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. 91 [X]
and
REGISTRATION STATEMENT (No. 811-2720)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 91 [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
Eric D. Roiter, 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).
(X) on (February 28, 2000) pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) on ( ) 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.
Like securities of all mutual
funds, these securities have
not been approved or
disapproved by the
Securities and Exchange
Commission, and the
Securities and Exchange
Commission has not
determined if this
prospectus is accurate or
complete. Any
representation to the
contrary is a criminal
offense.
SPARTAN(REGISTERED TRADEMARK)
MINNESOTA MUNICIPAL INCOME
FUND
(fund number 082, trading symbol FIMIX)
PROSPECTUS
FEBRUARY 28, 2000
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
FUND SUMMARY 2 INVESTMENT SUMMARY
3 PERFORMANCE
5 FEE TABLE
FUND BASICS 5 INVESTMENT DETAILS
6 VALUING SHARES
SHAREHOLDER INFORMATION 7 BUYING AND SELLING SHARES
15 EXCHANGING SHARES
15 ACCOUNT FEATURES AND POLICIES
18 DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS
18 TAX CONSEQUENCES
FUND SERVICES 19 FUND MANAGEMENT
19 FUND DISTRIBUTION
APPENDIX 19 FINANCIAL HIGHLIGHTS
FUND SUMMARY
INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
SPARTAN MINNESOTA MUNICIPAL INCOME FUND seeks a high level of current
income exempt from federal income tax and Minnesota personal income
tax.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally investing in investment-grade
municipal debt securities (those of medium and high quality).
(small solid bullet) Normally investing at least 80% of assets in
municipal securitie s whose interest is exempt from federal and
Minnesota personal income taxes.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers Minnesota Enhanced Municipal
Bond Index.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features and
current pricing, trading opportunities, and the credit quality of its
issuer to select investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Minnesota can affect the credit quality
of issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole.
In addition, the fund is considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund. As a result, changes in the market value of a single
issuer could cause greater fluctuations in share price than would
occur in a more diversified fund.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in the fund's
performance from year to year and compares the fund's performance to
the performance of a market index and an average of the performance
of similar funds over various periods of time. The fund also compares
its performance to the performance of an additional index over
various periods of time. Data for the additional index is available
only from June 30, 1993 to the present. Returns are based on past
results and are not an indication of future performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR-BY-YEAR RETURNS
SPARTAN MINNESOTA MUNICIPAL
INCOME
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
7.22% 8.50% 7.63% 12.42% -6.01% 16.00% 3.78% 8.85% 5.51% -2.43%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 7.22
Row: 2, Col: 1, Value: 8.5
Row: 3, Col: 1, Value: 7.63
Row: 4, Col: 1, Value: 12.42
Row: 5, Col: 1, Value: -6.01
Row: 6, Col: 1, Value: 16.0
Row: 7, Col: 1, Value: 3.78
Row: 8, Col: 1, Value: 8.850000000000001
Row: 9, Col: 1, Value: 5.51
Row: 10, Col: 1, Value: -2.43
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN MINNESOTA
MUNICIPAL INCOME, THE HIGHEST RETURN FOR A QUARTER WAS 7.00%
(QUARTER ENDED MARCH 31, 1995 ) AND THE LOWEST RETURN FOR A
QUARTER WAS -5.76% (QUARTER ENDED MARCH 31, 1994 ).
AVERAGE ANNUAL RETURNS
For the periods ended Past 1 year Past 5 years Past 10 years
December 31, 1999
Spartan Minnesota Municipal -2.43% 6.17% 5.96%
Income
Lehman Bros. Municipal Bond -2.06% 6.91% 6.89%
Index
Lehman Bros. Minnesota -1.84% 6.69% n/a
Enhanced Municipal Bond Index
Lipper Minnesota Municipal -4.11% 5.47% 5.95%
Debt Funds Average
If FMR had not reimbursed certain fund expenses during these periods,
the fund's returns would have been lower.
The Lehman Brothers Municipal Bond Index is a market value-weighted
index of investment-grade municipal bonds with maturities of one year
or more.
The Lehman Brothers Minnesota Enhanced Municipal Bond Index is a
market value-weighted index of Minnesota investment-grade municipal
bonds with maturities of one year or more.
Lipper Minnesota Municipal Debt Funds Average reflects the performance
(excluding sales charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold, or sell shares of the fund. The annual fund
operating expenses provided below for the fund do not reflect the
effect of any reduction of certain expenses during the period.
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
Sales charge (load) on None
purchases and reinvested
distributions
Deferred sales charge (load) None
on redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.15%
Total annual fund operating 0.53%
expensesA
A EFFECTIVE APRIL 1, 1997 , FMR HAS VOLUNTARILY AGREED TO
REIMBURSE THE FUND TO THE EXTENT THAT THE TOTAL OPERATING EXPENSES
(EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY
EXPENSES), AS A PERCENTAGE OF ITS AVERAGE NET ASSETS, EXCEED 0.55%.
THIS ARRANGEMENT CAN BE DISCONTINUED BY FMR AT ANY TIME.
Through arrangements with the fun d's custodian and transfer
agent, credits r ealiz ed as a result of uninvested cash
balances are used to reduce custodian and transfer agent expenses.
Including these reductions, the total fund operating expenses would
have been 0.51%.
This EXAMPLE helps you compare the cost of investing in the fund with
the cost of investing in other mutual funds.
Let's say, hypothetically, that the fund's annual return is 5% and
that your shareholder fees and the fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account at the end of each time period
indicated:
1 year $ 54
3 years $ 170
5 years $ 296
10 years $ 665
FUND BASICS
INVESTMENT DETAILS
INVESTMENT OBJECTIVE
SPARTAN MINNESOTA MUNICIPAL INCOME FUND seeks a high level of current
income exempt from federal income tax and Minnesota personal income
tax.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in investment-grade municipal
debt securities (those of medium and high quality).
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is exempt from federal and Minnesota
personal income taxes. Municipal securities whose interest is exempt
from federal and Minnesota income taxes include securities issued by
U.S. territories and possessions, such as Guam, the Virgin Islands,
and Puerto Rico, and their political subdivisions and public
corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Minnesota personal income tax or Minnesota
alternative minimum tax. Although FMR does not currently intend to
invest the fund's assets in municipal securities whose interest is
subject to federal income tax, FMR may invest all of the fund's assets
in municipal securities whose interest is subject to the federal
alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation, and utilities.
FMR uses the Lehman Brothers Minnesota Enhanced Municipal Bond Index
as a guide in structuring the fund and selecting its investments. FMR
manages the fund to have similar overall interest rate risk to the
index. As of December 31, 199 9 , the dollar-weighted average
maturity of the fund and the index was approximately 12.6 and
13.1 years, respectively.
FMR allocates the fund's 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 and maturity.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR analyzes a
security's structural features and current price compared to its
estimated long-term value, any short-term trading opportunities
resulting from market inefficiencies, and the credit quality of its
issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates, or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable, or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest but
are sold at a discount from their face values. Municipal debt
securities include general obligation bonds of municipalities, local
or state governments, project or revenue-specific bonds, or
pre-refunded or escrowed bonds.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
and private purposes, including general financing for state and local
governments, or financing for a specific project or public facility.
Municipal securities may be fully or partially backed by the local
government, by the credit of a private issuer, by the current or
anticipated revenues from a specific project or specific assets, or by
domestic or foreign entities providing credit support such as letters
of credit, guarantees, or insurance.
PRINCIPAL INVESTMENT RISKS
Many factors affect the fund's performance. Because FMR concentrates
the fund's investments in Minnesota, the fund's performance is
expected to be closely tied to economic and political conditions
within that state and to be more volatile than the performance of a
more geographically diversified fund.
The fund's yield and share price change daily based on changes in
interest rates and market conditions and in response to other
economic, political, or financial developments. The fund's reaction to
these developments will be affected by the types and maturities of
securities in which the fund invests, the financial condition,
industry and economic sector, and geographic location of an issuer,
and the fund's level of investment in the securities of that issuer.
Because FMR may invest a significant percentage of the fund's
assets in a single issuer, the fund's performance could be closely
tied to the market value of that one issuer and could be more volatile
than the performance of more diversified funds. When you sell your
shares of the fund, they could be worth more or less than what you
paid for them.
The following factors can significantly affect the fund's
performance:
MUNICIPAL MARKET VOLATILITY. Municipal securities can be significantly
affected by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes, or the
rights of municipal security holders. Because many municipal
securities are issued to finance similar projects, especially those
relating to education, health care, transportation, and utilities,
conditions in those sectors can affect the overall municipal market.
In addition, changes in the financial condition of an individual
municipal insurer can affect the overall municipal market.
INTEREST RATE CHANGES. Debt securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when
interest rates fall. Securities with longer maturities can be more
sensitive to interest rate changes. In other words, the longer the
maturity of a security, the greater the impact a change in interest
rates could have on the security's price. In addition, short-term and
long-term interest rates do not necessarily move in the same amount or
the same direction. Short-term securities tend to react to changes in
short-term interest rates, and long-term securities tend to react to
changes in long-term interest rates.
GEOGRAPHIC CONCENTRATION. Minnesota maintains a strong agricultural
base accompanied by a significant growth in the service and
manufacturing sectors; mining is less of a factor than in prior years.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of security or issuer, and changes in general
economic or political conditions can affect the credit quality or
value of an issuer's securities. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more sensitive to
these changes than higher-quality debt securities. Municipal
securities backed by current or anticipated revenues from a specific
project or specific assets can be negatively affected by the
discontinuance of the taxation supporting the project or assets or the
inability to collect revenues for the project or from the assets. If
the Internal Revenue Service determines an issuer of a municipal
security has not complied with applicable tax requirements, interest
from the security could become taxable and the security could decline
significantly in value.
In response to market, economic, political, or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect the fund's
performance, and the fund could distribute income subject to
federal or Minnesota personal income tax .
FUNDAMENTAL INVESTMENT POLICIES
The policy discussed below is fundamental, that is, subject to change
only by shareholder approval.
SPARTAN MINNESOTA MUNICIPAL INCOME 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.
VALUING SHARES
The fund is open for business each day the New York Stock Exchange
(NYSE) is open.
The fund's net asset value per share (NAV) is the value of a single
share. Fidelity(registered trademark) normally calculates the fund's
NAV as of the close of business 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). The fund's assets are valued as of this time for the
purpose of computing the fund's NAV.
To the extent that the fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of the fund's assets may not occur on days when the
fund is open for business.
The fund's assets are valued primarily on the basis of information
furnished by a pricing service or market quotations. If market
quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the market
on which the security is principally traded, that security may be
valued by another method that the Board of Trustees believes
accurately reflects fair value. A security's valuation may differ
depending on the method used for determining value.
SHAREHOLDER INFORMATION
BUYING AND SELLING SHARES
GENERAL INFORMATION
Fidelity Investments(registered trademark) 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-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
web site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's web site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use Fidelity Automated Service Telephon e (FASTSM),
1-800-544-5555.
(small solid bullet) For exchanges, redemptions, and account
assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and brokerage information,
1-800-544-6666.
(small solid bullet) For retirement information,
1-800-544-4774.
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5587
You may buy or sell shares of the fund through an investment
professional. If you invest through an investment professional, the
procedures for buying, selling, and exchanging shares of the fund and
the account features and policies may differ. Additional fees may also
apply to your investment in the fund, including a transaction fee if
you buy or sell shares of the fund through a broker or other
investment professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of the fund is the fund's NAV. The fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of the fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, the fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
the fund. For these purposes, FMR may consider an investor's trading
history in the fund or other Fidelity funds, and accounts under common
ownership or control.
The fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, 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) Fidelity 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
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (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 order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT $10,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans $500
MINIMUM BALANCE $5,000
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory ServicesSM
or a qualified state tuition program. In addition, the fund may waive
or lower purchase minimums in other circumstances.
KEY INFORMATION
PHONE 1-800-544-6666 TO OPEN AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
(small solid bullet) Use
Fidelity Money
Line(registered trademark)
to transfer from your bank
account.
INTERNET WWW.FIDELITY.COM TO OPEN AN ACCOUNT
(small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account.
MAIL FIDELITY INVESTMENTS TO OPEN AN ACCOUNT
P.O. BOX 770001 CINCINNATI, (small solid bullet) Complete
OH 45277-0002 and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address at
left.
TO ADD TO AN ACCOUNT
(small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address at left.
(small solid bullet) Exchange
from another Fidelity fund.
Send a letter of instruction
to the address at left,
including your name, the
funds' names, the fund
account numbers, and the
dollar amount or number of
shares to be exchanged.
IN PERSON TO OPEN AN ACCOUNT
(small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
TO ADD TO AN ACCOUNT
(small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
WIRE TO OPEN AN ACCOUNT
(small solid bullet) Call
1-800-544-6666 to set up
your account and to arrange
a wire transaction.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
# 021001033, Account #
00163053.
(small solid bullet) Specify
the complete name of the
fund and include your new
fund account number and your
name.
TO ADD TO AN ACCOUNT
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing # 021001033, Account
# 00163053.
(small solid bullet) Specify
the complete name of the
fund and include your fund
account number and your name.
AUTOMATICALLY TO OPEN AN ACCOUNT
(small solid bullet) Not
available.
TO ADD TO AN ACCOUNT
(small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark) or Direct Deposit.
(small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from a
Fidelity money market fund.
SELLING 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 in proper form.
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 sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 15 or 30 days, depending on your account ;
(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.
When you place an order to sell shares, note the following:
(small solid bullet) 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, except accounts not subject to account minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
the fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(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) Redemption proceeds may be paid in securities or
oth er property rather than in cash if FMR determi nes it is in
the best interests of the fund.
(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) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY INFORMATION
PHONE 1-800-544-6666 (small solid bullet) Call the
phone number at left to
initiate a wire transaction
or to request a check for
your redemption.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
(small solid bullet) Exchange
to another Fidelity fund.
Call the phone number at left.
INTERNET WWW.FIDELITY.COM (small solid bullet) Exchange
to another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
MAIL FIDELITY INVESTMENTS INDIVIDUAL, JOINT TENANT,
P.O. BOX 660602 DALLAS, TX SOLE PROPRIETORSHIP, UGMA,
75266-0602 UTMA
(small solid bullet) Send a
letter of instruction to the
address at left, including
your name, the fund's name,
your fund account number,
and the dollar amount or
number of shares to be sold.
The letter of instruction
must be signed by all
persons required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Send a
letter of instruction to the
address at left, including
the trust's name, the fund's
name, the trust's fund
account number, and the
dollar amount or number of
shares to be sold. The
trustee must sign the letter
of instruction 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) Send a
letter of instruction to the
address at left, including
the firm's name, the fund's
name, the firm's fund
account number, and the
dollar amount or number of
shares to be sold. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Call
1-800-544-6666 for
instructions.
IN PERSON INDIVIDUAL, JOINT TENANT,
SOLE PROPRIETORSHIP, UGMA,
UTMA
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
trustee must sign the letter
of instruction 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) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Visit a
Fidelity Investor Center for
instructions. Call
1-800-544-9797 for the
center nearest you.
AUTOMATICALLY (small solid bullet) Use
Personal Withdrawal Service
to set up periodic
redemptions from your account.
CHECK (small solid bullet) Write a
check to sell shares from
your account.
EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
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 policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only 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) Exchanges may have tax consequences for you.
(small solid bullet) The fund may 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 will be counted together for purposes of the four
exchange limit.
(small solid bullet) The fund may 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.
The fund may terminate or modify the exchange privilege in the future.
Other funds may have different exchange restrictions, and may impose
trading fees of up to 3.00% of the amount exchanged. Check each
fund's prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
fund.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between accounts, or out of your account. While
automatic investment programs 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 retirement, a home, educational expenses,
and other long-term financial goals. Automatic withdrawal or exchange
programs can be a convenient way to provide a consistent income flow
or to move money between your investments.
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC ACCOUNT
BUILDER TO MOVE MONEY FROM
YOUR BANK ACCOUNT TO A
FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$500 Monthly or quarterly (small solid bullet) To set
up for a new account,
complete the appropriate
section on the fund
application.
(small solid bullet) To set
up for existing accounts,
call 1-800-544-6666 or visit
Fidelity's web site for an
application.
(small solid bullet) To make
changes, 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 FUND.A
MINIMUM FREQUENCY PROCEDURES
$500 Every pay period (small solid bullet) To set
up for a new account, check
the appropriate box on the
fund application.
(small solid bullet) To set
up for an existing account,
call 1-800-544-6666 or visit
Fidelity's web site for an
authorization form.
(small solid bullet) To make
changes you will need a new
authorization form. Call
1-800-544-6666 or visit
Fidelity's web site to
obtain one.
A BECAUSE ITS SHARE PRICE
FLUCTUATES, THE FUND MAY NOT
BE AN APPROPRIATE CHOICE FOR
DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.
FIDELITY AUTOMATIC EXCHANGE
SERVICE TO MOVE MONEY FROM A
FIDELITY MONEY MARKET FUND
TO ANOTHER FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$500 Monthly, bimonthly, (small solid bullet) To set
quarterly, or annually up, call 1-800-544-6666
after both accounts are
opened.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
exchange date.
PERSONAL WITHDRAWAL SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM YOUR
ACCOUNT TO YOU OR TO YOUR
BANK ACCOUNT.
FREQUENCY PROCEDURES
Monthly (small solid bullet) To set
up, call 1-800-544-6666.
(small solid bullet) To make
changes, call Fidelity at
1-800-544-6666 at least
three business days prior to
your next scheduled
withdrawal date.
</TABLE>
OTHER FEATURES. The following other features are also available to buy
and sell shares of the fund.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(small solid bullet) You must sign up for the wire feature before
using it. Complete the appropriate section on the application when
opening your account, or call 1-800-544-6666 to add the feature
after your account is opened. Call 1-800-544-6666 before your
first use to verify that this feature is set up on your account.
(small solid bullet) To sell shares by wire, you must designate the
U.S. commercial bank account(s) into which you wish the redemption
proceeds deposited.
FIDELITY MONEY LINE
TO TRANSFER MONEY BETWEEN YOUR BANK ACCOUNT AND YOUR FUND ACCOUNT.
(small solid bullet) You must sign up for the Money Line feature
before using it. Complete the appropriate section on the application
and then call 1-800-544-6666 or visit Fidelity's web site
before your first use to verify that this feature is set up on your
account.
(small solid bullet) Most transfers are complete within three business
days of your call.
(small solid bullet) Minimum Purchase: $500
(small solid bullet) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544-0240 OR VISIT FIDELITY'S WEB SITE FOR MORE
INFORMATION.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) For access to research and analysis tools.
FIDELITY ONLINE TRADING
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S
WEB SITE.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) To obtain quotes;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) To access third-party research on companies,
stocks, mutual funds and the market.
FAST
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATICALLY BY PHONE U SING
TOUCH TONE OR SPEECH RECOGNITION.
CALL 1-800-544-5555.
(small solid bullet) For account balances and holdings;
(small solid bullet) For mutual fund and brokerage trading;
(small solid bullet) To obtain quotes;
(small solid bullet) To review orders and mutual fund activity; and
(small solid bullet) To change your personal identification number
(PIN).
CHECKWRITING
TO REDEEM SHARES FROM YOUR ACCOUNT.
(small solid bullet) To set up, complete the appropriate section on
the application.
(small solid bullet) All account owners must sign a signature card to
receive a checkbook.
(small solid bullet) You may write an unlimited number of checks.
(small solid bullet) Minimum check amount: $500
(small solid bullet) Do not try to close out your account by check.
(small solid bullet) To obtain more checks, call Fidelity at
1-800-544-6666.
POLICIES
The following policies apply to you as a shareholder.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund or another fund and certain transactions through automatic
investment or withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(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 Fidelity at 1-800-544-8544 if you
need additional copies of financial reports or prospectuses.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's web site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's web
site for more information.
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 sell and
exchange by telephone, call Fidelity for instructions.
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.
Fidelity may 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 Fidelity, 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
accounts with Fidelity maintained by Fidelity Service Company, Inc. 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 (except accounts not
subject to account minimums), you will be given 30 days' notice to
reestablish the minimum balance. If you do not increase your balance,
Fidelity may close your account and send the proceeds to you. Your
shares will be sold at the NAV on the day your account is closed.
F idelity may charge a FEE FOR CERTAIN SERVICES, such as
providing historical account documen ts.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The fund earns interest, dividends, and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. The fund also realizes capital gains from
its investments, and distributes these gains (less any losses) to
shareholders as capital gain distributions.
The fund normally declares dividends daily and pays them monthly. The
fund normally pays capital gain distributions in February and
December.
EARNING DIVIDENDS
Shares begin to earn dividends on the first business day following the
day of purchase.
Shares earn dividends until, but not including, the next business day
following the day of redemption.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
the fund's distributions:
1. REINVESTMENT OPTION. Your dividends 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 in additional shares of the fund. Your
dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital gain distributions will be
paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gain distributions will be
automatically invested in shares of another identically registered
Fidelity fund, automatically reinvested in additional shares of the
fun d, o r paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in the fund could have tax
consequences for you.
TAXES ON DISTRIBUTIONS. T he fu nd seeks to earn income and pay
dividends exempt from federal income tax and Minnesota personal income
tax.
A portion of the dividends you receive may be subject to
federal, st ate, or l ocal income tax o r may be subject to
the federal or Min nesota alternative minimum tax. You may also
receive taxable distributions attributable to the fund's sale of
municipal bonds.
For federal tax purposes , the fund's distributions of
short-term capital gains and gains on the sale of bonds characterized
as market discount are taxable to you as ordinary income, while
the fund's distributions of long-term capital gains are taxable to
you generally as capital gains.
For Minnesota perso nal income tax pur poses, distributions
derived from interest on municipal securities of Minnesota issuers and
from interest on qualifying securities issued by U.S. territories and
possessions are generally exempt from tax. Distributions that are
federally taxable as ordinary income or capital gains are generally
subject to Minnesota personal inco me tax.
If a fund's distributions exceed its income and capital gains realized
in any year, all or a portion of those distributions may be treated as
a return of capital to shareholders for federal income tax or
Minnesota personal income tax purposes . A return of capital
ge nerally will not be taxable to you but will reduce the cost
basis of your shares and result in a higher reported capital gain or a
lower reported capital loss when you sell your shares.
If you buy shares when a fund has realized but not yet distributed
in come or capital gains, you will be "buying a dividend" by
paying the full price for the shares and then receiving a portion of
the price back in the form of a p otentially taxabl e
distribution.
Any taxable distributions you receive from the fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your redemptions, including exchanges, may
result in a capital gain or loss for federal and Minn esota personal
incom e tax purposes. A capital gain or loss on your investment in
the fund g enerally i s the difference between the cost of your
shares and the price you receive when you sell them.
FUND SERVICES
FUND MANAGEMENT
Spartan Minnesota Municipal Income is a mutual fund, an investment
that pools shareholders' money and invests it toward a specified goal.
FMR is the fund's manager.
As of March 25, 1999, FMR had approximately $521.7 billion in
discretionary assets under management.
As the manager, FMR is responsible for choosing the fund's investments
and handling its business affairs.
Fidelity Investments Money Management, Inc. (FIMM), in Merrimack,
New Hampshire, serves as sub-adviser for the fund. FIMM is primarily
responsible for choosing investments for the fund.
FIMM is an affiliate of FMR. As of March 29, 1999, FIMM had
approximately $159.8 billion i n discretionary assets under
management.
Christine Thompson is vice president and manager of Spartan Minnesota
Municipal Income, which she has managed since July 1998. She also
manages other Fidelity funds. Since joining Fidelity in 1985, Ms.
Thompson has worked as a senior analyst and portfolio manager.
From time to time a manager, analyst, or other Fidelity employee
may express views regarding a particular company, security, industry,
or market sector. The views expressed by any such person are the views
of only that individual as of the time expressed and do not
necessarily represent the views of Fidelity or any other person in the
Fidelity organization. Any such views are subject to change at any
time based upon market or other conditions and Fidelity disclaims any
responsibility to update such views. These views may not be relied on
as investment advice and, because investment decisions for a Fidelity
fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any Fidelity fund.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
The fund pays a management fee to FMR. 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, dividing by
twelve, and multiplying the result by the fund's average net assets
throughout the month.
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 De cember 199 9, the group fee rate was 0.1267% . The
individual fund fee rate is 0.25%.
The total management fee for the fiscal year ended December 31,
1999, was 0.38% of the fund's average net assets.
FMR pays FIMM for providing sub-advisory services.
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by the fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be discontinued by FMR at any time, can decrease the
fund's expenses and boost its performance.
FUND DISTRIBUTION
FDC distributes the fund's shares.
The fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that 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 providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees has authorized such
payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of the fund, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this prospectus and in the related
statement of additional information (SAI), in connection with the
offer contained in this prospectus . If given or made, such
other information or representations must not be relied upon as having
been authorized by the fund or FDC. This prospectus and the related
SAI do not constitute an offer by the fund or by FDC to sell
shares of the fund to or to buy shares of the fund from any person to
whom it is unlawful to make such offer.
APPENDIX
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
fund's financial history for the past 5 years. Certain information
reflects financial results for a single fund share. The total
returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment
of all dividends and distributions) . This information has been
audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the fund's financial highlights and financial
statements, are included in the fund's annual report. A free copy of
the annual report is available upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA AND RATIOS
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.410 $ 11.330 $ 10.940 $ 11.100 $ 10.130
period
Income from Investment .511 .531 .551 .562 .613
Operations Net interest
income
Net realized and unrealized (.780) .080 .390 (.160) .972
gain (loss)
Total from investment (.269) .611 .941 .402 1.585
operations
Less Distributions
From net interest income (.511) (.531) (.551) (.562) (.613)
In excess of net realized - - - - (.002)
gain
Total distributions (.511) (.531) (.551) (.562) (.615)
Net asset value, end of period $ 10.630 $ 11.410 $ 11.330 $ 10.940 $ 11.100
TOTAL RETURN A (2.43)% 5.51% 8.85% 3.78% 16.00%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 285,029 $ 312,036 $ 296,607 $ 294,432 $ 315,167
(000 omitted)
Ratio of expenses to average .53% .55% B .56% B .60% .57%
net assets
Ratio of expenses to average .51% C .55% .56% .60% .57%
net assets after expense
reductions
Ratio of net interest income 4.62% 4.68% 5.00% 5.15% 5.69%
to average net assets
Portfolio turnover rate 21% 17% 18% 17% 49%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING
THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES.
You can obtain additional information about the fund. The fund's SAI
includes more detailed information about the fund and its investments.
The SAI is incorporated herein by reference (legally forms a part of
the prospectus). The fund's annual and semi-annual reports include a
discussion of the fund's holdings and recent market conditions and the
fund's investment strategies that affected performance.
For a free copy of any of these documents or to request other
information or ask questions about the fund, call Fidelity at
1-800-544-8544. In addition, you may visit Fidelity's web site at
www.fidelity.com for a free copy of a prospectus or an annual or
semi-annual report or to request other information.
The SAI, the fund's annual and semi-annual reports and other related
materials are available on the SEC's Internet web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the fund, including the fund's SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBER, 811-2720
Spartan, Fidelity Investments & (Pyramid) Design, Fidelity,
Fidelity Investments, Fidelity Money Line, Fidelity Automatic Account
Builder, Fidelity On-Line Xpress+, and Directed Dividends are
registered trademarks of FMR Corp.
FAST and Portfolio Advisory Services are service marks of FMR
Corp.
1.540175.102 MNF-pro-0200
SPARTAN(registered trademark) MINNESOTA MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 2000
This statement of additional information (SAI) is not a prospectus.
Portions of the fund's annual report are incorporated herein. The
annual report is supplied with this SAI.
To obtain a free additional copy of the prospectus, dated February 28,
2000, or an annual report, please call Fidelity(registered trademark)
at 1-800-544-8544 or visit Fidelity's web site at www.fidelity.com.
TABLE OF CONTENTS PAGE
Investment Policies and 24
Limitations
Special Considerations 28
Regarding Minnesota
Special Considerations 29
Regarding Puerto Rico
Portfolio Transactions 32
Valuation 32
Performance 33
Additional Purchase, Exchange 39
and Redemption Information
Distributions and Taxes 39
Trustees and Officers 39
Control of Investment Advisers 42
Management Contract 42
Distribution Services 45
Transfer and Service Agent 46
Agreements
Description of the Trust 46
Financial Statements 47
Appendix 47
MNF-ptb- 0200
1.540392.102
(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109
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 (the
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 in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise 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.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations of 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 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)) .
(v) The fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor 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 (i) and (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.
With respect to limitation (v), 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 were invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 31.
The following pages contain more detailed information about types of
instruments in which the fund may invest, strategies Fidelity
Management & Research Company (FMR) may employ in pursuit of the
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 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. Payment of interest and repayment of principal may be
largely dependent upon the cash flows generated by the assets backing
the securities and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. Asset-backed security
values may also be affected by other factors including changes in
interest rates, the availability of information concerning the pool
and its structure, the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the entities
providing the credit enhancement. In addition, these securities may be
subject to prepayment risk.
BORROWING. The fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity, and diversification of their investments.
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.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: 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.
COMBINED POSITIONS involve purchasing and writing 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, purchasing a put option and writing a
call option on the same underlying instrument would 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, 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. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund 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 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. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter 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 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 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 purchaser or writer 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
purchaser 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 purchaser 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 purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser 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, 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. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer 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. The writer may seek
to terminate a position in a put option 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, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
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 writer 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 SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. 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
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market, and (4) the nature of the security and the market in which it
trades (including any demand, put or tender features, the mechanics
and other requirements for transfer, any letters of credit or other
credit enhancement features, any ratings, the number of holders, the
method of soliciting offers, the time required to dispose of the
security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments 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.
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. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates; however, municipal
funds currently intend to participate in this program only as
borrowers. A fund will borrow through the program only when the costs
are equal to or lower than the costs of bank loans. Interfund
borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one day's notice. 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 movements in prevailing short-term
interest rate levels - rising when prevailing short-term interest
rates fall, and vice versa. The prices of inverse floaters can be
considerably more volatile than the prices of bonds with comparable
maturities.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt 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 IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MUNICIPAL INSURANCE. A municipal bond may be covered by insurance that
guarantees the bond's scheduled payment of interest and repayment of
principal. This type of insurance may be obtained by either (i) the
issuer at the time the bond is issued (primary market insurance), or
(ii) another party after the bond has been issued (secondary market
insurance).
Both primary and secondary market insurance guarantee timely and
scheduled repayment of all principal and payment of all interest on a
municipal bond in the event of default by the issuer, and cover a
municipal bond to its maturity, enhancing its credit quality and
value.
Municipal bond insurance does not insure against market fluctuations
or fluctuations in a fund's share price. In addition, a municipal bond
insurance policy will not cover: (i) repayment of a municipal bond
before maturity (redemption), (ii) prepayment or payment of an
acceleration premium (except for a mandatory sinking fund redemption)
or any other provision of a bond indenture that advances the maturity
of the bond, or (iii) nonpayment of principal or interest caused by
negligence or bankruptcy of the paying agent. A mandatory sinking fund
redemption may be a provision of a municipal bond issue whereby part
of the municipal bond issue may be retired before maturity.
Because a significant portion of the municipal securities issued and
outstanding is insured by a small number of insurance companies, an
event involving one or more of these insurance companies could have a
significant adverse effect on the value of the securities insured by
that insurance company and on the municipal markets as a whole.
FMR may decide to retain an insured municipal bond that is in default,
or, in FMR's view, in significant risk of default. While a fund holds
a defaulted, insured municipal bond, the fund collects interest
payments from the insurer and retains the right to collect principal
from the insurer when the municipal bond matures, or in connection
with a mandatory sinking fund redemption.
PRINCIPAL MUNICIPAL BOND INSURERS. The various insurance companies
providing primary and secondary market insurance policies for
municipal bonds are described below. Ratings reflect each respective
rating agency's assessment of the creditworthiness of an insurer and
the insurer's ability to pay claims on its insurance policies at the
time of the assessment.
Ambac Assurance Corp., a wholly-owned subsidiary of Ambac Financial
Group Inc., is authorized to provide bond insurance in the 50 U.S.
states, the District of Columbia, and the Commonwealth of Puerto Rico.
Bonds insured by Ambac Assurance Corp. are rated "Aaa" by Moody's
Investor s Service and "AAA" by Standard & Poor's.
Connie Lee Insurance Co. is a wholly-owned subsidiary of Connie Lee
Holdings Inc., which is a wholly-owned subsidiary of Ambac Assurance
Corp. All losses incurred by Connie Lee Insurance Co. that would cause
its statutory capital to drop below $75 million would be covered by
Ambac Assurance Corp. Connie Lee Insurance Co. is authorized to
provide bond insurance in 49 U.S. states, the District of Columbia,
and the Commonwealth of Puerto Rico. Bonds insured by Connie Lee
Insurance Co. are rated "AAA" by Standard & Poor's.
Financial Guaranty Insurance Co. (FGIC), a wholly-owned subsidiary of
GE Capital Services, is authorized to provide bond insurance in the 50
U.S. states and the District of Columbia. Bonds insured by FGIC are
rated "Aaa" by Moody's Investors Service and "AAA" by Standard &
Poor's.
Financial Security Assurance Inc. (FSA), a wholly-owned subsidiary of
Financial Security Assurance Holdings Ltd., is authorized to provide
bond insurance in 49 U.S. states, the District of Columbia, and three
U.S. territories. Bonds insured by FSA are rated "Aaa" by Moody's
Investors Service and "AAA" by Standard & Poor's.
Municipal Bond Investors Assurance Corp. (MBIA Insurance Corp.), a
wholly-owned subsidiary of MBIA Inc., a publicly-owned company, is
authorized to provide bond insurance in the 50 U.S. states, the
District of Columbia, and the Commonwealth of Puerto Rico. Bonds
insured by MBIA Insurance Corp. are rated "Aaa" by Moody's Investors
Service and "AAA" by Standard & Poor's.
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,
a fund will not hold these 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 purchaser a specified, undivided interest in the obligation
in proportion to its purchased interest in the total amount of the
issue.
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. If a municipality stops making payments or transfers its
obligations to a private entity, the obligation could lose value or
become taxable.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income
tax exemption for interest on municipal securities are introduced
before Congress from time to time. Proposals also may be introduced
before the Minnesota legislature that would affect the state tax
treatment of a municipal fund's distributions. If such proposals were
enacted, the availability of municipal securities and the value of a
municipal fund's holdings would be affected and the Trustees would
reevaluate the fund's investment objectives and policies. 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.
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.
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
at any time or at specified intervals. In exchange for this benefit, a
fund may accept a lower interest rate. Securities with put features
are subject to the risk that the put provider is unable to honor the
put feature (purchase the security). Demand features and standby
commitments are types of put features.
REFUNDING CONTRACTS. Securities may be purchased on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and a
purchaser 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 purchaser generally will not be obligated to pay the
full purchase price if the issuer fails to perform under a refunding
contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer. A purchaser 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.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
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. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The fund will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder 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 security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The fund will enter into
reverse repurchase agreements with parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SOURCES OF LIQUIDITY OR CREDIT SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial
institutions. FMR may rely on its evaluation of the credit of the
liquidity or credit enhancement provider in determining whether to
purchase a security supported by such enhancement. 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. Changes in the
credit quality of the entity providing the enhancement could affect
the value of the security or a fund's share price.
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. A 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 purchase 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 generally marketable; and the possibility that the maturities
of the underlying securities may be different from those of the
commitments.
TEMPORARY DEFENSIVE POLICIES. The fund 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.
TENDER OPTION BONDS are created by coupling an intermediate- or
long-term, fixed-rate, municipal 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, 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
in 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 are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
In many instances bonds and participation interests have tender
options or demand features that permit the holder to tender (or put)
the bonds to an institution at periodic intervals and to receive the
principal amount thereof. Variable rate instruments structured in this
fashion are considered to be essentially equivalent to other variable
rate securities. The IRS has not ruled whether the interest on these
instruments is tax-exempt. Fixed-rate bonds that are subject to third
party puts and participation interests in such bonds held by a bank in
trust or otherwise may have similar features.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, 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, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a 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 more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
SPECIAL CONSIDERATIONS REGARDING 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. Diversity and a significant natural resource base
are two important characteristics of the State's economy. In 1998, the
structure of the State's economy closely paralleled the structure of
the United States' 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 State
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 the nation in the period after the
1981-82 recession ended in late 1982. In the period 1990 to 1998,
non-farm employment grew 20.2% compared to 15.0% 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 was more rapid than the nation's.
Since 1980, State per capita personal income has been within five
percentage points of national per capita personal income. Minnesota
per capita income has generally remained above the national average
during this period. In 1998, Minnesota per capita personal income was
102.8% of the national average.
Minnesota's monthly unemployment rate was generally less than the
national average during 1997 and 1998, averaging 2.5% in 1998, as
compared to the national average of 4.5%. A major continuing trend for
Minnesota, as for the nation, is the large employment gain in the
service industries. From 1990 to 1998, Minnesota service industry
employment grew 35.1%. Accompanying this was a decline in agricultural
employment.
Minnesota's resident population grew from 4,085,000 in 1980 to
4,387,000 in 1990, or at an average annual compound rate of 0.7%. In
comparison, U.S. population grew at an annual compound rate of 0.9%
during this period. Minnesota's population is currently forecast by
the U.S. Department of Commerce to grow at an annual compound rate of
0.8% through 2010. Minnesota's population growth accelerated during
the late 1980s.
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 1990-1998 periods. Minnesota's manufacturing
industries accounted for 16.9% of the State's employment mix in 1998.
In the durable goods industries, the State's employment in 1998 was
highly concentrated in the industrial machinery and instrument and
miscellaneous categories. Of particular importance is the industrial
machinery category in which 30.9% of the State's durable goods
employment was concentrated in 1998, as compared to 19.7% for the
United States as a whole. This emphasis is partly explained by the
location in the state of Unisys, IBM, Cray Research, Seagate
Technology 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 1998, 29.2% of the State's non-durable goods employment
was concentrated in food and kindred industries, and 16.8% in paper
and allied industries. This compares to 22.3% 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 1996 Minnesota ranked sixth among all states in total cash receipts
derived from agricultural products. In order of receipts, the six
major agricultural products in 1996 were corn, soybeans, dairy
products, hogs, cattle and calves, and turkeys.
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 8.1 thousand
in 1998. 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.
STATE FISCAL MATTERS. General fund revenues in the fiscal
year 2000-01, including tobacco settlement payments, are forecast at
$23.549 billion as of the November 1999 forecast. The forecast balance
for June 30, 2001 is $1.584 billion. Under current law 60% of any
projected balance is automatically allocated, leaving an available
balance for the current biennium of $571 million.
The 1999 Legislature passed a $1.250 billion sales tax rebate.
Individual income tax rates were reduced in all three brackets, from
6.0% to 5.5%, from 8.0% to 7.25%, and from 8.5% to 8.0%. In addition,
the "marriage penalty" inherent in the previous rate structure was
eliminated. These changes reduced projected revenues by $1.312 billion
for the 1999-2001 biennium.
The 1999 Legislature also provided that if, based on a forecast of
general fund revenues and expenditures in November of an even-numbered
year or February of an odd-numbered year, the Commissioner of Finance
projects a positive unrestricted budgetary general fund balance at the
close of the biennium that exceeds one-half of one percent of total
general fund biennial revenues, the Commissioner shall designate the
entire balance as available for rebate to taxpayers. In making the
determinations of general fund balance or biennial revenue, the
Commissioner is prohibited from including any balance or revenue
attributable to certain tobacco settlement payments received after
July 1, 1998 and before July 1, 2001. If the Commissioner designates
an amount for rebate, the Governor must then present a plan to the
Minnesota Legislature for rebating that amount, with payments to begin
no later than August 15 of the odd-numbered year. The legislation
provides that the Legislature shall either enact, modify or reject the
plan presented by the Governor.
