN CALENDAR
YEAR: FMR made no payments [FOR DEFENSIVE PLANS ONLY: either directly
or] through [FDC/NFSC] to third parties for the [FOR ADVISOR FUNDS AND
VIP FUNDS PRINTING PRIOR TO 1998: calendar/ FOR ALL OTHER FUNDS:
fiscal] year ended 19__.]
Prior to approvin g each Plan, the Trustees carefully considered
all pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each 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 each Plan gives FMR and FDC greater flexibility
in connection with the distribution of fund shares, 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 Plan for each of Spartan Aggressive Municipal and Spartan
Insured Municipal Income was approved by shareholders of both funds on
December 30, 1996.
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 other 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
Each fund has entered into a transfer agent agreement with UMB .
Under the terms of the agreements, UMB provides transfer agency,
dividend disbursing, and shareholder services for each fund.
UMB in turn has entered into sub-transfer agent agreements with FSC,
an affiliate of FMR. Under th e terms of the sub-agreements, FSC
performs all processing activities associated with providing these
services for each fund and receives all related transfer agency fees
paid to UMB.
For providing transfer agency services, FSC receives an annual
account fee and an asset-based fee each based on account size and fund
type for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the Freedom Fund's assets that is
invested in a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each fund has also entered into a service agent agreement with UMB.
Under the terms of the agreements, UMB provides pricing and
bookkeeping services for each fund. UMB in turn has entered into
sub-service agent agreements with FSC. Under the terms of the
sub-agreements, FSC performs all processing activities associated with
providing these services, including calculating the NAV and dividends
for each fund and maintaining each fund's portfolio and general
accounting records, and receives all related pricing and bookkeeping
fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a
monthly fee based on each fund's average daily net assets throughout
the month. The annual fee rates for pricing and bookkeeping
services are .0400% of the first $500 million of average net assets
and .0200% of average net assets in excess of $500 million. The fee,
not including reimbursement for out-of-pocket expenses, is limited to
a minimum of $60,000 and a maximum of $800,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
Fund 1997 1996 1995
Spartan Aggressive Municipal $ $ $
Spartan Insured Municipal Income $ $ $
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST'S ORGANIZATION. Spartan Aggressive Municipal Fund and Spartan
Insured Municipal Income Fund are funds 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, 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:
Spartan Aggressive Municipal Fund, Spartan Insured
Municipal Income Fund, Spartan Michigan Municipal Income Fund, Spartan
Minnesota Municipal Income Fund, Spartan Ohio Municipal Income,
Spartan Pennsylvania Municipal Income Fund, and Fidelity Advisor
Municipal Bond. The Declaration of Trust permits the Trustees to
create additional funds.
In the event that FMR ceases to be the investment adviser to the trust
or a fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan " may be withdrawn. 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 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 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 of
that trust 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 "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 its Trustees shall 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 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.
VOTING RIGHTS. Each fund's capital consists of shares of
beneficial interest. As a shareholder, you receive one vote for each
dollar value of net asset value you own. The shares have no preemptive
or conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the trust or a
fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of the entire trust, the purpose
of voting on removal of one or more Trustees. The trust or any fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
trust or the fund, as determined by the current value of each
shareholder's investment in the fund or trust. If not so terminated,
the trust and the funds will continue indefinitely.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri,
is custodian of the assets of the fund s. The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any 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. serves as the funds'
independent accountant. The auditor examines financial statements for
the funds and provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for
the fiscal period ended December 31, 1997, and reports of the
auditors , are included in each fund's Annual Report,
which are separate reports supplied with this SAI. The
funds' financial statements, including the financial
highlights, and reports of the auditors are incorporated herein by
reference. For a free additional copy of a fund's Annual Report,
contact Fidelity at 1-800-544-8888, 82 Devonshire Street, Boston, MA
02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. When a municipal bond issuer has committed to call
an issue of bonds and has established an independent escrow account
that is sufficient to, and is pledged to, refund that issue, the
number of days to maturity for the prerefunded bond is considered to
be the number of days to the announced call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds . A fund may, however, consider the ratings for
other types of investments and the ratings assigned by other rating
organizations when determining the eligibility of a particular
investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest
quality). Those bonds within the Aa through B categories that Moody's
believes possess the strongest credit attributes within those
categories are designated by the symbol "1."
AAA - Bonds that 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 that 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 that 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 that 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 that 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 that 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 that 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 that 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 that 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA through CCC may be modified by the addition of a plus sign (+) or
minus sign (-) to show relative standing within the major rating
categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment
of principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
CC - Debt rated CC is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior
debt which is assigned 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.
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
SPARTAN 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 Fund 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 .............................. *
g i.............................. Charter
ii.............................. *
5 A .............................. *
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 .............................. Cover Page; Doing Business with Fidelity; How to Buy
Shares; How to Sell Shares; Investor Services
f, g .............................. Dividends, Capital Gains, Taxes
h .............................. *
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 OHIO MUNICIPAL MONEY MARKET FUND
SPARTAN 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 ............................ *
14 a - c ............................ Trustees and Officers
15 a - c ............................ *
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 ............................ 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
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a, b ............................ *
23 ............................ *
</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 each fund's most recent financial reports and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated February 26 , 1998. The SAI has been filed with the
Securities and Exchange Commission (SEC) and is available along with
other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either
document, call Fidelity at 1-800-544-8888.
Investments in the money market fund are neither insured nor
guaranteed by the U.S. G overnment, and there can be no
assurance that the fund will maintain a stable $1.00 share
price.
THE MONEY MARKET FUND MAY INVEST A SIGNIFICANT PERCENTAGE OF
ITS ASSETS IN THE SECURITIES OF A SINGLE ISSUER AND THEREFORE MAY BE
RISKIER THAN OTHER TYPES OF MONEY MARKET FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board or any other agency, and are subject to
investment risks, including the possible loss of principal amount
invested.
FIDELITY
'S
OHIO
MUNICIPAL
FUNDS
Each fund seeks a high level of current income free from federal
income tax and Ohio personal income tax.
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
invests in high-quality, short-term money market securities and is
designed to maintain a $1.00 share price.
(fund number 419, trading symbol FOMXX)
SPARTAN OHIO MUNICIPAL INCOME FUND
seeks to provide higher yields by investing in a broader range of
municipal securities.
(fund number 088, trading symbol FOHFX)
PROSPECTUS
FEBRUARY 26, 1998 (FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
OFF-PRO-0298
CONTENTS
KEY FACTS 4 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 12 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
GOAL: High current tax-free income for Ohio residents.
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. (FMR
Texas), a subsidiary of FMR, chooses investments for Ohio Municipal
Money Market.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
OH MUNICIPAL MONEY MARKET
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and Ohio
individual income tax, while maintaining a stable $1.00 share
price.
SIZE: As of December 31, 1997 , the fund had over $__ million in
assets.
SPARTAN OH MUNICIPAL INCOME
STRATEGY: Normally invests in investment-grade municipal
securities whose interest is free from federal income tax and Ohio
individual income tax. Managed to generally react to changes in
interest rates similarly to municipal bonds with maturities between
eight and 18 years.
SIZE: As of December 31, 1997, the fund had over $__ million in
assets.
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
and Ohio income taxes. Each fund's level of risk and potential reward
depend on the quality and maturity of its investments. The money
market fund is managed to keep its share price stable at $1.00. The
bond fund , with its broader range of investments, has the
potential for higher yields, but also carries a higher degree of risk.
You should consider your investment objective and tolerance for risk
when making an investment decision.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other federal and state political and economic news.
When you sell your shares of the bond fund , they may be worth
more or less than what you paid for them. By themselves, these funds
do not constitute a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets in
securities of individual issuers than diversified funds. As a result,
changes in the market value of a single issuer could cause greater
fluctuations in share value than would occur in a more diversified
fund.
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. OHIO MUNICIPAL
MONEY MARKET IS IN THE MONEY
MARKET CATEGORY, AND SPARTAN
OHIO MUNICIPAL INCOME IS IN
THE INCOME CATEGORY.
(RIGHT ARROW) MONEY MARKET SEEKS
INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY,
SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY
INVESTING IN BONDS.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
(CHECKMARK)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of a fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page __, for an explanation of how and when
these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions 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 "Breakdown of Expenses" page
).
The following figures are based on historical expense s,
a djusted to reflect current fees of each fund and are calculated
as a percentage of average net assets of each fund. A portion of
the brokerage commissions that a fund pays is used to reduce that
fund's expenses. In addition, each fund has entered into
arrangements with its custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to
reduce custodian and transfer agent expenses. Including these
reductions, the total fund operating expenses presented in the table
would have been __% for Ohio Municipal Money Market and ___%
for Spartan Ohio Municipal Income.
OH MUNICIPAL MONEY MARKET
Management fee %
12b-1 fee None
Other expenses %
Total fund operating expenses %
SPARTAN OH MUNICIPAL INCOME
Management fee (after reimbursement) %
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 your shareholder transaction expenses and each fund's
annual 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:
OH MUNICIPAL MONEY MARKET
1 year $
3 years $
5 years $
10 years $
SPARTAN OH MUNICIPAL INCOME
1 year $
3 years $
5 years $
10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses 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 expenses are paid from
each fund's assets, and their
effect is already factored into
any quoted share price or
return. Also, as an investor,
you may pay certain expenses
directly.
(checkmark)
FMR has voluntarily agreed to reimburse Spartan Ohio Municipal
Income to the extent that total operating expenses exceed 0.55% of its
average net assets. If this agreement were not in effect, the
management fee, other expenses, and total operating expenses would
have been __%, __%, and __%, respectively. Expenses eligible for
reimbursement do not include interest, taxes, brokerage commissions,
or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited by
_____________ , independent accountants. The funds' financial
highlights, financial statements, and report of the auditor are
included in the funds' Annual Report , and are incorporated by
reference into (are legally a part of) the funds' SAI. Contact
Fidelity for a free copy of the Annual Report or the SAI.
[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
tables below show each fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average for the bond fund and a measure of inflation
for the money market fund. Data for the comparative index for
Spartan Ohio Municipal Income is available only from June 30,
1993 to the present. The chart on page __ presents calendar year
performance for the bond fund.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years/L
ife of
fund
OH Municipal Money Market % % %A
Consumer Price Index % % %A
Spartan OH Municipal Income % % %
Lehman Bros. OH 4+ Yr. Muni. Bond Index % % %
Lipper OH Muni. Debt Funds Average % % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years/L
ife of
fund
OH Municipal Money Market % % %A
Consumer Price Index % % %A
Spartan OH Municipal Income % % %
Lehman Bros. OH 4+ Yr. Muni. Bond Index % % %
Lipper OH Muni. Debt Funds Average % % %
A FROM AUGUST 29, 1989 (COMMENCEMENT OF OPERATIONS)
If FMR had not reimbursed certain fund expenses during these
periods, yields and total returns would have been lower.
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)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment 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 fund 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.
LEHMAN BROTHERS OHIO 4 PLUS YEAR MUNICIPAL BOND INDEX is a total
return performance benchmark for Ohio investment-grade municipal bonds
with maturities of at least four years.
Unlike each fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Ohio Municipal Debt Funds
Average for Spartan Ohio Municipal Income. As of December 31, 1997,
the average reflected the performance of ___ mutual funds with
similar investment objectives. This average, published by Lipper
Analytical Services, Inc., excludes the effect of sales loads.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
SPARTAN OH MUNICIPAL
INCOME % % % % % % % % % %
Lipper OH Muni. Debt Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan OH
Municipal Income
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. Ohio Municipal Money
Market Fund is a non-diversified fund of Fidelity Municipal Trust
II , and Spartan Ohio Municipal Income Fund is a
non-diversified fund of Fidelity Municipal Trust. Both trusts are
open-end management investment companies. Fidelity Municipal Trust was
organized 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 periodically throughout the year to oversee
the funds' activities, review contractual arrangements with companies
that provide services to the funds, and review the funds' performance.
The trustees serve as trustees for other Fidelity funds. The
majority of trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER 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. FMR Texas, located in Irving, Texas,
has primary responsibility for providing investment management
services for the money market fund.
George Fischer is Vice President and manager of Spartan Ohio
Municipal Income, which he has managed since April 1997. He also
manages several other Fidelity funds. Since joining Fidelity in 1989,
Mr. Fischer has worked as an analyst and manager.
Fidelity investment personnel may invest in securities for their
own accounts 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.
UMB Bank, n.a. (UMB) is each fund's transfer agent, and is located
at 1010 Grand Avenue, Kansas City, Missouri. UMB employs Fidelity
Service Company, Inc. ( FSC ) to perform transfer agent
servicing functions for each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members
of the Edward C. Johnson 3d family are the predominant owners of a
class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940
(the 1940 Act), control of a company is presumed where one individual
or group of individuals owns more than 25% of the voting stock of that
company; therefore, the Johnson family may be deemed under the 1940
Act to form a controlling group with respect to FMR Corp.
As of [DAT E ], approximately ____% and ____% of each of Ohio
Municipal Money Market's and Spartan Ohio Municipal Income's total
outstanding shares, respectively, were held by [FMR/FMR and [an] FMR
affiliate[s]/[an] FMR affiliate[s] .
A s of [DAT E ], approximately ____% of Ohio Municipal
Money Market's total outstanding shares were held by [NAME OF
SHAREHOLDER]; and approximately ___% o f Spartan Ohio
Municipal Income's total outstanding shares were held by [NAME OF
SHAREHOLDER] .
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will
change daily based on changes in interest rates and market conditions.
Money market funds comply with industry-standard requirements for the
quality, maturity, and diversification of their investments, which are
designed to help maintain a stable $1.00 share price. Of course, there
is no guarantee that a money market fund will be able to maintain a
stable $1.00 share price. It is possible that a major change in
interest rates or a default on a money market fund's
investments could cause its share price (and the value of your
investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn
income at current money market rates. In managing money market funds,
FMR stresses preservation of capital, liquidity, and income. The
money market fund will purchase only high-quality securities
that FMR believes present minimal credit risks and will observe
maturity restrictions on securities it buys.
OHIO MUNICIPAL MONEY MARKEt seeks to earn high current income
that is free from federal income tax, Ohio personal income tax, and
other taxes in Ohio while maintaining a stable $1.00 share price,
by investing in high-quality, short-term municipal money market
securities of all type s, including longer-term securities with
features that modify their maturity, price characteristics or quality
so that they are eligible investments for the fund. FMR normally
invests the fund's assets so that at least 80% of the fund's income
distributions are free from both federal and state income tax.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity
that issued them and/or other revenue streams. Municipal security
values may be significantly affected by political changes as well as
uncertainties in the municipal market related to taxation or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond
includes both income and price gains or losses. In selecting
investments for a bond fund, FMR considers a bond's expected income
together with its potential for price gains or losses. While income is
the most important component of bond returns over time, a bond fund's
emphasis on income does not mean the fund invests only in the
highest-yielding bonds available, or that it can avoid losses of
principal.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the range of eligible investments for the fund. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different
market sectors (for example, general obligation bonds of a state or
bonds financing a specific project) and different maturities based on
its view of the relative value of each sector or maturity. The
performance of the fund will depend on how successful FMR is in
pursuing this approach.
SPARTAN OHIO MUNICIPAL INCOME seeks high current income that is
free from federal income tax, Ohio personal income tax , and
other taxes in Ohio by investing in investment-grade municipal
securities under normal conditions. FMR normally invests the fund's
assets so that at least 80% of the fund's income is free from both
federal and state income taxes.
Although the fund does not maintain an average maturity within
a specified range, FMR seeks to manage the fund so that it
generally reacts to changes in interest rates similarly to municipal
bonds with maturities between eight and 18 years. As of December
31, 1997, the fund's dollar-weighted average maturity was
approximately __ years.
EACH FUND normally invests in municipal securities. F MR may
invest all of each fund's assets in municipal securities issued to
finance private activities. The interest from these securities is a
tax-preference item for purposes of the federal alternative minimum
tax.
Each fund's performance is affected by the economic and political
conditions within the state of Ohio. 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 funds differ primarily with respect to the level of income
provided and the stability of their share price. The money market
fund seeks to provide income while maintaining a stable share
price. The bond fund seeks to provide a higher level of income
by investing in a broader range of securities. As a result, the bond
fund does not seek to maintain a stable share price. In addition,
since the money market fund concentrates its investments in
Ohio municipal securities, an investment in the money market fund may
be riskier than an investment in other types of money market funds.
FMR may use various techniques to hedge a portion of the bond fund's
risks, but there is no guarantee that these strategies will work as
intended. When you sell your shares of the bond fund, 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. The funds do not expect to invest in federally taxable
obligations, and the bond fund does 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,
the 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, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in a
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating 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 sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. 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 bond fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service (Moody's), Standard &
Poor's (S&P), Duff & Phelps Credit Rating Co., or Fitch Investor
Services, L.P., or is unrated but judged to be of equivalent quality
by FMR. The fund may not invest in securities judged by FMR to be of
equivalent quality to those rated lower than B by Moody's or S&P.
MONEY MARKET SECURITIES are high-quality, short-term instruments
issued by municipalities, local and state governments, and other
entities. These securities may carry fixed, variable, or floating
interest rates. Some money market securities employ a trust or similar
structure to modify the maturity, price characteristics, or quality of
financial assets so that they are eligible investments for money
market funds. If the structure does not perform as intended, adverse
tax or investment consequences may result.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose a fund to the credit risk of
the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security
and a fund's share price. In addition, in the case of foreign
providers of credit or liquidity support, extensive public information
about the provider may not be available, and unfavorable political,
economic, or governmental developments could affect its ability to
honor its commitment.
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 fully or partially backed by the local government, or by
the credit of a private issuer or the current or anticipated revenues
from specific projects or assets. Because many municipal securities
are issued to finance similar types of projects, especially those
relating to education, health care, housing, transportation, and
utilities, the municipal markets can be affected by conditions in
those sectors. In addition, all municipal securities may be affected
by uncertainties regarding their tax status, legislative changes, or
rights of municipal securities holders. A municipal security may be
owned directly or through a participation interest.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state of Ohio 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, 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.
ASSET-BACKED SECURITIES include interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. The value of these securities depends on many factors,
including changes in interest rates, the availability of information
concerning the pool and its structure, the credit quality of the
underlying assets, the market's perception of the servicer of the
pool, and any credit enhancement provided. In addition, these
securities may 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.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund may
accept a lower interest rate. The credit quality of the investment may
be affected by the creditworthiness of the put provider. Demand
features, standby commitments, and tender options are types of
put features.
PRIVATE ENTITIES may be involved in some municipal securities. For
example, industrial revenue bonds are backed by private entities, and
resource recovery bonds often involve private corporations. The
viability of a project or tax incentives could affect the value and
credit quality of these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, 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 a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities and some
other securities may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR
or its affiliates, whose goal is to seek a high level of current
income exempt from federal income tax while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
RESTRICTIONS: Spartan Ohio Municipal Income does not currently
intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry
or type of project. Economic, business, or political changes can
affect all securities of a similar type. A fund that is not
diversified may be more sensitive to changes in the market value of a
single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to
meet federal tax requirements at the close of each quarter, each 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 issuer. These limitations do not apply to
U.S. Government securities or to securities of other investment
companies. Each fund may invest more than 25% of its total assets in
tax-free securities that finance similar types of projects.
BORROWING. Each fund may borrow from banks or from other funds
advised by FMR, or through reverse repurchase agreements. If a fund
borrows money, its share price may be subject to greater fluctuation
until the borrowing is paid off. If a fund makes additional
investments while borrowings are outstanding, this may be considered a
form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or
emergency purposes, but not in an amount exceeding 331/3% of its total
assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
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.
SPARTAN 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 331/3% of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its
share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to an affiliate who
provides assistance with these services for the money market fund.
Each fund also pays OTHER EXPENSES, which are explained on page .
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 0.37%, and it
drops as total assets under management increase.
For December 1997, the group fee rate was 0.__%. The individual
fund fee rate is 0.25% for each fund.
The total management fee rate for the fiscal year ended December 31,
1997 was ___% for Ohio Municipal Money Market. Because of a
reimbursement arrangement, the total management fee rate for the
fiscal year ended December 31, 1997 was __% for Spartan Ohio Municipal
Income .
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)
FMR Texas is Ohio Municipal Money Market's sub-adviser and has primary
responsibility for managing its investments. FMR is responsible
for providing other management services. FMR pays FMR Texas 50% of its
management fee (before expense reimbursements) for FMR Texas's
services. FMR paid FMR Texas a fee equal to __% of Ohio Municipal
Money Market's average net assets for the fiscal year ended December
31, 1997.
OTHER EXPENSES
While the management fee is a significant component of the funds'
annual operating costs, the funds have other expenses as well.
UMB is the transfer and service agent for each fund. UMB has
entered into sub-agreements with FSC under which FSC performs transfer
agency, dividend disbursing, shareholder servicing, and accounting
functions for the funds. These services include processing shareholder
transactions, valuing each fund's investments, and calculating each
fund's share price and dividends.
Under the terms of the sub-agreements, FSC receives all related
fees paid to UMB by each fund.
For the fiscal year ended December 31, 1997, transfer agency and
pricing and bookkeeping fees paid (as a percentage of average net
assets) amounted to the following. These amounts are before expense
reductions, if any.
Transfer Agency and
Pricing and Bookkeeping Fees
Paid by Fund
OH Municipal Money Market %
Spartan OH Municipal Income %
Each fund also pays other expenses, such as legal, audit,
and custodian fees; in some instances, proxy solicitation costs;
and the compensation of trustees who are not affiliated with Fidelity.
A broker-dealer may use a portion of the commissions paid by a fund
to reduce that fund's custodian or transfer agent fees.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees of each fund has not authorized such
payments.
For the fiscal year ended December 31, 1997, the portfolio turnover
rate for the bond fund was __%. This rate varies 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 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 Spartan Ohio Municipal Income
as your core account for your Fidelity Ultra Service
Account(registered trademark) or FidelityPlusSM brokerage account.
You may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in a fund. Certain features of
the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset
value per share (NAV). The money market fund is managed to keep its
NAV stable at $1.00. Each fund's shares are sold without a sales
charge.
Your shares will be purchased at the next NAV calculated after your
investment is received and accepted. Each fund's NAV is normally
calculated each business day at 4:00 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
for OH Municipal Money Market $5,000
for Spartan OH Municipal Income $10,000
TO ADD TO AN ACCOUNT
for OH Municipal Money Market $500
Through regular investment plans* $100
for Spartan OH Municipal Income $1,000
Through regular investment plans* $500
MINIMUM BALANCE
for OH Municipal Money Market $2,000
for Spartan OH Municipal Income $5,000
*For more information about regular investment plans, please refer to
"Investor Services," page __.
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE 1-800-544-7777
(PHONE_GRAPHIC) (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER
FIDELITY FUND (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME REGISTRATION, ACCOUNT WITH THE SAME REGISTRATION,
INCLUDING NAME, ADDRESS, AND INCLUDING 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: UP TO
$100,000.
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MAIL
(MAIL_GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE
APPLICATION. (SMALL SOLID BULLET) MAKE YOUR CHECK PAYABLE TO THE
MAKE YOUR CHECK PAYABLE TO THE COMPLETE NAME OF THE FUND. INDICATE
COMPLETE NAME OF THE FUND. MAIL TO YOUR FUND ACCOUNT NUMBER ON YOUR
THE ADDRESS INDICATED ON THE CHECK AND MAIL TO THE ADDRESS PRINTED
APPLICATION. ON YOUR ACCOUNT STATEMENT.
(SMALL SOLID BULLET) EXCHANGE BY MAIL: CALL
1-800-544-6666 FOR INSTRUCTIONS.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IN PERSON
(HAND_GRAPHIC) (SMALL SOLID BULLET) BRING YOUR APPLICATION
AND CHECK TO A (SMALL SOLID BULLET) BRING YOUR CHECK TO A FIDELITY INVESTOR
FIDELITY INVESTOR CENTER. CALL CENTER. CALL 1-800-544-9797 FOR THE
1-800-544-9797 FOR THE CENTER CENTER NEAREST YOU.
NEAREST YOU.
</TABLE>
<TABLE>
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WIRE (WIRE_GRAPHIC) (SMALL SOLID BULLET) CALL 1-800-544-7777 TO SET UP YOUR (SMALL SOLID BULLET) WIRE TO:
ACCOUNT AND TO ARRANGE A WIRE BANKERS TRUST COMPANY,
TRANSACTION. BANK ROUTING #021001033,
(SMALL SOLID BULLET) WIRE WITHIN 24 HOURS TO: ACCOUNT #00163053.
BANKERS TRUST COMPANY, SPECIFY THE COMPLETE NAME OF THE
BANK ROUTING #021001033, FUND AND INCLUDE YOUR ACCOUNT
ACCOUNT #00163053. NUMBER AND YOUR NAME.
SPECIFY THE COMPLETE NAME OF THE
FUND AND INCLUDE YOUR NEW ACCOUNT
NUMBER AND YOUR NAME.
</TABLE>
<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>
<CAPTION>
<S> <C> <C>
(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.
THE PRICE TO SELL ONE SHARE of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your
order is received and accepted. Each fund's NAV is normally calculated
each business day at 4:00 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
$5,000 worth of shares in the account ($2,000 for the money market
fund) 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
<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: UP TO $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 TENANT, (SMALL SOLID BULLET) THE LETTER OF INSTRUCTION MUST BE SIGNED BY ALL
SOLE PROPRIETORSHIP, PERSONS REQUIRED TO SIGN FOR TRANSACTIONS,
UGMA, UTMA EXACTLY AS THEIR NAMES APPEAR ON THE ACCOUNT.
TRUST (SMALL SOLID BULLET) THE TRUSTEE MUST SIGN THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF THE TRUSTEE'S NAME IS NOT
IN THE ACCOUNT REGISTRATION, PROVIDE A COPY OF THE
TRUST DOCUMENT CERTIFIED WITHIN THE LAST 60 DAYS.
BUSINESS OR ORGANIZATION (SMALL SOLID BULLET) AT LEAST ONE PERSON AUTHORIZED BY CORPORATE
RESOLUTION TO ACT ON THE ACCOUNT MUST SIGN THE
LETTER.
(SMALL SOLID BULLET) INCLUDE A CORPORATE RESOLUTION WITH CORPORATE
SEAL OR A SIGNATURE GUARANTEE.
EXECUTOR, ADMINISTRATOR, (SMALL SOLID BULLET) CALL 1-800-544-6666 FOR INSTRUCTIONS.
CONSERVATOR, GUARDIAN
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
AND ACCEPTED BY FIDELITY BEFORE 4:00 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 FOR OHIO MUNICIPAL
MONEY MARKET AND $1,000 FOR SPARTAN OHIO
MUNICIPAL INCOME.
(SMALL SOLID BULLET) ALL ACCOUNT OWNERS MUST SIGN A SIGNATURE CARD
TO RECEIVE A CHECKBOOK.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone or in writing.
Note that exchanges out of a fund are limited to four per calendar
year (except for the money market fund), 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
<TABLE>
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 FOR
OH MUNI. MONTHLY OR QUARTERLY (SMALL SOLID BULLET) FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE SECTION ON THE FUND
MONEY
MARKET APPLICATION.
$500 FOR
SPARTAN (SMALL SOLID BULLET) FOR EXISTING ACCOUNTS, CALL 1-800-544-6666 FOR AN APPLICATION.
OH MUNI
INCOME (SMALL SOLID BULLET) TO CHANGE THE AMOUNT OR FREQUENCY OF YOUR INVESTMENT, CALL
1-800-544-6666 AT LEAST THREE BUSINESS DAYS PRIOR TO YOUR NEXT
SCHEDULED INVESTMENT DATE.
</TABLE>
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 FOR OH
MUNI. EVERY PAY PERIOD (SMALL SOLID BULLET) CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION, OR CALL
MONEY MARKET 1-800-544-6666 FOR AN AUTHORIZATION FORM.
$500 FOR SPARTAN (SMALL SOLID BULLET) CHANGES REQUIRE A NEW AUTHORIZATION FORM.
OH MUNI INCOME
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
<TABLE>
<CAPTION>
<S> <C> <C>
MINIMUM FREQUENCY SETTING UP OR CHANGING
$100 for OH
Muni. Monthly, bimonthly, (small solid bullet) To establish, call 1-800-544-6666 after both accounts are
Money
Market quarterly, or annually opened.
$500 for
Spartan (small solid bullet) To change the amount or frequency of your investment, call
OH Muni
Income 1-800-544-6666.
</TABLE>
A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THAT FUND MAY NOT BE AN
APPROPRIATE CHOICE 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
fund 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 bond
fund offers four options, and the money market fund offers three
options.
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. (bond fund only) Your capital gain
distributions, if any, 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, 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 distributed as dividends and
taxed as ordinary income. 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 a statement
showing the tax status of distributions, and will report to the IRS
the amount of any taxable 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 Ohio
state tax-free obligations, 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.
During the fiscal year ended December 31, 1997, ___% of each
fund's income dividends was free from federal income tax , and
__% and __% were free from Ohio taxes for Ohio Municipal Money Market
and Spartan Ohio Municipal Income, respectively. __% of Ohio Municipal
Money Market's and __% of Spartan Ohio Municipal Income's income
dividends were subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including
exchanges to other Fidelity funds - are subject to capital gains tax.
A capital gain or loss is the difference between the cost of your
shares and the price you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but
not yet distributed income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back in
the form of a taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. F SC normally calculates each fund's NAV as of
the close of business of the NYSE, normally 4:00 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
The money market fund' s assets are valued on the basis of
amortized cost. This method minimizes the effect of changes in a
security's market value and helps the money market fund to
maintain a stable $1.00 share price.
For the bond fund, assets are valued primarily on the basis of
information furnished by a pricing service or market quotations,
if available, or by another method that the Board of Trustees believes
accurately reflects fair value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet,
Fidelity recommends the use of an Internet browser with 128-bit
encryption. 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 shares will be
purchased at the next NAV calculated after your investment 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 canceled 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.
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 order 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 $24.00 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. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($2,000 for Ohio Municipal
Money Market), 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
available 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 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
im pose fees of up to 1.00% on purchases, administrative fees of
up to $7.50, and trading fees of up to 1.50% on exchanges.
Check each fund's prospectus for details.
From Filler pages
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
SPARTAN OHIO MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus
(dated February 26 , 1998). Please retain this document for
future reference. The funds' Annual Report is a separate
document supplied with this SAI. To obtain a free additional copy of
the Prospectus or an Annual Report, please call Fidelity at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Ohio
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts with FMR Affiliates
Description of the Trusts
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
OFF-ptb-0298
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 (1940
Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
( MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET 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) 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 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;
(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 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 the
securities of companies whose principal business activities are 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-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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(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 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.
(iv) 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.
(v) 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 (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
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 money market fund's policies on quality and maturity, see the
section entitled "Quality and Maturity" on page __.
INVESTMENT LIMITATIONS OF SPARTAN OHIO MUNICIPAL INCOME FUND
(BOND FUND)
THE FOLLOWING ARE THE BOND 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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). The fund will not 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.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
For purposes of limitations (4) and (i), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For the bond fund's limitations on futures and options transactions,
see the section entitled "Limitations on Futures and Options
Transactions" on page __.
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. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
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. A fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place
after the customary settlement period for that type of security.
Typically, no interest accrues to the purchaser until the security is
delivered. The bond fund 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 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 (S&P) in rating corporate
obligations within its two highest ratings of A-1 and A-2. The money
market fund will purchase taxable obligations only if they meet its
quality requirements.
Proposals to restrict or eliminate the federal income tax exemption
for interest on municipal obligations are introduced before Congress
from time to time. Proposals also may be introduced before the Ohio
state legislature 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. 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 bond 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 bond 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 SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a fund to enter into new positions
or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a
position until delivery or expiration regardless of changes in its
value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the funds greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund
obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this
right, the fund pays the current market price for the option (known as
the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities
prices, and futures contracts. The fund may terminate its position in
a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund
will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the
strike price. A fund may also terminate a put option position by
closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the fund assumes the
obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract, the fund will be
required to make margin payments to an FCM as described above for
futures contracts. A fund may seek to terminate its position in a put
option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not
liquid for a put option the fund has written, however, the fund must
continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise
of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally
is a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, a call writer mitigates the effects of
a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up
some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
For the money market fund, FMR may determine some restricted
securities and municipal lease obligations to be illiquid.
For the bond fund, investments currently considered to be illiquid
include over-the-counter options. Also, FMR may determine some
restricted securities and municipal lease obligations to be illiquid.
However, with respect to over-the-counter options a fund writes, all
or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and
terms of any agreement the fund may have to close out the option
before expiration.
In the absence of market quotations, illiquid investments for the
money market fund are valued for purposes of monitoring amortized cost
valuation, and for the bond fund 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 AND LENDING 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 each fund currently intends to participate in this
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 fund may invest a portion
of its assets in lower-quality municipal securities as described in
the Prospectus.
While the market for Ohio municipals is considered to be substantial,
adverse publicity and changing investor perceptions may affect the
ability of outside pricing services used by a fund to value its
portfolio securities, and the fund's ability to dispose of
lower-quality bonds. The outside pricing services are monitored by FMR
and reported to the Board to determine whether the services are
furnishing prices that accurately reflect fair value. The impact of
changing investor perceptions may be especially pronounced in markets
where municipal securities are thinly traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be
affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Municipal bankruptcies are relatively rare, and
certain provisions of the U.S. Bankruptcy Code governing such
bankruptcies are unclear and remain untested. Further, the application
of state law to municipal issuers could produce varying results among
the states or among municipal securities issuers within a state. These
legal uncertainties could affect the municipal securities market
generally, certain specific segments of the market, or the relative
credit quality of particular securities. Any of these effects could
have a significant impact on the prices of some or all of the
municipal securities held by a fund, making it more difficult for the
money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial
assets. For example, put features can be used to modify the maturity
of a security or interest rate adjustment features can be used to
enhance price stability. If the structure does not perform as
intended, adverse tax or investment consequences may result. Neither
the Internal Revenue Service (IRS) nor any other regulatory authority
has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could
adversely affect the value, liquidity, or tax treatment of the income
received from these securities or the nature and timing of
distributions made by the funds.
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.
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.
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.
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. They are
subject to the risk that the put provider is unable to honor the put
feature (purchase the security). Put providers often support their
ability to buy securities on demand by obtaining letters of credit or
other guarantees from other entities. Demand features, standby
commitments, and tender options are types of put features.
QUALITY AND MATURITY (MONEY MARKET FUND). Pursuant to procedures
adopted by the Board of Trustees, the fund may purchase only
high-quality securities that FMR believes present minimal credit
risks. To be considered high-quality, a security must be rated in
accordance with applicable rules in one of the two highest categories
for short-term securities by at least two nationally recognized rating
services (or by one, if only one rating service has rated the
security); or, if unrated, judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in the
highest rating category (e.g., Standard & Poor's A-1 or SP-1), and
second tier securities are those deemed to be in the second highest
rating category (e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When determining
the maturity of a security, the fund may look to an interest rate
reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the
fund to buy refunded municipal obligations at a stated price and yield
on a settlement date that may be several months or several years in
the future. A fund generally will not be obligated to pay the full
purchase price if it fails to perform under a refunding contract.
Instead, refunding contracts generally provide for payment of
liquidated damages to the issuer (currently 15-20% of the purchase
price). A fund may secure its obligations under a refunding contract
by depositing collateral or a letter of credit equal to the liquidated
damages provisions of the refunding contract. When required by SEC
guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. To
protect the fund from the risk that the original seller will not
fulfill its obligation, the securities are held in an account of the
fund at a bank, marked-to-market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount.
While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility that the value
of the underlying security will be less than the resale price, as well
as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part
of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time it may
be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, a fund might obtain a less favorable price than prevailed
when it decided to seek registration of the security. However, in
general, the money market fund anticipates holding restricted
securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. A fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory
by FMR. Such transactions may increase fluctuations in the market
value of the fund's assets and may be viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, 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.
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 CONSIDERATIONS 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 SAI. 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, and corporate
franchise taxes. There is no present constitutional limit on the rates
of state-levied taxes, except for taxes on intangible property. In
1995, the Ohio House of Representatives adopted a resolution that
would submit to the electors a constitutional amendment prohibiting
the General Assembly from imposing a new tax or increasing an existing
tax unless approved by a three-fifths vote of each house or by a
majority vote of the electors. Because the Ohio Senate did not act on
the resolution, the concurrence required to submit the proposed
constitutional amendment to the electors was not received. A new
General Assembly convenes in January 1997, and the proposal regarding
such constitutional amendment does not carry over to the new General
Assembly.
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 had an adverse effect on
both the economy in Ohio and the financial condition of the State of
Ohio and its underlying municipalities. As an initial action to
address a projected 1992 fiscal year imbalance in the GRF, 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 transfer of the
$100.4 million balance in the Budget Stabilization Fund to the GRF.
Other revenue and spending actions, legislative and administrative,
resolved the remaining GRF imbalance for fiscal year 1992.
In response to a then estimated $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 year 1993, and an additional $50
million in 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 act for the 1994-95 biennium provided for total
GRF biennial expenditures of approximately $30.7 billion, those for
fiscal year 1994 being 9.2% higher than in fiscal year 1993 (taking
into account fiscal year 1993 expenditure reductions), and for fiscal
year 1995 being 6.6% higher than in fiscal year 1994. Fiscal year 1994
ended with a GRF fund balance of over $560 million, permitting an
additional $260.3 million to be deposited in the Budget Stabilization
Fund. The 1994-95 biennium GRF ending fund balance was $928 million.
The GRF appropriations act for the 1996-97 biennium was passed on June
28, 1995 and promptly signed after selective vetoes, by the Governor.
The appropriations acts as passed and signed include all necessary
appropriations for debt service on State obligations. In accordance
with the appropriations act, the significant June 30, 1995 GRF fund
balance, after retaining in the GRF an unreserved and undesignated
balance of $70 million, was transferred to a variety of funds,
including $535.2 million to the Budget Stabilization Fund (which has a
current balance of $828.3 million) and $322.8 million to other funds,
including school assistance funds and, in anticipation of possible
federal program changes, a human services stabilization fund.
The June 30, 1996 GRF ending fund balance was over $781 million which
was higher than forecast. In accordance with General Assembly
directions, $100 million of such balance was transferred from the GRF
to the fund providing for the elementary and secondary school computer
network and $30 million was transferred to a new fund for state
transportation infrastructure. Approximately $400.8 million of such
balance is serving as the basis for a temporary 1996 personal income
tax reduction equalling that amount.
Litigation pending in federal district court contests the Ohio
Department of Human Services' (ODHS) former Medicaid financial
eligibility rules for married couples where one spouse is living in a
nursing facility and the other spouse resides in the community. ODHS
promulgated new eligibility rules effective January 1, 1996, and is
appealing a court order directing it to provide notice to persons
potentially affected by the former rules from 1990 through 1995. It is
not possible at this time to state whether this appeal will be
successful, or, should plaintiffs prevail, the period beyond the
current fiscal year during which necessary additional Medicaid
expenditures would have to be made. Plaintiffs have estimated total
additional Medicaid expenditures at $600 million for the retroactive
period and, based on current law, it is estimated that the State of
Ohio's share of those additional expenditures is approximately $240
million.
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-four cities and villages, including the City of Cleveland; in
nineteen of these communities, the fiscal situation has been resolved
and the procedures terminated. The fiscal emergency legislation was
recently amended to extend its potential application to counties and
townships. The extension is on an "if and as needed" basis, and not
aimed at particular existing fiscal problems of those subdivisions.
Local school districts in Ohio receive a major portion of their
operational funds from state subsidies (the primary portion of which
is known as the Foundation Program), 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 local 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 from the state funded Emergency School
Advancement Fund (EASF). Legislation with enhanced provisions for
individual district borrowing replaced the EASF program for fiscal
years subsequent to fiscal year 1989. In fiscal year 1996, there were
26 loans made for an aggregate amount of $87.2 million (including one
loan of $42.1 million to the Cleveland City School District). New
legislation addresses larger school districts with financial
difficulties. It is similar to that for municipal fiscal emergencies
described above, but is particularly tailored to certain school
districts and their present and potential fiscal problems. It has been
applied to two school districts and five school districts have been
placed on fiscal watch.
Litigation contesting the Ohio system of school funding is pending on
appeal in the Ohio Supreme Court with defendants being the State and
several State agencies and officials. Among other relief sought by the
plaintiff school districts was essentially a declaratory judgment that
the State's statutory system of funding public elementary and
secondary education violates various provisions of the Ohio
Constitution. As a remedy, the plaintiffs requested decrees as may be
required to compel the State and the General Assembly to devise and
enact a constitutionally acceptable system of school funding. The
trial court in July 1994 concluded that certain provisions of current
law (including those relating to the Foundation Program, and certain
school district borrowing authorizations) violated provisions of the
Ohio Constitution, and directed the Sate "forthwith to provide for and
fund a system of funding public elementary and secondary education in
compliance with the Ohio Constitution." The State appealed, and the
trial court granted a stay of its findings and conclusions, and a stay
of its orders except for requirements that officials prepare and
present to the General Assembly proposals for a school funding system
complying with the court-specified criteria and except for periodic
reports to the court on steps taken to eliminate wealth-based
disparities among school districts. In August 1995, a court of appeals
reversed the trial court's findings in favor of plaintiff school
districts and vacated the trial court's remedial orders.
In prior litigation, the Ohio Supreme Court in 1979 upheld what was
essentially the then existing Foundation Program against similar
claims that a the school funding system violated provisions of the
Ohio Constitution. Applying that 1979 decision to the present case,
the court of appeals found no constitutional violation.
It is not possible at this time to predict the outcome of the appeal
to the Ohio Supreme Court or, should the plaintiffs prevail, the
effect on the State's present school funding system, including the
amount of and criteria for State basic aid allocations to school
districts.
Ohio's general obligation bonds are currently rated Aa1 by Moody's
Investors Service, Inc., AA+ by Standard & Poor's Rating Services, a
division of McGraw-Hill Companies, Inc., and AA+ by Fitch Investors
Service, L.P., 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 affect adversely the ratings of obligations of current or
future issues.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following 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, its agencies and instrumentalities, as
available on the date of this SAI. 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 to that of the United
States. In fiscal 1995, trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of
its imports. In this regard, in fiscal 1995 Puerto Rico experienced a
$4.6 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1995, aggregate
personal income was $27.0 billion ($26.2 billion in 1992 prices) and
personal per capita income was $7,296 ($7,074 in 1992 prices). Gross
domestic product in fiscal 1992 was $23.7 billion and gross product in
fiscal 1996 was $30.2 billion; ($26.7 billion in 1992 prices). This
represents an increase in gross product of 27.5% from fiscal 1992 to
1996 (12.7% in 1992 prices). For fiscal 1997, an increase in gross
domestic product of 2.7% over fiscal 1996 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
value of the U.S. dollar, the price stability of oil imports, any
increase or decrease in the number of visitors to the island, the
level of exports, the level of federal transfers, and the cost of
borrowing.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1992 through fiscal 1996. Almost every sector of
the economy participated, and record levels of employment were
achieved. Factors behind the continued expansion included
government-sponsored economic development programs, periodic declines
in the exchange value of the U.S. dollar, the level of federal
transfers, 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 16.8% from fiscal 1992 to fiscal
1993. However, by the end of fiscal 1994, the unemployment rate
dropped to 15.9% and as of the end of fiscal 1996, stands at 13.8%.
Despite this downturn, there is a possibility that the unemployment
rate will increase.
Manufacturing is the largest sector in the economy accounting for
$17.7 billion or 41.8% of gross domestic product in fiscal 1995.
Manufacturing has experienced a basic change over the years as a
result of the influx of higher wage, high technology industries such
as the pharmaceutical industry, electronics, computers,
microprocessors, scientific instruments and high technology machinery.
The service sector, which includes finance, insurance, real estate,
wholesale and retail trade, hotels and related services and other
services, ranks second in its contribution to gross domestic product
and is the sector that employs the greatest number of people. In
fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector
grew from 449,000 in fiscal 1992 to 527,000 in fiscal 1996, a
cumulative increase of 17.6%, which increase was greater than the
11.8% cumulative growths in employment over the same period, providing
46.7% of total employment. The government sector of the Commonwealth
plays an important role in the economy of the island. In fiscal year
1995, the government accounted for $4.5 billion or 10.6% 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 $1.8 billion of gross domestic product in
fiscal 1995.
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic
development and growth. This new program, which is referred to as the
New Economic Model, promotes changing the role of the government from
one of being a provider of most basic services to that of a
facilitator for private sector initiatives and encourages private
sector investment by reducing government-imposed regulatory
restraints.
The New Economic Model contemplates the development of initiatives
that will foster private investment in, and private management of,
sectors that are served more efficiently and effectively by the
private enterprise. One of these initiatives has been the adoption of
a new tax code intended to expand the tax base, reduce top personal
and corporate tax rates, and simplify the tax system.
The New Economic Model also seeks to identify and promote areas in
which Puerto Rico can compete more effectively in the global markets.
Tourism has been identified as one such area because of its potential
for job creation and contribution to the gross product. In 1993, a
new Tourism Incentives Act and a Tourism Development Fund were
implemented in order to provide special tax incentives and financing
for the development of new hotel projects and the tourism industry.
As a result of these initiatives, new hotels have been constructed or
are under construction which have increased the number of hotel rooms
on the island from 8,415 in fiscal 1992 to 10,345 in fiscal 1996 and
to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the
government's direct contribution to gross domestic product. As part
of this goal, the government has transferred certain governmental
operations and sold a number of its assets to private parties. Among
these are: (i) the sale of the assets of the Puerto Rico Maritime
Authority; (ii) the execution of a five-year management agreement for
the operation and management of the Aqueducts and Sewer Authority by a
private company; (iii) the execution by the Aqueducts and Sewer
Authority of a construction and operating agreement with a private
consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts
with private power producers under which two cogeneration plants (with
a total capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of
private health services, in 1994 a new health insurance program was
started in the Fajardo region to provide qualifying Puerto Rico
residents with comprehensive health insurance coverage. In
conjunction with this program certain public health facilities are
being privatized. The administration's goal is to provide universal
health insurance for such qualifying residents. The total cost of
this program will depend on the number of municipalities included and
the total number of participants. As of June 30, 1996, over 760,000
persons were participating in the program at an annual cost to the
Commonwealth of approximately $296 million.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, most notably section 936 of the Internal Revenue
Code of 1986, as amended ("Section 936") and the Commonwealth's
Industrial Incentives Program. 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 during a 10, 15, 20, or 25 year period
depending on location.
For many years, U.S. companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax
exemption for operating and qualifying investment income from Puerto
Rico sources. Amendments to Section 936 made in 1993 (the "1993
Amendments") instituted two alternative methods for calculating the
tax credit and limited the amount of the credit that a qualifying
company could claim. These limitations are based on a percentage of
qualifying income (the "percentage of income limitation") and on
qualifying expenditures on wages and other wage related benefits (the
"economic activity limitation" or "wage credit limitation"). As a
result of amendments incorporated in the Small Business Job Protection
Act of 1996 enacted by the U.S. Congress and signed into law by
President Clinton on August 20, 1996 (the "1996 Amendments"), the tax
credit is now being phased out over a ten-year period for existing
claimants and is no longer available for corporations that establish
operations in Puerto Rico after October 13, 1995 (including existing
Section 936 Corporations (as defined below) to the extent
substantially new operations are established in Puerto Rico). The
1996 Amendments also moved the credit based on the economic activity
limitation to Section 30A of the Code and phased it out over 10 years.
In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in
Puerto Rico. The Section 30A Credit and the remaining Section 936
credit are discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" ("QDC") that
meets certain gross income tests (which are similar to the 80% and 75%
gross income tests of Section 936 of the Code discussed below) to
claim a credit (the "Section 30A Credit") against the federal income
tax imposed on taxable income derived from sources outside the United
States from the active conduct of a trade or business in Puerto Rico
or from the sale of substantially all the assets used in such business
("possession income").
A QDC is a U.S. corporation which (i) was actively conducting a trade
or business in Puerto Rico on October 13, 1995, (ii) had a Section 936
election in effect for its taxable year that included October 13,
1995, (iii) does not have in effect an election to use the percentage
limitation of Section 936(a)(4)(B) of the Code, and (iv) does not add
a "substantial new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to
85% of the maximum earnings subject to the OASDI portion of Social
Security taxes plus an allowance for fringe benefits of 15% of
qualified possession wages, (ii) a specified percentage of
depreciation deductions ranging between 15% and 65%, based on the
class life of tangible property, and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a 9% effective tax rate (but only
if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the Code may compute the amount of its
active business income, eligible for the Section 30A Credit, by using
either the cost sharing formula, the profit-split formula, or the
cost-plus formula, under the same rules and guidelines prescribed for
such formulas as provided under Section 936 (see discussion below).
To be eligible for the first two formulas, the QDC must have a
significant presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the
amount of possession income that would qualify for the Section 30A
Credit would be subject to a cap based on the QDC's possession income
for an average adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto
Rico ("active business income") and from the sale or exchange of
substantially all assets used in the active conduct of such trade or
business. To qualify under Section 936 in any given taxable year, a
corporation must derive for the three-year period immediately
preceding the end of such taxable year, (i) 80% or more of its gross
income from sources within Puerto Rico, and (ii) 75% or more of its
gross income from the active conduct of a trade or business in Puerto
Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one
of three formulas: (A) a cost-sharing formula, whereby it is allowed
to claim all profits attributable to manufacturing intangibles, and
other functions carried out in Puerto Rico, provided it contributes to
the research and development expenses of its affiliated group or pays
certain royalties; (B) a profit-split formula, whereby it is allowed
to claim 50% of the net income of its affiliated group from the sale
of products manufactured in Puerto Rico; or (C) a cost-plus formula,
whereby it is allowed to claim a reasonable profit on the
manufacturing costs incurred in Puerto Rico. To be eligible for the
first two formulas, the Section 936 Corporation must have a
significant business presence in Puerto Rico for purposes of the
Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the
Section 936 credit is only available to companies that elect the
percentage of income limitation and is limited in amount to 40% of the
credit allowable prior to the 1993 Amendments, subject to a five-year
phase-in period from 1994 to 1998 during which period the percentage
of the allowable credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the
possession income subject to the Section 936 credit will be subject to
a cap based on the Section 936 Corporation's possession income for an
average adjusted base period ending on October 14, 1995. The Section
936 credit is eliminated for taxable years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the long-term
effect on the Puerto Rico economy of the enactment of the 1996
Amendments to Section 936. The Government of Puerto Rico does not
believe there will be short-term or medium-term material adverse
effects on Puerto Rico's economy as a result of the enactment of the
1996 Amendments. The Government of Puerto Rico further believes that
during the phase-out period sufficient time exists to implement
additional incentive programs to safeguard Puerto Rico's competitive
position. Additionally, the Governor intends to propose a new federal
incentive program similar to what is now provided under Section 30A.
Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe
benefits, depreciation expenses for certain tangible assets, and
research and development expenses, and would restore the credit
granted to passive income under Section 936 prior to its repeal by the
1996 Amendments. Under the Governor's proposal, the credit granted to
qualifying companies would continue in effect until Puerto Rico shows,
among other things, substantial economic improvements in terms of
certain economic parameters.
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 fund, FMR
has granted investment management authority to the sub-adviser (see
the section entitled "Management Contracts"), and the sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
below. FMR is also responsible for the placement of transaction orders
for other investment companies and accounts for which it or its
affiliates act as investment adviser. Securities purchased and sold by
the money market fund generally will be traded on a net basis (i.e.,
without commission). In selecting broker-dealers, subject to
applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer
firm; the broker-dealer's execution services rendered on a continuing
basis; and the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; effect
securities transactions, and perform functions incidental thereto
(such as clearance and settlement). FMR maintains a listing of
broker-dealers who provide such services on a regular basis. However,
as many transactions on behalf of the money market fund are placed
with broker-dealers (including broker-dealers on the list) without
regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The
selection of such broker-dealers generally is made by FMR (to the
extent possible consistent with execution considerations) based upon
the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the funds may be useful to FMR in rendering investment
management services to the funds or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to the funds. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause each fund to pay such higher commissions,
FMR must determine in good faith that such commissions are reasonable
in relation to the value of the brokerage and research services
provided by such executing broker-dealers, viewed in terms of a
particular transaction or FMR's overall responsibilities to the funds
and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds, or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC), an indirect 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 NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended December 31, 1997 and 1996, the
portfolio turnover rates were ___% and 43%, respectively for
Spartan Ohio Municipal Income. 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 the fiscal years ended December 31, 1997, 1996, and 1995,
Ohio Municipal Money Market paid [no brokerage
commissions/brokerage commissions of $____, $_____, and $_____,
respectively; and Spartan Ohio Municipal Income paid [no brokerage
commissions/brokerage commissions of $_____, $______, and $______,
respectively]. [IF APPROPRIATE: During the fiscal year ended
December 31, 1997 , this amounted to approximately __% and __%,
respectively, of the aggregate brokerage commissions paid by each fund
involving approximately __% and __%, respectively, of the aggregate
dollar amount of transactions for which the funds paid brokerage
commissions.]
During the fiscal year ended December 31, 1997 , Ohio Municipal
Money Market paid $__ in commissions to brokerage firms that provided
research services involving approximately $___of transactions; during
the fiscal year ended December 31, 1997, Spartan Ohio Municipal Income
paid $__ in commissions to brokerage firms that provided research
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. [IF APPLICABLE:During the fiscal year
ended December 31, 1997, the fund s paid no fees to brokerage
firms that provided research services.]
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
Fidelity Service Company, Inc. (FSC) normally determines each
fund's net asset value per share (NAV) as of the close of the New
York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern time). The
valuation of portfolio securities is determined as of this time for
the purpose of computing each fund's NAV.
TAX-FREE BOND FUND. Portfolio securities are valued by various
methods. If quotations are not available, fixed-income securities
are usually valued on the basis of information furnished by a pricing
service that uses a valuation matrix which incorporates both
dealer-supplied valuations and electronic data processing techniques.
Use of pricing services has been approved by the Board of Trustees. A
number of pricing services are available, and the fund may use various
pricing services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily available
market value are valued in good faith by a committee appointed by the
Board of Trustees. The procedures set forth above need not be used to
determine the value of the securities owned by the fund if, in the
opinion of a committee appointed by the Board of Trustees, some other
method would more accurately reflect the fair market value of such
securities.
MONEY MARKET FUND. Portfolio securities and other assets are valued on
the basis of amortized cost. This technique involves initially valuing
an instrument at its cost as adjusted for amortization of premium or
accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
Securities of other open-end investment companies are valued at
their respective NAVs.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund
used market valuations to determine its NAV. The converse would apply
during periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use
of the term "money market fund" are permitted pursuant to Rule 2a-7
under the 1940 Act. The fund must adhere to certain conditions under
Rule 2a-7, as summarized in the section entitled "Quality and
Maturity" on page ___.
The Board of Trustees oversees FMR's adherence to the provisions of
Rule 2a-7 and has established procedures designed to stabilize the
fund's NAV at $1.00. At such intervals as they deem appropriate, the
Trustees consider the extent to which NAV calculated by using market
valuations would deviate from $1.00 per share. If the Trustees believe
that a deviation from 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.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. A bond fund's share price,
and each fund's yield and total return fluctuate in response to market
conditions and other factors, and the value of a bond fund's shares
when redeemed may be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a
period, the net change in value of a hypothetical account containing
one share reflects the value of additional shares purchased with
dividends from the one original share and dividends declared on both
the original share and any additional shares. The net change is then
divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. The money market fund also may
calculate a compound effective yield by compounding the base period
return over a one-year period. In addition to the current yield, the
money market fund may quote yields in advertising based on any
historical seven-day period. Yields for the money market fund are
calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields 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 dividends during the
period, dividing this figure by the fund's 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 the 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 the 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, the 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 combined federal and
state income 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 1998.
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 1998.
1998 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal Ohio State
Marginal Rate Marginal Rate Combined
Federal and State
Effective Rate**
Single Return Joint Return
</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 f ollowing
table t o determine the tax-equivalent yield for a given
tax-free yield.
If your combined federal and state effective tax rate in 1998
is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</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 table
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
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, 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 the money market
fund's 7-day yields, the bond fund's 30-day yields, each fund's
tax-equivalent yields, and total returns for periods ended December
31, 1997.
The tax-equivalent yield is based on a combined effective federal and
state income tax rate of __% and reflects that, as of December 31.
1997, [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> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven- Tax- One Five Life of One Five Life of
Day Equivalent Year Years Fund* Year Years Fund*
Yield Yield
OH Municipal % % % % % % % %
Money Market
</TABLE>
* From August 29, 1989 (commencement of operations).
<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
Day Equivalent Year Years Years Year Years Years
Yield Yield
Spartan OH % % % % % % % %
Municipal Income
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's yield would have been ___% and total returns would
have been lower.
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each fund's return
to the record of the Standard & Poor's 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (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
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because each
fund invests in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investments such as the funds. The S&P 500 and DJIA
returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended
December 31, 1997 or life of fund, as applicable, assuming all
distributions were reinvested. The figures below reflect the
fluctuating interest rates and bond prices of the specified periods
and should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in a
fund today. Tax consequences of different investments have not been
factored into the figures below.
During the period from August 29, 1989 (commencement of
operations) to December 31, 1997, a hypothetical $10,000 investment in
Ohio Municipal Money Market would have grown to $_______.
<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
1997 $ $ $ $ $ $ $
1996 $ 10,000 $ 2,972 $ 0 $ 12,972 $ 26,059 $ 29,146 $ 12,729
1995 $ 10,000 $ 2,584 $ 0 $ 12,584 $ 21,193 $ 22,646 $ 12,319
1994 $ 10,000 $ 2,161 $ 0 $ 12,161 $ 15,405 $ 16,564 $ 12,014
1993 $ 10,000 $ 1,865 $ 0 $ 11,865 $ 15,204 $ 15,779 $ 11,701
1992 $ 10,000 $ 1,622 $ 0 $ 11,622 $ 13,812 $ 13,487 $ 11,388
1991 $ 10,000 $ 1,304 $ 0 $ 11,304 $ 12,831 $ 12,570 $ 11,067
1990 $ 10,000 $ 817 $ 0 $ 10,817 $ 9,834 $ 10,109 $ 10,738
1989* $ 10,000 $ 215 $ 0 $ 10,215 $ 10,150 $ 10,164 $ 10,120
</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 in Ohio
Municipal Money Market 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. The fund did not
distribute any capital gains during the period.
During the 10-year period ended December 31, 1997, a
hypothetical $10,000 investment in Spartan Ohio Municipal
Income would have grown to $_______.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Ohio Municipal Income on January 1, 1988, 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
gain distributions.
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. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
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's performance may also be compared to that of a benchmark
index representing the universe of securities in which the fund may
invest. The total return of a benchmark index reflects reinvestment of
all dividends and capital gains paid by securities included in the
index. Unlike a fund's returns, however, the index returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
The bond fund may compare to the Lehman Brothers Municipal Bond
Index, a total return performance benchmark for investment-grade
municipal bonds with maturities of at least one year. In addition,
Spartan Ohio Municipal Income may compare its performance to that of
the Lehman Brothers Ohio 4 Plus Year Municipal Bond Index, a total
return performance benchmark for Ohio investment-grade municipal bonds
with maturities of at least four years. Issues included in each index
have been issued after December 31, 1990 and have an outstanding par
value of at least $50 million. Subsequent to December 31, 1995, zero
coupon bonds and issues subject to the alternative minimum tax are
included in each index.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
A money market fund may compare its performance or the performance
of securities in which it may invest to averages published by IBC
Financial Data, Inc. of Ashland, Massachusetts. These averages assume
reinvestment of distributions. IBC's MONEY FUND REPORT
AVERAGES(trademark)/All Tax-Free, which is reported in IBC's MONEY
FUND REPORT(trademark), covers over ___ tax-free money market funds.
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(Registered trademark), 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 bond 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 bond 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 bond 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, 1997 , 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 1998: New Year's Day, Martin Luther King's Birthday, Presidents'
Day, Good Friday, Memorial Day, 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 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.
A fund purchases municipal securities whose interest FMR believes is
free from federal income tax. Generally, issuers or other parties
have entered into covenants requiring continuing compliance with
federal tax requirements to preserve the tax-free status of interest
payments over the life of the security. If at any time the covenants
are not complied with, or if the IRS otherwise determines that the
issuer did not comply with relevant tax requirements, interest
payments from a security could become federally taxable retroactive to
the date the security was issued. For certain types of structured
securities, the tax status of the pass-through of tax-free income may
also be based on the federal and state tax treatment of the structure.
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
money market fund's policy of investing so that at least 80% of its
income distributions are free from federal and state income tax and
the bond fund's policy of investing so that at least 80% of its income
is free from federal and state 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 the money market fund's
policy of investing so that at least 80% of its income distributions
are free from federal and state income tax
and the bond fund's policy of investing so that least 80% of its
income is free from federal and state income tax. The money market
fund 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
OHIO TAXES. FMR understands that shareholders of Ohio Municipal Money
Market and Spartan Ohio Municipal Income 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 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 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 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 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 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 fund does not anticipate
distributing long-term capital gains.
As of December 31, 1997, the fund hereby designates approximately
$_______ as a capital gain dividend for the purpose of the
dividend-paid deduction.
As of December 31, 1997, [the fund/[Name(s) of Fund(s)] had a capital
loss 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, and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds of
Fidelity Municipal T rust (bond fund) and Fidelity Municipal
Trust II (money market fund) 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 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 its division, 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
accounts 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, Members of the Advisory Board, 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 and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, 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 (67) , 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 (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President of Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66), 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), 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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70), Trustee. 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), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65 ), 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, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54) , Trustee, 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). 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.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68) , Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN (64), 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), Imation Corp. (imaging and information storage, 1997), 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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds,
group leader of the Bond Group, and Senior Vice President of FMR
(1997). Mr. Churchill joined Fidelity in 1993 as Vice President and
Group Leader of Taxable Fixed-Income Investments. Prior to joining
Fidelity, he spent three years as president and CEO of CSI Asset
Management, Inc. in Chicago, an investment management subsidiary of
The Prudential.
BOYCE I. GREER (41), is Vice President of Money Market Funds
(1997), Group Leader of the Money Market Group (1997), and Senior Vice
President of FMR (1997). Mr. Greer served as the Leader of the
Fixed-Income Group for Fidelity Management Trust Company (1993-1995)
and was Vice President and Group Leader of Municipal Fixed-Income
Investments (1996-1997). Prior to 1993, Mr. Greer was an associate
portfolio manager.
FRED L. HENNING, JR. (58) is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
SCOTT A ORR (35), is Vice President of Fidelity Ohio Municipal
Money Market Fund (1996), and other funds advised by FMR. Mr. Orr has
managed a variety of Fidelity funds since 1994. Prior to 1994, Mr. Orr
was a municipal bond analyst for Fidelity.
GEORGE A. FISCHER (36), is Vice President of Spartan Ohio Municipal
Income Fund (1997), and other funds advised by FMR. Prior to assuming
his current responsibilities, Mr. Fischer managed a variety of
Fidelity funds.
ERIC ROITER ( ), Secretary, [Biography to be filed by
subsequent amendment.]
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant
Vice President of Fidelity's municipal bond funds (1996) and of
Fidelity's money market funds and Vice President and Associate General
Counsel of FMR Texas Inc.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (51) , 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) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
THOMAS J. SIMPSON (39) , Assistant Treasurer, is Assistant
Treasurer of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds (1996) and an employee of FMR (1996). Prior to
joining FMR, Mr. Simpson was Vice President and Fund Controller of
Liberty Investment Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Aggregate Aggregate Total
and Compensation Compensation from Compensation
Members of the Advisory Board from Spartan OH Municipal from the
OH Municipal Income[B,]D Fund Complex*,A
Money Market[B,]C
J. Gary Burkhead ** $ $ $ 0
Ralph F. Cox $ $ 137,700
Phyllis Burke Davis $ $ 134,700
Richard J. Flynn*** $ $ 168,000
Robert M. Gates **** $ $ 0
Edward C. Johnson 3d ** $ $ 0
E. Bradley Jones $ $ 134,700
Donald J. Kirk $ $ 136,200
Peter S. Lynch ** $ $ 0
William O. McCoy***** $ $ 85,333
Gerald C. McDonough $ $ 136,200
Edward H. Malone*** $ $ 136,200
Marvin L. Mann $ $ 134,700
Robert C. Pozen** $ $ 0
Thomas R. Williams $ $ 136,200
</TABLE>
* Information is for the calendar year ended December 31, 1996 for 235
funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of
Trustees through December 31, 1996.
****Mr. Gates was appointed to the Board of Trustees of Fidelity
Municipal Trust effective March 1, 1997. Mr. Gates was elected to the
Board of Trustees of Fidelity Municipal Trust II on July 16, 1997.
*****During the period from May 1, 1996 through December 31, 1996,
William O. McCoy served as a Member of the Advisory Board of each
trust. Mr. McCoy was appointed to the Board of Trustees of Fidelity
Municipal Trust effective January 1, 1997. Mr. McCoy was elected to
the Board of Trustees of Fidelity Municipal Trust II on July 16, 1997.
A Compensation figures include cash, a pro rata portion of benefits
accrued under the retirement program for the period ended December 30,
1996 and required to be deferred, and may include amounts deferred at
the election of Trustees.
B Compensation figures include cash, and may include amounts required
to be deferred, a pro rata portion of benefits accrued under the
retirement program for the period ended December 30, 1996 and required
to be deferred, and amounts deferred at the election of Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $___, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
E For the fiscal year ended December 31, 1997, certain of the
non-interested Trustees' aggregate compensation from a fund includes
accrued voluntary deferred compensation as follows: [trustee name,
dollar amount of deferred compensation, fund name]; [trustee name,
dollar amount of deferred compensation, fund name]; and [trustee name,
dollar amount of deferred compensation, fund name].
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and related
crediting of estimated benefits to the Trustees' Plan accounts did not
result in a material cost to the funds.
As of [DATE] approximately __% of [Fund Name]'s total
outstanding shares was held by [an] FMR affiliate[s]. FMR Corp. is the
ultimate parent company of [this/these] FMR affiliate[s]. By virtue of
his ownership interest in FMR Corp., as described in the "FMR" section
on page ___, Mr. Edward C. Johnson 3d, President and Trustee of the
fund, may be deemed to be a beneficial owner of these shares. As of
the above date, with the exception of Mr. Johnson 3d's deemed
ownership of [Fund Name]'s shares, the Trustees, Members of the
Advisory Board, and officers of the funds owned, in the aggregate,
less than __% of each fund's total outstanding shares.
As of [DATE], the Trustees, Members of the Advisory Board, and
officers of each fund owned, in the aggregate, less than __% of each
fund's total outstanding shares.
As of [DATE], the following owned of record or beneficially 5% or more
of a fund's outstanding shares:
A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders.
MANAGEMENT CONTRACTS
FMR is manager of Ohio Municipal Money Market and Spartan Ohio
Municipal Income pursuant to management contracts dated August 1, 1997
and J anuary 1, 1994 , respectively, which were approved
by shareholders on July 16, 1997 and December 15, 1993, respectively.
Ohio Municipal Money Market's prior management contract, dated
February 28, 1992, was approved by shareholders on February 28, 1992.
MANAGEMENT SERVICES. Each fund employs FMR to furnish investment
advisory and other services. Under the terms of 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 the fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all
necessary office facilities and personnel for servicing the 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee
payable to FMR and the fees payable to the transfer, dividend
disbursing, and shareholder servicing agent, and pricing and
bookkeeping agent, each fund pays all of its expenses 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. Each fund's management contract further
provides that the fund will pay for typesetting, printing, and mailing
prospectuses, statements of additional information, notices, and
reports to shareholders; however, under the terms of each fund's
transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. Other expenses paid
by each fund include interest, taxes, brokerage commissions, the
fund's proportionate share of insurance premiums and Investment
Company Institute dues, and the costs of registering shares under
federal securities laws and making necessary filings under state
securities laws. Each 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.
MANAGEMENT FEES. For the services of FMR under the management
contract, each fund pays FMR a monthly management fee which has two
components: 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.
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 (for the bond fund) and August 1, 1997
(for the money market fund), 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 rate breakpoints shown above for
average group assets in excess of $120 billion and under $228 billion
were voluntarily adopted by FMR on November 1, 1993. Each 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 for average group
assets in excess of $156 billion and under $372 billion as shown in
the schedule below. The revised group fee rate schedule was identical
to the above schedule for average group assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion,
pending approval by shareholders of Spartan Ohio Municipal Income of a
new management contract reflecting the revised schedule and additional
breakpoints. Ohio Municipal Money Market's current management contract
reflects the group fee rate schedule above for average group assets
under $156 billion and the group fee rate schedule below for average
group assets in excess of $156 billion. The revised group fee rate
schedule and its extensions provide for lower management fee rates as
FMR's assets under management increase. For average group assets in
excess of $156 billion, the revised group fee rate schedule with
additional breakpoints 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
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above 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 1997 - was ___%, which is the weighted average of the
respective fee rates for each level of group net assets up to $__
billion.
Each fund's individual fund fee rate is 0.25%. Based on the average
group net assets of the funds advised by FMR for December 1997,
each fund's annual management fee rate would be calculated as
follows:
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
0.___% + 0.25% = 0.___%
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 following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years.
Fund
Fiscal Years Ended Management Fees
December 31 Paid to FMR
OH Municipal Money Market 1997 $
1996 $1,231,605
1995 $1,153,092
Spartan OH Municipal Income 1997 $
1996 $1,524,443
1995 $1,547,084
FMR may, from time to time, voluntarily reimburse all or a portion of
a 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 a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
Effective April 1, 1997, FMR voluntarily agreed, subject to
revision or termination, to reimburse Spartan Ohio Municipal Income if
and to the extent that its aggregate operating expenses, including
management fees, were in excess of an annual rate of 0.55% of its
average net assets. For the fiscal years ended December 31, 1997,
1996, and 1995, management fees incurred under the fund's contract
prior to reimbursement amounted to $_________, $1,524,443, and
$1,547,084, respectively, and management fees reimbursed by FMR
amounted to $_________, $___________, and $_________,
respectively .
SUB-ADVISER. On behalf of Ohio Municipal Money Market, FMR has entered
into a sub-advisory agreement with FMR Texas pursuant to which FMR
Texas has primary responsibility for providing portfolio investment
management services to the fund.
Under the terms of the sub-advisory agreement, dated February 28,
1992, which was approved by shareholders on February 28, 1992, FMR
pays FMR Texas fees equal to 50% of the management fee payable to FMR
under its management contract with Ohio Municipal Money Market. The
fees paid to FMR Texas are not reduced by any voluntary or mandatory
expense reimbursements that may be in effect from time to time.
On behalf of Ohio Municipal Money Market, for the fiscal years
ended December 31, 1997, 1996, and 1995, paid FMR Texas fees of
$________, $615,803 and $576,546, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (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 the 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 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. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, each Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has not authorized such
payments for each fund's shares.
Payments made by FMR either directly or through FDC to third
parties for the fiscal year ended 1997 amounted to $____ for Ohio
Municipal Money Market, and $____ for Spartan Ohio Municipal Income.
FMR made no payments either directly or through FDC to third parties
for the fiscal year ended 1997.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each 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 each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, 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 Plan for Ohio Municipal Money Market was approved by FMR as the
then sole shareholder on February 28, 1992. The Plan was approved by
shareholders of Ohio Municipal Money Market, in connection with a
reorganization transaction on December 11, 1991, pursuant to an
Agreement and Plan of Conversion. The Plan for Spartan Ohio Municipal
Income 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 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 other 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
Each fund has entered into a transfer agent agreement with UMB.
Under the terms of the agreements, UMB provides transfer agency,
dividend disbursing, and shareholder services for each fund. UMB in
turn has entered into sub-transfer agent agreements with FSC ,
an affiliate of FMR. Under the terms of the sub-agreements, FSC
performs all processing activities associated with providing these
services for each fund and receives all related transfer agency fees
paid to UMB.
For providing transfer agency services, FSC receives an annual
account fee and an asset-based fee each based on account size and fund
type for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the Freedom Fund's assets that is
invested in a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
FSC has entered into a sub-agreement with Fidelity Brokerage Services,
Inc. (FBSI), an affiliate of FMR. Under the terms of this
sub-agreement, FBSI performs certain recordkeeping, communication, and
other services for shareholders of Ohio Municipal Money Market
participating in the Fidelity Ultra Service Account program. FBSI
directly charges a monthly administrative fee to each Ultra Service
Account client who chooses certain additional features. This fee is in
addition to the transfer agency fee received by FSC.
Each fund has also entered into a service agent agreement with UMB.
Under the terms of the agreements, UMB provides pricing and
bookkeeping services for each fund. UMB in turn has entered into
sub-service agent agreements with FSC. Under the terms of the
sub-agreements, FSC performs all processing activities associated with
providing these services, including calculating the NAV and dividends
for each fund and maintaining each fund's portfolio and general
accounting records, and receives all related pricing and bookkeeping
fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month. The annual fee rates for pricing and bookkeeping services are
0 .0400% for fixed-income funds and 0 .0175% for money
market funds of the first $500 million of average net assets ,
and 0 .0200% for fixed-income funds and 0 .0075% for money
market funds of average net assets in excess of $500 million. The fee,
not including, reimbursement for out-of-pocket expenses, is limited to
a minimum of $60,000 for the bond fund and $40,000 for the money
market fund and a maximum of $800,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
Fund 1997 1996 1995
Ohio Municipal Money Market $ $ 63,897 $ 58,019
Spartan Ohio Municipal Income $ $ 166,150 $ 164,613
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan Ohio Municipal Income Fund is a fund
(series) of Fidelity Municipal Trust (the Massachusetts 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
Massachusetts trust: Fidelity Advisor Municipal Bond Fund; Spartan
Aggressive Municipal Fund; Spartan Insured Municipal Income Fund;
Spartan Michigan Municipal Income Fund; Spartan Minnesota Municipal
Income Fund; Spartan Ohio Municipal Income Fund; and Spartan
Pennsylvania Municipal Income Fund.
Fidelity Ohio Municipal Money Market Fund is a fund (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 fund acquired all of the assets of Fidelity Ohio
Municipal Market Fund of Fidelity Municipal Trust on February 28,
1992. Currently, there are three funds of the Delaware trust: Fidelity
Michigan Municipal Money Market Fund; Fidelity Ohio Municipal Money
Market Fund; and Spartan Pennsylvania Municipal Money Market Fund.
In the event that FMR ceases to be investment adviser to a trust or
any of its funds, the right of the trust or the fund to use the
identifying names "Fidelity" and "Spartan" may be withdrawn. There is
a remote possibility that one fund might become liable for any
misstatement in its prospectus or statement of additional information
about another fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general expenses of their respective
trusts. Expenses with respect to the trusts are to be allocated in
proportion to the asset value of their respective funds, except where
allocations of direct expense can otherwise be fairly made. The
officers of the trusts, subject to the general supervision of the
Boards of Trustees, have the power to determine which expenses are
allocable to a given fund, or which are general or allocable to all of
the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The
Massachusetts trust is an entity of the type commonly known as
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust. The Declaration of Trust
provides that the Massachusetts trust shall not have any claim against
shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or instrument entered
into or executed by the Massachusetts trust or its Trustees shall
include a provision limiting the obligations created thereby to the
Massachusetts trust and its assets. The Declaration of Trust provides
for indemnification out of each fund's property of any shareholders
held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any
act or obligation of the fund and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust
is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations
of personal liability extended to stockholders of private corporations
for profit. The courts of some states, however, may decline to apply
Delaware law on this point. The Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities,
obligations, and expenses of the Delaware trust and requires that a
disclaimer be given in each contract entered into or executed by the
Delaware trust or its Trustees. The Trust Instrument provides for
indemnification out of each fund's property of any shareholder or
former shareholder held personally liable for the obligations of the
fund. The Trust Instrument also provides that each fund shall, upon
request, assume the defense of any claim made against any shareholder
for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability
was in effect, and the fund is unable to meet its obligations. FMR
believes that, in view of the above, the risk of personal liability to
shareholders is extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any
conduct whatsoever, provided that Trustees are not protected against
any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. As a shareholder, you receive one vote for
each dollar value of net asset value you own. T he 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
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
Fidelity Municipal Trust II 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 any
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. _____________________________ serves as the trusts'
independent accountant. The auditor examines financial statements for
the funds and provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended December 31, 1997, and report of the auditor, are
included in the funds' Annual Report, which is a separate report
supplied with this SAI. The funds' financial statements, including the
financial highlights, and report of the auditor are incorporated
herein by reference. For a free additional copy of the funds' Annual
Report, contact Fidelity at 1-800-544-8888.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. When a municipal bond issuer has committed to call
an issue of bonds and has established an independent escrow account
that is sufficient to, and is pledged to, refund that issue, the
number of days to maturity for the prerefunded bond is considered to
be the number of days to the announced call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for short-term municipal obligations will be
designated Moody's Investment Grade ("MIG"). A two-component rating is
assigned to variable rate demand obligations. The first component
represents an evaluation of the degree of risk associated with
scheduled principal repayment and interest payments and is designated
by a long-term rating, e.g., "Aaa" or "A." The second component
represents an evaluation of the degree of risk associated with the
demand feature and is designated "VMIG."
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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature
are assigned a dual rating. The first rating addresses the likelihood
of repayment of principal and payment of interest due and for
short-term obligations is designated by a note rating symbol. The
second rating addresses only the demand feature, and is designated by
a commercial paper rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest
quality). Those bonds within the Aa through B categories that Moody's
believes possess the strongest credit attributes within those
categories are designated by the symbol "1."
AAA - Bonds that 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 that 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 that 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 that 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 that 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 that 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA through CCC may be modified by the addition of a plus sign (+) or
minus sign (-) to show relative standing within the major rating
categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
FIDELITY MUNICIPAL TRUST II:
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C>
1...................................... Cover Page
2a.................................... Expenses
b, c............................... Contents; The Fund at a Glance; Who May Want to
Invest
3a.................................... **
b................................... *
c, d............................. Performance
4a 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
5a.................................... Charter
b i.............................. Cover Page; The Fund 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
6a 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.................................. Sales Charge Reductions and Waivers
d.................................. How to Buy Shares
e.................................. *
f................................ *
8...................................... How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9...................................... *
</TABLE>
* Not Applicable
SPARTAN MARYLAND MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
(continued)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C>
10, 11............................. Cover Page
12.................................... Description of the Trust
13a - c............................ Investment Policies and Limitations
d.................................. Portfolio Transactions
14a - c............................ Trustees and Officers
15a,b.......................... *
c.............................. Trustees and Officers
16a i................................ FMR, Portfolio Transactions
ii.............................. Trustees and Officers
iii.............................. Management Contract
b................................. Management Contract
c, d............................. Contracts with FMR Affiliates
e - g........................... *
h................................. Description of the Trust
i................................. Contracts with FMR Affiliates
17a .-d........................... Portfolio Transactions
e.............................. *
18a.................................. Description of the Trust
b................................. *
19a.................................. Additional Purchase and Redemption Information
b................................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c................................. *
20.................................... Distributions and Taxes
21a, b............................ Contracts with FMR Affiliates
c................................. *
22A ............................... *
22B................................. Performance
23.................................... **
</TABLE>
* Not Applicable
**To be filed by subsequent amendment
**To be filed by subsequent amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how
each fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a
copy of each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated February 26, 1998 . The SAI has been filed with the
Securities and Exchange Commission (SEC) and is available along with
other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either
document, call Fidelity at 1-800-544-8888.
Investments in the money market fund are neither insured nor
guaranteed by the U.S. government, and there can be no assurance that
the fund will maintain a stable $1.00 share price.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS IN THE SECURITIES OF A SINGLE
ISSUER AND THEREFORE MAY BE RISKIER THAN OTHER TYPES OF MONEY MARKET
FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSIO N, N OR HAS
THE SECURITIES AND EXCHANGE
COMMISSIO N P ASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
PFR-pro-0298
Each fund seeks a high level of current income free from federal
income tax and Pennsylvania personal income tax.
SPARTAN(REGISTERED TRADEMARK)
PENNSYLVANIA
MUNICIPAL
FUNDS
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
invests in high-quality, short-term municipal money market securities
and is designed to maintain a stable $1.00 share price.
(fund number 401, trading symbol FPTXX)
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
seeks to provide higher yields by investing in a broader range of
municipal securities.
(fund number 402, trading symbol FPXTX)
PROSPECTUS
FEBRUARY 26, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
CONTENTS
KEY FACTS 3 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 11 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
GOAL: High current tax-free income for Pennsylvania residents.
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. (FMR
Texas), a subsidiary of FMR, chooses investments for Spartan
Pennsylvania Municipal Money Market.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
SPARTAN PA MUNI MONEY
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and
Pennsylvania personal income tax, while maintaining a stable $1.00
share price.
SIZE: As of December 31, 1997, the fund had over $__
[m/b]illion in assets.
SPARTAN PA MUNI INCOME
STRATEGY: Normally invests in investment-grade municipal securities
whose interest is free from federal income tax and Pennsylvania
personal income tax. Managed to generally react to changes in interest
rates similarly to municipal bonds with maturities between eight and
18 years.
SIZE: As of December 31, 1997, the fund had over $__
[m/b]illion in assets.
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 Pennsylvania personal income tax. Each fund's level of
risk and potential reward depend on the quality and maturity of its
investments. The money market fund is managed to keep its share price
stable at $1.00. The bond fund, with its broader range of investments,
has the potential for higher yields, but also carries a higher degree
of risk.
You should consider your investment objective and tolerance for risk
when making an investment decision.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other federal and state political and economic news.
When you sell your shares of the bond fund, they may be worth more or
less than what you paid for them. By themselves, these funds do not
constitute a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets
in securities of individual issuers than diversified funds. As a
result, changes in the market value of a single issuer could cause
greater fluctuations in share value than would occur in a more
diversified fund.
THE SPECTRUM OF
FIDELITY FUNDS
BROAD CATEGORIES OF FIDELITY
FUNDS ARE PRESENTED HERE IN
ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO
MAXIMIZE RETURN MUST ASSUME
GREATER RISK. SPARTAN
PENNSYLVANIA MUNICIPAL MONEY
MARKET IS IN THE MONEY MARKET
CATEGORY, AND SPARTAN
PENNSYLVANIA MUNICIPAL
INCOME IS IN THE INCOME
CATEGORY.
(RIGHT ARROW) MONEY MARKET SEEKS
INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY,
SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY
INVESTING IN BONDS.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
(CHECKMARK)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy,
sell, or exchange shares of a fund. In addition, you may be charged an
annual account maintenance fee if your account balance falls below
$2,500. See "Transaction Details," page __, for an explanation
of how and when these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions None
Redemption fee (Short-term trading fee)
on shares held less than 180 days
(as a % of amount redeemed)
for Spartan PA Muni Income only 0.50%
Exchange fee
for Spartan PA Muni Money only $5.00
Wire transaction fee $5.00
for Spartan PA Muni Money only
Checkwriting fee, per check written $2.00
for Spartan PA Muni Money only
Account closeout fee $5.00
for Spartan PA Muni Money only
Annual account maintenance fee (for accounts under $2,500) $12.00
THE FEES FOR INDIVIDUAL TRANSACTIONS (except the short-term
trading fee) are waived if your account balance at the time of the
transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets.
Each fund pays a management fee to FMR. FMR is responsible for the
payment of all other expenses for each fund with certain limited
exceptions. Expenses are factored into each fund's share price or
dividends and are not charged directly to shareholder accounts (see
"Breakdown of Expenses" page ).
The following figures are based on historical expenses, adjusted to
reflect current fees, and are calculated as a percentage of average
net assets. FMR has entered into arrangements on behalf of each
fund with the fund's custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to
reduce fund expenses. Including these reductions , the total
operating expenses presented in the table would have been __% for
Spartan Pennsylvania Municipal Money Market and __% for Spartan
Pennsylvania Municipal Income .
SPARTAN PA MUNI MONEY
Management fee 0.50%
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.50%
SPARTAN PA MUNI INCOME
Management fee 0.55%
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.55%
EXAMPLES: Let's say, hypothetically, that each fund's annual return is
5% and that your shareholder transaction expenses and each fund's
annual 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 and
for Spartan Pennsylvania Municipal Money Market, if you leave your
account open:
SPARTAN PA MUNI MONEY
Account open Account closed
1 year $ $
3 years $ $
5 years $ $
10 years $ $
SPARTAN PA MUNI INCOME
1 year $
3 years $
5 years $
10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses 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.
EACH FUND'S MANAGEMENT FEE IS
PAID FROM THE FUND'S ASSETS,
AND ITS EFFECT IS ALREADY
FACTORED INTO ANY QUOTED SHARE
PRICE OR RETURN. OTHER EXPENSES
ARE PAID BY FMR OUT OF THE
FUND'S MANAGEMENT FEE. ALSO,
AS AN INVESTOR, YOU MAY PAY
CERTAIN EXPENSES DIRECTLY.
(CHECKMARK)
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited
by _________
________, independent accountants. The funds' financial highlights,
financial statements, and report of the auditor are included in the
funds' Annual Report, and are incorporated by reference into (are
legally a part of) the funds' SAI. Contact Fidelity for a free copy of
an Annual Report or the SAI.
[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 and do
not reflect the effect of any transaction fees you may have paid. The
figures would be lower if fees were taken into account.
Each fund's fiscal year runs from January 1 through December 31. The
tables below show each fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average for the bond fund and a measure of inflation
for the money market fund. Data for the comparative index for Spartan
Pennsylvania Municipal Income is available only from June 30, 1993 to
the present. The chart on page __ presents calendar year
performance for the bond fund and does not include the effect of the
$5 account closeout fee.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan PA Muni Money % % %
Consumer Price Index % % %
Spartan PA Muni Income % % %
Lehman Bros. PA Muni. Bond Index % % %
Lipper PA Muni. Debt Funds Average % % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan PA Muni Money % % %
Consumer Price Index % % %
Spartan PA Muni Income % % %
Lehman Bros. PA Muni. Bond Index % % %
Lipper PA Muni. Debt Funds Average % % %
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)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment 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 fund 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.
LEHMAN BROTHERS PENNSYLVANIA MUNICIPAL BOND INDEX is a total return
performance benchmark for Pennsylvania investment-grade municipal
bonds with maturities of at least one year.
Unlike the fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Pennsylvania Municipal
Debt Funds Average for Spartan Pennsylvania Municipal Income. As of
December 31, 1997, the average reflected the performance of ___
mutual funds with similar investment objectives. This average,
published by Lipper Analytical Services, Inc., excludes the effect
of sales loads.
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.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996
1997
SPARTAN PA
MUNI INCOME % % % % % % % % % %
Lipper PA Muni. Debt Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
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Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
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Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan PA
Muni Income
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. Spartan Pennsylvania
Municipal Income Fund is a non-diversified fund of Fidelity Municipal
Trust, and Spartan Pennsylvania Municipal Money Market Fund is a
non-diversified fund of Fidelity Municipal Trust II. Both trusts are
open-end management investment companies. Fidelity Municipal Trust was
organized 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 periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance.
The trustees serve as trustees for other Fidelity funds. The
majority of trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER 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. FMR Texas, located in Irving, Texas,
has primary responsibility for providing investment management
services for the money market fund.
Jonathan Short is manager of Spartan Pennsylvania Municipal Income,
which he has managed since April 1997. He also manages several other
Fidelity funds. Since joining Fidelity in 1990, Mr. Short has worked
as an analyst and manager.
Fidelity investment personnel may inves t in securities for their
own accounts 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.
UMB Bank, n.a. (UMB) is each fund's transfer agent, and is located
at 1010 Grand Avenue, Kansas City, Missouri. UMB employs Fidelity
Service Company, Inc. (FSC) to perform transfer agent servicing
functions for each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members
of the Edward C. Johnson 3d family are the predominant owners of a
class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940
(the 1940 Act), control of a company is presumed where one individual
or group of individuals owns more than 25% of the voting stock of that
company; therefore, the Johnson family may be deemed under the 1940
Act to form a controlling group with respect to FMR Corp.
As of , approximately ____% and ____% of each of [NAME OF FUND]'s
and [NAME OF FUND]'s total outstanding shares, respectively, were held
by [FMR/FMR and [an] FMR affiliate[s]/[an] FMR affiliate[s].]
As of , approximately ____% of [NAME OF FUND]'s total outstanding
shares were held by [NAME OF SHAREHOLDER]; approximately ___% of [NAME
OF FUND]'s total outstanding shares were held by [NAME OF
SHAREHOLDER]; and approximately ___% of [NAME OF FUND]'s total
outstanding shares were held by [NAME OF SHAREHOLDER].]
FMR may use its broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will
change daily based on changes in interest rates and market conditions.
Money market funds comply with industry-standard requirements
for the quality, maturity, and diversification of their investments,
which are designed to help maintain a stable $1.00 share price. Of
course, there is no guarantee that a money market fund will be able to
maintain a stable $1.00 share price. It is possible that a major
change in interest rates or a default on a money market fund's
investments could cause its share price (and the value of your
investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn
income at current money market rates. In managing money market funds,
FMR stresses preservation of capital, liquidity, and income. The money
market fund will purchase only high-quality securities that FMR
believes present minimal credit risks and will observe maturity
restrictions on securities it buys.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET seeks to earn high current
income that is free from federal income tax and Pennsylvania personal
income tax while maintaining a stable $1.00 share price by investing
in high-quality, short-term municipal money market securities of all
types, including longer-term securities with features that modify
their maturity, price characteristics or quality so that they are
eligible investments for the fund. FMR normally invests at least 65%
of the fund's total assets in state municipal securities and normally
invests the fund's assets so that at least 80% of the fund's income
distributions are free from federal income tax.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity
that issued them and/or other revenue streams. Municipal security
values may be significantly affected by political changes as well as
uncertainties in the municipal market related to taxation or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond
includes both income and price gains or losses. In selecting
investments for a bond fund, FMR considers a bond's expected income
together with its potential for price gains or losses. While income is
the most important component of bond returns over time, a bond fund's
emphasis on income does not mean the fund invests only in the
highest-yielding bonds available, or that it can avoid losses of
principal.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the range of eligible investments for the fund. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different
market sectors (for example, general obligation bonds of a state or
bonds financing a specific project) and different maturities based on
its view of the relative value of each sector or maturity. The
performance of the fund will depend on how successful FMR is in
pursuing this approach.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME seeks high current income that
is free from federal income tax and Pennsylvania personal income tax
by investing in investment-grade municipal securities under normal
conditions. FMR normally invests the fund's assets so that at least
80% of the fund's income is free from both federal and Pennsylvania
income taxes.
Although the fund does not maintain an average maturity within a
specified range, FMR seeks to manage the fund so that it generally
reacts to changes in interest rates similarly to municipal bonds with
maturities between eight and 18 years. As of December 31, 1997, the
fund's dollar-weighted average maturity was approximately __ years.
EACH FUND normally invests in municipal securities. FMR may invest all
of each fund's assets in municipal securities issued to finance
private activities. The interest from these securities is a
tax-preference item for purposes of the federal alternative minimum
tax.
Each fund's performance is affected by the economic and political
conditions within the state of Pennsylvania. Historically,
Pennsylvania has been identified as a heavy industry state, although
that reputation has changed over the last thirty years, as the
industrial composition of the Commonwealth diversified when the coal,
steel, and railroad industries began to decline. Currently, the major
sources of growth in the Commonwealth are in the service sector,
including trade, medical and health services, education, and financial
institutions.
The funds differ primarily with respect to the level of income
provided and the stability of their share price. The money market fund
seeks to provide income while maintaining a stable share price. The
bond fund seeks to provide a higher level of income by investing in a
broader range of securities. As a result, the bond fund does not seek
to maintain a stable share price. In addition, since the money market
fund concentrates its investments in Pennsylvania municipal
securities, an investment in the money market fund may be riskier than
an investment in other types of money market funds.
FMR may use various techniques to hedge a portion of a bond fund's
risks, but there is no guarantee that these strategies will work as
intended. When you sell your shares of a bond fund, 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. The funds do not expect to invest in federally taxable
obligations, and the bond fund does not expect to invest in state
taxable obligations. Each fund also reserves the right to invest
without limitation in short-term instruments, to hold a substantial
amount of uninvested cash, or to invest more than normally permitted
in taxable obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in a
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating 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 sold at a
discount from their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. 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 bond fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service (Moody's), Standard &
Poor's (S&P), Duff & Phelps Credit Rating Co., or Fitch Investor
Services, L.P., or is unrated but judged to be of equivalent quality
by FMR. The fund may not invest in securities judged by FMR to be of
equivalent quality to those rated lower than B by Moody's or S&P.
MONEY MARKET SECURITIES are high-quality, short-term instruments
issued by municipalities, local and state governments, and other
entities. These securities may carry fixed, variable, or floating
interest rates. Some money market securities employ a trust or similar
structure to modify the maturity, price characteristics, or quality of
financial assets so that they are eligible investments for money
market funds. If the structure does not perform as intended, adverse
tax or investment consequences may result.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose a fund to the credit risk of
the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security
and a fund's share price. In addition, in the case of foreign
providers of credit or liquidity support, extensive public information
about the provider may not be available, and unfavorable political,
economic, or governmental developments could affect its ability to
honor its commitment.
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 fully or partially backed by the local government, or by
the credit of a private issuer or the current or anticipated revenues
from specific projects or assets. Because many municipal securities
are issued to finance similar types of projects, especially those
relating to education, health care, housing, transportation, and
utilities, the municipal markets can be affected by conditions in
those sectors. In addition, all municipal securities may be
affected by uncertainties regarding their tax status, legislative
changes, or rights of municipal securities holders. A municipal
security may be owned directly or through a participation interest.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state of Pennsylvania 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, 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.
ASSET-BACKED SECURITIES include interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. The value of these securities depends on many
factors, including changes in interest rates, the availability
of information concerning the pool and its structure, the
credit quality of the underlying assets, the market's perception of
the servicer of the pool, and any credit enhancement provided. In
addition, these securities may 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 direc tion 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.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund may
accept a lower interest rate. The credit quality of the investment
may be affected by the creditworthiness of the put provider.
Demand features, standby commitments, and tender options are types
of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For
example, industrial revenue bonds are backed by private entities, and
resource recovery bonds often involve private corporations. The
viability of a project or tax incentives could affect the value and
credit quality of these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, or other factors that affect security values. These
techniques may involve derivative transactions such as buying and
selling options and futures contracts, entering into swap agreements,
and purchasing indexed securities.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities and some
other securities may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR
or its affiliates, whose goal is to seek a high level of current
income exempt from federal income tax while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
RESTRICTIONS: Spartan Pennsylvania Municipal Income does not currently
intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry
or type of project. Economic, business, or political changes can
affect all securities of a similar type. A fund that is not
diversified may be more sensitive to changes in the market value of a
single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to
meet federal tax requirements at the close of each quarter, each 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 issuer. These limitations do not apply to
U.S. Government securities or to securities of other investment
companies. Each fund may invest more than 25% of its total assets in
tax-free securities that finance similar types of projects.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If a fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET seeks as high a level of
current income, exempt from federal income tax and Pennsylvania
personal income tax, as is consistent with preservation of capital.
The fund will normally invest so that at least 80% of its income
distributions are exempt from federal income tax.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME seeks as high a level of current
income, exempt from federal income tax and Pennsylvania personal
income tax, as is consistent with its investment characteristics. The
fund will normally invest so that at least 80% of its income is exempt
from federal and Pennsylvania income taxes. FMR anticipates that the
fund ordinarily will be fully invested in obligations whose interest
is exempt from federal income tax and Pennsylvania personal income
tax. The fund invests primarily in municipal bonds judged by FMR to be
of investment-grade quality, although it may invest up to one-third of
its assets in lower quality bonds. The fund may not purchase bonds
that are judged by FMR to be of equivalent quality to those rated
lower than B.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its
share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to an affiliate who
provides assistance with these services for the money market
fund.
FMR may, from time to time, agree to reimburse the funds for
management fees above a specified limit. FMR retains the ability to be
repaid by a fund if expenses fall below the specified limit prior to
the end of the fiscal year. Reimbursement arrangements, which may be
terminated at any time without notice, can decrease a fund's expenses
and boost its performance.
MANAGEMENT FEE
Each fund's management fee is calculated and paid to FMR every
month. FMR pays all of the other expenses of each fund with limited
exceptions. Spartan Pennsylvania Municipal Money Market's and Spartan
Pennsylvania Municipal Income's annual management fee rate are 0.50%
and 0.55% of their average net assets, respectively.
FMR has voluntarily agreed to limit each fund's total operating
expenses to an annual rate of __% of average net assets. These
agreements will continue until _____________.
FMR Texas is Spartan Pennsylvania Municipal Money Market's sub-adviser
and has primary responsibility for managing its investments. FMR is
responsible for providing other management services. FMR pays FMR
Texas 50% of its management fee (before expense reimbursements) for
FMR Texas's services. FMR paid FMR Texas a fee equal to __% of Spartan
Pennsylvania Municipal Money Market's average net assets for the
fiscal year ended December 31, 1997.
UMB is the transfer and service agent for the funds. UMB has
entered into sub-agreements with FSC under which FSC performs transfer
agency, dividend disbursing, shareholder servicing, and accounting
functions for the funds. These services include processing shareholder
transactions, valuing each fund's investments, and calculating each
fund's share price and dividends. FMR, not the funds, pays for these
services.
Under the terms of the sub-agreements, FSC receives all related
fees paid to UMB on behalf of each fund.
Each fund also pays other expenses, such as brokerage fees and
commissions, interest on borrowings, taxes, and the compensation of
trustees who are not affiliated with Fidelity.
To offset shareholder service costs, FMR or its affiliates also
collect Spartan Pennsylvania Municipal Money Market's $5.00
exchange fee, $5.00 account closeout fee, $5.00 fee for wire purchases
and redemptions, and, the $2.00 checkwriting charge.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees of each fund has not authorized such
payments.
For the fiscal year ended December 31, 1997, the portfolio turnover
rate for the bond fund was __%. This rate varies 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 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 may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in a fund. Certain features of
the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset
value per share (NAV). The money mar ket fund is managed to keep
its NAV stable at $1.00. Each fund's shares are sold without a
sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received and accepted. Each fund's NAV is
normally calculated each business day at 4:00 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no
application accompanying this prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For Spartan Pennsylvania Municipal
Money Market $25,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans* $500
MINIMUM BALANCE $5,000
For Spartan Pennsylvania Municipal
Money Market $10,000
*For more information about regular investment plans, please refer
to "Investor Services," page __.
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE 1-800-544-7777
(PHONE_GRAPHIC) (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER
FIDELITY FUND (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME REGISTRATION, ACCOUNT WITH THE SAME REGISTRATION,
INCLUDING NAME, ADDRESS, AND INCLUDING 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: UP TO
$100,000.
</TABLE>
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MAIL
(MAIL_GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE
APPLICATION. (SMALL SOLID BULLET) MAKE YOUR CHECK PAYABLE TO THE
MAKE YOUR CHECK PAYABLE TO THE COMPLETE NAME OF THE FUND. INDICATE
COMPLETE NAME OF THE FUND. MAIL TO YOUR FUND ACCOUNT NUMBER ON YOUR
THE ADDRESS INDICATED ON THE CHECK AND MAIL TO THE ADDRESS PRINTED
APPLICATION. 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
AND CHECK TO A (SMALL SOLID BULLET) BRING YOUR CHECK TO A FIDELITY INVESTOR
FIDELITY INVESTOR CENTER. CALL CENTER. CALL 1-800-544-9797 FOR THE
1-800-544-9797 FOR THE CENTER CENTER NEAREST YOU.
NEAREST YOU.
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WIRE
(WIRE_GRAPHIC) (SMALL SOLID BULLET) THERE MAY BE A $5.00 FEE
FOR EACH (SMALL SOLID BULLET) THERE MAY BE A $5.00 FEE FOR EACH
WIRE PURCHASE. WIRE PURCHASE.
(SMALL SOLID BULLET) CALL 1-800-544-7777 TO
SET UP YOUR (SMALL SOLID BULLET) WIRE TO:
ACCOUNT AND TO ARRANGE A WIRE BANKERS TRUST COMPANY,
TRANSACTION. BANK ROUTING #021001033,
(SMALL SOLID BULLET) WIRE WITHIN 24 HOURS TO: ACCOUNT #00163053.
BANKERS TRUST COMPANY, SPECIFY THE COMPLETE NAME OF THE
BANK ROUTING #021001033, FUND AND INCLUDE YOUR ACCOUNT
ACCOUNT #00163053. NUMBER AND YOUR NAME.
SPECIFY THE COMPLETE 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.
THE PRICE TO SELL ONE SHARE of Spartan Pennsylvania Municipal Money
Market is the fund's NAV. The PRICE TO SELL ONE SHARE of Spartan
Pennsylvania Municipal Income is the fund's NAV minus the short-term
trading fee, if applicable. If you sell shares of Spartan Pennsylvania
Municipal Income after holding them less than 180 days, the fund will
deduct a short-term trading fee equal to 0.50% of the value of those
shares.
Your shares will be sold at the next NAV calculated after your order
is received and accepted, minus the short-term trading fee, if
applicable. Each fund's NAV is normally calculated each business day
at 4:00 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$5,000 worth of shares in the account ($10,000 for the money market
fund) to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account in Spartan Pennsylvania
Municipal Money Market you may write an unlimited number of checks. Do
not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOU SELL SHARES OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME AFTER HOLDING THEM LESS THAN
180 DAYS, THE FUND WILL DEDUCT A SHORT-TERM TRADING FEE EQUAL TO 0.50% OF THE VALUE OF
THOSE SHARES.
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FOR SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET IF YOUR ACCOUNT BALANCE I S LESS THAN
$50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION TRANSACTIONS: $2.00 FOR EACH CHECK YOU
WRITE AND $5.00 FOR EACH EXCHANGE, BANK WIRE, AND ACCOUNT CLOSEOUT.
</TABLE>
<TABLE>
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PHONE 1-800-544-777
(PHONE_GRAPHIC) ALL ACCOUNT TYPES (SMALL SOLID BULLET) MAXIMUM CHECK REQUEST: $100,000.
(SMALL SOLID BULLET) FOR MONEY LINE TRANSFERS TO YOUR BANK ACCOUNT;
MINIMUM: $10; MAXIMUM: UP TO $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 TENANT, (SMALL SOLID BULLET) THE LETTER OF INSTRUCTION MUST BE SIGNED BY ALL
SOLE PROPRIETORSHIP, PERSONS REQUIRED TO SIGN FOR TRANSACTIONS,
UGMA, UTMA EXACTLY AS THEIR NAMES APPEAR ON THE ACCOUNT.
TRUST (SMALL SOLID BULLET) THE TRUSTEE MUST SIGN THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF THE TRUSTEE'S NAME IS NOT
IN THE ACCOUNT REGISTRATION, PROVIDE A COPY OF THE
TRUST DOCUMENT CERTIFIED WITHIN THE LAST 60 DAYS.
BUSINESS OR ORGANIZATION (SMALL SOLID BULLET) AT LEAST ONE PERSON AUTHORIZED BY CORPORATE
RESOLUTION TO ACT ON THE ACCOUNT MUST SIGN THE
LETTER.
(SMALL SOLID BULLET) INCLUDE A CORPORATE RESOLUTION WITH CORPORATE
SEAL OR A SIGNATURE GUARANTEE.
EXECUTOR, ADMINISTRATOR, (SMALL SOLID BULLET) CALL 1-800-544-6666 FOR INSTRUCTIONS.
CONSERVATOR, GUARDIAN
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
AND ACCEPTED BY FIDELITY BEFORE 4:00 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: $____.
(SMALL SOLID BULLET) ALL ACCOUNT OWNERS MUST SIGN A SIGNATURE CARD
TO RECEIVE A CHECKBOOK.
</TABLE>
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(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone or in writing. You may pay a
$5.00 fee for each exchange out of Spartan Pennsylvania Municipal
Money Market, unless you place your transaction through
Fidelity's automated exchange services.
Note that exchanges out of a fund are limited to four per calendar
year, and that they may have tax consequences for you. For details on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or
revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer
money by phone between your bank account and your fund account. Most
transfers are complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for a home, educational expenses, and other
long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 MONTHLY OR QUARTERLY (SMALL SOLID BULLET) FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE SECTION ON THE FUND
APPLICATION.
(SMALL SOLID BULLET) FOR EXISTING ACCOUNTS, CALL 1-800-544-6666 FOR AN APPLICATION.
(SMALL SOLID BULLET) TO CHANGE THE AMOUNT OR FREQUENCY OF YOUR INVESTMENT, CALL
1-800-544-6666 AT LEAST THREE BUSINESS DAYS PRIOR TO YOUR NEXT
SCHEDULED INVESTMENT DATE.
</TABLE>
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 EVERY PAY PERIOD (SMALL SOLID BULLET) CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION, OR CALL
1-800-544-6666 FOR AN AUTHORIZATION FORM.
(SMALL SOLID BULLET) CHANGES REQUIRE A NEW AUTHORIZATION FORM.
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, bimonthly, (small solid bullet) To establish, call 1-800-544-6666 after both accounts are
quarterly, or annually opened.
(small solid bullet) To change the amount or frequency of your investment, call
1-800-544-6666.
</TABLE>
A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THAT FUND MAY NOT BE AN
APPROPRIATE CHOICE 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
fund 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 bond
fund offers four options, and the money market fund offers three
options.
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. (bond fund only) Your capital gain
distributions, if any, 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, 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 distributed as dividends and taxed
as ordinary income. 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 a
statement s howing the tax status of distributions and will
report to the IRS the amount of any taxable 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 __% 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 a fund's distributions are derived from interest on
Pennsylvania state tax-free securities, they will be free from the
Pennsylvania personal income tax. Capital gain distributions from the
funds will be fully taxable for purposes of the Pennsylvania personal
income tax. Distributions from the fund will also be exempt from the
Philadelphia School District investment income tax for individuals who
are residents of the City of Philadelphia to the extent that such
distributions are derived from interest on Pennsylvania state tax-free
securities, or to the extent that such distributions are designated as
capital gain dividends for federal income tax purposes. Investments in
the funds will be free from the Pennsylvania county personal property
taxes to the extent that the funds' assets are comprised of
Pennsylvania state tax-free securities (or certain other qualifying
tax-free securities) on the an annual assessment date.
During the fiscal year ended December 31, 1997, __% of each fund's
income dividends was free from federal income tax, and __% and _% were
free from Pennsylvania personal income taxes for Spartan
Pennsylvania Municipal Money Market and Spartan Pennsylvania Municipal
Income, respectively. % of Spartan Pennsylvania Municipal Money
Market's and __% of Spartan Pennsylvania Municipal Income's income
dividends were subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including
exchanges to other Fidelity funds - are subject to capital gains tax.
A capital gain or loss is the difference between the cost of your
shares and the price you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but
not yet distributed income or capital gains, you will pay the
full price for the shares and then receive a portion of the price back
in the form of a taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV as of
the close of business of the NYSE, normally 4:00 p.m. Eastern
time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
The money market fund's assets are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value and helps the money market fund to maintain a stable
$1.00 share price.
For the bond fund, assets are valued primarily on the basis of
information furnished by a pricing service or market quotations, if
available, or by another method that the Board of Trustees
believes accurately reflects fair value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. F idelity will
request personalized security codes or other information, and may also
record calls. For transactions conducted through the Internet,
Fidelity recommends the use of an Internet browser with 128-bit
encryption. 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 shares will be
purchased at the next NAV calculated after your investment 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 canceled and you could be liable for any losses or fees a fund or
its transfer agent has incurred.
(small solid bullet) Each fund reserves the right to limit all
accounts maintained or controlled by any one person to a maximum total
balance of $__ million.
(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.
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 order is received and accepted,
minus the short-term trading fee, if applicable. 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.
A SHORT-TERM TRADING FEE of 0.50% will be deducted from the
redemption amount if you sell your shares of Spartan Pennsylvania
Municipal Income after holding them less than 180 days. This fee is
paid to the fund rather than Fidelity, and is designed to offset the
brokerage commissions, market impact, and other costs associated with
fluctuations in fund asset levels and cash flow caused by short-term
shareholder trading.
The short-term trading fee, if applicable, is charged on exchanges
out of Spartan Pennsylvania Municipal Income. If you bought shares on
different days, the shares you held longest will be redeemed first for
purposes of determining whether the short-term trading fee applies.
The short-term trading fee does not apply to shares that were acquired
through reinvestment of distributions.
THE FEES FOR INDIVIDUAL TRANSACTIONS (except the short-term trading
fee) are waived if your account balance at the time of the transaction
is $50,000 or more. Otherwise, you should note the following:
(small solid bullet) The $2.00 checkwriting charge will be deducted
from your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the
amount of your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 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. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, (10,000 for Spartan
Pennsylvania Municipal Money Market) 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, minus
the short-term trading fee, if applicable, on the day your account is
closed and for Spartan Pennsylvania Municipal Money Market, the $5.00
account closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
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
available 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
im pose fees of up to 1.00% on purchases, administrative fees of up
to $7.50, and trading fees of up to 1.50% on exchanges. Check each
fund's prospectus for details.
From Filler pages
SPARTAN(registered trademark) PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
AND
SPARTAN(registered trademark) PENNSYLVANIA MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1998
This Statement of Additional Information (SAI) is not a prospectus
but should be read in conjunction with the funds' current Prospectus
(dated February 26, 1998). Please retain this document for future
reference. The funds' Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Pennsylvania
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts with FMR Affiliates
Description of the Trusts
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
PFR-ptb-0298
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 (1940
Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET
FUND
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET 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) sell securities short (except by selling futures contracts),
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;
(3) purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions, and provided that
the fund may make initial and variation margin payments in connection
with the purchase or sale of futures contracts or of options on
futures contracts;
(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 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;
(5) underwrite securities issued by others, except to the extent that
the purchase of municipal bonds in accordance with the fund's
investment objective, policies, and limitations, either directly from
the issuer, or from an underwriter for an issuer, may be deemed to be
underwriting;
(6) 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;
(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 other instruments;
(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 limit does not apply to purchases of debt securities or to
repurchase agreements); or
(10) invest in oil, gas or other mineral exploration or development
programs.
(11) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objectives, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) 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 (4)). 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.
(iv) 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.
(v) 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 (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
For purposes of limitation (6), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For the money market fund's policies on quality and maturity, see
the section entitled "Quality and Maturity" on page __.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
(BOND FUND)
THE FOLLOWING ARE THE BOND FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in securities of
companies whose principal business activities are in the same
industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(7) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties,
but this limitation does not apply to purchases of debt securities
or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). The fund will not 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.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
For purposes of limitation (4), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For the bond fund's limitations on futures and options transactions,
see the section entitled "Limitations on Futures and Options
Transactions" on page __.
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. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
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. A fund may buy and sell
securities on a delayed-delivery or when-issued basis. These
transactions involve a commitment by a fund to purchase or sell
specific securities at a predetermined price or yield, with payment
and delivery taking place after the customary settlement period for
that type of security. Typically, no interest accrues to the purchaser
until the security is delivered. The bond fund 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 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 (S&P) in rating corporate
obligations within its two highest ratings of A-1 and A-2. The money
market fund will purchase taxable obligations only if they meet its
quality requirements.
Proposals to restrict or eliminate the federal income tax exemption
for interest on municipal obligations are introduced before Congress
from time to time. Proposals also may be introduced before the
Pennsylvania state legislature 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. The 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 bond 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 bond 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 SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a fund to enter into new positions
or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a
position until delivery or expiration regardless of changes in its
value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the funds greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund
obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this
right, the fund pays the current market price for the option (known as
the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities
prices, and futures contracts. The fund may terminate its position in
a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund
will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the
strike price. A fund may also terminate a put option position by
closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the fund assumes the
obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract, the fund will be
required to make margin payments to an FCM as described above for
futures contracts. A fund may seek to terminate its position in a put
option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not
liquid for a put option the fund has written, however, the fund must
continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise
of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally
is a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, a call writer mitigates the effects of
a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up
some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
For the money market fund, FMR may determine some restricted
securities and municipal lease obligations to be illiquid.
For the bond fund, investments currently considered to be illiquid
include over-the-counter options. Also, FMR may determine some
restricted securities and municipal lease obligations to be illiquid.
However, with respect to over-the-counter options a fund writes, all
or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and
terms of any agreement the fund may have to close out the option
before expiration.
In the absence of market quotations, illiquid investments for the
money market fund are valued for purposes of monitoring amortized cost
valuation, and for the bond fund 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 AND LENDING 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 each fund currently intends to participate in this
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 fund may invest a portion
of its assets in lower-quality municipal securities as described in
the Prospectus.
While the market for Pennsylvania 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, making it more difficult for the
money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial
assets. For example, put features can be used to modify the maturity
of a security or interest rate adjustment features can be used to
enhance price stability. If the structure does not perform as
intended, adverse tax or investment consequences may result. Neither
the Internal Revenue Service (IRS) nor any other regulatory authority
has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could
adversely affect the value, liquidity, or tax treatment of the income
received from these securities or the nature and timing of
distributions made by the funds.
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.
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.
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.
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. They are
subject to the risk that the put provider is unable to honor the put
feature (purchase the security). Put providers often support their
ability to buy securities on demand by obtaining letters of credit or
other guarantees from other entities. Demand features, standby
commitments, and tender options are types of put features.
QUALITY AND MATURITY (MONEY MARKET FUND). Pursuant to procedures
adopted by the Board of Trustees, the fund may purchase only
high-quality securities that FMR believes present minimal credit
risks. To be considered high-quality, a security must be rated in
accordance with applicable rules in one of the two highest categories
for short-term securities by at least two nationally recognized rating
services (or by one, if only one rating service has rated the
security); or, if unrated, judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in the
highest rating category (e.g., Standard & Poor's A-1 or SP-1), and
second tier securities are those deemed to be in the second highest
rating category (e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When determining
the maturity of a security, the fund may look to an interest rate
reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the
fund to buy refunded municipal obligations at a stated price and yield
on a settlement date that may be several months or several years in
the future. A fund generally will not be obligated to pay the full
purchase price if it fails to perform under a refunding contract.
Instead, refunding contracts generally provide for payment of
liquidated damages to the issuer (currently 15-20% of the purchase
price). A fund may secure its obligations under a refunding contract
by depositing collateral or a letter of credit equal to the liquidated
damages provisions of the refunding contract. When required by SEC
guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. To
protect the fund from the risk that the original seller will not
fulfill its obligation, the securities are held in an account of the
fund at a bank, marked-to-market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount.
While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility that the value
of the underlying security will be less than the resale price, as well
as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part
of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time it may
be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, a fund might obtain a less favorable price than prevailed
when it decided to seek registration of the security. However, in
general, the money market fund anticipates holding restricted
securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. A fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory
by FMR. Such transactions may increase fluctuations in the market
value of the fund's assets and may be viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider whether adequate public information about the entity is
available and whether the entity may be subject to unfavorable
political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its
commitment.
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.
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 CONSIDERATIONS AFFECTING PENNSYLVANIA
The following highlights only some of the more significant financial
trends and problems affecting Pennsylvania, and is based on
information drawn from official statements and prospectuses relating
to securities offerings of the Commonwealth of Pennsylvania, 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.
OVERVIEW. Because the funds concentrate their investments in
Pennsylvania, there are risks associated with the funds that would not
exist if the funds' investments were more widely diversified. These
risks include the possible enactment of new legislation in
Pennsylvania that could affect obligations of the state or its
political subdivisions, municipalities or agencies, economic factors
that could affect such obligations, and varying levels of supply and
demand for obligations of the Commonwealth and its political
subdivisions, municipalities, and agencies.
CONSTITUTIONAL AND STATUTORY REVENUE LIMITATIONS. The Constitution of
Pennsylvania requires that all taxes shall be uniform, upon the same
class of subjects, within the territorial limits of the authority
levying the tax, and shall be levied and collected under the general
laws of the Commonwealth of Pennsylvania.
The Constitution of Pennsylvania provides that the General Assembly
may exempt from taxation certain persons and property. For instance,
the General Assembly may establish exemption or special tax treatment
for classes based on age, disability, infirmity, or poverty.
Local taxes (other than Philadelphia) are generally authorized under
the Local Tax Enabling Act. This statute generally authorizes, and
imposes limits on, the ability of political subdivisions to impose
taxes. Pennsylvania's political subdivisions consist of counties,
municipalities, and school districts. The Local Tax Enabling Act does
not apply to counties whose taxing authority is limited for the most
part to real estate and personal property taxes. Most Philadelphia
taxes (other than real estate and personal property taxes) are imposed
pursuant to the general authority of the Sterling Act and the Little
Sterling Act, applicable to the City and School District,
respectively. Each of these statutes grants broad taxing powers, but
generally prohibits taxing what the Commonwealth taxes. The
Philadelphia business privilege tax is imposed under the authority of
the First Class City Tax Reform Act.
The Pennsylvania Intergovernmental Cooperation Authority Act for
cities of the first class authorizes Philadelphia to enact a
combination of a sales tax, a realty transfer tax or a wage and net
profits tax for the benefit of the Pennsylvania Intergovernmental
Cooperation Authority ("PICA"). The PICA tax on wages and net profits
reduces the amount of wage and net profits taxes imposed under the
Sterling Act (prior to the imposition of the PICA tax), so that the
combined rate of tax remains the same. Other local taxes are specially
enacted or authorized for certain classes of localities, including
Philadelphia and Pittsburgh.
The Pennsylvania General Assembly has in the past, and may again in
the future, considered legislation which would give local governments
the option of reducing property taxes and simplifying their local tax
system by collecting an earned income tax.
PENNSYLVANIA TAXES. Although Pennsylvania state taxes had, in general,
been lowered during the 1980s, the fiscal 1992 budget for the
Commonwealth included in excess of $2.7 billion of tax increases,
consisting largely of tax-rate increases and expansion of the existing
tax base.
The fiscal 1995 budget included tax reductions totalling an estimated
$173.4 million. Some of the more significant changes included an
increase in the Pennsylvania personal income tax dependent exemption
for low income working families; a reduction in the Pennsylvania
corporate net income tax rate from 12.25% to 9.99% to be phased-in
over a period of four years; and reinstatement of a Pennsylvania
corporate net income tax net operating loss carryover to be phased-in
over a period of three years with an annual cap of $500,000. Several
other changes to the Pennsylvania sales tax, the Pennsylvania
inheritance tax and the Pennsylvania capital stock/franchise tax were
also enacted.
Tax changes (generally reductions) enacted with the fiscal 1996 budget
totalled an estimated $283.4 million. The largest dollar value changes
were in the corporate net income tax where the scheduled 1997
reduction of the tax rate to 9.99% was accelerated to the 1995 tax
year. Some of the other more significant changes include a double
weighting for the sales factor of the corporate net income
apportionment calculation; an increase in the maximum allowance for
the corporate net income tax net operating loss deduction from
$500,000 to $1,000,000; an increase in the capital stock/ franchise
tax exemption amount to $100,000; the repeal of the tax on annuities;
and acceleration of the phase-out of the inheritance tax on transfers
of certain property to a surviving spouse. In addition, a 90-day tax
amnesty program was authorized and implemented from mid-October 1995
through mid-January 1996.
The enacted fiscal 1997 budget includes a provision for a $15 million
tax credit program for businesses creating new jobs.
GENERAL ECONOMIC CONDITIONS IN PENNSYLVANIA. Historically, the key
industries in Pennsylvania were in the areas of manufacturing and
mining, with steel and coal industries of national importance. These
industries have made Pennsylvania vulnerable not only to cyclical
economic fluctuations, but also to pronounced long-term changes in the
nation's economic structure. In recent years, the state has
experienced growth in the services sector, including trade, medical
and health services, education, and financial institutions.
Manufacturing has fallen behind both the services sector and the trade
sector as the largest single source of employment within the
Commonwealth. This growth in the services and trade sector has helped
diversify Pennsylvania's economy and reduce the state's unemployment
rate.
For the five year period fiscal 1991 through fiscal 1995, total
revenues and other sources rose at a 9.1% average annual rate while
expenditures and other uses grew by 7.4% annually. Over two-thirds of
the increase in total revenues and other sources during this period
occurred during fiscal 1992 when a $2.7 billion tax increase was
enacted to address a fiscal 1991 budget deficit and to fund increased
expenditures for fiscal 1992. For the four year period fiscal 1992
through fiscal 1995, total revenues and other sources increased at an
annual average of 3.3%, less than one-half the rate of increase for
the five year period beginning with fiscal 1991. This slower rate of
growth was due, in part, to tax reductions and other tax law revisions
that restrained the growth of tax receipts for the fiscal years 1993,
1994 and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal years
1991 through 1995. Program areas having the largest increase in costs
for the fiscal years 1991 through 1995 were for protection of persons
and property, due to an expansion of state prisons, and for public
health and welfare, due to rising caseloads, program utilization and
increased prices. Recent efforts to restrain the rapid expansion of
public health and welfare program costs have resulted in expenditure
increases at or below the total rate of increase for total
expenditures in each fiscal year.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in the fiscal year-end unappropriated balance.
The fiscal 1995 unappropriated surplus (prior to reserves for
transfers to the Tax Stabilization Reserve Fund) was $540 million, an
increase of $204.2 million over the fiscal 1994 closing unappropriated
surplus (prior to transfers). Commonwealth revenues were $459.4
million (2.9%) above the estimate of revenues used at the time the
budget was enacted. The higher than estimated revenues from tax
sources were due to faster economic growth in the national and state
economy than had been projected when the budget was adopted.
Expenditures (excluding pooled financing expenditures but including
$65.5 million of supplemental appropriations) totalled $15,674.7
million, representing a 5% increase in spending over fiscal 1994.
For GAAP purposes, the General Fund recorded a $49.8 million deficit
for fiscal 1995, leading to a decline in the fund balance to $688.3
million at June 30, 1995. The two items which predominantly
contributed to the decline in the fund balance were (i) the use of a
more comprehensive procedure to compute the liabilities for certain
public welfare programs, leading to an increase for the year-end
accruals, and (ii) a change to the methodology to calculate the
year-end accrual for corporate tax payables which increased the tax
refund liability by $72 million for the 1995 fiscal year when compared
to the previous fiscal year.
The fiscal 1996 unappropriated surplus (prior to transfer to the Tax
Stabilization Reserve Fund) was $183.8 million, $65.5 million above
estimate. Net expenditures and encumbrances from Commonwealth
revenues, including $113 million of supplemental appropriations (but
excluding pooled financing expenditures) totalled $16,162.9 million.