LOCAL OBLIGATIONS. The State of Minnesota has no obligation
to pay any bonds of its political or governmental subdivisions,
municipalities, governmental agencies, or instrumentalities. The
creditworthiness of local general obligation bonds is dependent upon
the financial condition of the local government issuer, and the
creditworthiness of revenue bonds is dependent upon the availability
of particular designated revenue sources or the financial conditions
of the underlying obligors. 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 such
other obligations, or the ability of the obligors to pay the principal
of or interest on such obligations.
At the local level, the property tax base has recovered after its
growth was slowed in many communities in the early 1990s by over
capacity in certain segments of the commercial real estate market.
Local finances are also affected by the amount of state aid that is
made available. Further, various of the issuers within the State of
Minnesota, as well as the State of Minnesota itself, whose securities
may be purchased by the fund, may now or in the future be subject to
lawsuits involving material amounts. It is impossible to predict the
outcome of these lawsuits. Any losses with respect to these lawsuits
may have an adverse impact on the ability of these issuers to meet
their obligations.
MINNESOTA LEGISLATION. Pursuant to Minnesota legislation
enacted in 1995, exempt-interest dividends that would otherwise be
exempt from Minnesota personal income tax in the case of individuals,
estates, and trusts may become subject to such tax if the exemption of
such income were judicially determined to discriminate against
interstate commerce. This provision provides that it applies to
taxable years that begin during the calendar year in which such
judicial decision becomes final, regardless of the date on which the
obligations were issued, and that other remedies apply to previous
taxable years. Should an adverse decision be rendered, the value of
the securities purchased by the fund might be adversely affected, and
the value of the shares of the fund might also be adversely
affected.
SPECIAL CONSIDERATIONS REGARDING PUERTO RICO
The fiscal year of the Government of Puerto Rico begins each July
1. The Governor is constitutionally required to submit to the
Legislature an annual balanced budget of capital improvements and
operating expenses of the central government for the ensuing fiscal
year. The annual budget is prepared by the Office of Management and
Budget ("OMB"), working with the Planning Board, the Department of the
Treasury, and other government offices and agencies. Section 7 of
Article VI of the Constitution provides that "The appropriations made
for any fiscal year shall not exceed the total revenues, including
available surplus, estimated for said fiscal year unless the
imposition of taxes sufficient to cover said appropriations is
provided by law."
The annual budget, which is developed utilizing elements of program
budgeting and zero-base budgeting, includes an estimate of revenues
and other resources for the ensuing fiscal year under: (i) laws
existing at the time the budget is submitted; and (ii) legislative
measures proposed by the Governor and submitted with the proposed
budget, as well as the Governor's recommendations as to appropriations
that in his judgment are necessary, convenient, and in conformity with
the four-year investment plan prepared by the Planning Board.
A Budgetary Fund was created by Act No. 147 of June 18, 1980, as
amended (the "Budgetary Fund Act"), to cover the appropriations
approved in any fiscal year in which the revenues available for such
fiscal year are insufficient, honor the public debt, and provide for
unforeseen circumstances in the provision of public services. The
Budgetary Fund Act was amended in 1994 to require that an annual
legislative appropriation equal to one third of one percent (.33%) of
the total budgeted appropriations for each fiscal year be deposited in
the Budgetary Fund. In 1997, the Budgetary Fund Act was further
amended to increase the annual legislative appropriation required to
be deposited in the Budgetary Fund to one percent (1%) of the total
revenues of the preceding fiscal year, beginning in fiscal year 2000.
In addition, other income (not classified as revenues) that is not
assigned by law to a specific purpose is also required to be deposited
in the Budgetary Fund. The maximum balance of the Budgetary Fund may
not exceed six percent (6%) of the total appropriations included in
the budget for the preceding fiscal year.
In Puerto Rico, the central government has many functions which in
the fifty states are the responsibility of local government, such as
providing public education and police and fire protection. The central
government also makes large annual grants to the University of Puerto
Rico and to the municipalities. Debt service on Sugar Corporation
notes paid by the Government of Puerto Rico is included in current
expenses for economic development, and debt service on Urban Renewal
and Housing Corporation bonds and notes and on Housing Bank and
Finance Agency mortgage subsidy bonds paid by the Government of Puerto
Rico is included in current expenses for housing.
Approximately 25.2% of the General Fund is committed, including
debt service on direct debt of the Commonwealth and on the debt of the
Sugar Corporation, municipal subsidies, grants to the University of
Puerto Rico, contributions to Aqueduct and Sewer Authority, and rental
payments to Public Building Authority, among other.
In the fiscal 1999 budget revenues and other resources of all
budgetary funds total $10,308,078,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 1999 are
accounted for by increases in personal income taxes (up $258,354,000),
retained non-resident income tax (up $176,921,000), general excise tax
of 5% (up $60,259,000), motor vehicles and accessories (up
$61,569,000), federal excise taxes on off-shore shipments (up
$33,033,000), special excise tax on certain petroleum products (up
$20,282,000), corporation income taxes (up $17,347,000), registration
and document certification fees (up $13,433,000), alcoholic beverages
(up $5,347,000), licenses (up $4,681,000), electronic lottery (up
$4,965,000) and decreases in property taxes (down $3,460,000), customs
(down $11,864,000) and tollgate taxes (down $56,420,000).
Current expenses and capital improvements of all budgetary funds
total $10,687,869,000, an increase of $951,255,000 from fiscal 1998.
The major changes in General Fund expenditures by program in fiscal
1999 are: public safety and protection (up $187,444,000), education
(up $165,661,000), health (up $160,256,000), general government (up
$77,714,000), other debts (up $69,721,000), welfare (up $24,182,000),
economic development (up $15,865,000), special pension contributions
(up $6,115,000), and decreases in transportation and communications
(down $83,000), housing (down $620,000), debt service (down
$13,849,000), and contributions to municipalities (down
$37,969,000).
The general obligation bond authorization for the fiscal 1999
budget was $475,000,000.
In the fiscal 2000 budget proposal revenues and other resources of
all budgetary funds total $10,426,475,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 2000 are
accounted for by increases in personal income taxes (up $199,000,000),
corporation income taxes (up $102,000,000), general excise tax of 5%
(up $65,000,000), income tax withheld from non-residents (up
$44,000,000), motor vehicles and accessories (up $22,000,000),
alcoholic beverages (up $13,000,000), registration and document
certification fees (up $10,000,000), and decreases in property taxes
(down $2,000,000), special excise tax on certain petroleum products
(down $3,000,000), cigarettes (down $6,000,000), federal excise taxes
on off-shore shipments (down $24,000,000), and tollgate taxes (down
$14,000,000).
Current expenses and capital improvements of all budgetary funds
total $11,012,166,000, an increase of $324,297,000 from fiscal 1999.
The major changes in General Fund expenditures by program in fiscal
2000 are: general government (up $157,265,000), health (up
$83,310,000), debt service (up $94,550,000), contributions to
municipalities (up $66,296,000), education (up $75,035,000),
transportation and communications (up $13,636,000), special pension
contributions (up $3,792,000), housing (down $4,645,000), economic
development (down $30,201,000), public safety and protection (down
$26,999,000), and other debts service (down $106,488,000).
The general obligation bond authorization for the fiscal 2000
budget was $475,000,000.
The Government of Puerto Rico is required to contribute directly to
three retirement systems for public employees. The Government of
Puerto Rico is responsible for approximately 66% of total employer
contributions to Employees Retirement System and 100% and 99% of total
employer contributions to the Judiciary and Teachers Retirement
Systems, respectively. As of July 1, 1998 the total pension benefit
obligation for the Employees Retirement System and the Judiciary
Retirement System was $7,638,000,000 and $95,5000,000, respectively,
and the unfunded pension benefit obligation for the same period was
$5,963,000,000 and $28,400,000, respectively. As of June 30, 1998, the
accrued pension liability of the Teachers Retirement System was
$3,154,678,299, the value of assets amounted to $2,135,436,000, and
the resulting unfunded accrued liability was $1,019,242,299, an
increase of $48,437,260 from the prior valuation made as of June 30,
1997.
On February 1, 1990, the Legislature of Puerto Rico enacted Act No.
1 amending the organic act of the Employees Retirement System to
reduce the future pension liabilities of the Employees Retirement
System. Also, Act No. 305 of September 24, 1999, further amends the
organic act of the Employees Retirement System to change it,
prospectively, from a defined benefit system to a defined contribution
system. Based on actuarial studies conducted by the actuary of the
Employees Retirement System, it is expected that the implementation of
the defined contribution system will allow the Government of Puerto
Rico to reduce the current actuarial deficit of the Employees
Retirement System. Also, the law approving the sale of a controlling
interest in PRTC to a consortium led by GTE International
Telecommunications Incorporated provides that any future proceeds
received by the Government from the sale of its remaining stock
ownership in PRTC will be transferred to the Employees Retirement
System to reduce its accumulated unfunded pension benefit obligation.
It is recognized that it will be necessary to further strengthen the
finances of the Teachers Retirement System in order to assure that
combined contributions and investment income continue to exceed
benefit payments, avoiding the possible future drawdown of assets.
The economy of Puerto Rico is fully integrated with that of the
United States. In fiscal 1998, trade with the United States accounted
for approximately 90% of Puerto Rico's exports and approximately 61%
of its imports. In this regard, in fiscal 1998 Puerto Rico experienced
a $8.5 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita,
has increased consistently each fiscal year. In fiscal 1998, aggregate
personal income was $33.7 billion ($30.8 billion in 1992 prices) and
personal per capita income was $8,817 ($8,063 in 1992 prices). Gross
product in fiscal 1995 was $28.4 billion ($25.9 billion in 1992
prices) and gross product in fiscal 1999 was $38.1 billion ($29.7
billion in 1992 prices). This represents an increase in gross product
of 34% from fiscal 1995 to 1999 (14.5% in 1992 prices).
Puerto Rico's economic expansion, which has lasted over ten years,
continued throughout the five year period from fiscal 1995 through
fiscal 1999. 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,
increases in the level of federal transfers, low oil prices and the
relatively low cost of borrowing funds during the period.
Average employment increased from 1,051,000 in fiscal 1995, to
1,147,000 in fiscal 1999. Unemployment, although at relatively low
historical levels, remains above the U.S. average. Average
unemployment decreased from 13.8% in fiscal 1995, to 12.5% in fiscal
1999.
Manufacturing is the largest sector in the economy, accounting for
$23.0 billion or 42.8% of gross domestic product in fiscal 1998. The
manufacturing sector employed 141,068 workers as of March 1999.
Manufacturing in Puerto Rico is now more diversified than during
earlier phases of industrial development. In the last two decades,
industrial development has tended to be more capital intensive and
dependent on skilled labor. This gradual shift is best exemplified by
heavy investment in pharmaceuticals, scientific instruments,
computers, microprocessors, and electrical products over the last
decade. While total employment in the manufacturing sector decreased
by 12,205 from March 1997 to March 1999, other indicators suggest that
manufacturing production did not decrease. Average weekly hours worked
increased 5.2%, industrial energy consumption increased 0.7% and
exports increased 45.7% from fiscal 1997 to fiscal 1999. Most of the
decreases in employment have been concentrated in the labor intensive
industries, particularly apparel, textile and tuna manufacturing. The
services sector, which includes wholesale and retail trade and
finance, insurance, real estate, hotels and related services, and
other services, ranks second in its contribution to gross domestic
product and it is the sector that employs the greatest number of
people. In fiscal 1998, the service sector generated $19.6 billion in
gross domestic product or 36.5% of the total. Employment in this
sector grew from 478,079 in fiscal 1994 to 572,765 in fiscal 1998, a
cumulative increase of 19.8%. This increase was greater than the 12.5%
cumulative growth in employment over the same period. The Government
sector of the Commonwealth plays an important role in the economy of
the island. In fiscal year 1998, the Government accounted for $5.2
billion of Puerto Rico's gross domestic product, or 9.8% of the total,
and provided 21.5% of the total employment. The construction industry
has experienced real growth since fiscal 1987. In fiscal 1999,
investment in construction rose to an unprecedented $6.6 billion, an
increase of 23.9% as compared to $5.4 billion for fiscal 1998. Tourism
also contributes significantly to the island economy, accounting for
6.4% of the island's gross domestic product in fiscal 1998.
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. Another
initiative is the improvement and expansion of Puerto Rico's
infrastructure to facilitate private sector development and growth,
such as the construction of the water pipeline and cogeneration
facilities described below and the construction of a light rail system
for the San Juan metropolitan area.
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 11,095 at the end of fiscal
1999 and to a projected 12,650 by the end of fiscal 2000.
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 Government sold the assets of the Puerto Rico
Maritime Authority; (ii) the Aqueducts and Sewer Authority executed 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; (iii) the Electric Power Authority
executed power purchase contracts with private power producers under
which two cogeneration plants (with a total capacity of approximately
874 megawatts), using fuels other than oil, will be constructed; (iv)
the Corrections Administration entered into operating agreements with
two private companies for the operation of three new correctional
facilities; (v) the Government entered into a definitive agreement to
sell certain assets of a pineapple juice processing business and sold
certain mango growing operations; (vi) the Government is in the
process of transferring to local sugar cane growers certain sugar
processing facilities; (vii) the Government sold three hotel
properties and is currently negotiating the sale of a complex
consisting of two hotels and a convention center; and (viii) the
Government sold a controlling interest in the Puerto Rico Telephone
Company, a subsidiary of the Telephone Authority, to a consortium led
by GTE International Telecommunications Incorporated.
One of the goals of the Rossello administration is to change Puerto
Rico's public health care system from one in which the Government
provides free health services to low income individuals through public
health facilities owned and administered by the Government to one in
which all medical services are provided by the private sector and the
Government provides comprehensive health insurance coverage for
qualifying (generally low income) Puerto Rico residents. Under this
new system, the Government selects, through a bidding system, one
private health insurance company in each of several designated regions
of the island and pays such insurance company the insurance premium
for each eligible beneficiary within such region. This new health
insurance system is now covering 77 municipalities out of a total of
78 on the island. It is expected that the last municipality will be
added in July 2000. The total cost of this program will depend on the
number of municipalities included in the program, the number of
participants receiving coverage, and the date coverage commences. As
of August 1, 1999, over 1.7 million persons were participating in the
program at an estimated annual cost to Puerto Rico for fiscal 2000 of
approximately $994 million. In conjunction with this program, the
operation of certain public health facilities has been transferred to
private entities. The Government's current privatization plan for
health facilities provides for the transfer of ownership of all health
facilities to private entities. The Government has sold forty-four
health facilities to private companies and is currently in the process
of closing the sale of fourteen additional health facilities to such
companies.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, particularly those under the Puerto Rico
Industrial Incentives Program and Sections 30A and 936 of the Internal
Revenue Code 1986, as amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial
incentive laws designed to stimulate industrial investment. Under
these laws, companies engaged in manufacturing and certain other
designated activities were eligible to receive full or partial
exemption from income, property, and other taxes. The most recent of
these laws is Act No. 135 of December 2, 1997 (the "1998 Tax
Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are available
to new companies as well as companies currently conducting tax-exempt
operations in Puerto Rico that choose to renegotiate their existing
tax exemption grant. Activities eligible for tax exemption include
manufacturing, certain services performed for markets outside Puerto
Rico, the production of energy from local renewable sources for
consumption in Puerto Rico, and laboratories for scientific and
industrial research. For companies qualifying thereunder, the 1998 Tax
Incentives Law imposes income tax rates ranging from 2% to 7%. In
addition, it grants 90% exemption from property taxes, 100% exemption
from municipal license taxes during the first eighteen months of
operation and between 80% and 60% thereafter, and 100% exemption from
municipal excise taxes. The 1998 Tax Incentives Law also provides
various special deductions designated to stimulate employment and
productivity, research and development, and capital investment in
Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to repatriate
or distribute their profits free of dividend taxes. In addition,
passive income derived from designated investments will continue to be
fully exempt from income and municipal license taxes. Individual
shareholders of an exempted business are allowed a credit against
their Puerto Rico income taxes equal to 30% of their proportionate
share in the exempted business' income tax liability. Gain from the
sale or exchange of shares of an exempted business by its shareholders
during the exemption period will be subject to a 4% income tax
rate.
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", also known as the "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 Bill Clinton on August 20, 1996 (the
"1996 Amendments"), the tax credit, as described below, 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 were operating
in Puerto Rico on October 13, 1995, and had elected 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.
PROPOSAL TO EXTEND THE PHASEOUT OF SECTION 30A. During 1997, the
Government of Puerto Rico proposed to Congress the enactment of a new
permanent federal incentive program similar to that provided under
Section 30A. Such a program would provide U.S. companies a tax credit
based on qualifying wages paid and other wage-related expenses, such
as fringe benefits, as well as depreciation expenses for certain
tangible assets and research and development expenses. 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. The fiscal 1998, fiscal 1999 and fiscal 2000 budgets
submitted by President Clinton to Congress included a proposal to
modify Section 30A to (i) extend the availability of the Section 30A
Credit indefinitely; (ii) make it available to companies establishing
operations in Puerto Rico after October 13, 1995; and (iii) eliminate
the income cap. This proposal was not included in the 1998 or 1999
budgets approved by Congress. While the Government of Puerto Rico
plans to continue lobbying for this proposal, it is not possible at
this time to predict whether the Section 30A Credit will be so
modified.
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. 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.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and investment
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; the reasonableness
of any commissions; and, if applicable, arrangements for payment of
fund expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contract"), that 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
above.
The fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment 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 investment accounts; and effect securities transactions
and perform functions incidental thereto (such as clearance and
settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that 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 a 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.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, the
fund may pay a broker-dealer 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 that fund
or 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.
To the extent permitted by applicable law, FMR is authorized to
allocate portfolio transactions in a manner that takes into account
assistance received in the distribution of shares of the funds or
other Fidelity funds and to use the research services of brokerage and
other firms that have provided such assistance. 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.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment 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.
Fo r the fiscal periods ended December 31, 1999 and 1998, the
fund's portfolio turnover rates were 21% and 17%.
Fo r the fiscal years ended Decem ber 31, 1999, 1998, and 1997,
the fund paid no brokerage commissions.
During the fiscal year ende d December 31, 1999, the fund paid no
brokerage commissions to firms that provided research services.
The Trustees of the fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the fund from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the fund could purchase in the underwriting.
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 or its affiliates,
investment decisions for the fund are made independently from those of
other funds or investment accounts managed by FMR or its
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these funds or investment accounts.
Simultaneous transactions are inevitable when several funds and
investment 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 investment 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
The fund's net asset value per share (NAV) is the value of a single
share. The NAV of the fund is computed by adding the value of the
fund's investments, cash, and other assets, subtracting its
liabilities, and dividing the result by the number of shares
outstanding.
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 of other open-end investment
companies are valued at their respective NAVs.
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 value of such securities. For example,
securities and other assets for which there is no readily available
market value may be valued in good faith by a committee appointed by
the Board of Trustees. In making a good faith determination of the
value of a security, the committee may review price movements in
futures contracts and American Depositary Receipts (ADRs), market and
trading trends, the bid/ask quotes of brokers and off-exchange
institutional trading.
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 return fluctuate in response to market conditions and other
factors, and the value of fund shares when redeemed may be more or
less than their original cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing the
fund's interest and 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
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 tax-equivalent yield of the fund reflects a comparison of the
fund's yield to the yield of a fully taxable investment .
Tax-equivalent yields are calculated by dividing that portion
of the fund's yield that is tax-exempt by the result of one
minus the applicable specified combined federal and /or
state income tax rate and adding the quotient to that portion, if
any, of the fund's yield that is not tax-exempt .
The following tables show the effect of a shareholder's tax status on
tax-equivalent yield under federal and state income tax laws
for 2000 . The second table shows the tax-equivalent
yields at various income brackets of hypothetical tax-exempt
obligations yielding from 2 % to 7 %. 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 applicable state
income tax, some portion of the income received by the fund may
be taxable.
Use the first table to find your approximate effective tax bracket
taking into account federal and state taxes for 2000 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 tax rates ***
Taxable Income*
Single Return Joint Return Federal Marginal Rate Minnesota State Marginal Rate
$ 26,251 $ 57,710 $ 43,851 $ 102,030 28.00% 7.25%
57,711 63,550 102,031 105,950 28.00% 8.00%
63,551 132,600 105,951 161,450 31.00% 8.00%
132,601 288,350 161,451 288,350 36.00% 8.00%
288,351 and up 288,351 and up 39.60% 8.00%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 tax rates ***
Taxable Income*
Single Return Joint Return Federal Marginal Rate Combined Federal and State
Effective Rate**
$ 26,251 $ 57,710 $ 43,851 $ 102,030 28.00% 33.2200%
57,711 63,550 102,031 105,950 28.00% 33.7600%
63,551 132,600 105,951 161,450 31.00% 36.5200%
132,601 288,350 161,451 288,350 36.00% 41.1200%
288,351 and up 288,351 and up 39.60% 44.4320%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the alternative minimum tax, the
phaseout of personal exemptions, limitations on itemized deductions,
and other credits, exclusions, and adjustments which may increase a
taxpayer's marginal tax rate. Assumes a shareholder itemizes
deductions. An increase in a shareholder's marginal tax rate would
increase that shareholder's tax-equivalent yield.
*** Does not take into account local taxes, if any , payable on
fund distributions.
Having determined your effective tax bracket, use the following table
to determine the tax-equivalent yield for a given tax-exempt
obligation's yield.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
If your combined federal and state effective tax rate in 2000 is:
33.22% 33.76% 36.52% 41.12% 44.43%
If a tax-exempt obligation's Tax-equivalent yield would be:
yield is:
2% 2.99% 3.02% 3.15% 3.40% 3.60%
3% 4.49% 4.53% 4.73% 5.10% 5.40%
4% 5.59% 6.04% 6.30% 6.79% 7.20%
5% 7.49% 7.55% 7.88% 8.49% 9.00%
6% 8.98% 9.06% 9.45% 10.19% 10.80%
7% 10.48% 10.57% 11.03% 11.89% 12.60%
</TABLE>
The fund may invest a portion of its assets in obligations that are
subject to federal and/or state income taxes. When the fund
invests in these obligations, its tax-equivalent yield may be
lower. In the table above, the tax-equivalent yields are calculated
assuming investments are 100% exempt from federal and state income
taxes .
RETURN CALCULATIONS. 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. A cumulative return reflects actual performance over
a stated period of time. Average annual 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 return of
100% over ten years would produce an average annual 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 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 returns
represent averaged figures as opposed to the actual year-to-year
performance of the fund.
In addition to average annual returns, the fund may quote unaveraged
or cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative 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. Returns may be broken
down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of
these factors and their contributions to return. Returns may be quoted
on a before-tax or after-tax basis. After-tax returns reflect the
return of a hypothetical account after payment of federal and/or state
taxes using assumed tax rates. After-tax returns may assume that taxes
are paid at the time of distribution or once a year or are paid in
cash or by selling shares, that shares are held through the entire
period, sold on the last day of the period, or sold at a future date,
and distributions are reinvested or paid in cash. Returns may or may
not include the effect of the fund's small account fee. Excluding the
fund's small account fee from a return calculation produces a higher
return figure. 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 NAVs, adjusted
NAVs, and benchmark indexes 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 table shows the fund's yield,
tax-equivalent yield, and returns for the fiscal periods ended
December 31, 199 9.
The tax-equivalent yield for the fund is based on a combined effective
federal and state income tax rate of 41.12%.
As of December 31, 1999, none of the fund's income was subject to
state taxes. Note that the fund may invest in securities whose income
is subject to federal or Minnesota alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Thirty-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
Spartan Minnesota Municipal 4.90% 8.32% -2.43% 6.17% 5.96%
Income
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Ten Years
Spartan Minnesota Municipal -2.43% 34.89% 78.46%
Income
</TABLE>
Note: If FMR had not reimbursed cert ain fund expenses during
these periods, the fund's returns would have been lower.
The following table shows the income and capital elements of the
fund's cumulative return. The table compares the fund's return to the
record of the Standard & Poor's 500SM Index (S&P 500(registered
trademark)), the Dow Jones Industrial Average (DJIA), and the cost of
living, as measured by the Consumer Price Index (CPI), over the same
period. The S&P 500 and DJIA comparisons are provided to show
how the fund's return compared to the record of a market
capitalization-weighted 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, 1999, a
hypothetical $10,000 investment in Spartan Minnesota Municipal Income
would have grown to $17,846 , assuming all distributions were
reinvested. Returns are based on past results and are not an
indication of future performance. Tax consequences of different
investments have not been factored into the figures below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN MINNESOTA MUNICIPAL
INCOME FUND
Fiscal Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1999 $ 10,105 $ 7,645 $ 96 $ 17,846
1998 $ 10,846 $ 7,342 $ 103 $ 18,291
1997 $ 10,770 $ 6,464 $ 102 $ 17,336
1996 $ 10,399 $ 5,428 $ 99 $ 15,926
1995 $ 10,551 $ 4,695 $ 100 $ 15,346
1994 $ 9,629 $ 3,512 $ 89 $ 13,230
1993 $ 10,951 $ 3,125 $ 0 $ 14,076
1992 $ 10,314 $ 2,206 $ 0 $ 12,520
1991 $ 10,200 $ 1,433 $ 0 $ 11,633
1990 $ 10,029 $ 693 $ 0 $ 10,722
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN MINNESOTA MUNICIPAL INDEXES
INCOME FUND
Fiscal Year Ended S&P 500 DJIA Cost of Living
1999 $ 53,289 $ 53,747 $ 13,347
1998 $ 44,024 $ 42,276 $ 12,998
1997 $ 34,240 $ 35,805 $ 12,791
1996 $ 25,674 $ 28,677 $ 12,577
1995 $ 20,880 $ 22,281 $ 12,173
1994 $ 15,177 $ 16,297 $ 11,872
1993 $ 14,980 $ 15,525 $ 11,562
1992 $ 13,608 $ 13,270 $ 11,253
1991 $ 12,642 $ 12,367 $ 10,936
1990 $ 9,688 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in the fund
on January 1, 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 $17,929 . 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 $5,806 for dividends and $78 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 Inc. (Lipper) , an
independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on
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 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
indexes prepared by Lipper or other organizations. When comparing
these indexes, it is important to remember the risk and return
characteristics of each type of investment. For example, while stock
mutual funds may offer higher potential returns, they also carry the
highest degree of share price volatility. Likewise, money market funds
may offer greater stability of principal, but generally do not offer
the higher potential returns available from stock mutual funds.
From time to time, the fund's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, the fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. The fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
The fund's performance may also be compared to that of the benchmark
index representing the universe of securities in which the fund may
invest. The return of the index reflects reinvestment of all dividends
and capital gains paid by securities included in the index. Unlike the
fund's returns, however, the index's 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 its performance to the Lehman Brothers Municipal
Bond Index, a market value-weighted index for investment-grade
municipal bonds with maturities of one year or more. Issues included
in the index have been issued after December 31, 1 990 and have been
issued as part of an offering of at least $50 million. After
December 31, 1995, zero coupon bonds and issues subject to the
alternative minimum tax are included in the i ndex . Issues
included in the index prior to January 1, 2000 have an outstanding par
value of at least $3 million; while issues included in the index
after January 1, 2000 have an outstanding par value of at least $5
million.
Spartan Minnesota Municipal Income may also compare its performance to
that of the Lehman Brothers Minnesota Enhanced Municipal Bond Index, a
market value-weighted index of Minnesota investment-grade municipal
bonds with maturities of one year or more. 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
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indexes.
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 returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes 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 municipal bond 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 sales
charges of many municipal bond mutual funds are lower than the
purchase cost of individual municipal bonds, which are generally
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; and
charitable giving. 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
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, the fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the
fund's percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
As of December 31, 1999, FMR advised over $35 billion in municipal
fund assets, $143 billion in taxable fixed-income fund assets, $149
billion in money market fund assets, $630 billion in equity fund
assets, $22 billion in international fund assets, and $41 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, EXCHANGE AND REDEMPTION INFORMATION
The fund may make redemption payments in whole or in part in
readily marketable securities or other property, valued for this
purpose as they are valued in computing the fund's NAV, if FMR
determines it is in the best interests of the fund. Shareholders that
receive securiti es 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.
DISTRIBUTIONS AND TAXES
DIVIDENDS. To the extent that the fund's income is designated as
federally tax-exempt interest, the dividends declared by the fund are
also federally tax-exempt. Short-term capital gains are taxable as
dividends, but do not qualify for the dividends-received deduction.
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.
Interest on certain "private activity" securities is subject to the
federal alternative minimum tax (AMT), although the interest continues
to be excludable from gross income for other tax purposes. Interest
from private activity securities is a tax preference item for the
purposes of determining whether a taxpayer is subject to the AMT and
the amount of AMT to be paid, if any.
A portion of the gain on municipal bonds purchased at market discount
after April 30, 1993 is taxable to shareholders as ordinary income,
not as capital gains.
MINNESOTA TAXES. Shareholders of the fund who are individuals, estates
or trusts and who are subject to Minnesota personal income tax
will not be subject to such tax on distributions with respect to
shares of the fund to the extent that 1) such distributions are exempt
interest dividends for federal income tax purposes, 2) are
attributable to interest on tax-exempt obligations to the State of
Minnesota, its political or governmental subdivisions, or any of its
municipalities or its governmental agencies or instrumentalities, and
3) the portion of the exempt interest dividends from Minnesota that
are paid equals or exceeds 95 percent of all exempt interest dividends
paid. In addition, distributions with respect to interest derived from
obligations of the United States will not be subject to the Minnesota
personal income tax. Any distributions with respect to shares of the
fund other than those described in the preceding sentences, including,
but not limited to, long or short term capital gains, may be subject
to the Minnesota personal income tax. Capital gain distributions paid
will be taxed in Minnesota at the same rate as other income.
Distributions derived from private activity bonds included in federal
alternative minimum taxable income and other exempt-interest dividends
may generate Minnesota alternative minimum tax. Generally, the fund's
distributions to a corporation will be subject to the Minnesota income
tax with respect to such distributions. Pursuant to Minnesota
legislation enacted in 1995, exempt-interest dividends that would
otherwise be exempt from Minnesota personal income tax in the case of
individual s , estates, and trusts may become subject to such tax
if the exemption of such income were judicially determined to
discriminate against interstate commerce.
CAPITAL GAIN DISTRIBUTIONS. The fund's long-term capital gain
distributions are federally taxable to shareholders generally as
capital gains.
As of December 31, 1999, the fund h ad a capital loss carryforward
aggregating approximately $2,562,000, all of which will expire on
December 31 , 2003 and is available to offset futu re capital
gains.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code so that it will not be liable for federal tax on income
and capital gains distributed to shareholders. In order to qualify as
a regulated investment company, and avoid being subject to federal
income or excise taxes at the fund level, the fund intends to
distribute substantially all of its net investment income and net
realized capital gains within each calendar year as well as on a
fiscal year basis, and intends to comply with other tax rules
applicable to regulated investment companies.
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. It is up to you or your tax preparer to determine
whether the sale of shares of the fund resulted in a capital gain or
loss or other tax consequence to you. 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.
TRUSTEES AND OFFICERS
The Trustees, Member of the Advisory Board, and executive officers of
the trust are listed below. The Board of Trustees governs the fund and
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. 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 or its affiliates. The business address of each
Trustee, Member of the Advisory Board, and officer who is an
"interested person" (as defined in the 1940 Act) is 82 Devonshire
Street, Boston, Massachusetts 02109, which is also the address of FMR.
The business address of all the other Trustees is Fidelity
In vestments(registered trademark), 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 ( 69 ), 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 Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; and a Director of FDC. Abigail Johnson,
Member of the Advisory Board of Fidelity Municipal Trust, is Mr.
Johnson's daughter.
ABIGAIL P. JOHNSON (38), Member of the Advisory Board of Fidelity
Municipal Trust (1999), is Vice President of certain Equity Funds
(1997), and is a Director of FMR Corp. (1994). Before assuming her
current responsibilities, Ms. Johnson managed a number of Fidelity
funds. Edward C. Johnson 3d, Trustee and President of the Funds, is
Ms. Johnson's father.
RALPH F. COX ( 67 ), 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 Waste Management
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
and Bonneville Pacific (independent power and petroleum production).
I n addition, he is a member of advisory boards of Texas A&M
University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS ( 68 ), Trustee. Mrs. Davis is retired
from Avon Products, Inc. where she held various positions including
Senior Vice President of Corporate Affairs and Group Vice President of
U.S. sales, distribution, and manufacturing. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton
Corporation ( manufacturing), and the TJX Companies, Inc.
(retail stores), and previously served as a Director of Hallmark
Cards, Inc., Nabisco Brands, Inc., and Standard Brands Inc. In
addition, she is a member of the Board of Directors of the Southampton
Hospital in Southampton, N.Y. (1998).
ROBERT M. GATES ( 56 ), 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 a Director of Charles Stark
Draper Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (automotive, space, defense, and
information technology). Mr. Gates previously served as a Director of
LucasVarity PLC (automotive components and diesel engines). He is
currently serving as Dean of the George Bush School of Government and
Public Service at Texas A & M University (1999-2000). Mr. Gates
also is a Trustee of the Forum for International Policy and of the
Endowment Association of the College of William and Mary. In addition,
he is a member of the National Executive Board of the Boy Scouts of
America.
DONALD J. KIRK ( 67 ), Trustee, is Executive-in-Residence (1995)
at Columbia University Graduate School of Business. 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 previously served as a Director
of General Re Corporation (reinsurance, 1987-1998) and as a Director
of Valuation Research Corp. (appraisals and valuations,
1993-1995) . He serves as Chairman of the Board of Directors of
National Arts Stabilization Inc., Chairman of the Board of Trustees of
the Greenwich Hospital Association, Director of the Yale-New Haven
Health Services Corp. (1998), Vice Chairman 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).
NED C. LAUTENBACH (55),Trustee (2000), has been a partner of
Clayton, Dubilier & Rice, Inc. (private equity investment firm) since
September 1998. Mr. Lautenbach was Senior Vice President of IBM
Corporation from 1992 until his retirement in July 1998. From 1993 to
1995 he was Chairman of IBM World Trade Corporation. He also was a
member of IBM's Corporate Executive Committee from 1994 to July 1998.
He is a Director of PPG Industries Inc. (glass, coating and chemical
manufacturer), Dynatech Corporation (global communications equipment),
Eaton Corporation (global manufacturer of highly engineered products)
and ChoicePoint Inc. (data identification, retrieval, storage, and
analysis).
*PETER S. LYNCH ( 56 ), Trustee, is Vice Chairman and Director of
FMR. 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(registered trademark) 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 (66), Trustee (1997), is the Interim Chancellor
for the University of North Carolina at Chapel Hill. Previously he had
served from 1995 through 1998 as Vice President of Finance for the
University of North Carolina (16-school system). 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), Duke-Weeks Realty Corporation
(real estate, 1994), Carolina Power and Light Company (electric
utility, 1996), the Kenan Transport Company (trucking, 1996), and
Dynatech Corporation (electronics, 1999). Previously, he was a
Director of First American Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy served as a member of the Board of
Visitors for the University of North Carolina at Chapel Hill
(1994-1998) and currently serves on the Board of Visitors of the
Kenan-Flager Business School (University of North Carolina at Chapel
Hill, 1988).
GERALD C. McDONOUGH ( 71 ), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director and
Chairman of the Board 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 ( 66 ), Trustee (1993), is Chairman
Emeritus , of Lexmark International, Inc. (office machines, 1991)
where he still remains a member of the Board . 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). He is a Board member of Dynatech
Corporation (electronics, 1999).
*ROBERT C. POZEN ( 53 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), 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 ( 71 ), 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 National Life Insurance Company of Vermont and American
Software, Inc. Mr. Williams was previously a Director of ConAgra, Inc.
(agricultural products), Georgia Power Company (electric utility), and
Avado, Inc. (restaurants).
DWIGHT D. CHURCHILL ( 46 ), is Vice President of Bond Funds,
Group Leader of the Bond Group, Senior Vice President of FMR (1997),
and Vice President of FIMM (1998). Mr. Churchill joined Fidelity in
1993 as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (60), is President of Fidelity Investments
Fixed-Income Division (1998), and Senior Vice President of FMR and of
Fidelity Investments Money Management, Inc. Mr. Henning joined
Fidelity in 1977 as portfolio manager for Fidelity Daily Income Trust
Fund. Since then, he has held a number of positions with FMR and its
affiliates and serves as an officer of other investment companies
managed o r advised by FMR.
CHRISTINE JONES THOMPSON (41), is Vice President of Spartan Minnesota
Municipal Income Fund (1998), and other funds managed by FMR .
Prior to her current responsibilities, Ms. Thompson managed a variety
of Fidelity funds.
ERIC D. ROITER ( 51 ), Secretary (1998), is Vice President (1998)
and General Counsel of FMR (1998) and Vice President and Clerk of
FDC (1998). Prior to joining Fidelity, Mr. Roiter was with the law
firm of Debevoise & Plimpton, as an associate (1981-1984) and as a
partner (1985-1997), and served as an Assistant General Counsel of the
U.S. Securities and Exchange Commission (1979-1981). Mr. Roiter
was an Adjunct Member, Faculty of Law, at Columbia University Law
School (1996-1997).
ROBERT A. DWIGHT (41), Treasurer (2000), is Treasurer of the
Fidelity funds and is an employee of FMR. Prior to becoming Treasurer
of the Fidelity funds, he served as President of Fidelity Accounting
and Custody Services (FACS). Before joining Fidelity, Mr. Dwight was
Senior Vice President of fund accounting operations for The Boston
Company.
MARIA F. DWYER (41), Deputy Treasurer (2000), is Deputy Treasurer
of the Fidelity funds and is a Vice President (1999) and an employee
(1996) of FMR. Prior to joining Fidelity, Ms. Dwyer served as Director
of Compliance for MFS Investment Management.
MATTHEW N. KARSTETTER ( 38 ), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
STANLEY N. GRIFFITH ( 53 ), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO ( 53 ), Assistant Treasurer, is an employee of
FMR.
THOMAS J. SIMPSON ( 41 ), Assistant Treasurer (1996), is
Assistant Treasurer of Fidelity's Fixed-Income Funds (1998) 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, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
Compensation Table
Trustees and Member of the Aggregate Compensation from Total Compensation from the
Advisory Board Spartan MN Muni IncomeB Fund Complex*,A
Edward C. Johnson 3d** $ 0 $ 0
Abigail P. Johnson** $ 0 $ 0
Ralph F. Cox $ 88 $ 217,500
Phyllis Burke Davis $ 86 $ 211,500
Robert M. Gates $ 88 $ 217,500
E. Bradley Jones**** $ 88 $ 217,500
Donald J. Kirk $ 88 $ 217,500
Ned C. Lautenbach*** $ 20 $ 54,000
Peter S. Lynch** $ 0 $ 0
William O. McCoy $ 87 $ 214,500
Gerald C. McDonough $ 109 $ 269,000
Marvin L. Mann $ 88 $ 217,500
Robert C. Pozen** $ 0 $ 0
Thomas R. Williams $ 86 $ 213,000
</TABLE>
* Information is for the calendar year ended December 31, 1999 for
236 funds in the complex.
** Interested Trustees of the fund and Ms. Johnson are
compensated by FMR.
*** During the period from October 14, 1999 through December 31,
1999, Mr. Lautenbach served as a Member of the Advisory Board.
Effective January 1, 2000, Mr. Lautenbach serves as a Member of the
Board of Trustees.
**** Mr. Jones served on the Board of Trustees through December 31,
1999.