Expenditures exceeded available revenues and lapses by $253.2 million.
The difference was funded from a planned partial drawdown of the $437
million fiscal year adjusted beginning unappropriated surplus.
Commonwealth revenues (prior to tax refunds) for fiscal 1996 increased
by $113.9 million over the prior year to $16,338.5 million
(representing a growth rate of .7 percent). Tax rate reductions and
other tax law changes substantially reduced the amount and rate of
revenue growth for the fiscal year.
The enacted fiscal 1997 budget provides for expenditures from
Commonwealth revenues of $16,375.8 million, an increase of .6 percent
over appropriated amounts from Commonwealth revenues for fiscal 1996.
The fiscal 1997 budget is based on anticipated Commonwealth revenues
(before refunds) of $16,744.5 million, an increase over actual fiscal
1996 revenues of 2.5 percent. The revenue estimate includes provision
for a $15 million tax credit program enacted with the fiscal 1997
budget for businesses creating new jobs. Staggered corporation tax
years cause fiscal 1997 revenues to continue to be affected by the
business tax reductions enacted during the two prior completed fiscal
years. Those reductions, together with the new jobs creation tax
credit, cause revenue growth comparisons between fiscal 1996 and 1997
to be understated. When these tax changes are taken into account,
revenues in the fiscal 1997 budget are anticipated to increase at the
rate of 3 percent. The fiscal 1997 revenue estimate is based on a
forecast of the national economy for real gross domestic product to
slow to a growth rate of 2 percent for 1996 and below 1.5 percent for
1997. This is based on the assumption that the Federal Reserve Board
does not cut interest rates and that foreign economic growth is weak.
The consequence of this economic scenario is a U.S. economy with very
low growth, slow gains and consumer spending, declining inflation
rates, but increasing unemployment.
Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and probation and payroll programs.
The fiscal 1997 budget contains an appropriation increase in excess of
$110 million for these programs. The fiscal 1997 budget also contains
some departmental restructurings.
The fiscal 1997 budget assumes a drawdown of the $153.3 million fiscal
year beginning unappropriated surplus to fund the enacted level of
appropriations within the current estimate of revenues.
A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States
for certain counties in the Commonwealth for a blizzard and subsequent
flooding in January, 1996. Substantial damage to public and private
facilities occurred and many municipalities' financial resources have
been strained by the costs of responding to these weather-related
conditions. A special session of the General Assembly was convened by
the Governor to consider legislation to respond to these needs.
Legislation was enacted that authorized $110 million of general
obligation debt to provide for the state's share of the required match
for federal public assistance and disaster mitigation funds. The
legislation also appropriated $13 million from tax amnesty receipts to
fund the state match for the federal individual assistance program,
and authorized the use of current Motor License Fund revenues for
capital projects to repair flood damaged state highways and bridges.
The following table shows the average annual unemployment rate for
Pennsylvania and the nation for the periods indicated. This
information is drawn from official statements and prospectuses
relating to securities offerings of the state of Pennsylvania, its
agencies, and instrumentalities. No independent verification of the
information contained in such official statements and other publicly
available documents has been made.
Period Pennsylvania United States
1987 5.7% 6.2%
1988 5.1% 5.5%
1989 4.5% 5.3%
1990 5.4% 5.6%
1991 6.9% 6.8%
1992 7.5% 7.5%
1993 7.1% 6.9%
1994 6.2% 6.1%
1995 5.9% 5.6%
As of August, 1996, the seasonally adjusted unemployment rate for the
Commonwealth was 5.3%, compared to 5.1% for the United States.
Certain Pennsylvania municipalities and political subdivisions have
also experienced economic downturns. For example, the financial
condition of the City of Philadelphia had impaired its ability to
borrow and resulted in its obligations being downgraded by the major
rating services to below investment grade. (However, these obligations
have since been upgraded to Baa/BBB by Moody's and S&P, respectively).
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority (PICA) to assist Philadelphia
in remedying fiscal emergencies was enacted by the General Assembly
and approved by the Governor in June 1991. PICA is designed to provide
assistance through the issuance of funding debt and to make factual
findings and recommendations to Philadelphia concerning its budgetary
and fiscal affairs. At this time Philadelphia is operating under a
five-year fiscal plan approved by PICA on April 30, 1996.
PICA has issued $1.76 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain city
general obligation bonds, funding of capital projects and the
liquidation of the cumulative General Fund balance deficit as of June
30, 1992 of $224.9 million. The audited General Fund balance as of
June 30, 1995 shows a surplus of approximately $80.5 million, up from
approximately $15.4 million as of June 30, 1994.
No further bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales
expired December 31, 1994. PICA's authority to issue debt for the
purpose of financing a cash flow deficit expires on December 31, 1996.
Its ability to refund existing outstanding debt is unrestricted. PICA
had $1,146,175,000 million in special revenue bonds outstanding as of
June 30, 1996.
There is various litigation pending against the Commonwealth, its
officers, and employees. In 1978, the Pennsylvania General assembly
approved a limited waiver of sovereign immunity. Damages for any loss
are limited to $250,000 for each person and $1 million for each
accident. The Supreme Court held that this limitation is
constitutional. Approximately 3,500 suits against the Commonwealth are
pending, some of which, if decided adversely to the Commonwealth,
could have a material adverse impact on governmental operations.
All of the foregoing factors could affect the outstanding obligations
of the Commonwealth and its municipalities and political subdivisions,
including obligations held by the funds. Further, there can be no
assurance that the same factors that adversely affect the economy of
the Commonwealth generally will not also adversely affect the market
value or marketability of obligations issued by local units of
government or local authorities in the Commonwealth, or the ability of
the obligators to pay the principal of or interest on such
obligations. In November 1995, Pennsylvania General Obligation Bonds
were rated A1 by Moody's and AA- by Fitch and S&P.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following 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, its agencies and instrumentalities, as
available on the date of this SAI. 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 to that of the United
States. In fiscal 1995, trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of
its imports. In this regard, in fiscal 1995 Puerto Rico experienced a
$4.6 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita,
has increased consistently each fiscal year. In fiscal 1995,
aggregate personal income was $27.0 billion ($26.2 billion in 1992
prices) and personal per capita income was $7,296 ($7,074 in 1992
prices). Gross domestic product in fiscal 1992 was $23.7 billion and
gross product in fiscal 1996 was $30.2 billion; ($26.7 billion in 1992
prices). This represents an increase in gross product of 27.5% from
fiscal 1992 to 1996 (12.7% in 1992 prices). For fiscal 1997, an
increase in gross domestic product of 2.7% over fiscal 1996 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 value of the U.S. dollar, the price stability of oil
imports, any increase or decrease in the number of visitors to the
island, the level of exports, the level of federal transfers, and the
cost of borrowing.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1992 through fiscal 1996. Almost every sector of
the economy participated, and record levels of employment were
achieved. Factors behind the continued expansion included
government-sponsored economic development programs, periodic declines
in the exchange value of the U.S. dollar, the level of federal
transfers, 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 16.8% from fiscal 1992 to fiscal
1993. However, by the end of fiscal 1994, the unemployment rate
dropped to 15.9% and as of the end of fiscal 1996, stands at 13.8%.
Despite this downturn, there is a possibility that the
unemployment rate will increase.
Manufacturing is the largest sector in the economy accounting for
$17.7 billion or 41.8% of gross domestic product in fiscal 1995.
Manufacturing has experienced a basic change over the years as a
result of the influx of higher wage, high technology industries such
as the pharmaceutical industry, electronics, computers,
microprocessors, scientific instruments and high technology machinery.
The service sector, which includes finance, insurance, real estate,
wholesale and retail trade, hotels and related services and other
services, ranks second in its contribution to gross domestic product
and is the sector that employs the greatest number of people. In
fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector
grew from 449,000 in fiscal 1992 to 527,000 in fiscal 1996, a
cumulative increase of 17.6%, which increase was greater than the
11.8% cumulative growths in employment over the same period, providing
46.7% of total employment. The government sector of the Commonwealth
plays an important role in the economy of the island. In fiscal year
1995, the government accounted for $4.5 billion or 10.6% 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 $1.8 billion of gross domestic product in
fiscal 1995.
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic
development and growth. This new program, which is referred to as the
New Economic Model, promotes changing the role of the government from
one of being a provider of most basic services to that of a
facilitator for private sector initiatives and encourages private
sector investment by reducing government-imposed regulatory
restraints.
The New Economic Model contemplates the development of initiatives
that will foster private investment in, and private management of,
sectors that are served more efficiently and effectively by the
private enterprise. One of these initiatives has been the adoption of
a new tax code intended to expand the tax base, reduce top personal
and corporate tax rates, and simplify the tax system.
The New Economic Model also seeks to identify and promote areas in
which Puerto Rico can compete more effectively in the global markets.
Tourism has been identified as one such area because of its potential
for job creation and contribution to the gross product. In 1993, a
new Tourism Incentives Act and a Tourism Development Fund were
implemented in order to provide special tax incentives and financing
for the development of new hotel projects and the tourism industry.
As a result of these initiatives, new hotels have been constructed or
are under construction which have increased the number of hotel rooms
on the island from 8,415 in fiscal 1992 to 10,345 in fiscal 1996 and
to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the
government's direct contribution to gross domestic product. As part
of this goal, the government has transferred certain governmental
operations and sold a number of its assets to private parties. Among
these are: (i) the sale of the assets of the Puerto Rico Maritime
Authority; (ii) the execution of a five-year management agreement for
the operation and management of the Aqueducts and Sewer Authority by a
private company; (iii) the execution by the Aqueducts and Sewer
Authority of a construction and operating agreement with a private
consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts
with private power producers under which two cogeneration plants (with
a total capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of
private health services, in 1994 a new health insurance program was
started in the Fajardo region to provide qualifying Puerto Rico
residents with comprehensive health insurance coverage. In
conjunction with this program certain public health facilities are
being privatized. The administration's goal is to provide universal
health insurance for such qualifying residents. The total cost of
this program will depend on the number of municipalities included and
the total number of participants. As of June 30, 1996, over 760,000
persons were participating in the program at an annual cost to the
Commonwealth of approximately $296 million.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, most notably section 936 of the Internal Revenue
Code of 1986, as amended ("Section 936") and the Commonwealth's
Industrial Incentives Program. 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 during a 10, 15, 20, or 25 year period
depending on location.
For many years, U.S. companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax
exemption for operating and qualifying investment income from Puerto
Rico sources. Amendments to Section 936 made in 1993 (the "1993
Amendments") instituted two alternative methods for calculating the
tax credit and limited the amount of the credit that a qualifying
company could claim. These limitations are based on a percentage of
qualifying income (the "percentage of income limitation") and on
qualifying expenditures on wages and other wage related benefits (the
"economic activity limitation" or "wage credit limitation"). As a
result of amendments incorporated in the Small Business Job Protection
Act of 1996 enacted by the U.S. Congress and signed into law by
President Clinton on August 20, 1996 (the "1996 Amendments"), the tax
credit is now being phased out over a ten-year period for existing
claimants and is no longer available for corporations that establish
operations in Puerto Rico after October 13, 1995 (including existing
Section 936 Corporations (as defined below) to the extent
substantially new operations are established in Puerto Rico). The
1996 Amendments also moved the credit based on the economic activity
limitation to Section 30A of the Code and phased it out over 10 years.
In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in
Puerto Rico. The Section 30A Credit and the remaining Section 936
credit are discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the
Code. Section 30A permits a "qualifying domestic corporation" ("QDC")
that meets certain gross income tests (which are similar to the 80%
and 75% gross income tests of Section 936 of the Code discussed below)
to claim a credit (the "Section 30A Credit") against the federal
income tax imposed on taxable income derived from sources outside the
United States from the active conduct of a trade or business in Puerto
Rico or from the sale of substantially all the assets used in such
business ("possession income").
A QDC is a U.S. corporation which (i) was actively conducting a
trade or business in Puerto Rico on October 13, 1995, (ii) had a
Section 936 election in effect for its taxable year that included
October 13, 1995, (iii) does not have in effect an election to use the
percentage limitation of Section 936(a)(4)(B) of the Code, and (iv)
does not add a "substantial new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of
qualified possession wages as defined in the Code, which includes
wages up to 85% of the maximum earnings subject to the OASDI portion
of Social Security taxes plus an allowance for fringe benefits of 15%
of qualified possession wages, (ii) a specified percentage of
depreciation deductions ranging between 15% and 65%, based on the
class life of tangible property, and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a 9% effective tax rate (but only
if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the Code may compute the amount of
its active business income, eligible for the Section 30A Credit, by
using either the cost sharing formula, the profit-split formula, or
the cost-plus formula, under the same rules and guidelines prescribed
for such formulas as provided under Section 936 (see discussion
below). To be eligible for the first two formulas, the QDC must have
a significant presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the
amount of possession income that would qualify for the Section 30A
Credit would be subject to a cap based on the QDC's possession income
for an average adjusted base period ending before October 14,
1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto
Rico ("active business income") and from the sale or exchange of
substantially all assets used in the active conduct of such trade or
business. To qualify under Section 936 in any given taxable year, a
corporation must derive for the three-year period immediately
preceding the end of such taxable year, (i) 80% or more of its gross
income from sources within Puerto Rico, and (ii) 75% or more of its
gross income from the active conduct of a trade or business in Puerto
Rico.
Under Section 936, a Section 936 Corporation may elect to compute
its active business income, eligible for the Section 936 credit, under
one of three formulas: (A) a cost-sharing formula, whereby it is
allowed to claim all profits attributable to manufacturing
intangibles, and other functions carried out in Puerto Rico, provided
it contributes to the research and development expenses of its
affiliated group or pays certain royalties; (B) a profit-split
formula, whereby it is allowed to claim 50% of the net income of its
affiliated group from the sale of products manufactured in Puerto
Rico; or (C) a cost-plus formula, whereby it is allowed to claim a
reasonable profit on the manufacturing costs incurred in Puerto Rico.
To be eligible for the first two formulas, the Section 936 Corporation
must have a significant business presence in Puerto Rico for purposes
of the Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the
Section 936 credit is only available to companies that elect the
percentage of income limitation and is limited in amount to 40% of the
credit allowable prior to the 1993 Amendments, subject to a five-year
phase-in period from 1994 to 1998 during which period the percentage
of the allowable credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the
possession income subject to the Section 936 credit will be subject to
a cap based on the Section 936 Corporation's possession income for an
average adjusted base period ending on October 14, 1995. The Section
936 credit is eliminated for taxable years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the
long-term effect on the Puerto Rico economy of the enactment of the
1996 Amendments to Section 936. The Government of Puerto Rico does
not believe there will be short-term or medium-term material adverse
effects on Puerto Rico's economy as a result of the enactment of the
1996 Amendments. The Government of Puerto Rico further believes that
during the phase-out period sufficient time exists to implement
additional incentive programs to safeguard Puerto Rico's competitive
position. Additionally, the Governor intends to propose a new federal
incentive program similar to what is now provided under Section 30A.
Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe
benefits, depreciation expenses for certain tangible assets, and
research and development expenses, and would restore the credit
granted to passive income under Section 936 prior to its repeal by the
1996 Amendments. Under the Governor's proposal, the credit granted to
qualifying companies would continue in effect until Puerto Rico shows,
among other things, substantial economic improvements in terms of
certain economic parameters.
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 fund, FMR
has granted investment management authority to the sub-adviser (see
the section entitled "Management Contracts"), and the sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
below. FMR is also responsible for the placement of transaction orders
for other investment companies and accounts for which it or its
affiliates act as investment adviser. Securities purchased and sold by
the money market fund generally will be traded on a net basis (i.e.,
without commission). In selecting broker-dealers, subject to
applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer
firm; the broker-dealer's execution services rendered on a continuing
basis; and the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; effect
securities transactions, and perform functions incidental thereto
(such as clearance and settlement). FMR maintains a listing of
broker-dealers who provide such services on a regular basis. However,
as many transactions on behalf of the money market fund are placed
with broker-dealers (including broker-dealers on the list) without
regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The
selection of such broker-dealers generally is made by FMR (to the
extent possible consistent with execution considerations) based upon
the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the funds may be useful to FMR in rendering investment
management services to the funds or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to the funds. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause each fund to pay such higher commissions,
FMR must determine in good faith that such commissions are reasonable
in relation to the value of the brokerage and research services
provided by such executing broker-dealers, viewed in terms of a
particular transaction or FMR's overall responsibilities to the funds
and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds, or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC), an indirect 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 NFSC to execute portfolio
transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended December 31, 1997 and 1996, the
portfolio turnover rates were ___% and ___%, respectively for Spartan
Pennsylvania Municipal Income. 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 the fiscal years ended December 31, 1997, 1996, and 1995,
Spartan Pennsylvania Municipal Money Market paid [no brokerage
commissions/ brokerage commissions of $____, $______, and $______,
respectively; and Spartan Pennsylvania Municipal Income paid [no
brokerage commissions/brokerage commissions of $____, $______, and
$______, respectively]. During the fiscal year ended December 31,
1997 , this amounted to approximately __% and __%, respectively, of
the aggregate brokerage commissions paid by each fund involving
approximately __% and __%, respectively, of the aggregate dollar
amount of transactions for which the funds paid brokerage commissions.
During the fiscal year ended December 31, 1997, Spartan
Pennsylvania Municipal Money Market paid $__ in commissions to
brokerage firms that provided research services involving
approximately $___of transactions; during the fiscal year ended
December 31, 1997, Spartan Pennsylvania Municipal Income paid $__
in commissions to brokerage firms that provided research 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. During the fiscal year ended December
31, 1997, the funds paid no fees to brokerage firms that provided
research services.
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
Fidelity Service Company, Inc. (FSC) normally determines each fund's
net asset value per share (NAV) as of the close of the New York Stock
Exchange (NYSE) (normally 4:00 p.m. Eastern time). The valuation of
portfolio securities is determined as of this time for the purpose of
computing each fund's NAV.
TAX-FREE BOND FUND. Portfolio securities are valued by various
methods. If quotations are not available, fixed-income securities are
usually valued on the basis of information furnished by a pricing
service that uses a valuation matrix which incorporates both
dealer-supplied valuations and electronic data processing techniques.
Use of pricing services has been approved by the Board of Trustees. A
number of pricing services are available, and the fund may use various
pricing services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily available
market value are valued in good faith by a committee appointed by the
Board of Trustees. The procedures set forth above need not be used to
determine the value of the securities owned by the fund if, in the
opinion of a committee appointed by the Board of Trustees, some other
method would more accurately reflect the fair market value of such
securities.
MONEY MARKET FUND. Portfolio securities and other assets are valued on
the basis of amortized cost. This technique involves initially valuing
an instrument at its cost as adjusted for amortization of premium or
accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
Securities of other open-end investment companies are valued at their
respective NAVs.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund
used market valuations to determine its NAV. The converse would apply
during periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use
of the term "money market fund" are permitted pursuant to Rule 2a-7
under the 1940 Act. The fund must adhere to certain conditions under
Rule 2a-7, as summarized in the section entitled "Quality and
Maturity" on page ___.
The Board of Trustees oversees FMR's adherence to the provisions of
Rule 2a-7 and has established procedures designed to stabilize the
fund's NAV at $1.00. At such intervals as they deem appropriate, the
Trustees consider the extent to which NAV calculated by using market
valuations would deviate from $1.00 per share. If the Trustees believe
that a deviation from 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.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. A bond fund's share price,
and each fund's yield and total return fluctuate in response to market
conditions and other factors, and the value of a bond fund's shares
when redeemed may be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a
period, the net change in value of a hypothetical account containing
one share reflects the value of additional shares purchased with
dividends from the one original share and dividends declared on both
the original share and any additional shares. The net change is then
divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. The money market fund also may
calculate a compound effective yield by compounding the base period
return over a one-year period. In addition to the current yield, the
money market fund may quote yields in advertising based on any
historical seven-day period. Yields for the money market fund are
calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields 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 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. Yields do not reflect the bond fund's 0.50% short-term trading
fee, which applies to shares held less than 180 days. Income is
calculated for purposes of the 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 the 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, the 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 combined federal and
state and city income 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 1998. 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, state, and local taxes for 1998.
1998 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal Pennsylvania Philadelphia Combined
Marginal State School Federal and Combined
Rate Marginal District State Federal,
Rate Marginal Effective State, and
Rate Rate Local
Effective
Rate**
Single Return Joint Return
</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 appropriate
table below to determine the tax-equivalent yield for a given tax-free
yield.
CITY OF PHILADELPHIA RESIDENTS - TRIPLE TAXES - 1998
If your combined federal, state, and local effective tax rate in 1998
is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
PENNSYLVANIA RESIDENTS (OUTSIDE PHILADELPHIA) - DOUBLE TAXES -
1998
If your combined federal and state effective tax rate in 1998 is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</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 table
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
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, the fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis and may or may not include the effect of the bond
fund's 0.50% short-term trading fee on shares held less than 180
days. Excluding the bond fund's short-term trading fee from a total
return calculation produces a higher total return figure. Total
returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration, and may
omit or include the effect of the money market fund's $5.00 account
closeout fee.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to
exhibit performance. An adjusted NAV includes any distributions paid
by a fund and reflects all elements of its return. Unless otherwise
indicated, a fund's adjusted NAVs are not adjusted for sales charges,
if any.
HISTORICAL FUND RESULTS. The following tables show the money market
fund's 7-day yields, the bond fund's 30-day yields, each fund's
tax-equivalent yields, and total returns for periods ended December
31, 1997. Total return figures include the effect of the money
market fund's $5.00 account closeout fee based on an average size
account, but not the bond fund's 0.50% short-term trading fee,
applicable to shares held less than 180 days.
The tax-equivalent yield is based on a combined effective federal
and state income tax rate of __% and reflects that, as of December 31,
1997, 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> <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 Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Spartan PA Muni % % % % % % % %
Money
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's total returns would have been lower.
<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-Day Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Spartan PA Muni % % % % % % % %
Income
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's total returns would have been lower.
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each fund's return
to the record of the S&P 500, the Dow Jones Industrial Average (DJIA),
and the cost of living, as measured by the Consumer Price Index (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 unmanaged index of common stocks and
a narrower set of stocks of major industrial companies, respectively,
over the same period. Because each fund invests in fixed-income
securities, common stocks represent a different type of investment
from the funds. Common stocks generally offer greater growth potential
than the funds, but generally experience greater price volatility,
which means greater potential for loss. In addition, common stocks
generally provide lower income than fixed-income investments such as
the funds. The S&P 500 and DJIA returns are based on the prices of
unmanaged groups of stocks and, unlike each fund's returns, do not
include the effect of brokerage commissions or other costs of
investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended
December 31, 1997, assuming all distributions were reinvested. The
figures below reflect the fluctuating interest rates and bond prices
of the specified periods and should not be considered representative
of the dividend income or capital gain or loss that could be realized
from an investment in a fund today. Tax consequences of different
investments have not been factored into the figures below.
During the 10-year period ended December 31, 1997, a
hypothetical $10,000 investment in Spartan Pennsylvania Municipal
Money Market would have grown to $_____.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Money Market on August 6, 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. The fund did not distribute any capital gains during the
period. The figures in the table do not include the effect of the
fund's $5.00 account closeout fee.
During the 10-year period ended December 31, 1997, a
hypothetical $10,000 investment in Spartan Pennsylvania Municipal
Income would have grown to $_____.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Income on January 1, 1988, 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 gain distributions. The figures in the
table do not include the effect of the fund's 0.50% short-term trading
fee applicable to shares held less than 180 days.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
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's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest.
The total return of a benchmark index reflects reinvestment of all
dividends and capital gains paid by securities included in the index.
Unlike a fund's returns, however, the index returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
The bond fund may compare to the Lehman Brothers Municipal Bond Index,
a total return performance benchmark for investment-grade municipal
bonds with maturities of at least one year. In addition, Spartan
Pennsylvania Municipal Income may compare its performance to that of
the Lehman Brothers Pennsylvania Municipal Bond Index, a total return
performance benchmark for Pennsylvania investment-grade municipal
bonds with maturities of at least one year. Issues included in each
index have been issued after December 31, 1990 and have an outstanding
par value of at least $50 million. Subsequent to December 31, 1995,
zero coupon bonds and issues subject to the alternative minimum tax
are included in each index.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
A money market fund may compare its performance or the performance of
securities in which it may invest to averages published by IBC
Financial Data, Inc. of Ashland, Massachusetts. These averages assume
reinvestment of distributions. IBC's MONEY FUND REPORT
AVERAGES(trademark)/All Tax-Free, which is reported in IBC's MONEY
FUND REPORT(trademark), covers over ___ tax-free money market
funds.
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(Registered trademark), 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 bond 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 bond 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 bond 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, 1997 , 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 1998: New Year's Day, Martin Luther King's Birthday, Presidents'
Day, Good Friday, Memorial Day, 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 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.
A fund purchases municipal securities whose interest FMR believes is
free from federal income tax. Generally, issuers or other parties
have entered into covenants requiring continuing compliance with
federal tax requirements to preserve the tax-free status of interest
payments over the life of the security. If at any time the covenants
are not complied with, or if the IRS otherwise determines that the
issuer did not comply with relevant tax requirements, interest
payments from a security could become federally taxable retroactive to
the date the security was issued. For certain types of structured
securities, the tax status of the pass-through of tax-free income may
also be based on the federal and state tax treatment of the structure.
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 purpose. Interest from private
activity securities will be considered tax-exempt for purposes of the
bond fund's policy of investing so that at least 80% of its income is
free from federal income tax and the money market fund's policy of
investing so that at least 80% of its income distributions are
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 the bond fund's policy
of investing so that at least 80% of its income is free from federal
income tax and the money market fund's policy of investing so that at
least 80% of its income distributions are free from federal income
tax. The money market fund 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.
PENNSYLVANIA TAXES. To the extent that each fund's distributions are
derived from interest on Pennsylvania state tax-free securities, its
income dividends will be exempt from the Pennsylvania personal income
tax. However, distributions attributable to capital gains (whether or
not from state tax-free securities) are not exempt from the
Pennsylvania personal income tax. Distributions of interest earned
from non-exempt obligations are not exempt from the Pennsylvania
personal income tax. The funds' dividends may or may not be exempt
from current or future taxes of certain Pennsylvania municipalities.
To the extent a fund's investments on the annual assessment date
consist of (i) municipal obligations of the Commonwealth of
Pennsylvania and its political subdivisions or municipal authorities,
and (ii) obligations of the United States, including certain
obligations of Puerto Rico, the Virgin Islands and Guam, and any U.S.
territories or possessions whose obligations are immune from state and
local taxation under federal law, collectively referred to as exempt
obligations, shares purchased as an investment in either of the funds
will not be taxable for purposes of the Pennsylvania county personal
property tax. Any holdings other than exempt obligations may result in
shares of the funds being wholly or partially subject to the taxes
described above.
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 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 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 fund does not anticipate
distributing long-term capital gains.
As of December 31, 1997 , the fund hereby designates
approximately $_______ as a capital gain dividend for the purpose of
the dividend-paid deduction.
As of December 31, 1997 , the fund had a capital loss
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 and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds of
Fidelity Municipal Trust II (Spartan Pennsylvania Municipal Money
Market) and Fidelity Municipal Trust (Spartan Pennsylvania Municipal
Income) 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 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 its division, 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
accounts 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, Members of the Advisory Board, 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 and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, 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 (67) , 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 (56), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of
Fidelity Management & Research Company.
RALPH F. COX (65) , Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and produc tion). He is a Director of USA Waste
Services, Inc. (non-hazardous waste, 1993), CH2M Hill Companies
(engineering), Rio Grande, Inc. (oil and gas production), and
Daniel Industries (petroleum measurement equipment manufacturer). In
addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (66) , 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), 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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70) , Trustee. 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), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products),
and he previously served as a Director of NACCO Industries, Inc.
(mining and manufacturing, 1985-1995), Hyster-Yale Materials Handling,
Inc. (1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee
of First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65) , 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, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, 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).
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.
WILLIAM O. McCOY (64) , Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN (64) , 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), Imation Corp. (imaging and information storage, 1997), 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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, group
leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
BOYCE I. GREER (41), is Vice President of Money Market Funds (1997),
Group Leader of the Money Market Group (1997) and Senior Vice
President of FMR (1997). Mr. Grerr served as the Leader of the
Fixed-Income Group for Fidelity Management Trust Company (1993-1995)
and was Vice President and Group Leader of Municipal Fixed-Income
Investments (1996-1997). Prior to 1993, Mr. Greer was an associate
portfolio manager.
FRED L. HENNING, JR. (58) is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
DIANE McLAUGHLIN
JONATHAN D. SHORT (34), is Vice President of Spartan Pennsylvania
Municipal Income Fund (1997), and other funds advised by FMR. Since
joining Fidelity as a municipal bond analyst in 1990, Mr. Short has
assisted on Fidelity Municipal Income Fund and managed a variety of
Fidelity funds.
ERIC ROITER ( ), Secretary, [Biography to be filed by
subsequent amendment.]
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant
Vice President of Fidelity's municipal bond funds (1996) and of
Fidelity's money market funds and Vice President and Associate General
Counsel of FMR Texas Inc.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (51), 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) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
THOMAS J. SIMPSON (39), Assistant Treasurer, is Assistant
Treasurer of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds (1996) and an employee of FMR (1996). Prior to
joining FMR, Mr. Simpson was Vice President and Fund Controller of
Liberty Investment Services (1987-1995).
The following table sets forth information describing the
compensation of each Trustee and Member of the Advisory Board of each
fund for his or her services for the fiscal year ended December 31,
1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Aggregate Aggregate Total
and Compensation Compensation Compensation
Members of the Advisory Board from from from the
Spartan PA Muni Spartan PA Muni Fund Complex*,A
Money [B,]C Income[B,]D
J. Gary Burkhead ** $ $ $ 0
Ralph F. Cox $ $ 137,700
Phyllis Burke Davis $ $ 134,700
Richard J. Flynn*** $ $ 168,000
Robert M. Gates **** $ $ 0
Edward C. Johnson 3d ** $ $ 0
E. Bradley Jones $ $ 134,700
Donald J. Kirk $ $ 136,200
Peter S. Lynch ** $ $ 0
William O. McCoy***** $ $ 85,333
Gerald C. McDonough $ $ 136,200
Edward H. Malone*** $ $ 136,200
Marvin L. Mann $ $ 134,700
Robert C. Pozen** $ $ 0
Thomas R. Williams $ $ 136,200
</TABLE>
* Information is for the calendar year ended December 31, 1996 for
235 funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are
compensated by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of
Trustees through December 31, 1996.
**** Mr. Gates was appointed to the Board of Trustees of Fidelity
Municipal Trust effective March 1, 1997. Mr. Gates was elected to the
Board of Trustees of Fidelity Municipal Trust II on July 16, 1997.
*****During the period from May 1, 1996 through December 31, 1996,
William O. McCoy served as a Member of the Advisory Board of each
trust. Mr. McCoy was appointed to the Board of Trustees of Fidelity
Municipal Trust effective January 1, 1997. Mr. McCoy was elected to
the Board of Trustees of Fidelity Municipal Trust II on July 16,
1997.
A Compensation figures include cash, a pro rata portion of benefits
accrued under the retirement program for the period ended December 30,
1996 and required to be deferred, and may include amounts deferred at
the election of Trustees.
B Compensation figures include cash, and may include amounts
required to be deferred, a pro rata portion of benefits accrued under
the retirement program for the period ended December 30, 1996 and
required to be deferred, and amounts deferred at the election of
Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
E For the fiscal year ended December 31, 1997, certain of the
non-interested Trustees' aggregate compensation from a fund includes
accrued voluntary deferred compensation as follows: [trustee name,
dollar amount of deferred compensation, fund name]; [trustee name,
dollar amount of deferred compensation, fund name]; and [trustee name,
dollar amount of deferred compensation, fund name].
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and
related crediting of estimated benefits to the Trustees' Plan accounts
did not result in a material cost to the funds.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately __% of [Fund Name]'s total outstanding shares was held
by [an] FMR affiliate[s]. FMR Corp. is the ultimate parent company of
[this/these] FMR affiliate[s]. By virtue of his ownership interest in
FMR Corp., as described in the "FMR" section on page ___, Mr. Edward
C. Johnson 3d, President and Trustee of the fund, may be deemed to be
a beneficial owner of these shares. As of the above date, with the
exception of Mr. Johnson 3d's deemed ownership of [Fund Name]'s
shares, the Trustees, Members of the Advisory Board, and officers of
the funds owned, in the aggregate, less than __% of each fund's total
outstanding shares.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE], the
Trustees, Members of the Advisory Board, and officers of each fund
owned, in the aggregate, less than __% of each fund's total
outstanding shares.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE], the
following owned of record or beneficially 5% or more of a fund's
outstanding shares:
A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other
shareholders.
MANAGEMENT CONTRACTS
FMR is manager of Spartan Pennsylvania Municipal Money Market pursuant
to a management contract dated February 28, 1992, which was approved
by Fidelity Municipal Trust as the then sole shareholder of the money
market fund on February 28, 1992, in conjunction with an Agreement and
Plan to convert the fund from a series of a Massachusetts business
trust to a series of a Delaware business trust. The Agreement and Plan
was approved by public shareholders of the money market fund on
December 11, 1991. The money market fund's contract is identical to
the fund's prior contract with FMR. FMR is manager of Spartan
Pennsylvania Municipal Income pursuant to a management contract dated
August 1, 1990, which was approved by shareholders on July 18, 1990.
MANAGEMENT SERVICES. Each fund employs FMR to furnish investment
advisory and other services. Under the terms of 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 the fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all
necessary office facilities and personnel for servicing the 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. Under the terms of each fund's management
contract, FMR is responsible for payment of all operating expenses of
each fund with certain exceptions. Specific expenses payable by FMR
include expenses for typesetting, printing, and mailing proxy
materials to shareholders, legal expenses, fees of the custodian,
auditor and interested Trustees, each fund's proportionate share of
insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal securities laws and making
necessary filings under state securities laws. Each fund's management
contract further provides that FMR will pay for typesetting, printing,
and mailing prospectuses, statements of additional information,
notices, and reports to shareholders; however, under the terms of each
fund's transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. FMR also pays all
fees associated with transfer agent, dividend disbursing, and
shareholder services, and pricing and bookkeeping services.
FMR pays all other expenses of each fund with the following
exceptions: fees and expenses of the non-interested Trustees,
interest, taxes, brokerage commissions (if any), and such nonrecurring
expenses as may arise, including costs of any litigation to which a
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT FEES. For the services of FMR under each management
contract, Spartan Pennsylvania Municipal Money Market and Spartan
Pennsylvania Municipal Income each pays FMR a monthly management fee
at the annual rate of 0.50% and 0.55%, respectively, of its average
net assets throughout the month.
The management fee paid to FMR by each fund is reduced by an amount
equal to the fees and expenses paid by the fund to the non-interested
Trustees.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years, and the amount of credits
reducing management fees for each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Amount of
Fiscal Years Ended Credits Reducing Management Fees
December 31 Management Fees] Paid to FMR*
Spartan PA Muni Money 1997 $ $
1996 $ $1,180,152
1995 $ $1,133,238
Spartan PA Muni Income 1997 $ $
1996 $ $1,516,877
1995 $ $1,494,332
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
FMR may, from time to time, voluntarily reimburse all or a portion of
a 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 a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
To defray shareholder service costs, FMR or its affiliates also
collect Spartan Pennsylvania Municipal Money Market's $5.00
exchange fee, $5.00 account closeout fee, $5.00 fee for wire purchases
and redemptions, and $2.00 checkwriting charge. Shareholder
transaction fees and charges collected by FMR are shown in the table
below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Ended Account Checkwriting
December 31 Exchange Fees Closeout Fees Wire Fees Charges
Spartan PA Muni Money 1997 $ $ $ $
1996 $1,970 $ 964 $260 $4,164
1995 $2,420 $1,228 $220 $4,830
</TABLE>
SUB-ADVISER. On behalf of Spartan Pennsylvania Municipal Money
Market, FMR has entered into a sub-advisory agreement with FMR
Texas pursuant to which FMR Texas has primary responsibility for
providing portfolio investment management services to the fund.
Under the terms of the sub-advisory agreement, dated February 28,
1992, which was approved by [shareholders/FMR, as the then sole
shareholder,] on [Date], FMR pays FMR Texas fees equal to 50% of the
management fee payable to FMR under its management contract with
Spartan Pennsylvania Municipal Money Market. The fees paid to FMR
Texas are not reduced by any voluntary or mandatory expense
reimbursements that may be in effect from time to time.
On behalf of Spartan Pennsylvania Municipal Money Market, for the
fiscal years ended December 31, 1997, 1996, and 1995, FMR paid FMR
Texas fees of $________, $590,076 and $566,619, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plan on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (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 the 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 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. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, each Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has not authorized such
payments for each fund's shares.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each 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 each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, 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.
Spartan Pennsylvania Municipal Money Market's Plan was approved by
shareholders, in connection with a reorganization transaction on
February 28, 1992, pursuant to an Agreement and Plan of Conversion.
Spartan Pennsylvania Municipal Income's Plan was approved by
shareholders on December 31, 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 other 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
Each fund has entered into a transfer agent agreement with UMB.
Under the terms of the agreements, UMB provides transfer agency,
dividend disbursing, and shareholder services for each fund. UMB in
turn has entered into sub-transfer agent agreements with FSC ,
an affiliate of FMR. Under the terms of the sub-agreements, FSC
performs all processing activities associated with providing these
services for each fund and receives all related transfer agency fees
paid to UMB.
For providing transfer agency services, FSC receives an annual
account fee and an asset-based fee each based on account size and fund
type for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the Freedom Fund's assets that is
invested in a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each fund has also entered into a service agent agreement with UMB.
Under the terms of the agreements, UMB provides pricing and
bookkeeping services for each fund. UMB in turn has entered into
sub-service agent agreements with FSC. Under the terms of the
sub-agreements, FSC performs all processing activities associated with
providing these services, including calculating the NAV and dividends
for each fund and maintaining each fund's portfolio and general
accounting records, and receives all related pricing and bookkeeping
fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a
monthly fee based on each fund's average daily net assets throughout
the month.
FMR bears the cost of transfer agency, dividend disbursing, and
shareholder services and pricing and bookkeeping services under the
terms of its management contract with each fund.
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan Pennsylvania Municipal Income Fund is a
fund (series) of Fidelity Municipal Trust (the Massachusetts 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 Massachusetts
trust: Fidelity Advisor Municipal Bond Fund; Spartan Aggressive
Municipal Fund; Spartan Insured Municipal Income Fund; Spartan
Michigan Municipal Income Fund; Spartan Minnesota Municipal Income
Fund; Spartan Ohio Municipal Income Fund; and Spartan Pennsylvania
Municipal Income Fund. The Massachusetts trust's Declaration of Trust
permits the Trustees to create additional funds.
Spartan Pennsylvania Municipal Money Market Fund is a fund (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. Currently, there are three funds of the Delaware
trust: Fidelity Michigan Municipal Money Market Fund; Fidelity Ohio
Municipal Money Market Fund; and Spartan Pennsylvania Municipal Money
Market Fund. The Delaware trust's Trust Instrument permits the
Trustees to create additional funds.
In the event that FMR ceases to be investment adviser to a trust or
any of its funds, the right of the trust or the fund to use the
identifying names "Fidelity" and "Spartan" may be withdrawn. There is
a remote possibility that one fund might become liable for any
misstatement in its prospectus or statement of additional information
about another fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general expenses of their respective
trusts. Expenses with respect to the trusts are to be allocated in
proportion to the asset value of their respective funds, except where
allocations of direct expense can otherwise be fairly made. The
officers of the trusts, subject to the general supervision of the
Boards of Trustees, have the power to determine which expenses are
allocable to a given fund, or which are general or allocable to all of
the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The
Massachusetts trust is an entity of the type commonly known as
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust. The Declaration of Trust
provides that the Massachusetts trust shall not have any claim against
shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or instrument entered
into or executed by the Massachusetts trust or its Trustees shall
include a provision limiting the obligations created thereby to the
Massachusetts trust and its assets. The Declaration of Trust provides
for indemnification out of each fund's property of any shareholders
held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any
act or obligation of the fund and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust
is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations
of personal liability extended to stockholders of private corporations
for profit. The courts of some states, however, may decline to apply
Delaware law on this point. The Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities,
obligations, and expenses of the Delaware trust and requires that a
disclaimer be given in each contract entered into or executed by the
Delaware trust or its Trustees. The Trust Instrument provides for
indemnification out of each fund's property of any shareholder or
former shareholder held personally liable for the obligations of the
fund. The Trust Instrument also provides that each fund shall, upon
request, assume the defense of any claim made against any shareholder
for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability
was in effect, and the fund is unable to meet its obligations. FMR
believes that, in view of the above, the risk of personal liability to
shareholders is extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any
conduct whatsoever, provided that Trustees are not protected against
any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. 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; 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
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
Fidelity Municipal Trust II 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 fund(s). The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any 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. ____________________________, (money market fund) serves as
the trusts' independent accountant. The auditor examines financial
statements for the funds and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended December 31, 1997, and reports of the auditor, are
included in the funds' Annual Report, which is a separate report
supplied with this SAI. The funds' financial statements, including the
financial highlights, and reports of the auditor are incorporated
herein by reference. For a free additional copy of the funds'
Annual Report, contact Fidelity at 1-800-544-8888, 82 Devonshire
Street, Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. When a municipal bond issuer has committed to call
an issue of bonds and has established an independent escrow account
that is sufficient to, and is pledged to, refund that issue, the
number of days to maturity for the prerefunded bond is considered to
be the number of days to the announced call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for short-term municipal obligations will be
designated Moody's Investment Grade ("MIG"). A two-component rating is
assigned to variable rate demand obligations. The first component
represents an evaluation of the degree of risk associated with
scheduled principal repayment and interest payments and is designated
by a long-term rating, e.g., "Aaa" or "A." The second component
represents an evaluation of the degree of risk associated with the
demand feature and is designated "VMIG."
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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature
are assigned a dual rating. The first rating addresses the likelihood
of repayment of principal and payment of interest due and for
short-term obligations is designated by a note rating symbol. The
second rating addresses only the demand feature, and is designated by
a commercial paper rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest
quality). Those bonds within the Aa through B categories that Moody's
believes possess the strongest credit attributes within those
categories are designated by the symbol "1."
AAA - Bonds that 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 that 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 that 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 that 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 that 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 that 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA through CCC may be modified by the addition of a plus sign (+) or
minus sign (-) to show relative standing within the major rating
categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
SPARTAN MINNESOTA MUNICIPAL INCOME FUND
FIDELITY MUNICIPAL TRUST
CROSS REFERENCE SHEET
Form N-1A Item Number
Part A Prospectus Caption
1 Cover Page
2 a Expenses
b,c Contents; The Fund at a Glance; Who May Want to Invest
3 a **
b *
c,d Performance
4 a(i) Charter
a(ii) The Fund at a Glance; Investment Principles and Risks;
Securities and Investment Practices; Fundamental Investment Policies
and Restrictions
b Securities and Investment Practices
c Who May Want to Invest; Investment Principles and Risks;
Securities and Investment Practices
5 a Charter
b(i) Cover Page; The Fund at a Glance; FMR and Its Affiliates; Doing
Business with Fidelity
b(ii) Charter
b(iii) Expenses; Breakdown of Expenses
c Charter
d Charter; Breakdown of Expenses
e Cover Page; Charter
f Expenses
g Charter
5A Performance
6 a(i) Charter
a(ii) How to Buy Shares; How to Sell Shares; Investor Services;
Transaction Details; Exchange Restrictions
a(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
h *
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 *
* Not applicable
** To be filed by subsequent amendment
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 reports and
portfolio listing, or a copy of the Statement of Additional
Information (SAI) dated February 26 , 1998. The SAI has been
filed with the Securities and Exchange Commission (SEC) and is
available along with other related materials on the SEC's Internet Web
site (http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either
document, call Fidelity at 1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board or any other agency, and are subject to
investment risks, including the possible loss of principal amount
invested.
SPARTAN(registered trademark)
MINNESOTA
MUNICIPAL
INCOME
FUND
Spartan Minnesota Municipal Income seeks a high level of
current income free from federal income tax and Minnesota personal
income tax.
(fund number 082, trading symbol FIMIX)
PROSPECTUS
FEBRUARY 26, 1998 (FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
MNF -PRO-0298
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 10 CHARTER How the fund is organized.
INVESTMENT PRINCIPLES AND RISKS The
fund's overall approach to investing.
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT DOING BUSINESS WITH FIDELITY
TYPES OF ACCOUNTS Different ways to
set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money out
and closing your account.
INVESTOR SERVICES Services to help you
manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
EXCHANGE RESTRICTIONS
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current tax-free income for Minnesota residents.
As with any mutual fund, there is no assurance that the fund will
achieve its goal.
STRATEGY: Normally invests in investment-grade municipal
securities whose interest is free from federal income tax and
Minnesota personal income tax. M anaged to generally react to
changes in interest rates similarly to municipal bonds with maturities
between eight and 18 years.
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, 1997, the fund had over $__ billion
in assets.
WHO MAY WANT TO INVEST
This non-diversified fund may be appropriate for investors in
higher tax brackets who seek high current income that is free from
federal and Minnesota personal income taxes. The fund's level of risk
and potential reward depends on the quality and maturity of its
investments. You should consider your investment objective and
tolerance for risk when making an investment decision.
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. The
fund's investments are also subject to prepayment risk, which can
lower the fund's yield, particularly in periods of declining interest
rates. When you sell your shares, they may be worth more or less than
what you paid for them. By itself, the fund does not constitute
a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets
in securities of individual issuers than diversified funds. As a
result, changes in the market value of a single issuer could cause
greater fluctuations in share value than would occur in a more
diversified fund.
THE SPECTRUM OF
FIDELITY FUNDS
BROAD CATEGORIES OF FIDELITY
FUNDS ARE PRESENTED HERE IN
ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO
MAXIMIZE RETURN MUST ASSUME
GREATER RISK. SPARTAN
MINNESOTA
MUNICIPAL INCOME 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 may pay when you buy
or sell shares of the fund. In addition, you may be charged an
annual account maintenance fee if your account balance falls below
$2,500. See "Transac tion Details," page __, for an explanation
of how and when these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions None
Annual account maintenance fee (for accounts 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 (see "Breakdown of
Expenses" page ).
The following figures are based on historical expenses, adjusted to
reflect current fees, of the fund and are calculated as a
percentage of aver age net assets of the fund. A portion of the
brokerage commissions that the fund pays is used to reduce the fund's
expenses. In addition, the fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances are used to reduce custodian and transfer
agent expenses. Including this reduction, the total fund operating
expenses presented in the table would have been __%.
Management fee (after reimbursement) %
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 your shareholder transaction expenses and the fund's
annual 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:
1 year $
3 years $
5 years $
10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses 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 expenses are paid from
the fund's assets, and their
effect is already factored into
any quoted share price or
re
turn. Also, as an investor,
you may pay certain expenses
directly.
(checkmark)
FMR has voluntarily agreed to reimburse the fund to the extent that
total operating expenses exceed 0.55% of its average net assets. If
this agreement were not in effect, the management fee, other expenses,
and total operating expenses would have been __%, __%, and __%,
respectively. Expenses eligible for reimbursement do not include
interest, taxes, brokerage commissions, or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows has been audited
by , independent accountants. The
fund's financial highlights, financial statements, and report of the
auditor are included in the fund's Annual Report, and are incorporated
by reference into (are l egally a part of) the fund's
SAI. Contact Fidelity for a free copy of the Annual Report or
the SAI .
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD.
The total returns that follow 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 different measures, including a comparative index and a
competitive funds average. Data for the comparative index is
available only from June 30, 1993 to the present. The chart on page
__ presents calendar year performance.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan MN Municipal Income % % %
Lehman Bros. MN Enh. Muni. Bond Index % % %
Lipper MN Muni. Debt Funds Average % % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan MN Municipal Income % % %
Lehman Bros. MN Enh. Muni. Bond Index % % %
Lipper MN Muni. Debt Funds Average % % %
If FMR had not reimbursed certain fund expenses during these periods,
yields and total returns would have been lower.
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 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.
LEHMAN BROTHERS MINNESOTA ENHANCED MUNICIPAL BOND INDEX is a total
return performance benchmark for Minnesota investment-grade municipal
bonds with maturities of at least one year.
Unlike the fund's returns, the total returns of the
comparative index do not include the effect of any brokerage
commissions, transaction fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Minnesota Municipal
Debt Funds Average. As of [Date], the average reflected the
performance of ___ mutual funds with similar investment objectives.
This average, published by Lipper Analytical Services, Inc.,
ex cludes the effect of sales loads .
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996
1997
Spartan Minnesota
Municipal Income % % % % % % % % % %
Lipper MN Muni. Debt Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan MN
Municipal Income
The fund's recent strategies, performance, and holdings are
detailed twice a year in financial reports, which are sent to all
shareholders. For current performance or a free annual report, call
1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
SPARTAN MINNESOTA MUNICIPAL INCOME IS A MUTUAL FUND: an
investment that pools shareholders' money and invests it toward a
specified goal. The fund is a non-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 periodically throughout the
year to oversee the fund's activities, review contractual
arrangements with companies that provide services to the fund, and
review the fund's performance. The trustees serve as trustees for
other Fidelity funds. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL SHAREHOLDER 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 fund is managed by FMR, which chooses the fund's investments
and handles its business affairs.
Jonathan Short is manager of Spartan Minnesota Municipal Income, which
he has managed since October 1995. He also manages several other
Fidelity funds. Since joining Fidelity in 1990, Mr. Short has worked
as an analyst and manager.
Fidelity investment personnel may invest in securities for their
own accounts 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.
UMB Bank, n.a. (UMB) is the fund's transfer agent, and is located
at 1010 Grand Avenue, Kansas City, Missouri. UMB employs
Fidelity Service Company, Inc. (FSC) to perform 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.
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out the fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity
that issued them and/or other revenue streams. Municipal security
values may be significantly affected by political changes as well
as uncertainties in the municipal market related to taxation or
the rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond
includes both income and price gains or losses. In selecting
investments for a bond fund, FMR considers a bond's expected income
together with its potential for price gains or losses. While income is
the most important component of bond returns over time, a bond fund's
emphasis on income does not mean the fund invests only in the
highest-yielding bonds available, or that it can avoid losses of
principal.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the range of eligible investments for the fund. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different
market sectors (for example, general obligation bonds of a state or
bonds financing a specific project) and different maturities based on
its view of the relative value of each sector or maturity. The
performance of the fund will depend on how successful FMR is in
pursuing this approach.
SPARTAN MINNESOTA MUNICIPAL INCOME seek s high current income
that is free from federal income tax, and Minnesota personal income
tax, by investing in investment-grade municipal securities under
normal conditions. FMR normally invests the fund's assets so that at
least 80% of the fund's income is free from both federal and state
income taxes.
Although the fund does not maintain an average maturity within
a specified range, FMR seeks to manage the fund so that it
generally reacts to changes in interest rates similarly to municipal
bonds with maturities between eight and 18 years. As of December
31, 1997, the fund's dollar-weighted average maturity was
approximately __ years.
The fund normally invests in municipal securities. FMR may
invest all of the fund's assets in municipal securitie s issued to
finance private activities. The interest from these securities is a
tax-preference item for purposes of the federal alternative
minimum tax.
The fund's performance is affected by the economic and
political conditions within the state of Minnesota.
Minnesota maintains a strong agricultural base accompanied by
growth in the service and manufacturing sectors; mining is less of a
factor than in prior years.
FMR may use various techniques to hedge a portion of the fund's
risks, but there is no guarantee that these strategies will work
as intended. When you sell your shares of the fund, they may be
worth more or less than what you paid for them.
FMR normally invests the fund's assets according to its investment
strategy and does not expect to invest in federally or 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. 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 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, strategies FMR may
employ in pursuit of the fund's investment objective, and a summary of
related risks. Any restrictions listed supplement those discussed
earlier in this section. A complete listing of the fund's
limitations and more detailed information about the fund's investments
are contained in the fund's SAI. Policies and limitations are
considered at the time of purchase; the sale of instruments is not
required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with the fund's
investment objective and policies and that doing so will help the
fund achieve its goal. Fund holdings and recent investment
strategies are detailed 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 generally pays the investor
a fixed, variable, or floating 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 sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. Investment-grade debt securities are medium- and
high-quality securities. Some, however, may possess speculative
characteristics, and may be more sensitive to economic changes and to
changes in the financial condition of issuers.
RESTRICTIONS: The fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets
in below investment-grade securities (sometimes called "junk
bonds"). A security is considered to be investment-grade if it is
rated investment-grade by Moody's Investors Service (Moody's),
Standard & Poor's (S&P), Duff & Phelps Credit Rating Co., or Fitch
Investor Services, L.P., or is unrated by judged to be of
equivalent quality by FMR. The fund may not invest in securities
judged by FMR to be of equivalent quality to those rated lower than B
by Moody's or S&P.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose the fund to the credit
risk of the entity providing the credit or liquidity support. Changes
in the credit quality of the provider could affect the value of the
security and the fund's share price. In addition, in the case
of foreign providers of credit or liquidity support, extensive public
information about the provider may not be available, and unfavorable
political, economic, or governmental developments could affect its
ability to honor its commitment.
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 fully or partially backed by the local government, or by
the credit of a private issuer or the current or anticipated revenues
from specific projects or assets. Because many municipal securities
are issued to finance similar types of projects, especially those
relating to education, health care, housing, transportation, and
utilities, the municipal markets can be affected by conditions in
those sectors. In addition, all municipal securities may be affected
by uncertainties regarding their tax status, legislative changes, or
rights of municipal securities holders. A municipal security may be
owned directly or through a participation interest.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state of Minnesota 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands,
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.
ASSET-BACKED SECURITIES include interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. The value of these securities depends on many
factors, including changes in interest rates, the availability of
information concerning the pool and its structure, the credit quality
of the underlying assets, the market's perception of the servicer of
the pool, and any credit enhancement provided. In addition, these
securities may 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.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, the fund may
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 corpora tions. 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, 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 AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities, and some
other securities, may be subject to legal restrictions. Difficulty
in selling securities may result in a loss or may be costly to the
fund.
RESTRICTIONS: The fund may not purchase a security if, as a result,
more than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The
market value of the security could change during this period.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry
or type of project. Economic, business, or political changes can
affect all securities of a similar type. A fund that is not
diversified may be more sensitive to changes in the market value of a
single issuer or industry.
RESTRICTIONS: The fund is considered non-diversified.
Generally, to meet federal tax requirements at the close of each
quarter, the fund does not invest more than 25% of its total assets in
any one issuer and, with respect to 50% of total assets, does not
invest more than 5% of its total assets in any issuer. These
limitations do not apply to U.S. Government securities or to
securities of other investment companies. The fund may invest more
than 25% of its total assets in tax-free securities that finance
similar types of projects.
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 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
The fund 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.
The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33 1/3 % 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 re paid 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 0.37%, and it
drops as total assets under management increase.
For December 31, 1997, the group fee rate was __%. The individual
fund fee rate is 0.25%.
Because of a reimbursement arrangement, the total management fee
rate for the fiscal year ended December 31, 1997 was __%.
OTHER EXPENSES
While the management fee is a significant component of the fund's
annual operating costs, the fund has other expenses as well.
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)
UMB is the transfer and service agent for the fund. UMB has entered
into sub-agreements with FSC under which FSC performs transfer agency,
dividend disbursing, shareholder servicing, and accounting functions
for the fund. These services include processing shareholder
transactions, valuing the fund's investments, and calculating the
fund's share price and dividends. Under the terms of the
sub-agreements, FSC receives all related fees paid to UMB by the
fund.
For the fiscal year ended December 31, 1997, the fund paid transfer
agency and pricing and bookkeeping fees equal to 0.__% of its average
net assets . This amount is before expense reductions, if
any .
The fund also pays other expenses, such as legal, audit, and
custodian fees; in some instances, proxy solicitation costs; and
the compensation of trustees who are not affiliated with Fidelity.
A broker-dealer may use a portion of the commissions paid by the
fund to reduce the fund's custodian or transfer agent fees.
The fund has adopted a DISTRIBUTION AND SERVICE PLAN. This plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the
sale of, or provide shareholder support services for, the fund's
shares. Currently, the Board of Trustees has not authorized such
payments.
The fund's portfolio turnover rate for the fiscal year ended
December 31, 1997 was __%. This rate varies from year to year.
(null)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:
S For mutual funds, 1-800-544-8888
S 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.
(null)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.
You may purchase or sell shares of the fund through an investment
professional,
including a broker, who may charge you a transaction fee for this
service.
If you invest through FBSI, another financial institution, or an
investment
professional, read their program materials for any special provisions,
additional
service features or fees that may apply to your investment in the
fund. Certain
features of the fund, such as the minimum initial or subsequent
investment
amounts, may be modified.
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.
(null)How to Buy Shares
The price to buy one share of the fund is the fund's net asset value
per share
(NAV). The fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment
is received and accepted. The fund's NAV is normally calculated each
business
day at 4:00 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 32.
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:
S Mail in an application with a check, or
S Open your account by exchanging from another Fidelity fund.
If you buy shares by check or Fidelity Money LineR, and then sell
those shares
by any method other than by exchange to another Fidelity fund, the
payment
may be delayed for up to seven business days to ensure that your
previous investment
has cleared.
Minimum Investments
To Open an Account $10,000
To Add to an Account $1,000
Through regular investment plans* $500
Minimum Balance $5,000
*For more information about regular investment plans, please refer to
"Investor
Services," page __.
These minimums may vary for investments through Fidelity Portfolio
Advisory
Services. Refer to the program materials for details.
(null)
To Open an Account
To Add to an Account
Phone
1-800-544-7777
S Exchange from another Fidelity fund account with the same
registration, including
name, address, and taxpayer ID number.
S Exchange from another Fidelity fund account with the same
registration, including
name, address, and taxpayer ID number.
S 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: up to $100,000.
Mail
S Complete and sign the application. Make your check payable to the
complete
name of the fund. Mail to the address indicated on the application.
S Make your check payable to the complete name of the fund. Indicate
your fund
account number on your check and mail to the address printed on your
account
statement.
S Exchange by mail: call 1-800-544-6666 for instructions.
In Person
S Bring your application and check to a Fidelity Investor Center. Call
1-800-544-9797
for the center nearest you.
S Bring your check to a Fidelity Investor Center. Call 1-800-544-9797
for the
center nearest you.
Wire
S Call 1-800-544-7777 to set up your account and to arrange a wire
transaction.
S Wire within 24 hours to:
Bankers Trust Company,
Bank Routing #021001033,
Account #00163053.
Specify the complete name of the fund and include your new account
number and
your name.
S Wire to:
Bankers Trust Company,
Bank Routing #021001033,
Account #00163053.
Specify the complete name of the fund and include your account number
and your
name.
Automatically
S Not available.
S Use Fidelity Automatic Account Builder. Sign up for this service
when opening
your account, or call 1-800-544-6666 to add it.
TDD - Service for the Deaf and Hearing-Impaired: 1-800-544-0118
(null)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.
The price to sell one share of the fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received
and accepted. The fund's NAV is normally calculated each business day
at 4:00
p.m. Eastern time.
If you are selling some but not all of your shares, leave at least
$5,000 worth of shares in the account to keep it open.
To sell shares by bank wire or Fidelity Money Line, you will need to
sign up for these services in advance.
Certain requests must include a signature guarantee. It is designed to
protect you and Fidelity from fraud. Your request must be
made in writing and include a signature guarantee if any of the
following situations
apply:
S You wish to redeem more than $100,000 worth of shares,
S Your account registration has changed within the last 30 days,
S The check is being mailed to a different address than the one on
your account
(record address),
S The check is being made payable to someone other than the account
owner, or
S 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:
S Your name,
S The fund's name,
S Your fund account number,
S The dollar amount or number of shares to be redeemed, and
S 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.
(null)
Account Type
Special Requirements
Phone
1-800-544-7777
All account types
S Maximum check request: $100,000.
S For Money Line transfers to your bank account; minimum: $10;
maximum: up to
$100,000.
S 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
Individual, Joint Tenant, Sole Proprietorship, UGMA, UTMA
Trust
Business or Organization
Executor, Administrator, Conservator, Guardian
S The letter of instruction must be signed by all persons required to
sign for
transactions, exactly as their names appear on the account.
S The trustee must sign the letter indicating capacity as trustee. If
the trustee's
name is not in the account registration, provide a copy of the trust
document
certified within the last 60 days.
S At least one person authorized by corporate resolution to act on the
account
must sign the letter.
S Include a corporate resolution with corporate seal or a signature
guarantee.
S Call 1-800-544-6666 for instructions.
Wire
All account types
S 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.
S Your wire redemption request must be received and accepted by
Fidelity before
4:00 p.m. Eastern time for money to be wired on the next business day.
Check
All account types
S Minimum check: $1,000.
S All account owners must sign a signature card to receive a
checkbook.
TDD - Service for the Deaf and Hearing-Impaired: 1-800-544-0118
(null)Investor Services
Fidelity provides a variety of services to help you manage your
account.
Information Services
Fidelity's telephone representatives are available 24 hours a day, 365
days a year. Whenever you call, you can
speak with someone equipped to provide the information or service you
need.
24-Hour Service
Account Assistance
1-800-544-6666
Account Transactions
1-800-544-7777
Product Information
1-800-544-8888
Retirement Account Assistance
1-800-544-4774
TouchTone XpressSM
1-800-544-5555
Automated service
3
Statements and reports that Fidelity sends to you include the
following:
S Confirmation statements (after every transaction, except
reinvestments, that
affects your account balance or your account registration)
S Account statements (quarterly)
S Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses
will be mailed to your household, even if you have more than one
account in
the fund. Call 1-800-544-6666 if you need copies of financial reports,
prospectuses,
or historical account information.
Transaction Services
Exchange privilege. You may sell your fund shares and buy shares of
other Fidelity funds by telephone
or in writing.
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 41.
Systematic withdrawal plans let you set up periodic redemptions from
your account.
Fidelity Money Liner 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
Minimum
$100
Frequency
Monthly or quarterly
Setting up or changing
S For a new account, complete the appropriate section on the fund
application.
S For existing accounts, call 1-800-544-6666 for an application.
S 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.
Direct Deposit
To send all or a portion of your paycheck or government check to a
Fidelity
fundA
Minimum
$100
Frequency
Every pay period
Setting up or changing
S Check the appropriate box on the fund application, or call
1-800-544-6666 for
an authorization form.
S Changes require a new authorization form.
Fidelity Automatic Exchange Service
To move money from a Fidelity money market fund to another Fidelity
fund
Minimum
$100
Frequency
Monthly, bimonthly, quarterly, or annually
Setting up or changing
S To establish, call 1-800-544-6666 after both accounts are opened.
S To change the amount or frequency of your investment, call
1-800-544-6666.
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. In come
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 distributed as dividends and taxed
as ordinary income. 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 a statement showing the
tax status of distributions and will report to the IRS the amount of
any taxable 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 __% of its assets
in these securities. Individuals who are subject to the tax must
report this interest on their tax returns.
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 the fiscal year ended December 31, 1997, __% of the fund's
income dividends was free from federal income tax, and __% was
free from Minnesota personal income taxes .
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 when the fund has realized but
not yet distributed income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back
in the form of a taxable distribution.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates the fund's NAV as of
the close of business of the NYSE, normally 4:00 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 information
furnished by a pricing service or market quotations, if available, or
by another method that the Board of Trustees believes accurately
reflects fair value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. 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 shares will be
purchased at the next NAV calculated after your investment 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 canceled 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.
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 order 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 $24.00 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. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, you will be given 30
days ' notice to reestablish the minimum balance. If you do not
increase your balance, Fidelity reserves the right to close your
account and send the proceeds to you. Your shares will be redeemed at
the NAV on the day your account is closed.
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
available 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 fees of up to 1.00% on purchases, administrative fees of
up to $7.50, and trading fees of up to 1.50% on exchanges. Check each
fund's prospectus for details.
From Filler pages
SPARTAN MINNESOTA MUNICIPAL INCOME FUND
FIDELITY MUNICIPAL TRUST
CROSS REFERENCE SHEET
Form N-1A Item Number
Part B Statement of Additional Information Caption
10a,b Cover Page
11 Cover Page
12 Description of the Trust
13a,b,c Investment Policies and Limitations
d Portfolio Transactions
14a,b,c Trustees and Officers
15a,b **
c Trustees and Officers
16a(i) FMR
a(ii) Trustees and Officers
a(iii),b,c Management Contract
d Contracts with FMR Affiliates
e *
f Distribution and Service Plan
g *
h Description of the Trust
i Contracts with FMR Affiliates
17a,b,c Portfolio Transactions
d,e *
18a Description of the Trust
b *
19a Additional Purchase and Redemption Information
b Valuation of Portfolio Securities
c *
20 Distributions and Taxes
21a,b Contracts with FMR Affiliates
c *
22a,b Performance
23 **
* Not applicable
** To be filed by subsequent amendment
SPARTAN(registered trademark) MINNESOTA MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the fund's current Prospectus
(dated February 26, 1998). Please retain this document for future
reference. The fund's Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus
or an Annual Report, please call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Minnesota
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
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, Inc. (FSC)
MNF-ptb-0298
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
(1940 Act)) of the fund. However, except for the fundamental
investment limitations listed below, the investment policies and
limitations described in this SAI are not fundamental and may be
changed without shareholder approval. THE FOLLOWING ARE THE FUND'S
FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE
FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in securities of
companies whose principal business activities are in the same
industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities);
(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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). T he 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.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
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 .
For purposes of limitations (4) and (i), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
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
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. The fund may buy and sell securities
on a delayed-delivery or when-issued basis. These transactions involve
a commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking
place after the customary settlement period for that type of security.
Typically, no interest accrues to the purchaser until the security
is delivered. The fund may receive fees for entering into
delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund
assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. Because the fund is not required to pay for
securities until the delivery date, these risks are in addition to the
risks associated with the fund's other investments. If the fund
remains substantially fully invested at a time when
delayed-delivery purchases are outstanding, the delayed-delivery
purchases may result in a form of leverage. When delayed-delivery
purchases are outstanding, the fund will set aside appropriate liquid
assets in a segregated custodial account to cover its purchase
obligations. When the fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could suffer a loss.
The fund may renegotiate delayed-delivery transactions after they
are entered into, and may sell underlying securities before they
are delivered, which may result in capital gains or losses.
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 (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
Minnesota state legislature 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 SAI, 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 invest ments 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.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, the fund has received permission to lend
money to, and borrow money from, other funds advised by FMR or its
affiliates, but it currently intends to participate in this program
only as a borrower. Interfund borrowings normally extend overnight,
but can have a maximum duration of seven days. The 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 the
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 Minnesota 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.
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 LEASES and participation interests therein may take the form
of a lease, an installment purchase, or a conditional sale contract
and are issued by state and local governments and authorities to
acquire land or a wide variety of equipment and facilities.
Generally, the fund will not hold such obligations directly as a
lessor of the property, but will purchase a participation interest in
a municipal obligation from a bank or other third party. A
participation interest gives the fund a specified, undivided
interest in the obligation in proportion to its purchased interest in
the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated
with general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must
meet to incur debt. These may include voter referenda, interest rate
limits, or public sale requirements. Leases, installment purchases, or
conditional sale contracts (which normally provide for title to the
leased asset to pass to the governmental issuer) have evolved as a
means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for
the issuance of debt. Many leases and contracts include
"non-appropriation clauses" providing that the governmental issuer has
no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance
limitations.
MUNICIPAL SECTORS:
E LECTRIC 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 .
H EALTH 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 .
H OUSING. 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 .
E DUCATION. 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 .
W ATER 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 .
T RANSPORTATION. 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 .
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 obliga tions
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 condi tions 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.
SPECIAL CONSIDERATIONS 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 SAI. 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. The State of Minnesota relies heavily on a
progressive individual income tax and a retail sales tax for revenue,
which results in a fiscal system that is sensitive to economic
conditions. In 1995, the structure of the State's economy closely
paralleled the structure of the United State's economy as a whole.
State employment in ten major sectors was distributed in approximately
the same proportions as national employment. In all sectors, the share
of total employment was within 2 percentage points of the national
employment share.
During the period from 1980 to 1990, overall employment growth in
Minnesota lagged behind national growth; total employment increased
17.9% in Minnesota while increasing 20.1% nationally. Most of
Minnesota's relatively slower growth during this period is associated
with declining agricultural employment and with the two recessions in
the United States economy occurring in the early 1980s, which were
more severe in Minnesota than nationwide. Minnesota non-farm
employment growth generally kept pace with that of the nation after
the end of the 1981-82 recession. In the period 1990 to 1995, non-farm
employment grew 11.5 % compared to 6.6% nationwide. Employment data
indicate that the recession which began in July 1990 was less severe
in Minnesota than in the national economy and that Minnesota's
recovery has been more rapid than the nation's.
Since 1980, state per capita personal income has been within four
percentage points of national per capita personal income. Minnesota
per capita income generally remained above the national average during
this period in spite of the early 1980s recession and some difficult
years in agriculture. In 1995, Minnesota per capita income was 103.3%
of the national average.
Minnesota's monthly unemployment rate was generally less than the
national average during 1994 and 1995, averaging 3.6% in 1995, as
compared to the national average of 5.2%. This trend continued through
May of 1995. 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
the finance, insurance and real estate. Accompanying this was a
decline in jobs in construction and mining.
Minnesota resident population grew from 4,085,000 in 1980 to
4,367,000 in 1990 or, at an average annual compound rate of .7
percent. In comparison, U.S. population grew at an annual compound
rate of .9 percent during this period. Minnesota population is
currently forecast by the U. S. Department of Commerce to grow at an
annual compound rate of .8 percent through 2005.
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 1990-1995 periods. Minnesota's manufacturing
industries accounted for 17.4 percent of the state's employment mix in
1994. In the durable goods industries, the state's employment in 1995
was highly concentrated in the industrial machinery and instrument and
miscellaneous categories. Of particular importance is the industrial
machinery category in which 31.1% of the state's durable goods
employment was concentrated in 1995, as compared to 19.3% for the
United States as a whole. The emphasis is partly explained by the
location in the state of 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 1995, 29.0% of the state's non-durable goods employment
was concentrated in food and kindred industries, and 18.2% in paper
and allied industries. This compares to 21.7% 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 1994 Minnesota ranked seventh among all states in total cash
receipts derived from agricultural products. In order of receipts, the
six major agricultural products in 1995 were corn, dairy products,
soybeans, hogs and cattle and calves.
In 1995, Minnesota ranked seventh among all states in agricultural
exports. The state's major agricultural commodities exported in 1995,
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 $96,141 in 1995, however, expenses used up $84,951 of the income
leaving the average farm net income in 1995 at $11,190, compared to
the 1994 average farm net income of $18,183.
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 7.9 thousand
in 1995. 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 1995, 33 Minnesota based public companies and 10 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.
The Minnesota economy rebounded from last winter's mini-slump more
quickly than expected. The resulting increase in activity has added
revenue to the outlook for the 1996-97 biennium. Revenues for the
current biennium are forecast to total $19,099 billion, up $646
million (3.5 percent), from end of session estimates. Expenditures are
now expected to be $18,644 billion, down $209 million (1.1 percent).
These gains are partially offset by other changes totalling $63
million, leaving a forecast balance at the close of the biennium of
$793 million.
Not all of that balance will be available for new initiatives.
Current law dedicates the first $114 million of the forecast balance
to a new school aid reserve. An additional $157 million must be used
for a one time change in the payment schedule for school districts.
These statutory obligations reduce the available balance to $522
million. This balance cannot be used to fund ongoing expenditures
without creating potential budget problems for future years.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following 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, its agencies and instrumentalities, as
available on the date of this SAI. 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 to that of the United
States. In fiscal 1995, trade with the United States accounted
for approximately 89% of Puerto Rico's exports and approximately 65%
of its imports. In this regard, in fiscal 1995 Puerto Rico
experienced a $4.6 billion positive adjusted merchandise trade
balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1995, aggregate
personal income was $27.0 billion ($26.2 billion in 1992 prices) and
personal per capita income was $7,296 ($7,074 in 1992 prices). Gross
domestic product in fiscal 1992 was $23.7 billion and gross product in
fiscal 1996 was $30.2 billion; ($26.7 billion in 1992 prices). This
represents an increase in gross product of 27.5% from fiscal 1992 to
1996 (12.7% in 1992 prices). For fiscal 1997, an increase in gross
domestic product of 2.7% over fiscal 1996 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
value of the U.S. dollar, the price stability of oil imports, any
increase or decrease in the number of visitors to the island, the
level of exports, the level of federal transfers, and the cost of
borrowing.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1992 through fiscal 1996. Almost every sector of
the economy participated, and record levels of employment were
achieved. Factors behind the continued expansion included
government-sponsored economic development programs, periodic declines
in the exchange value of the U.S. dol lar , the level of federal
transfers, 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 16.8% from fiscal 1992 to fiscal
1993. However, by the end of fiscal 1994, the unemployment rate
dropped to 15.9% and as of the end of fiscal 1996, stands at 13.8%.
Despite this downturn, there is a possibility that the unemployment
rate will increase.
Manufacturing is the largest sector in the economy accounting for
$17.7 billion or 41.8% of gross domestic product in fiscal 1995.
Manufacturing has experienced a basic change over the years as a
result of the influx of higher wage, high technology industries such
as the pharmaceutical industry, electronics, computers,
microprocessors, scientific instruments and high technology machinery.
The service sector, which includes finance, insurance, real estate,
wholesale and retail trade, hotels and related services and other
services, ranks second in its contribution to gross domestic product
and is the sector that employs the greatest number of people. In
fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector
grew from 449,000 in fiscal 1992 to 527,000 in fiscal 1996, a
cumulative increase of 17.6%, which increase was greater than the
11.8% cumulative growths in employment over the same period, providing
46.7% of total employment. The government sector of the Commonwealth
plays an important role in the economy of the island. In fiscal year
1995, the government accounted for $4.5 billion or 10.6% 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 $1.8 billion of gross domestic product in
fiscal 1995.
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic
development and growth. This new program, which is referred to as the
New Economic Model, promotes changing the role of the government from
one of being a provider of most basic services to that of a
facilitator for private sector initiatives and encourages private
sector investment by reducing government-imposed regulatory
restraints.
The New Economic Model contemplates the development of initiatives
that will foster private investment in, and private management of,
sectors that are served more efficiently and effectively by the
private enterprise. One of these initiatives has been the adoption of
a new tax code intended to expand the tax base, reduce top personal
and corporate tax rates, and simplify the tax system.
The New Economic Model also seeks to identify and promote areas in
which Puerto Rico can compete more effectively in the global markets.
Tourism has been identified as one such area because of its potential
for job creation and contribution to the gross product. In 1993, a
new Tourism Incentives Act and a Tourism Development Fund were
implemented in order to provide special tax incentives and financing
for the development of new hotel projects and the tourism industry.
As a result of these initiatives, new hotels have been constructed or
are under construction which have increased the number of hotel rooms
on the island from 8,415 in fiscal 1992 to 10,345 in fiscal 1996 and
to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the
government's direct contribution to gross domestic product. As
part of this goal, the government has transferred certain
governmental operations and sold a number of its assets to private
parties. Among these are: (i) the sale of the assets of the
Puerto Rico Maritime Authority; (ii) the execution of a five-year
management agreement for the operation and management of the Aqueducts
and Sewer Authority by a private company; (iii) the execution by the
Aqueducts and Sewer Authority of a construction and operating
agreement with a private consortium for the design, construction, and
operation of an approximately 75 million gallon per day water pipeline
to the San Juan metropolitan area from the Dos Bocas reservoir in
Utuado; and (iv) the execution by the Electric Power Authority of
power purchase contracts with private power producers under which two
cogeneration plants (with a total capacity of 800 megawatts) will be
constructed.
As part of the government's program to facilitate the provision of
private health services, in 1994 a new health insurance program was
started in the Fajardo region to provide qualifying Puerto Rico
residents with comprehensive health insurance coverage. In
conjunction with this program certain public health facilities are
being privatized. The administration's goal is to provide universal
health insurance for such qualifying residents. The total cost of
this program will depend on the number of municipalities included and
the total number of participants. As of June 30, 1996, over 760,000
persons were participating in the program at an annual cost to the
Commonwealth of approximately $296 million.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, most notably section 936 of the Internal Revenue
Code of 1986, as amended ("Section 936") and the Commonwealth's
Industrial Incentives Program. 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 during a 10, 15, 20, or 25 year period
depending on location.
For many years, U.S. companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the
Code. Originally, the credit provided an effective 100% federal tax
exemption for operating and qualifying investment income from
Puerto Rico sources. Amendments to Section 936 made in 1993 (the
"1993 Amendments") instituted two alternative methods for
calculating the tax credit and limited the amount of the credit that a
qualifying company could claim. These limita tions are based on a
percentage of qualifying income (the "percentage of income
limitation") and on qualifying expenditures on wages and other wage
related benefits (the "economic activity limitation" or "wage credit
limitation"). As a result of amendments incorporated in the Small
Business Job Protection Act of 1996 enacted by the U.S. Congress and
signed into law by President Clinton on August 20, 1996 (the "1996
Amendments"), the tax credit is now being phased out over a ten-year
period for existing claimants and is no longer available for
corporations that establish operations in Puerto Rico after October
13, 1995 (including existing Section 936 Corporations (as defined
below) to the extent substantially new operations are established in
Puerto Rico). The 1996 Amendments also moved the credit based on the
economic activity limitation to Section 30A of the Code and phased it
out over 10 years. In addition, the 1996 Amendments eliminated the
credit previously available for income derived from certain qualified
investments in Puerto Rico. The Section 30A Credit and the remaining
Section 936 credit are discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" ("QDC")
that meets certain gross income tests (which are similar to the 80%
and 75% gross income tests of Section 936 of the Code discussed below)
to claim a credit (the "Section 30A Credit") against the federal
income tax imposed on taxable income derived from sources outside
the United States from the active conduct of a trade or business in
Puerto Rico or from the sale of substantially all the assets used
in such business ("possession income").
A QDC is a U.S. corporation which (i) was actively conducting a
trade or business in Puerto Rico on October 13, 1995, (ii) had a
Section 936 election in effect for its taxable year that included
October 13, 1995, (iii) does not have in effect an election to use the
percentage limitation of Section 936(a)(4)(B) of the Code, and (iv)
does not add a "substantial new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to
85% of the maximum earnings subject to the OASDI portion of Social
Security taxes plus an allowance for fringe benefits of 15% of
qualified possession wages, (ii) a specified percentage of
depreciation deductions ranging between 15% and 65%, based on the
class life of tangible property, and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a 9% effective tax rate (but only
if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the Code may compute the amount of
its active business income, eligible for the Section 30A Credit,
by using either the cost sharing formula, the profit-split formula, or
the cost-plus formula, under the same rules and guidelines prescribed
for such formulas as provided under Section 936 (see discussion
below). To be eligible for the first two formulas, the QDC must have
a significant presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the
amount of possession income that would qualify for the Section 30A
Credit would be subject to a cap based on the QDC's possession income
for an average adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within
Puerto Rico ("active business income") and from the sale or exchange
of substantially all assets used in the active conduct of such trade
or business. To qualify under Section 936 in any given taxable year,
a corporation must derive for the three-year period immediately
preceding the end of such taxable year, (i) 80% or more of its gross
income from sources within Puerto Rico, and (ii) 75% or more of its
gross income from the active conduct of a trade or business in Puerto
Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one
of three formulas: (A) a cost-sharing formula, whereby it is allowed
to claim all profits attributable to manufacturing intangibles, and
other functions carried out in Puerto Rico, provided it contributes to
the research and development expenses of its affiliated group or pays
certain royalties; (B) a profit-split formula, whereby it is allowed
to claim 50% of the net income of its affiliated group from the sale
of products manufactured in Puerto Rico; or (C) a cost-plus formula,
whereby it is allowed to claim a reasonable profit on the
manufacturing costs incurred in Puerto Rico. To be eligible for the
first two formulas, the Section 936 Corporation must have a
significant business presence in Puerto Rico for purposes of the
Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the
Section 936 credit is only available to companies that elect the
percentage of income limitation and is limited in amount to 40% of the
credit allowable prior to the 1993 Amendments, subject to a five-year
phase-in period from 1994 to 1998 during which period the percentage
of the allowable credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the
possession income subject to the Section 936 credit will be
subject to a cap based on the Section 936 Corporation's possession
income for an average adjusted base period ending on October 14,
1995. The Section 936 credit is eliminated for taxable years
beginning in 2006.
OUTLOOK. It is not possible at this time to determine the
long-term effect on the Puerto Rico economy of the enactment of the
1996 Amendments to Section 936. The Government of Puerto Rico does
not believe there will be short-term or medium-term material
adverse effects on Puerto Rico's economy as a result of the enactment
of the 1996 Amendments. The Government of Puerto Rico further
believes that during the phase-out period sufficient time exists to
implement additional incentive programs to safeguard Puerto Rico's
competitive position. Additionally, the Governor intends to propose a
new federal incentive program similar to what is now provided under
Section 30A. Such program would provide U.S. companies a tax credit
based on qualifying wages paid, other wage related expenses such as
fringe benefits, depreciation expenses for certain tangible assets,
and research and development expenses, and would restore the credit
granted to passive income under Section 936 prior to its repeal by the
1996 Amendments. Under the Governor's proposal, the credit granted to
qualifying companies would continue in effect until Puerto Rico shows,
among other things, substantial economic improvements in terms of
certain economic parameters.
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 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 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
National Financial Services Corporation (NFSC), an indirect 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 NFSC to execute portfolio
transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended December 31, 1997 and 1996, the fund's
portfolio turnover rates were ___% and 17%, respectively. Because a
high turnover rate increases transaction costs and may increase
taxable gains, FMR carefully weighs the anticipated benefits of
short-term investing against these consequences. 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 the fiscal years ended December 31, 1997, 1996, and 1995, the
fund paid no brokerage commission. During the fiscal year ended
December 31, 1997, 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 commissions.
During the fiscal year ended December 31, 1997, the fund paid $__
in commissions to brokerage firms that provided research 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. During the fiscal year ended December 31,
1997, the fund paid no fees to b rokerage firms that provided
research services.
From time to time the Trustees will review whether the recapture
for the benefit of the fund of some portion of the brokerage
commissions or similar fees paid by the fund on portfolio transactions
is legally permissible and advisable. The fund seeks to recapture
soliciting broker-dealer fees on the tender of portfolio securities,
but at present no other recapture arrangements are in effect. The
Trustees intend to continue to review whether recapture opportunities
are available and are legally permissible and, if so, to determine in
the exercise of their business judgment whether it would be advisable
for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the
same as those of other funds managed by FMR, investment decisions
for the fund are made independently from those of other funds managed
by FMR or accounts managed by FMR affiliates. It sometimes happens
that the same security is held in the portfolio of more than one of
these funds or accounts. Simultaneous transactions are inevitable when
several funds and accounts are managed by the same investment adviser,
particularly when the same security is suitable for the investment
objective of more than one fund or account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as the fund is
concerned. In other cases, however, the ability of the fund to
participate in volume transactions will produce better executions and
prices for the fund. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to the fund
outweighs any disadvantages that may be said to exist from
exposure to simultaneous transactions.
VALUATION
Fidelity Service Company, Inc. (FSC) normally determines the fund's
net asset value per share (NAV) as of the close of the New York Stock
Exchange (NYSE) (normally 4:00 p.m. Eastern time). The valuation of
portfolio securities is determined as of this time for the purpose of
computing the fund's NAV.
Portfolio securities are valued by various methods. If quotations
are not available, fixed-income securities are usually valued on the
basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied
valuations and electronic data processing techniques. Use of pricing
services has been approved by the Board of Trustees. A number of
pricing services are available, and the fund may use various pricing
services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily available
market value are valued in good faith by a committee appointed by the
Board of Trustees. The procedures set forth above need not be used to
determine the value of the securities owned by the fund if, in
the opinion of a committee appointed by the Board of Trustees, some
other method would more accurately reflect the fair market value of
such securities.
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 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. 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 the fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, the fund's
yield may not equal its distribution rate, the income paid to your
account, or the income reported in the fund's financial
statements.
Yield information may be useful in reviewing the fund's performance
and in providing a basis for comparison with other investment
alternatives. However, the fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
the fund's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates the fund's yield
will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to the fund from the continuous
sale of its shares will likely be invested in instruments
producing lower yields than the balance of the fund's holdings,
thereby reducing the fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur.
The fund's tax-equivalent yield is the rate an investor would have to
earn from a fully taxable investment before taxes to equal the fund's
tax-free yield. Tax-equivalent yields are calculated by dividing the
fund's yield by the result of one minus a stated combined federal and
state income tax rate. If only a portion of the 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 1998.
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 the fund
will achieve any specific tax-exempt yield. While the fund invests
principally in obligations whose interest is exempt from federal and
state income tax, other income received by the fund 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 1998.
1998 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal Minnesota Combined
Marginal Rate State Federal and State
Marginal Rate Effective Rate**
Single Return Joint Return
</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 combined federal and state effective tax rate in 1998 is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
The fund may invest a portion of its assets in obligations that are
subject to state or federal income taxes. When the fund invests in
these obligations, its tax-equivalent yield will be lower. In the
table 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 the fund's return, including the effect of
reinvesting dividends and capital gain distributions, and any change
in the fund's NAV over a stated period. Average annual total returns
are calculated by determining the growth or decline in value of a
hypothetical historical investment in the fund over a stated period,
and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative
total return of 100% over ten years would produce an average annual
total return of 7.18%, which is the steady annual rate of return that
would equal 100% growth on a compounded basis in ten years. While
average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that the fund's
performance is not constant over time, but changes from year to year,
and that average annual total returns represent averaged figures as
opposed to the actual year-to-year performance of the fund.
In addition to average annual total returns, the fund may quote
unaveraged or cumulative total returns reflecting the simple
change in value of an investment over a stated period. Average annual
and cumulative total returns may be quoted as a percentage or as a
dollar amount, and may be calculated for a single investment, a series
of investments, or a series of redemptions, over any time period.
Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their
contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis . 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. The following tables show the fund's
yields, tax-equivalent yields, and total returns for periods ended
December 31, 1997.
The tax-equivalent yield is based on a combined effective federal
and state income tax rate of __% and reflects that, as of December 31,
1997, none of the fund's income was subject to state taxes. 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>
Thirty- Tax- One Five Ten One Five Ten
Day Equivalent Year Years Years Year Years Years
Yield Yield
Spartan MN % % % % % % % %
Municipal Income
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's yield and total returns would have been lower.
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 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (CPI), over the same period. The CPI
information is as of the month-end closest to the initial investment
date for the 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
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because
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. The S&P 500 and DJIA returns
are based on the prices of unmanaged groups of stocks and, unlike the
fund's returns, do not include the effect of brokerage commissions or
other costs of investing.
During the 10-year period ended December 31, 1997, a hypothetical
$10,000 investment in Spartan 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. Tax consequences of different
investments have not been factored into the figures below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN MINNESOTA MUNICIPAL INCOME FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended Value of Value of Value of Total S&P 500 DJIA Cost of
Initial Reinvested Reinvested Value Livin g
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in the
fund on January 1, 1988, 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 gain
distributions.
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. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
prepared without regard to tax consequences. Lipper may also rank
funds based on yield. In addition to the mutual fund rankings, the
fund's performance may be compared to stock, bond, and money market
mutual fund performance indices prepared by Lipper or other
organizations. When comparing these indices, it is important to
remember the risk and return characteristics of each type of
investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability
of principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, the fund's performance may also be compared to
other mutual funds tracked by financial or business publications
and periodicals. For example, the fund may quote Morningstar, Inc. in
its advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising.
The fund's performance may also be compared to that of a benchmark
index representing the universe of securities in which the fund may
invest. The total return of a benchmark index reflects reinvestment of
all dividends and capital gains paid by securities included in the
index. Unlike the fund's returns, however, the index returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
The fund may compare to the Lehman Brothers Municipal Bond Index, a
total return performance benchmark for investment-grade municipal
bonds with maturities of at least one year. Issues included in the
index have been issued after December 31, 1990 and have an
outstanding par value of at least $50 million. Subsequent to December
31, 1995, zero coupon bonds and issues subject to the alternative
minimum tax are included in the index.
Minnesota Municipal Income may compare its performance to that of
the Lehman Brothers Minnesota Enhanced Municipal Bond Index, a total
return performance benchmark for Minnesota investment-grade municipal
bonds with maturities of at least one year. Issues included in the
index have been issued as part of an offering of at least $20 million,
have an outstanding par value of at least $2 million, and have been
issued after December 31, 1990.
The fund may be compared in advertising to Certificates of Deposit
(CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, the fund may offer greater liquidity or higher
potential returns than CDs, the fund does not guarantee your principal
or your return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based
on 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.
The fund may compare and contrast in advertising the relative
advantages of investing in a mutual fund versus an individual
municipal bond. Unlike tax-free mutual funds, individual municipal
bonds offer a stated rate of interest and, if held to maturity,
repayment of principal. Although some individual municipal bonds might
offer a higher return, they do not offer the reduced risk of a mutual
fund that invests in many different securities. The initial investment
requirements and sales charges of many tax-free mutual funds are lower
than the purchase cost of individual municipal bonds, which are
generally issued in $5,000 denominations and are subject to direct
brokerage costs.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals;
charitable giving; and the Fidelity credit card. In addition, Fidelity
may quote or reprint financial or business publications and
periodicals as they relate to current economic and political
conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a
particular mutual fund, and Fidelity services and products. Fidelity
may also reprint, and use as advertising and sales literature,
articles from Fidelity Focus(Registered trademark), a quarterly
magazine provided free of charge to Fidelity fund shareholders.
The fund may present its fund number, Quotron(trademark) number,
and CUSIP number, and discuss or quote its current portfolio
manager.
VOLATILITY. The fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare the fund's historical share price fluctuations or
total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative bench mark 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, 1997, 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) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, the fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. The fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its net asset value per share
(NAV) is calculated each day the New York Stock Exchange (NYSE) is
open for trading. The NYSE has designated the following holiday
closings for 1998: New Year's Day, Martin Luther King's Birthday,
President's Day, Good Friday, Memorial Day, 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, NAV may be calculated
earlier if trading on the NYSE is restricted or as permitted by the
Securities and Exchange Commission (SEC). To the extent that
portfolio securities are traded in other markets on days when the NYSE
is closed, the fund's NAV may be affected on days when investors
do not have access to the fund to purchase or redeem shares. In
addition, trading in some of the fund's portfolio securities may not
occur on days when the fund is open for business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing the fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940
(the 1940 Act), the fund is required to give shareholders at least
60 days' notice prior to terminating or modifying its exchange
privilege. Under the Rule, the 60-day notification requirement may be
waived if (i) the only effect of a modification would be to reduce or
eliminate an administrative fee, redemption fee, or deferred sales
charge ordinarily payable at the time of an exchange, or (ii) the fund
suspends the redemption of the shares to be exchanged as permitted
under the 1940 Act or the rules and regulations thereunder, or the
fund to be acquired suspends the sale of its shares because it is
unable to invest amounts effectively in accordance with its investment
objective and policies.
In the Prospectus, the fund has notified shareholders that it
reserves the right at any time, without prior notice, to refuse
exchange purchases by any person or group if, in FMR's judgment,
the fund would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be
adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and
the U.S. Postal Service cannot deliver your checks, or if your checks
remain uncashed for six months, Fidelity may reinvest your
distributions at the then-current NAV. All subsequent distributions
will then be reinvested until you provide Fidelity with alternate
instructions.
DIVIDENDS. To the extent that the fund's income is designated as
federally tax-exempt interest, the daily dividends declared by the
fund are also federally tax-exempt. 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 whose interest FMR believes
is free from federal income tax. Generally, issuers or other
parties have entered into covenants requiring continuing compliance
with federal tax requirements to preserve the tax-free status of
interest payments over the life of the security. If at any time the
covenants are not complied with, or if the IRS otherwise determines
that the issuer did not comply with relevant tax requirements,
interest payments from a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structured securities, the tax status of the pass-through of tax-free
income may also be based on the federal and state tax treatment of the
structure.
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 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 the 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 the fund's policy
of investing so that at least 80% of its i ncome 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.
MINNESOTA TAXES. FMR understands that shareholders of Minnesota
Municipal Income 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 Minnesota Municipal
Income 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 Minnesota Municipal
Income 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. Generally, Minnesota
Municipal Income will not be subject to Minnesota corporate franchise
tax except to the extent that it has federal taxable income.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the
fund on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains, regardless of the length
of time shareholders have held their shares. If a share holder
receives a 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 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, 1997, the fund hereby designates approximately
$_______ as a capital gain dividend for the purpose of the
dividend-paid deduction.
As of December 31, 1997, the fund had a capital loss 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 FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will
not be liable for federal tax on income and capital gains distributed
to shareholders. In order to qualify as a regulated invest ment
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 .
The fund 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 the fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal income taxes, shareholders may be
subject to state and local taxes on fund distributions, and shares may
be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether the fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the 1940 Act, control of a company is presumed where one individual or
group of individuals owns more than 25% of the voting stock of that
company. Therefore, through their ownership of voting common stock and
the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, 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
accounts 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, Members of the Advisory Board, 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 and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, 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 (67) , 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 (56), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of
Fidelity Management & Research Company.
RALPH F. COX (65) , Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66) , 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), 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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70) , Trustee. 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), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products),
and he previously served as a Director of NACCO Industries, Inc.
(mining and manufacturing, 1985-1995), Hyster-Yale Materials Handling,
Inc. (1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee
of First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65) , 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, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, 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).
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.
WILLIAM O. McCOY (64) , Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN (64) , 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), Imation Corp. (imaging and information storage, 1997), 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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, group
leader of the Bond Group, and Senior Vice President of FMR (1997).
Mr. Churchill joined Fidelity in 1993 as Vice President and Group
Leader of Taxable Fixed-Income Investments. Prior to joining
Fidelity, he spent three years as president and CEO of CSI Asset
Management, Inc. in Chicago, an investment management subsidiary of
The Prudential.
FRED L. HENNING, JR. (58) is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
JONATHAN D. SHORT (34), is Vice President of Spartan Minnesota
Municipal Income Fund (1997), and other funds advised by FMR. Since
joining Fidelity as a municipal bond analyst in 1990, Mr. Short has
assisted on Fidelity Municipal Income Fund and managed a variety of
Fidelity funds.
ERIC ROITER [(__)].
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant
Vice President of Fidelity's municipal bond funds (1996) and of
Fidelity's money market funds and Vice President and Associate General
Counsel of FMR Texas Inc.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (51), 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) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
THOMAS J. SIMPSON (39), Assistant Treasurer, is Assistant
Treasurer of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds (1996) and an employee of FMR (1996). Prior to
joining FMR, Mr. Simpson was Vice President and Fund Controller of
Liberty Investment Services (1987-1995).
The following table sets forth information describing the
compensation of each Trustee and Member of the Advisory Board of the
fund for his or her services for the fiscal year ended December 31,
1997.
COMPENSATION TABLE
Trustees Aggregate Total
and Compensation Compensation from the
Members of the Advisory Board from Fund Complex*,A
Spartan MN Municipal
Income B, C
J. Gary Burkhead ** $ $ 0
Ralph F. Cox $ 137,700
Phyllis Burke Davis $ 134,700
Richard J. Flynn*** $ 168,000
Robert M. Gates **** $ 0
Edward C. Johnson 3d ** $ 0
E. Bradley Jones $ 134,700
Donald J. Kirk $ 136,200
Peter S. Lynch ** $ 0
William O. McCoy***** $ 85,333
Gerald C. McDonough $ 136,200
Edward H. Malone*** $ 136,200
Marvin L. Mann $ 134,700
Robert C. Pozen** $ 0
Thomas R. Williams $ 136,200
* Information is for the calendar year ended December 31, 1996 for
235 funds in the complex.
** Interested Trustees of the fund and Mr. Burkhead are
compensated by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of
Trustees through December 31, 1996.
**** Mr. Gates was appointed to the Board of Trustees effective March
1, 1997.
***** During the period from May 1, 1996 through December 31, 1996,
William O. McCoy served as a Member of the Advisory Board of
the trust. Mr. McCoy was appointed to the Board of Trustees
effective January 1, 1997.
A Compensation figures include cash, a pro rata portion of
benefits accrued under the retirement program for the period ended
December 30, 1996 and required to be deferred, and may include amounts
deferred at the election of Trustees.
B Compensation figures include cash, and may include amounts
required to be deferred, a pro rata portion of benefits accrued under
the retirement program for the period ended December 30, 1996 and
required to be deferred, and amounts deferred at the election of
Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
D For the fiscal year ended December 31, 1997, certain of the
non-interested Trustees' aggregate compensation from the fund includes
accrued voluntary deferred compensation as follows: [trustee name,
dollar amount of deferred compensation, fund name]; [trustee name,
dollar amount of deferred compensation, fund name]; and [trustee name,
dollar amount of deferred compensation, fund name].
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and related
crediting of estimated benefits to the Trustees' Plan accounts did not
result in a material cost to the funds.
As of [DATE], approximately __% of the fund's total outstanding
shares was held by [an] FMR affiliate[s]. FMR Corp. is the ultimate
parent company of [this/these] FMR affiliate[s]. By virtue of his
ownership interest in FMR Corp., as described in the "FMR" section on
page ___, Mr. Edward C. Johnson 3d, President and Trustee of the fund,
may be deemed to be a beneficial owner of these shares. As of the
above date, with the exception of Mr. Johnson 3d's deemed ownership of
the fund's shares, the Trustees, Members of the Advisory Board, and
officers of the fund owned, in the aggregate, less than __% of the
fund's total outstanding shares.
As of [DATE], the Trustees, Members of the Advisory Board, and
officers of the fund owned, in the aggregate, less than __% of the
fund's total outstanding shares.
As of [DATE], the following owned of record or beneficially 5% or
more of the fund's outstanding shares:
A shareholder owning of record or beneficially more than 25% of the
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders
of the fund.
MANAGEMENT CONTRACT
FMR is the fund's manager pursuant to a management contract dated
December 15, 1993, which was approved by shareholders on December 15,
1993.
MANAGEMENT SERVICES. The fund employs FMR to furnish investment
advisory and other services. Under the terms of 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 administra tive
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 securities laws
and making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee
payable to FMR and the fees payable to the transfer, dividend
disbursing, and shareholder servicing agent, and pricing and
bookkeeping agent, the fund pays all of its expenses 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. The fund's management contract further
provides that the fund will pay for typesetting, printing, and mailing
prospectuses, statements of additional information, notices, and
reports to shareholders; however, under the terms of the fund's
transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. Other expenses paid
by the fund, include interest, taxes, brokerage commissions, the
fund's proportionate share of insurance premiums and Investment
Company Institute dues, and the costs of registering shares under
federal securities laws and making necessary filings under state
securities laws. 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.
MANAGEMENT FEE. For the services of FMR under the management
contract, the fund pays FMR a monthly management fee which has two
components: 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.
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 the 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 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 for average group
assets in excess of $156 billion and under $372 billion as shown in
the schedule below. The revised group fee rate schedule is
identical to the above schedule for average group assets under $156
billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion,
pending shareholder approval of a new management contract reflecting
the revised schedule and additional breakpoints. The revised group fee
rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. For average group
assets in excess of $156 billion, the revised group fee rate schedule
with additional breakpoints 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
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to
the graduated fee rate schedule shown above on the left. The schedule
above 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 1997 - was ___%, which is the weighted average of the
respective fee rates for each level of group net assets up to $__
billion.
The fund's individual fund fee rate is 0.25%. Based on the average
group net assets of the funds advised by FMR for December 1997, the
fund's annual management fee rate would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management Fee Rate
Spartan Minnesota 0.___% + 0.25% = 0.___%
Municipal Income
</TABLE>
One-twelfth of this annual 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.
For the fiscal years ended December 31 , 1997, 1996, and
1995, the fund paid FMR management fees of $_________, $1,912,189, and
$1,215,788, respectively.
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.
Effective April 1, 1997, FMR voluntarily agreed, subject to
revision or termination, to reimburse the fund if and to the extent
that its aggregate operating expenses, including management fees, were
in excess of an annual rate of 0.55% of its average net assets. For
the fiscal years ended December 31, 1997, 1996, and 1995, management
fees incurred under the fund's contract prior to reimbursement
amounted to $_________, $1,912,189, and $1,215,788, respectively, and
management fees reimbursed by FMR amounted to $_________, $0, and $0,
respectively.
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 1940
Act (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 the 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
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, the Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has not authorized such
payments.
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit 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 fund shares, 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 or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the fund might occur, including possible termination of
any automatic investment or redemption or other services then
provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other 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
The fund has entered into a transfer agent agreement with UMB.
Under the terms of the agreement, UMB provides transfer agency,
dividend disbursing, and shareholder services for the fund. UMB in
turn has entered into a sub-transfer agent agreement with FSC ,
an affiliate of FMR. Under the terms of the sub-agreement, FSC
performs all processing activities associated with providing these
services for the fund and receives all related transfer agency fees
paid to UMB.
For providing transfer agency services, FSC receives an annual
account fee and an asset-based fee each based on account size and fund
type for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the Freedom Fund's assets that is
invested in the fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
The fund has also entered into a service agent agreement with UMB.
Under the terms of the agreement, UMB provides pricing and bookkeeping
services for the fund. UMB in turn has entered into a sub-service
agent agreement with FSC. Under the terms of the sub-agreement, FSC
performs all processing activities associated with providing these
services, including calculating the NAV and dividends for the fund and
maintaining the fund's portfolio and general accounting records, and
receives all related pricing and bookkeeping fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a
monthly fee based on the fund's average daily net assets throughout
the month. The annual fee rates for pricing and bookkeeping services
are .0400% for fixed-income funds of the first $500 million of average
net assets and .0200% for fixed-income funds of average net assets in
excess of $500 million. The fee, not including reimbursement for
out-of-pocket expenses, is limited to a minimum of $60,000 and a
maximum of $800,000 per year.
For the fiscal years ended December 31 , 1997, 1996, and
1995, the fund paid FSC pricing and bookkeeping fees, including
reimbursement for related out-of-pocket expenses, of $____, $131,336,
and $129,874, respectively.
The fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and 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
NAV. Promotional and administrative expenses in connection with
the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Spartan Minnesota Municipal Income Fund
is a fund (series) of Fidelity Municipal Trust, 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 Advisor Municipal Bond Fund, Spartan Aggressive
Municipal Fund, Spartan Insured Municipal Income Fund, Spartan
Michigan Municipal Income Fund, Spartan Minnesota Income Fund, Spartan
Ohio 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
names "Fidelity" and "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of
each fund and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund are segregated on the books of account,
and are to be charged with the liabilities with respect to such
fund and with a share of the general expenses of the trust. Expenses
with respect to the trust are to be allocated in proportion to the
asset value of the respective funds, except where allocations of
direct expense can otherwise be fairly made. The officers of the
trust, subject to the general supervision of the Board of Trustees,
have the power to determine which expenses are allocable to a given
fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders
of each fund are entitled to receive as a class the underlying assets
of such fund available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the
type commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obliga tions of the
trust. The Declaration of Trust provides that the trust shall not have
any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation,
or instrument entered into or executed by the trust or the Trustees
include a provision limiting the obligations created thereby to the
trust and its assets. The Declaration of Trust provides for
indemnification out of each fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of
Trust also provides that each fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you receive one vote for each dollar
value of net asset value you own. The shares have no preemptive or
conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the
Prospectus. Shares are fully paid and nonassessable, except as set
forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the trust or a fund may, as
set forth in the Declaration of Trust, call meetings of the trust or a
fund for any purpose related to the trust or fund, as the case may be,
including, in the case of a meeting of the entire trust, the purpose
of voting on removal of one or more Trustees. The trust or any fund
may be terminated upon the sale of its assets to another open-end
management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the
trust or the fund, as determined by the current value of each
shareholder's investment in the fund or trust. If not so
terminated, the trust and its funds will continue indefinitely.
CUSTODIAN. UMB Bank, 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 any
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. The auditor examines financial statements for the funds
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, 1997, and report of the auditor, are
included in the fund's Annual Report, which is a separate report
supplied with this SAI. The fund's financial statements, including
the financial highlights, and report of the auditor are incorporated
herein by reference. For a free additional copy of the fund's Annual
Report, contact Fidelity at 1-800-544-8888, 82 Devonshire Street,
Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. When a municipal bond issuer has committed to call
an issue of bonds and has established an independent escrow account
that is sufficient to, and is pledged to, refund that issue, the
number of days to maturity for the prerefunded bond is considered to
be the number of days to the announced call date of the bonds.
Only for funds that are not limited to Moody's and S&P. Tax exempt
bond funds that include the phrase "...essentially the same as..."
when discussing eligible ratings in their prospectuses also use this
disclosure: The descriptions that follow are examples of eligible
ratings for the fund. The fund may, however, consider the ratings for
other types of investments and the ratings assigned by other rating
organizations when determining the eligibility of a particular
investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest
quality). Those bonds within the Aa through B categories that Moody's
believes possess the strongest credit attributes within those
categories are designated by the symbol "1."
AAA - Bonds that 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 that 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 that 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 that 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 that 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 that 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA through CCC may be modified by the addition of a plus sign (+) or
minus sign (-) to show relative standing within the major rating
categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
SPARTAN MICHIGAN 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 Trust
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 Trust
i ............................ Contracts with FMR Affiliates
17 a - d ............................ Portfolio Transactions
e ............................ *
18 a ............................ Description of the Trust
b ............................ *
19 a ............................ Additional Purchase and Redemption
Information
b ............................ Additional Purchase and Redemption
Information; Valuation
c ............................ *
20 ............................ Distributions and Taxes
21 a, b ............................ Contracts with FMR Affiliates
c ............................ *
22 a ............................ *
b ............................ Performance
23 ............................ *
</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 each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated February 26, 1998. The SAI has been filed with the Securities
and Exchange Commission (SEC) and is available along with other
related materials on the SEC's Internet Web site (http://www.sec.gov).
The SAI is incorporated herein by reference (legally forms a part of
the prospectus). For a free copy of either document, call Fidelity at
1-800-544-8888.
Investments in the money market fund are neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that
the fund will maintain a stable $1.00 share price.
THE MONEY MARKET FUND MAY INVEST A SIGNIFICANT PERCENTAGE OF ITS
ASSETS IN THE SECURITIES OF A SINGLE ISSUER AND THEREFORE MAY BE
RISKIER THAN OTHER TYPES OF MONEY MARKET FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MIR-pro-0298
FIDELITY'S
MICHIGAN MUNICIPAL
FUNDS
FIDELITY'S
MICHIGAN 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
FUND is designed to maintain a stable $1.00 share price. The BOND FUND
seeks to provide higher yields by investing in a broader range of
municipal securities.
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
(fund number 420, trading symbol FMIXX)
S PARTAN MICHIGAN MUNICIPAL INCOME FUND
(fund number 081, trading symbol FMHTX)
PROSPECTUS
FEBRUARY 26, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON,
MA 02109
CONTENTS
KEY FACTS 3 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. (FMR
Texas), a subsidiary of FMR, chooses investments for Michigan
Municipal Money Market Fund.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
M I MUNICIPAL MONEY MARKET
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.
SIZE: As of December 31, 1997, the fund had over $__ [m/b]illion in
assets.
SPARTAN MI MUNICIPAL INCOME
GOAL: High current tax-free income for Michigan residents.
STRATEGY: Normally invests in investment-grade municipal
securities whose interest is free from federal income tax and Michigan
income tax. Managed to generally react to changes in interest rates
similarly to municipal bonds with maturities between eight and 18
years.
SIZE: As of December 31, 1997, the fund had over $__ [m/b]illion in
assets.
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
and Michigan income taxes. Each fund's level of risk and potential
reward depend on the quality and maturity of its investments. The
money market fund is managed to keep its share price stable at $1.00.
The bond fund, with its broader range of investments, has the
potential for higher yields, but also carries a higher degree of risk.
You should consider your investment objective and tolerance for risk
when making an investment decision.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other federal and state political and economic news.
When you sell your shares of the bond fund, they may be worth more or
less than what you paid for them. By themselves, these funds do not
constitute a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets in
securities of individual issuers than diversified funds. As a result,
changes in the market value of a single issuer could cause greater
fluctuations in share value than would occur in a more diversified
fund.
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. MICHIGAN
MUNICIPAL MONEY MARKET IS IN
THE MONEY MARKET CATEGORY,
AND SPARTAN MICHIGAN
MUNICIPAL INCOME IS IN THE
INCOME CATEGORY.
(RIGHT ARROW) MONEY MARKET SEEKS
INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY,
SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY
INVESTING IN BONDS.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
(CHECKMARK)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy
or sell shares of a fund. In addition, you may be charged an annual
account maintenance fee if your account balance falls below $2,500.
See "Transaction Details," page __, for an explanation of how and when
these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions 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 "Breakdown of Expenses" page ).
The following figures are based on historical expenses, [adjusted to
reflect current fees,] of each fund and are calculated as a percentage
of average net assets of each fund. [A portion of the brokerage
commissions that a fund pays is used to reduce that fund's expenses.
In addition, each fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances are used to reduce custodian and transfer
agent expenses. Including [this/these] reduction[s], the total fund
operating expenses presented in the table would have been __% [ for
Michigan Municipal Money Market and __% for Spartan Michigan Municipal
Income].
MI MUNICIPAL MONEY MARKET
Management fee [(after reimbursement)] %
12b-1 fee None
Other expenses %
Total fund operating expenses %
SPARTAN MI MUNICIPAL INCOME
Management fee [(after reimbursement)] %
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 your shareholder transaction expenses and each fund's
annual operat ing 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:
MI MUNICIPAL MONEY MARKET
1 year $
3 years $
5 years $
10 years $
SPARTAN MI MUNICIPAL INCOME
1 year $
3 years $
5 years $
10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses 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 expenses are paid from
each fund's assets, and their
effect is already factored into
any quoted share price or
return. Also, as an investor,
you may pay certain expenses
directly.
(checkmark)
FMR has voluntarily agreed to reimburse Spartan Michigan Municipal
Income to the extent that total operating expenses exceed 0.55% of its
average net assets. If this agreement were not in effect, the
management fee, other expenses, and total operating expenses would
have been __%, __%, and __%, respectively. Expenses eligible for
reimbursement do not include interest, taxes, brokerage commissions,
or extraordinary expenses.
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited
by________, independent accountants. The funds' financial highlights,
financial statements, and report of the auditor are included in the
funds' Annual Report, and are incorporated by reference into (are
legally a part of) the funds' SAI. Contact Fidelity for a free copy of
the Annual Report or the SAI.
[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
tables below show each fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average for the bond fund and a measure of inflation
for the money market fund. Data for the comparative index for Spartan
MI Municipal Income is available only from June 30, 1993 to the
present. The chart on page [] presents calendar year performance for
the bond fund.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years/L
ife of
fund[A]
MI Municipal Money Market % % %[A]
Consumer Price Index % % %[A]
Spartan MI Municipal Income % % %
Lehman Bros. MI Muni Bond Index % % %
Lipper MI Muni Debt Funds Average % % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years/L
ife of
fund[A]
MI Municipal Money Market % % %[A]
Consumer Price Index % % %[A]
Spartan MI Municipal Income % % %
Lehman Bros. MI Muni Bond Index % % %
Lipper MI Muni Debt Funds Average % % %
[A] FROM JANUARY 12, 1990 (COMMENCEMENT OF OPERATIONS)
If FMR had not reimbursed certain fund expenses during these
periods, [yields and] total returns would have been lower.]
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)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment 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 fund 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.
LEHMAN BROTHERS MICHIGAN MUNICIPAL BOND INDEX is a total return
performance benchmark for Michigan investment-grade municipal bonds
with maturities of at least one year.
Unlike the fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Michigan Municipal Debt
Funds Average. As of December 31, 1997, the average reflected the
performance of ___ mutual funds with similar investment objectives.
This average published by Lipper Analytical Services, Inc., excludes
the effect of sales loads.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
SPARTAN MI MUNI INC % % % % % % % % % %
Lipper MI Muni. Debt Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan MI
Municipal Income
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. Fidelity Michigan
Municipal Money Market Fund is a non-diversified fund of Fidelity
Municipal Trust II and Spartan Michigan Municipal Income Fund is a
non-diversified fund of Fidelity Municipal Trust. Both trusts are
open-end management investment companies. Fidelity Municipal Trust II
was organized as a Delaware business trust on June 20, 1991. 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 periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance. The
trustees serve as trustees for other Fidelity funds. The majority of
trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER 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. FMR Texas, located in Irving, Texas,
has primary responsibility for providing investment management
services for the money market fund.
David Murphy is vice president and manager of Spartan Michigan
Municipal Income, which he has managed since May 1996. He also manages
several other Fidelity funds. Mr. Murphy joined Fidelity in 1989.
Fidelity investment personnel may invest in securities for their own
accounts 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.
UMB Bank, n.a. (UMB) is each fund's transfer agent, and is located at
1010 Grand Avenue, Kansas City, Missouri. UMB employs Fidelity Service
Company, Inc. (FSC) to perform transfer agent servicing functions for
each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members
of the Edward C. Johnson 3d family are the predominant owners of a
class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940
(the 1940 Act), control of a company is presumed where one individual
or group of individuals owns more than 25% of the voting stock of that
company; therefore, the Johnson family may be deemed under the 1940
Act to form a controlling group with respect to FMR Corp.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately ____% of the fund's total outstanding shares were held
by [FMR/FMR and [an] FMR affiliate[s]/[an] FMR affiliate[s].]
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately ____% of the fund's total outstanding shares were held
by [NAME OF SHAREHOLDER].]
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately ____% and ____% of each of [NAME OF FUND]'s and [NAME OF
FUND]'s total outstanding shares, respectively, were held by [FMR/FMR
and [an] FMR affiliate[s]/[an] FMR affiliate[s].]
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately ____% of [NAME OF FUND]'s total outstanding shares were
held by [NAME OF SHAREHOLDER]; approximately ___% of [NAME OF FUND]'s
total outstanding shares were held by [NAME OF SHAREHOLDER]; and
approximately ___% of [NAME OF FUND]'s total outstanding shares were
held by [NAME OF SHAREHOLDER].]
FMR may use its broker-dealer affiliates and other firms that sell
fund shares to carry out a fund's transactions, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will
change daily based on changes in interest rates and market conditions.
Money market funds comply with industry-standard requirements for the
quality, maturity, and diversification of their investments, which are
designed to help maintain a stable $1.00 share price. Of course, there
is no guarantee that a money market fund will be able to maintain a
stable $1.00 share price. It is possible that a major change in
interest rates or a default on a money market fund's investments could
cause its share price (and the value of your investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn
income at current money market rates. In managing money market funds,
FMR stresses preservation of capital, liquidity, and income. The money
market fund will purchase only high-quality securities that FMR
believes present minimal credit risks and will observe maturity
restrictions on securities it buys.
MICHIGAN MUNICIPAL MONEY MARKET seeks to earn high current income that
is free from federal income tax, Michigan personal income tax,
and other taxes in Michigan, while maintaining a stable $1.00 share
price by investing in high-quality, short-term municipal money
market securities of all types, including larger-term securities with
features that modify their maturity, price characteristics or quality
so that they a re eligible investments for the fund.
FMR normally invests the fund's assets so that at least 80% of the
fund's income distributions is free from both federal and state income
tax.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity
that issued them and/or other revenue streams. Municipal security
values may be significantly affected by political changes as well as
uncertainties in the municipal market related to taxation or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond
includes both income and price gains or losses. In selecting
investments for a bond fund, FMR considers a bond's expected income
together with its potential for price gains or losses. While income is
the most important component of bond returns over time, a bond fund's
emphasis on income does not mean the fund invests only in the
highest-yielding bonds available, or that it can avoid losses of
principal.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the range of eligible investments for the fund. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different
market sectors (for example, general obligation bonds of a state or
bonds financing a specific project) and different maturities based on
its view of the relative value of each sector or maturity. The
performance of the fund will depend on how successful FMR is in
pursuing this approach.
SPARTAN MICHIGAN MUNICIPAL INCOME seek s high current income
that is free from federal income tax, Michigan personal income
tax, and other taxes in Michigan by investing in investment-grade
municipal securities under normal conditions. FMR normally invests the
fund's assets so that at least 80% of the fund's income is free from
both federal and state income tax.
Although the fund does not maintain an average maturity within a
specified range, FMR seeks to manage the fund so that it generally
reacts to changes in interest rates similarly to municipal bonds with
maturities between eight and 18 years. As of December 31, 1997, the
fund's dollar-weighted average maturity was approximately __ years.
EACH FUND normally invests in municipal securities. FMR may invest all
of each fund's assets in municipal securities issued to finance
private activities. The interest from these securities is a
tax-preference item for purposes of the federal alternative minimum
tax.
Each fund's performance is affected by the economic and political
conditions within the state of Michigan. Michigan's economy is
dominated by automobile-related industries, which tend to be
especially vulnerable to economic downturns. Also, historically the
state's unemployment rate has been higher than average, although this
was not the case in 1994, 1995, or as of November 30, 1996.
The funds differ primarily with respect to the level of income
provided and the stability of their share price. The money market fund
seeks to provide income while maintaining a stable share price. The
bond fund seeks to provide a higher level of income by investing in a
broader range of securities. As a result, the bond fund does not seek
to maintain a stable share price. In addition, since the money market
fund concentrates its investments in Michigan municipal securities, an
investment in the money market fund may be riskier than an investment
in other types of money market funds.
FMR may use various techniques to hedge a portion of the bond fund's
risks, but there is no guarantee that these strategies will work as
intended. When you sell your shares of the bond fund, 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. The funds do not expect to invest in federally taxable
obligations, and the bond fund does 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,
the 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, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in a
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating 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 sold at a discount from
their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. 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: Spartan Michigan Municipal Income normally invests in
investment-grade securities, but reserves the right to invest up to 5%
of its assets in below investment-grade securities (sometimes called
"junk bonds"). A security is considered to be investment-grade if it
is rated investment-grade by Moody's Investors Service (Moody's),
Standard & Poor's (S&P), Duff & Phelps Credit Rating Co., or Fitch
Investor Services, L.P., or is unrated but judged to be of equivalent
quality by FMR. The fund may not invest in securities judged by FMR to
be of equivalent quality to those rated lower than B by Moody's or
S&P.
MONEY MARKET SECURITIES are high-quality, short-term instruments
issued by municipalities, local and state governments, and other
entities. These securities may carry fixed, variable, or floating
interest rates. Some money market securities employ a trust or similar
structure to modify the maturity, price characteristics, or quality of
financial assets so that they are eligible investments for money
market funds. If the structure does not perform as intended, adverse
tax or investment consequences may result.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose a fund to the credit risk of
the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security
and a fund's share price. In addition, in the case of foreign
providers of credit or liquidity support, extensive public information
about the provider may not be available, and unfavorable political,
economic, or governmental developments could affect its ability to
honor its commitment.
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 fully or partially backed by the local government, or by
the credit of a private issuer or the current or anticipated revenues
from specific projects or assets. Because many municipal securities
are issued to finance similar types of projects, especially those
relating to education, health care, housing, transportation, and
utilities, the municipal markets can be affected by conditions in
those sectors. In addition, all municipal securities may be affected
by uncertainties regarding their tax status, legislative changes, or
rights of municipal securities holders. A municipal security may be
owned directly or through a participation interest.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state of Michigan 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, 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.
ASSET-BACKED SECURITIES include interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. The value of these securities depends on many factors,
including changes in interest rates, the availability of information
concerning the pool and its structure, the credit quality of the
underlying assets, the market's perception of the servicer of the
pool, and any credit enhancement provided. In addition, these
securities may 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.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund may
accept a lower interest rate. The credit quality of the investment may
be affected by the creditworthiness of the put provider. Demand
features, standby commitments, and tender options are types of put
features.
PRIVATE ENTITIES may be involved in some municipal securities. For
example, industrial revenue bonds are backed by private entities, and
resource recovery bonds often involve private corporations. The
viability of a project or tax incentives could affect the value and
credit quality of these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, 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 a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities and some
other securities may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR
or its affiliates, whose goal is to seek a high level of current
income exempt from federal income tax while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
RESTRICTIONS: Spartan Michigan Municipal Income does not currently
intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry
or type of project. Economic, business, or political changes can
affect all securities of a similar type. A fund that is not
diversified may be more sensitive to changes in the market value of a
single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to
meet federal tax requirements at the close of each quarter, each 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 issuer. These limitations do not apply to
U.S. Government securities or to securities of other investment
companies. Each fund may invest more than 25% of its total assets in
tax-free securities that finance similar types of projects.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If a fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
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.
SPARTAN 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.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its
share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to an affiliate who
provides assistance with these services for the money market fund.
Each fund also pays OTHER EXPENSES, which are explained on page .
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 0.37%, and it
drops as total assets under management increase.
For December 1997, the group fee rate was __%. The individual fund fee
rate is 0.25% for Michigan Municipal Money Market Fund and Spartan
Michigan Municipal Income Fund.
[Because of a reimbursement arrangement,] [T/t]he total management fee
rate for the fiscal year ended [month] 19__ was __% for Spartan
Michigan Municipal Income.
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)
FMR Texas is Michigan Municipal Money Market's sub-adviser and has
primary responsibility for managing its investments. FMR is
responsible for providing other management services. FMR pays FMR
Texas 50% of its management fee (before expense reimbursements) for
FMR Texas's services. FMR paid FMR Texas a fee equal to __% of
Michigan Municipal Money Market's average net assets for the fiscal
year ended December 31, 1997.
OTHER EXPENSES
While the management fee is a significant component of the funds'
annual operating costs, the funds have other expenses as well.
UMB is the transfer and service agent for each fund. UMB has entered
into sub-agreements with FSC under which FSC performs transfer agency,
dividend disbursing, shareholder servicing, and accounting functions
for the funds. These services include processing shareholder
transactions, valuing each fund's investments, and calculating each
fund's share price and dividends.
Under the terms of the sub-agreements, FSC receives all related fees
paid to UMB by each fund.
For the fiscal year ended December 1997, transfer agency and pricing
and bookkeeping fees paid (as a percentage of average net assets)
amounted to the following. [These amounts are before expense
reductions, if any.]