A Compensation figures include cash, amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the calendar year ended December 31, 1999, the Trustees
accrued required deferred compensation from the funds as follows:
Ralph F. Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$75,000; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation as follows: Ralph F. Cox, $53,735; William O.
McCoy, $53,735; and Thomas R. Williams, $62,319.
B Compensation figures include cash.
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 subject to vesting and 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 31, 1999, the Trustees, Members of the Advisory
Board, and officers of the fund owned, in the aggregate, less than
1% of the fund's total outstanding shares.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and Fidelity Investments Money Management, Inc. (FIMM). 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
investment 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.
MANAGEMENT CONTRACT
The fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT 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 administrative services
necessary for the operation of the fund. These services include
providing facilities for maintaining the fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters and other persons dealing with the fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 1 billion .3700%
3 - 6 .3400 50 .2188
6 - 9 .3100 100 .1869
9 - 12 .2800 150 .1736
12 - 15 .2500 200 .1652
15 - 18 .2200 250 .1587
18 - 21 .2000 300 .1536
21 - 24 .1900 350 .1494
24 - 30 .1800 400 .1459
30 - 36 .1750 450 .1427
36 - 42 .1700 500 .1399
42 - 48 .1650 550 .1372
48 - 66 .1600 600 .1349
66 - 84 .1550 650 .1328
84 - 120 .1500 700 .1309
120 - 156 .1450 750 .1291
156 - 192 .1400 800 .1275
192 - 228 .1350 850 .1260
228 - 264 .1300 900 .1246
264 - 300 .1275 950 .1233
300 - 336 .1250 1,000 .1220
336 - 372 .1225 1,050 .1209
372 - 408 .1200 1,100 .1197
408 - 444 .1175 1,150 .1187
444 - 480 .1150 1,200 .1177
480 - 516 .1125 1,250 .1167
516 - 587 .1100 1,300 .1158
587 - 646 .1080 1,350 .1149
646 - 711 .1060 1,400 .1141
711 - 782 .1040
782 - 860 .1020
860 - 946 .1000
946 - 1,041 .0980
1,041 - 1,145 .0960
1,145 - 1,260 .0940
Over 1,260 .0920
</TABLE>
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 $826 billion of group net assets - the approximate level
for December 1999 - was .1267%, which is the weighted average of the
respective fee rates for each level of group net assets up to $826
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 1999, 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 Municipal 0.1267% + 0.25% = 0.3767%
Income
</TABLE>
One-twelfth of the management fee rate is applied to the fund's
average net assets for the month, giving a dollar amount which is the
fee for that month.
For the fiscal years ended December 31 , 1999, 1998, and
1997, the fund paid FMR management fees of $1,170,258, $1,164,692, and
$1,133,351, 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), which is subject to
revision or discontinuance. 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 returns and
yield, and repayment of the reimbursement by the fund will lower its
returns and yield.
FMR voluntarily agreed 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 its average net assets. The table below
shows the periods of reimbursement and levels of expense
limitation.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Periods of Expense Limitation Aggregate Operating Expense
From To Limitation
Spartan Minnesota Municipal January 1, 1999 December 31, 1999 0.55%
Income Fund
January 1, 1998 December 31, 1998 0.55%
April 1, 1997 December 31, 1997 0.55%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Years Ended December 31 Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Spartan Minnesota Municipal 1999 $ 1,170,258 $ 0
Income Fund
1998 $ 1,164,692 $ 107,598
1997 $ 1,133,351 $ 66,714
</TABLE>
SUB-ADVISER. FMR has entered into a sub-advisory agreement with FIMM
pursuant to which FIMM has primary responsibility for choosing
investments for the fund.
Under the terms of the sub-advisory agreement, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR under its management
contract with the fund. The fees paid to FIMM are not reduced by any
voluntary or mandatory expense reimbursements that may be in effect
from time to time.
On behalf of the fund, for the fiscal year ended December 31, 1999,
FMR paid FIMM a fee of $585,129.
DISTRIBUTION SERVICES
The fund has entered into a distribution agreement with Fidelity
Distributors Corporation (FDC), an affiliate of FMR. 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.
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 providing services intended to
result in the sale of fund shares and/or shareholder support services.
In addition, the Plan provides that FMR, directly or through FDC, may
pay intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for Spartan Minnesota
Municipal Income shares.
Pri or 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 or stabilization of cash flows 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 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.
FDC may compensate intermediaries that satisfy certain criteria
established from time to time by FDC relating to the level or type of
services provided by the intermediary, the sale or expected sale
of significant amounts of shares, or other factors.
TRANSFER AND SERVICE AGENT AGREEMENTS
The fund has entered into a transfer agent agreement with Citibank,
N.A. (Citibank) , which is located at 111 Wall Street, New York,
New York. Under the terms of the agreement, Citibank provides
transfer agency, dividend disbursing, and shareholder services for the
fund. Citibank in turn has entered into a sub-transfer agent
agreement with Fidelity Service Company, Inc. (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 Citibank .
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in the fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type and fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, Citibank receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in a qualified
state tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and in each
Fidelity Freedom Fund and Fidelity Four-in-One Index Fund, funds of
funds managed by an FMR affiliate, according to the percentage of the
QSTP's, Freedom Fund's or Fidelity Four-in-One Index Fund's assets
that is invested in the fund, subject to certain limitations in the
case of Fidelity Four-in-One Index 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
Citibank . Under the terms of the agreement, Citibank
provides pricing and bookkeeping services for the fund.
Citibank 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
Citibank .
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 rates for pricing and bookkeeping services for the fund are
0.0275% of the first $500 million of average net assets, 0.0175% of
average net assets between $500 million and $3 billion, 0.0021% of
average net assets between $3 billion and $25 billion, and 0.00075% of
average net assets in excess of $25 billi on. The fee, not
including reimbursement for out-of-pocket expenses, is limited to a
minimum of $60,000 per year.
For the fiscal years ended December 31, 1999, 1998, and 1997, the fund
paid FSC pricing and bookkeeping fees, including reimbursement for
related out-of-pocket expenses, of $93,87 9, $128,658, and $123,870,
re spectively.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Spartan Minnesota Municipal Income Fund is a fund
of Fidelity Municipal Trust, an open-end management investment company
organized as a Massachusetts business trust on June 22, 1984.
Currently, there are five funds in the trust: Spartan Michigan
Municipal Income Fund, Spartan Minnesota Municipal Income Fund,
Spartan Municipal Income Fund, Spartan Ohio Municipal Income Fund, and
Spartan Pennsyl vania Municipal Income Fund. The Trustees are
permitted to create additional funds in the trust.
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 to the rights of creditors, are allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets
of each fund in the trust shall be charged with the liabilities and
expenses attributable to such fund. Any general expenses of the trust
shall be allocated between or among any one or more of the funds.
SHAREHOLDER LIABILITY. The trust is an entity commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
trust or fund. 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
relating to the trust or to a fund shall include a provision limiting
the obligations created thereby to one or more funds and its or their
assets. The Declaration of Trust further provides that shareholders of
a fund shall not have a claim on or right to any assets belonging to
any other fund.
The Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. 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.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you are entitled to one vote for each
dollar of net asset value that you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to, or merger with, another open-end management investment
company or series thereof, or upon liquidation and distribution of its
assets. Generally, the merger of the trust or a fund with another
entity or the sale of substantially all of the assets of the trust or
a fund to another entity requires approval by a vote of shareholders
of the trust or the fund. The Trustees may, however, reorganize or
terminate the trust or any of its funds without prior shareholder
approval. In the event of the dissolution or liquidation of the trust,
shareholders of each of its funds are entitled to receive the
underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of the fund
available for distribution.
CUSTODIAN. Citibank, N.A., 111 Wall Street, New York, New York, is
custodian of the assets of the fund. The custodian is responsible for
the saf ekeeping of a fund's assets and the appointment of any
subcustodian banks and clearing agencies.
FMR, its officers and directors, its affiliated companies, and members
of 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. PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, Massachusetts, serves as independent accountant for the fund.
The auditor examines financial statements for the fund and provides
other audit, tax, and related services.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the
fiscal year ended December 31, 1999, and report of the auditor, are
included in the fund's annual report and are incorporated herein by
reference.
APPENDIX
Spartan, Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Focus, Fidelity Investments, and Magellan are registered
trademarks of FMR Corp.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.
Like securities of all mutual
funds, these securities have
not been approved or
disapproved by the
Securities and Exchange
Commission, and the
Securities and Exchange
Commission has not
determined if this
prospectus is accurate or
complete. Any
representation to the
contrary is a criminal
offense.
FIDELITY'S
MICHIGAN MUNICIPAL
FUNDS
FIDELITY(REGISTERED TRADEMARK) MICHIGAN MUNICIPAL MONEY MARKET FUND
(fund number 420, trading symbol FMIXX)
SPARTAN(REGISTERED TRADEMARK) MICHIGAN MUNICIPAL INCOME FUND
(fund number 081, trading symbol FMHTX)
PROSPECTUS
FEBRUARY 28, 2000
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
FUND SUMMARY 2 INVESTMENT SUMMARY
3 PERFORMANCE
5 FEE TABLE
FUND BASICS 6 INVESTMENT DETAILS
8 VALUING SHARES
SHAREHOLDER INFORMATION 8 BUYING AND SELLING SHARES
15 EXCHANGING SHARES
15 ACCOUNT FEATURES AND POLICIES
18 DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS
18 TAX CONSEQUENCES
FUND SERVICES 19 FUND MANAGEMENT
19 FUND DISTRIBUTION
APPENDIX 20 FINANCIAL HIGHLIGHTS
FUND SUMMARY
INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
MICHIGAN MUNICIPAL MONEY MARKET FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally inv esting in municipal money
market securities, including s hares of a municipal money market
fund managed by an affiliate of FMR.
(small solid bullet) Nor mally inves ting so that at least 80% of
the fund's income distributions is exempt from federal and Michigan
income taxes.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Investing in compliance with industry-standard
requirements for money market funds for the quality, maturity and
diversification of investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a money market security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Entities located in foreign
countries can be affected by adverse political, regulatory, market or
economic developments in those countries.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Michigan can affect the credit quality
of issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. A decline in the credit
quality of an issuer or the provider of credit support or a
maturity-shortening structure for a security can cause the price of a
money market security to decrease.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the fund seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund.
INVESTMENT OBJECTIVE
SPARTAN MICHIGAN MUNICIPAL INCOME FUND seeks a high level of current
income exempt from federal income tax and Michigan personal income
tax. The fund also seeks income exempt from certain business or
corporate taxes.
PRINCIPAL INVESTMENT STRATEGIES
FMR's principal investment strategies include:
(small solid bullet) Norm ally investing in investment-grade
mun icipal debt securities (those of medium an d high quality).
(small solid bullet) Norm ally in vesting at least 80% of assets
in securities exempt from federal and Michigan personal income taxes.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers Michigan Municipal Bond
Index.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural feature s and
current pricing, trading opportunities, and the credit quality of
its issuer to sel ect investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Michigan can affect the credit quality
of issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differentl y
fro m the value of the market as a whole.
In addition, the fund is considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund. As a result, changes in the market value of a single
issuer could cause greater fluctuations in share price than would
occur in a more diversified fund.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in each
fund 's performance from year to year and compares the bond fund's
performance to the performance of a market index and an average
of the performance of similar f unds over various periods of time.
Spartan Michigan Municipal Income also compares its performance to the
performance of an additional inde x over various periods of time.
Data for the additional index for Spartan Michigan Municipal Income is
available only from June 30, 1993 to the present. Returns are based on
past results and are not an indication of future performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR-BY-YEAR RETURNS
MI MUNICIPAL MONEY MARKET
Calendar Years 1991 1992 1993 1994 1995 1996 1997 1998 1999
4.46% 2.66% 1.98% 2.44% 3.38% 3.00% 3.18% 3.00% 2.82%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: nil
Row: 2, Col: 1, Value: 4.46
Row: 3, Col: 1, Value: 2.66
Row: 4, Col: 1, Value: 1.98
Row: 5, Col: 1, Value: 2.44
Row: 6, Col: 1, Value: 3.38
Row: 7, Col: 1, Value: 3.0
Row: 8, Col: 1, Value: 3.18
Row: 9, Col: 1, Value: 3.0
Row: 10, Col: 1, Value: 2.82
DURING TH E PERIODS SHOWN IN THE CHART FOR MICHIGAN MUNICIPAL MONEY
MARKET, THE HIGHEST RETURN FOR A QUARTER WAS 1.18% (QUARTER ENDED
MARCH 31, 1991) AND THE LOWEST RETURN FOR A QUARTER WAS 0.48%
(QUARTER ENDED MARCH 31, 1994).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN MI MUNICIPAL INCOME
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
5.15% 12.04% 9.54% 13.83% -7.50% 15.41% 3.38% 9.02% 5.71% -2.63%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 5.15
Row: 2, Col: 1, Value: 12.04
Row: 3, Col: 1, Value: 9.539999999999999
Row: 4, Col: 1, Value: 13.83
Row: 5, Col: 1, Value: -7.5
Row: 6, Col: 1, Value: 15.41
Row: 7, Col: 1, Value: 3.38
Row: 8, Col: 1, Value: 9.02
Row: 9, Col: 1, Value: 5.71
Row: 10, Col: 1, Value: -2.63
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN MICHIGAN
MUNICIPAL INCOME, THE HIGHEST RETURN FOR A QUARTER WAS 5.10% (QUARTER
ENDED MARCH 31, 1995) AND THE LOWEST RETURN FOR A QUARTER WAS -6.02%
(QUARTER ENDED MARCH 31, 1994).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AVERAGE ANNUAL RETURNS
For the periods ended Past 1 year Past 5 years Past 10 years/Life of fund
December 31, 1999
Michigan Municipal Money Market 2.82% 3.07% 3.26%A
Spartan Michigan Municipal -2.63% 6.01% 6.17%
Income
Lehman Brothers Municipal -2.06% 6.91% 6.89%
Bond Index
Lehman Brothers Michigan -2.28% 7.10% n/a
Municipal Bond Index
Lipper Michigan Municipal -4.05% 5.74% 6.24%
Debt Funds Average
</TABLE>
A FROM J ANUARY 12, 19 90.
If FMR had not reimbursed certain fund expenses during these
periods, each fund's returns would have been low er.
The Lehman Brothers Municipal Bond Index is a market value-weighted
index of investment-grade municipal bonds with maturities of one year
or more.
The Lehman Brothers Michigan Municipal Bond Index is a market
value-weighted index of Michigan investment-grade municipal bonds with
maturities of one year or more.
The Lipper Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, ho ld, or sell shares of a fund. The annual
fund operating expenses provided below for each fund are based on
historical expenses.
SHAREHOLDER FE ES (PAID BY THE INVESTOR DIRECTLY)
Sales charge (load) on None
purchases and reinvested
distributions
Deferred sales charge (load) None
on redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
MI MUNICIPAL MONEY MARKET Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.20%
Total annual fund operating 0.58%
expenses
SPARTAN MI MUNICIPAL INCOME Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.14%
Total annual fund operating 0.52%
expensesA
A EFFECTIVE APRIL 1, 1997, FMR HAS VOLUNTARILY AGREED TO REIMBURSE THE
FUND TO THE EXTENT THAT TOTAL OPERATING EXPENSES (EXCLUDING
INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES), AS
A PERCENTAGE OF ITS AVERAGE NET ASSETS, EXCEED 0.55%. THIS ARRANGEMENT
CAN BE DISCONTINUED BY FMR AT ANY TIME.
This EXAMPLE helps you compare the cost of investing in the funds with
the cost of investing in other mutual funds.
Let's say, hypothetically, that each fund's annual return is 5% and
that your shareholder fees and each fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account at the end of each time period
indicated:
MI MUNICIPAL MONEY MARKET 1 year $ 59
3 years $ 186
5 years $ 324
10 years $ 726
SPARTAN MI MUNICIPAL INCOME 1 year $ 53
3 years $ 167
5 years $ 291
10 years $ 653
FUND BASICS
INVESTMENT DETAILS
INVESTMENT OBJECTIVE
MICHIGAN MUNICIPAL MONEY MARKET FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in municipal money market
securities, including shares of a municipal money market fund
managed by an affiliate of FMR.
FMR normally invests the fund's assets so that at least 80% of the
fund's income distributions is exempt from federal and Michigan income
taxes. Municipal securities whose interest is exempt from federal and
Michigan income taxes include securities issued by U.S. territories
and possessions, such as Guam, the Virgin Islan ds, a nd Puerto
Rico, and their political subdivisions and public corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Michigan income tax. Although FMR does not
currently intend to invest the fund's assets in municipal securities
whose interest is subject to federal income tax, FMR may invest all of
the fund's assets in municipal securities whose interest is subject to
the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transpo rtation, and utilities.
In buying and selling securities for the fund, FMR complies with
industry-standard requirements for money market funds regarding the
quality, maturi ty, and diversification of the fund's
investments. FMR stresses maintaining a stable $1.00 share price,
liquidit y , and income.
INVESTMENT OBJECTIVE
SPARTAN MICHIGAN MUNICIPAL INCOME FUND seeks a high level of current
income exempt from federal income tax and Michigan personal income
tax. The fund also seeks income exempt from certain business or
corporate taxes.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in investment-grade municipal
debt securitie s (those of medium and high quality).
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is exempt from federal and Michigan personal
income taxes. Municipal securities whose interest is exempt from
federal and Michigan income taxes include securities issued by U.S.
territories and possessions, such as Guam, the Virgin Isla nds,
and Puerto Rico, and their political subdivisions and public
corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Michigan personal income tax. Although FMR does
not currently intend to invest the fund's assets in municipal
securities whose interest is subject to federal income tax, FMR may
invest all of the fund's assets in municipal securities whose interest
is subject to the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, trans portation, and u tilities.
FMR uses the Lehman Brothers Michigan Municipal Bond Index as a guide
in structuring the fund and selecting its investments. FMR manages the
fund to have similar overall interest rate risk to the index. As of
December 31, 1 999, the dollar-weighted average maturity of the
fund and the index was approximately 13.7 and 14.8 ye ars,
respectively.
FMR allocates the fund's 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 and maturity.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR analyzes a
security's structural fea tures and current price compared to
its estimated long-term value, any short-term trading
opportunities resulting from market inefficiencies, and the credit
quality of its issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rat es, or other factors that affect
security values. If FMR's strategies do not work as intended, the fund
may not achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The
issuer usually pays a fixed, variable, or floating rate of interest,
and must repay the amount borrowed at the maturity of the security.
Some debt securities, such as zero coupon bonds, do not pay current
interest but are sold at a discount from their face values. Municipal
debt securities include general obligation bonds of municipalities,
local or state governments, project or revenue-specific bonds, or
pre-refunded or escrowed bonds.
MONEY MARKET SECURITIES are high-quality, short-term securities that
pay a fixed, variab le, o r floating interest rate. Securities
are often specifically structured so that they are eligible
investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market
securities have demand or put feature s, which have the effect
of shortening the security's maturity. Municipal money market
securities include variable rate demand notes, commercial paper,
municipal notes , and shar es of municipal money market funds.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
and private purposes, including general financing for state and local
governments, or financing for a specific project or public facility.
Municipal securities may be fully or partially backed by the local
government, by the credit of a private issuer, by the current or
anticipated revenues from a specific project or specific assets, or by
domestic or foreign entities providing credit support such as letters
of credit, gu arantees, or i nsurance.
PRINCIPAL INVESTMENT RISKS
Many factors affect each fund's performance. Because FMR concentrates
each fund's investments in Michigan, the fund's performance is
expected to be closely tied to economic and political conditions
within that state and to be more volatile than the performance of a
more geographically diversified fund.
The money market fund's yield will change daily based on changes in
interest rates and other market conditions. Although the fund is
managed to maintain a stable $1.00 share price, there is no guarantee
that the fund will be able to do so. For example, a major increase in
interest rates or a decrease in the credit quality of the issuer of
one of the fund's investments could cause the fund's share price to
decrease. While the fund will be charged premiums by a mutual
insurance company for coverage of specified types of losses related to
default or bankruptcy on certain securities, the fund may incur losses
regardless of the insurance.
The bond fund's yield and share price change daily based on changes in
interest rates and market conditions and in response to other
economic , political, or financial developments. The fund's
reaction to these developments will be affected by the types and
maturities of securities in which the fund invests, the financial
condition, industry and economic sector, and geographic location of an
issuer, and the fund's level of investment in the securities of that
issuer. Because FMR may invest a significant percentage of Spartan
Michigan Municipal Income's assets in a single issuer, the fund's
performance could be closely tied to the market value of that one
issuer and could be more volatile than the performance of more
diversified funds. When you sell your shares of the fund, they
could be worth more or less than what you paid for them.
The following factors can significantly affect a fund's
performance:
MUNICIPAL MARKET VOLATILITY. Municipal securities can be significantly
affected by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes, or the
rights of municipal security holders. Because many municipal
securities are issued to finance similar projects, especially those
relating to education, health care, transporta tion, and
utilities, conditions in those sectors can affect the overall
municipal market. In addition, changes in the financial condition of
an individual municipal insurer can affect the overall municipal
market.
INTEREST RATE CHANGES. Debt and money market securities have varying
levels of sensitivity to changes in interest rates. In general, the
price of a debt or money market security can fall when interest rates
rise and can rise when interest rates fall. Securities with longer
maturities can be more sensitive to interest rate changes. In other
words, the longer the maturity of a security, the greater the impact a
change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily
move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and long-term
securities tend to react to changes in long-term interest rates.
FOREIGN EXPOSURE. Entities located in foreign countries that provide
credit support or a maturity-shortening structure can involve
increased risks. Extensive public information about the
pr ovider may not be available and unfavorable political,
eco nomic , or governmental developments could affect the value
of the security.
GEOGRAPHIC CONCENTRATION. Michigan's economy is dominated by
automobile-related industries, which tend to be especially vulnerable
to economic downturns. Historically the state's unemployment rate has
been higher than average, although this has not been the case since
1994. In addition, betw een 1993 and 1995, there were
signifi cant constitutional and statutory changes to Michigan's
taxatio n and school financing structures, which could affect
the financial health of the state and its local units.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of security or issuer, and changes in general
economic or political conditions can affect the credit quality or
value of an issuer's securities. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more sensitive to
these changes than higher-quality debt securities. Entities providing
credit support or a maturity-shortening structure also can be affected
by these types of changes. Municipal securities backed by current or
anticipated revenues from a specific project or specific assets can be
negatively affected by the discontinuance of the taxation supporting
the project or assets or the inability to collect revenues for the
project or from the assets. If the Internal Revenue Service determines
an issuer of a municipal security has not complied with applicable tax
requirements, interest from the security could become taxable and the
security could decline significantly in value. In addition, if the
structure of a security fails to function as intended, interest from
the security could become taxable or the security could decline in
value.
In response to market, economic, politic al, o r other
conditions, FMR may temporarily use a different investment strategy
for defensive purposes. If FMR does so, different factors could affect
a fund's performance, and a fund c ould distribute income
subject to federal or Michigan income tax.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
MICHIGAN MUNICIPAL MONEY MARKET FUND 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 FUND 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.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates each fund's NAV as of the close of
business 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). Each fund's
assets are valued as of this time for the purpose of computing the
fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
The money market fund's assets are valued on the basis of amortized
cost.
The bond fund's assets are valued primarily on the basis of
information furnished by a pricing service or market quotations. If
market quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the
exchange or market on which the security is principally traded, that
security may be valued by another method that the Board of Trustees
believes accurately reflects fair value. A security's valuation may
differ depending on the method used for determining value.
SHAREHOLDER INFORMATION
BUYING AND SELLING SHARES
GENERAL INFORMATION
Fidelity Investments(registered trademark) 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-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
web site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's web site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use Fidelity Automated Service Telephone (FASTSM),
1-800-544-5555.
(small solid bullet) For exchanges, redemptions, and account
assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and brokerage information,
1-800-544-6666.
(small solid bullet) For r etirement information,
1-800-544-47 74.
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, T X 75039-5587
You may buy or sell shares of the funds through an investment
professional. If you invest through an investment professional, the
procedures for buying, sel ling, a nd exchanging shares of a fund
and the account features and policies may differ. Additional fees may
also apply to your investment in a fund, including a transaction fee
if you buy or sell shares of the fund through a broker or other
investment professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of each fund is the fund's NAV. Each fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of a fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, a fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
that fund. For these purposes, FMR may consider an investor's trading
history in that fund or other Fidelity funds, and accounts under
common ownership or control.
Each fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, 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) Fidelity 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
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (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 order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT
Michigan Municipal Money Market $5,000
Spartan Michigan Municipal Income $10,000
TO ADD TO AN ACCOUNT
Michigan Municipal Money Market $500
Through regular investment plans $100
Spartan Michigan Municipal Income $1,000
Through regular investment plans $500
MINIMUM BALANCE
Michigan Municipal Money Market $2,000
Spartan Michigan Municipal Income $5,000
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory ServicesSM
or a qualified state tuition program. In addition, each fund may waive
or lower purchase minimums in other circumstances.
KEY INFORMATION
PHONE 1-800-544-6666 TO OPEN AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
(small solid bullet) Use
Fidelity Money
Line(registered trademark)
to transfer from your bank
account.
INTERNET WWW.FIDELITY.COM TO OPEN AN ACCOUNT
(small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account.
MAIL FIDELITY INVESTMENTS TO OPEN AN ACCOUNT
P.O. BOX 770001 CINCINNATI, (small solid bullet) Complete
OH 45277-0002 and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address at
left.
TO ADD TO AN ACCOUNT
(small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address at left.
(small solid bullet) Exchange
from another Fidelity fund.
Send a letter of instruction
to the address at left,
including your name, the
funds' names, the fund
account numbers, and the
dollar amount or number of
shares to be exchanged.
IN PERSON TO OPEN AN ACCOUNT
(small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
TO ADD TO AN ACCOUNT
(small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
WIRE TO OPEN AN ACCOUNT
(small solid bullet) Call
1-800-544-6666 to set up
your account and to arrange
a wire transaction.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
# 021001033, Account #
00163053.
(small solid bullet) Specify
the complete name of the
fund and include your new
fund account number and your
name.
TO ADD TO AN ACCOUNT
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing # 021001033, Account
# 00163053.
(small solid bullet) Specify
the complete name of the
fund and include your fund
account number and your name.
AUTOMATICALLY TO OPEN AN ACCOUNT
(small solid bullet) Not
available.
TO ADD TO AN ACCOUNT
(small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark) or Direct Deposit.
(small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from a
Fidelity money market fund.
SELLING 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 in proper form.
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 sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 15 or 30 days, depending on your account;
(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.
When you place an order to sell shares, note the following:
(small solid bullet) If you are selling some but not all of your
Michigan Municipal Money Market shares, leave at least $2,000 worth of
shares in the account to keep it open, except accounts not subject to
account minimums.
(small solid bullet) If you are selling some but not all of your
Spartan Michigan Municipal Income shares, leave at least $5,000 worth
of shares in the account to keep it open, except accounts not subject
to account minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
a fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(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) Redemption proceeds may be paid in securities or
other property rather than in cash if FMR determines it
is in the best interests of a fund.
(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) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY INFORMATION
PHONE 1-800-544-6666 (small solid bullet) Call the
phone number at left to
initiate a wire transaction
or to request a check for
your redemption.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
(small solid bullet) Exchange
to another Fidelity fund.
Call the phone number at left.
INTERNET WWW.FIDELITY.COM (small solid bullet) Exchange
to another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
MAIL FIDELITY INVESTMENTS INDIVIDUAL, JOINT TENANT,
P.O. BOX 660602 DALLAS, TX SOLE PROPRIETORSHIP, UGMA,
75266-0602 UTMA
(small solid bullet) Send a
letter of instruction to the
address at left, including
your name, the fund's name,
your fund account number,
and the dollar amount or
number of shares to be sold.
The letter of instruction
must be signed by all
persons required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Send a
letter of instruction to the
address at left, including
the trust's name, the fund's
name, the trust's fund
account number, and the
dollar amount or number of
shares to be sold. The
trustee must sign the letter
of instruction 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) Send a
letter of instruction to the
address at left, including
the firm's name, the fund's
name, the firm's fund
account number, and the
dollar amount or number of
shares to be sold. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Call
1-800-544-6666 for
instructions.
IN PERSON INDIVIDUAL, JOINT TENANT,
SOLE PROPRIETORSHIP, UGMA,
UTMA
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
trustee must sign the letter
of instruction 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) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Visit a
Fidelity Investor Center for
instructions. Call
1-800-544-9797 for the
center nearest you.
AUTOMATICALLY (small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from the
money market fund to another
Fidelity fund.
(small solid bullet) Use
Personal Withdrawal Service
to set up periodic
redemptions from your bond
fund account.
CHECK (small solid bullet) Write a
check to sell shares from
your account.
EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
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 policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only 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) Exchanges may have tax consequences for you.
(small solid bullet) Currently, there is no limit on the number of
exchanges out of Michigan Municipal Money Market.
(small solid bullet) Spartan Michigan Municipal Income may 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 will be counted together
for purposes of the four ex change limit.
(small solid bullet) Each fund may 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.
The funds may terminate or modify the exchange privileges in the
future.
Other funds may have different exchange restrictions, and may impose
trading fees of up to 3.00% of the amount exchanged. Check each fund's
prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
funds.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between acco unts, or out of your account. While
automatic investment programs 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 retirement, a home, educational expenses,
and other long-term financial goals. Automatic withdrawal or exchange
programs can be a convenient way to provide a consistent income flow
or to move money between your investments.
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC ACCOUNT
BUILDER TO MOVE MONEY FROM
YOUR BANK ACCOUNT TO A
FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
Michigan Municipal Money Monthly or quarterly (small solid bullet) To set
Market $100 up for a new account,
Spartan Michigan Municipal complete the appropriate
Income $500 section on the fund
application.
(small solid bullet) To set
up for existing accounts,
call 1-800-544-6666 or visit
Fidelity's web site for an
application.
(small solid bullet) To make
changes, 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 FUND.A
MINIMUM FREQUENCY PROCEDURES
Michigan Municipal Money Every pay period (small solid bullet) To set
Market $100 up for a new account, check
Spartan Michigan Municipal the appropriate box on the
Income $500 fund application.
(small solid bullet) To set
up for an existing account,
call 1-800-544-6666 or visit
Fidelity's web site for an
authorization form.
(small solid bullet) To make
changes you will need a new
authorization form. Call
1-800-544-6666 or visit
Fidelity's web site to
obtain one.
A BECAUSE BOND FUND SHARE
PRICES FLUCTUATE, THAT FUND
MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF
YOUR ENTIRE CHECK.
FIDELITY AUTOMATIC EXCHANGE
SERVICE TO MOVE MONEY FROM A
FIDELITY MONEY MARKET FUND
TO ANOTHER FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
Michigan Municipal Money Monthly, bimonthly, (small solid bullet) To set
Market $100 quarterly, or annually up, call 1-800-544-6666
Spartan Michigan Municipal after both accounts are
Income $500 opened.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
exchange date.
</TABLE>
PERSONAL WITHDRAWAL SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM YOUR BOND
ACCOUNT TO YOU OR TO YOUR
BANK ACCOUNT.
FREQUENCY PROCEDURES
Monthly (small solid bullet) To set
up, call 1-800-544-6666.
(small solid bullet) To make
changes, call Fidelity at
1-800-544-6666 at least
three business days prior to
your next scheduled
withdrawal date.
OTHER FEATURES. The following other features are also available to buy
and sell shares of the funds.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(small solid bullet) You must sign up for the Wire feature before
using it. Complete the appropriate section on the application when
ope ning your account, or call 1-800-544-6666 to add the feature
after your account is opened. Call 1-800-544-666 6 before your
first use to verify that this feature is set up on your account.
(small solid bullet) To sell shares by wire, you must designate the
U.S. commercial bank account(s) into which you wish the redemption
proceeds deposited.
FIDELITY MONEY LINE
TO TRANSFER MONEY BETWEEN YOUR BANK ACCOUNT AND YOUR FUND ACCOUNT.
(small solid bullet) You must sign up for the Money Line feature
before using it. Complete the appropriate section on the application
and then call 1-800-544 -6666 or visit Fidelity's web site
before your first use to verify that this feature is set up on your
account.
(small solid bullet) Most transfers are complete within three business
days of your call.
(small solid bullet) Minimum purchase: $100 for Michigan Municipal
Money Market and $500 for Spartan Michigan Municipal Income
(small solid bullet) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544- 0240 OR VISIT FIDELITY'S WEB SITE FOR MORE
INFORMATION.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) For access to research and analysis tools.
FIDELITY ONLINE TRADING
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S WEB
SITE.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) To obtain quotes;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) To access third-party research on companies,
stocks, mutual funds and the market.
F AST
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATIC ALLY BY PHONE USING
TOUCH TONE OR SPEECH RECOGNITION.
CALL 1-800-544-5555.
(small solid bullet) For account balances and holdings;
(small solid bullet) For mutual fund and brokerage trading;
(small solid bullet) To obtain quotes;
(small solid bullet) To review orders and mutual fund activity; and
(small solid bullet) To change your personal identification number
(PIN).
CHECKWRITING
TO REDEEM SHARES FROM YOUR ACCOUNT.
(small solid bullet) To set up, complete the appropriate section on
the application.
(small solid bullet) All account owners must sign a signature card to
receive a checkbook.
(small solid bullet) You may write an unlimited number of checks.
(small solid bullet) Mi nimum check amount: $500 for Michigan
Municipal Money Market and $1,000 for Spartan Michigan Municipal
Income .
(small solid bullet) Do not try to close out your account by check.
(small solid bullet) To obtain more checks, call Fidelity at
1-800-544-6666.
POLICIES
The following policies apply to you as a shareholder.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund or another fund and certain transactions through automatic
investment or withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(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 a fund. Call Fidelity at 1-800-544-8544 if you
need additional copies of financial reports or prospectuses.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's web site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's web
site for more information.
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 sell and
exchange by telephone, call Fidelity for instructions.
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.
Fidelity may 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 Fidelity, 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
accounts with Fidelity maintained by Fidelity Service Company, Inc. 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 $2,000 for Michigan Municipal
Money Market or $5,000 for Spartan Michigan Municipal Inco me
(except accounts not subject to account minimums), you will be given
30 days' notice to reestablish the minimum balance. If you do not
increase your balance, Fidelity may close your account and send the
proceeds to you. Your shares will be sold at the NAV on the day your
account is closed.
Fidelity m ay c harge a FEE FOR CERTAIN SERVICES, s uch as
pro viding historical a ccount docu ments.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each fund earns interest, div idends, and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. Each fund may also realize capital gains
from its investments, and distributes these gains (less losses), if
any, to shareholders as capit al gain distributions.
The bond fund normally declares dividends daily and pays them monthly.
The bond fund normally pays capital gain distributions in February
and Dec ember.
Distributions you receive from the money market fund consist primarily
of dividends. The money market fund normally declares dividends daily
and pays them monthly.
EARNING DIVIDENDS
Shares begin to earn dividends on the first business day following the
day of purchase.
Shares earn dividends until, but not including, the next business day
following the day of redemption.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
each fund's distributions:
1. REINVESTMENT OPTION. Your dividends and capital gain
distr ibutions, 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 capita l gain
dist ributions will be automatically reinvested in additional
shares of the fund. Your dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital g ain distrib utions,
if any, will be paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gain distribut ions, if
any, will be automatically invested in shares of another identically
registered Fidelity fund, automatically reinvested in additional
shares of the fund, or paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in a fund could have tax
consequences for you.
TAXES ON DISTRIBUTIONS. Michigan Municipal Money Market seeks to
earn income and pay dividends exempt from federal income tax and
Michigan personal income tax.
Spartan Michigan Municipal Income seeks to earn income and pay
dividends exempt from federal income tax, Michigan personal income
tax, and certain business or corporate tax es in Michigan.
A portio n of the dividends you receive may be subject to federal,
state, or local income tax or may be subject to the federal
alternative minimum tax. You may also receive taxable distributions
attributable to a fund's sale of municipal bonds.
For federal tax purposes, each fund's distributions of short-term
capital gains and gains on the sale of bonds characterized as market
discount are taxable to you as ordinary i ncome, while each
fund's distributions of long-term capital gains, if any, are taxable
to you generally as capital gains.
For Michigan personal income tax purposes, distributions derived
from interest on municipal securities of Michigan issuers and from
interest on qualifying securities issued by U.S. territories and
possessions are generally exempt from tax. Distributions that are
federally taxable as ordinary income or capital gains are generally
subject to Michigan personal income tax.
If a fund's distributions exceed its income and capital gains realized
in any year, all or a portion of those distributions may be treated as
a return of capital to shareholders for federal income tax or
Michigan personal income tax purposes. A return of capital generally
will not be taxable to you but will r educe the cost basis of your
shares and result in a higher reported capital gain or a lower
reported capital loss when you sell your shares.
If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will be "buying a dividend" by paying the
full price for the shares and then receiving a portion of the price
back in the fo rm of a potentially taxable distribution.
Any taxable distributions you receive from a fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your bond fund redemptions, including
exchanges, may result in a capital gain or loss for federal and
Michiga n personal inco me tax purposes. A capital gain or loss
on your investment in a f und generally is the difference
between the cost of your shares and the price you receive when you
sell them.
FUND SERVICES
FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
FMR is each fund's manager.
As of March 25, 1999 , FMR had approximately $521.7 bill ion in
discretionary assets under management.
As the manager, FMR is responsible for choosing e ach fund 's
investments and handling its business affairs.
Fidelity Investments Money Management, Inc. (FIMM), in Merrimack, New
Hampshire, serves as sub-adviser for each fund. FIMM is primarily
responsible for choosing investments for each fund.
FIMM is an affiliate of FMR. As of March 29, 1999 , FIMM had
approximately $159.8 billion in discretionary assets under
management.
Norm Lind is vi ce president an d manager of Spartan Michigan
Municipal Income, which he has managed since January 1998. He also
manages several other Fidelity funds. Since joining Fidelity in 1986,
Mr. Lind has worked as an analyst and manager.
From time to time a manager, analyst, or other Fidelity employee may
express views regarding a particular company, security, industry, or
market sector. The views expressed by any such person are the views of
only that individual as of the time expressed and do not necessarily
represent the views of Fidelity or any other person in the Fidelity
organization. Any such views are subject to change at any time based
upon market or other conditions and Fidelity disclaims any
responsibility to update such views. These views may not be relied on
as investment advice and, because investment decisions for a Fidelity
fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any Fidelity fund.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each fund pays a management fee to FMR. The management fee is
calculated and paid to FMR eve ry month. The fee is calculated by
adding a group fee rate to an individual fund fee rate, dividing by
twelve, and multiplying the result by the fund's average net assets
throughout the month.
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 1999 , the group fee rate was 0.1267% f or Michigan
Municipal Money Market and Spartan Michigan Municipal Income. The
individual fund fee rate i s 0.25% for Michigan Municipal Money
Market and Spartan Michigan Municipal Income.
The total management fee for the fiscal year ended December 31,
1999, was 0.38% of the fund's average net assets for Michigan
Municipal Money Market and 0.38% of the f und's average net assets
for Spartan Michigan Municipal Income.
FMR pays FIMM for providing sub -advisory services.
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
arran gements, which may be d iscontinu ed by FMR at any
time, can decrease a fund's expenses and boost its performance.
FUND DISTRIBUTION
FDC distributes each fund's shares.
Each fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that 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 providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees of each fund has authorized
such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of a fund, provided that the fund receives
brokerage services and commission rates comparable to those of other
bro ker-dea lers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this p rospectus and in the related
statement of additional information (SAI) , in connection with the
offer contained in this pros pectus. If given or made, such
other information or representations must not be relied upon as having
been authorized by the funds or FDC. This pros pectus and the
related SAI do not constitute an offer by the funds or by FDC to sell
s hares of the funds to or to buy shares of the funds from any
person to whom i t is unlawful to make such offer.
APPENDIX
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand
each fund's financial history for the past 5 years. Certain
information reflects financial results for a single fund share. The
total returns in the table represent the rate that an investor would
have earned (or los t) on an investment in the f und
(assumin g reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP ,
independent accountants, whose report, along with each fund's
financial highlights and financial statements, are included in e ach
fund's annual report. A free copy of the an nual report is
available upon request.
<TABLE>
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FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment
Operations
Net interest income .028 .030 .031 .030 .033
Less Distributions
From net interest income (.028) (.030) (.031) (.030) (.033)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN A 2.82% 3.00% 3.18% 3.00% 3.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 444,679 $ 357,354 $ 287,940 $ 260,592 $ 231,259
(000 omitted)
Ratio of expenses to average .58% .60% .61% .62% .63%
net assets
Ratio of expenses to average .58% .59% B .61% .61% B .63%
net assets after expense
reductions
Ratio of net interest income 2.80% 2.97% 3.14% 2.96% 3.32%
to average net assets
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES.
<TABLE>
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SPARTAN MICHIGAN MUNICIPAL INCOME FUND
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.720 $ 11.630 $ 11.300 $ 11.560 $ 10.580
period
Income from Investment
Operations
Net interest income .551 .557 .571 .630 C .611
Net realized and unrealized (.850) .093 .420 (.258) .980
gain (loss)
Total from investment (.299) .650 .991 .372 1.591
operations
Less Distributions
From net interest income (.551) (.557) (.571) (.630) (.611)
In excess of net interest - (.003) - (.002) -
income
In excess of net realized - - (.090) - -
gain
Total distributions (.551) (.560) (.661) (.632) (.611)
Net asset value, end of period $ 10.870 $ 11.720 $ 11.630 $ 11.300 $ 11.560
TOTAL RETURN A (2.63%) 5.71% 9.02% 3.38% 15.41%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 425,130 $ 479,935 $ 457,932 $ 455,729 $ 491,874
(000 omitted)
Ratio of expenses to average .52% .55% B .56% B .59% .59%
net assets
Ratio of net interest income 4.86% 4.77% 5.08% 5.52% 5.49%
to average net assets
Portfolio turnover rate 19% 24% 16% 29% 29%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING
THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
C NET INTEREST INCOME PER SHARE REFLECTS A PAYMENT OF APPROXIMATELY
$0.049 RECEIVED FROM AN ISSUER THAT WAS IN BANKRUPTCY.
You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of the fund's holdings and recent market
conditions and the fund's investment strategies that affected
performance.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8544. In addition, you may visit Fidelity's web site at
www.fidelity.com for a free copy of a prospectus or an annual or
semi-a nnual report or to request other information.
The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS 811-2720 AND 811-6454.
Fidelity, Spartan, Fidelity Investments & (Pyramid) Design,
Fidelity, Fidelity Money Line, Fidelity Automatic Account Builder,
Fidelity On-Line Xpres s+ and Directed Dividends are registered
trademarks of FMR Corp.
FAST a nd Portfolio Advisory Services are service marks of FMR
Cor p.
1.540180.102 MIS/MIF-pro- 0200
FIDE LITY (registered trademark) MICHIGAN MUNICIPAL MONEY MARKET
FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
SPARTAN(registered trademark) MICHIGAN MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUA RY 28, 2000
T his statement of additional information (SAI) is not a prospectus.
Portions of each fund's annual report are incorporated herein. The
annual reports are supplied with this SAI.
To obtain a free additional copy of the prospectus, dated February
28, 2000, or an annual report, please call Fidelity at
1-800-544-8544 or visit Fidelity's Web site at www.fidelity.com.
TABLE OF CONTENTS PAGE
Investment Policies and 20
Limitations
Special Considerations 25
Regarding Michigan
Special Considerations 27
Regarding Puerto Rico
Portfolio Transactions 30
Valuation 31
Performance 31
Additional Purchase, Exchange 41
and Redemption Information
Distributions and Taxes 41
Trustees and Officers 41
Control of Investment Advisers 43
Management Contracts 44
Distribution Services 48
Transfer and Service Agent 49
Agreements
Description of the Trusts 49
Financial Statements 50
Appendix 50
MIS/MIF-ptb- 0200
1.540390.102
(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the pro spectus. 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 (the
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 M ONEY MARK ET FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer, if, as a result, the fund
would not comply with any applicable diversification requirements for
a money market fund under the Investment Company Act of 1940 and the
rules thereunder, as such may be amended from time to time;
(2) issue senior securities, except in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise permitted
under the Investment Company Act of 1940;
(3) 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;
(4) purchase securities on margin, except that the fund may obtain
such short-term credits as are necessary for the clearance of
transactions;
(5) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(6) underwrite securities issued by others (except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(7) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in the
securities of companies whose principal business activities are in the
same industry;
(8) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(9) purchase or sell physical commodities unless acquired as a result
of ownership of securities; or
(10) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties (but
this limitation does not apply to the purchase of debt securities or
to repurchase agreements).
(11) 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) With respect to 75% of its total assets, the fund does not
currently intend to purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or securities of other money market
funds) if, as a result, more than 5% of the fund's total assets would
be invested in the securities of that issuer.
(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 (5)).
(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 limitations (7) and (i), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For purposes of limitation (i), certain securities subject to
guarantees (including insurance, letters of credit and demand
features) are not considered securities of their issuer, but are
subject to separate diversification requirements, in accordance with
industry standard requirements for money market funds.
With respect to limitation (iii), 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 were in vested in illiquid
securities, it would consider appropriate steps to protect liquidity.
INVESTMENT LIMITATIONS OF SPARTAN MICHIGAN MUNICIPAL I NCOM E
FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise 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.
(9) 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 managed by Fidelity
Management & Research Company or an affiliate or successor 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 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)).
(v) The fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For purposes of limitation (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.
With respect to limitation (v), 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 w ere in vested in illiquid
securities, it would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 37.
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 a 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 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. Payment of interest and repayment of principal may be
largely dependent upon the cash flows generated by the assets backing
the securities and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. Asset-backed security
values may also be affected by other factors including changes in
interest rates, the availability of information concerning the pool
and its structure, the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the entities
providing the credit enhancement. In addition, these securities may be
subject to prepayment risk.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturit y, and diversification of their investments.
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.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: 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.
COMBINED POSITIONS involve purchasing and writing 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, purchasing a put option and writing a
call option on the same underlying instrument would 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, 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. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund 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 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. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter 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 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 bond 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 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 purchaser or writer 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
purchaser 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 purchaser 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 purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser 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, 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. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer 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. The writer may seek
to terminate a position in a put option 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, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
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 writer 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 SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. 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
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
mar ket, and (4) the nature of the security and the market in
which it trades (including any demand, put or tender features, the
mechanics and other requirements for transfer, any letters of credit
or other credit enhancement features, any ratings, the number of
holders, the method of soliciting offers, the time required to dispose
of the security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments 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.
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. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates; however, municipal
funds currently intend to participate in this program only as
borrowers. A fund will borrow through the program only when the costs
are equal to or lower than the costs of bank loans. Interfund
borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one day's notice. 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 movements in prevailing short-term
interest rate levels-rising when prevailing short-term interest rates
fall, and vice versa. The prices of inverse floaters can be
considerably more volatile than the prices of bonds with comparable
maturities.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt 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 IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, o r may be in default. These securities are often
considered to be speculative and involve greater risk of loss or price
changes due to changes in the issuer's capacity to pay. The market
prices of lower-quality debt securities may fluctuate more than those
of higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MONEY MARKET INSURANCE. The money market fund participates in a mutual
insurance company solely with other funds advised by FMR or its
affiliates. This company provides insurance coverage for losses on
certain money market instruments held by a participating fund
(eligible instruments), including losses from nonpayment of principal
or interest or a bankruptcy or insolvency of the issuer or credit
support provider, if any. The insurance does not cover losses
resulting from changes in interest rates or other market developments.
The money market fund is charged an annual premium for the insurance
coverage and may be subject to a special assessment of up to
approximately two and one-half times the fund's annual gross premium
if covered losses exceed certain levels. A participating fund may
recover no more than $100 million annually, including all other claims
of insured funds, and may only recover if the amount of the loss
exceeds 0.30% of its eligible instruments. The money market fund may
incur losses regardless of the insurance.
MONEY MARKET SECURITIES are high-quality, short-term obligations.
Money market securities may be structured to be, or may employ a trust
or other form so that they are, eligible investments for money market
funds. 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 a structure fails to function 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 certain 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 INSURANCE. A municipal bond may be covered by insurance that
guarantees the bond's scheduled payment of interest and repayment of
principal. This type of insurance may be obtained by either (i) the
issuer at the time the bond is issued (primary market insurance), or
(ii) another party after the bond has been issued (secondary market
insurance).
Both primary and secondary market insurance guarantee timely and
scheduled repayment of all principal and payment of all interest on a
municipal bond in the event of default by the issuer, and cover a
municipal bond to its maturity, enhancing its credit quality and
value.
Municipal bond insurance does not insure against market fluctuations
or fluctuations in a fund's share price. In addition, a municipal bond
insurance policy will not cover: (i) repayment of a municipal bond
before maturity (redemption), (ii) prepayment or payment of an
acceleration premium (except for a mandatory sinking fund redemption)
or any other provision of a bond indenture that advances the maturity
of the bond, or (iii) nonpayment of principal or interest caused by
negligence or bankruptcy of the paying agent. A mandatory sinking fund
redemption may be a provision of a municipal bond issue whereby part
of the municipal bond issue may be retired before maturity.
Because a significant portion of the municipal securities issued and
outstanding is insured by a small number of insurance companies, an
event involving one or more of these insurance companies could have a
significant adverse effect on the value of the securities insured by
that insurance company and on the municipal markets as a whole.
FMR may decide to retain an insured municipal bond that is in default,
or, in FMR's view, in significant risk of default. While a fund holds
a defaulted, insured municipal bond, the fund collects interest
payments from the insurer and retains the right to collect principal
from the insurer when the municipal bond matures, or in connection
with a mandatory sinking fund redemption.
PRINCIPAL MUNICIPAL BOND INSURERS. The various insurance companies
providing primary and secondary market insurance policies for
municipal bonds are described below. Ratings reflect each respective
rating agency's assessment of the creditworthiness of an insurer and
the insurer's ability to pay claims on its insurance policies at the
time of the assessment.
Ambac Assurance Corp., a wholly-owned subsidiary of Ambac Financial
Group Inc., is authorized to provide bond insurance in the 50 U.S.
states, the District of Columbia, and the Commonwealth of Puerto Rico.
Bonds insured by Ambac Assurance Corp. are rated "Aaa" by Moody's
Investor Service and "AAA" by Standard & Poor's.
Connie Lee Insurance Co. is a wholly-owned subsidiary of Connie Lee
Holdings Inc., which is a wholly-owned subsidiary of Ambac Assurance
Corp. All losses incurred by Connie Lee Insurance Co. that would cause
its statutory capital to drop below $75 million would be covered by
Ambac Assurance Corp. Connie Lee Insurance Co. is authorized to
provide bond insurance in 49 U.S. states, the District of Columbia,
and the Commonwealth of Puerto Rico. Bonds insured by Connie Lee
Insurance Co. are rated "AAA" by Standard & Poor's.
Financial Guaranty Insurance Co. (FGIC), a wholly-owned subsidiary of
GE Capital Services, is authorized to provide bond insurance in the 50
U.S. states and the District of Columbia. Bonds insured by FGIC are
rated "Aaa" by Moody's Investor Service and "AAA" by Standard &
Poor's.
Financial Security Assurance Inc. (FSA), a wholly-owned subsidiary of
Financial Security Assurance Holdings Ltd., is authorized to provide
bond insurance in 49 U.S. states, the District of Columbia, and three
U.S. territories. Bonds insured by FSA are rated "Aaa" by Moody's
Investor Service and "AAA" by Standard & Poor's.
Municipal Bond Investors Assurance Corp. (MBIA Insurance Corp.), a
wholly-owned subsidiary of MBIA Inc., a publicly-owned company, is
authorized to provide bond insurance in the 50 U.S. states, the
District of Columbia, and the Commonwealth of Puerto Rico. Bonds
insured by MBIA Insurance Corp. are rated "Aaa" by Moody's Investor
Service and "AAA" by Standard & Poor's.
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,
a fund will not hold these 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 purchaser a specified, undivided interest in the obligation
in proportion to its purchased interest in the total amount of the
issue.
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. If a municipality stops making payments or transfers its
obligations to a private entity, the obligation could lose value or
become taxable.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income
tax exemption for interest on municipal securities are introduced
before Congress from time to time. Proposals also may be introduced
before the Michigan legislature that would affect the state tax
treatment of a municipal fund's distributions. If such proposals were
enacted, the availability of municipal securities and the value of a
municipal fund's holdings would be affected and the Trustees would
reevaluate the fund's investment objectives and policies. 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 a money market fund to maintain a stable
net asset value per share (NAV).
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. In exchange
for this benefit, a fund may accept a lower interest rate. Securities
with put features 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.
REFUNDING CONTRACTS. Securities may be purchased on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and a
purchaser 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 purchaser generally will not be obligated to pay the
full purchase price if the issuer fails to perform under a refunding
contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer. A purchaser 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.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
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. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The funds will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder 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 security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The funds will enter into
reverse repurchase agreements with parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SOURCES OF LIQUI DITY OR CREDIT SU PPORT. Issuers may employ
various forms of credit and liquidity enhancements, including letters
of credit, guarantees, puts, and demand features, and insurance
provided by domestic or foreign entities such as banks and other
financial institutions. FMR may rely on its evaluation of the credit
of the li quidity or credit enh ancement provider in determining
whether to purchase a security supported by such enhancement. 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. Changes in the credit quality of the entity providing the
enhancement could affect the value of the security or a fund's share
price.
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. A 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 purchase 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 generally marketable; and the possibility that the maturities
of the underlying securities may be different from those of the
commitments.
TEMPORARY DEFENSIVE POLICIES. Each fund 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.
TENDER OPTION BONDS are created by coupling an intermediate- or
long-term, fixed-rate, municipal 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, 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
in 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 are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
In many instances bonds and participation interests have tender
options or demand features that permit the holder to tender (or put)
the bonds to an institution at periodic intervals and to receive the
principal amount thereof. Variable rate instruments structured in this
fashion are considered to be essentially equivalent to other variable
rate securities. The IRS has not ruled whether the interest on these
instruments is tax-exempt. Fixed-rate bonds that are subject to third
party puts and participation interests in such bonds held by a bank in
trust or otherwise may have similar features.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, 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, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a 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 more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
SPECIAL CONSIDERATIONS REGARDING MICHIGAN
The following only highlights some of Michigan'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 Michigan, its agencies and instrumentalities as
available on December 31, 1999 . 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 State
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 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
41.6 % , was recalculated effective with the fiscal year
1992-93 as a result of a legal settlement with Oakland
County, Michigan . 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
governmental 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. Spending for
local units met this requirement for fiscal years 1990-91 through
1995-96.
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
obliger 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 March
15, 1994, the people of the State of Michigan approved an amendment to
the State Constitution (the "Constitutional Amendment") which resulted
in reduced local property taxes. The Constitutional Amendment
increased the state sales and use tax from 4% to 6%; limits the
ability of local school districts to levy taxes; and limits assessment
increases for each parcel of property to the lesser of 5% or the rate
of inflation. When property is subsequently sold, its taxable value
will revert to the current assessment level of 50% of true cash
value.
The Constitutional Amendment, together with legislation enacted in
conjunction with the Constitutional Amendment, has substantially
increased the revenues dedicated to the State's school aid fund.
Pursuant to the Constitutional Amendment, the State's school aid fund
directly receives (i) 60% of all taxes imposed at a rate of 4% on
retailers on taxable sales at retail of tangible personal property and
(ii) 100% of the proceeds of the sales and use taxes imposed at the
additional rate of 2%. Pursuant to companion legislation, the State's
school aid fund directly receives (i) all of the proceeds generated
from the tax levied on cigars, noncigarette smoking tobacco and
smokeless tobacco at a rate of 16% of the wholesale price thereof,
(ii) 63.4% of the proceeds generated by the tax levied on cigarettes
at the rate of 3.75 cents per cigarette (75(cents) per pack), (iii)
all of the proceeds generated by the .75% real estate transfer tax,
(iv) the profits of the state-operated lottery, (v) a portion of the
commercial and industrial facilities taxes imposed pursuant to the
Commercial Redevelopment Act, Act No. 255, Public Acts of Michigan,
1978, as amended, and Act No. 198, Public Acts of Michigan, 1974, as
amended, respectively, which would otherwise be disbursed to local
school districts and which compensates the State for increased State
Aid to certain intermediate school districts affected by the property
tax abatements authorized under those Acts, (vi) the State's 4% liquor
excise tax, (vii) the State's education tax levied at a rate of six
mills on all property not exempt by law from ad valorem property taxes
or not subject to a tax levied upon certain rail transportation,
telephone and telegraph companies and (viii) 23.0% of the gross
collections before refunds from the State income tax levied at a rate
of 4.4%.
In conjunction with the Constitutional Amendment, the State
Legislature also enacted legislation which substantially reduces the
maximum rate at which ad valorem property taxes can be levied by local
school districts for school operating purposes. Except for certain
levies authorized as described in the two paragraphs below, each local
school district shall levy no more than 18 mills for school operating
purposes or the number of mills it levied in 1993 for school operating
purposes, whichever is less. All homestead property and qualified
agricultural property as defined by State law is exempt from such
levy, except for certain limited exceptions. The legislation also
established a system of financing local school operating costs based
on 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 revenue that would be generated by the levy of
certain local property taxes for school operating purposes at
specified maximum authorized rates. A local school district is
entitled to levy supplemental property taxes to generate additional
revenues if its foundation allowance is less than its historical per
pupil expenditures. Levies of a limited number of enhancement mills on
regional and local school district bases are also allowed.
The effect of the Constitutional Amendment and the companion
legislation is that a significant portion of the cost of local school
operations have been shifted from local school districts to the State.
The legislation provided for additional State revenues to fund these
State expenses. These additional revenues will be included with the
State's constitutional revenue limitations and may impact the State's
ability to raise additional revenues in the future.
EFFECT OF LIMITATIONS ON ABILITY TO PAY BONDS. The ability of the
State of Michigan to pay the principal and interest on its general
obligation bonds may be affected by the limitations described above
under "Constitutional State Revenue Limitations" and "Michigan
School Fina nce and Property Tax Changes." Similarly, the ability
of local units of government to levy taxes to pay the principal and
interest on their general obligation bonds is subject to the
constitutional, statutory, and charter limitations described above
under "Constitutional Local Tax Limitations" and "Michigan School
Fi nance 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 other 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 has not been the
case since 1994. The State's seasonally adjusted November 30, 1998
unemployment rate was 3.6% compared to the seasonally adjusted
national rate of 4.4%. 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 7.6% 5.5%
1991 9.3% 6.7%
1992 8.9% 7.4%
1993 7.1% 6.8%
1994 5.9% 6.1%
1995 5.3% 5.6%
1996 4.9% 5.4%
1997 4.2% 4.6%
1998 3.9% 4.5%
1999 3.7% 4.2%
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 an order dated June 10, 1997 and a decision rendered July 31, 1997,
the Michigan Supreme Court decided in the consolidated cases of DURANT
v STATE OF MICHIGAN and SCHMIDT v STATE OF MICHIGAN that the special
education, special education transportation, bilingual education,
driver training and school lunch programs provided by local school
districts are state mandated programs within the meaning of
Michigan Constitution , Article 9, (sub-section) 29 (part of the
so-called Headlee Amendment) and, therefore, the state is obligated to
fund these programs at levels established by the Headlee Amendment. In
fashioning a remedy in this case of first impression under the Headlee
Amendment, the Court concluded that, in future cases, the correct
remedy will typically be limited to a declaratory judgment. However,
due to the protracted nature of the DURANT and SCHMIDT litigation, the
Court ruled that money damages, without interest, shall be paid to the
84 plaintiff school districts for the full amount of the underfunding
for the state mandated programs during the 1991-92, 1992-93, and
1993-94 school years.
On November 19, 1997, the Governor signed legislation providing
approximately $212 million to the 84 plaintiff school districts to
cover the underfunding for those three years. This payment was made to
the plaintiff school districts on April 15, 1998 with funds from the
State's Budget Stabilization Fund. The board of education of each
plaintiff school district is to determine the appropriate distribution
of the award between taxpayer relief and/or use by the district for
other public purposes.
The Court has affirmed the award to plaintiffs of their costs
including attorney fees. Approximately 400 other school districts have
asserted similar claims. In companion legislation signed by the
Governor on November 19, 1997, the State will pay each "non-DURANT"
school district for its underfunded state mandated program costs for
those same three years, if the district agreed, by March 2, 1998, to
waive any claim against the State of the same nature as the claims
made by the 84 DURANT plaintiffs through September 30, 1997. All
"non-DURANT" school districts submitted the statutory waiver by March
2, 1998. It is estimated that the aggregate payments to the
"non-DURANT" school districts will, over time, total $632 million.
Those payments, commencing in fiscal year 1998-1999, will be paid out
of the Budget Stabilization Fund and the General Fund, half in annual
payments over 10 years and half in annual payments over 15 years.
On May 14, 1998, more than 100 Michigan school districts and
individuals filed suit in the Michigan Court of Appeals, asserting
that the current version of the State School Aid Act violates the
Headlee Amendment, Michigan Constitution, Article 9, (sub-section)
(sub-section) 25-34, in much the same manner as prior versions of
the Act were ruled unconstitutional by the Michigan Supreme Court in
DURANT V STATE BOARD OF EDUCATION, 456 Mich 175 ( 1997). DURANT,
ET AL. V STATE, ET AL. ("DURANT II"). The DURANT II plaintiffs are
seeking a monetary remedy of approximately $347 million for each of
the 1997-1998, 1998-1999 and 1999-2000 school years for the
State's alleged underfunding of special education services, special
education transportation, and school lunch programs. The DURANT II
plaintiffs are also requesting a declaratory judgement that the
current version of the State School Aid Act will not provide proper
funding levels for future school years. They also seek attorney fees
and costs of the litigation. On June 11, 1998, the Michigan Court of
Appeals dismissed this suit on technical grounds, without
prejudic e, however, to the timely filing of a new complaint. On
September 29, 1998, the Michigan Supreme Court reversed the June 11,
1998 Order of the Michigan Court of Appeals and remanded DURANT II.
The Michigan Supreme Court directed the Michigan Court of Appeals to
resolve expeditiously certain issues raised by the DURANT II
plaintiffs.
On October 30, 1998, the school districts moved to amend their
complaint to challenge the newly-enacted amendments to the State
School Aid Act, 1998 PA 339, to add claims for the 1999-2000 fiscal
year and to add a new count for mandamus against the state treasurer.
On December 2, 1998, the Court of Appeals granted the DURANT II
plaintiffs' motion to amend the complaint and established a briefing
schedule. On September 17, 1999, the Court of Appeals granted the
DURANT II plaintiffs' motion to file a second amended complaint which,
among other provisions, added 125 additional school districts and at
least 125 individuals as plaintiffs, bringing the entire class to
approximately 500 plaintiffs.
In a decision rendered October 19, 1999, the Court of Appeals held
that the State School Aid Act complied with the State's obligations
under Article 9, (sub-section) 29 of the Michigan Constitution to fund
the state-mandated portions of the special education, special
education transportation, and school lunch programs at the levels
required by the Headlee Amendment.
The Court of Appeals further held that certain sections of the
State School Aid Act violated Article 9, (sub-section)11 of the
Michigan Constitution. Article 9, (sub-section) 11 of the Michigan
Constitution provides, in part, that beginning in the 1995-96 state
fiscal year, and each fiscal year thereafter, the State shall
guarantee that the total state and local per pupil revenue for school
operating purposes for each local school district shall not be less
than the 1994-95 total state and local per pupil revenues for school
operating purposes. The Court held that under Article 9, (sub-section)
11, the Legislature must appropriate the state portion of the per
pupil revenue for school operating purposes to local school districts
as unrestricted school aid. Thus, the Court held that to the extent
the Legislature appropriated restricted funds to pay for special
education and special education transportation from funds that were
guaranteed to local school districts as unrestricted aid, the
amendments to the State School Aid Act violated Article 9,
(sub-section) 11.
The Court of Appeals denied plaintiffs' request for mandamus,
injunctive relief, and monetary damages and, as described above,
granted declaratory relief only. The Court also held that plaintiffs
may petition for costs and reasonable attorney fees as allowed by
Article 9, (sub-section) 32 of the Michigan Constitution. No appeal
was filed by any of the parties prior to the November 9, 1999 deadline
for appeal.
SPECIAL CONSIDERATIONS REGARDING PUERTO RICO
The fiscal year of the Government of Puerto Rico begins each July
1. The Governor is constitutionally required to submit to the
Legislature an annual balanced budget of capital improvements and
operating expenses of the central government for the ensuing fiscal
year. The annual budget is prepared by the Office of Management and
Budget ("OMB"), working with the Planning Board, the Department of the
Treasury, and other government offices and agencies. Section 7 of
Article VI of the Constitution provides that "The appropriations made
for any fiscal year shall not exceed the total revenues, including
available surplus, estimated for said fiscal year unless the
imposition of taxes sufficient to cover said appropriations is
provided by law."
The annual budget, which is developed utilizing elements of program
budgeting and zero-base budgeting, includes an estimate of revenues
and other resources for the ensuing fiscal year under: (i) laws
existing at the time the budget is submitted; and (ii) legislative
measures proposed by the Governor and submitted with the proposed
budget, as well as the Governor's recommendations as to appropriations
that in his judgment are necessary, convenient, and in conformity with
the four-year investment plan prepared by the Planning Board.
A Budgetary Fund was created by Act No. 147 of June 18, 1980, as
amended (the "Budgetary Fund Act"), to cover the appropriations
approved in any fiscal year in which the revenues available for such
fiscal year are insufficient, honor the public debt, and provide for
unforeseen circumstances in the provision of public services. The
Budgetary Fund Act was amended in 1994 to require that an annual
legislative appropriation equal to one third of one percent (.33%) of
the total budgeted appropriations for each fiscal year be deposited in
the Budgetary Fund. In 1997, the Budgetary Fund Act was further
amended to increase the annual legislative appropriation required to
be deposited in the Budgetary Fund to one percent (1%) of the total
revenues of the preceding fiscal year, beginning in fiscal year 2000.
In addition, other income (not classified as revenues) that is not
assigned by law to a specific purpose is also required to be deposited
in the Budgetary Fund. The maximum balance of the Budgetary Fund may
not exceed six percent (6%) of the total appropriations included in
the budget for the preceding fiscal year.
In Puerto Rico, the central government has many functions which in
the fifty states are the responsibility of local government, such as
providing public education and police and fire protection. The central
government also makes large annual grants to the University of Puerto
Rico and to the municipalities. Debt service on Sugar Corporation
notes paid by the Government of Puerto Rico is included in current
expenses for economic development, and debt service on Urban Renewal
and Housing Corporation bonds and notes and on Housing Bank and
Finance Agency mortgage subsidy bonds paid by the Government of Puerto
Rico is included in current expenses for housing.
Approximately 25.2% of the General Fund is committed, including
debt service on direct debt of the Commonwealth and on the debt of the
Sugar Corporation, municipal subsidies, grants to the University of
Puerto Rico, contributions to Aqueduct and Sewer Authority, and rental
payments to Public Building Authority, among other.
In the fiscal 1999 budget revenues and other resources of all
budgetary funds total $10,308,078,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 1999 are
accounted for by increases in personal income taxes (up $258,354,000),
retained non-resident income tax (up $176,921,000), general excise tax
of 5% (up $60,259,000), motor vehicles and accessories (up
$61,569,000), federal excise taxes on off-shore shipments (up
$33,033,000), special excise tax on certain petroleum products (up
$20,282,000), corporation income taxes (up $17,347,000), registration
and document certification fees (up $13,433,000), alcoholic beverages
(up $5,347,000), licenses (up $4,681,000), electronic lottery (up
$4,965,000) and decreases in property taxes (down $3,460,000), customs
(down $11,864,000) and tollgate taxes (down $56,420,000).
Current expenses and capital improvements of all budgetary funds
total $10,687,869,000, an increase of $951,255,000 from fiscal 1998.
The major changes in General Fund expenditures by program in fiscal
1999 are: public safety and protection (up $187,444,000), education
(up $165,661,000), health (up $160,256,000), general government (up
$77,714,000), other debts (up $69,721,000), welfare (up $24,182,000),
economic development (up $15,865,000), special pension contributions
(up $6,115,000), and decreases in transportation and communications
(down $83,000), housing (down $620,000), debt service (down
$13,849,000), and contributions to municipalities (down
$37,969,000).
The general obligation bond authorization for the fiscal 1999
budget was $475,000,000.
In the fiscal 2000 budget proposal revenues and other resources of
all budgetary funds total $10,426,475,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 2000 are
accounted for by increases in personal income taxes (up $199,000,000),
corporation income taxes (up $102,000,000), general excise tax of 5%
(up $65,000,000), income tax withheld from non-residents (up
$44,000,000), motor vehicles and accessories (up $22,000,000),
alcoholic beverages (up $13,000,000), registration and document
certification fees (up $10,000,000), and decreases in property taxes
(down $2,000,000), special excise tax on certain petroleum products
(down $3,000,000), cigarettes (down $6,000,000), federal excise taxes
on off-shore shipments (down $24,000,000), and tollgate taxes (down
$14,000,000).
Current expenses and capital improvements of all budgetary funds
total $11,012,166,000, an increase of $324,297,000 from fiscal 1999.
The major changes in General Fund expenditures by program in fiscal
2000 are: general government (up $157,265,000), health (up
$83,310,000), debt service (up $94,550,000), contributions to
municipalities (up $66,296,000), education (up $75,035,000),
transportation and communications (up $13,636,000), special pension
contributions (up $3,792,000), housing (down $4,645,000), economic
development (down $30,201,000), public safety and protection (down
$26,999,000), and other debts service (down $106,488,000).
The general obligation bond authorization for the fiscal 2000
budget was $475,000,000.
The Government of Puerto Rico is required to contribute directly to
three retirement systems for public employees. The Government of
Puerto Rico is responsible for approximately 66% of total employer
contributions to Employees Retirement System and 100% and 99% of total
employer contributions to the Judiciary and Teachers Retirement
Systems, respectively. As of July 1, 1998 the total pension benefit
obligation for the Employees Retirement System and the Judiciary
Retirement System was $7,638,000,000 and $95,5000,000, respectively,
and the unfunded pension benefit obligation for the same period was
$5,963,000,000 and $28,400,000, respectively. As of June 30, 1998, the
accrued pension liability of the Teachers Retirement System was
$3,154,678,299, the value of assets amounted to $2,135,436,000, and
the resulting unfunded accrued liability was $1,019,242,299, an
increase of $48,437,260 from the prior valuation made as of June 30,
1997.
On February 1, 1990, the Legislature of Puerto Rico enacted Act No.
1 amending the organic act of the Employees Retirement System to
reduce the future pension liabilities of the Employees Retirement
System. Also, Act No. 305 of September 24, 1999, further amends the
organic act of the Employees Retirement System to change it,
prospectively, from a defined benefit system to a defined contribution
system. Based on actuarial studies conducted by the actuary of the
Employees Retirement System, it is expected that the implementation of
the defined contribution system will allow the Government of Puerto
Rico to reduce the current actuarial deficit of the Employees
Retirement System. Also, the law approving the sale of a controlling
interest in PRTC to a consortium led by GTE International
Telecommunications Incorporated provides that any future proceeds
received by the Government from the sale of its remaining stock
ownership in PRTC will be transferred to the Employees Retirement
System to reduce its accumulated unfunded pension benefit obligation.
It is recognized that it will be necessary to further strengthen the
finances of the Teachers Retirement System in order to assure that
combined contributions and investment income continue to exceed
benefit payments, avoiding the possible future drawdown of assets.
The economy of Puerto Rico is fully integrated with that of the
United States. In fiscal 1998, trade with the United States accounted
for approximately 90% of Puerto Rico's exports and approximately 61%
of its imports. In this regard, in fiscal 1998 Puerto Rico experienced
a $8.5 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita,
has increased consistently each fiscal year. In fiscal 1998, aggregate
personal income was $33.7 billion ($30.8 billion in 1992 prices) and
personal per capita income was $8,817 ($8,063 in 1992 prices). Gross
product in fiscal 1995 was $28.4 billion ($25.9 billion in 1992
prices) and gross product in fiscal 1999 was $38.1 billion ($29.7
billion in 1992 prices). This represents an increase in gross product
of 34% from fiscal 1995 to 1999 (14.5% in 1992 prices).
Puerto Rico's economic expansion, which has lasted over ten years,
continued throughout the five year period from fiscal 1995 through
fiscal 1999. 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,
increases in the level of federal transfers, low oil prices and the
relatively low cost of borrowing funds during the period.
Average employment increased from 1,051,000 in fiscal 1995, to
1,147,000 in fiscal 1999. Unemployment, although at relatively low
historical levels, remains above the U.S. average. Average
unemployment decreased from 13.8% in fiscal 1995, to 12.5% in fiscal
1999.
Manufacturing is the largest sector in the economy, accounting for
$23.0 billion or 42.8% of gross domestic product in fiscal 1998. The
manufacturing sector employed 141,068 workers as of March 1999.
Manufacturing in Puerto Rico is now more diversified than during
earlier phases of industrial development. In the last two decades,
industrial development has tended to be more capital intensive and
dependent on skilled labor. This gradual shift is best exemplified by
heavy investment in pharmaceuticals, scientific instruments,
computers, microprocessors, and electrical products over the last
decade. While total employment in the manufacturing sector decreased
by 12,205 from March 1997 to March 1999, other indicators suggest that
manufacturing production did not decrease. Average weekly hours worked
increased 5.2%, industrial energy consumption increased 0.7% and
exports increased 45.7% from fiscal 1997 to fiscal 1999. Most of the
decreases in employment have been concentrated in the labor intensive
industries, particularly apparel, textile and tuna manufacturing. The
services sector, which includes wholesale and retail trade and
finance, insurance, real estate, hotels and related services, and
other services, ranks second in its contribution to gross domestic
product and it is the sector that employs the greatest number of
people. In fiscal 1998, the service sector generated $19.6 billion in
gross domestic product or 36.5% of the total. Employment in this
sector grew from 478,079 in fiscal 1994 to 572,765 in fiscal 1998, a
cumulative increase of 19.8%. This increase was greater than the 12.5%
cumulative growth in employment over the same period. The Government
sector of the Commonwealth plays an important role in the economy of
the island. In fiscal year 1998, the Government accounted for $5.2
billion of Puerto Rico's gross domestic product, or 9.8% of the total,
and provided 21.5% of the total employment. The construction industry
has experienced real growth since fiscal 1987. In fiscal 1999,
investment in construction rose to an unprecedented $6.6 billion, an
increase of 23.9% as compared to $5.4 billion for fiscal 1998. Tourism
also contributes significantly to the island economy, accounting for
6.4% of the island's gross domestic product in fiscal 1998.
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. Another
initiative is the improvement and expansion of Puerto Rico's
infrastructure to facilitate private sector development and growth,
such as the construction of the water pipeline and cogeneration
facilities described below and the construction of a light rail system
for the San Juan metropolitan area.
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 11,095 at the end of fiscal
1999 and to a projected 12,650 by the end of fiscal 2000.
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 Government sold the assets of the Puerto Rico
Maritime Authority; (ii) the Aqueducts and Sewer Authority executed 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; (iii) the Electric Power Authority
executed power purchase contracts with private power producers under
which two cogeneration plants (with a total capacity of approximately
874 megawatts), using fuels other than oil, will be constructed; (iv)
the Corrections Administration entered into operating agreements with
two private companies for the operation of three new correctional
facilities; (v) the Government entered into a definitive agreement to
sell certain assets of a pineapple juice processing business and sold
certain mango growing operations; (vi) the Government is in the
process of transferring to local sugar cane growers certain sugar
processing facilities; (vii) the Government sold three hotel
properties and is currently negotiating the sale of a complex
consisting of two hotels and a convention center; and (viii) the
Government sold a controlling interest in the Puerto Rico Telephone
Company, a subsidiary of the Telephone Authority, to a consortium led
by GTE International Telecommunications Incorporated.
One of the goals of the Rossello administration is to change Puerto
Rico's public health care system from one in which the Government
provides free health services to low income individuals through public
health facilities owned and administered by the Government to one in
which all medical services are provided by the private sector and the
Government provides comprehensive health insurance coverage for
qualifying (generally low income) Puerto Rico residents. Under this
new system, the Government selects, through a bidding system, one
private health insurance company in each of several designated regions
of the island and pays such insurance company the insurance premium
for each eligible beneficiary within such region. This new health
insurance system is now covering 77 municipalities out of a total of
78 on the island. It is expected that the last municipality will be
added in July 2000. The total cost of this program will depend on the
number of municipalities included in the program, the number of
participants receiving coverage, and the date coverage commences. As
of August 1, 1999, over 1.7 million persons were participating in the
program at an estimated annual cost to Puerto Rico for fiscal 2000 of
approximately $994 million. In conjunction with this program, the
operation of certain public health facilities has been transferred to
private entities. The Government's current privatization plan for
health facilities provides for the transfer of ownership of all health
facilities to private entities. The Government has sold forty-four
health facilities to private companies and is currently in the process
of closing the sale of fourteen additional health facilities to such
companies.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, particularly those under the Puerto Rico
Industrial Incentives Program and Sections 30A and 936 of the Internal
Revenue Code 1986, as amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial
incentive laws designed to stimulate industrial investment. Under
these laws, companies engaged in manufacturing and certain other
designated activities were eligible to receive full or partial
exemption from income, property, and other taxes. The most recent of
these laws is Act No. 135 of December 2, 1997 (the "1998 Tax
Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are available
to new companies as well as companies currently conducting tax-exempt
operations in Puerto Rico that choose to renegotiate their existing
tax exemption grant. Activities eligible for tax exemption include
manufacturing, certain services performed for markets outside Puerto
Rico, the production of energy from local renewable sources for
consumption in Puerto Rico, and laboratories for scientific and
industrial research. For companies qualifying thereunder, the 1998 Tax
Incentives Law imposes income tax rates ranging from 2% to 7%. In
addition, it grants 90% exemption from property taxes, 100% exemption
from municipal license taxes during the first eighteen months of
operation and between 80% and 60% thereafter, and 100% exemption from
municipal excise taxes. The 1998 Tax Incentives Law also provides
various special deductions designated to stimulate employment and
productivity, research and development, and capital investment in
Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to repatriate
or distribute their profits free of dividend taxes. In addition,
passive income derived from designated investments will continue to be
fully exempt from income and municipal license taxes. Individual
shareholders of an exempted business are allowed a credit against
their Puerto Rico income taxes equal to 30% of their proportionate
share in the exempted business' income tax liability. Gain from the
sale or exchange of shares of an exempted business by its shareholders
during the exemption period will be subject to a 4% income tax
rate.
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", also known as the "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 Bill Clinton on August 20, 1996 (the
"1996 Amendments"), the tax credit, as described below, 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 were operating
in Puerto Rico on October 13, 1995, and had elected 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.