Transfer Agency and
Pricing and Bookkeeping Fees
Paid by Fund
Michigan Municipal Money Market %
Spartan Michigan Municipal Income %
Each fund also pays other expenses, such as legal, audit, and
custodian fees; in some instances, proxy solicitation costs; and the
compensation of trustees who are not affiliated with Fidelity. A
broker-dealer may use a portion of the commissions paid by a fund to
reduce that fund's custodian or transfer agent fees.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees of each fund has not authorized such
payments.
For the fiscal year ended December 1997, the portfolio turnover rate
for the bond fund was __%. This rate varies 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.]
(null)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:
S For mutual funds, 1-800-544-8888
S 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.
(null)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
Michigan Municipal
Money Market as your core account for your Fidelity Ultra Service
AccountR
or FidelityPlusSM brokerage account.
You may purchase or sell shares of the funds through an investment
professional,
including a broker, who may charge you a transaction fee for this
service.
If you invest through FBSI, another financial institution, or an
investment
professional, read their program materials for any special provisions,
additional
service features or fees that may apply to your investment in a fund.
Certain
features of the fund, such as the minimum initial or subsequent
investment
amounts, may be modified.
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.
(null)How to Buy Shares
The price to buy one share of each fund is the fund's net asset value
per share
(NAV). The money market fund is managed to keep its NAV stable at
$1.00. Each
fund's shares are sold without a sales charge.
Your shares will be purchased at the next NAV calculated after your
investment
is received and accepted. Each fund's NAV is normally calculated each
business
day at 4:00 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 154.
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:
S Mail in an application with a check, or
S Open your account by exchanging from another Fidelity fund.
If you buy shares by check or Fidelity Money LineR, and then sell
those shares
by any method other than by exchange to another Fidelity fund, the
payment
may be delayed for up to seven business days to ensure that your
previous investment
has cleared.
Minimum Investments
To Open an Account $10,000
For the money market fund $ 5,000
To Add to an Account $1,000
For the money market fund $ 500
Through regular investment plans* $ 500
Minimum Balance $5,000
For the money market fund $ 2,000
*For more information about regular investment plans, please refer to
"Investor
Services," page 28.
These minimums may vary for investments through Fidelity Portfolio
Advisory
Services. Refer to the program materials for details.
(null)
To Open an Account
To Add to an Account
Phone
1-800-544-7777
S Exchange from another Fidelity fund account with the same
registration, including
name, address, and taxpayer ID number.
S Exchange from another Fidelity fund account with the same
registration, including
name, address, and taxpayer ID number.
S 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: up to $100,000.
Mail
S Complete and sign the application. Make your check payable to the
complete
name of the fund. Mail to the address indicated on the application.
S Make your check payable to the complete name of the fund. Indicate
your fund
account number on your check and mail to the address printed on your
account
statement.
S Exchange by mail: call 1-800-544-6666 for instructions.
In Person
S Bring your application and check to a Fidelity Investor Center. Call
1-800-544-9797
for the center nearest you.
S Bring your check to a Fidelity Investor Center. Call 1-800-544-9797
for the
center nearest you.
Wire
S Call 1-800-544-7777 to set up your account and to arrange a wire
transaction.
S Wire within 24 hours to:
Bankers Trust Company,
Bank Routing #021001033,
Account #00163053.
Specify the complete name of the fund and include your new account
number and
your name.
S Wire to:
Bankers Trust Company,
Bank Routing #021001033,
Account #00163053.
Specify the complete name of the fund and include your account number
and your
name.
Automatically
S Not available.
S Use Fidelity Automatic Account Builder. Sign up for this service
when opening
your account, or call 1-800-544-6666 to add it.
TDD - Service for the Deaf and Hearing-Impaired: 1-800-544-0118
(null)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.
The price to sell one share of each fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received
and accepted. Each fund's NAV is normally calculated each business day
at 4:00
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
$5,000 worth of shares in the account ($2,000 for the money
market fund) 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:
S You wish to redeem more than $100,000 worth of shares,
S Your account registration has changed within the last 30 days,
S The check is being mailed to a different address than the one on
your account
(record address),
S The check is being made payable to someone other than the account
owner, or
S 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:
S Your name,
S The fund's name,
S Your fund account number,
S The dollar amount or number of shares to be redeemed, and
S 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.
(null)
Account Type
Special Requirements
Phone
1-800-544-7777
All account types
S Maximum check request: $100,000.
S For Money Line transfers to your bank account; minimum: $10;
maximum: up to
$100,000.
S 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
Individual, Joint Tenant, Sole Proprietorship, UGMA, UTMA
Trust
Business or Organization
Executor, Administrator, Conservator, Guardian
S The letter of instruction must be signed by all persons required to
sign for
transactions, exactly as their names appear on the account.
S The trustee must sign the letter indicating capacity as trustee. If
the trustee's
name is not in the account registration, provide a copy of the trust
document
certified within the last 60 days.
S At least one person authorized by corporate resolution to act on the
account
must sign the letter.
S Include a corporate resolution with corporate seal or a signature
guarantee.
S Call 1-800-544-6666 for instructions.
Wire
All account types
S 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.
S Your wire redemption request must be received and accepted by
Fidelity before
4:00 p.m. Eastern time for money to be wired on the next business day.
Check
All account types
S Minimum check: $1,000 ($500 for the money market fund).
S All account owners must sign a signature card to receive a
checkbook.
TDD - Service for the Deaf and Hearing-Impaired: 1-800-544-0118
(null)Investor Services
Fidelity provides a variety of services to help you manage your
account.
Information Services
Fidelity's telephone representatives are available 24 hours a day, 365
days a year. Whenever you call, you can
speak with someone equipped to provide the information or service you
need.
24-Hour Service
Account Assistance
1-800-544-6666
Account Transactions
1-800-544-7777
Product Information
1-800-544-8888
Retirement Account Assistance
1-800-544-4774
TouchTone XpressSM
1-800-544-5555
Automated service
3
Statements and reports that Fidelity sends to you include the
following:
S Confirmation statements (after every transaction, except
reinvestments, that
affects your account balance or your account registration)
S Account statements (quarterly)
S Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses
will be mailed to your household, even if you have more than one
account in
the fund. Call 1-800-544-6666 if you need copies of financial reports,
prospectuses,
or historical account information.
Transaction Services
Exchange privilege. You may sell your fund shares and buy shares of
other Fidelity funds by telephone
or in writing.
Note that exchanges out of a fund are limited to four per calendar
year (except
for the money market fund), 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 163.
Systematic withdrawal plans let you set up periodic redemptions from
your account.
Fidelity Money Liner 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
Minimum
$500
Frequency
Monthly or quarterly
Setting up or changing
S For a new account, complete the appropriate section on the fund
application.
S For existing accounts, call 1-800-544-6666 for an application.
S 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.
Direct Deposit
To send all or a portion of your paycheck or government check to a
Fidelity
fundA
Minimum
$500
Frequency
Every pay period
Setting up or changing
S Check the appropriate box on the fund application, or call
1-800-544-6666 for
an authorization form.
S Changes require a new authorization form.
Fidlity Automatic Exchange Service
To move money from a Fidelity money market fund to another Fidelity
fund
Minimum
$500
Frequency
Monthly, bimonthly, quarterly, or annually
Setting up or changing
S To establish, call 1-800-544-6666 after both accounts are opened.
S To change the amount or frequency of your investment, call
1-800-544-6666.
A Because bond fund share prices fluctuate, that fund may not be an
appropriate
choice 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
fund 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 bond fund
offers four options, and the money market fund offers three options.
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. (bond fund only) Your capital gain
distributions, if any, 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, 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 distributed as dividends and taxed
as ordinary income. 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 a statement showing the
tax status of distributions, and will report to the IRS the amount of
any taxable 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 Michigan, its income dividends will be exempt
from the Michigan income, intangibles, and single business taxes.
During the fiscal year ended December 1997, __% of each fund's income
dividends was free from federal income tax and __% and __% were free
from Michigan taxes for Michigan Municipal Money Market and Spartan
Michigan Municipal Income, respectively. __% of Michigan Municipal
Money Market's and __% of Spartan Michigan Municipal Income's income
dividends were subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including
exchanges to other Fidelity funds - are subject to capital gains tax.
A capital gain or loss is the difference between the cost of your
shares and the price you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but
not yet distributed income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back in
the form of a taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV as of the
close of business of the NYSE, normally 4:00 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
The money market fund's assets are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value and helps the money market fund to maintain a stable
$1.00 share price.
For the bond fund, assets are valued primarily on the basis of
information furnished by a pricing service or market quotations, if
available, or by another method that the Board of Trustees believes
accurately reflects fair value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. 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 shares will be purchased
at the next NAV calculated after your investment 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 canceled 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.
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 order 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.
(small solid bullet) If your account is not an Ultra Service Account,
there is a $1.00 charge for each check written under $1,000 ($500
for the money market fund).
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 $24.00 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. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($2,000 FOR THE MONEY
MARKET FUND), 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
available 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 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
fees of up to 1.00% on purchases, administrative fees of up to $7.50,
and trading fees of up to 1.50% on exchanges. Check each fund's
prospectus for details.
From Filler pages
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
SPARTAN MICHIGAN MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1998
This Statement of Additional Information (SAI) is not a prospectus but
should be read in conjunction with the funds' current Prospectus
(dated February 26, 1998). Please retain this document for future
reference. The funds' Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Michigan 11
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation 17
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts 27
Distribution and Service Plans
Contracts with FMR Affiliates 32
Description of the Trusts 33
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
MIR-ptb-0298
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 (1940
Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF MICHIGAN MUNICIPAL 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 senior securities, except as permitted under the
Investment Company Act of 1940;
(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 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;
(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 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 the
securities of companies whose principal business activities are 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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) 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 (4)). 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.
(iv) 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.
(v) 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 (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
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 9.
INVESTMENT LIMITATIONS OF SPARTAN MICHIGAN MUNICIPAL INCOME FUND
THE FOLLOWING ARE SPARTAN 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) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). The fund will not borrow from other fu nds
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.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
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 6.
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. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the Investment Company Act of
1940. These transactions may include repurchase agreements with
custodian banks; short-term obligations of, and repurchase agreements
with, the 50 largest U.S. banks (measured by deposits); municipal
securities; U.S. Government securities with affiliated financial
institutions that are primary dealers in these securities; short-term
currency transactions; and short-term borrowings. In accordance with
exemptive orders issued by the Securities and Exchange Commission
(SEC), the Board of Trustees has established and periodically reviews
procedures applicable to transactions involving affiliated financial
institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities
on a delayed-delivery or when-issued basis. These transactions involve
a commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place
after the customary settlement period for that type of security.
Typically, no interest accrues to the purchaser until the security is
delivered. The bond fund 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 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 (S&P) in rating corporate
obligations within its two highest ratings of A-1 and A-2. The money
market fund will purchase taxable obligations only if they meet its
quality requirements.
Proposals to restrict or eliminate the federal income tax exemption
for interest on municipal obligations are introduced before Congress
from time to time. Proposals also may be introduced before Michigan
legislature 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. The 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 bond 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 bond 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 SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a fund to enter into new positions
or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a
position until delivery or expiration regardless of changes in its
value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the funds greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund
obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this
right, the fund pays the current market price for the option (known as
the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities
prices, and futures contracts. The fund may terminate its position in
a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund
will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the
strike price. A fund may also terminate a put option position by
closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the fund assumes the
obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract, the fund will be
required to make margin payments to an FCM as described above for
futures contracts. A fund may seek to terminate its position in a put
option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not
liquid for a put option the fund has written, however, the fund must
continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise
of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally
is a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, a call writer mitigates the effects of
a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up
some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
For the money market fund, FMR may determine some restricted
securities and municipal lease obligations to be illiquid.
For the bond fund, investments currently considered to be illiquid
include over-the-counter options. Also, FMR may determine some
restricted securities and municipal lease obligations to be illiquid.
However, with respect to over-the-counter options a fund writes, all
or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and
terms of any agreement the fund may have to close out the option
before expiration.
In the absence of market quotations, illiquid investments for the
money market fund are valued for purposes of monitoring amortized cost
valuation, and for the bond fund 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 AND LENDING 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 each fund currently intends to participate in this
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 fund may invest a portion
of its assets in lower-quality municipal securities as described in
the Prospectus.
While the market for Michigan municipals is considered to be
substantial, adverse publicity and changing investor perceptions may
affect the ability of outside pricing services used by a fund to value
its portfolio securities, and the fund's ability to dispose of
lower-quality bonds. The outside pricing services are monitored by FMR
and reported to the Board to determine whether the services are
furnishing prices that accurately reflect fair value. The impact of
changing investor perceptions may be especially pronounced in markets
where municipal securities are thinly traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MARKET DISRUPTION RISK. The value of municipal securities may be
affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Municipal bankruptcies are relatively rare, and
certain provisions of the U.S. Bankruptcy Code governing such
bankruptcies are unclear and remain untested. Further, the application
of state law to municipal issuers could produce varying results among
the states or among municipal securities issuers within a state. These
legal uncertainties could affect the municipal securities market
generally, certain specific segments of the market, or the relative
credit quality of particular securities. Any of these effects could
have a significant impact on the prices of some or all of the
municipal securities held by a fund, making it more difficult for the
money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial
assets. For example, put features can be used to modify the maturity
of a security or interest rate adjustment features can be used to
enhance price stability. If the structure does not perform as
intended, adverse tax or investment consequences may result. Neither
the Internal Revenue Service (IRS) nor any other regulatory authority
has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could
adversely affect the value, liquidity, or tax treatment of the income
received from these securities or the nature and timing of
distributions made by the fund.
MUNICIPAL 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.
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.
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.
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. They are
subject to the risk that the put provider is unable to honor the put
feature (purchase the security). Put providers often support their
ability to buy securities on demand by obtaining letters of credit or
other guarantees from other entities. Demand features, standby
commitments, and tender options are types of put features.
QUALITY AND MATURITY (MONEY MARKET FUND). Pursuant to procedures
adopted by the Board of Trustees, the fund may purchase only
high-quality securities that FMR believes present minimal credit
risks. To be considered high-quality, a security must be rated in
accordance with applicable rules in one of the two highest categories
for short-term securities by at least two nationally recognized rating
services (or by one, if only one rating service has rated the
security); or, if unrated, judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in the
highest rating category (e.g., Standard & Poor's A-1 or SP-1), and
second tier securities are those deemed to be in the second highest
rating category (e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When determining
the maturity of a security, the fund may look to an interest rate
reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the
fund to buy refunded municipal obligations at a stated price and yield
on a settlement date that may be several months or several years in
the future. A fund generally will not be obligated to pay the full
purchase price if it fails to perform under a refunding contract.
Instead, refunding contracts generally provide for payment of
liquidated damages to the issuer (currently 15-20% of the purchase
price). A fund may secure its obligations under a refunding contract
by depositing collateral or a letter of credit equal to the liquidated
damages provisions of the refunding contract. When required by SEC
guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. To
protect the fund from the risk that the original seller will not
fulfill its obligation, the securities are held in an account of the
fund at a bank, marked-to-market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount.
While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility that the value
of the underlying security will be less than the resale price, as well
as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part
of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time it may
be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, a fund might obtain a less favorable price than prevailed
when it decided to seek registration of the security. However, in
general, the money market fund anticipates holding restricted
securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. A fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory
by FMR. Such transactions may increase fluctuations in the market
value of the fund's assets and may be viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity.
STANDBY COMMITMENTS are puts that entitle holders to same-day
settlement at an exercise price equal to the amortized cost of the
underlying security plus accrued interest, if any, at the time of
exercise. Each fund may acquire standby commitments to enhance the
liquidity of portfolio securities.
Ordinarily a fund will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a
third party at any time. A fund may purchase standby commitments
separate from or in conjunction with the purchase of securities
subject to such commitments. In the latter case, the fund would pay a
higher price for the securities acquired, thus reducing their yield to
maturity.
Issuers or financial intermediaries may obtain letters of credit or
other guarantees to support their ability to buy securities on demand.
FMR may rely upon its evaluation of a bank's credit in determining
whether to support an instrument supported by a letter of credit. In
evaluating a foreign bank's credit, FMR will consider whether adequate
public information about the bank is available and whether the bank
may be subject to unfavorable political or economic developments,
currency controls, or other governmental restrictions that might
affect the bank's ability to honor its credit commitment.
Standby commitments are subject to certain risks, including the
ability of issuers of standby commitments to pay for securities at the
time the commitments are exercised; the fact that standby commitments
are not marketable by the funds; and the possibility that the
maturities of the underlying securities may be different from those of
the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or
long-term, fixed-rate, tax-exempt bond (generally held pursuant to a
custodial arrangement) with a tender agreement that gives the holder
the option to tender the bond at its face value. As consideration for
providing the tender option, the sponsor (usually a bank,
broker-dealer, or other financial institution) receives periodic fees
equal to the difference between the bond's fixed coupon rate and the
rate (determined by a remarketing or similar agent) that would cause
the bond, coupled with the tender option, to trade at par on the date
of such determination. After payment of the tender option fee, a fund
effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. In selecting tender option
bonds for the funds, FMR will consider the creditworthiness of the
issuer of the underlying bond, the custodian, and the third party
provider of the tender option. In certain instances, a sponsor may
terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE OR FLOATING RATE OBLIGATIONS, including certain
participation interests in municipal instruments, have interest rate
adjustment formulas that help stabilize their market values. Many
variable and floating rate instruments also carry demand features that
permit a fund to sell them at par value plus accrued interest on short
notice.
In many instances bonds and participation interests have tender
options or demand features that permit a fund to tender (or put) the
bonds to an institution at periodic intervals and to receive the
principal amount thereof. A fund considers variable rate instruments
structured in this way (Participating VRDOs) to be essentially
equivalent to other VRDOs it purchases. The IRS has not ruled whether
the interest on Participating VRDOs is tax-exempt and, accordingly, a
fund intends to purchase these instruments based on opinions of bond
counsel. A fund may also invest in fixed-rate bonds that are subject
to third party puts and in participation interests in such bonds held
by a bank in trust or otherwise.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
of the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they
are sold at a deep discount from their face value and are redeemed at
face value when they mature. Because zero coupon bonds do not pay
current income, their prices can be very volatile when interest rates
change. In calculating its daily dividend, a fund takes into account
as income a portion of the difference between a zero coupon bond's
purchase price and its face value.
SPECIAL CONSIDERATIONS 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 SAI. 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 percentage, originally determined for the base year 1978-79 at
41.61% was recalculated effective with fiscal year 1992-93 reflecting
the terms of a legal settlement agreement with Oakland County. As part
of the settlement, the State agreed to recalculate the base year
determination to ensure a consistent base of expenditures to local
units of government. The recalculated base year percentage is 48.97%.
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.
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. Since the beginning of
1994, a State property tax of 6 mills has been 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 has been partially restored. A school board is
authorized, with voter approval, 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 and non-qualified agricultural 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 that would be generated by
the levy of certain local property taxes for school operating purposes
at specified maximum authorized rates. 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 school district bases.
Proposal A shifts significant portions of the cost of local school
operations from local school 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. 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, 1995 or as of November 30, 1996. The State's seasonally
adjusted November 30, 1996 unemployment rate was 4.7% 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 5.4% 5.6%
1996 4.7% 5.4%
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. In particular, on September
19, 1995, the Michigan Court of Appeals issued a decision in the
consolidated cases captioned Durant v. State of Michigan, which
involved claims consolidated from 34 separate lawsuits by local school
districts against the State of Michigan under section 29 of article 9
of the Michigan Constitution, a part of the Constitution commonly
known as the Headlee Amendment. These suits alleged the underfunding
of certain mandated school programs including special education,
special education transportation, bilingual education, driver
education and school lunch programs. The aggregate total amount of
liability of these judgments, as of August, 1995, is approximately
$495 million. On November 21, 1996, the Michigan Supreme Court granted
the State's application for leave of appeal. The extent to which
parties will ultimately prevail against the State, in Durant or in any
other case, cannot be predicted at this time.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following 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, its agencies and instrumentalities, as
available on the date of this SAI. 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 to that of the United
States. In fiscal 1995, trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of
its imports. In this regard, in fiscal 1995 Puerto Rico experienced a
$4.6 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1995, aggregate
personal income was $27.0 billion ($26.2 billion in 1992 prices) and
personal per capita income was $7,296 ($7,074 in 1992 prices). Gross
domestic product in fiscal 1992 was $23.7 billion and gross product in
fiscal 1996 was $30.2 billion; ($26.7 billion in 1992 prices). This
represents an increase in gross product of 27.5% from fiscal 1992 to
1996 (12.7% in 1992 prices). For fiscal 1997, an increase in gross
domestic product of 2.7% over fiscal 1996 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
value of the U.S. dollar, the price stability of oil imports, any
increase or decrease in the number of visitors to the island, the
level of exports, the level of federal transfers, and the cost of
borrowing.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1992 through fiscal 1996. Almost every sector of
the economy participated, and record levels of employment were
achieved. Factors behind the continued expansion included
government-sponsored economic development programs, periodic declines
in the exchange value of the U.S. dollar, the level of federal
transfers, 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 16.8% from fiscal 1992 to fiscal
1993. However, by the end of fiscal 1994, the unemployment rate
dropped to 15.9% and as of the end of fiscal 1996, stands at 13.8%.
Despite this downturn, there is a possibility that the unemployment
rate will increase.
Manufacturing is the largest sector in the economy accounting for
$17.7 billion or 41.8% of gross domestic product in fiscal 1995.
Manufacturing has experienced a basic change over the years as a
result of the influx of higher wage, high technology industries such
as the pharmaceutical industry, electronics, computers,
microprocessors, scientific instruments and high technology machinery.
The service sector, which includes finance, insurance, real estate,
wholesale and retail trade, hotels and related services and other
services, ranks second in its contribution to gross domestic product
and is the sector that employs the greatest number of people. In
fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector
grew from 449,000 in fiscal 1992 to 527,000 in fiscal 1996, a
cumulative increase of 17.6%, which increase was greater than the
11.8% cumulative growths in employment over the same period, providing
46.7% of total employment. The government sector of the Commonwealth
plays an important role in the economy of the island. In fiscal year
1995, the government accounted for $4.5 billion or 10.6% 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 $1.8 billion of gross domestic product in
fiscal 1995.
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic
development and growth. This new program, which is referred to as the
New Economic Model, promotes changing the role of the government from
one of being a provider of most basic services to that of a
facilitator for private sector initiatives and encourages private
sector investment by reducing government-imposed regulatory
restraints.
The New Economic Model contemplates the development of initiatives
that will foster private investment in, and private management of,
sectors that are served more efficiently and effectively by the
private enterprise. One of these initiatives has been the adoption of
a new tax code intended to expand the tax base, reduce top personal
and corporate tax rates, and simplify the tax system.
The New Economic Model also seeks to identify and promote areas in
which Puerto Rico can compete more effectively in the global markets.
Tourism has been identified as one such area because of its potential
for job creation and contribution to the gross product. In 1993, a
new Tourism Incentives Act and a Tourism Development Fund were
implemented in order to provide special tax incentives and financing
for the development of new hotel projects and the tourism industry.
As a result of these initiatives, new hotels have been constructed or
are under construction which have increased the number of hotel rooms
on the island from 8,415 in fiscal 1992 to 10,345 in fiscal 1996 and
to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the
government's direct contribution to gross domestic product. As part
of this goal, the government has transferred certain governmental
operations and sold a number of its assets to private parties. Among
these are: (i) the sale of the assets of the Puerto Rico Maritime
Authority; (ii) the execution of a five-year management agreement for
the operation and management of the Aqueducts and Sewer Authority by a
private company; (iii) the execution by the Aqueducts and Sewer
Authority of a construction and operating agreement with a private
consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts
with private power producers under which two cogeneration plants (with
a total capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of
private health services, in 1994 a new health insurance program was
started in the Fajardo region to provide qualifying Puerto Rico
residents with comprehensive health insurance coverage. In
conjunction with this program certain public health facilities are
being privatized. The administration's goal is to provide universal
health insurance for such qualifying residents. The total cost of
this program will depend on the number of municipalities included and
the total number of participants. As of June 30, 1996, over 760,000
persons were participating in the program at an annual cost to the
Commonwealth of approximately $296 million.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, most notably section 936 of the Internal Revenue
Code of 1986, as amended ("Section 936") and the Commonwealth's
Industrial Incentives Program. 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 during a 10, 15, 20, or 25 year period
depending on location.
For many years, U.S. companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax
exemption for operating and qualifying investment income from Puerto
Rico sources. Amendments to Section 936 made in 1993 (the "1993
Amendments") instituted two alternative methods for calculating the
tax credit and limited the amount of the credit that a qualifying
company could claim. These limitations are based on a percentage of
qualifying income (the "percentage of income limitation") and on
qualifying expenditures on wages and other wage related benefits (the
"economic activity limitation" or "wage credit limitation"). As a
result of amendments incorporated in the Small Business Job Protection
Act of 1996 enacted by the U.S. Congress and signed into law by
President Clinton on August 20, 1996 (the "1996 Amendments"), the tax
credit is now being phased out over a ten-year period for existing
claimants and is no longer available for corporations that establish
operations in Puerto Rico after October 13, 1995 (including existing
Section 936 Corporations (as defined below) to the extent
substantially new operations are established in Puerto Rico). The
1996 Amendments also moved the credit based on the economic activity
limitation to Section 30A of the Code and phased it out over 10 years.
In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in
Puerto Rico. The Section 30A Credit and the remaining Section 936
credit are discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the Code.
Section 30A permits a "qualifying domestic corporation" ("QDC") that
meets certain gross income tests (which are similar to the 80% and 75%
gross income tests of Section 936 of the Code discussed below) to
claim a credit (the "Section 30A Credit") against the federal income
tax imposed on taxable income derived from sources outside the United
States from the active conduct of a trade or business in Puerto Rico
or from the sale of substantially all the assets used in such business
("possession income").
A QDC is a U.S. corporation which (i) was actively conducting a trade
or business in Puerto Rico on October 13, 1995, (ii) had a Section 936
election in effect for its taxable year that included October 13,
1995, (iii) does not have in effect an election to use the percentage
limitation of Section 936(a)(4)(B) of the Code, and (iv) does not add
a "substantial new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of qualified
possession wages as defined in the Code, which includes wages up to
85% of the maximum earnings subject to the OASDI portion of Social
Security taxes plus an allowance for fringe benefits of 15% of
qualified possession wages, (ii) a specified percentage of
depreciation deductions ranging between 15% and 65%, based on the
class life of tangible property, and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a 9% effective tax rate (but only
if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the Code may compute the amount of its
active business income, eligible for the Section 30A Credit, by using
either the cost sharing formula, the profit-split formula, or the
cost-plus formula, under the same rules and guidelines prescribed for
such formulas as provided under Section 936 (see discussion below).
To be eligible for the first two formulas, the QDC must have a
significant presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the
amount of possession income that would qualify for the Section 30A
Credit would be subject to a cap based on the QDC's possession income
for an average adjusted base period ending before October 14, 1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto
Rico ("active business income") and from the sale or exchange of
substantially all assets used in the active conduct of such trade or
business. To qualify under Section 936 in any given taxable year, a
corporation must derive for the three-year period immediately
preceding the end of such taxable year, (i) 80% or more of its gross
income from sources within Puerto Rico, and (ii) 75% or more of its
gross income from the active conduct of a trade or business in Puerto
Rico.
Under Section 936, a Section 936 Corporation may elect to compute its
active business income, eligible for the Section 936 credit, under one
of three formulas: (A) a cost-sharing formula, whereby it is allowed
to claim all profits attributable to manufacturing intangibles, and
other functions carried out in Puerto Rico, provided it contributes to
the research and development expenses of its affiliated group or pays
certain royalties; (B) a profit-split formula, whereby it is allowed
to claim 50% of the net income of its affiliated group from the sale
of products manufactured in Puerto Rico; or (C) a cost-plus formula,
whereby it is allowed to claim a reasonable profit on the
manufacturing costs incurred in Puerto Rico. To be eligible for the
first two formulas, the Section 936 Corporation must have a
significant business presence in Puerto Rico for purposes of the
Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the
Section 936 credit is only available to companies that elect the
percentage of income limitation and is limited in amount to 40% of the
credit allowable prior to the 1993 Amendments, subject to a five-year
phase-in period from 1994 to 1998 during which period the percentage
of the allowable credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the
possession income subject to the Section 936 credit will be subject to
a cap based on the Section 936 Corporation's possession income for an
average adjusted base period ending on October 14, 1995. The Section
936 credit is eliminated for taxable years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the long-term
effect on the Puerto Rico economy of the enactment of the 1996
Amendments to Section 936. The Government of Puerto Rico does not
believe there will be short-term or medium-term material adverse
effects on Puerto Rico's economy as a result of the enactment of the
1996 Amendments. The Government of Puerto Rico further believes that
during the phase-out period sufficient time exists to implement
additional incentive programs to safeguard Puerto Rico's competitive
position. Additionally, the Governor intends to propose a new federal
incentive program similar to what is now provided under Section 30A.
Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe
benefits, depreciation expenses for certain tangible assets, and
research and development expenses, and would restore the credit
granted to passive income under Section 936 prior to its repeal by the
1996 Amendments. Under the Governor's proposal, the credit granted to
qualifying companies would continue in effect until Puerto Rico shows,
among other things, substantial economic improvements in terms of
certain economic parameters.
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 fund, FMR
has granted investment management authority to the sub-adviser (see
the section entitled "Management Contracts"), and the sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
below. FMR is also responsible for the placement of transaction orders
for other investment companies and accounts for which it or its
affiliates act as investment adviser. Securities purchased and sold by
the money market fund generally will be traded on a net basis (i.e.,
without commission). In selecting broker-dealers, subject to
applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer
firm; the broker-dealer's execution services rendered on a continuing
basis; and the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; effect
securities transactions, and perform functions incidental thereto
(such as clearance and settlement). FMR maintains a listing of
broker-dealers who provide such services on a regular basis. However,
as many transactions on behalf of the money market fund are placed
with broker-dealers (including broker-dealers on the list) without
regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The
selection of such broker-dealers generally is made by FMR (to the
extent possible consistent with execution considerations) based upon
the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the funds may be useful to FMR in rendering investment
management services to the funds or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to the funds. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause each fund to pay such higher commissions,
FMR must determine in good faith that such commissions are reasonable
in relation to the value of the brokerage and research services
provided by such executing broker-dealers, viewed in terms of a
particular transaction or FMR's overall responsibilities to the funds
and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds, or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC), an indirect subsidiary
of FMR Corp., if the commissions are fair, reasonable, and comparable
to commissions charged by no n-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 NFSC to execute portfolio transactions on
national securities exchanges in accordance with approved procedures
and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended December 31, 1997 and 1996, the portfolio
turnover rates were ___% and ___%, respectively for Spartan Michigan
Municipal Income.
For the fiscal years ended December 1997, 1996, and 1995, Spartan
Michigan Municipal Income paid [no brokerage commissions/ brokerage
commissions of $____, $0, and $0, respectively; and Michigan Municipal
Money Market paid [no brokerage commissions/brokerage commissions of
$____, $0, and $0, respectively]. [IF APPROPRIATE: During the fiscal
year ended December 1997, this amounted to approximately __% and __%,
respectively, of the aggregate brokerage commissions paid by each fund
involving approximately __% and __%, respectively, of the aggregate
dollar amount of transactions for which the funds paid brokerage
commissions.]
During the fiscal year ended December 1997, the Spartan Michigan
Municipal Income paid $__ in commissions to brokerage firms that
provided research services involving approximately $___of
transactions; during the fiscal year ended December 1997, Michigan
Municipal Money Market paid $__ in commissions to brokerage firms that
provided research 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. [IF
APPLICABLE:During the fiscal year ended December 1997, the fund(s)
paid no fees to brokerage firms that provided research services.]
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
For the money market fund, Fidelity Service Company, Inc. (FSC)
normally determines the fund's net asset value per share (NAV) as of
the close of the New York Stock Exchange (NYSE) (normally 4:00 p.m.
Eastern time). For the bond fund, FSC normally determines the fund's
NAV as of the close of the NYSE (normally 4:00 p.m. Eastern time). The
valuation of portfolio securities is determined as of this time for
the purpose of computing each fund's NAV.
TAX-FREE BOND FUND. Portfolio securities are valued by various
methods. If quotations are not available, fixed-income securities are
usually valued on the basis of information furnished by a pricing
service that uses a valuation matrix which incorporates both
dealer-supplied valuations and electronic data processing techniques.
Use of pricing services has been approved by the Board of Trustees. A
number of pricing services are available, and the fund may use various
pricing services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily available
market value are valued in good faith by a committee appointed by the
Board of Trustees. The procedures set forth above need not be used to
determine the value of the securities owned by the fund if, in the
opinion of a committee appointed by the Board of Trustees, some other
method would more accurately reflect the fair market value of such
securities.
MONEY MARKET FUND. Portfolio securities and other assets are valued on
the basis of amortized cost. This technique involves initially valuing
an instrument at its cost as adjusted for amortization of premium or
accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
Securities of other open-end investment companies are valued at their
respective NAVs.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund
used market valuations to determine its NAV. The converse would apply
during periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use
of the term "money market fund" are permitted pursuant to Rule 2a-7
under the Investment Company Act of 1940 (1940 Act). The fund must
adhere to certain conditions under Rule 2a-7, as summarized in the
section entitled "Quality and Maturity" on page 9.
The Board of Trustees oversees FMR's adherence to the provisions of
Rule 2a-7 and has established procedures designed to stabilize the
fund's NAV at $1.00. At such intervals as they deem appropriate, the
Trustees consider the extent to which NAV calculated by using market
valuations would deviate from $1.00 per share. If the Trustees believe
that a deviation from 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.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. A bond fund's share price,
and each fund's yield and total return fluctuate in response to market
conditions and other factors, and the value of a bond fund's shares
when redeemed may be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a
period, the net change in value of a hypothetical account containing
one share reflects the value of additional shares purchased with
dividends from the one original share and dividends declared on both
the original share and any additional shares. The net change is then
divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. The money market fund also may
calculate a compound effective yield by compounding the base period
return over a one-year period. In addition to the current yield, the
money market fund may quote yields in advertising based on any
historical seven-day period. Yields for the money market fund are
calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields 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 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 the 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 the 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, the 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 combined federal and
state income 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 1998. 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 3% to 7%. 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 1998.
1998 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal Michigan State
Marginal Rate Marginal Rate Combined
Federal and State
Effective Rate**
Single Return Joint Return
</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 combined federal and state effective tax rate in 1998 is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
3% % % % % %
4% % % % % %
5% % % % % %
6% % % % % %
7% % % % % %
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 table
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
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, 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 the money market
fund's 7-day yields, the bond fund's 30-day yields, each fund's
tax-equivalent yield and total returns for periods ended December 31,
1997.
The tax-equivalent yield is based on a combined effective federal and
state income tax rate of __% and reflects that, as of December 31,
1997, [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> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Seven- Tax- One Five Life of One Five Life of
Day Equivalent Year Years Fund* Year Years Fund*
Yield Yield
Fidelity MI % % % % % % % %
Municipal Money
Market
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
</TABLE>
Thirty- Tax- One Five Ten One Five Ten
Day Equivalent Year Years Years Year Years Years
Yield Yield
Spartan MI % % % % % % % %
Municipal Income
* From January 12,1990 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these
periods, the bond fund's [yield would have been ___% and] total
returns would have been lower.
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each fund's return
to the record of the Standard & Poor's 500 Index (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (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
unmanaged index of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Because each
fund invests in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investments such as the funds. The S&P 500 and DJIA
returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended
December 31, 1997, or life of fund, as applicable, assuming all
distributions were reinvested. The figures below reflect the
fluctuating interest rates and bond prices of the specified periods
and should not be considered representative of the dividend income or
capital gain or loss that could be realized from an investment in a
fund today. Tax consequences of different investments have not been
factored into the figures below.
During the period from January 12, 1990 (commencement of operations)
to December 31, 1997, a hypothetical $10,000 investment in Michigan
Municipal Money Market would have grown to $______.
<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>
Period Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
1997 $ 10,000 $ $ $ $ $ $
1996 $10,000 $ 2,605 $ 0 $ 12,605 $ 26,016 $ 28,566 $ 12,577
1995 $ 10,000 $ 2,238 $ 0 $ 12,238 $ 21,158 $ 22,195 $ 12,173
1994 $ 10,000 $ 1,839 $ 0 $ 11,839 $ 15,379 $ 16,234 $ 11,872
1993 $ 10,000 $ 1,557 $ 0 $ 11,557 $ 15,179 $ 15,465 $ 11,562
1992 $ 10,000 $ 1,332 $ 0 $ 11,332 $ 13,789 $ 13,219 $ 11,253
1991 $ 10,000 $ 1,038 $ 0 $ 11,038 $ 12,810 $ 12,320 $ 10,936
1990* $ 10,000 $ 566 $ 0 $ 10,566 $ 9,817 $ 9,908 $ 10,611
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Fidelity
Michigan Municipal Money Market 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.
The fund did not distribute any capital gains during the period.
During the 10-year period ended December 31, 1997, a hypothetical
$10,000 investment in Spartan Michigan Municipal Income would have
grown to $____.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN 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
1997 $ $ $ $ $ $ $
1996 $ 9,930 $ 9,062 $ 632 $ 19,624 $ 41,499 $ 46,181 $ 14,353
1995 $ 10,158 $ 8,182 $ 643 $ 18,983 $ 33,750 $ 35,882 $ 13,891
1994 $ 9,297 $ 6,562 $ 589 $ 16,448 $ 24,532 $ 26,244 $ 13,548
1993 $ 10,844 $ 6,533 $ 405 $ 17,782 $ 24,213 $ 25,001 $ 13,195
1992 $ 10,290 $ 5,269 $ 63 $ 15,622 $ 21,996 $ 21,370 $ 12,842
1991 $ 10,026 $ 4,200 $ 36 $ 14,262 $ 20,434 $ 19,916 $ 12,480
1990 $ 9,569 $ 3,127 $ 33 $ 12,729 $ 15,660 $ 16,018 $ 12,109
1989 $ 9,754 $ 2,318 $ 34 $ 12,106 $ 16,164 $ 16,104 $ 11,412
1988 $ 9,482 $ 1,469 $ 33 $ 10,984 $ 12,275 $ 12,222 $ 10,905
</TABLE>
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in Spartan
Michigan Municipal Income on January 1, 1988, 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 gain distributions.
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. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
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's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest.
The total return of a benchmark index reflects reinvestment of all
dividends and capital gains paid by securities included in the index.
Unlike a fund's returns, however, the index returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
The bond fund may compare to the Lehman Brothers Municipal Bond Index,
a total return performance benchmark for investment-grade municipal
bonds with maturities of at least one year. In addition, Spartan
Michigan Municipal Income may compare its performance to that of the
Lehman Brothers Michigan Municipal Bond Index, a total return
performance benchmark for Michigan investment-grade municipal bonds
with maturities of at least one year. Issues included in the index
have been issued after December 31, 1990 and have an outstanding par
value of at least $50 million. Subsequent to December 31, 1995, zero
coupon bonds and issues subject to the alternative minimum tax are
included in the index.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
A money market fund may compare its performance or the performance of
securities in which it may invest to averages published by IBC
Financial Data, Inc. of Ashland, Massachusetts. These averages assume
reinvestment of distributions. IBC's MONEY FUND REPORT
AVERAGES(trademark)/All Tax-Free, which is reported in IBC's MONEY
FUND REPORT(trademark), covers over ___ tax-free money market funds.
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(Registered trademark), 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 bond 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 bond 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 bond 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, 1997, 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
1997 and 1998: New Year's Day, Martin Luther King's Birthday (in
1998), Presidents' Day, Good Friday, Memorial Day, 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
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.
A fund purchases municipal securities whose interest FMR believes is
free from federal income tax. Generally, issuers or other parties
have entered into covenants requiring continuing compliance with
federal tax requirements to preserve the tax-free status of interest
payments over the life of the security. If at any time the covenants
are not complied with, or if the IRS otherwise determines that the
issuer did not comply with relevant tax requirements, interest
payments from a security could become federally taxable retroactive to
the date the security was issued. For certain types of structured
securities, the tax status of the pass-through of tax-free income may
also be based on the federal and state tax treatment of the structure.
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
bond fund's policies of investing so that at least 80% of its income
is free from federal income tax and the money market fund's policies
of investing so that at least 80% of its income distributions are free
form 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 the bond fund's policy
of investing so that at least 80% of its income is free from federal
income tax and the money market fund's policies of investing so that
at least 80% of its income distributions are free form federal income
tax. The Michigan Municipal Money Market fund 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 Michigan Municipal Money Market and Michigan Municipal
Income 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 Michigan Money
Market and Municipal Income are exempt from the Michigan intangibles
tax to the extent the funds invest in obligations exempt from the
intangibles tax.
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 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 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 fund does not
anticipate distributing long-term capital gains.
[FOR FUNDS DECLARING A CAPITAL GAIN DIVIDEND: As of December 31, 1997,
the fund hereby designates approximately $_______ as a capital gain
dividend for the purpose of the dividend-paid deduction.]
(USE THIS PARAGRAPH ONLY FOR FUNDS WITH A CAPITAL LOSS CARRYOVER) As
of December 31, 1997, [the fund/[Name(s) of Fund(s)] had a capital
loss 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 and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds of
Fidelity Municipal Trust (bond fund) and Fidelity Municipal Trust II
(money market fund) for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal income taxes, shareholders may be
subject to state and local taxes on fund distributions, and shares may
be subject to state and local personal property taxes. Investors
should consult their tax advisers to determine whether a fund is
suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the Investment Company Act of 1940 (1940 Act), control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, 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
accounts 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, Members of the Advisory Board, 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 and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, 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 (67), 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 (56), Member of the Advisory Board (1997), is Vice
Chairman and a Member of the Board of Directors of FMR Corp. (1997)
and President Fidelity Personal Investments and Brokerage Group
(1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX (65), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS (66), 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),
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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70), Trustee. 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), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65), 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, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, 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). 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.
WILLIAM O. McCOY (64), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director of York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp.
(hydraulic systems, building systems, and metal products, 1992), CUNO,
Inc. (liquid and gas filtration products, 1996), and Associated
Estates Realty Corporation (a real estate investment trust, 1993). Mr.
McDonough served as a Director of ACME-Cleveland Corp. (metal working,
telecommunications, and electronic products) from 1987-1996 and
Brush-Wellman Inc. (metal refining) from 1983-1997.
MARVIN L. MANN (64), 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), Imation Corp. (imaging and information storage, 1997), 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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power Company
(electric utility), National Life Insurance Company of Vermont,
American Software, Inc., and AppleSouth, Inc. (restaurants, 1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, group
leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
BOYCE I. GREER (41), is Vice President of Money Market Funds (1997),
Group Leader of the Money Market Group (1997), and Senior Vice
President of FMR (1997). Mr. Greer served as the Leader of the
Fixed-Income Group for Fidelity Management Trust Company (1993-1995)
and was Vice President and Group Leader of Municipal Fixed-Income
Investments (1996-1997). Prior to 1993, Mr. Greer was an associate
portfolio manager.
FRED L. HENNING, JR. (58), is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
DIANE M. MCLAUGHLIN (34), is Vice President of Fidelity Michigan
Municipal Money Market Fund (1996), and other funds advised by FMR.
Ms. Laughlin joined Fidelity in 1992 as a senior trader and has
managed a variety of funds since 1996.
DAVID L. MURPHY (49), is Vice President of Spartan Michigan Municipal
Income Fund (1996), and other funds advised by FMR. Prior to his
current resposibilities, Mr. Murphy has managed a variety of Fidelity
funds.
ARTHUR S. LORING (50), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the Fidelity
funds and is an employee of FMR (1997). Before joining FMR, Mr. Silver
served as Executive Vice President, Fund Accounting & Administration
at First Data Investor Services Group, Inc. (1996-1997). Prior to
1996, Mr. Silver was Senior Vice President and Chief Financial Officer
at The Colonial Group, Inc. Mr. Silver also served as Chairman of the
Accounting/Treasurer's Committee of the Investment Company Institute
(1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant Vice
President of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds and Vice President and Associate General Counsel of
FMR Texas Inc.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (51), 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)
and Chief Financial Officer of Fidelity Brokerage Services, Inc.
(1990-1993).
THOMAS J. SIMPSON (39), Assistant Treasurer, is Assistant Treasurer of
Fidelity's municipal bond funds (1996) and of Fidelity's money market
funds (1996) and an employee of FMR (1996). Prior to joining FMR, Mr.
Simpson was Vice President and Fund Controller of Liberty Investment
Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended December 31, 1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Aggregate Aggregate Total
and Compensation Compensation Compensation
Members of the Advisory Board from from from the
Spartan Michigan Fidelity Michigan Fund Complex*
Municipal Municipal Money A
Income[B,]C Market[B,]D
[,+] [,+]
J. Gary Burkhead ** $ $ $ 0
Ralph F. Cox $ $ 137,700
Phyllis Burke Davis $ $ 134,700
Richard J. Flynn*** $ $ 168,000
Robert M. Gates **** $ $ 0
Edward C. Johnson 3d ** $ $ 0
E. Bradley Jones $ $ 134,700
Donald J. Kirk $ $ 136,200
Peter S. Lynch ** $ $ 0
William O. McCoy***** $ $ 85,333
Gerald C. McDonough $ $ 136,200
Edward H. Malone*** $ $ 136,200
Marvin L. Mann $ $ 134,700
Robert C. Pozen** $ $ 0
Thomas R. Williams $ $ 136,200
</TABLE>
* Information is for the calendar year ended December 31, 1996 for 235
funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of
Trustees through December 31, 1996.
****Mr. Gates was appointed to the Board of Trustees [of [Name(s) of
Trust(s)]] effective March 1, 1997. Mr. Gates was elected to the Board
of Trustees [of [Name(s) of Trust(s)]] on [date of shareholder
meeting].]
*****During the period from May 1, 1996 through December 31, 1996,
William O. McCoy served as a Member of the Advisory Board of
[the/each] trust. Mr. McCoy was appointed to the Board of Trustees [of
[Name(s) of Trust(s)]] effective January 1, 1997. Mr. McCoy was
elected to the Board of Trustees [of [Name(s) of Trust(s)]] on [date
of shareholder meeting].
A Compensation figures include cash, a pro rata portion of benefits
accrued under the retirement program for the period ended December 30,
1996 and required to be deferred, and may include amounts deferred at
the election of Trustees.
B Compensation figures include cash, and may include amounts required
to be deferred, a pro rata portion of benefits accrued under the
retirement program for the period ended December 30, 1996 and required
to be deferred, and amounts deferred at the election of Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, M. Gates,
$__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O. McCoy,
$__,] Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L. Mann,
$__, and Thomas R. Williams, $__.
F For the fiscal year ended _____, 199_, certain of the non-interested
Trustees' aggregate compensation from [the/a] fund includes accrued
voluntary deferred compensation as follows: [trustee name, dollar
amount of deferred compensation, fund name]; [trustee name, dollar
amount of deferred compensation, fund name]; and [trustee name, dollar
amount of deferred compensation, fund name].]
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and related
crediting of estimated benefits to the Trustees' Plan accounts did not
result in a material cost to the funds.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately __% of [Fund Name]'s total outstanding shares was held
by [an] FMR affiliate[s]. FMR Corp. is the ultimate parent company of
[this/these] FMR affiliate[s]. By virtue of his ownership interest in
FMR Corp., as described in the "FMR" section on page ___, Mr. Edward
C. Johnson 3d, President and Trustee of the fund, may be deemed to be
a beneficial owner of these shares. As of the above date, with the
exception of Mr. Johnson 3d's deemed ownership of [Fund Name]'s
shares, the Trustees, Members of the Advisory Board, and officers of
the funds owned, in the aggregate, less than __% of each fund's total
outstanding shares.]
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE], the
Trustees, Members of the Advisory Board, and officers of each fund
owned, in the aggregate, less than __% of each fund's total
outstanding shares.]
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE], the
following owned of record or beneficially 5% or more of a fund's
outstanding shares:]
(IF FUND HAS A SHAREHOLDER WHO OWNS 25% OR MORE): A shareholder owning
of record or beneficially more than 25% of a fund's outstanding shares
may be considered a controlling person. That shareholder's vote could
have a more significant effect on matters presented at a shareholders'
meeting than votes of other shareholders.]
MANAGEMENT CONTRACTS
FMR is manager of Michigan Municipal Money Market and Spartan Michigan
Municipal Income pursuant to management contracts dated August 1, 1997
and January 1, 1994, respectively, which were approved by shareholders
on July 16, 1997 and December 15, 1993, respectively.
Prior to August 1, 1997, FMR was Michigan Municipal Money Market's
manager pursuant to a management contract dated February 28, 1992,
which was approved by shareholders on February 28, 1992.
MANAGEMENT SERVICES. Each fund employs FMR to furnish investment
advisory and other services. Under the terms of 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 the fund in accordance with its investment objective, policies, and
limitations. FMR also provides each fund with all necessary office
facilities and personnel for servicing the 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent and pricing and bookkeeping agent, each
fund pays all of its expenses 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. Each fund's management
contract further provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders; however, under the
terms of each fund's transfer agent agreement, the transfer agent
bears the costs of providing these services to existing shareholders.
Other expenses paid by each fund include interest, taxes, brokerage
commissions, the fund's proportionate share of insurance premiums and
Investment Company Institute dues, and the costs of registering shares
under federal securities laws and making necessary filings under state
securities laws. Each 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.
MANAGEMENT FEES. For the services of FMR under the management
contract, each fund pays FMR a monthly management fee which has two
components: 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.
The following is the fee schedule for Fidelity Michigan Municipal
Money Market Fund.
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 August 1, 1997, 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 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.
On August 1, 1994, FMR voluntarily revised the prior extensions to
the group fee rate schedule, and added new breakpoints for average
group assets in excess of $156 billion and under $372 billion as shown
in the schedule below. The revised group fee rate schedule was
identical to the above schedule for average group assets under $156
billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion.
The revised group fee rate schedule and its extensions provide for
lower management fee rates as FMR's assets under management increase.
The fund's current management contract reflects the group fee rate
schedule above for average group assets under $156 billion and the
group fee rate schedule below 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
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The following is the fee schedule for Spartan Michigan Municipal
Income Fund.
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 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. 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 for average group
assets in excess of $156 billion and under $372 billion as shown in
the schedule below. The revised group fee rate schedule is identical
to the above schedule for average group assets under $156 billion.
On January 1, 1996, FMR voluntarily added new breakpoints to the
revised schedule for average group assets in excess of $372 billion,
pending shareholder approval of a new management contract reflecting
the revised schedule and additional breakpoints. The revised group fee
rate schedule and its extensions provide for lower management fee
rates as FMR's assets under management increase. For average group
assets in excess of $156 billion, the revised group fee rate schedule
with additional breakpoints 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
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above 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 1997 - was ___%, which is the weighted average of the
respective fee rates for each level of group net assets up to $__
billion.
Each fund's individual fund fee rate is 0.25%. Based on the average
group net assets of the funds advised by FMR for December 1997, each
fund's annual management fee rate would be calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Group Fee Rate Individual Fund Fee Rate Management
Fee Rate
Fidelity Michigan 0.___% + 0.25% = 0.___%
Municipal Money
Market
Spartan Michigan 0.___% + 0.25% = 0.___%
Municipal Income
</TABLE>
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 following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years.
<TABLE>
<CAPTION>
<S> <C> <C>
Fund
Fiscal Years Ended Management Fees
December 31 Paid to FMR
Fidelity Michigan Municipal Money Market 1997 $
1996 $930,291
1995 $881,070
Spartan Michigan Municipal Income 1997 $
1996 $1,839,031
1995 $1,902,956
</TABLE>
FMR may, from time to time, voluntarily reimburse all or a portion of
a 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 a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
Effective April 1, 1997, FMR voluntarily agreed, subject to revision
or termination, to reimburse Spartan Michigan Municipal Income if and
to the extent that its aggregate operating expenses, including
management fees, were in excess of an annual rate of 0.55% of its
average net assets. For the fiscal years ended December 1997, 1996,
and 1995, management fees incurred under the fund's contract prior to
reimbursement amounted to $_________, $___________, and $_________,
respectively.
SUB-ADVISER. On behalf of Fidelity Michigan Municipal Money Market
Fund, FMR has entered into a sub-advisory agreement with FMR Texas
pursuant to which FMR Texas has primary responsibility for providing
portfolio investment management services to the fund.
Under the terms of the sub-advisory agreement, dated February 28,
1992, which was approved by shareholders on February 28, 1992, FMR
pays FMR Texas fees equal to 50% of the management fee payable to FMR
under its management contract with the fund. The fees paid to FMR
Texas are not reduced by any voluntary or mandatory expense
reimbursements that may be in effect from time to time.
On behalf of Fidelity Michigan Municipal Money Market Fund, for the
fiscal years ended December 31, 1997, 1996, and 1995, FMR paid FMR
Texas fees of $_______, $465,145 and $430,535, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (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 the 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 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. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, each Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services.
[IF FMR MADE ANY DEFENSIVE THIRD PARTY PAYMENTS IN CALENDAR YEAR:
Payments made by FMR through FDC to third parties for the fiscal year
ended 1997 amounted to $_____ [for [Fund/Class Name]], $_____ [for
[Fund/Class Name]], and $______ [for [Fund/Class Name]].
[IF FMR DID NOT MAKE ANY DEFENSIVE THIRD PARTY PAYMENTS IN CALENDAR
YEAR: FMR made no payments through FDC to third parties for the fiscal
year ended 1997.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each 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 each Plan gives FMR and FDC greater flexibility in
connection with the distribution of shares, additional sales of fund
shares may result. Furthermore, certain shareholder support services
may be provided more effectively under the Plan[s] by local entities
with whom shareholders have other relationships.
The Plan for the money market fund was approved by FMR as the then
sole shareholder of the fund on February 28, 1992. The fund's plan was
approved by shareholders,in connection with a reorganization
transaction on December 11, 1991, pursuant to an Agreement and Plan of
Conversion. The Plan for the bond fund was approved by shareholders of
the 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 other 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
Each fund has entered into a transfer agent agreement with UMB. Under
the terms of the agreements, UMB provides transfer agency, dividend
disbursing, and shareholder services for each fund. UMB in turn has
entered into sub-transfer agent agreements with FSC, an affiliate of
FMR. Under the terms of the sub-agreements, FSC performs all
processing activities associated with providing these services for
each fund and receives all related transfer agency fees paid to UMB.
For providing transfer agency services, FSC receives an annual account
fee and an asset-based fee each based on account size and fund type
for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in each Fidelity Freedom Fund,
a fund of funds managed by an FMR affiliate, according to the
percentage of the Freedom Fund's assets that is invested in a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
FSC has entered into a sub-agreement with Fidelity Brokerage Services,
Inc. (FBSI), an affiliate of FMR. Under the terms of this
sub-agreement, FBSI performs certain recordkeeping, communication, and
other services for fund shareholders of Michigan Municipal Money
Market participating in the Fidelity Ultra Service Account program.
FBSI directly charges a monthly administrative fee to each Ultra
Service Account client who chooses certain additional features. This
fee is in addition to the transfer agency fee received by FSC.
Each fund has also entered into a service agent agreement with UMB.
Under the terms of the agreements, UMB provides pricing and
bookkeeping services for each fund. UMB in turn has entered into
sub-service agent agreements with FSC. Under the terms of the
sub-agreements, FSC performs all processing activities associated with
providing these services, including calculating the NAV and dividends
for each fund and maintaining each fund's portfolio and general
accounting records, and receives all related pricing and bookkeeping
fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month. The annual fee rates for pricing and bookkeeping services are
.0400% for fixed-income funds, .0175% for money market funds of the
first $500 million of average net assets and .0200% for fixed-income
funds, .0075% for money market funds of average net assets in excess
of $500 million. The fee, not including reimbursement for
out-of-pocket expenses, is limited to a minimum of $60,000 for
fixed-income funds, $40,000 for money market funds and a maximum of
$800,000 per year..
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
Fund 1997 1996 1995
Fidelity Michigan Municipal Money Market $ $ 49,657 $ 45,937
Spartan Michigan Municipal Income $ $ 203,023 $ 202,658
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan Michigan Municipal Income Fund is a fund
(series) of Fidelity Municipal Trust(the Massachusetts trust) 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 Massachusetts trust: Advisor Municipal Bond
Fund, Spartan Aggressive Municipal Fund, Spartan Insured Municipal
Income Fund, Spartan Ohio Municipal Income Fund, Spartan Michigan
Municipal Income Fund, Spartan Minnesota Municipal Income Fund, and
Spartan Pennsylvania Municipal Income Fund. The Massachusetts trust's
Declaration of Trust permits the Trustees to create additional funds.
Fidelity Michigan Municipal Money Market Fund is a fund (series) of
Fidelity Municipal Trust II (the Delaware trust) is an open-end
management investment company organized as a Delaware business trust
on June 20, 1991. The fund acquired all of the Fidelity Michigan
Municipal Money Market Fund of Fidelity Municipal Trust on February
28, 1992. Currently, there are three funds of the Delaware trust:
Fidelity Michigan Municipal Money Market, Fidelity Ohio Municipal
Money Market, and Spartan P ennsylvania Municipal Money Market.
The Delaware trust's Trust Instrument permits the Trustees to create
additional funds.
In the event that FMR ceases to be investment adviser to a trust or
any of its funds, the right of the trust or the fund to use the
identifying names "Fidelity" and "Spartan" may be withdrawn. There is
a remote possibility that one fund might become liable for any
misstatement in its prospectus or statement of additional information
about another fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general expenses of their respective
trusts. Expenses with respect to the trusts are to be allocated in
proportion to the asset value of their respective funds, except where
allocations of direct expense can otherwise be fairly made. The
officers of the trusts, subject to the general supervision of the
Boards of Trustees, have the power to determine which expenses are
allocable to a given fund, or which are general or allocable to all of
the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The
Massachusetts trust is an entity of the type commonly known as
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust. The Declaration of Trust
provides that the Massachusetts trust shall not have any claim against
shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or instrument entered
into or executed by the Massachusetts trust or its Trustees shall
include a provision limiting the obligations created thereby to the
Massachusetts trust and its assets. The Declaration of Trust provides
for indemnification out of each fund's property of any shareholders
held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any
act or obligation of the fund and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust
is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations
of personal liability extended to stockholders of private corporations
for profit. The courts of some states, however, may decline to apply
Delaware law on this point. The Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities,
obligations, and expenses of the Delaware trust and requires that a
disclaimer be given in each contract entered into or executed by the
Delaware trust or its Trustees. The Trust Instrument provides for
indemnification out of each fund's property of any shareholder or
former shareholder held personally liable for the obligations of the
fund. The Trust Instrument also provides that each fund shall, upon
request, assume the defense of any claim made against any shareholder
for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability
was in effect, and the fund is unable to meet its obligations. FMR
believes that, in view of the above, the risk of personal liability to
shareholders is extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any
conduct whatsoever, provided that Trustees are not protected against
any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. 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; 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
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
Fidelity Municipal Trust II 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 any
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. _____________________, One Post Office Square, Boston,
Massachusetts (bond fund) and 1999 Bryan Street, Dallas, Texas (money
market fund) serves as the trusts' independent accountant. The auditor
examines financial statements for the funds and provides other audit,
tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended December 31, 1997, and report of the auditor, are
included in the funds' Annual Report, which is a separate report
supplied with this SAI. The funds' financial statements, including the
financial highlights, and report of the auditor are incorporated
herein by reference. For a free additional copy of the funds' Annual
Report, contact Fidelity at 1-800-544-8888, 82 Devonshire Street,
Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. When a municipal bond issuer has committed to call
an issue of bonds and has established an independent escrow account
that is sufficient to, and is pledged to, refund that issue, the
number of days to maturity for the prerefunded bond is considered to
be the number of days to the announced call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for short-term municipal obligations will be
designated Moody's Investment Grade ("MIG"). A two-component rating is
assigned to variable rate demand obligations. The first component
represents an evaluation of the degree of risk associated with
scheduled principal repayment and interest payments and is designated
by a long-term rating, e.g., "Aaa" or "A." The second component
represents an evaluation of the degree of risk associated with the
demand feature and is designated "VMIG."
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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature
are assigned a dual rating. The first rating addresses the likelihood
of repayment of principal and payment of interest due and for
short-term obligations is designated by a note rating symbol. The
second rating addresses only the demand feature, and is designated by
a commercial paper rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest
quality). Those bonds within the Aa through B categories that Moody's
believes possess the strongest credit attributes within those
categories are designated by the symbol "1."
AAA - Bonds that 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 that 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 that 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 that 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 that 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 that 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA through CCC may be modified by the addition of a plus sign (+) or
minus sign (-) to show relative standing within the major rating
categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
FIDELITY MUNICIPAL TRUST II:
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
FORM N-1A
ITEM NUMBER PROSPECTUS SECTION
<TABLE>
<CAPTION>
<S> <C>
1...................................... Cover Page
2a.................................... Expenses
b, c............................... Contents; The Fund at a Glance; Who May Want to
Invest
3a.................................... **
b................................... *
c, d............................. Performance
4a 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
5a.................................... Charter
b i.............................. Cover Page; The Fund 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
6a 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.................................. Sales Charge Reductions and Waivers
d.................................. How to Buy Shares
e.................................. *
f................................ *
8...................................... How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions
9...................................... *
</TABLE>
* Not Applicable
SPARTAN MARYLAND MUNICIPAL INCOME FUND
CROSS REFERENCE SHEET
(continued)
FORM N-1A
ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION
<TABLE>
<CAPTION>
<S> <C>
10, 11............................. Cover Page
12.................................... Description of the Trust
13a - c............................ Investment Policies and Limitations
d.................................. Portfolio Transactions
14a - c............................ Trustees and Officers
15a,b.......................... *
c.............................. Trustees and Officers
16a i................................ FMR, Portfolio Transactions
ii.............................. Trustees and Officers
iii.............................. Management Contract
b................................. Management Contract
c, d............................. Contracts with FMR Affiliates
e - g........................... *
h................................. Description of the Trust
i................................. Contracts with FMR Affiliates
17a .-d........................... Portfolio Transactions
e.............................. *
18a.................................. Description of the Trust
b................................. *
19a.................................. Additional Purchase and Redemption Information
b................................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities
c................................. *
20.................................... Distributions and Taxes
21a, b............................ Contracts with FMR Affiliates
c................................. *
22A ............................... *
22B................................. Performance
23.................................... **
</TABLE>
* Not Applicable
**To be filed by subsequent amendment
**To be filed by subsequent amendment
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how
each fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a
copy of each fund's most recent financial report and portfolio
listing, or a copy of the Statement of Additional Information (SAI)
dated February 26, 1998 . The SAI has been filed with the
Securities and Exchange Commission (SEC) and is available along with
other related materials on the SEC's Internet Web site
(http://www.sec.gov). The SAI is incorporated herein by reference
(legally forms a part of the prospectus). For a free copy of either
document, call Fidelity at 1-800-544-8888.
Investments in the money market fund are neither insured nor
guaranteed by the U.S. government, and there can be no assurance that
the fund will maintain a stable $1.00 share price.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND MAY INVEST A
SIGNIFICANT PERCENTAGE OF ITS ASSETS IN THE SECURITIES OF A SINGLE
ISSUER AND THEREFORE MAY BE RISKIER THAN OTHER TYPES OF MONEY MARKET
FUNDS.
Mutual fund shares are not deposits or obligations of, or guaranteed
by, any depository institution. Shares are not insured by the FDIC,
Federal Reserve Board, or any other agency, and are subject to
investment risks, including possible loss of principal amount
invested.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSIO N, N OR HAS
THE SECURITIES AND EXCHANGE
COMMISSIO N P ASSED UPON THE
ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
PFR-pro-0298
Each fund seeks a high level of current income free from federal
income tax and Pennsylvania personal income tax.
SPARTAN(REGISTERED TRADEMARK)
PENNSYLVANIA
MUNICIPAL
FUNDS
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
invests in high-quality, short-term municipal money market securities
and is designed to maintain a stable $1.00 share price.
(fund number 401, trading symbol FPTXX)
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
seeks to provide higher yields by investing in a broader range of
municipal securities.
(fund number 402, trading symbol FPXTX)
PROSPECTUS
FEBRUARY 26, 1998(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET,
BOSTON, MA 02109
CONTENTS
KEY FACTS 3 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 11 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
GOAL: High current tax-free income for Pennsylvania residents.
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. (FMR
Texas), a subsidiary of FMR, chooses investments for Spartan
Pennsylvania Municipal Money Market.
As with any mutual fund, there is no assurance that a fund will
achieve its goal.
SPARTAN PA MUNI MONEY
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and
Pennsylvania personal income tax, while maintaining a stable $1.00
share price.
SIZE: As of December 31, 1997, the fund had over $__
[m/b]illion in assets.
SPARTAN PA MUNI INCOME
STRATEGY: Normally invests in investment-grade municipal securities
whose interest is free from federal income tax and Pennsylvania
personal income tax. Managed to generally react to changes in interest
rates similarly to municipal bonds with maturities between eight and
18 years.
SIZE: As of December 31, 1997, the fund had over $__
[m/b]illion in assets.
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 Pennsylvania personal income tax. Each fund's level of
risk and potential reward depend on the quality and maturity of its
investments. The money market fund is managed to keep its share price
stable at $1.00. The bond fund, with its broader range of investments,
has the potential for higher yields, but also carries a higher degree
of risk.
You should consider your investment objective and tolerance for risk
when making an investment decision.
The value of the funds' investments and the income they generate will
vary from day to day, and generally reflect interest rates, market
conditions, and other federal and state political and economic news.
When you sell your shares of the bond fund, they may be worth more or
less than what you paid for them. By themselves, these funds do not
constitute a balanced investment plan.
Non-diversified funds may invest a greater portion of their assets
in securities of individual issuers than diversified funds. As a
result, changes in the market value of a single issuer could cause
greater fluctuations in share value than would occur in a more
diversified fund.
THE SPECTRUM OF
FIDELITY FUNDS
BROAD CATEGORIES OF FIDELITY
FUNDS ARE PRESENTED HERE IN
ORDER OF ASCENDING RISK.
GENERALLY, INVESTORS SEEKING TO
MAXIMIZE RETURN MUST ASSUME
GREATER RISK. SPARTAN
PENNSYLVANIA MUNICIPAL MONEY
MARKET IS IN THE MONEY MARKET
CATEGORY, AND SPARTAN
PENNSYLVANIA MUNICIPAL
INCOME IS IN THE INCOME
CATEGORY.
(RIGHT ARROW) MONEY MARKET SEEKS
INCOME AND STABILITY BY
INVESTING IN HIGH-QUALITY,
SHORT-TERM INVESTMENTS.
(RIGHT ARROW) INCOME SEEKS INCOME BY
INVESTING IN BONDS.
(SOLID BULLET) GROWTH AND INCOME SEEKS
LONG-TERM GROWTH AND INCOME
BY INVESTING IN STOCKS AND
BONDS.
(SOLID BULLET) GROWTH SEEKS LONG-TERM
GROWTH BY INVESTING MAINLY IN
STOCKS.
(CHECKMARK)
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you may pay when you buy,
sell, or exchange shares of a fund. In addition, you may be charged an
annual account maintenance fee if your account balance falls below
$2,500. See "Transaction Details," page __, for an explanation
of how and when these charges apply.
Sales charge on purchases None
and reinvested distributions
Deferred sales charge on redemptions None
Redemption fee (Short-term trading fee)
on shares held less than 180 days
(as a % of amount redeemed)
for Spartan PA Muni Income only 0.50%
Exchange fee
for Spartan PA Muni Money only $5.00
Wire transaction fee $5.00
for Spartan PA Muni Money only
Checkwriting fee, per check written $2.00
for Spartan PA Muni Money only
Account closeout fee $5.00
for Spartan PA Muni Money only
Annual account maintenance fee (for accounts under $2,500) $12.00
THE FEES FOR INDIVIDUAL TRANSACTIONS (except the short-term
trading fee) are waived if your account balance at the time of the
transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets.
Each fund pays a management fee to FMR. FMR is responsible for the
payment of all other expenses for each fund with certain limited
exceptions. Expenses are factored into each fund's share price or
dividends and are not charged directly to shareholder accounts (see
"Breakdown of Expenses" page ).
The following figures are based on historical expenses, adjusted to
reflect current fees, and are calculated as a percentage of average
net assets. FMR has entered into arrangements on behalf of each
fund with the fund's custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to
reduce fund expenses. Including these reductions , the total
operating expenses presented in the table would have been __% for
Spartan Pennsylvania Municipal Money Market and __% for Spartan
Pennsylvania Municipal Income .
SPARTAN PA MUNI MONEY
Management fee 0.50%
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.50%
SPARTAN PA MUNI INCOME
Management fee 0.55%
12b-1 fee None
Other expenses 0.00%
Total fund operating expenses 0.55%
EXAMPLES: Let's say, hypothetically, that each fund's annual return is
5% and that your shareholder transaction expenses and each fund's
annual 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 and
for Spartan Pennsylvania Municipal Money Market, if you leave your
account open:
SPARTAN PA MUNI MONEY
Account open Account closed
1 year $ $
3 years $ $
5 years $ $
10 years $ $
SPARTAN PA MUNI INCOME
1 year $
3 years $
5 years $
10 years $
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected expenses 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.
EACH FUND'S MANAGEMENT FEE IS
PAID FROM THE FUND'S ASSETS,
AND ITS EFFECT IS ALREADY
FACTORED INTO ANY QUOTED SHARE
PRICE OR RETURN. OTHER EXPENSES
ARE PAID BY FMR OUT OF THE
FUND'S MANAGEMENT FEE. ALSO,
AS AN INVESTOR, YOU MAY PAY
CERTAIN EXPENSES DIRECTLY.
(CHECKMARK)
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow have been audited
by _________
________, independent accountants. The funds' financial highlights,
financial statements, and report of the auditor are included in the
funds' Annual Report, and are incorporated by reference into (are
legally a part of) the funds' SAI. Contact Fidelity for a free copy of
an Annual Report or the SAI.
[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 and do
not reflect the effect of any transaction fees you may have paid. The
figures would be lower if fees were taken into account.
Each fund's fiscal year runs from January 1 through December 31. The
tables below show each fund's performance over past fiscal years
compared to different measures, including a comparative index and a
competitive funds average for the bond fund and a measure of inflation
for the money market fund. Data for the comparative index for Spartan
Pennsylvania Municipal Income is available only from June 30, 1993 to
the present. The chart on page __ presents calendar year
performance for the bond fund and does not include the effect of the
$5 account closeout fee.
AVERAGE ANNUAL TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan PA Muni Money % % %
Consumer Price Index % % %
Spartan PA Muni Income % % %
Lehman Bros. PA Muni. Bond Index % % %
Lipper PA Muni. Debt Funds Average % % %
CUMULATIVE TOTAL RETURNS
Fiscal periods ended Past 1 Past 5 Past 10
December 31, 1997 year years years
Spartan PA Muni Money % % %
Consumer Price Index % % %
Spartan PA Muni Income % % %
Lehman Bros. PA Muni. Bond Index % % %
Lipper PA Muni. Debt Funds Average % % %
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)
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment 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 fund 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.
LEHMAN BROTHERS PENNSYLVANIA MUNICIPAL BOND INDEX is a total return
performance benchmark for Pennsylvania investment-grade municipal
bonds with maturities of at least one year.
Unlike the fund's returns, the total returns of the comparative index
do not include the effect of any brokerage commissions, transaction
fees, or other costs of investing.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. Government.
THE COMPETITIVE FUNDS AVERAGE is the Lipper Pennsylvania Municipal
Debt Funds Average for Spartan Pennsylvania Municipal Income. As of
December 31, 1997, the average reflected the performance of ___
mutual funds with similar investment objectives. This average,
published by Lipper Analytical Services, Inc., excludes the effect
of sales loads.
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.
YEAR-BY-YEAR TOTAL RETURNS
Calendar years 1988 1989 1990 1991 1992 1993 1994 1995 1996
1997
SPARTAN PA
MUNI INCOME % % % % % % % % % %
Lipper PA Muni. Debt Funds Average % % % % % % % % % %
Consumer Price Index % % % % % % % % % %
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 1, Col: 2, Value: nil
Row: 2, Col: 1, Value: nil
Row: 2, Col: 2, Value: nil
Row: 3, Col: 1, Value: nil
Row: 3, Col: 2, Value: nil
Row: 4, Col: 1, Value: nil
Row: 4, Col: 2, Value: nil
Row: 5, Col: 1, Value: nil
Row: 5, Col: 2, Value: nil
Row: 6, Col: 1, Value: nil
Row: 6, Col: 2, Value: nil
Row: 7, Col: 1, Value: nil
Row: 7, Col: 2, Value: nil
Row: 8, Col: 1, Value: nil
Row: 8, Col: 2, Value: nil
Row: 9, Col: 1, Value: nil
Row: 9, Col: 2, Value: nil
Row: 10, Col: 1, Value: nil
Row: 10, Col: 2, Value: nil
(large solid box) Spartan PA
Muni Income
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. Spartan Pennsylvania
Municipal Income Fund is a non-diversified fund of Fidelity Municipal
Trust, and Spartan Pennsylvania Municipal Money Market Fund is a
non-diversified fund of Fidelity Municipal Trust II. Both trusts are
open-end management investment companies. Fidelity Municipal Trust was
organized 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 periodically throughout the year to oversee the
funds' activities, review contractual arrangements with companies that
provide services to the funds, and review the funds' performance.
The trustees serve as trustees for other Fidelity funds. The
majority of trustees are not otherwise affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL SHAREHOLDER 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. FMR Texas, located in Irving, Texas,
has primary responsibility for providing investment management
services for the money market fund.
Jonathan Short is manager of Spartan Pennsylvania Municipal Income,
which he has managed since April 1997. He also manages several other
Fidelity funds. Since joining Fidelity in 1990, Mr. Short has worked
as an analyst and manager.
Fidelity investment personnel may inves t in securities for their
own accounts 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.
UMB Bank, n.a. (UMB) is each fund's transfer agent, and is located
at 1010 Grand Avenue, Kansas City, Missouri. UMB employs Fidelity
Service Company, Inc. (FSC) to perform transfer agent servicing
functions for each fund.
FMR Corp. is the ultimate parent company of FMR and FMR Texas. Members
of the Edward C. Johnson 3d family are the predominant owners of a
class of shares of common stock representing approximately 49% of the
voting power of FMR Corp. Under the Investment Company Act of 1940
(the 1940 Act), control of a company is presumed where one individual
or group of individuals owns more than 25% of the voting stock of that
company; therefore, the Johnson family may be deemed under the 1940
Act to form a controlling group with respect to FMR Corp.
As of , approximately ____% and ____% of each of [NAME OF FUND]'s
and [NAME OF FUND]'s total outstanding shares, respectively, were held
by [FMR/FMR and [an] FMR affiliate[s]/[an] FMR affiliate[s].]
As of , approximately ____% of [NAME OF FUND]'s total outstanding
shares were held by [NAME OF SHAREHOLDER]; approximately ___% of [NAME
OF FUND]'s total outstanding shares were held by [NAME OF
SHAREHOLDER]; and approximately ___% of [NAME OF FUND]'s total
outstanding shares were held by [NAME OF SHAREHOLDER].]
FMR may use its broker-dealer affiliates and other firms that
sell fund shares to carry out a fund's transactions, provided that the
fund receives brokerage services and commission rates comparable to
those of other broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
MONEY MARKET FUNDS IN GENERAL. The yield of a money market fund will
change daily based on changes in interest rates and market conditions.
Money market funds comply with industry-standard requirements
for the quality, maturity, and diversification of their investments,
which are designed to help maintain a stable $1.00 share price. Of
course, there is no guarantee that a money market fund will be able to
maintain a stable $1.00 share price. It is possible that a major
change in interest rates or a default on a money market fund's
investments could cause its share price (and the value of your
investment) to change.
FIDELITY'S APPROACH TO MONEY MARKET FUNDS. Money market funds earn
income at current money market rates. In managing money market funds,
FMR stresses preservation of capital, liquidity, and income. The money
market fund will purchase only high-quality securities that FMR
believes present minimal credit risks and will observe maturity
restrictions on securities it buys.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET seeks to earn high current
income that is free from federal income tax and Pennsylvania personal
income tax while maintaining a stable $1.00 share price by investing
in high-quality, short-term municipal money market securities of all
types, including longer-term securities with features that modify
their maturity, price characteristics or quality so that they are
eligible investments for the fund. FMR normally invests at least 65%
of the fund's total assets in state municipal securities and normally
invests the fund's assets so that at least 80% of the fund's income
distributions are free from federal income tax.
BOND FUNDS IN GENERAL. The yield and share price of a bond fund change
daily based on changes in interest rates and market conditions, and in
response to other economic, political or financial events. The types
and maturities of the securities a bond fund purchases and the credit
quality of their issuers will impact a bond fund's reaction to these
events.
INTEREST RATE RISK. In general, bond prices rise when interest rates
fall and fall when interest rates rise. Longer-term bonds are usually
more sensitive to interest rate changes. In other words, the longer
the maturity of a bond, the greater the impact a change in interest
rates is likely to have on the bond's price. In addition, short-term
interest rates and long-term interest rates do not necessarily move in
the same amount or in the same direction. A short-term bond tends to
react to changes in short-term interest rates and a long-term bond
tends to react to changes in long-term interest rates.
ISSUER RISK. The price of a bond is affected by the credit quality of
its issuer. Changes in the financial condition of an issuer, changes
in general economic conditions, and changes in specific economic
conditions that affect a particular type of issuer can impact the
credit quality of an issuer. Lower quality bonds generally tend to be
more sensitive to these changes than higher quality bonds.
MUNICIPAL MARKET RISK. Municipal securities are backed by the entity
that issued them and/or other revenue streams. Municipal security
values may be significantly affected by political changes as well as
uncertainties in the municipal market related to taxation or the
rights of municipal securities holders.
FIDELITY'S APPROACH TO BOND FUNDS. The total return from a bond
includes both income and price gains or losses. In selecting
investments for a bond fund, FMR considers a bond's expected income
together with its potential for price gains or losses. While income is
the most important component of bond returns over time, a bond fund's
emphasis on income does not mean the fund invests only in the
highest-yielding bonds available, or that it can avoid losses of
principal.
FMR focuses on assembling a portfolio of income-producing bonds that
it believes will provide the best balance between risk and return
within the range of eligible investments for the fund. FMR's
evaluation of a potential investment includes an analysis of the
credit quality of the issuer, its structural features, its current
price compared to FMR's estimate of its long-term value, and any
short-term trading opportunities resulting from market inefficiencies.
In structuring a bond fund, FMR allocates assets among different
market sectors (for example, general obligation bonds of a state or
bonds financing a specific project) and different maturities based on
its view of the relative value of each sector or maturity. The
performance of the fund will depend on how successful FMR is in
pursuing this approach.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME seeks high current income that
is free from federal income tax and Pennsylvania personal income tax
by investing in investment-grade municipal securities under normal
conditions. FMR normally invests the fund's assets so that at least
80% of the fund's income is free from both federal and Pennsylvania
income taxes.
Although the fund does not maintain an average maturity within a
specified range, FMR seeks to manage the fund so that it generally
reacts to changes in interest rates similarly to municipal bonds with
maturities between eight and 18 years. As of December 31, 1997, the
fund's dollar-weighted average maturity was approximately __ years.
EACH FUND normally invests in municipal securities. FMR may invest all
of each fund's assets in municipal securities issued to finance
private activities. The interest from these securities is a
tax-preference item for purposes of the federal alternative minimum
tax.
Each fund's performance is affected by the economic and political
conditions within the state of Pennsylvania. Historically,
Pennsylvania has been identified as a heavy industry state, although
that reputation has changed over the last thirty years, as the
industrial composition of the Commonwealth diversified when the coal,
steel, and railroad industries began to decline. Currently, the major
sources of growth in the Commonwealth are in the service sector,
including trade, medical and health services, education, and financial
institutions.
The funds differ primarily with respect to the level of income
provided and the stability of their share price. The money market fund
seeks to provide income while maintaining a stable share price. The
bond fund seeks to provide a higher level of income by investing in a
broader range of securities. As a result, the bond fund does not seek
to maintain a stable share price. In addition, since the money market
fund concentrates its investments in Pennsylvania municipal
securities, an investment in the money market fund may be riskier than
an investment in other types of money market funds.
FMR may use various techniques to hedge a portion of a bond fund's
risks, but there is no guarantee that these strategies will work as
intended. When you sell your shares of a bond fund, 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. The funds do not expect to invest in federally taxable
obligations, and the bond fund does not expect to invest in state
taxable obligations. Each fund also reserves the right to invest
without limitation in short-term instruments, to hold a substantial
amount of uninvested cash, or to invest more than normally permitted
in taxable obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. Any restrictions listed supplement those discussed earlier in
this section. A complete listing of each fund's limitations and more
detailed information about each fund's investments are contained in a
fund's SAI. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these
techniques unless it believes that they are consistent with a fund's
investment objective and policies and that doing so will help a fund
achieve its goal. Fund holdings and recent investment strategies are
detailed in each fund's financial reports, which are sent to
shareholders twice a year. For a free SAI or financial report, call
1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers
to borrow money from investors. The issuer generally pays the investor
a fixed, variable, or floating 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 sold at a
discount from their face values.
Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of credit quality. In general, bond
prices rise when interest rates fall, and fall when interest rates
rise. Longer-term bonds and zero coupon bonds are generally more
sensitive to interest rate changes.
In addition, bond prices are also affected by the credit quality of
the issuer. 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 bond fund normally invests in investment-grade
securities, but reserves the right to invest up to 5% of its assets in
below investment-grade securities (sometimes called "junk bonds"). A
security is considered to be investment-grade if it is rated
investment-grade by Moody's Investors Service (Moody's), Standard &
Poor's (S&P), Duff & Phelps Credit Rating Co., or Fitch Investor
Services, L.P., or is unrated but judged to be of equivalent quality
by FMR. The fund may not invest in securities judged by FMR to be of
equivalent quality to those rated lower than B by Moody's or S&P.
MONEY MARKET SECURITIES are high-quality, short-term instruments
issued by municipalities, local and state governments, and other
entities. These securities may carry fixed, variable, or floating
interest rates. Some money market securities employ a trust or similar
structure to modify the maturity, price characteristics, or quality of
financial assets so that they are eligible investments for money
market funds. If the structure does not perform as intended, adverse
tax or investment consequences may result.
CREDIT AND LIQUIDITY SUPPORT. Issuers may employ various forms of
credit and liquidity enhancement, including letters of credit,
guarantees, puts and demand features, and insurance, provided by
foreign or domestic entities such as banks and other financial
institutions. These arrangements expose a fund to the credit risk of
the entity providing the credit or liquidity support. Changes in the
credit quality of the provider could affect the value of the security
and a fund's share price. In addition, in the case of foreign
providers of credit or liquidity support, extensive public information
about the provider may not be available, and unfavorable political,
economic, or governmental developments could affect its ability to
honor its commitment.
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 fully or partially backed by the local government, or by
the credit of a private issuer or the current or anticipated revenues
from specific projects or assets. Because many municipal securities
are issued to finance similar types of projects, especially those
relating to education, health care, housing, transportation, and
utilities, the municipal markets can be affected by conditions in
those sectors. In addition, all municipal securities may be
affected by uncertainties regarding their tax status, legislative
changes, or rights of municipal securities holders. A municipal
security may be owned directly or through a participation interest.
STATE MUNICIPAL SECURITIES include municipal obligations issued by the
state of Pennsylvania 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 municipal securities include obligations of the U.S.
territories and possessions such as Guam, the Virgin Islands, 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.
ASSET-BACKED SECURITIES include interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. The value of these securities depends on many
factors, including changes in interest rates, the availability
of information concerning the pool and its structure, the
credit quality of the underlying assets, the market's perception of
the servicer of the pool, and any credit enhancement provided. In
addition, these securities may 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 direc tion 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.
PUT FEATURES entitle the holder to put (sell back) a security to the
issuer or another party. In exchange for this benefit, a fund may
accept a lower interest rate. The credit quality of the investment
may be affected by the creditworthiness of the put provider.
Demand features, standby commitments, and tender options are types
of put features.
PRIVATE ENTITIES may be involved in some municipal securities. For
example, industrial revenue bonds are backed by private entities, and
resource recovery bonds often involve private corporations. The
viability of a project or tax incentives could affect the value and
credit quality of these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices,
interest rates, or other factors that affect security values. These
techniques may involve derivative transactions such as buying and
selling options and futures contracts, entering into swap agreements,
and purchasing indexed securities.
FMR can use these practices to adjust the risk and return
characteristics of a fund's portfolio of investments. If FMR judges
market conditions incorrectly or employs a strategy that does not
correlate well with a fund's investments, these techniques could
result in a loss, regardless of whether the intent was to reduce risk
or increase return. These techniques may increase the volatility of a
fund and may involve a small investment of cash relative to the
magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not
perform as promised.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined
by FMR, under the supervision of the Board of Trustees, to be
illiquid, which means that they may be difficult to sell promptly at
an acceptable price. The sale of some illiquid securities and some
other securities may be subject to legal restrictions. Difficulty in
selling securities may result in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS are trading
practices in which payment and delivery for the security take place at
a later date than is customary for that type of security. The market
value of the security could change during this period.
CASH MANAGEMENT. A fund may invest in money market securities and in a
money market fund available only to funds and accounts managed by FMR
or its affiliates, whose goal is to seek a high level of current
income exempt from federal income tax while maintaining a stable $1.00
share price. A major change in interest rates or a default on the
money market fund's investments could cause its share price to change.
RESTRICTIONS: Spartan Pennsylvania Municipal Income does not currently
intend to invest in a money market fund.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry
or type of project. Economic, business, or political changes can
affect all securities of a similar type. A fund that is not
diversified may be more sensitive to changes in the market value of a
single issuer or industry.
RESTRICTIONS: Each fund is considered non-diversified. Generally, to
meet federal tax requirements at the close of each quarter, each 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 issuer. These limitations do not apply to
U.S. Government securities or to securities of other investment
companies. Each fund may invest more than 25% of its total assets in
tax-free securities that finance similar types of projects.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR, or through reverse repurchase agreements. If a fund borrows
money, its share price may be subject to greater fluctuation until the
borrowing is paid off. If a fund makes additional investments while
borrowings are outstanding, this may be considered a form of leverage.
RESTRICTIONS: Each fund may borrow only for temporary or emergency
purposes, but not in an amount exceeding 331/3% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages
are fundamental, that is, subject to change only by shareholder
approval. The following paragraphs restate all those that are
fundamental. All policies stated throughout this prospectus, other
than those identified in the following paragraphs, can be changed
without shareholder approval.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET seeks as high a level of
current income, exempt from federal income tax and Pennsylvania
personal income tax, as is consistent with preservation of capital.
The fund will normally invest so that at least 80% of its income
distributions are exempt from federal income tax.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME seeks as high a level of current
income, exempt from federal income tax and Pennsylvania personal
income tax, as is consistent with its investment characteristics. The
fund will normally invest so that at least 80% of its income is exempt
from federal and Pennsylvania income taxes. FMR anticipates that the
fund ordinarily will be fully invested in obligations whose interest
is exempt from federal income tax and Pennsylvania personal income
tax. The fund invests primarily in municipal bonds judged by FMR to be
of investment-grade quality, although it may invest up to one-third of
its assets in lower quality bonds. The fund may not purchase bonds
that are judged by FMR to be of equivalent quality to those rated
lower than B.
Each fund may borrow only for temporary or emergency purposes, but not
in an amount exceeding 331/3% of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its
share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments
and business affairs. FMR in turn pays fees to an affiliate who
provides assistance with these services for the money market
fund.
FMR may, from time to time, agree to reimburse the funds for
management fees above a specified limit. FMR retains the ability to be
repaid by a fund if expenses fall below the specified limit prior to
the end of the fiscal year. Reimbursement arrangements, which may be
terminated at any time without notice, can decrease a fund's expenses
and boost its performance.
MANAGEMENT FEE
Each fund's management fee is calculated and paid to FMR every
month. FMR pays all of the other expenses of each fund with limited
exceptions. Spartan Pennsylvania Municipal Money Market's and Spartan
Pennsylvania Municipal Income's annual management fee rate are 0.50%
and 0.55% of their average net assets, respectively.
FMR has voluntarily agreed to limit each fund's total operating
expenses to an annual rate of __% of average net assets. These
agreements will continue until _____________.
FMR Texas is Spartan Pennsylvania Municipal Money Market's sub-adviser
and has primary responsibility for managing its investments. FMR is
responsible for providing other management services. FMR pays FMR
Texas 50% of its management fee (before expense reimbursements) for
FMR Texas's services. FMR paid FMR Texas a fee equal to __% of Spartan
Pennsylvania Municipal Money Market's average net assets for the
fiscal year ended December 31, 1997.
UMB is the transfer and service agent for the funds. UMB has
entered into sub-agreements with FSC under which FSC performs transfer
agency, dividend disbursing, shareholder servicing, and accounting
functions for the funds. These services include processing shareholder
transactions, valuing each fund's investments, and calculating each
fund's share price and dividends. FMR, not the funds, pays for these
services.
Under the terms of the sub-agreements, FSC receives all related
fees paid to UMB on behalf of each fund.
Each fund also pays other expenses, such as brokerage fees and
commissions, interest on borrowings, taxes, and the compensation of
trustees who are not affiliated with Fidelity.
To offset shareholder service costs, FMR or its affiliates also
collect Spartan Pennsylvania Municipal Money Market's $5.00
exchange fee, $5.00 account closeout fee, $5.00 fee for wire purchases
and redemptions, and, the $2.00 checkwriting charge.
Each fund has adopted a DISTRIBUTION AND SERVICE PLAN. Each plan
recognizes that FMR may use its management fee revenues, as well as
its past profits or its resources from any other source, to pay FDC
for expenses incurred in connection with the distribution of fund
shares. FMR directly, or through FDC, may make payments to third
parties, such as banks or broker-dealers, that engage in the sale of,
or provide shareholder support services for, the fund's shares.
Currently, the Board of Trustees of each fund has not authorized such
payments.
For the fiscal year ended December 31, 1997, the portfolio turnover
rate for the bond fund was __%. This rate varies 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 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 may purchase or sell shares of the funds through an investment
professional, including a broker, who may charge you a transaction fee
for this service. If you invest through FBSI, another financial
institution, or an investment professional, read their program
materials for any special provisions, additional service features or
fees that may apply to your investment in a fund. Certain features of
the fund, such as the minimum initial or subsequent investment
amounts, may be modified.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have
two or more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per
child without paying federal gift tax. Depending on state laws, you
can set up a custodial account under the Uniform Gifts to Minors Act
(UGMA) or the Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE PRICE TO BUY ONE SHARE of each fund is the fund's net asset
value per share (NAV). The money mar ket fund is managed to keep
its NAV stable at $1.00. Each fund's shares are sold without a
sales charge.
Your shares will be purchased at the next NAV calculated after your
investment is received and accepted. Each fund's NAV is
normally calculated each business day at 4:00 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application
and mail it along with your check. You may also open your account in
person or by wire as described on page . If there is no
application accompanying this prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another
Fidelity fund.
If you buy shares by check or Fidelity Money Line(registered
trademark), and then sell those shares by any method other than by
exchange to another Fidelity fund, the payment may be delayed for up
to seven business days to ensure that your previous investment has
cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For Spartan Pennsylvania Municipal
Money Market $25,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans* $500
MINIMUM BALANCE $5,000
For Spartan Pennsylvania Municipal
Money Market $10,000
*For more information about regular investment plans, please refer
to "Investor Services," page __.
These minimums may vary for investments through Fidelity Portfolio
Advisory Services. Refer to the program materials for details.
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE 1-800-544-7777
(PHONE_GRAPHIC) (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER
FIDELITY FUND (SMALL SOLID BULLET) EXCHANGE FROM ANOTHER FIDELITY FUND
ACCOUNT WITH THE SAME REGISTRATION, ACCOUNT WITH THE SAME REGISTRATION,
INCLUDING NAME, ADDRESS, AND INCLUDING 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: UP TO
$100,000.
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MAIL
(MAIL_GRAPHIC) (SMALL SOLID BULLET) COMPLETE AND SIGN THE
APPLICATION. (SMALL SOLID BULLET) MAKE YOUR CHECK PAYABLE TO THE
MAKE YOUR CHECK PAYABLE TO THE COMPLETE NAME OF THE FUND. INDICATE
COMPLETE NAME OF THE FUND. MAIL TO YOUR FUND ACCOUNT NUMBER ON YOUR
THE ADDRESS INDICATED ON THE CHECK AND MAIL TO THE ADDRESS PRINTED
APPLICATION. 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
AND CHECK TO A (SMALL SOLID BULLET) BRING YOUR CHECK TO A FIDELITY INVESTOR
FIDELITY INVESTOR CENTER. CALL CENTER. CALL 1-800-544-9797 FOR THE
1-800-544-9797 FOR THE CENTER CENTER NEAREST YOU.
NEAREST YOU.
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WIRE
(WIRE_GRAPHIC) (SMALL SOLID BULLET) THERE MAY BE A $5.00 FEE
FOR EACH (SMALL SOLID BULLET) THERE MAY BE A $5.00 FEE FOR EACH
WIRE PURCHASE. WIRE PURCHASE.
(SMALL SOLID BULLET) CALL 1-800-544-7777 TO
SET UP YOUR (SMALL SOLID BULLET) WIRE TO:
ACCOUNT AND TO ARRANGE A WIRE BANKERS TRUST COMPANY,
TRANSACTION. BANK ROUTING #021001033,
(SMALL SOLID BULLET) WIRE WITHIN 24 HOURS TO: ACCOUNT #00163053.
BANKERS TRUST COMPANY, SPECIFY THE COMPLETE NAME OF THE
BANK ROUTING #021001033, FUND AND INCLUDE YOUR ACCOUNT
ACCOUNT #00163053. NUMBER AND YOUR NAME.
SPECIFY THE COMPLETE NAME OF THE
FUND AND INCLUDE YOUR NEW ACCOUNT
NUMBER AND YOUR NAME.
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AUTOMATICALLY
(AUTOMATIC_GRAPHIC) (SMALL SOLID BULLET) NOT AVAILABLE. (SMALL SOLID BULLET) USE FIDELITY AUTOMATIC ACCOUNT
BUILDER. SIGN UP FOR THIS SERVICE
WHEN OPENING YOUR ACCOUNT, OR CALL
1-800-544-6666 TO ADD IT.
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(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
THE PRICE TO SELL ONE SHARE of Spartan Pennsylvania Municipal Money
Market is the fund's NAV. The PRICE TO SELL ONE SHARE of Spartan
Pennsylvania Municipal Income is the fund's NAV minus the short-term
trading fee, if applicable. If you sell shares of Spartan Pennsylvania
Municipal Income after holding them less than 180 days, the fund will
deduct a short-term trading fee equal to 0.50% of the value of those
shares.
Your shares will be sold at the next NAV calculated after your order
is received and accepted, minus the short-term trading fee, if
applicable. Each fund's NAV is normally calculated each business day
at 4:00 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least
$5,000 worth of shares in the account ($10,000 for the money market
fund) to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to
sign up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of
shares,
(small solid bullet) Your account registration has changed within the
last 30 days,
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address),
(small solid bullet) The check is being made payable to someone other
than the account owner, or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be
redeemed, and
(small solid bullet) Any other applicable requirements listed in the
table that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it
to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account in Spartan Pennsylvania
Municipal Money Market you may write an unlimited number of checks. Do
not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOU SELL SHARES OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME AFTER HOLDING THEM LESS THAN
180 DAYS, THE FUND WILL DEDUCT A SHORT-TERM TRADING FEE EQUAL TO 0.50% OF THE VALUE OF
THOSE SHARES.
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FOR SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET IF YOUR ACCOUNT BALANCE I S LESS THAN
$50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION TRANSACTIONS: $2.00 FOR EACH CHECK YOU
WRITE AND $5.00 FOR EACH EXCHANGE, BANK WIRE, AND ACCOUNT CLOSEOUT.
</TABLE>
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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: UP TO $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 TENANT, (SMALL SOLID BULLET) THE LETTER OF INSTRUCTION MUST BE SIGNED BY ALL
SOLE PROPRIETORSHIP, PERSONS REQUIRED TO SIGN FOR TRANSACTIONS,
UGMA, UTMA EXACTLY AS THEIR NAMES APPEAR ON THE ACCOUNT.
TRUST (SMALL SOLID BULLET) THE TRUSTEE MUST SIGN THE LETTER INDICATING
CAPACITY AS TRUSTEE. IF THE TRUSTEE'S NAME IS NOT
IN THE ACCOUNT REGISTRATION, PROVIDE A COPY OF THE
TRUST DOCUMENT CERTIFIED WITHIN THE LAST 60 DAYS.
BUSINESS OR ORGANIZATION (SMALL SOLID BULLET) AT LEAST ONE PERSON AUTHORIZED BY CORPORATE
RESOLUTION TO ACT ON THE ACCOUNT MUST SIGN THE
LETTER.
(SMALL SOLID BULLET) INCLUDE A CORPORATE RESOLUTION WITH CORPORATE
SEAL OR A SIGNATURE GUARANTEE.
EXECUTOR, ADMINISTRATOR, (SMALL SOLID BULLET) CALL 1-800-544-6666 FOR INSTRUCTIONS.
CONSERVATOR, GUARDIAN
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
AND ACCEPTED BY FIDELITY BEFORE 4:00 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: $____.
(SMALL SOLID BULLET) ALL ACCOUNT OWNERS MUST SIGN A SIGNATURE CARD
TO RECEIVE A CHECKBOOK.
</TABLE>
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(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING IMPAIRED: 1-800-544-0118
</TABLE>
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your
account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365
days a year. Whenever you call, you can speak with someone equipped to
provide the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
RETIREMENT ACCOUNT ASSISTANCE
1-800-544-4774
TOUCHTONE XPRESSSM
1-800-544-5555
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your
account registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call 1-800-544-6666 if you need copies
of financial reports, prospectuses, or historical account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of
other Fidelity funds by telephone or in writing. You may pay a
$5.00 fee for each exchange out of Spartan Pennsylvania Municipal
Money Market, unless you place your transaction through
Fidelity's automated exchange services.
Note that exchanges out of a fund are limited to four per calendar
year, and that they may have tax consequences for you. For details on
policies and restrictions governing exchanges, including circumstances
under which a shareholder's exchange privilege may be suspended or
revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from
your account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer
money by phone between your bank account and your fund account. Most
transfers are complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money
regularly. Fidelity offers convenient services that let you transfer
money into your fund account, or between fund accounts, automatically.
While regular investment plans do not guarantee a profit and will not
protect you against loss in a declining market, they can be an
excellent way to invest for a home, educational expenses, and other
long-term financial goals.
REGULAR INVESTMENT PLANS
FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 MONTHLY OR QUARTERLY (SMALL SOLID BULLET) FOR A NEW ACCOUNT, COMPLETE THE APPROPRIATE SECTION ON THE FUND
APPLICATION.
(SMALL SOLID BULLET) FOR EXISTING ACCOUNTS, CALL 1-800-544-6666 FOR AN APPLICATION.
(SMALL SOLID BULLET) TO CHANGE THE AMOUNT OR FREQUENCY OF YOUR INVESTMENT, CALL
1-800-544-6666 AT LEAST THREE BUSINESS DAYS PRIOR TO YOUR NEXT
SCHEDULED INVESTMENT DATE.
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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A
FIDELITY FUNDA
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 EVERY PAY PERIOD (SMALL SOLID BULLET) CHECK THE APPROPRIATE BOX ON THE FUND APPLICATION, OR CALL
1-800-544-6666 FOR AN AUTHORIZATION FORM.
(SMALL SOLID BULLET) CHANGES REQUIRE A NEW AUTHORIZATION FORM.
</TABLE>
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY
FUND
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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, bimonthly, (small solid bullet) To establish, call 1-800-544-6666 after both accounts are
quarterly, or annually opened.
(small solid bullet) To change the amount or frequency of your investment, call
1-800-544-6666.
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A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THAT FUND MAY NOT BE AN
APPROPRIATE CHOICE 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
fund 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 bond
fund offers four options, and the money market fund offers three
options.
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. (bond fund only) Your capital gain
distributions, if any, 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, 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 distributed as dividends and taxed
as ordinary income. 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 a
statement s howing the tax status of distributions and will
report to the IRS the amount of any taxable 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 __% 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 a fund's distributions are derived from interest on
Pennsylvania state tax-free securities, they will be free from the
Pennsylvania personal income tax. Capital gain distributions from the
funds will be fully taxable for purposes of the Pennsylvania personal
income tax. Distributions from the fund will also be exempt from the
Philadelphia School District investment income tax for individuals who
are residents of the City of Philadelphia to the extent that such
distributions are derived from interest on Pennsylvania state tax-free
securities, or to the extent that such distributions are designated as
capital gain dividends for federal income tax purposes. Investments in
the funds will be free from the Pennsylvania county personal property
taxes to the extent that the funds' assets are comprised of
Pennsylvania state tax-free securities (or certain other qualifying
tax-free securities) on the an annual assessment date.
During the fiscal year ended December 31, 1997, __% of each fund's
income dividends was free from federal income tax, and __% and _% were
free from Pennsylvania personal income taxes for Spartan
Pennsylvania Municipal Money Market and Spartan Pennsylvania Municipal
Income, respectively. % of Spartan Pennsylvania Municipal Money
Market's and __% of Spartan Pennsylvania Municipal Income's income
dividends were subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including
exchanges to other Fidelity funds - are subject to capital gains tax.
A capital gain or loss is the difference between the cost of your
shares and the price you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a
confirmation statement showing how many shares you sold and at what
price. You will also receive a consolidated transaction statement
every January. However, it is up to you or your tax preparer to
determine whether this sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account
statements; the information they contain will be essential in
calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares when a fund has realized but
not yet distributed income or capital gains, you will pay the
full price for the shares and then receive a portion of the price back
in the form of a taxable distribution.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange
(NYSE) is open. FSC normally calculates each fund's NAV as of
the close of business of the NYSE, normally 4:00 p.m. Eastern
time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the
number of shares outstanding.
The money market fund's assets are valued on the basis of amortized
cost. This method minimizes the effect of changes in a security's
market value and helps the money market fund to maintain a stable
$1.00 share price.
For the bond fund, assets are valued primarily on the basis of
information furnished by a pricing service or market quotations, if
available, or by another method that the Board of Trustees
believes accurately reflects fair value.
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 OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. F idelity will
request personalized security codes or other information, and may also
record calls. For transactions conducted through the Internet,
Fidelity recommends the use of an Internet browser with 128-bit
encryption. 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 shares will be
purchased at the next NAV calculated after your investment 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 canceled and you could be liable for any losses or fees a fund or
its transfer agent has incurred.
(small solid bullet) Each fund reserves the right to limit all
accounts maintained or controlled by any one person to a maximum total
balance of $__ million.
(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.
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 order is received and accepted,
minus the short-term trading fee, if applicable. 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.
A SHORT-TERM TRADING FEE of 0.50% will be deducted from the
redemption amount if you sell your shares of Spartan Pennsylvania
Municipal Income after holding them less than 180 days. This fee is
paid to the fund rather than Fidelity, and is designed to offset the
brokerage commissions, market impact, and other costs associated with
fluctuations in fund asset levels and cash flow caused by short-term
shareholder trading.
The short-term trading fee, if applicable, is charged on exchanges
out of Spartan Pennsylvania Municipal Income. If you bought shares on
different days, the shares you held longest will be redeemed first for
purposes of determining whether the short-term trading fee applies.
The short-term trading fee does not apply to shares that were acquired
through reinvestment of distributions.
THE FEES FOR INDIVIDUAL TRANSACTIONS (except the short-term trading
fee) are waived if your account balance at the time of the transaction
is $50,000 or more. Otherwise, you should note the following:
(small solid bullet) The $2.00 checkwriting charge will be deducted
from your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the
amount of your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of
$12.00 from accounts with a value of less than $2,500, subject to an
annual maximum charge of $24.00 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. This fee will not be deducted from Fidelity
brokerage accounts, retirement accounts (except non-prototype
retirement accounts), accounts using regular investment plans, or if
total assets with Fidelity exceed $30,000. Eligibility for the $30,000
waiver is determined by aggregating Fidelity accounts maintained by
FSC or FBSI which are registered under the same social security number
or which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, (10,000 for Spartan
Pennsylvania Municipal Money Market) 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, minus
the short-term trading fee, if applicable, on the day your account is
closed and for Spartan Pennsylvania Municipal Money Market, the $5.00
account closeout fee will be charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
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
available 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
im pose fees of up to 1.00% on purchases, administrative fees of up
to $7.50, and trading fees of up to 1.50% on exchanges. Check each
fund's prospectus for details.
From Filler pages
SPARTAN(registered trademark) PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
AND
SPARTAN(registered trademark) PENNSYLVANIA MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 26, 1998
This Statement of Additional Information (SAI) is not a prospectus
but should be read in conjunction with the funds' current Prospectus
(dated February 26, 1998). Please retain this document for future
reference. The funds' Annual Report is a separate document supplied
with this SAI. To obtain a free additional copy of the Prospectus or
an Annual Report, please call Fidelity at 1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Special Considerations Affecting Pennsylvania
Special Considerations Affecting Puerto Rico
Portfolio Transactions
Valuation
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contracts
Distribution and Service Plans
Contracts with FMR Affiliates
Description of the Trusts
Financial Statements
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FMR Texas) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
and Fidelity Service Company, Inc. (FSC)
PFR-ptb-0298
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 (1940
Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET
FUND
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET 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) sell securities short (except by selling futures contracts),
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;
(3) purchase securities on margin, except for such short-term credits
as are necessary for the clearance of transactions, and provided that
the fund may make initial and variation margin payments in connection
with the purchase or sale of futures contracts or of options on
futures contracts;
(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 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;
(5) underwrite securities issued by others, except to the extent that
the purchase of municipal bonds in accordance with the fund's
investment objective, policies, and limitations, either directly from
the issuer, or from an underwriter for an issuer, may be deemed to be
underwriting;
(6) 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;
(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 other instruments;
(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 limit does not apply to purchases of debt securities or to
repurchase agreements); or
(10) invest in oil, gas or other mineral exploration or development
programs.
(11) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objectives, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) 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 (4)). 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.
(iv) 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.
(v) 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 (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
For purposes of limitation (6), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For the money market fund's policies on quality and maturity, see
the section entitled "Quality and Maturity" on page __.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
(BOND FUND)
THE FOLLOWING ARE THE BOND FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in securities of
companies whose principal business activities are in the same
industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(7) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties,
but this limitation does not apply to purchases of debt securities
or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). The fund will not 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.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
For purposes of limitation (4), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For the bond fund's limitations on futures and options transactions,
see the section entitled "Limitations on Futures and Options
Transactions" on page __.
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. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help the fund achieve
its goal.
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. A fund may buy and sell
securities on a delayed-delivery or when-issued basis. These
transactions involve a commitment by a fund to purchase or sell
specific securities at a predetermined price or yield, with payment
and delivery taking place after the customary settlement period for
that type of security. Typically, no interest accrues to the purchaser
until the security is delivered. The bond fund 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 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 (S&P) in rating corporate
obligations within its two highest ratings of A-1 and A-2. The money
market fund will purchase taxable obligations only if they meet its
quality requirements.
Proposals to restrict or eliminate the federal income tax exemption
for interest on municipal obligations are introduced before Congress
from time to time. Proposals also may be introduced before the
Pennsylvania state legislature 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. The 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 bond 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 bond 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 SAI, may be changed as regulatory
agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for a fund to enter into new positions
or close out existing positions. If the secondary market for a
contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require a fund to continue to hold a
position until delivery or expiration regardless of changes in its
value. As a result, a fund's access to other assets held to cover its
options or futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the funds greater flexibility to tailor an
option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing
organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund
obtains the right (but not the obligation) to sell the option's
underlying instrument at a fixed strike price. In return for this
right, the fund pays the current market price for the option (known as
the option premium). Options have various types of underlying
instruments, including specific securities, indices of securities
prices, and futures contracts. The fund may terminate its position in
a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund
will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the
strike price. A fund may also terminate a put option position by
closing it out in the secondary market at its current price, if a
liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it
takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the fund assumes the
obligation to pay the strike price for the option's underlying
instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract, the fund will be
required to make margin payments to an FCM as described above for
futures contracts. A fund may seek to terminate its position in a put
option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not
liquid for a put option the fund has written, however, the fund must
continue to be prepared to pay the strike price while the option is
outstanding, regardless of price changes, and must continue to set
aside assets to cover its position.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise
of the option. The characteristics of writing call options are similar
to those of writing put options, except that writing calls generally
is a profitable strategy if prices remain the same or fall. Through
receipt of the option premium, a call writer mitigates the effects of
a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up
some ability to participate in security price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed
of in the ordinary course of business at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
instruments. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers
in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features), and
(5) the nature of the marketplace for trades (including the ability to
assign or offset the fund's rights and obligations relating to the
investment).
For the money market fund, FMR may determine some restricted
securities and municipal lease obligations to be illiquid.
For the bond fund, investments currently considered to be illiquid
include over-the-counter options. Also, FMR may determine some
restricted securities and municipal lease obligations to be illiquid.
However, with respect to over-the-counter options a fund writes, all
or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and
terms of any agreement the fund may have to close out the option
before expiration.
In the absence of market quotations, illiquid investments for the
money market fund are valued for purposes of monitoring amortized cost
valuation, and for the bond fund 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 AND LENDING 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 each fund currently intends to participate in this
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 fund may invest a portion
of its assets in lower-quality municipal securities as described in
the Prospectus.
While the market for Pennsylvania 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, making it more difficult for the
money market fund to maintain a stable net asset value per share.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to
modify the maturity, price characteristics, or quality of financial
assets. For example, put features can be used to modify the maturity
of a security or interest rate adjustment features can be used to
enhance price stability. If the structure does not perform as
intended, adverse tax or investment consequences may result. Neither
the Internal Revenue Service (IRS) nor any other regulatory authority
has ruled definitively on certain legal issues presented by structured
securities. Future tax or other regulatory determinations could
adversely affect the value, liquidity, or tax treatment of the income
received from these securities or the nature and timing of
distributions made by the funds.
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.
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.
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.
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. They are
subject to the risk that the put provider is unable to honor the put
feature (purchase the security). Put providers often support their
ability to buy securities on demand by obtaining letters of credit or
other guarantees from other entities. Demand features, standby
commitments, and tender options are types of put features.
QUALITY AND MATURITY (MONEY MARKET FUND). Pursuant to procedures
adopted by the Board of Trustees, the fund may purchase only
high-quality securities that FMR believes present minimal credit
risks. To be considered high-quality, a security must be rated in
accordance with applicable rules in one of the two highest categories
for short-term securities by at least two nationally recognized rating
services (or by one, if only one rating service has rated the
security); or, if unrated, judged to be of equivalent quality by FMR.
High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in the
highest rating category (e.g., Standard & Poor's A-1 or SP-1), and
second tier securities are those deemed to be in the second highest
rating category (e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When determining
the maturity of a security, the fund may look to an interest rate
reset or demand feature.
REFUNDING CONTRACTS. A fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the
fund to buy refunded municipal obligations at a stated price and yield
on a settlement date that may be several months or several years in
the future. A fund generally will not be obligated to pay the full
purchase price if it fails to perform under a refunding contract.
Instead, refunding contracts generally provide for payment of
liquidated damages to the issuer (currently 15-20% of the purchase
price). A fund may secure its obligations under a refunding contract
by depositing collateral or a letter of credit equal to the liquidated
damages provisions of the refunding contract. When required by SEC
guidelines, a fund will place liquid assets in a segregated custodial
account equal in amount to its obligations under refunding contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is
unrelated to the coupon rate or maturity of the purchased security. To
protect the fund from the risk that the original seller will not
fulfill its obligation, the securities are held in an account of the
fund at a bank, marked-to-market daily, and maintained at a value at
least equal to the sale price plus the accrued incremental amount.
While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility that the value
of the underlying security will be less than the resale price, as well
as delays and costs to a fund in connection with bankruptcy
proceedings), it is each fund's current policy to engage in repurchase
agreement transactions with parties whose creditworthiness has been
reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part
of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time it may
be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, a fund might obtain a less favorable price than prevailed
when it decided to seek registration of the security. However, in
general, the money market fund anticipates holding restricted
securities to maturity or selling them in an exempt transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase
agreement is outstanding, the fund will maintain appropriate liquid
assets in a segregated custodial account to cover its obligation under
the agreement. A fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory
by FMR. Such transactions may increase fluctuations in the market
value of the fund's assets and may be viewed as a form of leverage.
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or other entity in determining whether to
purchase a security supported by a letter of credit guarantee, put or
demand feature, insurance or other source of credit or liquidity. In
evaluating the credit of a foreign bank or other foreign entities, FMR
will consider whether adequate public information about the entity is
available and whether the entity may be subject to unfavorable
political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its
commitment.
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.
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 CONSIDERATIONS AFFECTING PENNSYLVANIA
The following highlights only some of the more significant financial
trends and problems affecting Pennsylvania, and is based on
information drawn from official statements and prospectuses relating
to securities offerings of the Commonwealth of Pennsylvania, 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.
OVERVIEW. Because the funds concentrate their investments in
Pennsylvania, there are risks associated with the funds that would not
exist if the funds' investments were more widely diversified. These
risks include the possible enactment of new legislation in
Pennsylvania that could affect obligations of the state or its
political subdivisions, municipalities or agencies, economic factors
that could affect such obligations, and varying levels of supply and
demand for obligations of the Commonwealth and its political
subdivisions, municipalities, and agencies.
CONSTITUTIONAL AND STATUTORY REVENUE LIMITATIONS. The Constitution of
Pennsylvania requires that all taxes shall be uniform, upon the same
class of subjects, within the territorial limits of the authority
levying the tax, and shall be levied and collected under the general
laws of the Commonwealth of Pennsylvania.
The Constitution of Pennsylvania provides that the General Assembly
may exempt from taxation certain persons and property. For instance,
the General Assembly may establish exemption or special tax treatment
for classes based on age, disability, infirmity, or poverty.
Local taxes (other than Philadelphia) are generally authorized under
the Local Tax Enabling Act. This statute generally authorizes, and
imposes limits on, the ability of political subdivisions to impose
taxes. Pennsylvania's political subdivisions consist of counties,
municipalities, and school districts. The Local Tax Enabling Act does
not apply to counties whose taxing authority is limited for the most
part to real estate and personal property taxes. Most Philadelphia
taxes (other than real estate and personal property taxes) are imposed
pursuant to the general authority of the Sterling Act and the Little
Sterling Act, applicable to the City and School District,
respectively. Each of these statutes grants broad taxing powers, but
generally prohibits taxing what the Commonwealth taxes. The
Philadelphia business privilege tax is imposed under the authority of
the First Class City Tax Reform Act.
The Pennsylvania Intergovernmental Cooperation Authority Act for
cities of the first class authorizes Philadelphia to enact a
combination of a sales tax, a realty transfer tax or a wage and net
profits tax for the benefit of the Pennsylvania Intergovernmental
Cooperation Authority ("PICA"). The PICA tax on wages and net profits
reduces the amount of wage and net profits taxes imposed under the
Sterling Act (prior to the imposition of the PICA tax), so that the
combined rate of tax remains the same. Other local taxes are specially
enacted or authorized for certain classes of localities, including
Philadelphia and Pittsburgh.
The Pennsylvania General Assembly has in the past, and may again in
the future, considered legislation which would give local governments
the option of reducing property taxes and simplifying their local tax
system by collecting an earned income tax.
PENNSYLVANIA TAXES. Although Pennsylvania state taxes had, in general,
been lowered during the 1980s, the fiscal 1992 budget for the
Commonwealth included in excess of $2.7 billion of tax increases,
consisting largely of tax-rate increases and expansion of the existing
tax base.
The fiscal 1995 budget included tax reductions totalling an estimated
$173.4 million. Some of the more significant changes included an
increase in the Pennsylvania personal income tax dependent exemption
for low income working families; a reduction in the Pennsylvania
corporate net income tax rate from 12.25% to 9.99% to be phased-in
over a period of four years; and reinstatement of a Pennsylvania
corporate net income tax net operating loss carryover to be phased-in
over a period of three years with an annual cap of $500,000. Several
other changes to the Pennsylvania sales tax, the Pennsylvania
inheritance tax and the Pennsylvania capital stock/franchise tax were
also enacted.
Tax changes (generally reductions) enacted with the fiscal 1996 budget
totalled an estimated $283.4 million. The largest dollar value changes
were in the corporate net income tax where the scheduled 1997
reduction of the tax rate to 9.99% was accelerated to the 1995 tax
year. Some of the other more significant changes include a double
weighting for the sales factor of the corporate net income
apportionment calculation; an increase in the maximum allowance for
the corporate net income tax net operating loss deduction from
$500,000 to $1,000,000; an increase in the capital stock/ franchise
tax exemption amount to $100,000; the repeal of the tax on annuities;
and acceleration of the phase-out of the inheritance tax on transfers
of certain property to a surviving spouse. In addition, a 90-day tax
amnesty program was authorized and implemented from mid-October 1995
through mid-January 1996.
The enacted fiscal 1997 budget includes a provision for a $15 million
tax credit program for businesses creating new jobs.
GENERAL ECONOMIC CONDITIONS IN PENNSYLVANIA. Historically, the key
industries in Pennsylvania were in the areas of manufacturing and
mining, with steel and coal industries of national importance. These
industries have made Pennsylvania vulnerable not only to cyclical
economic fluctuations, but also to pronounced long-term changes in the
nation's economic structure. In recent years, the state has
experienced growth in the services sector, including trade, medical
and health services, education, and financial institutions.
Manufacturing has fallen behind both the services sector and the trade
sector as the largest single source of employment within the
Commonwealth. This growth in the services and trade sector has helped
diversify Pennsylvania's economy and reduce the state's unemployment
rate.
For the five year period fiscal 1991 through fiscal 1995, total
revenues and other sources rose at a 9.1% average annual rate while
expenditures and other uses grew by 7.4% annually. Over two-thirds of
the increase in total revenues and other sources during this period
occurred during fiscal 1992 when a $2.7 billion tax increase was
enacted to address a fiscal 1991 budget deficit and to fund increased
expenditures for fiscal 1992. For the four year period fiscal 1992
through fiscal 1995, total revenues and other sources increased at an
annual average of 3.3%, less than one-half the rate of increase for
the five year period beginning with fiscal 1991. This slower rate of
growth was due, in part, to tax reductions and other tax law revisions
that restrained the growth of tax receipts for the fiscal years 1993,
1994 and 1995.
Expenditures and other uses followed a pattern similar to that for
revenues, although with smaller growth rates, during the fiscal years
1991 through 1995. Program areas having the largest increase in costs
for the fiscal years 1991 through 1995 were for protection of persons
and property, due to an expansion of state prisons, and for public
health and welfare, due to rising caseloads, program utilization and
increased prices. Recent efforts to restrain the rapid expansion of
public health and welfare program costs have resulted in expenditure
increases at or below the total rate of increase for total
expenditures in each fiscal year.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in the fiscal year-end unappropriated balance.
The fiscal 1995 unappropriated surplus (prior to reserves for
transfers to the Tax Stabilization Reserve Fund) was $540 million, an
increase of $204.2 million over the fiscal 1994 closing unappropriated
surplus (prior to transfers). Commonwealth revenues were $459.4
million (2.9%) above the estimate of revenues used at the time the
budget was enacted. The higher than estimated revenues from tax
sources were due to faster economic growth in the national and state
economy than had been projected when the budget was adopted.
Expenditures (excluding pooled financing expenditures but including
$65.5 million of supplemental appropriations) totalled $15,674.7
million, representing a 5% increase in spending over fiscal 1994.
For GAAP purposes, the General Fund recorded a $49.8 million deficit
for fiscal 1995, leading to a decline in the fund balance to $688.3
million at June 30, 1995. The two items which predominantly
contributed to the decline in the fund balance were (i) the use of a
more comprehensive procedure to compute the liabilities for certain
public welfare programs, leading to an increase for the year-end
accruals, and (ii) a change to the methodology to calculate the
year-end accrual for corporate tax payables which increased the tax
refund liability by $72 million for the 1995 fiscal year when compared
to the previous fiscal year.
The fiscal 1996 unappropriated surplus (prior to transfer to the Tax
Stabilization Reserve Fund) was $183.8 million, $65.5 million above
estimate. Net expenditures and encumbrances from Commonwealth
revenues, including $113 million of supplemental appropriations (but
excluding pooled financing expenditures) totalled $16,162.9 million.
Expenditures exceeded available revenues and lapses by $253.2 million.
The difference was funded from a planned partial drawdown of the $437
million fiscal year adjusted beginning unappropriated surplus.
Commonwealth revenues (prior to tax refunds) for fiscal 1996 increased
by $113.9 million over the prior year to $16,338.5 million
(representing a growth rate of .7 percent). Tax rate reductions and
other tax law changes substantially reduced the amount and rate of
revenue growth for the fiscal year.
The enacted fiscal 1997 budget provides for expenditures from
Commonwealth revenues of $16,375.8 million, an increase of .6 percent
over appropriated amounts from Commonwealth revenues for fiscal 1996.
The fiscal 1997 budget is based on anticipated Commonwealth revenues
(before refunds) of $16,744.5 million, an increase over actual fiscal
1996 revenues of 2.5 percent. The revenue estimate includes provision
for a $15 million tax credit program enacted with the fiscal 1997
budget for businesses creating new jobs. Staggered corporation tax
years cause fiscal 1997 revenues to continue to be affected by the
business tax reductions enacted during the two prior completed fiscal
years. Those reductions, together with the new jobs creation tax
credit, cause revenue growth comparisons between fiscal 1996 and 1997
to be understated. When these tax changes are taken into account,
revenues in the fiscal 1997 budget are anticipated to increase at the
rate of 3 percent. The fiscal 1997 revenue estimate is based on a
forecast of the national economy for real gross domestic product to
slow to a growth rate of 2 percent for 1996 and below 1.5 percent for
1997. This is based on the assumption that the Federal Reserve Board
does not cut interest rates and that foreign economic growth is weak.
The consequence of this economic scenario is a U.S. economy with very
low growth, slow gains and consumer spending, declining inflation
rates, but increasing unemployment.
Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and probation and payroll programs.
The fiscal 1997 budget contains an appropriation increase in excess of
$110 million for these programs. The fiscal 1997 budget also contains
some departmental restructurings.
The fiscal 1997 budget assumes a drawdown of the $153.3 million fiscal
year beginning unappropriated surplus to fund the enacted level of
appropriations within the current estimate of revenues.