PROPOSAL TO EXTEND THE PHASEOUT OF SECTION 30A. During 1997, the
Government of Puerto Rico proposed to Congress the enactment of a new
permanent federal incentive program similar to that provided under
Section 30A. Such a program would provide U.S. companies a tax credit
based on qualifying wages paid and other wage-related expenses, such
as fringe benefits, as well as depreciation expenses for certain
tangible assets and research and development expenses. 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. The fiscal 1998, fiscal 1999 and fiscal 2000 budgets
submitted by President Clinton to Congress included a proposal to
modify Section 30A to (i) extend the availability of the Section 30A
Credit indefinitely; (ii) make it available to companies establishing
operations in Puerto Rico after October 13, 1995; and (iii) eliminate
the income cap. This proposal was not included in the 1998 or 1999
budgets approved by Congress. While the Government of Puerto Rico
plans to continue lobbying for this proposal, it is not possible at
this time to predict whether the Section 30A Credit will be so
modified.
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. 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.
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
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and investment
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; the reasonableness
of any commissions; and, if applicable, arrangements for payment of
fund expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that 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
above.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment 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 investment accounts; and effect securities transactions
and perform functions incidental thereto (such as clearance and
settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that 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 a 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.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer 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 a 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 that fund or 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.
To the extent permitted by applicable law, FMR is authorized to
allocate portfolio transactions in a manner that takes into account
assistance received in the distribution of shares of the funds or
other Fidelity funds and to use the research services of brokerage and
other firms that have provided such assistance. 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.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment 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 of each fund 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, 1999 and 1998, the
portfolio turnover rates were 19% and 24%, respectively, for Spartan
Michigan Municipal Income.
For the fiscal years ended December 31, 1999, 1998, and 1997, the
funds paid no brokerage commissions.
For t he fiscal year ended Dece mber 31, 1999 the funds paid no
brokerage commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
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 or its affiliates,
investment decisions for each fund are made independently from those
of other funds or investment accounts managed by FMR or its
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these funds or in vestment accounts.
Simultaneous transactions are inevitable when several funds and
investment 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 investment 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
Each fund's NAV is the value of a single share. The NAV of each fund
is computed by adding the value of the fund's investments, cash, and
other assets, subtracting its liabilities, and dividing the result by
the number of shares outstanding.
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 of other open-end investment
companies are valued at their respective NAVs.
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 value of such securities. For example,
securities and other assets for which there is no readily available
market value may be valued in good faith by a committee appointed by
the Board of Trustees. In making a good faith determination of the
value of a security, the committee may review price movements in
futures contracts and American Depositary Receipts (ADRs), market and
trading trends, the bid/ask quotes of brokers and off-exchange
institutional trading.
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.
At such intervals as they deem appropriate, the Trustees consider the
extent to which NAV calculated by using market valuations would
deviate from the $1.00 per share calculated using amortized cost
valuation. 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
A fund 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. The share price of a bond
fund, the yield of a fund, and 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 (MONEY MARKET FUND). To compute the yield for the
money market fund 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 an effective yield by compounding
the base period return over a one-year period. In calculating the
money market fund's yield and effective yield, the yield quoted is
reduced by the effect of applicable income taxes payable on the
shareholder's dividends, using the maximum rate for individual income
taxation . 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 applicable
regulation.
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.
YIELD CALCULATIONS (BOND FUND). Yields for the fund are computed by
dividing the fund's interest and 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 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.
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 tax-equivalent yield of a fund reflects a comparison of the
fund's yield to the yield of a fully taxable investment.
Tax-equivalent yields are calculated by dividing that portion of a
fund's yield that is tax-exempt by the result of one minus the
applicable specified combined federal and/or state income tax rate and
adding the quotient to that portion, if any, of the fund's yield that
is not tax-exempt.
The following tables show the effect of a shareholder's tax status
on tax-equivalent yield under federal and state income tax laws for
2000. The second table shows the tax-equivalent yields at various
income brackets of hypothetical tax-exempt obligations yielding from
2% to 7%. Of course, no assurance can be given that a fund will
achieve any specific tax-exempt yield. While each fund invests
principally in obligations whose interest is exempt from federal and
applicable state income tax, some portion of the income received by
the fund may be taxable.
Use the first table to find your approximate effective tax bracket
taking into account federal and state taxes for 2 00 0.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 TAX RATES***
Taxable Income*
Single Return Joint Return Federal Marginal Rate Michigan State Marginal Rate
$ $ 26,250 $ $ 43,850 15.00% 4.40%
26,251 63,550 43,851 105,950 28.00% 4.40%
63,551 132,600 105,951 161,450 31.00% 4.40%
132,601 288,350 161,451 288,350 36.00% 4.40%
288,351 and up 288,351 and up 39.60% 4.40%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 TAX RATES***
Taxable Income*
Single Return Joint Return Federal Marginal Rate Combined Federal and State
Effective Rate**
$ $ 26,250 $ $ 43,850 15.00% 18.7400%
26,251 63,550 43,851 105,950 28.00% 31.1680%
63,551 132,600 105,951 161,450 31.00% 34.0360%
132,601 288,350 161,451 288,350 36.00% 38.8160%
288,351 and up 288,351 and up 39.60% 42.2576%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the alternative minimum tax, the
phaseout of personal exemptions, limitations on itemized deductions,
and other credits, exclusions, and adjustments which may increase a
taxpayer's marginal tax rate. Assumes a shareholder itemizes
deductions. An increase in a shareholder's marginal tax rate
would increase that shareholder's tax-equivalent yield.
***Does not take into account local taxes, if any, payable on
fund distributions.
Having determined your effective tax bracket, use the following table
to determine the tax-equivalent yield for a giv en tax-exempt
obligation's yield.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
If your combined federal and
state effective tax rate in
2000 is:
31.17% 34.04% 38.82% 42.26%
If a tax-exempt obligation's Tax-equivalent yield would be:
yield is:
2% 2.91% 3.03% 3.27% 3.46%
3% 4.36% 4.55% 4.90% 5.20%
4% 5.81% 6.06% 6.54% 6.93%
5% 7.26% 7.58% 8.17% 8.66%
6% 8.72% 9.10% 9.81% 10.39%
7% 10.17% 10.61% 11.44% 12.12%
</TABLE>
A fund may invest a portion of its assets in obli gations that are
subject to federal and/or state income taxes. When a fund invests in
these obligations, its tax-equivalent yield may be lower. In the table
above, the tax-equivalent yields are calculated assuming investments
are 100% exempt from federal and state income taxes.
RETURN CALCULATIONS. 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 a fund's NAV over a
stated period. A cumulative return reflects actual performance over a
stated period of time. Average annual 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 return of
100% over ten years would produce an average annual 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 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 returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote unaveraged or
cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative 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. Returns may be broken
down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of
these factors and their contributions to return. Returns may be quoted
on a before-tax or after-tax basis. After-tax returns reflect the
return of a hypothetical account after payment of federal and/or state
taxes using assumed tax rates. After-tax returns may assume that taxes
are paid at the time of distribution or once a year or are paid in
cash or by selling shares, that shares are held through the entire
period, sold on the last day of the period, or sold at a future date,
and distributions are reinvested or paid in cash. Returns may or may
not include the eff ect of a fund's small account fee. Excluding a
fund's small account fee from a return calculation produces a higher
return figure. Returns, yiel ds a nd 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 NAVs, adjusted NAVs,
and benchmark indexes 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 BOND FUND RESULTS. The following table shows the fund's
yield, tax-equivalent yield, and returns for the fiscal period ended
December 31, 1999.
HISTORICAL MONEY MARKET FUND RESULTS. The following table shows the
fund's 7-day yield, tax-equivalent yield, and returns for the fiscal
period ended December 31, 1999.
The tax-equivalent yields for Michigan Municipal Money Market
and Spartan Michigan Municipal Income are based on a combined
effective federal and state income tax rate of 38.82%.
As of December 31, 1999, an estimated 2.28% of Michigan Municipal
Money Market's income was subject to state taxes. Note that Michigan
Municipal Money Market may invest in securities whose income is
subject to the federal alternative minimum tax.
As of December 31, 1999, none of Spartan Michigan Municipal
Income's income was subject to state taxes. Note that Spartan Michigan
Municipal Income may invest in securities whose income is subject to
the federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Seven-Day Yield Tax- Equivalent Yield One Year Five Years Life of Fund*
MI Municipal Money Market 4.05% 6.63% 2.82% 3.07% 3.26%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Life of Fund*
MI Municipal Money Market 2.82% 16.35% 37.74%
</TABLE>
* From January 12, 1990 (commencement of operations).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Thirty-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
Spartan MI Municipal Income 5.08% 8.30% -2.63% 6.01% 6.17%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Ten Years
Spartan MI Municipal Income -2.63% 33.89% 81.91%
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, each fund's returns wo uld have been lower.
The following tables show the income and capital elements of each
fund's cumulative return. The tables compare each fund's return to the
record of the Standard & Poor's 500 Index (S&P 500(registered
trademark)), the Dow Jones Industrial Average (DJIA), and the cost of
living, as measured by the Consumer Price Index (CPI), over the same
period. The S&P 500 and DJIA comparisons are provided to show how each
fund's return compared to the record of a market
ca pitalization-weighted 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
Decem ber 31, 1999 or life of f und, as applicable, assuming all
distributions were reinvested. Returns are based on past results and
are not an indication of future performance. Tax consequences of
different investments have not been factored into the figures below.
During the period fro m January 12, 1990 (commencement of
operations) to December 31, 1999, a hypothetical $10,000 investment in
Michigan Municipal M oney Market would have grown to
$ 13,774 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FIDELITY MICHIGAN MUNICIPAL
MONEY MARKET FUND
Fiscal Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1999 $ 10,000 $ 3,774 $ 0 $ 13,774
1998 $ 10,000 $ 3,396 $ 0 $ 13,396
1997 $ 10,000 $ 3,005 $ 0 $ 13,005
1996 $ 10,000 $ 2,605 $ 0 $ 12,605
1995 $ 10,000 $ 2,238 $ 0 $ 12,238
1994 $ 10,000 $ 1,839 $ 0 $ 11,839
1993 $ 10,000 $ 1,557 $ 0 $ 11,557
1992 $ 10,000 $ 1,332 $ 0 $ 11,332
1991 $ 10,000 $ 1,038 $ 0 $ 11,038
1990* $ 10,000 $ 566 $ 0 $ 10,566
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FIDELITY MICHIGAN MUNICIPAL INDEXES
MONEY MARKET FUND
Fiscal Year Ended S&P 500 DJIA Cost of Living**
1999 $ 53,998 $ 53,539 $ 13,347
1998 $ 44,610 $ 42,113 $ 12,998
1997 $ 34,695 $ 35,667 $ 12,791
1996 $ 26,016 $ 28,566 $ 12,577
1995 $ 21,158 $ 22,195 $ 12,173
1994 $ 15,379 $ 16,234 $ 11,872
1993 $ 15,179 $ 15,465 $ 11,562
1992 $ 13,789 $ 13,219 $ 11,253
1991 $ 12,810 $ 12,320 $ 10,936
1990* $ 9,817 $ 9,908 $ 10,611
</TABLE>
* From January 12, 1990 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in 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 $ 13,774. If
distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash
payments for the period would have amounted to $3,207 for dividends
and $0 for capital gain distributions.
During the 1 0-year period ended December 31, 1999, a hypothetical
$10,000 investment in Spartan Michigan Municipal Income would have
grow n to $18,191.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN MICHIGAN MUNICIPAL
INCOME FUND
Fiscal Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1999 $ 9,793 $ 7,793 $ 605 $ 18,191
1998 $ 10,559 $ 7,470 $ 653 $ 18,682
1997 $ 10,477 $ 6,552 $ 643 $ 17,672
1996 $ 10,180 $ 5,536 $ 494 $ 16,210
1995 $ 10,414 $ 4,764 $ 502 $ 15,680
1994 $ 9,532 $ 3,594 $ 460 $ 13,586
1993 $ 11,117 $ 3,268 $ 304 $ 14,689
1992 $ 10,550 $ 2,332 $ 22 $ 12,904
1991 $ 10,279 $ 1,502 $ 0 $ 11,781
1990 $ 9,811 $ 704 $ 0 $ 10,515
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN MICHIGAN MUNICIPAL INDEXES
INCOME FUND
Fiscal Year Ended S&P 500 DJIA Cost of Living
1999 $ 53,289 $ 53,747 $ 13,347
1998 $ 44,024 $ 42,276 $ 12,998
1997 $ 34,240 $ 35,805 $ 12,791
1996 $ 25,674 $ 28,677 $ 12,577
1995 $ 20,880 $ 22,281 $ 12,173
1994 $ 15,177 $ 16,297 $ 11,872
1993 $ 14,980 $ 15,525 $ 11,562
1992 $ 13,608 $ 13,270 $ 11,253
1991 $ 12,642 $ 12,367 $ 10,936
1990 $ 9,688 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Michigan Municipal Income on January 1, 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 $ 18,812. 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 amount ed to $5,901 for dividends
and $473 for cap ital 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 Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on
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 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
indexes prepared by Lipper or other organizations. When comparing
these indexes, 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, a 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 bond fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
A fund's performance may also be compared to that of ea ch
b enchmark index representing the universe of securities in which
the fund may invest. The return of each index reflects reinvestment of
all dividends and capital gains paid by securities included in
eac h index. Unlike a fund's returns, however, each index's
returns do not reflect brokerage commissions, transaction fees, or
other costs of investing directly in the securities included in the
index.
The municipal bond fund may compare its performance to the Lehman
Brothers Municipal Bond Index, a market value-weighted index for
investment-grade municipal bonds with maturities of one year or more.
Issues included in the index have been issued after December 31, 1990
and have been issued as part of an offering of at least $50 million.
After December 31, 1995, zero coupon bonds and issues subject to the
alternative minimum tax are included in the index. Issues included in
the index prior to January 1, 2000 have an outstanding par value of at
least $3 million; while issues included in the index after January 1,
2000 have an outstanding par value of at least $5 million.
Spartan Michigan Municipal Income may also compare its performance
to that of the Lehman Brothers Michigan Municipal Bond Index, a market
value-weighted index of Michigan investment-grade municipal bonds with
maturities of one year or more. Issues included in the index have been
issued after December 31, 1990 and have been issued as part of an
offering of at least $50 million. After December 31, 1995, zero coupon
bonds and issues subject to the alternative minimum tax are included
in the index. Issues included in the index prior to January 1, 2000
have an outstanding par value of at least $3 million; while issues
included in the index after January 1, 2000 have an outstanding par
value of at least $5 million.
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 indexes.
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 returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes that may be developed and made
available in the future.
The 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 460 ta x-free money market funds.
A bond fund may compare and contrast in advertising the relative
advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal bond 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 sales
charges of many municipal bond mutual funds are lower than the
purchase cost of individual municipal bonds, which are generally
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; and
charitable giving. 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 f und's historical share price fluctuations
or 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 bond fund may also discuss or illustrate
examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate price movements over specific periods of
time for a bond fund. 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 Decemb er 31, 1999, FMR advised over $35 billion in municipal
fund assets, $143 billion in taxable fixed-income fund assets, $149
billion in money market fund assets, $630 billion in equ ity fund
assets, $22 billion in international fund assets, and $41 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, a 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, EXCHANGE AND REDEMPTION INFORMATION
A fund may make redemption payments in whole or in part in readily
marketable securities or other property, valued for this purpose as
they are valued in computing each fund's NAV, if FMR determines it is
in the best interest of the fund. Shareholders that receive
secur ities 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.
DISTRIBUTIONS AND TAXES
DIVIDENDS. To the extent that each fund's income is designated as
federally tax-exempt interest, the dividends declared by the fund are
also federally tax-exempt. Short-term capital gains are taxable as
dividends, but do not qualify for the dividends-received deduction.
Each 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.
Interest on certain "private activity" securities is subject to the
federal alternative minimum tax (AMT), although the interest continues
to be excludable from gross income for other tax purposes. Interest
from private activity securities will be considered tax-exempt for
purposes of each fund's policies of investing so that at least 80% of
its income distributions is free from federal income tax. Interest
from private activity securities is a tax preference item fo r the
purposes of determining whether a taxpayer is subject to the AMT and
the amount of AMT to be paid, if any.
A portion of the gain on municipal bonds purchased at market discount
after April 30, 1993 is taxable to shareholders as ordinary income,
not as capital gains. Dividends resulting from a recharacterization
of gain from the sale of bonds purchased at market discount after
April 30, 1993 are not considered income for purposes of each fund's
policy of investing so that at least 80% of its income distributions
is free from federal income tax.
MICHIGAN TAXES. Under a ruling of the Michigan Department of Treasury,
shareholders of Michigan Municipal Money Market and Spartan 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 and single business tax and may be subject to the city
income taxes imposed by certain Michigan citie s.
CAPITAL GAIN DIST RIBUTIONS. Each fund's long-term capital gain
distributions are federally taxable to shareholders generally as
capital gains. The money market fund may distribute any net realized
capital gains once a year or more often, as necessary.
As of December 31, 1999, Spartan Michigan Municipal Income had a
capital loss carryforward aggregating approximately $14,483,000. This
loss carryforward, of which $12,527,000 and $1,956,000 will expire on
December 31, 2006 and 2007, 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" under Subchapter M of the Internal
Revenue Code 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.
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. It is up to you or your tax preparer to determine
whether the sale of shares of a fund resulted in a capital gain or
loss or other tax consequence to you. 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.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trusts are listed below. The Board of Trustees governs each fund
and is responsible for protecting the interests of shareholders. The
Trustees are experienced executives who meet periodically throughout
the year to oversee each fund's activities, review contractual
arrangements with companies that provide services to each fund, and
review each fund's performance. 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 or its affiliates. The business address of each
Trustee, Member of the Advisory Board, and officer who is an
"interested person" (as defined in the 1940 Act) 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(registered trademark), 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 ( 69) , 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 Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; and a Director of FDC. Abig ail Johnson,
Member of the Advisory Board of Fidelity Municipal Trust and Fidelity
Municipal Trust II, is Mr. Johnson's daughter.
ABIGAIL P. JOHNSON (38), Member of the Advisory Board of Fidelity
Municipal Trust and Fidelity Municipal Trust II (1999), is Vice
President of certain Equity Funds (1997), and is a Director of FMR
Corp. (1994). Before assuming her current responsibilities, Ms.
Johnson managed a number of Fidelity funds. Edward C. Johnson 3d,
Trustee and President of the Funds, is Ms. Johnson's father.
RALPH F. COX ( 67 ), 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 Waste Management
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
and Bonneville Pacific (independent power and petr oleum
production). In addition, he is a member of advisory boards of Texas
A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS ( 68 ), Trustee. Mrs. Davis is retired from
Avon Products, Inc. where she held various positions including
Senior Vice President of Corporate Affairs and Group Vice President
of U.S. sales, distribution, and manufacturing. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton
Corporation (manufacturing), and the TJX Companies, Inc. (retail
stores), and previously served as a Director of Hallmark Cards, Inc.,
Nabisco Brands, Inc., and Standard Brands, Inc. In addition, she is a
member of the B oard of Directors of the Southampton Hospital in
Southampton, N.Y. (1998).
ROBERT M. GATES ( 56 ), Trustee (1997), is a consultant, author,
and lecturer (1993). Mr. Gates was Director of the Central
Intelli gence 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 a Director of Charles
Stark Draper Laboratory (non-profit), NACCO Industries, Inc. (mining
and manufacturing), and TRW Inc. (automotive, space, defense, and
information technology). Mr. Gates previously served as a Director of
Lucas Varity PLC (automotive components and diesel engines). He is
currently serving as Dean of the George Bush School of Government and
Public Service at Texas A & M University (1999-2000). Mr. Gates also
is a Trustee of the Forum for International Polic y and of the
Endowment Association of the College of William and Mary. In addition,
he is a member of the National Executive Board of the Boy Scouts of
America.
DONALD J. KIRK (6 7), Trustee, is Executive-in-Residence (1995)
at Columbia University Graduate School of Business. 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 previously served as a Director
of General Re Corporation (reinsuranc e, 1987-199 8) and as a
Director of Valuation Research Corp. (appraisals and valuations,
1993-1995). He serves as Chairman of the Board of Directors of
National Arts Stabilization Inc., Chairman of the Board of Trustees of
the Greenwich Hospital Association, Director of the Yale-New Haven
Health Services Corp. (1998), Vice Chairman 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).
NED C. LAUTENBACH (55), Trustee (2000), has been a partner of
Clayton, Dubilier & Rice, Inc. (private equity investment firm) since
September 1998. Mr. Lautenbach was Senior Vice President of IBM
Corporation from 1992 until his retirement in July 1998. From 1993 to
1995 he was Chairman of IBM World Trade Corporation. He also was a
member of IBM's Corporate Executive Committee from 1994 to July 1998.
He is a Director of PPG Industries Inc. (glass, coating and chemical
manufacturer), Dynatech Corporation (global communications equipment),
Eaton Corporation (global manufacturer of highly engineered products)
and ChoicePoint Inc. (data identification, retrieval, storage, and
analysis).
*PETER S. LYNCH (56 ), Trustee, is Vice Chairman and Director of
FMR. 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(registered trademark) 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 (6 6 ), Trustee (1997), is the Interim
Chancellor for the University of North Carolina at Chapel Hill.
Pre viously he had served from 1995 through 1998 as Vice President
of Finance for the University of North Carolina (16-school system).
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), Duke-Weeks Realty
Corporation (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), the Kenan Transport Company (trucking,
1996), and Dynatech Corporation (electronics, 1999). Previously, he
was a Director of First American Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy served as a member of the Board of
Visitors for the University of North Carolina at Chapel Hill
(1994-1998) and currently serves on the Board of Visitors of the
Kenan-Flager Business School (University of North Carolina at Chapel
Hill, 1988).
GERALD C. McDONOUGH ( 71) , Trustee and Chair man of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director and
Chairman of the Boar d 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 ( 66 ), Trustee (1993), is Chairman Emeritus, of
Lexmark International, Inc. (office machines, 1991) where he still
remains a member of the Board. 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). He is a
Board member of Dynatech Corporation (electronics, 199 9).
*ROBERT C. POZEN ( 53 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), 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 ( 71) , Trustee, is President of The Wales
Group, Inc. (management and financial advisory services). Prior to
re tiring 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 National Life Insurance Company of Vermont and American
Software, Inc. Mr. Williams was previously a Director of ConAgra, Inc.
(agric ultural products), Georgia Power Company (electric utility),
and Avado, Inc. (restaurants).
DWIGHT D. CHURCHILL ( 46) , is Vice President of Bond Funds,
Group Leader of the Bond Group, Senior Vice President of FMR (1997),
and Vice President of FIMM (1998). Mr. Churchill joined Fidelity in
1993 as Vice President and Group Leader of Taxable Fixed-Income
Investments.
BOYCE I. GREER ( 43), is Vice President of Money Market Funds
(1997), Group Leader of the Money Market Group (1997), Senior Vice
President of FMR (1997), and Vice President of FIMM (1998). 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).
FRED L. HENNING, JR. (60 ), is President of Fidelity
Investments Fixed-Income Division (1998), and Senior Vice President of
FMR and of Fidelity Investments Money Management, Inc. Mr. Henning
joined Fidelity in 1977 as portfolio manager for Fidelity Daily Income
Trust Fund. Since then, he has held a number of positions with FMR and
its affiliates and serves as an officer of other investment companies
managed or advised by FMR.
NORMAN U. LIND (43 ), is Vice President of Spartan Michigan
Municipal Income Fund (1998), and other funds advised by FMR. Prior to
his current responsibilities, Mr. Lind managed a variety of Fidelity
funds.
DIANE M. MCLAUGHLIN ( 36 ), is Vice President of Fidelity
Michigan Municipal Money Market Fund (1997), and other funds advised
by FMR. Prior to her current responsibilities, Ms. McLaughlin served
as a senior trader and has managed a variety of funds.
ERIC D. ROITER (51), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998) and Vice President and Clerk of FDC
(1998). Prior to joining Fidelity, Mr. Roiter was with the law firm of
Debevoise & Plimpton, as an associate (1981-1984) and as a partner
(1985-1997), and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981). Mr. Roiter was an
Adjunct Member, Faculty of Law, at Columbia University Law School
(1996-1997).
Robert A. Dwight (41), Treasurer (2000), is Treasurer of the
Fidelity funds and is an employee of FMR. Prior to becoming Treasurer
of the Fidelity funds, he served as President of Fidelity Accounting
and Custody Services (FACS). Before joining Fidelity, Mr. Dwight was
Senior Vice President of fund accounting operations for The Boston
Company.
MARIA F. DWYER (41), Deputy Treasurer (2000), is Deputy Treasurer
of the Fidelity funds and is a Vice President (1999) and an employee
(1996) of FMR. Prior to joining Fidelity, Ms. Dwyer served as Director
of Compliance for MFS Investment Management.
MATTHEW N. KARSTETTER ( 3 8), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
STANLEY N. GRIFFITH ( 53) , Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO ( 53 ), Assistant Treasurer, is an employee of
FMR.
THOMAS J. SIMPSON ( 41 ), Assistant Treasurer (1996), is
Assistant Treasurer of Fidelity's Fixed-Income Funds (1998) 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, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Members of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Michigan Municipal Money Spartan Michigan Municipal Fund Complex*,A
MarketB IncomeB
Edward C. Johnson 3d** $ 0 $ 0 $ 0
Abigail P. Johnson** $ 0 $ 0 $ 0
Ralph F. Cox $ 110 $ 133 $ 217,500
Phyllis Burke Davis $ 107 $ 129 $ 211,500
Robert M. Gates $ 110 $ 133 $ 217,500
E. Bradley Jones**** $ 110 $ 133 $ 217,500
Donald J. Kirk $ 110 $ 133 $ 226,500
Ned C. Lautenbach*** $ 27 $ 30 $ 54,000
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 108 $ 132 $ 214,500
Gerald C. McDonough $ 136 $ 165 $ 269,000
Marvin L. Mann $ 110 $ 133 $ 217,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 107 $ 131 $ 213,000
</TABLE>
* Information is for the calendar year ended December 31, 1999 for
236 funds in the complex.
** Interested Trustees of the funds and Ms. Johnson are compensated
by FMR.
*** During the period from October 14, 1999 through December 31,
1999, Mr. Lautenbach served as a Member of the Advisory Board.
Effective January 1, 2000, Mr. Lautenbach serves as a Member of the
Board of Trustees.
**** Mr. Jones served on the Board of Trustees through December 31,
1999.
A Compensation figures include cash, amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the calendar year ended December 31, 1999, the Trustees
accrued required deferred compensation from the funds as follows:
Ralph F. Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$75,000; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation as follows: Ralph F. Cox, $53,735; William O.
McCoy, $53,735; and Thomas R. Williams, $62,319.
B Compensation figures include cash.
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 subject to vesting and 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 31, 1999, the Trustees, Members of the Advisory
Board, and o fficers of each fund owned, in the aggregate, less
than 1% of each fund's total outstanding shar es.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and Fidelity Investments Money Management, Inc. (FIMM) . 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
investment 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.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT 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, au ditor, 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 1 billion .3700%
3 - 6 .3400 50 .2188
6 - 9 .3100 100 .1869
9 - 12 .2800 150 .1736
12 - 15 .2500 200 .1652
15 - 18 .2200 250 .1587
18 - 21 .2000 300 .1536
21 - 24 .1900 350 .1494
24 - 30 .1800 400 .1459
30 - 36 .1750 450 .1427
36 - 42 .1700 500 .1399
42 - 48 .1650 550 .1372
48 - 66 .1600 600 .1349
66 - 84 .1550 650 .1328
84 - 120 .1500 700 .1309
120 - 156 .1450 750 .1291
156 - 192 .1400 800 .1275
192 - 228 .1350 850 .1260
228 - 264 .1300 900 .1246
264 - 300 .1275 950 .1233
300 - 336 .1250 1,000 .1220
336 - 372 .1225 1,050 .1209
372 - 408 .1200 1,100 .1197
408 - 444 .1175 1,150 .1187
444 - 480 .1150 1,200 .1177
480 - 516 .1125 1,250 .1167
516 - 587 .1100 1,300 .1158
587 - 646 .1080 1,350 .1149
646 - 711 .1060 1,400 .1141
711 - 782 .1040
782 - 860 .1020
860 - 946 .1000
946 - 1,041 .0980
1,041 - 1,145 .0960
1,145 - 1,260 .0940
Over 1,260 .0920
</TABLE>
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
r ate at $826 billion of group net assets - the approximate level
for December 1999 - was 0.1267%, which is the weighted average of the
respec tive fee rates for each level of group net assets up to $826
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
19 9 9, 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
Michigan Municipal Money Market 0.1267% + 0.25% = 0.3767%
Spartan Michigan Municipal 0.1267% + 0.25% = 0.3767%
Income
</TABLE>
One-twelfth of the management fee rate is applied to each fund's
average net assets for the 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 December 31 Management Fees Paid to FMR
Michigan Municipal Money Market 1999 $ 1,492,726
1998 $ 1,211,365
1997 $ 1,041,389
Spartan Michigan Municipal 1999 $ 1,766,626
Income
1998 $ 1,788,097
1997 $ 1,745,102
</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, which is subject to revision
or discontinuance). 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 returns and
yield, and repayment of the reimbursement by a fund will lower its
returns and yield.
FMR volunt arily agreed to reimburse Spartan Michigan Municipal
Income if and to the extent that the fund's aggregate operating
expen ses, including management fees, were in excess of an annual
rate of its average net assets. The table below shows the periods of
reimbursement and level of expense limitations for the applicable
fund; the dollar amount of management fees incurred under the fund's
contract before reimbursement; and t he dollar amount of management
fees reimbursed by FMR under the expense reimbursement for each
period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Periods of Expense Limitation Aggregate Operating Expense
From To Limitation
Spartan Michigan Municipal January 1, 1999 December 31, 1999 0.55%
Income
January 1, 1998 December 31, 1998 0.55%
April 1, 1997 December 31, 1997 0.55%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Years Ended December 31 Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Spartan Michigan Municipal 1999 $ 1,766,626 $ 0
Income
1998 $ 1,788,097 $ 25,744
1997 $ 1,745,102 $ 95,333
</TABLE>
SUB-ADVISER. FMR h as entered into a sub-advisory agreement with
FIMM pursuant to which FIMM has primary responsibility for choosing
investments for each fund. Prior to January 23, 1998, FMR Texas Inc.
(FMR Texas) had primary responsibility for providing investment
management services to the money market fund. On January 23, 1998,
FMR Texas was merged into FIMM, which succeeded to the operations of
FMR Texas.
Under the terms of the sub-advisory agreements, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR under its management
contract with each fund. The fees paid to FIMM are not reduced by any
voluntary or mandatory expense reimbursements that may be in effect
from time to time.
On behalf of the money market fund, for the fiscal year ended December
31, 1998 and 1997, FMR paid FMR Texas fees of $ 36,507 and
$520,694, respectively. On behalf of the money market fund, for the
fiscal year ended December 31, 1999 and 1998, FMR paid FIMM fees of
$ 746,363 and $569,175, respectively.
On b ehalf of Spartan Michigan Municipal Income, for the fiscal year
ended December 31, 1999, FMR paid FIMM fees of $883,313 .
DISTRIBUTION SERVICES
Each fund has entered into a distribution agreement with FDC,
a n affiliate of FMR. 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.
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 providing services intended to
result in the sale of fund shares and/or shareholder support services.
In addition, each Plan provides that FMR, directly or through FDC, may
pay intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for Michigan Municipal Money
Market and Spartan Michigan Municipal Income 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 or stabilization of cash flows 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 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.
FDC may compensate intermediaries that satisfy certain criteria
established from time to time by FDC relating to the level or type of
services provide d by the intermediary, the sale or expected sale
of significant amounts of shares, or other factors.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each fund has entered into a transfer agen t agreement with
Citibank, N.A. (Citibank), which is located at 111 Wall Street, New
York, New York. Under the terms of the agreements, Citibank provides
transfer agency, dividend disbursing, and shareholder services for
each fund. Citibank in turn has entered into s ub-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 Citibank.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type and fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
I n add ition, Citibank receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in a qualified
state tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and in each
Fidelity Freedom Fund a nd Fidelity Four-in-One Index Fund, funds of
funds managed by an FMR affiliate, according to the percentage of the
QSTP's, Freedom Fund's or Fidelity Four-in-One Index Fund's assets
that is invested in a fund, subject to certain limitations in the case
of Fidelity Four-in-One In dex 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
C itibank. Under the terms of the agreements, Citibank provides
pricing and bookkeeping services for each fund. Citibank in turn has
en tered 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 C itibank .
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 rates f or pricing and bookkeeping services for the
domestic fixed-income fund are 0.0275% of the first $500 million of
average net assets, 0.0175% of average net assets between $500 million
and $3 billion, 0.0021% of average net assets between $3 billion and
$25 billion, and 0.00075% of average net assets in excess of $25
billion. The fee, not including reim bursement for out-of-pocket
expenses, is limited to a minimum of $60,000 per year.
The annua l rates for pricing and bookkeeping services for
the money market fund are 0.0150% of the first $500 million of
average net assets, 0.0075% of average net assets between $500 million
and $10 billion, 0.0021% of average net assets between $10 billion and
$25 billion, and 0.00075% of average net assets in excess of $25
billion. The fee, not includin g reimbursement for out-of-pocket
expenses, is limited to a minimum of $40,000 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 1999 1998 1997
Michigan Municipal Money Market $ 72,509 $ 64,380 $ 57,582
Spartan Michigan Municipal $ 138,711 $ 195,895 $ 190,407
Income
DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Fidelity Michigan Municipal Money Mark et Fund
is a fund o f Fidelity Municipal Trust II, an open-end management
in vestment company orga nized as a Delaware business trust on
June 20, 1991. On February 20, 1996, Fidelity Michigan Muni cipal
Money Market Fund changed its name from Fidelity Michigan Money
Market Portfolio to Fidelity Michigan Municipal Money Market Fund.
Currently, there are three funds in Fidelity Michigan Municipal
Trust II: Fidelity Michigan Municipal Money Market Fund, Fidelity Ohio
Municipal Money Market Fund and Spartan Pennsylvania Municipal Money
Market Fund. Spartan Michigan Municipal Income Fund is a fund of
Fidelity Municipal Trust, a n open-end management in vestment
company orga nized as a Massachusetts business trust on June 22,
1984 . On February 20, 1996, Spartan Michigan Municipal Income Fund
changed its name from Fidelity Michigan Tax-Free High Yield Portfolio
to Fidelity Michigan Municipal Income Fund. On April 1, 1997,
Spar tan Michiga n Municipal Income Fund changed its name from
Fidelity Michigan Municipal Income Fund to Spartan Michigan Municipal
Income Fund. Currently, there are five funds in Fidelity
Municipal Trust: Spartan Michigan Municipal Income Fund, Spartan
Minnesota Municipal Income Fund , Spartan Ohio M unicipal Income
Fund, Spartan Pennsylvania Municipal Income Fund, and Spartan
Municipal In come Fund. The Trustees are permitted to create
additional funds in the trusts.
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 to the rights of creditors, are allocated to such
fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in a trust shall be charged with the
liabilities and expenses attributable to such fund. Any general
expenses of the respective trusts shall be all ocated between or
among any one or more of its funds.
The assets of the Massachusetts trust received for the issue or sale
of shares of each of its funds and all income, earnings, profits, and
proceeds thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the Massachusetts trust shall be
charged with the liabilities and expenses attributable to such fund.
Any general expenses of the Massachusetts trust shall be allocated
between or among any one or more of its funds.
The assets of the Delaware trust received for the issue or sale of
shares of each of its funds and all income, earnings, profits, and
proceeds thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the Delaware trust shall be charged
with the liabilities and expenses attributable to such fund. Any
general expenses of the Delaware trust shall be allocated between or
among any one or more of its funds.
SHAREHOLDER LIABILITY - MASSACHUSETTS TRUST. The Massachusetts trust
is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the
trust.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
trust or fund. 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 relating to the
trust or to a fund shall include a provision limiting the obligations
created thereby to the Massachusetts trust or to one or more funds and
its or their assets. The Declaration of Trust further provides that
shareholders of a fund shall not have a claim on or right to any
assets belonging to any other fund.
The Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. 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.
SHAREHOLDER 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. The Trust Instrument
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 relating to the trust or to a
fund shall include a provision limiting the obligations created
thereby to the trust or to one or more funds and its or their assets.
The Trust Instrument further provides that shareholders of a fund
shall not have a claim on or right to any assets belonging to any
other fund.
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 solely by reason of his or her
being or having been a shareholder and not because of his or her acts
or omissions or for some other reason. 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 a 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.
VOTING RIGHTS - MASSACHUSETTS TRUST. Each fund's capital consists of
shares of beneficial interest. As a shareholder, you are entitled to
one vote for each dollar of net asset value you own. The voting rights
of shareholders can be changed only by a shareholder vote. Shares may
be voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to, or merger with, another open-end management investment
company or series thereof, or upon liquidation and distribution of its
assets. Generally, the merger of the trust or a fund with another
entity or the sale of substantially all of the assets of the trust or
a fund to another entity requires approval by a vote of shareholders
of the trust or the fund. The Trustees may, however, reorganize or
terminate the trust or any of its funds without prior shareholder
approval. In the event of the dissolution or liquidation of the trust,
shareholders of each of its funds are entitled to receive the
underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of the fund
available for distribution.
VOTING RIGHTS - DELAWARE TRUST. Each fund's capital consists of shares
of beneficial interest. As a shareholder, you are entitled to one vote
for each dollar of net asset value you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to another open-end management investment company or series
thereof, or upon liquidation and distribution of its assets. Generally
such terminations must be approved by a vote of shareholders. In the
event of the dissolution or liquidation of the trust, shareholders of
each of its funds are entitled to receive the underlying assets of
such fund available for distribution. In the event of the dissolution
or liquidation of a fund, shareholders of that fund are entitled to
receive the underlying assets of the fund available for distribution.
Under the Trust Instrument, the Trustees may, without shareholder
vote, in order to change the form of organization of the trust cause
the trust to merge or consolidate with one or more trusts,
partnerships, associations, limited liability companies or
corporations, as long as the surviving entity is an open-end
management investment company, or is a fund thereof, that will succeed
to or assume the trust's registration statement, or cause the trust to
incorporate under Delaware law.
CUSTODIAN. Citiba nk, N.A., 11 1 Wall Street, New York, New York,
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.
FMR, its officers and directors, its affiliated companies, and members
of 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. PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts , serves as independent accountant for each fund.
The auditor examines financial statements for the funds and provides
other audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial stat ements and financial highl ights for
the fiscal year ended December 31, 1999 , and report of the auditor,
are included in the fun d's annual repo rt and are incorporated
herein by reference.
APPENDIX
Fidelity, Spartan, Fid elity Investments & (Pyramid) Design,
Fidelity Focus, Fidelity Investments and Magellan are registered
trademarks of FMR Corp.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.
Like securities of all mutual
funds, these securities have
not been approved or
disapproved by the
Securities and Exchange
Commission, and the
Securities and Exchange
Commission has not
determined if this
prospectus is accurate or
complete. Any
representation to the
contrary is a criminal
offense.
SPARTAN(REGISTERED TRADEMARK)
MUNICIPAL
FUNDS
SPARTAN INTERMEDIATE MUNICIPAL INCOME FUND
(fund number 036, trading symbol FLTMX)
SPARTAN MUNICIPAL INCOME FUND
(fund number 037, trading symbol FHIGX)
PROSPECTUS
FEBRUARY 28, 2000
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
FUND SUMMARY 2 INVESTMENT SUMMARY
3 PERFORMANCE
5 FEE TABLE
FUND BASICS 7 INVESTMENT DETAILS
8 VALUING SHARES
SHAREHOLDER INFORMATION 8 BUYING AND SELLING SHARES
16 EXCHANGING SHARES
16 ACCOUNT FEATURES AND POLICIES
19 DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS
19 TAX CONSEQUENCES
FUND SERVICES 20 FUND MANAGEMENT
20 FUND DISTRIBUTION
APPENDIX 20 FINANCIAL HIGHLIGHTS
FUND SUMMARY
INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
SPARTAN INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a level of
current income, exempt from federal income tax, as is consistent with
the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally investing in investment-grade municipal
debt securities (those of medium and high quality).