A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States
for certain counties in the Commonwealth for a blizzard and subsequent
flooding in January, 1996. Substantial damage to public and private
facilities occurred and many municipalities' financial resources have
been strained by the costs of responding to these weather-related
conditions. A special session of the General Assembly was convened by
the Governor to consider legislation to respond to these needs.
Legislation was enacted that authorized $110 million of general
obligation debt to provide for the state's share of the required match
for federal public assistance and disaster mitigation funds. The
legislation also appropriated $13 million from tax amnesty receipts to
fund the state match for the federal individual assistance program,
and authorized the use of current Motor License Fund revenues for
capital projects to repair flood damaged state highways and bridges.
The following table shows the average annual unemployment rate for
Pennsylvania and the nation for the periods indicated. This
information is drawn from official statements and prospectuses
relating to securities offerings of the state of Pennsylvania, its
agencies, and instrumentalities. No independent verification of the
information contained in such official statements and other publicly
available documents has been made.
Period Pennsylvania United States
1987 5.7% 6.2%
1988 5.1% 5.5%
1989 4.5% 5.3%
1990 5.4% 5.6%
1991 6.9% 6.8%
1992 7.5% 7.5%
1993 7.1% 6.9%
1994 6.2% 6.1%
1995 5.9% 5.6%
As of August, 1996, the seasonally adjusted unemployment rate for the
Commonwealth was 5.3%, compared to 5.1% for the United States.
Certain Pennsylvania municipalities and political subdivisions have
also experienced economic downturns. For example, the financial
condition of the City of Philadelphia had impaired its ability to
borrow and resulted in its obligations being downgraded by the major
rating services to below investment grade. (However, these obligations
have since been upgraded to Baa/BBB by Moody's and S&P, respectively).
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority (PICA) to assist Philadelphia
in remedying fiscal emergencies was enacted by the General Assembly
and approved by the Governor in June 1991. PICA is designed to provide
assistance through the issuance of funding debt and to make factual
findings and recommendations to Philadelphia concerning its budgetary
and fiscal affairs. At this time Philadelphia is operating under a
five-year fiscal plan approved by PICA on April 30, 1996.
PICA has issued $1.76 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain city
general obligation bonds, funding of capital projects and the
liquidation of the cumulative General Fund balance deficit as of June
30, 1992 of $224.9 million. The audited General Fund balance as of
June 30, 1995 shows a surplus of approximately $80.5 million, up from
approximately $15.4 million as of June 30, 1994.
No further bonds are to be issued by PICA for the purpose of financing
a capital project or deficit as the authority for such bond sales
expired December 31, 1994. PICA's authority to issue debt for the
purpose of financing a cash flow deficit expires on December 31, 1996.
Its ability to refund existing outstanding debt is unrestricted. PICA
had $1,146,175,000 million in special revenue bonds outstanding as of
June 30, 1996.
There is various litigation pending against the Commonwealth, its
officers, and employees. In 1978, the Pennsylvania General assembly
approved a limited waiver of sovereign immunity. Damages for any loss
are limited to $250,000 for each person and $1 million for each
accident. The Supreme Court held that this limitation is
constitutional. Approximately 3,500 suits against the Commonwealth are
pending, some of which, if decided adversely to the Commonwealth,
could have a material adverse impact on governmental operations.
All of the foregoing factors could affect the outstanding obligations
of the Commonwealth and its municipalities and political subdivisions,
including obligations held by the funds. Further, there can be no
assurance that the same factors that adversely affect the economy of
the Commonwealth generally will not also adversely affect the market
value or marketability of obligations issued by local units of
government or local authorities in the Commonwealth, or the ability of
the obligators to pay the principal of or interest on such
obligations. In November 1995, Pennsylvania General Obligation Bonds
were rated A1 by Moody's and AA- by Fitch and S&P.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following 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, its agencies and instrumentalities, as
available on the date of this SAI. 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 to that of the United
States. In fiscal 1995, trade with the United States accounted for
approximately 89% of Puerto Rico's exports and approximately 65% of
its imports. In this regard, in fiscal 1995 Puerto Rico experienced a
$4.6 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita,
has increased consistently each fiscal year. In fiscal 1995,
aggregate personal income was $27.0 billion ($26.2 billion in 1992
prices) and personal per capita income was $7,296 ($7,074 in 1992
prices). Gross domestic product in fiscal 1992 was $23.7 billion and
gross product in fiscal 1996 was $30.2 billion; ($26.7 billion in 1992
prices). This represents an increase in gross product of 27.5% from
fiscal 1992 to 1996 (12.7% in 1992 prices). For fiscal 1997, an
increase in gross domestic product of 2.7% over fiscal 1996 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 value of the U.S. dollar, the price stability of oil
imports, any increase or decrease in the number of visitors to the
island, the level of exports, the level of federal transfers, and the
cost of borrowing.
Puerto Rico's economy continued to expand throughout the five-year
period from fiscal 1992 through fiscal 1996. Almost every sector of
the economy participated, and record levels of employment were
achieved. Factors behind the continued expansion included
government-sponsored economic development programs, periodic declines
in the exchange value of the U.S. dollar, the level of federal
transfers, 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 16.8% from fiscal 1992 to fiscal
1993. However, by the end of fiscal 1994, the unemployment rate
dropped to 15.9% and as of the end of fiscal 1996, stands at 13.8%.
Despite this downturn, there is a possibility that the
unemployment rate will increase.
Manufacturing is the largest sector in the economy accounting for
$17.7 billion or 41.8% of gross domestic product in fiscal 1995.
Manufacturing has experienced a basic change over the years as a
result of the influx of higher wage, high technology industries such
as the pharmaceutical industry, electronics, computers,
microprocessors, scientific instruments and high technology machinery.
The service sector, which includes finance, insurance, real estate,
wholesale and retail trade, hotels and related services and other
services, ranks second in its contribution to gross domestic product
and is the sector that employs the greatest number of people. In
fiscal 1995, the service sector generated $15.9 billion in gross
domestic product or 37.5% of the total. Employment in this sector
grew from 449,000 in fiscal 1992 to 527,000 in fiscal 1996, a
cumulative increase of 17.6%, which increase was greater than the
11.8% cumulative growths in employment over the same period, providing
46.7% of total employment. The government sector of the Commonwealth
plays an important role in the economy of the island. In fiscal year
1995, the government accounted for $4.5 billion or 10.6% 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 $1.8 billion of gross domestic product in
fiscal 1995.
The present administration has developed and is implementing a new
economic development program which is based on the premise that the
private sector should provide the primary impetus for economic
development and growth. This new program, which is referred to as the
New Economic Model, promotes changing the role of the government from
one of being a provider of most basic services to that of a
facilitator for private sector initiatives and encourages private
sector investment by reducing government-imposed regulatory
restraints.
The New Economic Model contemplates the development of initiatives
that will foster private investment in, and private management of,
sectors that are served more efficiently and effectively by the
private enterprise. One of these initiatives has been the adoption of
a new tax code intended to expand the tax base, reduce top personal
and corporate tax rates, and simplify the tax system.
The New Economic Model also seeks to identify and promote areas in
which Puerto Rico can compete more effectively in the global markets.
Tourism has been identified as one such area because of its potential
for job creation and contribution to the gross product. In 1993, a
new Tourism Incentives Act and a Tourism Development Fund were
implemented in order to provide special tax incentives and financing
for the development of new hotel projects and the tourism industry.
As a result of these initiatives, new hotels have been constructed or
are under construction which have increased the number of hotel rooms
on the island from 8,415 in fiscal 1992 to 10,345 in fiscal 1996 and
to 12,250 by the end of fiscal 1997.
The New Economic Model also seeks to reduce the size of the
government's direct contribution to gross domestic product. As part
of this goal, the government has transferred certain governmental
operations and sold a number of its assets to private parties. Among
these are: (i) the sale of the assets of the Puerto Rico Maritime
Authority; (ii) the execution of a five-year management agreement for
the operation and management of the Aqueducts and Sewer Authority by a
private company; (iii) the execution by the Aqueducts and Sewer
Authority of a construction and operating agreement with a private
consortium for the design, construction, and operation of an
approximately 75 million gallon per day water pipeline to the San Juan
metropolitan area from the Dos Bocas reservoir in Utuado; and (iv) the
execution by the Electric Power Authority of power purchase contracts
with private power producers under which two cogeneration plants (with
a total capacity of 800 megawatts) will be constructed.
As part of the government's program to facilitate the provision of
private health services, in 1994 a new health insurance program was
started in the Fajardo region to provide qualifying Puerto Rico
residents with comprehensive health insurance coverage. In
conjunction with this program certain public health facilities are
being privatized. The administration's goal is to provide universal
health insurance for such qualifying residents. The total cost of
this program will depend on the number of municipalities included and
the total number of participants. As of June 30, 1996, over 760,000
persons were participating in the program at an annual cost to the
Commonwealth of approximately $296 million.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, most notably section 936 of the Internal Revenue
Code of 1986, as amended ("Section 936") and the Commonwealth's
Industrial Incentives Program. 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 during a 10, 15, 20, or 25 year period
depending on location.
For many years, U.S. companies operating in Puerto Rico enjoyed a
special tax credit that was available under Section 936 of the Code.
Originally, the credit provided an effective 100% federal tax
exemption for operating and qualifying investment income from Puerto
Rico sources. Amendments to Section 936 made in 1993 (the "1993
Amendments") instituted two alternative methods for calculating the
tax credit and limited the amount of the credit that a qualifying
company could claim. These limitations are based on a percentage of
qualifying income (the "percentage of income limitation") and on
qualifying expenditures on wages and other wage related benefits (the
"economic activity limitation" or "wage credit limitation"). As a
result of amendments incorporated in the Small Business Job Protection
Act of 1996 enacted by the U.S. Congress and signed into law by
President Clinton on August 20, 1996 (the "1996 Amendments"), the tax
credit is now being phased out over a ten-year period for existing
claimants and is no longer available for corporations that establish
operations in Puerto Rico after October 13, 1995 (including existing
Section 936 Corporations (as defined below) to the extent
substantially new operations are established in Puerto Rico). The
1996 Amendments also moved the credit based on the economic activity
limitation to Section 30A of the Code and phased it out over 10 years.
In addition, the 1996 Amendments eliminated the credit previously
available for income derived from certain qualified investments in
Puerto Rico. The Section 30A Credit and the remaining Section 936
credit are discussed below.
SECTION 30A. The 1996 Amendments added a new Section 30A to the
Code. Section 30A permits a "qualifying domestic corporation" ("QDC")
that meets certain gross income tests (which are similar to the 80%
and 75% gross income tests of Section 936 of the Code discussed below)
to claim a credit (the "Section 30A Credit") against the federal
income tax imposed on taxable income derived from sources outside the
United States from the active conduct of a trade or business in Puerto
Rico or from the sale of substantially all the assets used in such
business ("possession income").
A QDC is a U.S. corporation which (i) was actively conducting a
trade or business in Puerto Rico on October 13, 1995, (ii) had a
Section 936 election in effect for its taxable year that included
October 13, 1995, (iii) does not have in effect an election to use the
percentage limitation of Section 936(a)(4)(B) of the Code, and (iv)
does not add a "substantial new line of business."
The Section 30A Credit is limited to the sum of (i) 60% of
qualified possession wages as defined in the Code, which includes
wages up to 85% of the maximum earnings subject to the OASDI portion
of Social Security taxes plus an allowance for fringe benefits of 15%
of qualified possession wages, (ii) a specified percentage of
depreciation deductions ranging between 15% and 65%, based on the
class life of tangible property, and (iii) a portion of Puerto Rico
income taxes paid by the QDC, up to a 9% effective tax rate (but only
if the QDC does not elect the profit-split method for allocating
income from intangible property).
A QDC electing Section 30A of the Code may compute the amount of
its active business income, eligible for the Section 30A Credit, by
using either the cost sharing formula, the profit-split formula, or
the cost-plus formula, under the same rules and guidelines prescribed
for such formulas as provided under Section 936 (see discussion
below). To be eligible for the first two formulas, the QDC must have
a significant presence in Puerto Rico.
In the case of taxable years beginning after December 31, 2001, the
amount of possession income that would qualify for the Section 30A
Credit would be subject to a cap based on the QDC's possession income
for an average adjusted base period ending before October 14,
1995.
Section 30A applies only to taxable years beginning after December 31,
1995 and before January 1, 2006.
SECTION 936. Under Section 936 of the Code, as amended by the 1996
Amendments, and as an alternative to the Section 30A Credit, U.S.
corporations that meet certain requirements and elect its application
("Section 936 Corporations") are entitled to credit against their U.S.
corporate income tax, the portion of such tax attributable to income
derived from the active conduct of a trade or business within Puerto
Rico ("active business income") and from the sale or exchange of
substantially all assets used in the active conduct of such trade or
business. To qualify under Section 936 in any given taxable year, a
corporation must derive for the three-year period immediately
preceding the end of such taxable year, (i) 80% or more of its gross
income from sources within Puerto Rico, and (ii) 75% or more of its
gross income from the active conduct of a trade or business in Puerto
Rico.
Under Section 936, a Section 936 Corporation may elect to compute
its active business income, eligible for the Section 936 credit, under
one of three formulas: (A) a cost-sharing formula, whereby it is
allowed to claim all profits attributable to manufacturing
intangibles, and other functions carried out in Puerto Rico, provided
it contributes to the research and development expenses of its
affiliated group or pays certain royalties; (B) a profit-split
formula, whereby it is allowed to claim 50% of the net income of its
affiliated group from the sale of products manufactured in Puerto
Rico; or (C) a cost-plus formula, whereby it is allowed to claim a
reasonable profit on the manufacturing costs incurred in Puerto Rico.
To be eligible for the first two formulas, the Section 936 Corporation
must have a significant business presence in Puerto Rico for purposes
of the Section 936 rules.
As a result of the 1993 Amendments and the 1996 Amendments, the
Section 936 credit is only available to companies that elect the
percentage of income limitation and is limited in amount to 40% of the
credit allowable prior to the 1993 Amendments, subject to a five-year
phase-in period from 1994 to 1998 during which period the percentage
of the allowable credit is reduced from 60% to 40%.
In the case of taxable years beginning on or after 1998, the
possession income subject to the Section 936 credit will be subject to
a cap based on the Section 936 Corporation's possession income for an
average adjusted base period ending on October 14, 1995. The Section
936 credit is eliminated for taxable years beginning in 2006.
OUTLOOK. It is not possible at this time to determine the
long-term effect on the Puerto Rico economy of the enactment of the
1996 Amendments to Section 936. The Government of Puerto Rico does
not believe there will be short-term or medium-term material adverse
effects on Puerto Rico's economy as a result of the enactment of the
1996 Amendments. The Government of Puerto Rico further believes that
during the phase-out period sufficient time exists to implement
additional incentive programs to safeguard Puerto Rico's competitive
position. Additionally, the Governor intends to propose a new federal
incentive program similar to what is now provided under Section 30A.
Such program would provide U.S. companies a tax credit based on
qualifying wages paid, other wage related expenses such as fringe
benefits, depreciation expenses for certain tangible assets, and
research and development expenses, and would restore the credit
granted to passive income under Section 936 prior to its repeal by the
1996 Amendments. Under the Governor's proposal, the credit granted to
qualifying companies would continue in effect until Puerto Rico shows,
among other things, substantial economic improvements in terms of
certain economic parameters.
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 fund, FMR
has granted investment management authority to the sub-adviser (see
the section entitled "Management Contracts"), and the sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
below. FMR is also responsible for the placement of transaction orders
for other investment companies and accounts for which it or its
affiliates act as investment adviser. Securities purchased and sold by
the money market fund generally will be traded on a net basis (i.e.,
without commission). In selecting broker-dealers, subject to
applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to, the size and
type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer
firm; the broker-dealer's execution services rendered on a continuing
basis; and the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts
over which FMR or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the
advisability of investing in, purchasing, or selling securities; and
the availability of securities or the purchasers or sellers of
securities. In addition, such broker-dealers may furnish analyses and
reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; effect
securities transactions, and perform functions incidental thereto
(such as clearance and settlement). FMR maintains a listing of
broker-dealers who provide such services on a regular basis. However,
as many transactions on behalf of the money market fund are placed
with broker-dealers (including broker-dealers on the list) without
regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The
selection of such broker-dealers generally is made by FMR (to the
extent possible consistent with execution considerations) based upon
the quality of research and execution services provided.
The receipt of research from broker-dealers that execute transactions
on behalf of the funds may be useful to FMR in rendering investment
management services to the funds or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to the funds. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause each fund to pay such higher commissions,
FMR must determine in good faith that such commissions are reasonable
in relation to the value of the brokerage and research services
provided by such executing broker-dealers, viewed in terms of a
particular transaction or FMR's overall responsibilities to the funds
and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation
should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided
assistance in the distribution of shares of the funds, or shares of
other Fidelity funds to the extent permitted by law. FMR may use
research services provided by and place agency transactions with
National Financial Services Corporation (NFSC), an indirect 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 NFSC to execute portfolio
transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the funds and review the commissions paid by
each fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal periods ended December 31, 1997 and 1996, the
portfolio turnover rates were ___% and ___%, respectively for Spartan
Pennsylvania Municipal Income. 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 the fiscal years ended December 31, 1997, 1996, and 1995,
Spartan Pennsylvania Municipal Money Market paid [no brokerage
commissions/ brokerage commissions of $____, $______, and $______,
respectively; and Spartan Pennsylvania Municipal Income paid [no
brokerage commissions/brokerage commissions of $____, $______, and
$______, respectively]. During the fiscal year ended December 31,
1997 , this amounted to approximately __% and __%, respectively, of
the aggregate brokerage commissions paid by each fund involving
approximately __% and __%, respectively, of the aggregate dollar
amount of transactions for which the funds paid brokerage commissions.
During the fiscal year ended December 31, 1997, Spartan
Pennsylvania Municipal Money Market paid $__ in commissions to
brokerage firms that provided research services involving
approximately $___of transactions; during the fiscal year ended
December 31, 1997, Spartan Pennsylvania Municipal Income paid $__
in commissions to brokerage firms that provided research 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. During the fiscal year ended December
31, 1997, the funds paid no fees to brokerage firms that provided
research services.
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
Fidelity Service Company, Inc. (FSC) normally determines each fund's
net asset value per share (NAV) as of the close of the New York Stock
Exchange (NYSE) (normally 4:00 p.m. Eastern time). The valuation of
portfolio securities is determined as of this time for the purpose of
computing each fund's NAV.
TAX-FREE BOND FUND. Portfolio securities are valued by various
methods. If quotations are not available, fixed-income securities are
usually valued on the basis of information furnished by a pricing
service that uses a valuation matrix which incorporates both
dealer-supplied valuations and electronic data processing techniques.
Use of pricing services has been approved by the Board of Trustees. A
number of pricing services are available, and the fund may use various
pricing services or discontinue the use of any pricing service.
Futures contracts and options are valued on the basis of market
quotations, if available.
Securities and other assets for which there is no readily available
market value are valued in good faith by a committee appointed by the
Board of Trustees. The procedures set forth above need not be used to
determine the value of the securities owned by the fund if, in the
opinion of a committee appointed by the Board of Trustees, some other
method would more accurately reflect the fair market value of such
securities.
MONEY MARKET FUND. Portfolio securities and other assets are valued on
the basis of amortized cost. This technique involves initially valuing
an instrument at its cost as adjusted for amortization of premium or
accretion of discount rather than its current market value. The
amortized cost value of an instrument may be higher or lower than the
price the fund would receive if it sold the instrument.
Securities of other open-end investment companies are valued at their
respective NAVs.
During periods of declining interest rates, the fund's yield based on
amortized cost valuation may be higher than would result if the fund
used market valuations to determine its NAV. The converse would apply
during periods of rising interest rates.
Valuing the fund's investments on the basis of amortized cost and use
of the term "money market fund" are permitted pursuant to Rule 2a-7
under the 1940 Act. The fund must adhere to certain conditions under
Rule 2a-7, as summarized in the section entitled "Quality and
Maturity" on page ___.
The Board of Trustees oversees FMR's adherence to the provisions of
Rule 2a-7 and has established procedures designed to stabilize the
fund's NAV at $1.00. At such intervals as they deem appropriate, the
Trustees consider the extent to which NAV calculated by using market
valuations would deviate from $1.00 per share. If the Trustees believe
that a deviation from 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.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is
not intended to indicate future returns. A bond fund's share price,
and each fund's yield and total return fluctuate in response to market
conditions and other factors, and the value of a bond fund's shares
when redeemed may be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a
period, the net change in value of a hypothetical account containing
one share reflects the value of additional shares purchased with
dividends from the one original share and dividends declared on both
the original share and any additional shares. The net change is then
divided by the value of the account at the beginning of the period to
obtain a base period return. This base period return is annualized to
obtain a current annualized yield. The money market fund also may
calculate a compound effective yield by compounding the base period
return over a one-year period. In addition to the current yield, the
money market fund may quote yields in advertising based on any
historical seven-day period. Yields for the money market fund are
calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields 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 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. Yields do not reflect the bond fund's 0.50% short-term trading
fee, which applies to shares held less than 180 days. Income is
calculated for purposes of the 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 the 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, the 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 combined federal and
state and city income 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 1998. 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, state, and local taxes for 1998.
1998 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable Income* Federal Pennsylvania Philadelphia Combined
Marginal State School Federal and Combined
Rate Marginal District State Federal,
Rate Marginal Effective State, and
Rate Rate Local
Effective
Rate**
Single Return Joint Return
</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 appropriate
table below to determine the tax-equivalent yield for a given tax-free
yield.
CITY OF PHILADELPHIA RESIDENTS - TRIPLE TAXES - 1998
If your combined federal, state, and local effective tax rate in 1998
is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</TABLE>
PENNSYLVANIA RESIDENTS (OUTSIDE PHILADELPHIA) - DOUBLE TAXES -
1998
If your combined federal and state effective tax rate in 1998 is:
% % % % %
<TABLE>
<CAPTION>
<S> <C>
To match these
tax-free yields: Your taxable investment would have to earn the following yield:
</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 table
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
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, the fund may quote
unaveraged or cumulative total returns reflecting the simple change in
value of an investment over a stated period. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period. Total
returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions
to total return. Total returns may be quoted on a before-tax or
after-tax basis and may or may not include the effect of the bond
fund's 0.50% short-term trading fee on shares held less than 180
days. Excluding the bond fund's short-term trading fee from a total
return calculation produces a higher total return figure. Total
returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration, and may
omit or include the effect of the money market fund's $5.00 account
closeout fee.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to
exhibit performance. An adjusted NAV includes any distributions paid
by a fund and reflects all elements of its return. Unless otherwise
indicated, a fund's adjusted NAVs are not adjusted for sales charges,
if any.
HISTORICAL FUND RESULTS. The following tables show the money market
fund's 7-day yields, the bond fund's 30-day yields, each fund's
tax-equivalent yields, and total returns for periods ended December
31, 1997. Total return figures include the effect of the money
market fund's $5.00 account closeout fee based on an average size
account, but not the bond fund's 0.50% short-term trading fee,
applicable to shares held less than 180 days.
The tax-equivalent yield is based on a combined effective federal
and state income tax rate of __% and reflects that, as of December 31,
1997, 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> <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 Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Spartan PA Muni % % % % % % % %
Money
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's total returns would have been lower.
<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-Day Tax- One Five Ten One Five Ten
Yield Equivalent Year Years Years Year Years Years
Yield
Spartan PA Muni % % % % % % % %
Income
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's total returns would have been lower.
The following tables show the income and capital elements of each
fund's cumulative total return. The tables compare each fund's return
to the record of the S&P 500, the Dow Jones Industrial Average (DJIA),
and the cost of living, as measured by the Consumer Price Index (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 unmanaged index of common stocks and
a narrower set of stocks of major industrial companies, respectively,
over the same period. Because each fund invests in fixed-income
securities, common stocks represent a different type of investment
from the funds. Common stocks generally offer greater growth potential
than the funds, but generally experience greater price volatility,
which means greater potential for loss. In addition, common stocks
generally provide lower income than fixed-income investments such as
the funds. The S&P 500 and DJIA returns are based on the prices of
unmanaged groups of stocks and, unlike each fund's returns, do not
include the effect of brokerage commissions or other costs of
investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended
December 31, 1997, assuming all distributions were reinvested. The
figures below reflect the fluctuating interest rates and bond prices
of the specified periods and should not be considered representative
of the dividend income or capital gain or loss that could be realized
from an investment in a fund today. Tax consequences of different
investments have not been factored into the figures below.
During the 10-year period ended December 31, 1997, a
hypothetical $10,000 investment in Spartan Pennsylvania Municipal
Money Market would have grown to $_____.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Money Market on August 6, 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. The fund did not distribute any capital gains during the
period. The figures in the table do not include the effect of the
fund's $5.00 account closeout fee.
During the 10-year period ended December 31, 1997, a
hypothetical $10,000 investment in Spartan Pennsylvania Municipal
Income would have grown to $_____.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA 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
1997 $ $ $ $ $ $ $
1996 $ $ $ $ $ $ $
1995 $ $ $ $ $ $ $
1994 $ $ $ $ $ $ $
1993 $ $ $ $ $ $ $
1992 $ $ $ $ $ $ $
1991 $ $ $ $ $ $ $
1990 $ $ $ $ $ $ $
1989 $ $ $ $ $ $ $
1988 $ $ $ $ $ $ $
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Income on January 1, 1988, 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 gain distributions. The figures in the
table do not include the effect of the fund's 0.50% short-term trading
fee applicable to shares held less than 180 days.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on total return, assume reinvestment of distributions, do
not take sales charges or trading fees into consideration, and are
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's performance may also be compared to that of a benchmark index
representing the universe of securities in which the fund may invest.
The total return of a benchmark index reflects reinvestment of all
dividends and capital gains paid by securities included in the index.
Unlike a fund's returns, however, the index returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
The bond fund may compare to the Lehman Brothers Municipal Bond Index,
a total return performance benchmark for investment-grade municipal
bonds with maturities of at least one year. In addition, Spartan
Pennsylvania Municipal Income may compare its performance to that of
the Lehman Brothers Pennsylvania Municipal Bond Index, a total return
performance benchmark for Pennsylvania investment-grade municipal
bonds with maturities of at least one year. Issues included in each
index have been issued after December 31, 1990 and have an outstanding
par value of at least $50 million. Subsequent to December 31, 1995,
zero coupon bonds and issues subject to the alternative minimum tax
are included in each index.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates total returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indices that may be developed and
made available in the future.
A money market fund may compare its performance or the performance of
securities in which it may invest to averages published by IBC
Financial Data, Inc. of Ashland, Massachusetts. These averages assume
reinvestment of distributions. IBC's MONEY FUND REPORT
AVERAGES(trademark)/All Tax-Free, which is reported in IBC's MONEY
FUND REPORT(trademark), covers over ___ tax-free money market
funds.
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(Registered trademark), 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 bond 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 bond 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 bond 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, 1997 , 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 1998: New Year's Day, Martin Luther King's Birthday, Presidents'
Day, Good Friday, Memorial Day, 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 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.
A fund purchases municipal securities whose interest FMR believes is
free from federal income tax. Generally, issuers or other parties
have entered into covenants requiring continuing compliance with
federal tax requirements to preserve the tax-free status of interest
payments over the life of the security. If at any time the covenants
are not complied with, or if the IRS otherwise determines that the
issuer did not comply with relevant tax requirements, interest
payments from a security could become federally taxable retroactive to
the date the security was issued. For certain types of structured
securities, the tax status of the pass-through of tax-free income may
also be based on the federal and state tax treatment of the structure.
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 purpose. Interest from private
activity securities will be considered tax-exempt for purposes of the
bond fund's policy of investing so that at least 80% of its income is
free from federal income tax and the money market fund's policy of
investing so that at least 80% of its income distributions are
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 the bond fund's policy
of investing so that at least 80% of its income is free from federal
income tax and the money market fund's policy of investing so that at
least 80% of its income distributions are free from federal income
tax. The money market fund 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.
PENNSYLVANIA TAXES. To the extent that each fund's distributions are
derived from interest on Pennsylvania state tax-free securities, its
income dividends will be exempt from the Pennsylvania personal income
tax. However, distributions attributable to capital gains (whether or
not from state tax-free securities) are not exempt from the
Pennsylvania personal income tax. Distributions of interest earned
from non-exempt obligations are not exempt from the Pennsylvania
personal income tax. The funds' dividends may or may not be exempt
from current or future taxes of certain Pennsylvania municipalities.
To the extent a fund's investments on the annual assessment date
consist of (i) municipal obligations of the Commonwealth of
Pennsylvania and its political subdivisions or municipal authorities,
and (ii) obligations of the United States, including certain
obligations of Puerto Rico, the Virgin Islands and Guam, and any U.S.
territories or possessions whose obligations are immune from state and
local taxation under federal law, collectively referred to as exempt
obligations, shares purchased as an investment in either of the funds
will not be taxable for purposes of the Pennsylvania county personal
property tax. Any holdings other than exempt obligations may result in
shares of the funds being wholly or partially subject to the taxes
described above.
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 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 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 fund does not anticipate
distributing long-term capital gains.
As of December 31, 1997 , the fund hereby designates
approximately $_______ as a capital gain dividend for the purpose of
the dividend-paid deduction.
As of December 31, 1997 , the fund had a capital loss
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 and intends to comply with
other tax rules applicable to regulated investment companies.
Each fund is treated as a separate entity from the other funds of
Fidelity Municipal Trust II (Spartan Pennsylvania Municipal Money
Market) and Fidelity Municipal Trust (Spartan Pennsylvania Municipal
Income) 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 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 its division, 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
accounts 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, Members of the Advisory Board, 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 and Members of the
Advisory Board also serve in similar capacities for other funds
advised by FMR. The business address of each Trustee, Member of the
Advisory Board, 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 (67) , 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 (56), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of
Fidelity Management & Research Company.
RALPH F. COX (65) , Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and produc tion). He is a Director of USA Waste
Services, Inc. (non-hazardous waste, 1993), CH2M Hill Companies
(engineering), Rio Grande, Inc. (oil and gas production), and
Daniel Industries (petroleum measurement equipment manufacturer). In
addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (66) , 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), 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.
ROBERT M. GATES (54), Trustee (1997), is a consultant, author, and
lecturer (1993). Mr. Gates was Director of the Central Intelligence
Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates served as
Assistant to the President of the United States and Deputy National
Security Advisor. Mr. Gates is currently a Trustee for the Forum For
International Policy, a Board Member for the Virginia Neurological
Institute, and a Senior Advisor of the Harvard Journal of World
Affairs. In addition, Mr. Gates also serves as a member of the
corporate board for LucasVarity PLC (automotive components and diesel
engines), Charles Stark Draper Laboratory (non-profit), NACCO
Industries, Inc. (mining and manufacturing), and TRW Inc. (original
equipment and replacement products).
E. BRADLEY JONES (70) , Trustee. 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), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products),
and he previously served as a Director of NACCO Industries, Inc.
(mining and manufacturing, 1985-1995), Hyster-Yale Materials Handling,
Inc. (1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee
of First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK (65) , 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, Chairman
of the Board of Trustees of the Greenwich Hospital Association, a
Member of the Public Oversight Board of the American Institute of
Certified Public Accountants' SEC Practice Section (1995), and as a
Public Governor of the National Association of Securities Dealers,
Inc. (1996).
*PETER S. LYNCH (54), Trustee, 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).
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.
WILLIAM O. McCOY (64) , Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH (68), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN (64) , 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), Imation Corp. (imaging and information storage, 1997), 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.
*ROBERT C. POZEN (51), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of FMR Texas Inc. (1997), Fidelity Management & Research
(U.K.) Inc. (1997), and Fidelity Management & Research (Far East) Inc.
(1997). Previously, Mr. Pozen served as General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
THOMAS R. WILLIAMS (69), 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 ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
DWIGHT D. CHURCHILL (44), is Vice President of Bond Funds, group
leader of the Bond Group, and Senior Vice President of FMR (1997). Mr.
Churchill joined Fidelity in 1993 as Vice President and Group Leader
of Taxable Fixed-Income Investments. Prior to joining Fidelity, he
spent three years as president and CEO of CSI Asset Management, Inc.
in Chicago, an investment management subsidiary of The Prudential.
BOYCE I. GREER (41), is Vice President of Money Market Funds (1997),
Group Leader of the Money Market Group (1997) and Senior Vice
President of FMR (1997). Mr. Grerr served as the Leader of the
Fixed-Income Group for Fidelity Management Trust Company (1993-1995)
and was Vice President and Group Leader of Municipal Fixed-Income
Investments (1996-1997). Prior to 1993, Mr. Greer was an associate
portfolio manager.
FRED L. HENNING, JR. (58) is Vice President of Fidelity's
Fixed-Income Group (1995) and Senior Vice President of FMR (1995).
Before assuming his current responsibilities, Mr. Henning was head of
Fidelity's Money Market Division.
DIANE McLAUGHLIN
JONATHAN D. SHORT (34), is Vice President of Spartan Pennsylvania
Municipal Income Fund (1997), and other funds advised by FMR. Since
joining Fidelity as a municipal bond analyst in 1990, Mr. Short has
assisted on Fidelity Municipal Income Fund and managed a variety of
Fidelity funds.
ERIC ROITER ( ), Secretary, [Biography to be filed by
subsequent amendment.]
RICHARD A. SILVER (50), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
THOMAS D. MAHER (52), Assistant Vice President, is Assistant
Vice President of Fidelity's municipal bond funds (1996) and of
Fidelity's money market funds and Vice President and Associate General
Counsel of FMR Texas Inc.
JOHN H. COSTELLO (51), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH (51), 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) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
THOMAS J. SIMPSON (39), Assistant Treasurer, is Assistant
Treasurer of Fidelity's municipal bond funds (1996) and of Fidelity's
money market funds (1996) and an employee of FMR (1996). Prior to
joining FMR, Mr. Simpson was Vice President and Fund Controller of
Liberty Investment Services (1987-1995).
The following table sets forth information describing the
compensation of each Trustee and Member of the Advisory Board of each
fund for his or her services for the fiscal year ended December 31,
1997.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Aggregate Aggregate Total
and Compensation Compensation Compensation
Members of the Advisory Board from from from the
Spartan PA Muni Spartan PA Muni Fund Complex*,A
Money [B,]C Income[B,]D
J. Gary Burkhead ** $ $ $ 0
Ralph F. Cox $ $ 137,700
Phyllis Burke Davis $ $ 134,700
Richard J. Flynn*** $ $ 168,000
Robert M. Gates **** $ $ 0
Edward C. Johnson 3d ** $ $ 0
E. Bradley Jones $ $ 134,700
Donald J. Kirk $ $ 136,200
Peter S. Lynch ** $ $ 0
William O. McCoy***** $ $ 85,333
Gerald C. McDonough $ $ 136,200
Edward H. Malone*** $ $ 136,200
Marvin L. Mann $ $ 134,700
Robert C. Pozen** $ $ 0
Thomas R. Williams $ $ 136,200
</TABLE>
* Information is for the calendar year ended December 31, 1996 for
235 funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are
compensated by FMR.
*** Richard J. Flynn and Edward H. Malone served on the Board of
Trustees through December 31, 1996.
**** Mr. Gates was appointed to the Board of Trustees of Fidelity
Municipal Trust effective March 1, 1997. Mr. Gates was elected to the
Board of Trustees of Fidelity Municipal Trust II on July 16, 1997.
*****During the period from May 1, 1996 through December 31, 1996,
William O. McCoy served as a Member of the Advisory Board of each
trust. Mr. McCoy was appointed to the Board of Trustees of Fidelity
Municipal Trust effective January 1, 1997. Mr. McCoy was elected to
the Board of Trustees of Fidelity Municipal Trust II on July 16,
1997.
A Compensation figures include cash, a pro rata portion of benefits
accrued under the retirement program for the period ended December 30,
1996 and required to be deferred, and may include amounts deferred at
the election of Trustees.
B Compensation figures include cash, and may include amounts
required to be deferred, a pro rata portion of benefits accrued under
the retirement program for the period ended December 30, 1996 and
required to be deferred, and amounts deferred at the election of
Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee, most of which is subject to vesting: Ralph F.
Cox, $__, Phyllis Burke Davis, $__, Richard J. Flynn, $0, Robert M.
Gates, $__, E. Bradley Jones, $__, Donald J. Kirk, $__, William O.
McCoy, $__, Gerald C. McDonough, $__, Edward H. Malone, $__, Marvin L.
Mann, $__, and Thomas R. Williams, $__.
E For the fiscal year ended December 31, 1997, certain of the
non-interested Trustees' aggregate compensation from a fund includes
accrued voluntary deferred compensation as follows: [trustee name,
dollar amount of deferred compensation, fund name]; [trustee name,
dollar amount of deferred compensation, fund name]; and [trustee name,
dollar amount of deferred compensation, fund name].
Under a retirement program adopted in July 1988 and modified in
November 1995 and November 1996, each non-interested Trustee who
retired before December 30, 1996 may receive payments from a Fidelity
fund during his or her lifetime based on his or her basic trustee fees
and length of service. The obligation of a fund to make such payments
is neither secured nor funded. A Trustee became eligible to
participate in the program at the end of the calendar year in which he
or she reached age 72, provided that, at the time of retirement, he or
she had served as a Fidelity fund Trustee for at least five years.
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are treated as though equivalent dollar amounts had been invested
in shares of a cross-section of Fidelity funds including funds in each
major investment discipline and representing a majority of Fidelity's
assets under management (the Reference Funds). The amounts ultimately
received by the Trustees under the Plan will be directly linked to the
investment performance of the Reference Funds. Deferral of fees in
accordance with the Plan will have a negligible effect on a fund's
assets, liabilities, and net income per share, and will not obligate a
fund to retain the services of any Trustee or to pay any particular
level of compensation to the Trustee. A fund may invest in the
Reference Funds under the Plan without shareholder approval.
As of December 30, 1996, the non-interested Trustees terminated the
retirement program for Trustees who retire after such date. In
connection with the termination of the retirement program, each
then-existing non-interested Trustee received a credit to his or her
Plan account equal to the present value of the estimated benefits that
would have been payable under the retirement program. The amounts
credited to the non-interested Trustees' Plan accounts are subject to
vesting and are treated as though equivalent dollar amounts had been
invested in shares of the Reference Funds. The amounts ultimately
received by the Trustees in connection with the credits to their Plan
accounts will be directly linked to the investment performance of the
Reference Funds. The termination of the retirement program and
related crediting of estimated benefits to the Trustees' Plan accounts
did not result in a material cost to the funds.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE],
approximately __% of [Fund Name]'s total outstanding shares was held
by [an] FMR affiliate[s]. FMR Corp. is the ultimate parent company of
[this/these] FMR affiliate[s]. By virtue of his ownership interest in
FMR Corp., as described in the "FMR" section on page ___, Mr. Edward
C. Johnson 3d, President and Trustee of the fund, may be deemed to be
a beneficial owner of these shares. As of the above date, with the
exception of Mr. Johnson 3d's deemed ownership of [Fund Name]'s
shares, the Trustees, Members of the Advisory Board, and officers of
the funds owned, in the aggregate, less than __% of each fund's total
outstanding shares.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE], the
Trustees, Members of the Advisory Board, and officers of each fund
owned, in the aggregate, less than __% of each fund's total
outstanding shares.
As of [DATE NOT EARLIER THAN 30 DAYS PRIOR TO SEC FILING DATE], the
following owned of record or beneficially 5% or more of a fund's
outstanding shares:
A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other
shareholders.
MANAGEMENT CONTRACTS
FMR is manager of Spartan Pennsylvania Municipal Money Market pursuant
to a management contract dated February 28, 1992, which was approved
by Fidelity Municipal Trust as the then sole shareholder of the money
market fund on February 28, 1992, in conjunction with an Agreement and
Plan to convert the fund from a series of a Massachusetts business
trust to a series of a Delaware business trust. The Agreement and Plan
was approved by public shareholders of the money market fund on
December 11, 1991. The money market fund's contract is identical to
the fund's prior contract with FMR. FMR is manager of Spartan
Pennsylvania Municipal Income pursuant to a management contract dated
August 1, 1990, which was approved by shareholders on July 18, 1990.
MANAGEMENT SERVICES. Each fund employs FMR to furnish investment
advisory and other services. Under the terms of 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 the fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all
necessary office facilities and personnel for servicing the 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 securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations, and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. Under the terms of each fund's management
contract, FMR is responsible for payment of all operating expenses of
each fund with certain exceptions. Specific expenses payable by FMR
include expenses for typesetting, printing, and mailing proxy
materials to shareholders, legal expenses, fees of the custodian,
auditor and interested Trustees, each fund's proportionate share of
insurance premiums and Investment Company Institute dues, and the
costs of registering shares under federal securities laws and making
necessary filings under state securities laws. Each fund's management
contract further provides that FMR will pay for typesetting, printing,
and mailing prospectuses, statements of additional information,
notices, and reports to shareholders; however, under the terms of each
fund's transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. FMR also pays all
fees associated with transfer agent, dividend disbursing, and
shareholder services, and pricing and bookkeeping services.
FMR pays all other expenses of each fund with the following
exceptions: fees and expenses of the non-interested Trustees,
interest, taxes, brokerage commissions (if any), and such nonrecurring
expenses as may arise, including costs of any litigation to which a
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT FEES. For the services of FMR under each management
contract, Spartan Pennsylvania Municipal Money Market and Spartan
Pennsylvania Municipal Income each pays FMR a monthly management fee
at the annual rate of 0.50% and 0.55%, respectively, of its average
net assets throughout the month.
The management fee paid to FMR by each fund is reduced by an amount
equal to the fees and expenses paid by the fund to the non-interested
Trustees.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years, and the amount of credits
reducing management fees for each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Amount of
Fiscal Years Ended Credits Reducing Management Fees
December 31 Management Fees] Paid to FMR*
Spartan PA Muni Money 1997 $ $
1996 $ $1,180,152
1995 $ $1,133,238
Spartan PA Muni Income 1997 $ $
1996 $ $1,516,877
1995 $ $1,494,332
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
FMR may, from time to time, voluntarily reimburse all or a portion of
a 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 a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
To defray shareholder service costs, FMR or its affiliates also
collect Spartan Pennsylvania Municipal Money Market's $5.00
exchange fee, $5.00 account closeout fee, $5.00 fee for wire purchases
and redemptions, and $2.00 checkwriting charge. Shareholder
transaction fees and charges collected by FMR are shown in the table
below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Ended Account Checkwriting
December 31 Exchange Fees Closeout Fees Wire Fees Charges
Spartan PA Muni Money 1997 $ $ $ $
1996 $1,970 $ 964 $260 $4,164
1995 $2,420 $1,228 $220 $4,830
</TABLE>
SUB-ADVISER. On behalf of Spartan Pennsylvania Municipal Money
Market, FMR has entered into a sub-advisory agreement with FMR
Texas pursuant to which FMR Texas has primary responsibility for
providing portfolio investment management services to the fund.
Under the terms of the sub-advisory agreement, dated February 28,
1992, which was approved by [shareholders/FMR, as the then sole
shareholder,] on [Date], FMR pays FMR Texas fees equal to 50% of the
management fee payable to FMR under its management contract with
Spartan Pennsylvania Municipal Money Market. The fees paid to FMR
Texas are not reduced by any voluntary or mandatory expense
reimbursements that may be in effect from time to time.
On behalf of Spartan Pennsylvania Municipal Money Market, for the
fiscal years ended December 31, 1997, 1996, and 1995, FMR paid FMR
Texas fees of $________, $590,076 and $566,619, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plan on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (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 the 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 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. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with the distribution of fund shares.
In addition, each Plan provides that FMR, directly or through FDC, may
make payments to third parties, such as banks or broker-dealers, that
engage in the sale of fund shares, or provide shareholder support
services. Currently, the Board of Trustees has not authorized such
payments for each fund's shares.
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each 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 each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, 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.
Spartan Pennsylvania Municipal Money Market's Plan was approved by
shareholders, in connection with a reorganization transaction on
February 28, 1992, pursuant to an Agreement and Plan of Conversion.
Spartan Pennsylvania Municipal Income's Plan was approved by
shareholders on December 31, 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 other 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
Each fund has entered into a transfer agent agreement with UMB.
Under the terms of the agreements, UMB provides transfer agency,
dividend disbursing, and shareholder services for each fund. UMB in
turn has entered into sub-transfer agent agreements with FSC ,
an affiliate of FMR. Under the terms of the sub-agreements, FSC
performs all processing activities associated with providing these
services for each fund and receives all related transfer agency fees
paid to UMB.
For providing transfer agency services, FSC receives an annual
account fee and an asset-based fee each based on account size and fund
type for each retail account and certain institutional accounts. With
respect to certain institutional retirement accounts, FSC receives an
annual account fee and an asset-based fee based on account type or
fund type. These annual account fees are subject to increase based on
postal rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the Freedom Fund's assets that is
invested in a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each fund has also entered into a service agent agreement with UMB.
Under the terms of the agreements, UMB provides pricing and
bookkeeping services for each fund. UMB in turn has entered into
sub-service agent agreements with FSC. Under the terms of the
sub-agreements, FSC performs all processing activities associated with
providing these services, including calculating the NAV and dividends
for each fund and maintaining each fund's portfolio and general
accounting records, and receives all related pricing and bookkeeping
fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a
monthly fee based on each fund's average daily net assets throughout
the month.
FMR bears the cost of transfer agency, dividend disbursing, and
shareholder services and pricing and bookkeeping services under the
terms of its management contract with each fund.
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR organized as a Massachusetts corporation on July 18,
1960. FDC is a broker-dealer registered under the Securities Exchange
Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The distribution agreements call 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
NAV. Promotional and administrative expenses in connection with the
offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan Pennsylvania Municipal Income Fund is a
fund (series) of Fidelity Municipal Trust (the Massachusetts 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 Massachusetts
trust: Fidelity Advisor Municipal Bond Fund; Spartan Aggressive
Municipal Fund; Spartan Insured Municipal Income Fund; Spartan
Michigan Municipal Income Fund; Spartan Minnesota Municipal Income
Fund; Spartan Ohio Municipal Income Fund; and Spartan Pennsylvania
Municipal Income Fund. The Massachusetts trust's Declaration of Trust
permits the Trustees to create additional funds.
Spartan Pennsylvania Municipal Money Market Fund is a fund (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. Currently, there are three funds of the Delaware
trust: Fidelity Michigan Municipal Money Market Fund; Fidelity Ohio
Municipal Money Market Fund; and Spartan Pennsylvania Municipal Money
Market Fund. The Delaware trust's Trust Instrument permits the
Trustees to create additional funds.
In the event that FMR ceases to be investment adviser to a trust or
any of its funds, the right of the trust or the fund to use the
identifying names "Fidelity" and "Spartan" may be withdrawn. There is
a remote possibility that one fund might become liable for any
misstatement in its prospectus or statement of additional information
about another fund.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially
allocated to such fund, and constitute the underlying assets of such
fund. The underlying assets of each fund are segregated on the books
of account, and are to be charged with the liabilities with respect to
such fund and with a share of the general expenses of their respective
trusts. Expenses with respect to the trusts are to be allocated in
proportion to the asset value of their respective funds, except where
allocations of direct expense can otherwise be fairly made. The
officers of the trusts, subject to the general supervision of the
Boards of Trustees, have the power to determine which expenses are
allocable to a given fund, or which are general or allocable to all of
the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The
Massachusetts trust is an entity of the type commonly known as
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust. The Declaration of Trust
provides that the Massachusetts trust shall not have any claim against
shareholders except for the payment of the purchase price of shares
and requires that each agreement, obligation, or instrument entered
into or executed by the Massachusetts trust or its Trustees shall
include a provision limiting the obligations created thereby to the
Massachusetts trust and its assets. The Declaration of Trust provides
for indemnification out of each fund's property of any shareholders
held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any
act or obligation of the fund and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
The Declaration of Trust further provides that the Trustees, if they
have exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their
office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust
is a business trust organized under Delaware law. Delaware law
provides that shareholders shall be entitled to the same limitations
of personal liability extended to stockholders of private corporations
for profit. The courts of some states, however, may decline to apply
Delaware law on this point. The Trust Instrument contains an express
disclaimer of shareholder liability for the debts, liabilities,
obligations, and expenses of the Delaware trust and requires that a
disclaimer be given in each contract entered into or executed by the
Delaware trust or its Trustees. The Trust Instrument provides for
indemnification out of each fund's property of any shareholder or
former shareholder held personally liable for the obligations of the
fund. The Trust Instrument also provides that each fund shall, upon
request, assume the defense of any claim made against any shareholder
for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability
was in effect, and the fund is unable to meet its obligations. FMR
believes that, in view of the above, the risk of personal liability to
shareholders is extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any
conduct whatsoever, provided that Trustees are not protected against
any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. 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; 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
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
Fidelity Municipal Trust II 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 fund(s). The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any 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. ____________________________, (money market fund) serves as
the trusts' independent accountant. The auditor examines financial
statements for the funds and provides other audit, tax, and related
services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended December 31, 1997, and reports of the auditor, are
included in the funds' Annual Report, which is a separate report
supplied with this SAI. The funds' financial statements, including the
financial highlights, and reports of the auditor are incorporated
herein by reference. For a free additional copy of the funds'
Annual Report, contact Fidelity at 1-800-544-8888, 82 Devonshire
Street, Boston, MA 02109.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value
of each investment by the time remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a
stated final maturity basis, although there are some exceptions to
this rule.
For example, if it is probable that the issuer of an instrument will
take advantage of a maturity-shortening device, such as a call,
refunding, or redemption provision, the date on which the instrument
will probably be called, refunded, or redeemed may be considered to be
its maturity date. When a municipal bond issuer has committed to call
an issue of bonds and has established an independent escrow account
that is sufficient to, and is pledged to, refund that issue, the
number of days to maturity for the prerefunded bond is considered to
be the number of days to the announced call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations
when determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for short-term municipal obligations will be
designated Moody's Investment Grade ("MIG"). A two-component rating is
assigned to variable rate demand obligations. The first component
represents an evaluation of the degree of risk associated with
scheduled principal repayment and interest payments and is designated
by a long-term rating, e.g., "Aaa" or "A." The second component
represents an evaluation of the degree of risk associated with the
demand feature and is designated "VMIG."
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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL NOTES
Municipal notes maturing in three years or less will likely receive a
"note" rating symbol. Notes that have a put option or demand feature
are assigned a dual rating. The first rating addresses the likelihood
of repayment of principal and payment of interest due and for
short-term obligations is designated by a note rating symbol. The
second rating addresses only the demand feature, and is designated by
a commercial paper rating symbol, e.g., "A-1" or "A-2."
SP-1 - Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are 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.
DESCRIPTION OF MOODY'S INVESTORS SERVICE RATINGS OF MUNICIPAL
OBLIGATIONS
Moody's ratings for long-term municipal obligations fall within nine
categories. They range from Aaa (highest quality) to C (lowest
quality). Those bonds within the Aa through B categories that Moody's
believes possess the strongest credit attributes within those
categories are designated by the symbol "1."
AAA - Bonds that 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 that 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 that 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 that 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 that 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 that 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.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF MUNICIPAL DEBT
Municipal debt issues may be designated by Standard & Poor's as either
investment grade ("AAA" through "BBB") or speculative grade ("BB"
through "D"). While speculative grade debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions. Ratings from
AA through CCC may be modified by the addition of a plus sign (+) or
minus sign (-) to show relative standing within the major rating
categories.
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in
higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
FIDELITY MUNICIPAL TRUST
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Financial Highlights for Spartan
Aggressive Municipal Fund, Spartan Insured Municipal Income Fund,
Spartan Michigan Municipal Income Fund, Spartan Minnesota Municipal
Income Fund, Spartan Ohio Municipal Income Fund, and Spartan
Pennsylvania Municipal Income Fund for the fiscal year ended December
31, 1997 will be filed by subsequent amendment.
(b) Exhibits.
1. Declaration of Trust of Registrant, dated as of March 17, 1994, is
incorporated herein by reference to Exhibit 1 of Post-Effective
Amendment No. 67.
2. Bylaws of the Trust, as amended, are incorporated herein by
reference to Exhibit 2(a) of Fidelity Union Street Trust's (File No.
2-50318) Post-Effective Amendment No. 87.
3. Not applicable.
4. Not applicable.
5. (a) Management Contract, dated March 1, 1993 between Fidelity
Aggressive Tax-Free Portfolio (currently known as Spartan Aggressive
Municipal Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(a) of Post-Effective
Amendment No. 67.
(b) Management Contract, dated January 1, 1994, between Fidelity
Municipal Bond Portfolio (currently known as Fidelity Advisor
Municipal Bond Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(b) of Post-Effective
Amendment No. 67.
(c) Management Contract, dated January 1, 1994, between Fidelity
Insured Tax-Free Portfolio (currently known as Spartan Insured
Municipal Income Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(c) of Post-Effective
Amendment No. 69.
(d) Management Contract, dated January 1, 1994, between Fidelity
Michigan Tax-Free High Yield Portfolio (currently known as Spartan
Michigan Municipal Income Fund) and Fidelity Management & Research
Company is incorporated herein by reference to Exhibit 5(d) of
Post-Effective Amendment No. 64.
(e) Management Contract, dated January 1, 1994, between Fidelity
Minnesota Tax-Free Portfolio (currently known as Spartan Minnesota
Municipal Income Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(e) of Post-Effective
Amendment No. 64.
(f) Management Contract, dated January 1, 1994, between Fidelity
Ohio Tax-Free High Yield Portfolio (currently known as Spartan Ohio
Municipal Income Fund) and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(f) of 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(g)
of Post-Effective Amendment No. 67.
6. (a) General Distribution Agreement between Fidelity Insured
Tax-Free Portfolio (currently known as Spartan Insured Municipal
Income Fund) and Fidelity Distributors Corporation, dated April 1,
1987, is incorporated herein by reference to Exhibit 6(a) of
Post-Effective Amendment No. 67.
(b) General Distribution Agreement between Fidelity Aggressive
Tax-Free Portfolio (currently known as Spartan Aggressive Municipal
Fund) and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(b) of Post Effective
Amendment No. 70.
(c) General Distribution Agreement between Fidelity Municipal Bond
Portfolio (currently known as Fidelity Advisor Municipal Bond Fund)
and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(c) of Post-Effective
Amendment No. 67.
(d) General Distribution Agreement between Fidelity Ohio Tax-Free
High Yield Portfolio (currently known as Spartan Ohio Municipal Income
Fund) and Fidelity Distributors Corporation, dated April 1, 1987, is
incorporated herein by reference to Exhibit 6(d) of Post-Effective
Amendment No. 67.
(e) General Distribution Agreement between Fidelity Michigan
Tax-Free Portfolio (currently known as Spartan Michigan Municipal
Income Fund) and Fidelity Distributors Corporations, dated April 1,
1987, is incorporated herein by reference to Exhibit 6(e) of
Post-Effective Amendment No. 67.
(f) General Distribution Agreement between Fidelity Minnesota
Tax-Free Portfolio (currently known as Spartan Minnesota Municipal
Income Fund) and Fidelity Distributors Corporation, dated April 1,
1987, is incorporated herein by reference to Exhibit 6(f) of
Post-Effective Amendment No. 67.
(g) General Distribution Agreement between Fidelity Pennsylvania
Tax-Free 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) of
Post-Effective Amendment No. 67.
(h) Amendment to the General Distribution Agreement, dated January
1, 1988, between the Registrant and Fidelity Distributors Corporation
is incorporated herein by reference to Exhibit 6(h) of Post-Effective
Amendment No. 67.
(i) Form of Bank Agency Agreement (most recently revised January,
1997) is filed herein as Exhibit 6(i).
(j) Form of Selling Dealer Agreement (most recently revised January,
1997) is filed herein as Exhibit 6(j).
(k) Form of Selling Dealer Agreement for Bank Related Transactions
(most recently revised January, 1997) is filed herein as Exhibit 6(k).
(l) Amendments to the General Distribution Agreement between the
Registrant and Fidelity Distributors Corporation, dated March 14, 1996
and July 15, 1996, are incorporated herein by reference to Exhibit
6(a) of Fidelity Court Street Trust's Post-Effective Amendment No. 61
(File No. 2-58774).
7. (a) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is incorporated
herein by reference to Exhibit 7(a) of Fidelity Select Portfolio's
(File No. 2-69972) Post-Effective Amendment No. 54.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's (File No.
33-43529) Post-Effective Amendment No. 19.
8. (a) Custodian Agreement, 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 of Fidelity California
Municipal Trust's Post-Effective Amendment No. 28 (File No. 2-83367).
. (b) Appendix A, dated September 18, 1997, to the Custodian
Agreement, dated December 1, 1994, between UMB Bank, n.a. and the
Registrant is incorporated herein by reference to Exhibit 8(a) of
Fidelity Municipal II Trust's Post-Effective Amendment No. 17 (File
No. 33-43986).
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) of 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) of 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) of
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) of
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) of
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) of 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) of 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) of 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) of 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) of 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) of 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) of 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) of 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) of 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) of 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) of Fidelity Securities Fund's (File No. 2-93601)
Post-Effective Amendment No. 33.
(q) Fidelity SIMPLE-IRAPlan Adoption Agreement, Company Profile
Form, and Plan Document, as currently in effect, is incorporated
herein by reference to Exhibit 14(q) of Fidelity Aberdeen Street
Trust's (File No. 33-43529) Post-Effective Amendment No. 19.
15. (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Insured Municipal Income Fund is filed herein as Exhibit
15(a).
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Ohio Municipal Income Fund is filed herein as Exhibit 15(b).
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Michigan MunicipalIncome Fund is filed herein as Exhibit 15(c).
(d) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Minnesota Municipal Income Fund is filed herein as Exhibit 15(d).
(e) Distribution and Service Plan pursuant to Rule 12b-1 for Spartan
Pennsylvania Municipal Income Fund is filed herein as Exhibit 15(e).
(f) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Municipal Bond Fund (currently known Fidelity Advisor
Municipal Bond Fund: Initial Class) is incorporated herein by
reference to Exhibit 15(f) of Post-Effective Amendment No. 79.
(g) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Aggressive Municipal Fund (currently known as Spartan
Aggressive Municipal Fund) is filed herein as Exhibit 15(g).
(h) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Advisor Municipal Bond Fund: Class T (formerly Class A) is
incorporated herein by reference to Exhibit 15(h) of Post-Effective
Amendment No. 79.
(i) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Advisor Municipal Bond Fund: Class B is incorporated herein
by reference to Exhibit 15(i) of Post-Effective Amendment No. 79.
(j) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Advisor Municipal Bond Fund: Institutional Class is
incorporated herein by reference to Exhibit 15(j) of Post-Effective
Amendment No. 79.
(k) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Advisor Municipal Bond Fund: Class A is incorporated herein
by reference to Exhibit 15(k) of Post-Effective Amendment No. 79.
16. (a) Schedule for computation of performance calculations for
Fidelity Municipal Bond Fund is incorporated herein by reference to
Exhibit 16(a) of Post-Effective Amendment No. 70.
(b) Schedule for computation of adjusted net asset values for
Fidelity Municipal Bond Fund is incorporated herein by reference to
Exhibit 16(b) of Post-Effective Amendment No. 70.
17. Financial Data Schedules will be filed by subsequent amendment.
18. Rule 18f-3 Plan, dated February 1, 1997, is incorporated herein
by reference to Exhibit 18 of Post-Effective Amendment No. 79.
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
As of September 30, 1997
Title of Class: Shares of Beneficial Interest
Name of Series: Number of Record Holders
Fidelity Advisor Municipal Bond Fund: Initial Class 18,477
Fidelity Advisor Municipal Bond Fund: Class T 392
Fidelity Advisor Municipal Bond Fund: Class A 11
Fidelity Advisor Municipal Bond Fund: Class B 73
Fidelity Advisor Municipal Bond Fund: Institutional Class 33
Spartan Aggressive Municipal Fund: 22,331
Spartan Insured Municipal Income Fund: 8,428
Spartan Ohio Municipal Income Fund: 8,795
Spartan Michigan Municipal Income Fund: 11,084
Spartan Minnesota Municipal Income Fund: 7,250
Spartan Pennsylvania Municipal Income Fund: 5,017
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.
Pursuant to Section 11 of the Distribution Agreement, the Registrant
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense arising by reason of
any person acquiring any shares, based upon the ground that the
registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Registrant included a materially misleading statement or
omission. However, the Registrant does not agree to indemnify the
Distributor or hold it harmless to the extent that the statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Registrant by or on behalf of the
Distributor. The Registrant does not agree to indemnify the parties
against any liability to which they would be subject by reason of
willful misfeasance, bad faith, gross negligence, and reckless
disregard of the obligations and duties under the Distribution
Agreement.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("Service") is appointed sub-transfer agent, the Transfer Agent agrees
to indemnify Service for Service's losses, claims, damages,
liabilities and expenses (including reasonable counsel fees and
expenses) (losses) to the extent that the Transfer Agent is entitled
to and receives indemnification from the Portfolio for the same
events. Under the Transfer Agency Agreement, the Registrant agrees to
indemnify and hold the Transfer Agent harmless against any losses,
claims, damages, liabilities, or expenses (including reasonable
counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder which names the
Transfer Agent and/or the Registrant as a party and is not based on
and does not result from the Transfer Agent's willful misfeasance, bad
faith or negligence or reckless disregard of duties, and arises out of
or in connection with the Transfer Agent's performance under the
Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by the Transfer Agent's willful misfeasance, bad faith
or negligence or reckless disregard of duties) which results from the
negligence of the Registrant, or from the Transfer Agent's acting upon
any instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a
result of the Transfer Agent's acting in reliance upon advice
reasonably believed by the Transfer Agent to have been given by
counsel for the Registrant, or as a result of the Transfer Agent's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Pursuant to the agreement by which Fidelity Investments Institutional
Operations Company, Inc. ("FIIOC") is appointed transfer agent, the
Registrant agrees to indemnify and hold FIIOC harmless against any
losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any person other
than the Registrant, including by a shareholder, which names FIIOC
and/or the Registrant as a party and is not based on and does not
result from FIIOC's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with
FIIOC's performance under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FIIOC's willful misfeasance, bad faith or negligence
or reckless disregard of duties) which results from the negligence of
the Registrant, or from FIIOC's acting upon any instruction(s)
reasonably believed by it to have been executed or communicated by any
person duly authorized by the Registrant, or as a result of FIIOC's
acting in reliance upon advice reasonably believed by FIIOC to have
been given by counsel for the Registrant, or as a result of FIIOC's
acting in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
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 Board of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of the
Board and Director of FMR, FMR Corp., FMR Texas
Inc., FMR (U.K.) Inc., and FMR (Far East) Inc.;
Chairman of the Board and Representative Director of
Fidelity Investments Japan Limited; President and
Trustee of funds advised by FMR.
Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FMR Texas Inc., FMR (U.K.) Inc., and
FMR (Far East) Inc.; General Counsel, Managing
Director, and Senior Vice President of FMR Corp.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
John Carlson Vice President of FMR.
Dwight D. Churchill Senior Vice President of FMR.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Stephen G. Manning Assistant Treasurer of FMR
William Danoff Senior Vice President of FMR and of a fund advised by
FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of FMR
Texas Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant Vice President of FMR and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Senior Vice President of FMR.
Bart A. Grenier Vice President of High-Income Funds advised by
FMR;Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of Equity
funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
Bruce Herring Vice President of FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Senior Vice President of FMR and of a fund advised by
FMR; Associate Director and Senior Vice President of
Equity funds advised by FMR.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR and Vice President of
Fidelity Real Estate High Income and Fidelity Real
Estate High Income II funds advised by FMR;
Associate Director and Senior Vice President of Equity
funds advised by FMR; Vice President of High Income
funds advised by FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Mark G. Lohr Vice President of FMR; Treasurer of FMR, FMR (U.K.)
Inc., FMR (Far East) Inc., and FMR Texas Inc.
Arthur S. Loring Senior Vice President, Clerk, and General Counsel of
FMR; Vice President/Legal, and Assistant Clerk of
FMR Corp.; Secretary of funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Charles Mangum Vice President of FMR.
Kevin McCarey Vice President of FMR.
Diane McLaughlin Vice President of FMR.
Neal P. Miller Vice President of FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Scott Orr Vice President of FMR.
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Kennedy P. Richardson Vice President of FMR.
Mark Rzepczynski Vice President of FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Fergus Shiel Vice President of FMR.
Carol Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity funds advised by FMR;
Senior Vice President and Director of Operations and
Compliance of FMR (U.K.) Inc.
Thomas Sprague Vice President of FMR.
Robert E. Stansky Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Scott Stewart Vice President of FMR.
Cythia Straus Vice President of FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a fund
advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of funds advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President 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
Michael Mlinac Director None
James Curvey Director None
Martha B. Willis President None
Arthur S. Loring Vice President and Clerk Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
* 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 Company, Inc., 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 Spartan Aggressive Municipal Fund,
Fidelity Advisor Municipal Bond Fund, Spartan Insured Municipal Income
Fund, Spartan Ohio Municipal Income Fund, Spartan Michigan Municipal
Income Fund, Spartan 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. 84 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston, and Commonwealth of Massachusetts, on the 8th day
of December 1997.
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 8, 1997
Edward C. Johnson 3d (Principal Executive Officer)
/s/Richard A. Silver Treasurer December 8, 1997
Richard A. Silver
/s/Robert C. Pozen Trustee December 8, 1997
Robert C. Pozen
/s/Ralph F. Cox * Trustee December 8, 1997
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee December 8, 1997
Phyllis Burke Davis
/s/Robert M. Gates ** Trustee December 8, 1997
Robert M. Gates
/s/E. Bradley Jones * Trustee December 8, 1997
E. Bradley Jones
/s/Donald J. Kirk * Trustee December 8, 1997
Donald J. Kirk
/s/Peter S. Lynch * Trustee December 8, 1997
Peter S. Lynch
/s/Marvin L. Mann * Trustee December 8, 1997
Marvin L. Mann
/s/William O. McCoy * Trustee December 8, 1997
William O. McCoy
/s/Gerald C. McDonough * Trustee December 8, 1997
Gerald C. McDonough
/s/Thomas R. Williams * Trustee December 8, 1997
Thomas R. Williams
</TABLE>
(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
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 Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash Portfolios
Fidelity Advisor Series III Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series VII Fidelity Money Market Trust
Fidelity Advisor Series VIII Fidelity Mt. Vernon Street Trust
Fidelity Beacon Street Trust Fidelity Municipal Trust
Fidelity Boston Street Trust Fidelity Municipal Trust II
Fidelity California Municipal Trust Fidelity New York Municipal Trust
Fidelity California Municipal Trust II Fidelity New York Municipal Trust II
Fidelity Capital Trust Fidelity Phillips Street Trust
Fidelity Charles Street Trust Fidelity Puritan Trust
Fidelity Commonwealth Trust Fidelity Revere Street Trust
Fidelity Concord Street Trust Fidelity School Street Trust
Fidelity Congress Street Fund Fidelity Securities Fund
Fidelity Contrafund Fidelity Select Portfolios
Fidelity Corporate Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Court Street Trust Fidelity Summer Street Trust
Fidelity Court Street Trust II Fidelity Trend Fund
Fidelity Covington Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Daily Money Fund Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Union Street Trust II
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Newbury Street Trust
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund Variable Insurance Products Fund III
Fidelity Hastings Street Trust
</TABLE>
in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, 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 on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997
Edward C. Johnson 3d
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 Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, 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
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, 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 deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the 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. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.
/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________
Edward C. Johnson 3d Peter S. Lynch
/s/J. Gary Burkhead_______________ /s/William O. McCoy______________
J. Gary Burkhead William O. McCoy
/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________
Ralph F. Cox Gerald C. McDonough
/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________
Phyllis Burke Davis Marvin L. Mann
/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________
E. Bradley Jones Thomas R. Williams
/s/Donald J. Kirk __________________
Donald J. Kirk
POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II
</TABLE>
plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, 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 attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the 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. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997
Robert M. Gates
FORM OF
BANK AGENCY AGREEMENT
We at Fidelity Distributors Corporation offer to make available to
your customers shares of the mutual funds, or the separate series or
classes of the mutual funds, listed on Schedules A and B attached to
this Agreement (the "Portfolios"). We may periodically change the
list of Portfolios by giving you written notice of the change. We are
the Portfolios' principal underwriter and act as agent for the
Portfolios. You (____________________________________) are a division
or affiliate of a bank (____________________________________) and
desire to make Portfolio shares available to your customers on the
following terms:
1. Certain Defined Terms: As used in this Agreement, the term
"Prospectus" means the applicable Portfolio's prospectus and related
statement of additional information, whether in paper format or
electronic format, included in the Portfolio's then currently
effective registration statement (or post-effective amendment
thereto), and any information that we or the Portfolio may issue to
you as a supplement to such prospectus or statement of additional
information (a "sticker"), all as filed with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of
1933.
2. Making Portfolio Shares Available to Your Customers: (a) In all
transactions covered by this Agreement: (i) you will act as agent for
your customers; in no transaction are you authorized to act as agent
for us or for any Portfolio; (ii) you will initiate transactions only
upon your customers' orders; (iii) we will execute transactions only
upon receiving instructions from you acting as agent for your
customers; and (iv) each transaction will be for your customer's
account and not for your own account. Each transaction will be
without recourse to you, provided that you act in accordance with the
terms of this Agreement.
(b) You agree to make Portfolio shares available to your customers
only at the applicable public offering price in accordance with the
Prospectus. If your customer qualifies for a reduced sales charge
pursuant to a special purchase plan (for example, a quantity discount,
letter of intent, or right of accumulation) as described in the
Prospectus, you agree to make Portfolio shares available to your
customer at the applicable reduced sales charge. You agree to deliver
or cause to be delivered to each customer, at or prior to the time of
any purchase of shares, a copy of the then current prospectus
(including any stickers thereto), unless such prospectus has already
been delivered to the customer, and to each customer who so requests,
a copy of the then current statement of additional information
(including any stickers thereto).
(c) You agree to order Portfolio shares from us only to cover
purchase orders that you have already received from your customers, or
for your own investment. You will not withhold placing customers'
orders so as to profit yourself as a result of such withholding (for
example, by a change in a Portfolio's net asset value from that used
in determining the offering price to your customers).
(d) We will accept your purchase orders only at the public offering
price applicable to each order, as determined in accordance with the
Prospectus. We will not accept from you a conditional order for
Portfolio shares. All orders are subject to acceptance or rejection
by us in our sole discretion. We may, without notice, suspend sales
or withdraw the offering of Portfolio shares, or make a limited
offering of Portfolio shares.
(e) The placing of orders with us will be governed by instructions
that we will periodically issue to you. You must pay for Portfolio
shares in New York or Boston clearing house funds or in federal funds
in accordance with such instructions, and we must receive your payment
on or before the settlement date established in accordance with Rule
15c6-1 under the Securities Exchange Act of 1934 (the "1934 Act").
(f) You agree to comply with all applicable state and federal laws
and with the rules and regulations of authorized regulatory agencies
thereunder. You agree to make Portfolio shares available to your
customers only in states where you may legally make such Portfolio's
shares available. You will not make available shares of any Portfolio
unless such shares are registered under the applicable state and
federal laws and the rules and regulations thereunder.
(g) Certificates evidencing Portfolio shares are not available; any
transaction in Portfolio shares will be effected and evidenced by
book-entry on the records maintained by Fidelity Investments
Institutional Operations Company, Inc. ("FIIOC"). A confirmation
statement evidencing transactions in Portfolio shares will be
transmitted to you.
(h) You may designate FIIOC to execute your customers' transactions
in Portfolio shares in accordance with the terms of any account,
program, plan, or service established or used by your customers, and
to confirm each transaction to your customers on your behalf on a
fully disclosed basis. At the time of the transaction, you guarantee
the legal capacity of your customers and any co-owners of such shares
so transacting in such shares.
3. Your Compensation: (a) Your fee, if any, for acting as agent
with respect to sales of Portfolio shares will be as provided in the
Prospectus or in the applicable schedule of agency fees issued by us
and in effect at the time of the sale. Upon written notice to you, we
or any Portfolio may change or discontinue any schedule of agency
fees, or issue a new schedule.
(b) If a Portfolio has adopted a plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan"), we may make
distribution payments or service payments to you under the Plan. If a
Portfolio does not have a currently effective Plan, we or Fidelity
Management & Research Company may make distribution payments or
service payments to you from our own funds. Any distribution payments
or service payments will be made in the amount and manner set forth in
the Prospectus or in the applicable schedule of distribution payments
or service payments issued by us and then in effect. Upon written
notice to you, we or any Portfolio may change or discontinue any
schedule of distribution payments or service payments, or issue a new
schedule. A schedule of distribution payments or service payments
will be in effect with respect to a Portfolio that has a Plan only so
long as that Portfolio's Plan remains in effect.
(c) After the effective date of any change in or discontinuance of
any schedule of agency fees, distribution payments, or service
payments, or the termination of a Plan, any agency fees, distribution
payments, or service payments will be allowable or payable to you only
in accordance with such change, discontinuance, or termination. You
agree that you will have no claim against us or any Portfolio by
virtue of any such change, discontinuance, or termination. In the
event of any overpayment by us of any agency fee, distribution
payment, or service payment, you will remit such overpayment.
(d) If, within seven (7) business days after our confirmation of
the original purchase order for shares of a Portfolio, such shares are
redeemed by the issuing Portfolio or tendered for redemption by the
customer, you agree (i) to refund promptly to us the full amount of
any agency fee, distribution payment, or service payment paid to you
on such shares, and (ii) if not yet paid to you, to forfeit the right
to receive any agency fee, distribution payment, or service payment
payable to you on such shares. We will notify you of any such
redemption within ten (10) days after the date of the redemption.
4. Certain Types of Accounts: (a) You may instruct FIIOC to
register purchased shares in your name and account as nominee for your
customers. If you hold Portfolio shares as nominee for your
customers, all Prospectuses, proxy statements, periodic reports, and
other printed material will be sent to you, and all confirmations and
other communications to shareholders will be transmitted to you. You
will be responsible for forwarding such printed material,
confirmations, and communications, or the information contained
therein, to all customers for whose account you hold any Portfolio
shares as nominee. However, we or FIIOC on behalf of itself or the
Portfolios will be responsible for the costs associated with your
forwarding such printed material, confirmations, and communications.
You will be responsible for complying with all reporting and tax
withholding requirements with respect to the customers for whose
account you hold any Portfolio shares as nominee.
(b) With respect to accounts other than those accounts referred to
in paragraph 4(a) above, you agree to provide us with all information
(including certification of taxpayer identification numbers and
back-up withholding instructions) necessary or appropriate for us to
comply with legal and regulatory reporting requirements.
(c) Accounts opened or maintained pursuant to the NETWORKING system
of the National Securities Clearing Corporation ("NSCC") will be
governed by applicable NSCC rules and procedures and any agreement or
other arrangement with us relating to NETWORKING.
(d) If you hold Portfolio shares in an omnibus account for two or
more customers, you will be responsible for determining, in accordance
with the Prospectus, whether, and the extent to which, a CDSC is
applicable to a purchase of Portfolio shares from such a customer, and
you agree to transmit immediately to us any CDSC to which such
purchase was subject. You hereby represent that if you hold Portfolio
shares subject to a CDSC, you have the capability to track and account
for such charge, and we reserve the right, at our discretion, to
verify that capability by inspecting your tracking and accounting
system or otherwise.
5. Status as Registered Broker/Dealer or "Bank": (a) Each party to
this Agreement represents to the other party that it is either (i) a
registered broker/dealer under the 1934 Act, or (ii) a "bank" as
defined in Section 3(a)(6) of the 1934 Act.
(b) If a party is a registered broker/dealer, such party represents
that it is qualified to act as a broker/dealer in the states where it
transacts business, and it is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"). It agrees
to maintain its broker/dealer registration and qualifications and its
NASD membership in good standing throughout the term of this
Agreement. It agrees to abide by all of the NASD's rules and
regulations, including the NASD's Conduct Rules -- in particular,
Section 2830 of such Rules, which section is deemed a part of and is
incorporated by reference in this Agreement. This Agreement will
terminate automatically without notice in the event that a party's
NASD membership is terminated.
(c) If you are a "bank", you represent that you are duly authorized
to engage in the transactions to be performed under this Agreement,
and you agree to comply with all applicable federal and state laws,
including the rules and regulations of all applicable federal and
state bank regulatory agencies and authorities. This Agreement will
terminate automatically without notice in the event that you cease to
be a "bank" as defined in Section 3(a)(6) of the 1934 Act.
(d) Nothing in this Agreement shall cause you to be our partner,
employee, or agent, or give you any authority to act for us or for any
Portfolio. Neither we nor any Portfolio shall be liable for any of
your acts or obligations as a dealer under this Agreement.
6. Information Relating to the Portfolios: (a) No person is
authorized to make any representations concerning shares of a
Portfolio other than those contained in the Portfolio's Prospectus.
In ordering Portfolio shares from us under this Agreement, you will
rely only on the representations contained in the Prospectus. Upon
your request, we will furnish you with a reasonable number of copies
of the Portfolios' current prospectuses or statements of additional
information or both (including any stickers thereto).
(b) Any printed or electronic information that we furnish you
(other than the Portfolios' Prospectuses and periodic reports) is our
sole responsibility and not the responsibility of the respective
Portfolios. You agree that the Portfolios will have no liability or
responsibility to you with respect to any such printed or electronic
information. We or the respective Portfolio will bear the expense of
qualifying its shares under the state securities laws.
(c) You may not use any sales literature or advertising material
(including material disseminated through radio, television, or other
electronic media) concerning Portfolio shares, other than the printed
or electronic information referred to in paragraph 6(b) above, in
connection with making Portfolio shares available to your customers
without obtaining our prior written approval. You may not distribute
or make available to investors any information that we furnish you
marked "FOR DEALER USE ONLY" or that otherwise indicates that it is
confidential or not intended to be distributed to investors.
7. Indemnification: (a) We will indemnify and hold you harmless
from any claim, demand, loss, expense, or cause of action resulting
from the misconduct or negligence, as measured by industry standards,
of us, our agents and employees, in carrying out our obligations under
this Agreement. Such indemnification will survive the termination of
this Agreement.
(b) You will indemnify and hold us harmless from any claim, demand,
loss, expense, or cause of action resulting from the misconduct or
negligence, as measured by industry standards, of you, your agents and
employees, in carrying out your obligations under this Agreement.
Such indemnification will survive the termination of this Agreement.
8. Customer Lists: We hereby agree that we shall not use any list of
your customers which may be obtained in connection with this Agreement
for the purpose of solicitation of any product or service without your
express written consent. However, nothing in this paragraph or
otherwise shall be deemed to prohibit or restrict us or our affiliates
in any way from solicitations of any product or service directed at,
without limitation, the general public, any segment thereof, or any
specific individual, provided such solicitation is not based upon such
list.
9. Duration of Agreement: This Agreement, with respect to any Plan,
will continue in effect for one year from its effective date, and
thereafter will continue automatically for successive annual periods;
provided, however, that such continuance is subject to termination at
any time without penalty if a majority of a Portfolio's Trustees who
are not interested persons of the Portfolio (as defined in the
Investment Company Act of 1940 (the "1940 Act")), or a majority of the
outstanding shares of the Portfolio, vote to terminate or not to
continue the Plan. This Agreement, other than with respect to a Plan,
will continue in effect from year to year after its effective date,
unless terminated as provided herein.
10. Amendment and Termination of Agreement: (a) We may amend any
provision of this Agreement by giving you written notice of the
amendment. Either party to this Agreement may terminate the Agreement
without cause by giving the other party at least thirty (30) days'
written notice of its intention to terminate. This Agreement will
terminate automatically in the event of its assignment (as defined in
the 1940 Act).
(b) In the event that (i) an application for a protective decree
under the provisions of the Securities Investor Protection Act of 1970
is file against you; (ii) you file a petition in bankruptcy or a
petition seeking similar relief under any bankruptcy, insolvency, or
similar law, or a proceeding is commenced against you seeking such
relief; or (iii) you are found by the SEC, the NASD, or any other
federal or state regulatory agency or authority to have violated any
applicable federal or state law, rule or regulation arising out of
your activities as a broker/dealer or in connection with this
Agreement, this Agreement will terminate effective immediately upon
our giving notice of termination to you. You agree to notify us
promptly and to immediately suspend making Portfolio shares available
to your customers in the event of any such filing or violation, or in
the event that you cease to be a member in good standing of the NASD
or you cease to be a "bank" as defined in Section 3(a)(6) of the 1934
Act.
(c) Your or our failure to terminate this Agreement for a
particular cause will not constitute a waiver of the right to
terminate this Agreement at a later date for the same or another
cause. The termination of this Agreement with respect to any one
Portfolio will not cause its termination with respect to any other
Portfolio.
11. Arbitration: In the event of a dispute, such dispute will be
settled by arbitration before arbitrators sitting in Boston,
Massachusetts in accordance with the NASD's Code of Arbitration
Procedure in effect at the time of the dispute. The arbitrators will
act by majority decision and their award may allocate attorneys' fees
and arbitration costs between us. Their award will be final and
binding between us, and such award may be entered as a judgment in any
court of competent jurisdiction.
12. Notices: All notices required or permitted to be given under this
Agreement shall be given in writing and delivered by personal
delivery, by postage prepaid mail, or by facsimile machine or a
similar means of same day delivery (with a confirming copy by mail).
All notices to us shall be given or sent to us at our offices located
at 82 Devonshire Street, Mail Zone L12A, Boston, Massachusetts 02109,
Attn: Bank Wholesale Market. All notices to you shall be given or
sent to you at the address specified by you below. Each of us may
change the address to which notices shall be sent by giving notice to
the other party in accordance with this paragraph 12.
13. Miscellaneous: This Agreement, as it may be amended from time to
time, shall become effective as of the date when it is accepted and
dated below by us. This Agreement is to be construed in accordance
with the laws of the Commonwealth of Massachusetts. This Agreement
supersedes and cancels any prior agreement between us, whether oral or
written, relating to the sale of shares of the Portfolios or any other
subject covered by this Agreement. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions of this Agreement or otherwise affect
their construction or effect.
Very truly yours,
FIDELITY DISTRIBUTORS
CORPORATION
Please return two signed copies of this Agreement to Fidelity
Distributors Corporation. Upon acceptance, one countersigned copy
will be returned to you for your files.
_____________________________________
Name of Firm
Address: _____________________________
_____________________________________
_____________________________________
By __________________________________
Authorized Representative
_____________________________________
Name and Title (please print or type)
ACCEPTED AND AGREED:
FIDELITY DISTRIBUTORS CORPORATION
By __________________________________
Dated: ________________
** DISCARD THIS PAGE AND ATTACH REVISED SCHEDULES A AND B **
FORM OF
SELLING DEALER AGREEMENT
We at Fidelity Distributors Corporation invite you
(______________________________) to distribute shares of the mutual
funds, or the separate series or classes of the mutual funds, listed
on Schedule A attached to this Agreement (the "Portfolios"). We may
periodically change the list of Portfolios by giving you written
notice of the change. We are the Portfolios' principal underwriter
and, as agent for the Portfolios, we offer to sell Portfolio shares to
you on the following terms:
1. Certain Defined Terms: As used in this Agreement, the term
"Prospectus" means the applicable Portfolio's prospectus and related
statement of additional information, whether in paper format or
electronic format, included in the Portfolio's then currently
effective registration statement (or post-effective amendment
thereto), and any information that we or the Portfolio may issue to
you as a supplement to such prospectus or statement of additional
information (a "sticker"), all as filed with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Act of
1933.
2. Purchases of Portfolio Shares for Sale to Customers: (a) In
offering and selling Portfolio shares to your customers, you agree to
act as dealer for your own account; you are not authorized to act as
agent for us or for any Portfolio.
(b) You agree to offer and sell Portfolio shares to your customers
only at the applicable public offering price in accordance with the
Prospectus. If your customer qualifies for a reduced sales charge
pursuant to a special purchase plan (for example, a quantity discount,
letter of intent, or right of accumulation) as described in the
Prospectus, you agree to offer and sell Portfolio shares to your
customer at the applicable reduced sales charge. You agree to deliver
or cause to be delivered to each customer, at or prior to the time of
any purchase of shares, a copy of the then current prospectus
(including any stickers thereto), unless such prospectus has already
been delivered to the customer, and to each customer who so requests,
a copy of the then current statement of additional information
(including any stickers thereto).
(c) You agree to purchase Portfolio shares from us only to cover
purchase orders that you have already received from your customers, or
for your own investment. You also agree not to purchase any Portfolio
shares from your customers at a price lower than the applicable
redemption price, determined in the manner described in the
Prospectus. You will not withhold placing customers' orders so as to
profit yourself as a result of such withholding (for example, by a
change in a Portfolio's net asset value from that used in determining
the offering price to your customers).
(d) We will accept your purchase orders only at the public offering
price applicable to each order, as determined in accordance with the
Prospectus. We will not accept from you a conditional order for
Portfolio shares. All orders are subject to acceptance or rejection
by us in our sole discretion. We may, without notice, suspend sales
or withdraw the offering of Portfolio shares, or make a limited
offering of Portfolio shares.
(e) The placing of orders with us will be governed by instructions
that we will periodically issue to you. You must pay for Portfolio
shares in New York or Boston clearing house funds or in federal funds
in accordance with such instructions, and we must receive your payment
on or before the settlement date established in accordance with Rule
15c6-1 under the Securities Exchange Act of 1934 (the "1934 Act"). If
we do not receive your payment on or before such settlement date, we
may, without notice, cancel the sale, or, at our option, sell the
shares that you ordered back to the issuing Portfolio, and we may hold
you responsible for any loss suffered by us or the issuing Portfolio
as a result of your failure to make payment as required.
(f) You agree to comply with all applicable state and federal laws
and with the rules and regulations of authorized regulatory agencies
thereunder. You agree to offer and sell Portfolio shares only in
states where you may legally offer and sell such Portfolio's shares.
You will not offer shares of any Portfolio for sale unless such shares
are registered for sale under the applicable state and federal laws
and the rules and regulations thereunder.
(g) Certificates evidencing Portfolio shares are not available; any
transaction in Portfolio shares will be effected and evidenced by
book-entry on the records maintained by Fidelity Investments
Institutional Operations Company, Inc. ("FIIOC"). A confirmation
statement evidencing transactions in Portfolio shares will be
transmitted to you.
(h) You may designate FIIOC to execute your customers' transactions
in Portfolio shares in accordance with the terms of any account,
program, plan, or service established or used by your customers, and
to confirm each transaction to your customers on your behalf. At the
time of the transaction, you guarantee the legal capacity of your
customers and any co-owners of such shares so transacting in such
shares.
3. Your Compensation: (a) Your concession, if any, on your sales of
Portfolio shares will be as provided in the Prospectus or in the
applicable schedule of concessions issued by us and in effect at the
time of our sale to you. Upon written notice to you, we or any
Portfolio may change or discontinue any schedule of concessions, or
issue a new schedule.
(b) If a Portfolio has adopted a plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan"), we may make
distribution payments or service payments to you under the Plan. If a
Portfolio does not have a currently effective Plan, we or Fidelity
Management & Research Company may make distribution payments or
service payments to you from our own funds. Any distribution payments
or service payments will be made in the amount and manner set forth in
the Prospectus or in the applicable schedule of distribution payments
or service payments issued by us and then in effect. Upon written
notice to you, we or any Portfolio may change or discontinue any
schedule of distribution payments or service payments, or issue a new
schedule. A schedule of distribution payments or service payments
will be in effect with respect to a Portfolio that has a Plan only so
long as that Portfolio's Plan remains in effect.
(c) After the effective date of any change in or discontinuance of
any schedule of concessions, distribution payments, or service
payments, or the termination of a Plan, any concessions, distribution
payments, or service payments will be allowable or payable to you only
in accordance with such change, discontinuance, or termination. You
agree that you will have no claim against us or any Portfolio by
virtue of any such change, discontinuance, or termination. In the
event of any overpayment by us of any concession, distribution
payment, or service payment, you will remit such overpayment.
(d) If any Portfolio shares sold to you by us under the terms of
this Agreement are redeemed by the issuing Portfolio or tendered for
redemption by the customer within seven (7) business days after the
date of our confirmation of your original purchase order for such
shares, you agree (i) to refund promptly to us the full amount of any
concession, distribution payment, or service payment allowed or paid
to you on such shares, and (ii) if not yet allowed or paid to you, to
forfeit the right to receive any concession, distribution payment, or
service payment allowable or payable to you on such shares. We will
notify you of any such redemption within ten (10) days after the date
of the redemption.
4. Certain Types of Accounts: (a) You may instruct FIIOC to
register purchased shares in your name and account as nominee for your
customers. If you hold Portfolio shares as nominee for your
customers, all Prospectuses, proxy statements, periodic reports, and
other printed material will be sent to you, and all confirmations and
other communications to shareholders will be transmitted to you. You
will be responsible for forwarding such printed material,
confirmations, and communications, or the information contained
therein, to all customers for whose account you hold any Portfolio
shares as nominee. However, we or FIIOC on behalf of itself or the
Portfolios will be responsible for the costs associated with your
forwarding such printed material, confirmations, and communications.
You will be responsible for complying with all reporting and tax
withholding requirements with respect to the customers for whose
account you hold any Portfolio shares as nominee.
(b) With respect to accounts other than those accounts referred to
in paragraph 4(a) above, you agree to provide us with all information
(including certification of taxpayer identification numbers and
back-up withholding instructions) necessary or appropriate for us to
comply with legal and regulatory reporting requirements.
(c) Accounts opened or maintained pursuant to the NETWORKING system
of the National Securities Clearing Corporation ("NSCC") will be
governed by applicable NSCC rules and procedures and any agreement or
other arrangement with us relating to NETWORKING.
(d) If you hold Portfolio shares in an omnibus account for two or
more customers, you will be responsible for determining, in accordance
with the Prospectus, whether, and the extent to which, a CDSC is
applicable to a purchase of Portfolio shares from such a customer, and
you agree to transmit immediately to us any CDSC to which such
purchase was subject. You hereby represent that if you hold Portfolio
shares subject to a CDSC, you have the capability to track and account
for such charge, and we reserve the right, at our discretion, to
verify that capability by inspecting your tracking and accounting
system or otherwise.
5. Status as Registered Broker/Dealer: (a) Each party to this
Agreement represents to the other party that (i) it is registered as a
broker/dealer under the 1934 Act, (ii) it is qualified to act as a
broker/dealer in the states where it transacts business, and (iii) it
is a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"). Each party agrees to maintain its
broker/dealer registration and qualifications and its NASD membership
in good standing throughout the term of this Agreement. Each party
agrees to abide by all of the NASD's rules and regulations, including
the NASD's Conduct Rules -- in particular, Section 2830 of such Rules,
which section is deemed a part of and is incorporated by reference in
this Agreement. This Agreement will terminate automatically without
notice in the event that either party's NASD membership is terminated.
(b) Nothing in this Agreement shall cause you to be our partner,
employee, or agent, or give you any authority to act for us or for any
Portfolio. Neither we nor any Portfolio shall be liable for any of
your acts or obligations as a dealer under this Agreement.
6. Information Relating to the Portfolios: (a) No person is
authorized to make any representations concerning shares of a
Portfolio other than those contained in the Portfolio's Prospectus.
In buying Portfolio shares from us under this Agreement, you will rely
only on the representations contained in the Prospectus. Upon your
request, we will furnish you with a reasonable number of copies of the
Portfolios' current prospectuses or statements of additional
information or both (including any stickers thereto).
(b) Any printed or electronic information that we furnish you
(other than the Portfolios' Prospectuses and periodic reports) is our
sole responsibility and not the responsibility of the respective
Portfolios. You agree that the Portfolios will have no liability or
responsibility to you with respect to any such printed or electronic
information. We or the respective Portfolio will bear the expense of
qualifying its shares under the state securities laws.
(c) You may not use any sales literature or advertising material
(including material disseminated through radio, television, or other
electronic media) concerning Portfolio shares, other than the printed
or electronic information referred to in paragraph 6(b) above, in
connection with the offer or sale of Portfolio shares without
obtaining our prior written approval. You may not distribute or make
available to investors any information that we furnish you marked "FOR
DEALER USE ONLY" or that otherwise indicates that it is confidential
or not intended to be distributed to investors.
7. Indemnification: (a) We will indemnify and hold you harmless
from any claim, demand, loss, expense, or cause of action resulting
from the misconduct or negligence, as measured by industry standards,
of us, our agents and employees, in carrying out our obligations under
this Agreement. Such indemnification will survive the termination of
this Agreement.
(b) You will indemnify and hold us harmless from any claim, demand,
loss, expense, or cause of action resulting from the misconduct or
negligence, as measured by industry standards, of you, your agents and
employees, in carrying out your obligations under this Agreement.
Such indemnification will survive the termination of this Agreement.
8. Customer Lists: We hereby agree that we shall not use any list of
your customers which may be obtained in connection with this Agreement
for the purpose of solicitation of any product or service without your
express written consent. However, nothing in this paragraph or
otherwise shall be deemed to prohibit or restrict us or our affiliates
in any way from solicitations of any product or service directed at,
without limitation, the general public, any segment thereof, or any
specific individual, provided such solicitation is not based upon such
list.
9. Duration of Agreement: This Agreement, with respect to any Plan,
will continue in effect for one year from its effective date, and
thereafter will continue automatically for successive annual periods;
provided, however, that such continuance is subject to termination at
any time without penalty if a majority of a Portfolio's Trustees who
are not interested persons of the Portfolio (as defined in the
Investment Company Act of 1940 (the "1940 Act")), or a majority of the
outstanding shares of the Portfolio, vote to terminate or not to
continue the Plan. This Agreement, other than with respect to a Plan,
will continue in effect from year to year after its effective date,
unless terminated as provided herein.
10. Amendment and Termination of Agreement: (a) We may amend any
provision of this Agreement by giving you written notice of the
amendment. Either party to this Agreement may terminate the Agreement
without cause by giving the other party at least thirty (30) days'
written notice of its intention to terminate. This Agreement will
terminate automatically in the event of its assignment (as defined in
the 1940 Act).
(b) In the event that (i) an application for a protective decree
under the provisions of the Securities Investor Protection Act of 1970
is filed against you; (ii) you file a petition in bankruptcy or a
petition seeking similar relief under any bankruptcy, insolvency, or
similar law, or a proceeding is commenced against you seeking such
relief; or (iii) you are found by the SEC, the NASD, or any other
federal or state regulatory agency or authority to have violated any
applicable federal or state law, rule or regulation arising out of
your activities as a broker/dealer or in connection with this
Agreement, this Agreement will terminate effective immediately upon
our giving notice of termination to you. You agree to notify us
promptly and to immediately suspend sales of Portfolio shares in the
event of any such filing or violation, or in the event that you cease
to be a member in good standing of the NASD.
(c) Your or our failure to terminate this Agreement for a
particular cause will not constitute a waiver of the right to
terminate this Agreement at a later date for the same or another
cause. The termination of this Agreement with respect to any one
Portfolio will not cause its termination with respect to any other
Portfolio.
11. Arbitration: In the event of a dispute, such dispute will be
settled by arbitration before arbitrators sitting in Boston,
Massachusetts in accordance with the NASD's Code of Arbitration
Procedure in effect at the time of the dispute. The arbitrators will
act by majority decision and their award may allocate attorneys' fees
and arbitration costs between us. Their award will be final and
binding between us, and such award may be entered as a judgment in any
court of competent jurisdiction.
12. Notices: All notices required or permitted to be given under this
Agreement shall be given in writing and delivered by personal
delivery, by postage prepaid mail, or by facsimile machine or a
similar means of same day delivery (with a confirming copy by mail).
All notices to us shall be given or sent to us at our offices located
at 82 Devonshire Street, Mail Zone L10A, Boston, Massachusetts 02109,
Attn: Broker Dealer Services Group. All notices to you shall be given
or sent to you at the address specified by you below. Each of us may
change the address to which notices shall be sent by giving notice to
the other party in accordance with this paragraph 12.
13. Miscellaneous: This Agreement, as it may be amended from time to
time, shall become effective as of the date when it is accepted and
dated below by us. This Agreement is to be construed in accordance
with the laws of the Commonwealth of Massachusetts. This Agreement
supersedes and cancels any prior agreement between us, whether oral or
written, relating to the sale of shares of the Portfolios or any other
subject covered by this Agreement. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions of this Agreement or otherwise affect
their construction or effect.
Very truly yours,
FIDELITY DISTRIBUTORS
CORPORATION
Please return two signed copies of this Agreement to Fidelity
Distributors Corporation. Upon acceptance, one countersigned copy
will be returned to you for your files.
_____________________________________
Name of Firm
Address: _____________________________
_____________________________________
_____________________________________
By __________________________________
Authorized Representative
_____________________________________
Name and Title (please print or type)
CRD # _______________________________
ACCEPTED AND AGREED:
FIDELITY DISTRIBUTORS CORPORATION
By __________________________________
Dated: _________________
BEFORE MAILING: DISCARD THIS PAGE AND ATTACH REVISED SCHEDULE A
FORM OF
SELLING DEALER AGREEMENT
(FOR BANK-RELATED TRANSACTIONS)
We at Fidelity Distributors Corporation invite you to distribute
shares of the mutual funds, or the separate series or classes of the
mutual funds, listed on Schedules A and B attached to this Agreement
(the "Portfolios"). We may periodically change the list of Portfolios
by giving you written notice of the change. We are the Portfolios'
principal underwriter and, as agent for the Portfolios, we offer to
sell Portfolio shares to you on the following terms:
1. Certain Defined Terms: (a) You
(_____________________________________) are registered as a
broker/dealer under the Securities Exchange Act of 1934 (the "1934
Act") and have executed a written agreement with a bank or bank
affiliate to provide brokerage services to that bank, bank affiliate
and/or their customers. As used in this Agreement, the term "Bank"
means a bank as defined in Section 3(a)(6) of the 1934 Act, or an
affiliate of such a bank, with which you have entered into a written
agreement to provide brokerage services; and the term "Bank Client"
means a customer of such a Bank.
(b) As used in this Agreement, the term "Prospectus" means the
applicable Portfolio's prospectus and related statement of additional
information, whether in paper format or electronic format, included in
the Portfolio's then currently effective registration statement (or
post-effective amendment thereto), and any information that we or the
Portfolio may issue to you as a supplement to such prospectus or
statement of additional information (a "sticker"), all as filed with
the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act of 1933.
2. Purchases of Portfolio Shares for Sale to Customers: (a) In
offering and selling Portfolio shares to your customers, you agree to
act as dealer for your own account; you are not authorized to act as
agent for us or for any Portfolio.
(b) You agree to offer and sell Portfolio shares to your customers
only at the applicable public offering price in accordance with the
Prospectus. If your customer qualifies for a reduced sales charge
pursuant to a special purchase plan (for example, a quantity discount,
letter of intent, or right of accumulation) as described in the
Prospectus, you agree to offer and sell Portfolio shares to your
customer at the applicable reduced sales charge. You agree to deliver
or cause to be delivered to each customer, at or prior to the time of
any purchase of shares, a copy of the then current prospectus
(including any stickers thereto), unless such prospectus has already
been delivered to the customer, and to each customer who so requests,
a copy of the then current statement of additional information
(including any stickers thereto).
(c) You agree to purchase Portfolio shares from us only to cover
purchase orders that you have already received from your customers, or
for your own investment. You also agree not to purchase any Portfolio
shares from your customers at a price lower than the applicable
redemption price, determined in the manner described in the
Prospectus. You will not withhold placing customers' orders so as to
profit yourself as a result of such withholding (for example, by a
change in a Portfolio's net asset value from that used in determining
the offering price to your customers).
(d) We will accept your purchase orders only at the public offering
price applicable to each order, as determined in accordance with the
Prospectus. We will not accept from you a conditional order for
Portfolio shares. All orders are subject to acceptance or rejection
by us in our sole discretion. We may, without notice, suspend sales
or withdraw the offering of Portfolio shares, or make a limited
offering of Portfolio shares.
(e) The placing of orders with us will be governed by instructions
that we will periodically issue to you. You must pay for Portfolio
shares in New York or Boston clearing house funds or in federal funds
in accordance with such instructions, and we must receive your payment
on or before the settlement date established in accordance with Rule
15c6-1 under the 1934 Act. If we do not receive your payment on or
before such settlement date, we may, without notice, cancel the sale,
or, at our option, sell the shares that you ordered back to the
issuing Portfolio, and we may hold you responsible for any loss
suffered by us or the issuing Portfolio as a result of your failure to
make payment as required.
(f) You agree to comply with all applicable state and federal laws
and with the rules and regulations of authorized regulatory agencies
thereunder. You agree to offer and sell Portfolio shares only in
states where you may legally offer and sell such Portfolio's shares.
You will not offer shares of any Portfolio for sale unless such shares
are registered for sale under the applicable state and federal laws
and the rules and regulations thereunder.
(g) Certificates evidencing Portfolio shares are not available; any
transaction in Portfolio shares will be effected and evidenced by
book-entry on the records maintained by Fidelity Investments
Institutional Operations Company, Inc. ("FIIOC"). A confirmation
statement evidencing transactions in Portfolio shares will be
transmitted to you.
(h) You may designate FIIOC to execute your customers' transactions
in Portfolio shares in accordance with the terms of any account,
program, plan, or service established or used by your customers, and
to confirm each transaction to your customers on your behalf on a
fully disclosed basis. At the time of the transaction, you guarantee
the legal capacity of your customers and any co-owners of such shares
so transacting in such shares.
3. Your Compensation: (a) Your concession, if any, on your sales of
Portfolio shares will be as provided in the Prospectus or in the
applicable schedule of concessions issued by us and in effect at the
time of our sale to you. Upon written notice to you, we or any
Portfolio may change or discontinue any schedule of concessions, or
issue a new schedule.
(b) If a Portfolio has adopted a plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan"), we may make
distribution payments or service payments to you under the Plan. If a
Portfolio does not have a currently effective Plan, we or Fidelity
Management & Research Company may make distribution payments or
service payments to you from our own funds. Any distribution payments
or service payments will be made in the amount and manner set forth in
the Prospectus or in the applicable schedule of distribution payments
or service payments issued by us and then in effect. Upon written
notice to you, we or any Portfolio may change or discontinue any
schedule of distribution payments or service payments, or issue a new
schedule. A schedule of distribution payments or service payments
will be in effect with respect to a Portfolio that has a Plan only so
long as that Portfolio's Plan remains in effect.
(c) Concessions, distribution payments, and service payments apply
only with respect to (i) shares of the "Fidelity Funds" (as designated
on Schedule A attached to this Agreement) purchased or maintained for
the account of Bank Clients, and (ii) shares of the "Fidelity Advisor
Funds" (as designated on Schedule B attached to this Agreement).
Anything to the contrary notwithstanding, neither we nor any Portfolio
will provide to you, nor may you retain, concessions on your sales of
shares of, or distribution payments or service payments with respect
to assets of, the Fidelity Funds attributable to you or any of your
clients, other than Bank Clients. When you place an order in shares
of the Fidelity Funds with us, you will identify the Bank on behalf of
whose Clients you are placing the order; and you will identify as a
non-Bank Client Order, any order in shares of the Fidelity Funds
placed for the account of a non-Bank Client.
(d) After the effective date of any change in or discontinuance of
any schedule of concessions, distribution payments, or service
payments, or the termination of a Plan, any concessions, distribution
payments, or service payments will be allowable or payable to you only
in accordance with such change, discontinuance, or termination. You
agree that you will have no claim against us or any Portfolio by
virtue of any such change, discontinuance, or termination. In the
event of any overpayment by us of any concession, distribution
payment, or service payment, you will remit such overpayment.
(e) If any Portfolio shares sold to you by us under the terms of
this Agreement are redeemed by the issuing Portfolio or tendered for
redemption by the customer within seven (7) business days after the
date of our confirmation of your original purchase order for such
shares, you agree (i) to refund promptly to us the full amount of any
concession, distribution payment, or service payment allowed or paid
to you on such shares, and (ii) if not yet allowed or paid to you, to
forfeit the right to receive any concession, distribution payment, or
service payment allowable or payable to you on such shares. We will
notify you of any such redemption within ten (10) days after the date
of the redemption.
4. Certain Types of Accounts: (a) You may instruct FIIOC to
register purchased shares in your name and account as nominee for your
customers. If you hold Portfolio shares as nominee for your
customers, all Prospectuses, proxy statements, periodic reports, and
other printed material will be sent to you, and all confirmations and
other communications to shareholders will be transmitted to you. You
will be responsible for forwarding such printed material,
confirmations, and communications, or the information contained
therein, to all customers for whose account you hold any Portfolio
shares as nominee. However, we or FIIOC on behalf of itself or the
Portfolios will be responsible for the costs associated with your
forwarding such printed material, confirmations, and communications.
You will be responsible for complying with all reporting and tax
withholding requirements with respect to the customers for whose
account you hold any Portfolio shares as nominee.
(b) With respect to accounts other than those accounts referred to
in paragraph 4(a) above, you agree to provide us with all information
(including certification of taxpayer identification numbers and
back-up withholding instructions) necessary or appropriate for us to
comply with legal and regulatory reporting requirements.
(c) Accounts opened or maintained pursuant to the NETWORKING system
of the National Securities Clearing Corporation ("NSCC") will be
governed by applicable NSCC rules and procedures and any agreement or
other arrangement with us relating to NETWORKING.
(d) If you hold Portfolio shares in an omnibus account for two or
more customers, you will be responsible for determining, in accordance
with the Prospectus, whether, and the extent to which, a CDSC is
applicable to a purchase of Portfolio shares from such a customer, and
you agree to transmit immediately to us any CDSC to which such
purchase was subject. You hereby represent that if you hold Portfolio
shares subject to a CDSC, you have the capability to track and account
for such charge, and we reserve the right, at our discretion, to
verify that capability by inspecting your tracking and accounting
system or otherwise.
5. Status as Registered Broker/Dealer: (a) Each party to this
Agreement represents to the other party that (i) it is registered as a
broker/dealer under the 1934 Act, (ii) it is qualified to act as a
broker/dealer in the states where it transacts business, and (iii) it
is a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"). Each party agrees to maintain its
broker/dealer registration and qualifications and its NASD membership
in good standing throughout the term of this Agreement. Each party
agrees to abide by all of the NASD's rules and regulations, including
the NASD's Conduct Rules -- in particular, Section 2830 of such Rules,
which section is deemed a part of and is incorporated by reference in
this Agreement. This Agreement will terminate automatically without
notice in the event that either
party's NASD membership is terminated.
(b) Nothing in this Agreement shall cause you to be our partner,
employee, or agent, or give you any authority to act for us or for any
Portfolio. Neither we nor any Portfolio shall be liable for any of
your acts or obligations as a dealer under this Agreement.
6. Information Relating to the Portfolios: (a) No person is
authorized to make any representations concerning shares of a
Portfolio other than those contained in the Portfolio's Prospectus.
In buying Portfolio shares from us under this Agreement, you will rely
only on the representations contained in the Prospectus. Upon your
request, we will furnish you with a reasonable number of copies of the
Portfolios' current prospectuses or statements of additional
information or both (including any stickers thereto).
(b) Any printed or electronic information that we furnish you
(other than the Portfolios' Prospectuses and periodic reports) is our
sole responsibility and not the responsibility of the respective
Portfolios. You agree that the Portfolios will have no liability or
responsibility to you with respect to any such printed or electronic
information. We or the respective Portfolio will bear the expense of
qualifying its shares under the state securities laws.
(c) You may not use any sales literature or advertising material
(including material disseminated through radio, television, or other
electronic media) concerning Portfolio shares, other than the printed
or electronic information referred to in paragraph 6(b) above, in
connection with the offer or sale of Portfolio shares without
obtaining our prior written approval. You may not distribute or make
available to investors any information that we furnish you marked "FOR
DEALER USE ONLY" or that otherwise indicates that it is confidential
or not intended to be distributed to investors.
7. Indemnification: (a) We will indemnify and hold you harmless
from any claim, demand, loss, expense, or cause of action resulting
from the misconduct or negligence, as measured by industry standards,
of us, our agents and employees, in carrying out our obligations under
this Agreement. Such indemnification will survive the termination of
this Agreement.
(b) You will indemnify and hold us harmless from any claim, demand,
loss, expense, or cause of action resulting from the misconduct or
negligence, as measured by industry standards, of you, your agents and
employees, in carrying out your obligations under this Agreement.
Such indemnification will survive the termination of this Agreement.
8. Customer Lists: We hereby agree that we shall not use any list of
your customers which may be obtained in connection with this Agreement
for the purpose of solicitation of any product or service without your
express written consent. However, nothing in this paragraph or
otherwise shall be deemed to prohibit or restrict us or our affiliates
in any way from solicitations of any product or service directed at,
without limitation, the general public, any segment thereof, or any
specific individual, provided such solicitation is not based upon such
list.
9. Duration of Agreement: This Agreement, with respect to any Plan,
will continue in effect for one year from its effective date, and
thereafter will continue automatically for successive annual periods;
provided, however, that such continuance is subject to termination at
any time without penalty if a majority of a Portfolio's Trustees who
are not interested persons of the Portfolio (as defined in the
Investment Company Act of 1940 (the "1940 Act")), or a majority of the
outstanding shares of the Portfolio, vote to terminate or not to
continue the Plan. This Agreement, other than with respect to a Plan,
will continue in effect from year to year after its effective date,
unless terminated as provided herein.
10. Amendment and Termination of Agreement: (a) We may amend any
provision of this Agreement by giving you written notice of the
amendment. Either party to this Agreement may terminate the Agreement
without cause by giving the other party at least thirty (30) days'
written notice of its intention to terminate. This Agreement will
terminate automatically in the event of its assignment (as defined in
the 1940 Act).
(b) In the event that (i) an application for a protective decree
under the provisions of the Securities Investor Protection Act of 1970
is filed against you; (ii) you file a petition in bankruptcy or a
petition seeking similar relief under any bankruptcy, insolvency, or
similar law, or a proceeding is commenced against you seeking such
relief; or (iii) you are found by the SEC, the NASD, or any other
federal or state regulatory agency or authority to have violated any
applicable federal or state law, rule or regulation arising out of
your activities as a broker/dealer or in connection with this
Agreement, this Agreement will terminate effective immediately upon
our giving notice of termination to you. You agree to notify us
promptly and to immediately suspend sales of Portfolio shares in the
event of any such filing or violation, or in the event that you cease
to be a member in good standing of the NASD.
(c) Your or our failure to terminate this Agreement for a
particular cause will not constitute a waiver of the right to
terminate this Agreement at a later date for the same or another
cause. The termination of this Agreement with respect to any one
Portfolio will not cause its termination with respect to any other
Portfolio.
11. Arbitration: In the event of a dispute, such dispute will be
settled by arbitration before arbitrators sitting in Boston,
Massachusetts in accordance with the NASD's Code of Arbitration
Procedure in effect at the time of the dispute. The arbitrators will
act by majority decision and their award may allocate attorneys' fees
and arbitration costs between us. Their award will be final and
binding between us, and such award may be entered as a judgment in any
court of competent jurisdiction.
12. Notices: All notices required or permitted to be given under this
Agreement shall be given in writing and delivered by personal
delivery, by postage prepaid mail, or by facsimile machine or a
similar means of same day delivery (with a confirming copy by mail).
All notices to us shall be given or sent to us at our offices located
at 82 Devonshire Street, Mail Zone L12A, Boston, Massachusetts 02109,
Attn: Bank Wholesale Market. All notices to you shall be given or
sent to you at the address specified by you below. Each of us may
change the address to which notices shall be sent by giving notice to
the other party in accordance with this paragraph 11.
13. Miscellaneous: This Agreement, as it may be amended from time to
time, shall become effective as of the date when it is accepted and
dated below by us. This Agreement is to be construed in accordance
with the laws of the Commonwealth of Massachusetts. This Agreement
supersedes and cancels any prior agreement between us, whether oral or
written, relating to the sale of shares of the Portfolios or any other
subject covered by this Agreement. The captions in this Agreement are
included for convenience of reference only and in no way define or
limit any of the provisions of this Agreement or otherwise affect
their construction or effect.
Very truly yours,
FIDELITY DISTRIBUTORS
CORPORATION
Please return two signed copies of this Agreement to Fidelity
Distributors Corporation. Upon acceptance, one countersigned copy
will be returned to you for your files.
_____________________________________
Name of Firm
Address: _____________________________
_____________________________________
_____________________________________
By __________________________________
Authorized Representative
_____________________________________
Name and Title (please print or type)
CRD # _______________________________
ACCEPTED AND AGREED:
FIDELITY DISTRIBUTORS CORPORATION
By __________________________________
Dated: ________________
** DISCARD THIS PAGE AND ATTACH REVISED SCHEDULES A AND B **
Exhibit 15(a)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Municipal Trust:
Spartan Insured Municipal Income Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Spartan Insured Municipal Income Fund (the "Portfolio"), a series of
shares of Fidelity Municipal Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that the Adviser may use its
management fee revenues as well as past profits or its resources from
any other source, to make payment to the Distributor with respect to
any expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to pay
an advisory and service fee to the Adviser. To the extent that any
payments made by the Portfolio to the Adviser, including payment of
advisory and service fees, should be deemed to be indirect financing
of any activity primarily intended to result in the sale of shares of
the Portfolio within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the Plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect until July 31, 1986, and from year to year thereafter,
provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Fund,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of voting on this Plan. This Plan may
be amended at any time by the Board of Trustees, provided that (a) any
amendment to authorize direct payments by the Portfolio to finance any
activity primarily intended to result in the sale of shares of the
Portfolio, to increase materially the amount spent by the Portfolio
for distribution, or any amendment of the Advisory and Service
Contract to increase the amount to be paid by the Portfolio thereunder
shall be effective only upon approval by a vote of a majority of the
outstanding voting securities of the Portfolio, and (b) any material
amendments of this Plan shall be effective only upon approval in the
manner provided in the first sentence of this paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust, any obligations assumed by
the Portfolio pursuant to this Plan and any agreements related to this
Plan shall be limited in all cases to the Portfolio and its assets,
and shall not constitute obligations of any other series of shares of
the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
DISTRIBUTION AND SERVICE PLAN
of Fidelity Municipal Trust:
Spartan Ohio Municipal Income Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Spartan Ohio Municipal Income Fund (the "Portfolio"), a series of
shares of Fidelity Municipal Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of Fund shares for sale to
the public. It is recognized that the Adviser may use its management
fee revenues as well as past profits or its resources from any other
source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to
pay, a management fee to the Adviser. To the extent that any payments
made by the Portfolio to the Adviser, including payment of advisory
and service fees, should be deemed to be indirect financing of any
activity primarily intended to result in the sale of shares of the
Portfolio within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until July 31, 1986, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount
spent by the Portfolio for distribution, or any amendment of the
Management Contract to increase the amount to be paid by the Portfolio
thereunder shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Portfolio, and
(b) any material amendments of this Plan shall be effective only upon
approval in the manner provided in the first sentence in this
paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust, any obligations assumed by
the Portfolio pursuant to this Plan and any agreements related to this
Plan shall be limited in all cases to the Portfolio and its assets,
and shall not constitute obligations of any other series of shares of
the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
DISTRIBUTION AND SERVICE PLAN
of Fidelity Municipal Trust:
Spartan Michigan Municipal Income Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Spartan Michigan Municipal Income Fund (the "Portfolio"), a series of
shares of Fidelity Municipal Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of Fund shares for sale to
the public. It is recognized that the Adviser may use its management
fee revenues as well as past profits or its resources from any other
source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to
pay, a management fee to the Adviser. To the extent that any payments
made by the Portfolio to the Adviser, including payment of advisory
and service fees, should be deemed to be indirect financing of any
activity primarily intended to result in the sale of shares of the
Portfolio within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until July 31, 1986, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount
spent by the Portfolio for distribution, or any amendment of the
Management Contract to increase the amount to be paid by the Portfolio
thereunder shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Portfolio, and
(b) any material amendments of this Plan shall be effective only upon
approval in the manner provided in the first sentence in this
paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust, any obligations assumed by
the Portfolio pursuant to this Plan and any agreements related to this
Plan shall be limited in all cases to the Portfolio and its assets,
and shall not constitute obligations of any other series of shares of
the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(d)
DISTRIBUTION AND SERVICE PLAN
of Spartan Minnesota Municipal Income Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Minnesota Tax-Free Portfolio (the "Portfolio"), a series of
shares of Fidelity Municipal Bond Fund (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of Fund shares for sale to
the public. It is recognized that the Adviser may use its management
fee revenues as well as past profits or its resources from any other
source, to make payment to the Distributor with respect to any
expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to
pay, a management fee to the Adviser. To the extent that any payments
made by the Portfolio to the Adviser, including payment of advisory
and service fees, should be deemed to be indirect financing of any
activity primarily intended to result in the sale of shares of the
Portfolio within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until July 31, 1986, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount
spent by the Portfolio for distribution, or any amendment of the
Management Contract to increase the amount to be paid by the Portfolio
thereunder shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Portfolio, and
(b) any material amendments of this Plan shall be effective only upon
approval in the manner provided in the first sentence in this
paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust, any obligations assumed by
the Portfolio pursuant to this Plan and any agreements related to this
Plan shall be limited in all cases to the Portfolio and its assets,
and shall not constitute obligations of any other series of shares of
the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
Exhibit 15(e)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Municipal Trust:
Spartan Pennsylvania Municipal Income Fund
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940, (the "Act") of
Spartan Pennsylvania Municipal Income Fund (the "Portfolio"), a series
of shares of Fidelity Municipal Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that the Adviser may use its
management fee revenues as well as past profits or its resources from
any other source, to make payment to the Distributor with respect to
any expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to
pay, an advisory and service fee to the Adviser. To the extent that
any payments made by the Portfolio to the Adviser, including payment
of advisory and service fees, should be deemed to be indirect
financing of any activity primarily intended to result in the sale of
shares of the Portfolio within the context of Rule 12b-1 under the
Act, then such payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the Plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until July 31, 1986, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount
spent by the Portfolio for distribution, or any amendment of the
Advisory and Service Contract to increase the amount to be paid by the
Portfolio thereunder shall be effective only upon approval by a vote
of a majority of the outstanding voting securities of the Portfolio,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence of this
paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust, any obligations assumed by
the Portfolio pursuant to this Plan and any agreements related to this
Plan shall be limited in all cases to the Portfolio and its assets,
and shall not constitute obligations of any other series of shares of
the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
DISTRIBUTION AND SERVICE PLAN
OF FIDELITY MUNICIPAL TRUST:
FIDELITY AGGRESSIVE MUNICIPAL FUND
1. This Distribution and Service Plan (the "Plan"), when effective in
accordance with its terms, shall be the written plan contemplated by
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") of
Fidelity Aggressive Municipal Fund (the "Portfolio"), a series of
shares of Fidelity Municipal Trust (the "Fund").
2. The Fund has entered into a General Distribution Agreement with
respect to the Portfolio with Fidelity Distributors Corporation (the
"Distributor"), a wholly-owned subsidiary of Fidelity Management &
Research Company (the "Adviser"), under which the Distributor uses all
reasonable efforts, consistent with its other business, to secure
purchasers for the Portfolio's shares of beneficial interest
("shares"). Under the agreement, the Distributor pays the expenses of
printing and distributing any prospectuses, reports and other
literature used by the Distributor, advertising, and other promotional
activities in connection with the offering of shares of the Portfolio
for sale to the public. It is recognized that the Adviser may use its
management fee revenues as well as past profits or its resources from
any other source, to make payment to the Distributor with respect to
any expenses incurred in connection with the distribution of Portfolio
shares, including the activities referred to above.
3. The Adviser directly, or through the Distributor, may, subject to
the approval of the Trustees, make payments to securities dealers and
other third parties who engage in the sale of shares or who render
shareholder support services, including but not limited to providing
office space, equipment and telephone facilities, answering routine
inquiries regarding the Portfolio, processing shareholder transactions
and providing such other shareholder services as the Fund may
reasonably request.
4. The Portfolio will not make separate payments as a result of this
Plan to the Adviser, Distributor or any other party, it being
recognized that the Portfolio presently pays, and will continue to
pay, an advisory and service fee to the Adviser. To the extent that
any payments made by the Portfolio to the Adviser, including payment
of advisory and service fees, should be deemed to be indirect
financing of any activity primarily intended to result in the sale of
shares of the Portfolio within the context of Rule 12b-1 under the
Act, then such payments shall be deemed to be authorized by this Plan.
5. This Plan shall become effective upon the first business day of
the month following approval by a vote of at least a "majority of the
outstanding voting securities of the Portfolio" (as defined in the
Act), the plan having been approved by a vote of a majority of the
Trustees of the Fund, including a majority of Trustees who are not
"interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements related to this Plan (the "Independent
Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan.
6. This Plan shall, unless terminated as hereinafter provided, remain
in effect from the date specified above until July 31, 1987, and from
year to year thereafter, provided, however, that such continuance is
subject to approval annually by a vote of a majority of the Trustees
of the Fund, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of voting on this Plan.
This Plan may be amended at any time by the Board of Trustees,
provided that (a) any amendment to authorize direct payments by the
Portfolio to finance any activity primarily intended to result in the
sale of shares of the Portfolio, to increase materially the amount
spent by the Portfolio for distribution, or any amendment of the
Advisory and Service Contract to increase the amount to be paid by the
Portfolio thereunder shall be effective only upon approval by a vote
of a majority of the outstanding voting securities of the Portfolio,
and (b) any material amendments of this Plan shall be effective only
upon approval in the manner provided in the first sentence in this
paragraph.
7. This Plan may be terminated at any time, without the payment of
any penalty, by vote of a majority of the Independent Trustees or by a
vote of a majority of the outstanding voting securities of the
Portfolio.
8. During the existence of this Plan, the Fund shall require the
Adviser and/or Distributor to provide the Fund, for review by the
Fund's Board of Trustees, and the Trustees shall review, at least
quarterly, a written report of the amounts expended in connection with
financing any activity primarily intended to result in the sale of
shares of the Portfolio (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures
were made.
9. This Plan does not require the Adviser or Distributor to perform
any specific type or level of distribution activities or to incur any
specific level of expenses for activities primarily intended to result
in the sale of shares of the Portfolio.
10. Consistent with the limitation of shareholder liability as set
forth in the Fund's Declaration of Trust, any obligations assumed by
the Portfolio pursuant to this Plan and any agreements related to this
Plan shall be limited in all cases to the Portfolio and its assets,
and shall not constitute obligations of any other series of shares of
the Fund.
11. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan
shall not be affected thereby.