(small solid bullet) Normally investing at least 80% of assets in
municipal securities whose interest is exempt from federal income tax.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers 1-17 Year Municipal Bond
Index.
(small solid bullet) Normally maintaining a dollar-weighted average
maturity between three and ten years.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features and
current pricing, trading opportunities, and the credit quality of its
issuer to select investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently from
the value of the market as a whole.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE
SPARTAN MUNICIPAL INCOME FUND seeks to provide a high current yield
exempt from federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally investing in investment-grade municipal
debt securities (those of medium and high quality).
(small solid bullet) Normally investing at least 80% of assets in
municipal securities whose interest is exempt from federal income tax.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers 3 Plus Year Municipal Bond
Index.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features and
current pricing, trading opportunities, and the credit quality of its
issuer to select investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently from
the value of the market as a whole.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in each fund's
performance from year to year and compares each fund's performance to
the performance of a market index and an average of the performance of
similar funds over various periods of time. Each fund also compares
its performance to the performance of an additional index over various
periods of time. Data for the additional indexes is available only
from June 30, 1993 to the present. Returns are based on past results
and are not an indication of future performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR-BY-YEAR RETURNS
SPARTAN INTERMEDIATE
MUNICIPAL INCOME
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
6.97% 11.19% 8.17% 12.24% -4.76% 14.84% 4.43% 8.23% 5.89% -1.06%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 6.970000000000001
Row: 2, Col: 1, Value: 11.19
Row: 3, Col: 1, Value: 8.17
Row: 4, Col: 1, Value: 12.24
Row: 5, Col: 1, Value: -4.76
Row: 6, Col: 1, Value: 14.84
Row: 7, Col: 1, Value: 4.430000000000001
Row: 8, Col: 1, Value: 8.229999999999999
Row: 9, Col: 1, Value: 5.89
Row: 10, Col: 1, Value: -0.9500000000000001
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN INTERMEDIATE
MUNICIPAL INCOME, THE HIGHEST RETURN FOR A QUARTER WAS 6.09%
(QUARTER ENDED MARCH 31, 1995 ) AND THE LOWEST RETURN FOR A
QUARTER WAS -5.20% (QUARTER ENDED MARCH 31, 1994 ).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN MUNICIPAL INCOME
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
8.47% 10.18% 8.36% 13.11% -7.45% 16.18% 4.94% 9.23% 6.04% -2.48%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 8.470000000000001
Row: 2, Col: 1, Value: 10.18
Row: 3, Col: 1, Value: 8.360000000000001
Row: 4, Col: 1, Value: 13.11
Row: 5, Col: 1, Value: -7.45
Row: 6, Col: 1, Value: 16.18
Row: 7, Col: 1, Value: 4.94
Row: 8, Col: 1, Value: 9.229999999999999
Row: 9, Col: 1, Value: 6.04
Row: 10, Col: 1, Value: -2.48
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN MUNICIPAL INCOME,
THE HIGHEST RETURN FOR A QUARTER WAS 6.68% (QUARTER ENDED
MARCH 31, 1995 ) AND THE LOWEST RETURN FOR A QUARTER WAS
-6.03% (QUARTER ENDED MARCH 31, 1994 ).
AVERAGE ANNUAL RETURNS
For the periods ended Past 1 year Past 5 years Past 10 years
December 31, 1999
Spartan Intermediate -1.06% 6.34% 6.46%
Municipal Income
Lehman Bros. Muni. Bond Index -2.06% 6.91% 6.89%
Lehman Bros. 1-17 year Muni. -0.20% 6.60% n/a
Bond Index
Lipper Intermediate Muni. -1.65% 5.55% 5.91%
Debt Funds Average
Spartan Municipal Income -2.48% 6.61% 6.44%
Lehman Bros. Muni. Bond Index -2.06% 6.91% 6.89%
Lehman Bros. 3 Plus Year -2.68% 6.99% n/a
Municipal Bond Index
Lipper General Muni. Debt -4.63% 5.76% 6.18%
Funds Average
The Lehman Brothers Municipal Bond Index is a market value-weighted
index of investment-grade municipal bonds with maturities of one year
or more.
The Lehman Brothers 1-17 Year Municipal Bond Index is a market
value-weighted index of investment-grade municipal bonds with
maturities between one and 17 years.
The Lehman Brothers 3 Plus Year Municipal Bond Index is a market
value-weighted index of investment-grade municipal bonds with
maturities of three years or more.
Each Lipper Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold, or sell shares of a fund. The annual fund
operating expenses provided below for each fund are based on
historical expenses.
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
Sales charge (load) on None
purchases and reinvested
distributions
Deferred sales charge (load) None
on redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
SPARTAN INTERMEDIATE Management fee 0.36%
MUNICIPAL INCOME
Distribution and Service None
(12b-1) fee
Other expenses 0.12%
Total annual fund operating 0.48%
expenses
SPARTAN MUNICIPAL INCOME Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.11%
Total annual fund operating 0.49%
expensesA
A EFFECTIVE AUGUST 20, 1998, FMR HAS AGREED TO REIMBURSE SPARTAN
MUNICIPAL INCOME TO THE EXTENT THAT TOTAL OPERATING EXPENSES
(EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS, AND EXTRAORDINARY
EXPENSES), AS A PERCENTAGE OF ITS AVERAGE NET ASSETS, EXCEED 0.53%.
THIS ARRANGEMENT WILL REMAIN IN EFFECT THROUGH DECEMBER 31, 2000.
This EXAMPLE helps you compare the cost of investing in the funds with
the cost of investing in other mutual funds.
Let's say, hypothetically, that each fund's annual return is 5% and
that your shareholder fees and each fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account at the end of each time period
indicated :
SPARTAN INTERMEDIATE 1 year $ 49
MUNICIPAL INCOME
3 years $ 154
5 years $ 269
10 years $ 604
SPARTAN MUNICIPAL INCOME 1 year $ 50
3 years $ 157
5 years $ 274
10 years $ 616
FUND BASICS
INVESTMENT DETAILS
INVESTMENT OBJECTIVE
SPARTAN INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a level of
current income, exempt from federal income tax, as is consistent with
the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in investment-grade municipal
debt securities (those of medium and high quality).
FMR normally invests so that at least 80% of the fund's assets are
invested in municipal securities whose interest is exempt from
federal income tax. Although FMR does not currently intend to invest
the fund's assets in municipal securities whose interest is subject to
federal income tax, FMR may invest all of the fund's assets in
municipal securities whose interest is subject to the federal
alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation, and utilities.
FMR uses the Lehman Brothers 1-17 Year Municipal Bond Index as a guide
in structuring the fund and selecting its investments. FMR manages the
fund to have similar overall interest rate risk to the index. In
addition, the fund normally maintains a dollar-weighted average
maturity between three and ten years. As of December 31, 1999, the
dollar-weighted average maturity of the fund and the index was
approximately 8.2 and 7.9 years, respectively.
FMR allocates the fund's 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.
In buying and selling securities for the fund, FMR analyzes a
security's structural features and current price compared to its
estimated long-term value, any short-term trading opportunities
resulting from market inefficiencies, and the credit quality of its
issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates, or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
INVESTMENT OBJECTIVE
SPARTAN MUNICIPAL INCOME FUND seeks to provide a high current yield
exempt from federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in investment-grade municipal
debt securities (those of medium and high quality).
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is exempt from federal income tax. Although
FMR does not currently intend to invest the fund's assets in municipal
securities whose interest is subject to federal income tax, FMR may
invest all of the fund's assets in municipal securities whose interest
is subject to the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation, and utilities.
FMR uses the Lehman Brothers 3 Plus Year Municipal Bond Index as a
guide in structuring the fund and selecting its investments. FMR
manages the fund to have similar overall interest rate risk to the
index. As of December 31 , 1999, the dollar-weighted average
maturity of the fund and the index was approximately 15.0 and
15.2 years, respectively.
FMR allocates the fund's 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 and maturity.
In buying and selling securities for the fund, FMR analyzes a
security's structural features and current price compared to its
estimated long-term value, any short-term trading opportunities
resulting from market inefficiencies, and the credit quality of its
issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates, or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable, or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest but
are sold at a discount from their face values. Municipal debt
securities include general obligation bonds of municipalities, local
or state governments, project or revenue-specific bonds, or
pre-refunded or escrowed bonds.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
and private purposes, including general financing for state and local
governments, or financing for a specific project or public facility.
Municipal securities may be fully or partially backed by the local
government, by the credit of a private issuer, by the current or
anticipated revenues from a specific project or specific assets, or by
domestic or foreign entities providing credit support such as letters
of credit, guarantees, or insurance.
PRINCIPAL INVESTMENT RISKS
Many factors affect each fund's performance. A fund's yield and share
price change daily based on changes in interest rates and market
conditions and in response to other economic, political, or financial
developments. A fund's reaction to these developments will be affected
by the types and maturities of securities in which the fund invests,
the financial condition, industry and economic sector, and geographic
location of an issuer, and the fund's level of investment in the
securities of that issuer. When you sell your shares of a fund, they
could be worth more or less than what you paid for them.
The following factors can significantly affect a fund's performance:
MUNICIPAL MARKET VOLATILITY. Municipal securities can be significantly
affected by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes, or the
rights of municipal security holders. Because many municipal
securities are issued to finance similar projects, especially those
relating to education, health care, transportation, and utilities,
conditions in those sectors can affect the overall municipal market.
In addition, changes in the financial condition of an individual
municipal insurer can affect the overall municipal market.
INTEREST RATE CHANGES. Debt securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when
interest rates fall. Securities with longer maturities can be more
sensitive to interest rate changes. In other words, the longer the
maturity of a security, the greater the impact a change in interest
rates could have on the security's price. In addition, short-term and
long-term interest rates do not necessarily move in the same amount or
the same direction. Short-term securities tend to react to changes in
short-term interest rates, and long-term securities tend to react to
changes in long-term interest rates.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of security or issuer, and changes in general
economic or political conditions can affect the credit quality or
value of an issuer's securities. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more sensitive to
these changes than higher-quality debt securities. Municipal
securities backed by current or anticipated revenues from a specific
project or specific assets can be negatively affected by the
discontinuance of the taxation supporting the project or assets or the
inability to collect revenues for the project or from the assets. If
the Internal Revenue Service determines an issuer of a municipal
security has not complied with applicable tax requirements, interest
from the security could become taxable and the security could decline
significantly in value.
In response to market, economic, political, or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect a fund's
performance, and a fund could distribute income subject to federal
income tax.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
SPARTAN INTERMEDIATE MUNICIPAL INCOME FUND seeks as high a level of
current income, exempt from federal income tax, as is consistent with
the preservation of capital.
SPARTAN MUNICIPAL INCOME FUND seeks to provide a high current yield
exempt from federal income tax.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates each fund's NAV as of the close of
business 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). Each fund's
assets are valued as of this time for the purpose of computing the
fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
Each fund's assets are valued primarily on the basis of information
furnished by a pricing service or market quotations. If market
quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the market
on which the security is principally traded, that security may be
valued by another method that the Board of Trustees believes
accurately reflects fair value. A security's valuation may differ
depending on the method used for determining value.
SHAREHOLDER INFORMATION
BUYING AND SELLING SHARES
GENERAL INFORMATION
Fidelity Investments(registered trademark) 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-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
w eb site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's w eb site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use Fidelity Automated Service Telephone (FASTSM),
1-800-544-5555.
(small solid bullet) For exchanges, redemptions, and account
assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and brokerage information,
1-800-544-6666.
(small solid bullet) For retirement information, 1-800-544-4774.
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5587
You may buy or sell shares of the funds through an investment
professional. If you invest through an investment professional, the
procedures for buying, selling, and exchanging shares of a fund and
the account features and policies may differ. Additional fees may also
apply to your investment in a fund, including a transaction fee if you
buy or sell shares of the fund through a broker or other investment
professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of each fund is the fund's NAV. Each fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of a fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, a fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
that fund. For these purposes, FMR may consider an investor's trading
history in that fund or other Fidelity funds, and accounts under
common ownership or control.
Each fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, 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) Fidelity 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
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (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 order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT $10,000
Through regular investment plans $500
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans $500
MINIMUM BALANCE $5,000
These minimums may be lower for purchases through a Fidelity
GoalPlannerSM account in Spartan Intermediate Municipal Income.
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory ServicesSM
or a qualified state tuition program. In addition, each fund may waive
or lower purchase minimums in other circumstances.
KEY INFORMATION
PHONE 1-800-544-6666 TO OPEN AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
(small solid bullet) Use
Fidelity Money
Line(registered trademark)
to transfer from your bank
account.
INTERNET WWW.FIDELITY.COM TO OPEN AN ACCOUNT
(small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account.
MAIL FIDELITY INVESTMENTS TO OPEN AN ACCOUNT
P.O. BOX 770001 CINCINNATI, (small solid bullet) Complete
OH 45277-0002 and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address at
left.
TO ADD TO AN ACCOUNT
(small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address at left.
(small solid bullet) Exchange
from another Fidelity fund.
Send a letter of instruction
to the address at left,
including your name, the
funds' names, the fund
account numbers, and the
dollar amount or number of
shares to be exchanged.
IN PERSON TO OPEN AN ACCOUNT
(small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
TO ADD TO AN ACCOUNT
(small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
WIRE TO OPEN AN ACCOUNT
(small solid bullet) Call
1-800-544-6666 to set up
your account and to arrange
a wire transaction.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
# 021001033, Account #
00163053.
(small solid bullet) Specify
the complete name of the
fund and include your new
fund account number and your
name.
TO ADD TO AN ACCOUNT
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing # 021001033, Account
# 00163053.
(small solid bullet) Specify
the complete name of the
fund and include your fund
account number and your name.
AUTOMATICALLY TO OPEN AN ACCOUNT
(small solid bullet) Not
available.
TO ADD TO AN ACCOUNT
(small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark) or Direct Deposit.
(small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from a
Fidelity money market fund.
SELLING 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 in proper form.
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 sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 15 or 30 days, depending on your account ;
(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.
When you place an order to sell shares, note the following:
(small solid bullet) 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, except accounts not subject to account minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
a fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(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) Redemption proceeds may be paid in securities or
other property rather than in cash if FMR determines it is in the best
interests of a fund.
(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) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY INFORMATION
PHONE 1-800-544-6666 (small solid bullet) Call the
phone number at left to
initiate a wire transaction
or to request a check for
your redemption.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
(small solid bullet) Exchange
to another Fidelity fund.
Call the phone number at left.
INTERNET WWW.FIDELITY.COM (small solid bullet) Exchange
to another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
MAIL FIDELITY INVESTMENTS INDIVIDUAL, JOINT TENANT,
P.O. BOX 660602 DALLAS, TX SOLE PROPRIETORSHIP, UGMA,
75266-0602 UTMA
(small solid bullet) Send a
letter of instruction to the
address at left, including
your name, the fund's name,
your fund account number,
and the dollar amount or
number of shares to be sold.
The letter of instruction
must be signed by all
persons required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Send a
letter of instruction to the
address at left, including
the trust's name, the fund's
name, the trust's fund
account number, and the
dollar amount or number of
shares to be sold. The
trustee must sign the letter
of instruction 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) Send a
letter of instruction to the
address at left, including
the firm's name, the fund's
name, the firm's fund
account number, and the
dollar amount or number of
shares to be sold. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Call
1-800-544-6666 for
instructions.
IN PERSON INDIVIDUAL, JOINT TENANT,
SOLE PROPRIETORSHIP, UGMA,
UTMA
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
trustee must sign the letter
of instruction 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) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Visit a
Fidelity Investor Center for
instructions. Call
1-800-544-9797 for the
center nearest you.
AUTOMATICALLY (small solid bullet) Use
Personal Withdrawal Service
to set up periodic
redemptions from your account.
CHECK (small solid bullet) Write a
check to sell shares from
your account.
EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
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 policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only 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) Exchanges may have tax consequences for you.
(small solid bullet) Each fund may 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 will be counted together for purposes of
the four exchange limit.
(small solid bullet) Each fund may 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.
The funds may terminate or modify the exchange privileges in the
future.
Other funds may have different exchange restrictions, and may impose
trading fees of up to 3.00% of the amount exchanged. Check each fund's
prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
funds.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between accounts, or out of your account. While
automatic investment programs 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 retirement, a home, educational expenses,
and other long-term financial goals. Automatic withdrawal or exchange
programs can be a convenient way to provide a consistent income flow
or to move money between your investments.
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC ACCOUNT
BUILDER(registered
trademark) TO MOVE MONEY
FROM YOUR BANK ACCOUNT TO A
FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$500 Monthly or quarterly (small solid bullet) To set
up for a new account,
complete the appropriate
section on the fund
application.
(small solid bullet) To set
up for existing accounts,
call 1-800-544-6666 or visit
Fidelity's web site for an
application.
(small solid bullet) To make
changes, 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 FUND.A
MINIMUM FREQUENCY PROCEDURES
$500 Every pay period (small solid bullet) To set
up for a new account, check
the appropriate box on the
fund application.
(small solid bullet) To set
up for an existing account,
call 1-800-544-6666 or visit
Fidelity's web site for an
authorization form.
(small solid bullet) To make
changes you will need a new
authorization form. Call
1-800-544-6666 or visit
Fidelity's web site to
obtain one.
A BECAUSE THEIR SHARE PRICES
FLUCTUATE, THESE FUNDS MAY
NOT BE APPROPRIATE CHOICES
FOR DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.
FIDELITY AUTOMATIC EXCHANGE
SERVICE TO MOVE MONEY FROM A
FIDELITY MONEY MARKET FUND
TO ANOTHER FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$500 Monthly, bimonthly, (small solid bullet) To set
quarterly, or annually up, call 1-800-544-6666
after both accounts are
opened.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
exchange date.
PERSONAL WITHDRAWAL SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM YOUR
ACCOUNT TO YOU OR TO YOUR
BANK ACCOUNT.
FREQUENCY PROCEDURES
Monthly (small solid bullet) To set
up, call 1-800-544-6666.
(small solid bullet) To make
changes, call Fidelity at
1-800-544-6666 at least
three business days prior to
your next scheduled
withdrawal date.
</TABLE>
OTHER FEATURES. The following other features are also available to buy
and sell shares of the funds.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(small solid bullet) You must sign up for the wire feature before
using it. Complete the appropriate section on the application when
opening your account, or call 1-800-544-6666 to add the feature after
your account is opened. Call 1-800-544-6666 before your first use to
verify that this feature is set up on your account.
(small solid bullet) To sell shares by wire, you must designate the
U.S. commercial bank account(s) into which you wish the redemption
proceeds deposited.
FIDELITY MONEY LINE
TO TRANSFER MONEY BETWEEN YOUR BANK ACCOUNT AND YOUR FUND ACCOUNT.
(small solid bullet) You must sign up for the Money Line feature
before using it. Complete the appropriate section on the application
and then call 1-800-544-6666 or visit Fidelity's w eb site
before your first use to verify that this feature is set up on your
account.
(small solid bullet) Most transfers are complete within three business
days of your call.
(small solid bullet) Minimum purchase: $500
(small solid bullet) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544-0240 OR VISIT FIDELITY'S W EB SITE FOR MORE
INFORMATION.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) For access to research and analysis tools.
FIDELITY ONLINE TRADING
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S
W EB SITE.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) To obtain quotes;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) To access third-party research on companies,
stocks, mutual funds and the market.
FAST
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATICALLY BY PHONE USING TOUCH
TONE OR SPEECH RECOGNITION.
CALL 1-800-544-5555.
(small solid bullet) For account balances and holdings;
(small solid bullet) For mutual fund and brokerage trading;
(small solid bullet) To obtain quotes;
(small solid bullet) To review orders and mutual fund activity; and
(small solid bullet) To change your personal identification number
(PIN).
CHECKWRITING
TO REDEEM SHARES FROM YOUR ACCOUNT.
(small solid bullet) To set up, complete the appropriate section on
the application.
(small solid bullet) All account owners must sign a signature card to
receive a checkbook.
(small solid bullet) You may write an unlimited number of checks.
(small solid bullet) Minimum check amount: $1,000.
(small solid bullet) Do not try to close out your account by check.
(small solid bullet) To obtain more checks, call Fidelity at
1-800-544-6666.
POLICIES
The following policies apply to you as a shareholder.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund or another fund and certain transactions through automatic
investment or withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(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 a fund. Call Fidelity at 1-800-544-8544 if you
need additional copies of financial reports or prospectuses.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's w eb site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's
w eb site for more information.
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 sell and
exchange by telephone, call Fidelity for instructions.
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.
Fidelity may 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 Fidelity, 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
accounts with Fidelity maintained by Fidelity Service Company, Inc. 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 (except accounts not
subject to account minimums), you will be given 30 days' notice to
reestablish the minimum balance. If you do not increase your balance,
Fidelity may close your account and send the proceeds to you. Your
shares will be sold at the NAV on the day your account is closed.
Fidelity may charge a FEE FOR CERTAIN SERVICES, such as providing
historical account documents.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each fund earns interest, dividends, and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. Each fund also realizes capital gains from
its investments, and distributes these gains (less any losses) to
shareholders as capital gain distributions.
Each fund normally declares dividends daily and pays them monthly.
Spartan Intermediate Municipal Income normally pays capital gain
distributions in February and December and Spartan Municipal Income
normally pays capital gain distributions in January and December.
EARNING DIVIDENDS
Shares begin to earn dividends on the first business day following the
day of purchase.
Shares earn dividends until, but not including, the next business day
following the day of redemption.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
each fund's distributions:
1. REINVESTMENT OPTION. Your dividends 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 in additional shares of the fund. Your
dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital gain distributions will be
paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gain distributions will be
automatically invested in shares of another identically registered
Fidelity fund, automatically reinvested in additional shares of the
fund, or paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in a fund could have tax
consequences for you.
TAXES ON DISTRIBUTIONS. Each fund seeks to earn income and pay
dividends exempt from federal income tax.
Income exempt from federal income tax may be subject to state or local
tax. A portion of the dividends you receive may be subject to federal
and state income taxes and also may be subject to the federal
alternative minimum tax. You may also receive taxable distributions
attributable to a fund's sale of municipal bonds.
For federal tax purposes, each fund's distributions of short-term
capital gains and gains on the sale of bonds characterized as market
discount are taxable to you as ordinary income, while each fund's
distributions of long-term capital gains are taxable to you generally
as capital gains.
If a fund's distributions exceed its income and capital gains realized
in any year, all or a portion of those distributions may be treated as
a return of capital to shareholders for tax purposes. A return of
capital generally will not be taxable to you but will reduce the cost
basis of your shares and result in a higher reported capital gain or a
lower reported capital loss when you sell your shares.
If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will be "buying a dividend" by paying the
full price for the shares and then receiving a portion of the price
back in the form of a potentially taxable distribution.
Any taxable distributions you receive from a fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your redemptions, including exchanges, may
result in a capital gain or loss for federal tax purposes. A capital
gain or loss on your investment in a fund generally is the difference
between the cost of your shares and the price you receive when you
sell them.
FUND SERVICES
FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
FMR is each fund's manager.
As of March 25, 1999 , FMR had approximately $ 521.7
billion in discretionary assets under management.
As the manager, FMR is responsible for choosing each fund's
investments and handling its business affairs.
Fidelity Investments Money Management, Inc. (FIMM), in Merrimack, New
Hampshire, serves as sub-adviser for each fund. FIMM is primarily
responsible for choosing investments for each fund.
FIMM is an affiliate of FMR. As of March 29, 1999 , FIMM had
approximately $ 159.8 billion in discretionary assets under
management.
Norm Lind is vice president and manager of Spartan Intermediate
Municipal Income, which he has managed since January 1998 . He
also manages several other Fidelity funds. Since joining Fidelity in
1986, Mr. Lind has worked as an analyst and manager.
George Fischer is vice president and manager of Spartan Municipal
Income, which he has managed since January 1998. He also manages
several other Fidelity funds. Since joining Fidelity in 1989, Mr.
Fischer has worked as an analyst and manager.
From time to time a manager, analyst, or other Fidelity employee may
express views regarding a particular company, security, industry, or
market sector. The views expressed by any such person are the views of
only that individual as of the time expressed and do not necessarily
represent the views of Fidelity or any other person in the Fidelity
organization. Any such views are subject to change at any time based
upon market or other conditions and Fidelity disclaims any
responsibility to update such views. These views may not be relied on
as investment advice and, because investment decisions for a Fidelity
fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any Fidelity fund.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each fund pays a management fee to FMR. The management fee is
calculated and paid to FMR every month.
The fee for Spartan Intermediate Municipal Income is calculated by
dividing an annual asset-based fee rate of 0.10% by twelve and
multiplying the result by the fund's average net assets throughout the
month, and then adding an income-based fee. The income-based fee is 5%
of the fund's gross income throughout the month.
T he total management fee for the fiscal year ended December 31,
1999 was 0.36 % of the fund's average net assets.
For Spartan Municipal Income, the fee is calculated by adding a group
fee rate to an individual fund fee rate, dividing by twelve, and
multiplying the result by the fund's average net assets throughout the
month.
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 November 1999, the group fee rate was 0.1275 % for Spartan
Municipal Income. The individual fund fee rate is 0.25% for Spartan
Municipal Income.
The total management fee for the fiscal year ended November 30, 1999,
was 0.38 % of the fund's average net assets for Spartan
Municipal Income.
FMR pays FIMM for providing sub-advisory services.
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, in the case of certain funds, may be
discontinued by FMR at any time, can decrease a fund's expenses
and boost its performance.
FUND DISTRIBUTION
Fidelity Distributors Corporation (FDC) distributes each fund's
shares.
Each fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that 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 providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees of each fund has authorized
such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of a fund, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this prospectus and in the related
statement of additional information (SAI), in connection with the
offer contained in this prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This prospectus and the related SAI do
not constitute an offer by the funds or by FDC to sell shares of the
funds to or to buy shares of the funds from any person to whom it is
unlawful to make such offer.
APPENDIX
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand
each fund's financial history for the past 5 years. Certain
information reflects financial results for a single fund share. The
total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP , independent
accountants, whose reports, along with each fund's financial
highlights and financial statements, are included in each fund's
annual report. A free copy of each annual report is available upon
request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN INTERMEDIATE MUNICIPAL INCOME
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.980 $ 9.940 $ 9.700 $ 9.800 $ 8.990
period
Income from Investment
Operations
Net interest income .460B .474 .485 .488 .497
Net realized and unrealized (.561) .097 .290 (.069) .810
gain (loss)
Total from investment (.101) .571 .775 .419 1.307
operations
Less Distributions
From net interest income (.466) (.474) (.485) (.488) (.497)
In excess of net realized (.003) - - - -
gain
From net realized gain - (.057) (.050) (.031) -
Total distributions (.469) (.531) (.535) (.519) (.497)
Net asset value, end of period $ 9.410 $ 9.980 $ 9.940 $ 9.700 $ 9.800
TOTAL RETURN (1.06)% 5.89% 8.23% 4.43% 14.84%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 1,063 $ 1,154 $ 915 $ 904 $ 943
millions)
Ratio of expenses to average .48% .50% .55% .56% .57%
net assets
Ratio of net interest income 4.72% 4.58% 4.97% 5.06% 5.25%
to average net assets
Portfolio turnover rate 21% 18% A 22% 27% 31%
</TABLE>
A THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED
IN THE MERGER.
B NET INTEREST INCOME PER SHARE HAS BEEN CALCULATED BASED ON
AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN MUNICIPAL INCOME
Years ended November 30, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 12.850 $ 12.610 $ 12.430 $ 12.300 $ 11.040
period
Income from Investment
Operations
Net interest income .595 .607 .607 .648 A .677
Net realized and unrealized (.773) .320 .235 .109 1.260
gain (loss)
Total from investment (.178) .927 .842 .757 1.937
operations
Less Distributions
From net interest income (.595) (.607) (.632) A (.623) (.677)
From net realized gain (.007) (.080) (.030) (.004) -
Total distributions (.602) (.687) (.662) (.627) (.677)
Net asset value, end of period $ 12.070 $ 12.850 $ 12.610 $ 12.430 $ 12.300
TOTAL RETURN (1.44)% 7.54% 7.02% 6.39% 17.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 4,225 $ 4,634 $ 2,320 $ 1,837 $ 1,801
millions)
Ratio of expenses to average .49% .53% .55% .56% .57%
net assets
Ratio of net interest income 4.77% 4.75% 4.92% 5.32% 5.69%
to average net assets
Portfolio turnover rate 28% 25% B 31% 53% 50%
</TABLE>
A NET INTEREST INCOME PER SHARE IN 1996 REFLECTS A PAYMENT FROM AN
ISSUER IN BANKRUPTCY WHICH WAS DISTRIBUTED IN 1997.
B THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED
IN THE MERGERS.
You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of the fund's holdings and recent market
conditions and the fund's investment strategies that affected
performance.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8544. In addition, you may visit Fidelity's web site at
www.fidelity.com for a free copy of a prospectus or an annual or
semi-annual report or to request other information.
The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's Internet web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS, 811-2676, 811-2741
Spartan, Fidelity Investments and (Pyramid) Design, Fidelity
Investments, TouchTone Xpress, Fidelity Automatic Account Builder,
Fidelity Money Line, Fidelity On-Line Xpress, Fidelity Web Xpress, and
Directed Dividends are registered trademarks of FMR Corp.
FAST , Fidelity GoalPlanner and Fidelity Portfolio Advisory
Services are registered service marks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
1.702530.102 LIM/HIY-pro-0200
SPARTAN(registered trademark) INTERMEDIATE MUNICIPAL INCOME FUND
A FUND OF FIDELITY SCHOOL STREET TRUST
SPARTAN MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 2000
This statement of additional information (SAI) is not a prospectus.
Portions of each fund's annual reports are incorporated herein. The
annual reports are supplied with this SAI.
To obtain a free additional copy of the prospectus, dated February 28,
2000, or an annual report, please call Fidelity(registered trademark)
at 1-800-544-8544 or visit Fidelity's web site at
www.fidelity.com.
TABLE OF CONTENTS PAGE
Investment Policies and 23
Limitations
Portfolio Transactions 28
Valuation 29
Performance 29
Additional Purchase, Exchange 36
and Redemption Information
Distributions and Taxes 36
Trustees and Officers 37
Control of Investment Advisers 40
Management Contracts 40
Distribution Services 43
Transfer and Service Agent 44
Agreements
Description of the Trusts 45
Financial Statements 45
Appendix 45
LIM/HIY-ptb-0200
1.470952.102
(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109
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 (the
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 INTERMEDIATE MUNICIPAL INCOME
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, or
securities of other investment companies) 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 in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise 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.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objective, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser, or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)).
(iv) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (1) and (5), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
With respect to limitation (iv), 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 were invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 34.
INVESTMENT LIMITATIONS OF SPARTAN MUNICIPAL INCOME
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, or
securities of other investment companies) 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 in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise 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.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objective, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(ii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iii) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser, or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (3)).
(iv) The fund does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(v) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vi) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For purposes of limitations (1) and (5), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
With respect to limitation (iv), 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 were invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 35.
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 a 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 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. Payment of interest and repayment of principal may be
largely dependent upon the cash flows generated by the assets backing
the securities and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. Asset-backed security
values may also be affected by other factors including changes in
interest rates, the availability of information concerning the pool
and its structure, the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the entities
providing the credit enhancement. In addition, these securities may be
subject to prepayment risk.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity, and diversification of their investments.
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.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: 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.
COMBINED POSITIONS involve purchasing and writing 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, purchasing a put option and writing a
call option on the same underlying instrument would 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, 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. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund 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 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. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter 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 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 purchaser or writer 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
purchaser 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 purchaser 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 purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser 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, 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. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer 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. The writer may seek
to terminate a position in a put option 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, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
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 writer 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 SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. 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
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market, and (4) the nature of the security and the market in which it
trades (including any demand, put or tender features, the mechanics
and other requirements for transfer, any letters of credit or other
credit enhancement features, any ratings, the number of holders, the
method of soliciting offers, the time required to dispose of the
security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments 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.
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. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates; however, municipal
funds currently intend to participate in this program only as
borrowers. A fund will borrow through the program only when the costs
are equal to or lower than the costs of bank loans. Interfund
borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one day's notice. 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 movements in prevailing short-term
interest rate levels - rising when prevailing short-term interest
rates fall, and vice versa. The prices of inverse floaters can be
considerably more volatile than the prices of bonds with comparable
maturities.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt 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 IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MUNICIPAL INSURANCE. A municipal bond may be covered by insurance that
guarantees the bond's scheduled payment of interest and repayment of
principal. This type of insurance may be obtained by either (i) the
issuer at the time the bond is issued (primary market insurance), or
(ii) another party after the bond has been issued (secondary market
insurance).
Both primary and secondary market insurance guarantee timely and
scheduled repayment of all principal and payment of all interest on a
municipal bond in the event of default by the issuer, and cover a
municipal bond to its maturity, enhancing its credit quality and
value.
Municipal bond insurance does not insure against market fluctuations
or fluctuations in a fund's share price. In addition, a municipal bond
insurance policy will not cover: (i) repayment of a municipal bond
before maturity (redemption), (ii) prepayment or payment of an
acceleration premium (except for a mandatory sinking fund redemption)
or any other provision of a bond indenture that advances the maturity
of the bond, or (iii) nonpayment of principal or interest caused by
negligence or bankruptcy of the paying agent. A mandatory sinking fund
redemption may be a provision of a municipal bond issue whereby part
of the municipal bond issue may be retired before maturity.
Because a significant portion of the municipal securities issued and
outstanding is insured by a small number of insurance companies, an
event involving one or more of these insurance companies could have a
significant adverse effect on the value of the securities insured by
that insurance company and on the municipal markets as a whole.
FMR may decide to retain an insured municipal bond that is in default,
or, in FMR's view, in significant risk of default. While a fund holds
a defaulted, insured municipal bond, the fund collects interest
payments from the insurer and retains the right to collect principal
from the insurer when the municipal bond matures, or in connection
with a mandatory sinking fund redemption.
PRINCIPAL MUNICIPAL BOND INSURERS. The various insurance companies
providing primary and secondary market insurance policies for
municipal bonds are described below. Ratings reflect each respective
rating agency's assessment of the creditworthiness of an insurer and
the insurer's ability to pay claims on its insurance policies at the
time of the assessment.
Ambac Assurance Corp., a wholly-owned subsidiary of Ambac Financial
Group Inc., is authorized to provide bond insurance in the 50 U.S.
states, the District of Columbia, and the Commonwealth of Puerto Rico.
Bonds insured by Ambac Assurance Corp. are rated "Aaa" by Moody's
Investor Service and "AAA" by Standard & Poor's.
Connie Lee Insurance Co. is a wholly-owned subsidiary of Connie Lee
Holdings Inc., which is a wholly-owned subsidiary of Ambac Assurance
Corp. All losses incurred by Connie Lee Insurance Co. that would cause
its statutory capital to drop below $75 million would be covered by
Ambac Assurance Corp. Connie Lee Insurance Co. is authorized to
provide bond insurance in 49 U.S. states, the District of Columbia,
and the Commonwealth of Puerto Rico. Bonds insured by Connie Lee
Insurance Co. are rated "AAA" by Standard & Poor's.
Financial Guaranty Insurance Co. (FGIC), a wholly-owned subsidiary of
GE Capital Services, is authorized to provide bond insurance in the 50
U.S. states and the District of Columbia. Bonds insured by FGIC are
rated "Aaa" by Moody's Investor Service and "AAA" by Standard &
Poor's.
Financial Security Assurance Inc. (FSA), a wholly-owned subsidiary of
Financial Security Assurance Holdings Ltd., is authorized to provide
bond insurance in 49 U.S. states, the District of Columbia, and three
U.S. territories. Bonds insured by FSA are rated "Aaa" by Moody's
Investor Service and "AAA" by Standard & Poor's.
Municipal Bond Investors Assurance Corp. (MBIA Insurance Corp.), a
wholly-owned subsidiary of MBIA Inc., a publicly-owned company, is
authorized to provide bond insurance in the 50 U.S. states, the
District of Columbia, and the Commonwealth of Puerto Rico. Bonds
insured by MBIA Insurance Corp. are rated "Aaa" by Moody's Investor
Service and "AAA" by Standard & Poor's.
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,
a fund will not hold these 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 purchaser a specified, undivided interest in the obligation
in proportion to its purchased interest in the total amount of the
issue.
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. If a municipality stops making payments or transfers its
obligations to a private entity, the obligation could lose value or
become taxable.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income
tax exemption for interest on municipal securities are introduced
before Congress from time to time. Proposals also may be introduced
before state legislatures that would affect the state tax treatment of
a municipal fund's distributions. If such proposals were enacted, the
availability of municipal securities and the value of a municipal
fund's holdings would be affected and the Trustees would reevaluate
the fund's investment objectives and policies. 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.
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.
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.
TRANSPORTATION. Transportation debt may be issued to finance the
construction of airports, toll roads, highways, or other transit
facilities. Airport bonds are dependent on the general stability of
the airline industry and on the stability of a specific carrier who
uses the airport as a hub. Air traffic generally follows broader
economic trends and is also affected by the price and availability of
fuel. Toll road bonds are also affected by the cost and availability
of fuel as well as toll levels, the presence of competing roads and
the general economic health of an area. Fuel costs and availability
also affect other transportation-related securities, as do the
presence of alternate forms of transportation, such as public
transportation.
WATER AND SEWER. Water and sewer revenue bonds are often considered to
have relatively secure credit as a result of their issuer's
importance, monopoly status, and generally unimpeded ability to raise
rates. Despite this, lack of water supply due to insufficient rain,
run-off, or snow pack is a concern that has led to past defaults.
Further, public resistance to rate increases, costly environmental
litigation, and Federal environmental mandates are challenges faced by
issuers of water and sewer bonds.
PUT FEATURES entitle the holder to sell a security back to the issuer
at any time or at specified intervals. In exchange for this benefit, a
fund may accept a lower interest rate. Securities with put features
are subject to the risk that the put provider is unable to honor the
put feature (purchase the security). Demand features and standby
commitments are types of put features.
REFUNDING CONTRACTS. Securities may be purchased on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and a
purchaser 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 purchaser generally will not be obligated to pay the
full purchase price if the issuer fails to perform under a refunding
contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer. A purchaser 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.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
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. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The funds will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder 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 security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The funds will enter into
reverse repurchase agreements with parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SOURCES OF LIQUIDITY OR CREDIT SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial
institutions. FMR may rely on its evaluation of the credit of the
liquidity or credit enhancement provider in determining whether to
purchase a security supported by such enhancement. 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. Changes in the
credit quality of the entity providing the enhancement could affect
the value of the security or a fund's share price.
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. A 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 purchase 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 generally marketable; and the possibility that the maturities
of the underlying securities may be different from those of the
commitments.
TEMPORARY DEFENSIVE POLICIES. Each fund 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.
TENDER OPTION BONDS are created by coupling an intermediate- or
long-term, fixed-rate, municipal 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, 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
in 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 are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
In many instances bonds and participation interests have tender
options or demand features that permit the holder to tender (or put)
the bonds to an institution at periodic intervals and to receive the
principal amount thereof. Variable rate instruments structured in this
fashion are considered to be essentially equivalent to other variable
rate securities. The IRS has not ruled whether the interest on these
instruments is tax-exempt. Fixed-rate bonds that are subject to third
party puts and participation interests in such bonds held by a bank in
trust or otherwise may have similar features.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, 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, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a 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 more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
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
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and investment
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; the reasonableness
of any commissions; and, if applicable, arrangements for payment of
fund expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that 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
above.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment 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 investment accounts; and effect securities transactions
and perform functions incidental thereto (such as clearance and
settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that 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 a 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.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer 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 a 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 that fund or 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.
To the extent permitted by applicable law, FMR is authorized to
allocate portfolio transactions in a manner that takes into account
assistance received in the distribution of shares of the funds or
other Fidelity funds and to use the research services of brokerage and
other firms that have provided such assistance. 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.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment 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 of each fund 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, 1999 and 1998 and
November 30, 1999 and 1998, the portfolio turnover rates were 21% and
18 %, respectively, for Spartan Intermediate Municipal Income and
28% and 25%, respectively, for Spartan Municipal Income.
A fund may pay both commissions and spreads in connection with the
placement of portfolio transactions. For the fiscal years ended
December 31, 1999, 1998, and 1997, and November 30, 1999, 1998, and
1997, Spartan Intermediate Municipal Income and Spartan Municipal
Income, respectively, paid no brokerage commissions.
For the fiscal years ended December 31, 1999 and November 30, 1999,
Spartan Intermediate Municipal Income and Spartan Municipal Income,
respectively, paid no brokerage commissions to firms that provided
research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
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 or its affiliates,
investment decisions for each fund are made independently from those
of other funds or investment accounts managed by FMR or its
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these funds or investment accounts.
Simultaneous transactions are inevitable when several funds and
investment 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 investment 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
Each fund's net asset value per share (NAV) is the value of a single
share. The NAV of each fund is computed by adding the value of the
fund's investments, cash, and other assets, subtracting its
liabilities, and dividing the result by the number of shares
outstanding.
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.
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 value of such securities. For example,
securities and other assets for which there is no readily available
market value may be valued in good faith by a committee appointed by
the Board of Trustees. In making a good faith determination of the
value of a security, the committee may review price movements in
futures contracts and American Depositary Receipts (ADRs), market and
trading trends, the bid/ask quotes of brokers and off-exchange
institutional trading.
PERFORMANCE
A fund 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 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 a
fund's interest and 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
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, a fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates a fund's yield will
tend to be somewhat lower. Also, when interest rates are falling, the
inflow of net new money to a fund from the continuous sale of its
shares will likely be invested in instruments producing lower yields
than the balance of the fund's holdings, thereby reducing a fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
The tax-equivalent yield of a fund reflects a comparison of the
fund's yield to the yield of a fully taxable investment.
Tax-equivalent yields are calculated by dividing that portion of
a fund's yield that is tax-exempt by the result of one
minus the applicable specified federal income tax rate and
adding the quotient to that portion, if any, of the fund's yield that
is not tax-exempt .
The following table shows the effect of a shareholder's tax status on
tax-equivalent yield under federal income tax laws for 2000. It
shows the tax-equivalent yields at various income brackets of
hypothetical federally tax-exempt obligations yielding from
2.00 % to 7.00%. Of course, no assurance can be given that a
fund will achieve any specific tax-exempt yield. While each
fund invests principally in obligations whose interest is exempt from
federal income tax, some portion of the income received by the
fund may be taxable.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 TAX RATES AND TAX-EQUIVALENT YIELDS
Federal If individual tax-exempt
yield is:
Taxable Income* Marginal 2% 3% 4% 5%
Single Return Joint Return Rate** Then taxable-equivalent yield
is:
$ 0 - $ 26,250 $ 0 - $ 43,850 15.0% 2.35% 3.53% 4.71% 5.88%
$ 26,251 - $ 63,550 $ 43,851 - $ 105,950 28.0% 2.78% 4.17% 5.56% 6.94%
$ 63,551 - $ 132,600 $ 105,951 - $ 161,450 31.0% 2.90% 4.35% 5.80% 7.25%
$ 132,601 - $ 288,350 $ 161,451 - $ 288,350 36.0% 3.13% 4.69% 6.25% 7.81%
$ 228,351 - and over $ 288,351 - and over 39.6% 3.31% 4.97% 6.62% 8.28%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 TAX RATES AND TAX-EQUIVALENT YIELDS
Federal If individual tax-exempt
yield is:
Taxable Income* Marginal 6% 7%
Single Return Joint Return Rate** Then taxable-equivalent yield
is:
$ 0 - $ 26,250 $ 0 - $ 43,850 15.0% 7.06% 8.24%
$ 26,251 - $ 63,550 $ 43,851 - $ 105,950 28.0% 8.33% 9.72%
$ 63,551 - $ 132,600 $ 105,951 - $ 161,450 31.0% 8.70% 10.14%
$ 132,601 - $ 288,350 $ 161,451 - $ 288,350 36.0% 9.38% 10.94%
$ 228,351 - and over $ 288,351 - and over 39.6% 9.93% 11.59%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the alternative minimum tax, the
phaseout of personal exemptions, limitations on itemized deductions,
and other credits, exclusions, and adjustments which may increase a
taxpayer's marginal tax rate. An increase in a shareholder's marginal
tax rate would increase that shareholder's tax-equivalent yield.
A fund may invest a portion of its assets in obligations that are
subject to federal income tax. When a fund invests in these
obligations, its tax-equivalent yields may be lower. In the
table above, tax-equivalent yields are calculated assuming investments
are 100% exempt from federal income tax .
RETURN CALCULATIONS. 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 a fund's NAV over a
stated period. A cumulative return reflects actual performance over a
stated period of time. Average annual 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 return of
100% over ten years would produce an average annual 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 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 returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote unaveraged or
cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative 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. Returns may be broken
down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of
these factors and their contributions to return. Returns may be quoted
on a before-tax or after-tax basis. After-tax returns reflect the
return of a hypothetical account after payment of federal and/or state
taxes using assumed tax rates. After-tax returns may assume that taxes
are paid at the time of distribution or once a year or are paid in
cash or by selling shares, that shares are held through the entire
period, sold on the last day of the period, or sold at a future date,
and distributions are reinvested or paid in cash. Returns may or
may not include the effect of a fund's small account fee. Excluding a
fund's small account fee from a return calculation produces a higher
return figure. 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 NAVs, adjusted NAVs,
and benchmark indexes may be used to exhibit performance. An adjusted
NAV includes any distributions paid by a fund and reflects all
elements of its return. Unless otherwise indicated, a fund's adjusted
NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following table shows each fund's yield,
tax-equivalent yield, and returns for the fiscal periods ended
December 31, 1999 and November 30, 1999, as applicable.
The tax-equivalent yields for each fund are based on a 36 %
federal income tax rate. Note that each fund may invest in securities
whose income is subject to the federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Thirty-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
Spartan Intermediate 4.83% 7.55% -1.06% 6.34% 6.46%
Municipal Income
Spartan Municipal Income 4.91% 7.67% -1.44% 7.32% 6.62%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Ten Years
Spartan Intermediate -1.06% 36.00% 87.02%
Municipal Income
Spartan Municipal Income -1.44% 42.34% 89.86%
</TABLE>
The following tables show the income and capital elements of each
fund's cumulative 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 S&P 500 and DJIA comparisons are provided to
show how each fund's return compared to the record of a market
capitalization-weighted 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 past 10 fiscal periods
ended 1999, assuming all distributions were reinvested. Returns are
based on past results and are not an indication of future performance.
Tax consequences of different investments have not been factored into
the figures below.
During the 10-year period ended December 31, 1999, a hypothetical
$10,000 investment in Spartan Intermediate Municipal Income would have
grown to $18, 702 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN INTERMEDIATE INDEXES
MUNICIPAL INCOME
Fiscal Year
Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 10,107 $ 7,638 $ 957 $ 18,702 $ 53,289
1998 $ 10,720 $ 7,173 $ 1,009 $ 18,902 $ 44,024
1997 $ 10,677 $ 6,275 $ 899 $ 17,851 $ 34,240
1996 $ 10,419 $ 5,283 $ 791 $ 16,493 $ 25,674
1995 $ 10,526 $ 4,521 $ 746 $ 15,793 $ 20,880
1994 $ 9,656 $ 3,411 $ 685 $ 13,752 $ 15,177
1993 $ 10,730 $ 2,977 $ 732 $ 14,439 $ 14,980
1992 $ 10,311 $ 2,177 $ 377 $ 12,865 $ 13,608
1991 $ 10,226 $ 1,424 $ 243 $ 11,893 $ 12,642
1990 $ 9,957 $ 683 $ 57 $ 10,697 $ 9,688
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SPARTAN INTERMEDIATE INDEXES
MUNICIPAL INCOME
Fiscal Year Ended DJIA Cost of Living
1999 $ 53,747 $ 13,347
1998 $ 42,276 $ 12,998
1997 $ 35,805 $ 12,791
1996 $ 28,677 $ 12,577
1995 $ 22,281 $ 12,173
1994 $ 16,297 $ 11,872
1993 $ 15,525 $ 11,562
1992 $ 13,270 $ 11,253
1991 $ 12,367 $ 10,936
1990 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Intermediate Municipal Income on January 1, 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
$ 18,800 . 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
$ 5,616 for dividends and $753 for capital gain distributions.
During the 10-year period ended November 30, 1999, a hypothetical
$10,000 investment in Spartan Municipal Income would have grown to
$ 18,670 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN MUNICIPAL INCOME
Fiscal Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1999 $ 9,574 $ 7,915 $ 1,181 $ 18,670
1998 $ 10,305 $ 7,579 $ 1,261 $ 19,145
1997 $ 10,193 $ 6,624 $ 1,237 $ 18,054
1996 $ 9,863 $ 5,578 $ 1,088 $ 16,529
1995 $ 9,936 $ 4,760 $ 1,055 $ 15,751
1994 $ 9,043 $ 3,558 $ 956 $ 13,557
1993 $ 10,410 $ 3,138 $ 1,100 $ 14,648
1992 $ 10,129 $ 2,279 $ 542 $ 12,950
1991 $ 10,113 $ 1,488 $ 350 $ 11,951
1990 $ 9,936 $ 714 $ 197 $ 10,847
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN MUNICIPAL INCOME INDEXES
Fiscal Year Ended S&P 500 DJIA Cost of Living
1999 $ 53,289 $ 53,747 $ 13,347
1998 $ 44,024 $ 42,276 $ 12,998
1997 $ 34,240 $ 35,805 $ 12,791
1996 $ 25,674 $ 28,677 $ 12,577
1995 $ 20,880 $ 22,281 $ 12,173
1994 $ 15,177 $ 16,297 $ 11,872
1993 $ 14,980 $ 15,525 $ 11,562
1992 $ 13,608 $ 13,270 $ 11,253
1991 $ 12,642 $ 12,367 $ 10,936
1990 $ 9,688 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Municipal Income on December 1, 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 $ 19,507 . 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 $ 5,742 for dividends
and $970 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 Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on
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 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
indexes prepared by Lipper or other organizations. When comparing
these indexes, 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, a fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A fund may advertise risk ratings,
including symbols or numbers, prepared by independent rating agencies.
A fund's performance may also be compared to that of each benchmark
index representing the universe of securities in which the fund may
invest. The return of each index reflects reinvestment of all
dividends and capital gains paid by securities included in each index.
Unlike a fund's returns, however, each index's returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
Each fund may compare its performance to the Lehman Brothers Municipal
Bond Index, a market value-weighted index for investment-grade
municipal bonds with maturities of one year or more. Issues included
in the index have been issued after December 31, 1990 and have been
issued as part of an offering of at least $50 million. After December
31, 1995, zero coupon bonds and issues subject to the alternative
minimum tax are included in the index. Issues included in the index
prior to January 1, 2000 have an outstanding par value of at least $3
million; while issues included in the index after January 1, 2000 have
an outstanding par value of at least $5 million.
Spartan Intermediate Municipal Income may also compare its performance
to that of the Lehman Brothers 1-17 Year Municipal Bond Index, a
market value-weighted index for investment-grade municipal bonds with
maturities between one and 17 years. Issues included in the index have
been issued after December 31, 1990 and have been issued as part of an
offering of at least $50 million. After December 31, 1995, zero coupon
bonds and issues subject to the alternative minimum tax are included
in the index. Issues included in the index prior to January 1, 2000
have an outstanding par value of at least $3 million; while issues
included in the index after January 1, 2000 have an outstanding par
value of at least $5 million.
Spartan Municipal Income may also compare its performance to that of
the Lehman Brothers 3 Plus Year Municipal Bond Index, a market
value-weighted index for investment-grade municipal bonds with
maturities of three years or more. Issues included in the index have
been issued after December 31, 1990 and have been issued as part of an
offering of at least $50 million. After December 31, 1995, zero coupon
bonds and issues subject to the alternative minimum tax are included
in the index. Issues included in the index prior to January 1, 2000
have an outstanding par value of at least $3 million; while issues
included in the index after January 1, 2000 have an outstanding par
value of at least $5 million.
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 indexes.
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 returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes 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 municipal bond 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 sales charges of many
municipal bond mutual funds are lower than the purchase cost of
individual municipal bonds, which are generally 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; and
charitable giving. 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 a fund's historical share price fluctuations or
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 a
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, 1999 , FMR advised over $35 billion in municipal
fund assets, $143 billion in taxable fixed-income fund assets, $149
billion in money market fu nd assets, $630 billion in equity fund
assets, $22 billion in international fund assets, and $41 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, a 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, EXCHANGE AND REDEMPTION INFORMATION
A fund may make redemption payments in whole or in part in readily
marketable securities or other property, valued for this purpose as
they are valued in computing each fund's NAV, if FMR determines
it is in the best interests of the fund. Shareholders that receive
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.
DISTRIBUTIONS AND TAXES
DIVIDENDS. To the extent that each fund's income is designated as
federally tax-exempt interest, the dividends declared by the fund are
also federally tax-exempt. Short-term capital gains are taxable as
dividends, but do not qualify for the dividends-received deduction.
Each 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.
Interest on certain "private activity" securities is subject to the
federal alternative minimum tax (AMT), although the interest continues
to be excludable from gross income for other tax purposes. Interest
from private activity securities is a tax preference item for the
purposes of determining whether a taxpayer is subject to the AMT and
the amount of AMT to be paid, if any.
A portion of the gain on municipal bonds purchased at market discount
after April 30, 1993 is taxable to shareholders as ordinary income,
not as capital gains.
CAPITAL GAIN DISTRIBUTIONS. Each fund's long-term capital gain
distributions are federally taxable to shareholders generally as
capital gains.
As of December 31, 1999, Spartan Intermediate Municipal Income had
a capital loss carryforward aggregating approximately $7,029,000. This
loss carryforward, of which $591,000, $5,298,000, and $1,140,000 will
expire on December 31, 2002, 2003, and 2007, res pectively, is
available to offset future capital gains, subject to certain
limitations.
As of November 30, 1999, Spartan Municipal Income had a capital
loss carryforward aggregating approximately $30,652,000. This loss
carryforward, of which $138,000, $533,000, $12,432,000, $7,601,000,
and $9,948,000 will expire on November 30 , 2000, 2001,
200 2, 2003, and 2005, respectively, is available to offset future
capital gains, subject to certain limitations.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code 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.
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. It is up to you or your tax preparer to determine
whether the sale of shares of a fund resulted in a capital gain or
loss or other tax consequence to you. 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.
TRUSTEES AND OFFICERS
The Trustees, Member of the Advisory Board, and executive officers of
the trusts are listed below. The Board of Trustees governs each fund
and is responsible for protecting the interests of shareholders. The
Trustees are experienced executives who meet periodically throughout
the year to oversee each fund's activities, review contractual
arrangements with companies that provide services to each fund, and
review each fund's performance. 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 or its affiliates. The business address of each
Trustee, Member of the Advisory Board, and officer who is an
"interested person" (as defined in the 1940 Act) 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 (69), 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 Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; and a Director of FDC. Abigail Johnson,
Member of the Advisory Board of Fidelity School Street Trust and
Fidelity Municipal Trust, is Mr. Johnson's daughter.
ABIGAIL P. JOHNSON (38), Member of the Advisory Board of Fidelity
School Street Trust (1999) and Fidelity Municipal Trust (1999), is
Vice President of certain Equity Funds (1997), and is a Director of
FMR Corp. (1994). Before assuming her current responsibilities, Ms.
Johnson managed a number of Fidelity funds. Edward C. Johnson 3d,
Trustee and President of the Funds, is Ms. Johnson's father.
RALPH F. COX (67), 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 Waste Management
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
and Bonneville Pacific (independent power and petroleum production).
In addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (68), Trustee. Mrs. Davis is retired from Avon
Products, Inc. where she held various positions including Senior Vice
President of Corporate Affairs and Group Vice President of U.S. sales,
distribution, and manufacturing. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing), and the TJX Companies, Inc. (retail stores), and
previously served as a Director of Hallmark Cards, Inc., Nabisco
Brands Inc., and Standard Brands, Inc. In addition, she is a member of
the Board of Directors of the Southampton Hospital in Southampton,
N.Y. (1998).
ROBERT M. GATES (56), 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 a Director of Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (automotive, space, defense, and
information technology). Mr. Gates previously served as a Director of
LucasVarity PLC (automotive components and diesel engines). He is
currently serving as Dean of the George Bush School of Government and
Public Service at Texas A & M University (1999-2000). Mr. Gates also
is a Trustee of the Forum for International Policy and of the
Endowment Association of the College of William and Mary. In addition,
he is a member of the National Executive Board of the Boy Scouts of
America.
DONALD J. KIRK (67), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business. 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 previously served as a Director
of General Re Corporation (reinsurance, 1987-1998) and as a Director
of Valuation Research Corp. (appraisals and valuations, 1993-1995). He
serves as Chairman of the Board of Directors of National Arts
Stabilization Inc., Chairman of the Board of Trustees of the Greenwich
Hospital Association, Director of the Yale-New Haven Health Services
Corp. (1998), Vice Chairman 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).
NED C. LAUTENBACH (55), Trustee (2000), has been a partner of Clayton,
Dubilier & Rice, Inc. (private equity investment firm) since September
1998. Mr. Lautenbach was Senior Vice President of IBM Corporation from
1992 until his retirement in July 1998. From 1993 to 1995 he was
Chairman of IBM World Trade Corporation. He also was a member of IBM's
Corporate Executive Committee from 1994 to July 1998. He is a Director
of PPG Industries Inc. (glass, coating and chemical manufacturer),
Dynatech Corporation (global communications equipment), Eaton
Corporation (global manufacturer of highly engineered products) and
ChoicePoint Inc. (data identification, retrieval, storage, and
analysis).
*PETER S. LYNCH (56), Trustee, is Vice Chairman and Director of FMR.
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(registered trademark) 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 (66), Trustee (1997), is the Interim Chancellor for
the University of North Carolina at Chapel Hill. Previously, he had
served from 1995 through 1998 as Vice President of Finance for the
University of North Carolina (16-school system). 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), Duke-Weeks Realty Corporation
(real estate, 1994), Carolina Power and Light Company (electric
utility, 1996), the Kenan Transport Company (trucking, 1996), and
Dynatech Corporation (electronics, 1999). Previously, he was a
Director of First American Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy served as a member of the Board of
Visitors for the University of North Carolina at Chapel Hill
(1994-1998) and currently serves on the Board of Visitors of the
Kenan-Flager Business School (University of North Carolina at Chapel
Hill, 1988).
GERALD C. McDONOUGH (71), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director and Chairman of the Board 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 (66), Trustee (1993), is Chairman Emeritus, of Lexmark
International, Inc. (office machines, 1991) where he still remains a
member of the Board. 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). He is a
Board member of Dynatech Corporation (electronics, 1999).
*ROBERT C. POZEN (53), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
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 (71), 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 National Life Insurance Company of Vermont and American Software,
Inc. Mr. Williams was previously a Director of ConAgra, Inc.
(agricultural products), Georgia Power Company (electric utility), and
Avado, Inc. (restaurants).
DWIGHT D. CHURCHILL (46), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. (60), is President of Fidelity Investments
Fixed-Income Division (1998), and Senior Vice President of FMR and of
Fidelity Investments Money Management, Inc. Mr. Henning joined
Fidelity in 1977 as portfolio manager for Fidelity Daily Income Trust
Fund. Since then, he has held a number of positions with FMR and its
affiliates and serves as an officer of other investment companies
managed o r advised by FMR.
GEORGE A. FISCHER (38), is Vice President of Spartan Municipal Income
Fund (1998), and other funds advised by FMR. Mr. Fischer is also a
Vice President of Fidelity Management Trust Company, the unit of
Fidelity which serves institutional investment businesses worldwide by
managing assets for corporate and public employee retirement funds,
endowments, foundations, and other major institutions. Prior to his
current responsibilities, Mr. Fischer managed a variety of Fidelity
funds.
NORMAN U. LIND (43), is Vice President of Spartan Intermediate
Municipal Income Fund (1995), and other funds advised by FMR. Prior to
his current responsibilities, Mr. Lind managed a variety of Fidelity
funds.
ERIC D. ROITER (51), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998) and Vice President and Clerk of FDC
(1998). Prior to joining Fidelity, Mr. Roiter was with the law firm of
Debevoise & Plimpton, as an associate (1981-1984) and as a partner
(1985-1997), and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981). Mr. Roiter was an
Adjunct Member, Faculty of Law, at Columbia University Law School
(1996-1997).
ROBERT A. DWIGHT (41), Treasurer (2000), is Treasurer of the
Fidelity funds and is an employee of FMR. Prior to becoming Treasurer
of the Fidelity funds, he served as President of Fidelity Accounting
and Custody Services (FACS). Before joining Fidelity, Mr. Dwight was
Senior Vice President of fund accounting operations for The Boston
Company.
MARIA F. DWYER (41), Deputy Treasurer (2000), is Deputy Treasurer
of the Fidelity funds and is a Vice President (1999) and an employee
(1996) of FMR. Prior to joining Fidelity, Ms. Dwyer served as Director
of Compliance for MFS Investment Management.
MATTHEW N. KARSTETTER (38), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
STANLEY N. GRIFFITH (53), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO (53), Assistant Treasurer, is an employee of FMR.
THOMAS J. SIMPSON (41), Assistant Treasurer (1996), is Assistant
Treasurer of Fidelity's Fixed-Income Funds (1998) 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 years ended December 31, 1999 for
Spartan Intermediate Municipal Income and November 30, 1999 for
Spartan Municipal Income, or calendar year ended December 31, 1999, as
applicable.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Member of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Spartan Intermediate Spartan Municipal IncomeB Fund Complex*,A
Municipal IncomeB
Edward C. Johnson 3d** $ 0 $ 0 $ 0
Abigail P. Johnson** $ 0 $ 0 $ 0
Ralph F. Cox $ 330 $ 1,336 $ 217,500
Phyllis Burke Davis $ 320 $ 1,280 $ 211,500
Robert M. Gates $ 330 $ 1,326 $ 217,500
E. Bradley Jones**** $ 330 $ 1,326 $ 217,500
Donald J. Kirk $ 329 $ 1,324 $ 217,500
Ned C. Lautenbach*** $ 75 $ 204 $ 54,000
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 326 $ 1,309 $ 214,500
Gerald C. McDonough $ 408 $ 1,639 $ 269,000
Marvin L. Mann $ 330 $ 1,326 $ 217,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 323 $ 1,299 $ 213,000
</TABLE>
* Information is for the calendar year ended December 31, 1999 for
236 funds in the complex.
** Interested Trustees of the funds and Ms. Johnson are
compensated by FMR.
*** During the period from October 14, 1999 through December 31, 1999,
Mr. Lautenbach served as a Member of the Advisory Board. Effective
January 1, 2000, Mr. Lautenbach serves as a Member of the Board of
Trustees.
**** Mr. Jones served on the Board of Trustees through December 31,
1999.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1999 , the Trustees accrued
required deferred compensation from the funds as follows: Ralph F.
Cox, $ 75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$75,000; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation as follows: Ralph F. Cox, $53,735; William O.
McCoy, $53,735; and Thomas R. Williams, $62,319.
B Compensation figures include cash.
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 subject to vesting and 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 31, 1999, the Trustees, Members of the Advisory
Board, and officers of each fund owned, in the aggregate, less than 1%
of each fund's total outstanding shares.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and FIMM. 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
investment 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.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT 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, Spartan Intermediate Municipal Income pays FMR a monthly
management fee at the annual rate of 0.10% of the fund's average net
assets throughout the month plus an amount equal to 5% of the fund's
gross income throughout the month. For this purpose, gross income
includes interest accrued on portfolio obligations, adjusted for
amortization of purchase premium, but excludes adjustments for
purchase discount on portfolio obligations.
For the services of FMR under the management contract, Spartan
Municipal Income 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 1 billion .3700%
3 - 6 .3400 50 .2188
6 - 9 .3100 100 .1869
9 - 12 .2800 150 .1736
12 - 15 .2500 200 .1652
15 - 18 .2200 250 .1587
18 - 21 .2000 300 .1536
21 - 24 .1900 350 .1494
24 - 30 .1800 400 .1459
30 - 36 .1750 450 .1427
36 - 42 .1700 500 .1399
42 - 48 .1650 550 .1372
48 - 66 .1600 600 .1349
66 - 84 .1550 650 .1328
84 - 120 .1500 700 .1309
120 - 156 .1450 750 .1291
156 - 192 .1400 800 .1275
192 - 228 .1350 850 .1260
228 - 264 .1300 900 .1246
264 - 300 .1275 950 .1233
300 - 336 .1250 1,000 .1220
336 - 372 .1225 1,050 .1209
372 - 408 .1200 1,100 .1197
408 - 444 .1175 1,150 .1187
444 - 480 .1150 1,200 .1177
480 - 516 .1125 1,250 .1167
516 - 587 .1100 1,300 .1158
587 - 646 .1080 1,350 .1149
646 - 711 .1060 1,400 .1141
711 - 782 .1040
782 - 860 .1020
860 - 946 .1000
946 - 1,041 .0980
1,041 - 1,145 .0960
1,145 - 1,260 .0940
Over 1,260 .0920
</TABLE>
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 $ 800 billion of group net assets - the approximate
level for November 1999 - was 0.1275 %, which is the weighted
average of the respective fee rates for each level of group net assets
up to $800 billion.
The individual fund fee rate for Spartan Municipal Income is 0.25%.
Based on the average group net assets of the funds advised by FMR for
November 1999, 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 Municipal Income 0.1275% + 0.25% = 0.3775%
</TABLE>
One-twelfth of the management fee rate is applied to the fund's
average net assets for the 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 December Management Fees Paid to FMR
Spartan Intermediate 1999 $ 4,160,000
Municipal Income
1998 $ 3,951,000
1997 $ 3,347,000
Fund Fiscal Years Ended November Management Fees Paid to FMR
Spartan Municipal Income 1999 $ 17,303,000
1998 $ 11,303,000
1997 $ 7,135,000
</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), which, in the case of
certain funds, is subject to revision or discontinuance. 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 returns and
yield, and repayment of the reimbursement by a fund will lower its
returns and yield.
FMR agreed to reimburse the funds if and to the extent that 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.
SUB-ADVISER. FMR has entered into a sub-advisory agreement with FIMM
pursuant to which FIMM has primary responsibility for choosing
investments for each fund.
Under the terms of the sub-advisory agreements, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR under its management
contract with each fund. The fees paid to FIMM are not reduced by any
voluntary or mandatory expense reimbursements that may be in effect
from time to time.
Fees paid to FIMM by FMR on behalf of each fund for the past
fiscal year s are shown in the table below.
Fund Fiscal Year Ended December 31 Fees Paid to FIMM
Spartan Intermediate 1999 $ 2,080,000
Municipal Income
Fund Fiscal Year Ended November 30 Fees Paid to FIMM
Spartan Municipal Income 1999 $ 7,908,000
DISTRIBUTION SERVICES
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR. 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.
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 providing services intended to
result in the sale of fund shares and/or shareholder support services.
In addition, each Plan provides that FMR, directly or through FDC, may
pay intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for Spartan Intermediate
Municipal Income and Spartan Municipal Income 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 or stabilization of cash flows 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 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.
FDC may compensate intermediaries that satisfy certain criteria
established from time to time by FDC relating to the level or type of
services provided by the intermediary, the sale or expected sale of
significant amounts of shares, or other factors.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each fund has entered into a transfer agent agreement with Citibank,
N.A. (Citibank), which is located at 111 Wall Street, New York, New
York. Under the terms of the agreements, Citibank provides transfer
agency, dividend disbursing, and shareholder services for each fund.
Citibank 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 Citibank.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type and fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, Citibank receives the pro rata portion of the transfer
agency fees applicable to shareholder accounts in a qualified state
tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and in each
Fidelity Freedom Fund and Fidelity Four-in-One Index Fund, funds of
funds managed by an FMR affiliate, according to the percentage of the
QSTP's, Freedom Fund's or Fidelity Four-in-One Index Fund's assets
that is invested in a fund, subject to certain limitations in the case
of Fidelity Four-in-One Index 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
Citibank. Under the terms of the agreements, Citibank provides pricing
and bookkeeping services for each fund. Citibank 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 Citibank.
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 rates for pricing and bookkeeping services for the funds
are 0.0275% of the first $500 million of average net assets,
0.0175% of average net assets between $500 million and $3 billion,
0.0021% of average net assets between $3 billion and $25 billion,
an d 0.00075% of average net assets in excess of $25 billion. The
fee, not including reimbursement for out-of-pocket expenses, is
limited to a minimum of $60,000 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 1999 1998 1997
Spartan Intermediate $ 270,000 $ 335,000 $ 302,000
Municipal Income
Spartan Municipal Income $ 677,000 $ 682,000 $ 476,000
DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Spartan Intermediate Municipal Income Fund is a
fund of Fidelity School Street Trust, an open-end management
investment company organized as a Massachusetts business trust on
September 10, 1976. Spartan Municipal Income Fund is a fund of
Fidelity Municipal Trust, an open-end management investment company
organized as a Massachusetts business trust on June 22, 1984.
Currently, there are four funds in School Street Trust: Spartan
Intermediate Municipal Income Fund, Fidelity International Bond Fund,
Fidelity New Markets Income Fund, and Fidelity Strategic Income Fund.
Currently, there are five funds in Fidelity Municipal Trust: Spartan
Michigan Municipal Income Fund, Spartan Minnesota Municipal Income
Fund, Spartan Ohio Municipal Income Fund, Spartan Pennsylvania
Municipal Income Fund, and Spartan Municipal Income Fund. The Trustees
are permitted to create additional funds in the trusts.
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 to the rights of creditors, are allocated to such
fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in a trust shall be charged with the
liabilities and expenses attributable to such fund. Any general
expenses of the respective trusts shall be allocated between or among
any one or more of its funds.
SHAREHOLDER LIABILITY. Each trust is an entity commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust.
Each Declaration of Trust contains an express disclaimer of
shareholder liability for the debts, liabilities, obligations, and
expenses of the trust or fund. Each Declaration of Trust provides that
the trust shall not have any claim against shareholders except for the
payment of the purchase price of shares and requires that each
agreement, obligation, or instrument entered into or executed by the
trust or the Trustees relating to the trust or to a fund shall include
a provision limiting the obligations created thereby to the trust or
to one or more funds and its or their assets. Each Declaration of
Trust further provides that shareholders of a fund shall not have a
claim on or right to any assets belonging to any other fund.
Each Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. Each 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.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you are entitled to one vote for each
dollar of net asset value that you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
Each trust or any of its funds may be terminated upon the sale of its
assets to, or merger with, another open-end management investment
company or series thereof, or upon liquidation and distribution of its
assets. Generally, the merger of a trust or a fund with another entity
or the sale of substantially all of the assets of a trust or a
fund to another entity requires approval by a vote of shareholders of
the trust or the fund. The Trustees may, however, reorganize or
terminate each trust or any of its funds without prior shareholder
approval. In the event of the dissolution or liquidation of a trust,
shareholders of each of its funds are entitled to receive the
underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of the fund
available for distribution.
CUSTODIAN. Citibank, N.A., 111 Wall Street, New York, New York, 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.
FMR, its officers and directors, its affiliated companies, and members
of 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. PricewaterhouseCoopers LLP , 160 Federal Street,
Boston, Massachusetts, serves as independent accountant for each
fund. The auditor examines financial statements for the funds and
provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Spartan Intermediate Municipal Income and Spartan Municipal
Income 's financial statements and financial highlights for the
fiscal year ended November 30, 1999, and November 30, 1999,
respectively, and reports of the auditor, are included in each fund's
annual report and are incorporated herein by reference.
APPENDIX
Spartan, Fidelity, Fidelity Investments and (Pyramid) Design, Fidelity
Focus, and Magellan are registered trademarks of FMR Corp.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.
Like securities of all mutual
funds, these securities have
not been approved or
disapproved by the
Securities and Exchange
Commission, and the
Securities and Exchange
Commission has not
determined if this
prospectus is accurate or
complete. Any
representation to the
contrary is a criminal
offense.
SPARTAN(REGISTERED TRADEMARK)
PENNSYLVANIA MUNICIPAL
FUNDS
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
(fund number 401, trading symbol FPTXX)
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
(fund number 402, trading symbol FPXTX)
PROSPECTUS
FEBRUARY 28, 2000
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
FUND SUMMARY 3 INVESTMENT SUMMARY
3 PERFORMANCE
5 FEE TABLE
FUND BASICS 7 INVESTMENT DETAILS
9 VALUING SHARES
SHAREHOLDER INFORMATION 9 BUYING AND SELLING SHARES
18 EXCHANGING SHARES
18 ACCOUNT FEATURES AND POLICIES
21 DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS
21 TAX CONSEQUENCES
FUND SERVICES 22 FUND MANAGEMENT
22 FUND DISTRIBUTION
APPENDIX 22 FINANCIAL HIGHLIGHTS
FUND SUMMARY
INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally investing in municipal money
market securities, including shares of a municipal money market fund
managed by an affiliate of FMR.
(small solid bullet) Normally investing at least 65% of total
assets in municipal securities whose interest is exempt from
Pennsylvania personal income tax.
(small solid bullet) Normally investing so that at least 80% of
fund's income distributions is exempt from federal income tax.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Investing in compliance with industry-standard
requirements for money market funds for the quality, maturity and
diversification of investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a money market security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Entities located in foreign
countries can be affected by adverse political, regulatory, market or
economic developments in those countries.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Pennsylvania can affect the credit
quality of issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. A decline in the credit
quality of an issuer or the provider of credit support or a
maturity-shortening structure for a security can cause the price of a
money market security to decrease.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the fund seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund.
INVESTMENT OBJECTIVE
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
FMR's principal investment strategies include:
(small solid bullet) Normally investing in investment-grade
municipal debt securities (those of medium and high quality) .
(small solid bullet) Normally investing at least 80% of assets
in municipal securities whose interest is exempt from federal and
Pennsylvania personal income taxes.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers Pennsylvania Municipal Bond
Index.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features
and current pricing , trading opportunities, and the
credit quality of its issuer to select investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Pennsylvania can affect the credit
quality of issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently
from the value of the market as a whole.
In addition, the fund is considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund. As a result, changes in the market value of a single
issuer could cause greater fluctuations in share price than would
occur in a more diversified fund.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in each
fund's performance from year to year and compares the bond fund's
performance to the performance of a market index and an average of the
performance of similar funds over various periods of time. Spartan
Pennsylvania Municipal Income also compares its performance to the
performance of an additional index over various periods of time.
Data for the additional index for Spartan Pennsylvania Municipal
Income is available only from June 30, 1993 to the present. Returns
are based on past results and are not an indication of future
performance.
YEAR-BY-YEAR RETURNS
The returns in the chart do not include the effect of Spartan
Pennsylvania Municipal Money Market's account closeout fee. If the
effect of the fee were reflected, returns would be lower than
those shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PA MUNICIPAL MONEY
MARKET
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
6.05% 4.55% 2.90% 2.21% 2.61% 3.56% 3.21% 3.36% 3.15% 2.91%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 6.05
Row: 2, Col: 1, Value: 4.55
Row: 3, Col: 1, Value: 2.9
Row: 4, Col: 1, Value: 2.21
Row: 5, Col: 1, Value: 2.61
Row: 6, Col: 1, Value: 3.56
Row: 7, Col: 1, Value: 3.21
Row: 8, Col: 1, Value: 3.36
Row: 9, Col: 1, Value: 3.15
Row: 10, Col: 1, Value: 2.91
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN PENNSYLVANIA
MUNICIPAL MONEY MARKET, THE HIGHEST RETURN FOR A QUARTER WAS
1.52% (QUARTER ENDED DECEMBER 31, 1990 ) AND THE LOWEST
RETURN FOR A QUARTER WAS 0.51% (QUARTER ENDED MARCH 31,
1994 ).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN PA MUNICIPAL INCOME
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
7.20% 12.49% 9.11% 13.18% -5.04% 17.44% 4.02% 8.34% 5.77% -2.16%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 7.2
Row: 2, Col: 1, Value: 12.49
Row: 3, Col: 1, Value: 9.109999999999999
Row: 4, Col: 1, Value: 13.18
Row: 5, Col: 1, Value: -5.04
Row: 6, Col: 1, Value: 17.44
Row: 7, Col: 1, Value: 4.02
Row: 8, Col: 1, Value: 8.34
Row: 9, Col: 1, Value: 5.770000000000001
Row: 10, Col: 1, Value: -2.16
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN PENNSYLVANIA
MUNICIPAL INCOME, THE HIGHEST RETURN FOR A QUARTER WAS 7.68%
(QUARTER ENDED MARCH 31, 1995 ) AND THE LOWEST RETURN FOR A
QUARTER WAS -5.51% (QUARTER ENDED MARCH 31, 1994 ).
AVERAGE ANNUAL RETURNS
The returns in the following table do not include the effect of the $5
account closeout fee for Spartan Pennsylvania Municipal Money Market.
For the periods ended Past 1 year Past 5 years Past 10 years
December 31, 1999
Spartan PA Muni Money Market 2.91% 3.24% 3.45%
Spartan PA Muni Income -2.16% 6.49% 6.83%
Lehman Brothers Municipal -2.06% 6.91% 6.89%
Bond Index
Lehman Brothers PA Municipal -2.03% 6.68% n/a
Bond Index
Lipper PA Municipal Debt -4.73% 5.71% 6.20%
Funds Average
If FMR had not reimbursed certain fund expenses during these periods,
each fund's returns would have been lower.
The Lehman Brothers Municipal Bond Index is a market value-weighted
index of investment-grade municipal bonds with maturities of one year
or more.
The Lehman Brothers Pennsylvania Municipal Bond Index is a market
value-weighted index for Pennsylvania investment-grade municipal bonds
with maturities of one year or more.
The Lipper Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold , or sell shares of a fund. The annual fund
operating expenses provided below for each fund are based on
historical expenses.
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
Sales charge (load) on None
purchases and reinvested
distributions
Deferred sales charge (load) None
on redemptions
Redemption 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 $5.00
Market onlyA,B
Wire transaction fee
for Spartan PA Muni Money $5.00
Market onlyA
Checkwriting fee, per check
written
for Spartan PA Muni Money $2.00
Market onlyA
Account closeout fee
for Spartan PA Muni Money $5.00
Market onlyA
Annual account maintenance $12.00
fee (for accounts under
$2,500)
A THE FEES FOR INDIVIDUAL TRANSACTIONS ARE WAIVED IF YOUR ACCOUNT
BALANCE AT THE TIME OF THE TRANSACTION IS $50,000 OR MORE.
B YOU WILL NOT PAY AN EXCHANGE FEE IF YOU EXCHANGE THROUGH ANY OF
FIDELITY'S AUTOMATED EXCHANGE SERVICES.
ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
SPARTAN PA MUNICIPAL MONEY Management fee 0.50%
MARKET
Distribution and Service None
(12b-1) fee
Other expenses 0.00%
Total annual fund operating 0.50%
expenses
SPARTAN PA MUNICIPAL INCOME Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.13%
Total annual fund operating 0.51%
expensesA
A EFFECTIVE JANUARY 1, 1999, FMR HAS AGREED TO REIMBURSE SPARTAN
PENNSYLVANIA MUNICIPAL INCOME TO THE EXTENT THAT TOTAL OPERATING
EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND
EXTRAORDINARY EXPENSES), AS A PERCENTAGE OF ITS AVERAGE NET ASSETS,
EXCEED 0.53%. THIS ARRANGEMENT WILL REMAIN IN EFFECT THROUGH DECEMBER
31, 2000.
This EXAMPLE helps you compare the cost of investing in the funds with
the cost of investing in other mutual funds.
Let's say, hypothetically, that each fund's annual return is 5% and
that your shareholder fees and each fund's annual operating
expenses are exactly as described in the fee table. This example
illustrates the effect of fees and expenses, but is not meant to
suggest actual or expected fees and expenses or returns, all of which
may vary. For every $10,000 you invested, here's how much you would
pay in total expenses if you close your account at the end of each
time period indicated and if you leave your account open:
Account open Account closed
SPARTAN PA MUNICIPAL MONEY 1 year $ 51 $ 56
MARKET
3 years $ 160 $ 165
5 years $ 280 $ 285
10 years $ 628 $ 633
SPARTAN PA MUNICIPAL INCOME 1 year $ 52
3 years $ 164
5 years $ 285
10 years $ 640
FUND BASICS
INVESTMENT DETAILS
INVESTMENT OBJECTIVE
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in municipal money market
securities, including shares of a municipal money market fund
managed by an affiliate of FMR.
FMR normally invests at least 65% of the fund's total assets in
municipal securities whose interest is exempt from Pennsylvania
personal income tax and invests the fund's assets so that at least 80%
of the fund's income distributions is exempt from federal income tax.
Municipal securities whose interest is exempt from federal and
Pennsylvania income taxes include securities issued by U.S.
territories and possessions, such as Guam, the Virgin Islands ,
and Puerto Rico, and their political subdivisions and public
corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Pennsylvania personal income tax. Although FMR
does not currently intend to invest the fund's assets in municipal
securities whose interest is subject to federal income tax, FMR may
invest all of the fund's assets in municipal securities whose interest
is subject to the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation , and utilities.
In buying and selling securities for the fund, FMR complies with
industry-standard requirements for money market funds regarding the
quality, maturity , and diversification of the fund's
investments. FMR stresses maintaining a stable $1.00 share price,
liquidity , and income.
INVESTMENT OBJECTIVE
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in investment-grade municipal
debt securities (those of medium and high quality) .
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is exempt from federal and Pennsylvania
personal income taxes. Municipal securities whose interest is exempt
from federal and Pennsylvania income taxes include securities issued
by U.S. territories and possessions, such as Guam, the Virgin
Islands , and Puerto Rico, and their political subdivisions and
public corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Pennsylvania personal income tax. Although FMR
does not currently intend to invest the fund's assets in municipal
securities whose interest is subject to federal income tax, FMR may
invest all of the fund's assets in municipal securities whose interest
is subject to the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation , and utilities.
FMR uses the Lehman Brothers Pennsylvania Municipal Bond Index as a
guide in structuring the fund and selecting its investments. FMR
manages the fund to have similar overall interest rate risk to the
index. As of December 31, 1999 , the dollar-weighted average
maturity of the fund and the index was approximately 12.4 and
13.5 years, respectively.
FMR allocates the fund's 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 and maturity.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR analyzes a
security's structural features and current price compared to
its estimated long-term value, any short-term trading
opportunities resulting from market inefficiencies, and the credit
quality of its issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates, or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable, or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest but
are sold at a discount from their face values. Municipal debt
securities include general obligation bonds of municipalities, local
or state governments, project or revenue-specific bonds, or
pre-refunded or escrowed bonds.
MONEY MARKET SECURITIES are high-quality, short-term securities that
pay a fixed, variable , or floating interest rate. Securities
are often specifically structured so that they are eligible
investments for a money market fund. For example, in order to satisfy
the maturity restrictions for a money market fund, some money market
securities have demand or put features , which have the effect
of shortening the security's maturity. Municipal money market
securities include variable rate demand notes, commercial paper,
municipal notes , and shares of municipal money market
funds.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
and private purposes, including general financing for state and local
governments, or financing for a specific project or public facility.
Municipal securities may be fully or partially backed by the local
government, by the credit of a private issuer, by the current or
anticipated revenues from a specific project or specific assets, or by
domestic or foreign entities providing credit support such as letters
of credit, guarantees , or insurance.
PRINCIPAL INVESTMENT RISKS
Many factors affect each fund's performance. Because FMR concentrates
each fund's investments in Pennsylvania, the fund's performance is
expected to be closely tied to economic and political conditions
within that state and to be more volatile than the performance of a
more geographically diversified fund.
The money market fund's yield will change daily based on changes in
interest rates and other market conditions. Although the fund is
managed to maintain a stable $1.00 share price, there is no guarantee
that the fund will be able to do so. For example, a major increase in
interest rates or a decrease in the credit quality of the issuer of
one of the fund's investments could cause the fund's share price to
decrease. While the fund will be charged premiums by a mutual
insurance company for coverage of specified types of losses related to
default or bankruptcy on certain securities, the fund may incur losses
regardless of the insurance.
The bond fund's yield and share price change daily based on changes in
interest rates and market conditions and in response to other
economic, political , or financial developments. The fund's
reaction to these developments will be affected by the types and
maturities of securities in which the fund invests, the
financial condition, industry and economic sector, and geographic
location of an issuer, and the fund's level of investment in the
securities of that issuer. Because FMR may invest a significant
percentage of Spartan Pennsylvania Municipal Income's assets in a
single issuer, the fund's performance could be closely tied to the
market value of that one issuer and could be more volatile than the
performance of more diversified funds. When you sell your shares
of the fund, they could be worth more or less than what you paid for
them.
The following factors can significantly affect a fund's
performance:
MUNICIPAL MARKET VOLATILITY. Municipal securities can be significantly
affected by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes, or the
rights of municipal security holders. Because many municipal
securities are issued to finance similar projects, especially those
relating to education, health care, transportation , and
utilities, conditions in those sectors can affect the overall
municipal market. In addition, changes in the financial condition of
an individual municipal insurer can affect the overall municipal
market.
INTEREST RATE CHANGES. Debt and money market securities have varying
levels of sensitivity to changes in interest rates. In general, the
price of a debt or money market security can fall when interest rates
rise and can rise when interest rates fall. Securities with longer
maturities can be more sensitive to interest rate changes. In other
words, the longer the maturity of a security, the greater the impact a
change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily
move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and long-term
securities tend to react to changes in long-term interest rates.
FOREIGN EXPOSURE. Entities located in foreign countries that provide
credit support or a maturity-shortening structure can involve
increased risks. Extensive public information about the
provider may not be available and unfavorable political,
economic , or governmental developments could affect the value
of the security.
GEOGRAPHIC CONCENTRATION. Pennsylvania is the fifth most populous
state behind California, New York, Texas , and Florida.
Historically, Pennsylvania had 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. The
economic readjustment was a direct result of a long-term shift in
jobs, investments , and workers away from the northeast part of
the nation. Currently, the major sources of growth in the Commonwealth
are in the service sector, including trade, medical and health
services, education, and financial institutions. However,
Pennsylvania's agricultural industries also remain an important
component of its economic structure.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of security or issuer, and changes in general
economic or political conditions can affect the credit quality or
value of an issuer's securities. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more sensitive to
these changes than higher-quality debt securities. Entities providing
credit support or a maturity-shortening structure also can be
affected by these types of changes. Municipal securities backed by
current or anticipated revenues from a specific project or specific
assets can be negatively affected by the discontinuance of the
taxation supporting the project or assets or the inability to collect
revenues for the project or from the assets. If the Internal Revenue
Service determines an issuer of a municipal security has not complied
with applicable tax requirements, interest from the security could
become taxable and the security could decline significantly in value.
In addition, if the structure of a security fails to function as
intended, interest from the security could become taxable or the
security could decline in value.
In response to market, economic, political , or other
conditions, FMR may temporarily use a different investment strategy
for defensive purposes. If FMR does so, different factors could affect
a fund's performance, and a fund could distribute income
subject to federal or Pennsylvania personal income tax.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND 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 FUND 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. 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.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity(registered trademark) normally calculates each fund's
NAV as of the close of business 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). Each fund's assets are valued as of this time for
the purpose of computing the fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
The money market fund's assets are valued on the basis of amortized
cost.
The bond fund's assets are valued primarily on the basis of
information furnished by a pricing service or market quotations. If
market quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the
exchange or market on which the security is principally traded, that
security may be valued by another method that the Board of Trustees
believes accurately reflects fair value. A security's valuation may
differ depending on the method used for determining value.
SHAREHOLDER INFORMATION
BUYING AND SELLING SHARES
GENERAL INFORMATION
Fidelity Investments(registered trademark) 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-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
web site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's web site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use Fidelity Automated Service Telephone (FASTSM) ,
1-800-544-5555.
(small solid bullet) For exchanges, redemptions, and account
assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and brokerage information,
1-800-544-6666.
(small solid bullet) For retirement information,
1-800-544- 4774 .
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039- 5587
You may buy or sell shares of the funds through an investment
professional. If you invest through an investment professional, the
procedures for buying, selling , and exchanging shares of a fund
and the account features and policies may differ. Additional fees may
also apply to your investment in a fund, including a transaction fee
if you buy or sell shares of the fund through a broker or other
investment professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of each fund is the fund's NAV. Each fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of a fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, a fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
that fund. For these purposes, FMR may consider an investor's trading
history in that fund or other Fidelity funds, and accounts under
common ownership or control.
Each fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, 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) Fidelity 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
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (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 order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT
For Spartan PA Muni Money Market $25,000
For Spartan PA Muni Income $10,000
TO ADD TO AN ACCOUNT $1,000
Through regular investment plans $500
MINIMUM BALANCE
For Spartan PA Muni Money Market $10,000
For Spartan PA Muni Income $5,000
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory ServicesSM
or a qualified state tuition program.
In addition, each fund may waive or lower purchase minimums in other
circumstances.
KEY INFORMATION
PHONE 1-800-544-6666 TO OPEN AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
(small solid bullet) Use
Fidelity Money
Line(registered trademark)
to transfer from your bank
account.
INTERNET WWW.FIDELITY.COM TO OPEN AN ACCOUNT
(small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account.
MAIL FIDELITY INVESTMENTS TO OPEN AN ACCOUNT
P.O. BOX 770001 CINCINNATI, (small solid bullet) Complete
OH 45277-0002 and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address at
left.
TO ADD TO AN ACCOUNT
(small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address at left.
(small solid bullet) Exchange
from another Fidelity fund.
Send a letter of instruction
to the address at left,
including your name, the
funds' names, the fund
account numbers, and the
dollar amount or number of
shares to be exchanged.
IN PERSON TO OPEN AN ACCOUNT
(small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
TO ADD TO AN ACCOUNT
(small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
WIRE TO OPEN AN ACCOUNT
(small solid bullet) Call
1-800-544-6666 to set up
your account and to arrange
a wire transaction.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
# 021001033, Account #
00163053.
(small solid bullet) Specify
the complete name of the
fund and include your new
fund account number and your
name.
TO ADD TO AN ACCOUNT
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing # 021001033, Account
# 00163053.
(small solid bullet) Specify
the complete name of the
fund and include your fund
account number and your name.
AUTOMATICALLY TO OPEN AN ACCOUNT
(small solid bullet) Not
available.
TO ADD TO AN ACCOUNT
(small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark) or Direct Deposit.
(small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from a
Fidelity money market fund.
SELLING 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 redemption
fee (short-term trading fee), if applicable.
Spartan Pennsylvania Municipal Income will deduct a short-term trading
fee of 0.50% from the redemption amount if you sell your shares 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.
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.
Your shares will be sold at the next NAV calculated after your order
is received in proper form, minus the short-term trading fee, if
applicable.
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 sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 15 or 30 days , depending on your account ;
(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.
When you place an order to sell shares, note the following:
(small solid bullet) If you are selling some but not all of your
Spartan Pennsylvania Municipal Money Market shares, leave at least
$10,000 worth of shares in the account to keep it open, except
accounts not subject to account minimums. If you are selling some but
not all of your Spartan Pennsylvania Municipal Income shares, leave at
least $5,000 worth of shares in the account to keep it open, except
accounts not subject to account minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
a fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(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) Redemption proceeds may be paid in securities or
other property rather than in cash if FMR determines it is in
the best interests of a fund.
(small solid bullet) If you sell shares of Spartan Pennsylvania
Municipal Money Market 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) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY INFORMATION
PHONE 1-800-544-6666 (small solid bullet) Call the
phone number at left to
initiate a wire transaction
or to request a check for
your redemption.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
(small solid bullet) Exchange
to another Fidelity fund.
Call the phone number at left.
INTERNET WWW.FIDELITY.COM (small solid bullet) Exchange
to another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
MAIL FIDELITY INVESTMENTS INDIVIDUAL, JOINT TENANT,
P.O. BOX 660602 DALLAS, TX SOLE PROPRIETORSHIP, UGMA,
75266-0602 UTMA
(small solid bullet) Send a
letter of instruction to the
address at left, including
your name, the fund's name,
your fund account number,
and the dollar amount or
number of shares to be sold.
The letter of instruction
must be signed by all
persons required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Send a
letter of instruction to the
address at left, including
the trust's name, the fund's
name, the trust's fund
account number, and the
dollar amount or number of
shares to be sold. The
trustee must sign the letter
of instruction 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) Send a
letter of instruction to the
address at left, including
the firm's name, the fund's
name, the firm's fund
account number, and the
dollar amount or number of
shares to be sold. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Call
1-800-544-6666 for
instructions.
IN PERSON INDIVIDUAL, JOINT TENANT,
SOLE PROPRIETORSHIP, UGMA,
UTMA
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
trustee must sign the letter
of instruction 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) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Visit a
Fidelity Investor Center for
instructions. Call
1-800-544-9797 for the
center nearest you.
AUTOMATICALLY (small solid bullet) Use
Personal Withdrawal Service
to set up periodic
redemptions from your bond
fund account.
CHECK (small solid bullet) Write a
check to sell shares from
your account.
EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
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 policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only 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) 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.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Each fund may 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 will be counted together for purposes of
the four exchange limit.
(small solid bullet) Each fund may 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.
The funds may terminate or modify the exchange privilege s in
the future.
Other funds may have different exchange restrictions, and may impose
trading fees of up to 3.00% of the amount exchanged. Check each
fund's prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
funds.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between accounts , or out of your account. While
automatic investment programs 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 retirement, a home, educational expenses,
and other long-term financial goals. Automatic withdrawal or exchange
programs can be a convenient way to provide a consistent income flow
or to move money between your investments.
<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY AUTOMATIC ACCOUNT
BUILDER TO MOVE MONEY FROM
YOUR BANK ACCOUNT TO A
FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$500 Monthly or quarterly (small solid bullet) To set
up for a new account,
complete the appropriate
section on the fund
application.
(small solid bullet) To set
up for existing accounts,
call 1-800-544-6666 or visit
Fidelity's web site for an
application.
(small solid bullet) To make
changes, 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 FUND.A
MINIMUM FREQUENCY PROCEDURES
$500 Every pay period (small solid bullet) To set
up for a new account, check
the appropriate box on the
fund application.
(small solid bullet) To set
up for an existing account,
call 1-800-544-6666 or visit
Fidelity's web site for an
authorization form.
(small solid bullet) To make
changes you will need a new
authorization form. Call
1-800-544-6666 or visit
Fidelity's web site to
obtain one.
A BECAUSE BOND FUND SHARE
PRICES FLUCTUATE, THAT FUND
MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF
YOUR ENTIRE CHECK.
FIDELITY AUTOMATIC EXCHANGE
SERVICE TO MOVE MONEY FROM A
FIDELITY MONEY MARKET FUND
TO ANOTHER FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$500 Monthly, bimonthly, (small solid bullet) To set
quarterly, or annually up, call 1-800-544-6666
after both accounts are
opened.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
exchange date.
PERSONAL WITHDRAWAL SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM YOUR BOND
FUND ACCOUNT TO YOU OR TO
YOUR BANK ACCOUNT.
FREQUENCY PROCEDURES
Monthly (small solid bullet) To set
up, call 1-800-544-6666.
(small solid bullet) To make
changes, call Fidelity at
1-800-544-6666 at least
three business days prior to
your next scheduled
withdrawal date.
</TABLE>
OTHER FEATURES. The following other features are also available to buy
and sell shares of the funds.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(small solid bullet) You must sign up for the wire feature before
using it. Complete the appropriate section on the application when
opening your account, or call 1-800-544- 6666 to add the feature
after your account is opened. Call 1-800-544- 6666 before your
first use to verify that this feature is set up on your account.
(small solid bullet) To sell shares by wire, you must designate the
U.S. commercial bank account(s) into which you wish the redemption
proceeds deposited.
(small solid bullet) There may be a $5.00 fee for each wire purchase
for Spartan Pennsylvania Municipal Money Market.
(small solid bullet) There may be a $5.00 fee for each wire redemption
for Spartan Pennsylvania Municipal Money Market.
FIDELITY MONEY LINE
TO TRANSFER MONEY BETWEEN YOUR BANK ACCOUNT AND YOUR FUND ACCOUNT.
(small solid bullet) You must sign up for the Money Line feature
before using it. Complete the appropriate section on the application
and then call 1-800-544- 6666 or visit Fidelity's web site
before your first use to verify that this feature is set up on your
account.
(small solid bullet) Most transfers are complete within three business
days of your call.
(small solid bullet) Minimum purchase: $500
(small solid bullet) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544- 0240 OR VISIT FIDELITY'S WEB SITE FOR MORE
INFORMATION.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) For access to research and analysis tools.
FIDELITY ONLINE TRADING
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S
WEB SITE.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) To obtain quotes;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) To access third-party research on companies,
stocks, mutual funds and the market.
FAST
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATICALLY BY PHONE USING
TOUCH TONE OR SPEECH RECOGNITION.
CALL 1-800-544-5555.
(small solid bullet) For account balances and holdings;
(small solid bullet) For mutual fund and brokerage trading;
(small solid bullet) To obtain quotes;
(small solid bullet) To review orders and mutual fund activity; and
(small solid bullet) To change your personal identification number
(PIN).
CHECKWRITING
TO REDEEM SHARES FROM YOUR SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET
ACCOUNT.
(small solid bullet) To set up, complete the appropriate section on
the application.
(small solid bullet) All account owners must sign a signature card to
receive a checkbook.
(small solid bullet) You may write an unlimited number of checks.
(small solid bullet) Minimum check amount: $ 1,000 .
(small solid bullet) Do not try to close out your account by check.
(small solid bullet) To obtain more checks, call Fidelity at
1-800-544-6666.
POLICIES
The following policies apply to you as a shareholder.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund or another fund and certain transactions through automatic
investment or withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(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 a fund. Call Fidelity at 1-800-544-8544 if you
need additional copies of financial reports or prospectuses.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's web site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's web
site for more information.
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 sell and
exchange by telephone, call Fidelity for instructions.
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.
Fidelity may 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 Fidelity, 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
accounts with Fidelity maintained by Fidelity Service Company, Inc. 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 $10,000 for Spartan Pennsylvania
Municipal Money Market or $5,000 for Spartan Pennsylvania Municipal
Income (except accounts not subject to account minimums), you will be
given 30 days' notice to reestablish the minimum balance. If you do
not increase your balance, Fidelity may close your account and send
the proceeds to you. Your shares will be sold 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.
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 fee 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 transaction fee will be deducted
from the amount of your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires.
Fidelity may charge a FEE FOR CERTAIN SERVICES, such as
providing historical account documents.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each fund earns interest, dividends , and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. Each fund may also realize capital gains
from its investments, and distributes these gains (less losses), if
any, to shareholders as capital gain distributions.
The bond fund normally declares dividends daily and pays them monthly.
The bond fund normally pays capital gain distributions in
February and December.
Distributions you receive from the money market fund consist primarily
of dividends. The money market fund normally declares dividends daily
and pays them monthly.
EARNING DIVIDENDS
Shares begin to earn dividends on the first business day following the
day of purchase.
Shares earn dividends until, but not including, the next business day
following the day of redemption.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
each fund's distributions:
1. REINVESTMENT OPTION. Your dividends 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 will be automatically reinvested in additional shares of
the fund. Your dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital gain distributions,
if any, will be paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gain distributions, if
any, will be automatically invested in shares of another identically
registered Fidelity fund, automatically reinvested in additional
shares of the fund, or paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in a fund could have tax
consequences for you.
TAXES ON DISTRIBUTIONS. Each fund seeks to earn income and pay
dividends exempt from federal income tax and Pennsylvania personal
income tax.
A portion of the dividends you receive may be subject to federal,
state, or local income tax or may be subject to the federal
alternative minimum tax. You may also receive taxable distributions
attributable to a fund's sale of municipal bonds.
For federal tax purposes, each fund's distributions of short-term
capital gains and gains on the sale of bonds characterized as market
discount are taxable to you as ordinary income , while e ach
fund's distributions of long-term capital gains, if any, are taxable
to you generally as capital gains.
For Pennsylvania personal income tax purposes, distributions
derived from interest on municipal securities of Pennsylvania issuers
and from interest on qualifying securities issued by U.S. territories
and possessions are generally exempt from tax. Distributions that are
federally taxable as ordinary income or capital gains are generally
subject to Pennsylvania personal income tax.
If a fund's distributions exceed its income and capital gains realized
in any year, all or a portion of those distributions may be treated as
a return of capital to shareholders for federal income tax
or Pennsylvania personal income tax purposes. A return of
capital generally will not be taxable to you but will reduce
the cost basis of your shares and result in a higher reported capital
gain or a lower reported capital loss when you sell your shares.
If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will be "buying a dividend" by paying the
full price for the shares and then receiving a portion of the price
back in the form of a potentially taxable distribution.
Any taxable distributions you receive from a fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your bond fund redemptions, including
exchanges, may result in a capital gain or loss for federal and
Pennsylvania personal income tax purposes. A capital gain or
loss on your investment in a fund generally is the
difference between the cost of your shares and the price you receive
when you sell them.
FUND SERVICES
FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
FMR is each fund's manager.
As of March 25, 1999 , FMR had approximately $521.7 billion in
discretionary assets under management.
As the manager, FMR is responsible for choosing each fund's
investments and handling its business affairs.
Fidelity Investments Money Management, Inc. (FIMM), in Merrimack, New
Hampshire, serves as sub-adviser for each fund. FIMM is primarily
responsible for choosing investments for each fund.
FIMM is an affiliate of FMR. As of March 29, 1999 , FIMM had
approximately $ 159.8 billio n in discretionary assets under
management.
Christine Thompson is Vice President and manager of Spartan
Pennsylvania Municipal Income, which she has managed since July 1998.
She also manages other Fidelity funds. Since joining Fidelity in 1985,
Ms. Thompson has worked as a senior analyst and portfolio manager.
From time to time a manager, analyst, or other Fidelity employee
may express views regarding a particular company, security, industry,
or market sector. The views expressed by any such person are the views
of only that individual as of the time expressed and do not
necessarily represent the views of Fidelity or any other person in the
Fidelity organization. Any such views are subject to change at any
time based upon market or other conditions and Fidelity disclaims any
responsibility to update such views. These views may not be relied on
as investment advice and, because investment decisions for a Fidelity
fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any Fidelity fund.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each fund pays a management fee to FMR. The management fee is
calculated and paid to FMR every month. FMR pays all of the other
expenses of Spartan Pennsylvania Municipal Money Market with limited
exceptions.
Spartan Pennsylvania Municipal Money Market's annual management fee
rate is 0.50% of its average net assets.
For Spartan Pennsylvania Municipal Income, the fee is calculated by
adding a group fee rate to an individual fund fee rate, dividing by
twelve, and multiplying the result by the fund's average net assets
throughout the month.
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 1999 , the group fee rate was 0.1267 % for
Spartan Pennsylvania Municipal Income. The individual fund fee rate is
0.25%.
The total management fee for the fiscal year ended December 31, 1999,
was 0.38 % of the fund's average net assets for Spartan
Pennsylvania Municipal Income.
FMR pays FIMM for sub-advisory services.
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, in the case of certain funds, may be
discontinued by FMR at any time, can decrease a fund's expenses
and boost its performance.
FUND DISTRIBUTION
FDC distributes each fund's shares.
Each fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that 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 providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees of each fund has authorized
such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of a fund, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this p rospectus and in the
related s tatement of a dditional i nformation
(SAI), in connection with the offer contained in this
p rospectus. If given or made, such other information or
representations must not be relied upon as having been authorized by
the funds or FDC. This p rospectus and the related SAI do not
constitute an offer by the funds or by FDC to sell shares of the
funds to or to buy shares of the funds from any person to
whom it is unlawful to make such offer.
APPENDIX
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you
understand each fund's financial history for the past 5 years. Certain
information reflects financial results for a single fund share. The
total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP , independent
accountants, whose report s, along with each fund's financial
highlights and financial statements, are included in each fund's
a nnual r eport. A free copy of each a nnual
r eport is available upon request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment .029 .031 .033 .032 .035
Operations Net interest
income
Less Distributions
From net interest income (.029) (.031) (.033) (.032) (.035)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN A, B 2.91% 3.15% 3.36% 3.21% 3.56%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 201,291 $ 216,487 $ 229,469 $ 242,386 $ 241,643
(000 omitted)
Ratio of expenses to average .50% .50% .50% .50% .50%
net assets
Ratio of expenses to average .50% .50% .50% .48% C .50%
net assets after expense
reductions
Ratio of net interest income 2.87% 3.10% 3.31% 3.17% 3.50%
to average net assets
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA MUNICIPAL INCOME
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.830 $ 10.810 $ 10.490 $ 10.670 $ 9.620
period
Income from Investment .482 .483 .501 .520 .590
Operations Net interest
income
Net realized and unrealized (.709) .126 .350 (.109) 1.049
gain (loss)
Total from investment (.227) .609 .851 .411 1.639
operations
Less Distributions
From net interest income (.482) (.483) (.501) (.520) (.590)
From net realized gain (.042) (.107) (.030) (.071) -
In excess of net realized (.020) - - - -
gain
Total distributions (.544) (.590) (.531) (.591) (.590)
Redemption fees added to paid .001 .001 .000 .000 .001
in capital
Net asset value, end of period $ 10.060 $ 10.830 $ 10.810 $ 10.490 $ 10.670
TOTAL RETURN A (2.16)% 5.77% 8.34% 4.02% 17.44%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 242,001 $ 269,484 $ 264,693 $ 270,977 $ 288,425
(000 omitted)
Ratio of expenses to average .51% .55% .55% .55% .55%
net assets
Ratio of expenses to average .51% .55% .55% .53% B .55%
net assets after expense
reductions
Ratio of net interest income 4.58% 4.45% 4.74% 4.98% 5.73%
to average net assets
Portfolio turnover rate 28% 25% 26% 53% 49%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES.
You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of the fund's holdings and recent market
conditions and the fund's investment strategies that affected
performance.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8544. In addition, you may visit Fidelity's web site at
www.fidelity.com for a free copy of a prospectus or an annual or
semi-annual report or to request other information.
The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS, 811-2720 AND 811-6454
Spartan, Fidelity Investments & (Pyramid) Design, Fidelity, Fidelity
Investments, Fidelity Money Line, Fidelity Automatic Account
Builder, Fidelity On-Line Xpress+, and Directed Dividends are
registered trademarks of FMR Corp.
FAST and Portfolio Advisory Services are service marks of FMR
Corp.
The third party marks appearing above are the marks of their
respective owners.
1.540170.102 PFR-pro-0200
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 28, 2000
This statement of additional information (SAI) is not a
prospectus. Portions of each fund's annual report are
incorporated herein. The annual reports are supplied with this SAI.
To obtain a free additional copy of the prospectus , dated
February 28, 2000 , or an annual report , please call
Fidelity(registered trademark) at 1-800-544-8544 or visit
Fi delity's web site a t www.fidelity.com.
TABLE OF CONTENTS PAGE
Investment Policies and 22
Limitations
Special Considerations 27
Regarding Pennsylvania
Special Considerations 29
Regarding Puerto Rico
Portfolio Transactions 32
Valuation 32
Performance 33
Additional Purchase, Exchange 43
and Redemption Information
Distributions and Taxes 43
Trustees and Officers 43
Control of Investment Advisers 47
Management Contracts 47
Distribution Services 50
Transfer and Service Agent 50
Agreements
Description of the Trusts 51
Financial Statements 52
Appendix 52
PFR-ptb-0200
1.540393.102
(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109
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 (the
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
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, if, as a result, the fund
would not comply with any applicable diversification requirements for
a money market fund under the Investment Company Act of 1940 and the
rules thereunder, as such may be amended from time to time;
(2) issue senior securities, except in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise permitted
under the Investment Company Act of 1940;
(3) 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;
(4) 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;
(5) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(6) underwrite securities issued by others, except to the extent that
the 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;
(7) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in securities of
companies whose principal business activities are in the same
industry;
(8) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(9) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments;
(10) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties (but
this limit does not apply to purchases of debt securities or to
repurchase agreements); or
(11) invest in oil, gas or other mineral exploration or development
programs.
(12) 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) With respect to 75% of its total assets, the fund does not
currently intend to purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or securities of other money market
funds) if, as a result, more than 5% of the fund's total assets would
be invested in the securities of that issuer.
(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 (5)).
(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 limitations (1), (7), and (i), FMR identifies the
issuer of a security depending on its terms and conditions. In
identifying the issuer, FMR will consider the entity or entities
responsible for payment of interest and repayment of principal and the
source of such payments; the way in which assets and revenues of an
issuing political subdivision are separated from those of other
political entities; and whether a governmental body is guaranteeing
the security.
For purposes of limitation (i), certain securities subject to
guarantees (including insurance, letters of credit and demand
features) are not considered securities of their issuer, but are
subject to separate diversification requirements, in accordance with
industry standard requirements for money market funds.
With respect to limitation (iii), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 10% of its ne t assets were in vested in illiquid
securities, it would consider appropriate steps to protect liquidity.
For purposes of investing at least 65% of the fund's total assets
in municipal securities whose interest is exempt from Pennsylvania
personal income tax, FMR interprets "total assets" to exclude
collateral received for securities lending transactions.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except in connection with the insurance
program established by the fund pursuant to an exemptive order issued
by the Securities and Exchange Commission or as otherwise permitted
under the Investment Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in securities of
companies whose principal business activities are in the same
industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(7) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(8) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor 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 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)).
(v) The fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
For purposes of limitations (4) and (i), FMR identifies the issuer of
a security depending on its terms and conditions. In identifying the
issuer, FMR will consider the entity or entities responsible for
payment of interest and repayment of principal and the source of such
payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.
For purposes of limitation (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.
With respect to limitation (v), 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 were in vested in illiquid
securities, it would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 39 .
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 a 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 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. Payment of interest and repayment of principal may be
largely dependent upon the cash flows generated by the assets backing
the securities and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. Asset-backed security
values may also be affected by other factors including changes in
interest rates, the availability of information concerning the pool
and its structure, the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the entities
providing the credit enhancement. In addition, these securities may be
subject to prepayment risk.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity , and diversification of their investments.
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.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: 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.
COMBINED POSITIONS involve purchasing and writing 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, purchasing a put option and writing a
call option on the same underlying instrument would 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, 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. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund 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 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. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter 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 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 bond fund's investments in futures
contracts and options, and the fund's policies regarding futures
contracts and options discussed elsewh ere 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 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 purchaser or writer 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
purchaser 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 purchaser 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 purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser 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, 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. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer 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. The writer may seek
to terminate a position in a put option 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, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
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 writer 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 SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. 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
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market , and (4) the nature of the security and the market in
which it trades (including any demand, put or tender features, the
mechanics and other requirements for transfer, any letters of credit
or other credit enhancement features, any ratings, the number of
holders, the method of soliciting offers, the time required to dispose
of the security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments 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.
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. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates; however, municipal
funds currently intend to participate in this program only as
borrowers. A fund will borrow through the program only when the costs
are equal to or lower than the costs of bank loans. Interfund
borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one day's notice. 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 movements in prevailing short-term
interest rate levels - rising when prevailing short-term interest
rates fall, and vice versa. The prices of inverse floaters can be
considerably more volatile than the prices of bonds with comparable
maturities.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt 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 IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MONEY MARKET INSURANCE. The money market fund participates in a mutual
insurance company solely with other funds advised by FMR or its
affiliates. This company provides insurance coverage for losses on
certain money market instruments held by a participating fund
(eligible instruments), including losses from nonpayment of principal
or interest or a bankruptcy or insolvency of the issuer or credit
support provider, if any. The insurance does not cover losses
resulting from changes in interest rates or other market developments.
The money market fund is charged an annual premium for the insurance
coverage and may be subject to a special assessment of up to
approximately two and one-half times the fund's annual gross premium
if covered losses exceed certain levels. A participating fund may
recover no more than $100 million annually, including all other claims
of insured funds, and may only recover if the amount of the loss
exceeds 0.30% of its eligible instruments. The money market fund may
incur losses regardless of the insurance.
MONEY MARKET SECURITIES are high-quality, short-term obligations.
Money market securities may be structured to be, or may employ a trust
or other form so that they are, eligible investments for money market
funds. 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 a structure fails to function 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 certain 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 INSURANCE. A municipal bond may be covered by insurance that
guarantees the bond's scheduled payment of interest and repayment of
principal. This type of insurance may be obtained by either (i) the
issuer at the time the bond is issued (primary market insurance), or
(ii) another party after the bond has been issued (secondary market
insurance).
Both primary and secondary market insurance guarantee timely and
scheduled repayment of all principal and payment of all interest on a
municipal bond in the event of default by the issuer, and cover a
municipal bond to its maturity, enhancing its credit quality and
value.
Municipal bond insurance does not insure against market fluctuations
or fluctuations in a fund's share price. In addition, a municipal bond
insurance policy will not cover: (i) repayment of a municipal bond
before maturity (redemption), (ii) prepayment or payment of an
acceleration premium (except for a mandatory sinking fund redemption)
or any other provision of a bond indenture that advances the maturity
of the bond, or (iii) nonpayment of principal or interest caused by
negligence or bankruptcy of the paying agent. A mandatory sinking fund
redemption may be a provision of a municipal bond issue whereby part
of the municipal bond issue may be retired before maturity.
Because a significant portion of the municipal securities issued and
outstanding is insured by a small number of insurance companies, an
event involving one or more of these insurance companies could have a
significant adverse effect on the value of the securities insured by
that insurance company and on the municipal markets as a whole.
FMR may decide to retain an insured municipal bond that is in default,
or, in FMR's view, in significant risk of default. While a fund holds
a defaulted, insured municipal bond, the fund collects interest
payments from the insurer and retains the right to collect principal
from the insurer when the municipal bond matures, or in connection
with a mandatory sinking fund redemption.
PRINCIPAL MUNICIPAL BOND INSURERS. The various insurance companies
providing primary and secondary market insurance policies for
municipal bonds are described below. Ratings reflect each respective
rating agency's assessment of the creditworthiness of an insurer and
the insurer's ability to pay claims on its insurance policies at the
time of the assessment.
Ambac Assurance Corp., a wholly-owned subsidiary of Ambac Financial
Group Inc., is authorized to provide bond insurance in the 50 U.S.
states, the District of Columbia, and the Commonwealth of Puerto Rico.
Bonds insured by Ambac Assurance Corp. are rated "Aaa" by Moody's
Investor s Service and "AAA" by Standard & Poor's.
Connie Lee Insurance Co. is a wholly-owned subsidiary of Connie Lee
Holdings Inc., which is a wholly-owned subsidiary of Ambac Assurance
Corp. All losses incurred by Connie Lee Insurance Co. that would cause
its statutory capital to drop below $75 million would be covered by
Ambac Assurance Corp. Connie Lee Insurance Co. is authorized to
provide bond insurance in 49 U.S. states, the District of Columbia,
and the Commonwealth of Puerto Rico. Bonds insured by Connie Lee
Insurance Co. are rated "AAA" by Standard & Poor's.
Financial Guaranty Insurance Co. (FGIC), a wholly-owned subsidiary of
GE Capital Services, is authorized to provide bond insurance in the 50
U.S. states and the District of Columbia. Bonds insured by FGIC are
rated "Aaa" by Moody's Investor s Service and "AAA" by Standard
& Poor's.
Financial Security Assurance Inc. (FSA), a wholly-owned subsidiary of
Financial Security Assurance Holdings Ltd., is authorized to provide
bond insurance in 49 U.S. states, the District of Columbia, and three
U.S. territories. Bonds insured by FSA are rated "Aaa" by Moody's
Investor s Service and "AAA" by Standard & Poor's.
Municipal Bond Investors Assurance Corp. (MBIA Insurance Corp.), a
wholly-owned subsidiary of MBIA Inc., a publicly-owned company, is
authorized to provide bond insurance in the 50 U.S. states, the
District of Columbia, and the Commonwealth of Puerto Rico. Bonds
insured by MBIA Insurance Corp. are rated "Aaa" by Moody's
Investor s Service and "AAA" by Standard & Poor's.
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,
a fund will not hold these 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 purchaser a specified, undivided interest in the obligation
in proportion to its purchased interest in the total amount of the
issue.
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. If a municipality stops making payments or transfers its
obligations to a private entity, the obligation could lose value or
become taxable.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income
tax exemption for interest on municipal securities are introduced
before Congress from time to time. Proposals also may be introduced
before the Pennsylvania legislature that would affect the state tax
treatment of a municipal fund's distributions. If such proposals were
enacted, the availability of municipal securities and the value of a
municipal fund's holdings would be affected and the Trustees would
reevaluate the fund's investment objectives and policies. 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 a money market fund to maintain a stable
net asset value per share (NAV).
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.
HEALTH CARE. The health care industry is subject to regulatory action
by a number of private and governmental agencies, including federal,
state, and local governmental agencies. A major source of revenues for
the health care industry is payments from the Medicare and Medicaid
programs. As a result, the industry is sensitive to legislative
changes and reductions in governmental spending for such programs.
Numerous other factors may affect the industry, such as general and
local economic conditions; demand for services; expenses (including
malpractice insurance premiums); and competition among health care
providers. In the future, the following elements may adversely affect
health care facility operations: adoption of legislation proposing a
national health insurance program; other state or local health care
reform measures; medical and technological advances which dramatically
alter the need for health services or the way in which such services
are delivered; changes in medical coverage which alter the traditional
fee-for-service revenue stream; and efforts by employers, insurers,
and governmental agencies to reduce the costs of health insurance and
health care services.
TRANSPORTATION. Transportation debt may be issued to finance the
construction of airports, toll roads, highways, or other transit
facilities. Airport bonds are dependent on the general stability of
the airline industry and on the stability of a specific carrier who
uses the airport as a hub. Air traffic generally follows broader
economic trends and is also affected by the price and availability of
fuel. Toll road bonds are also affected by the cost and availability
of fuel as well as toll levels, the presence of competing roads and
the general economic health of an area. Fuel costs and availability
also affect other transportation-related securities, as do the
presence of alternate forms of transportation, such as public
transportation.
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.
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. In exchange
for this benefit, a fund may accept a lower interest rate. Securities
with put features 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.
REFUNDING CONTRACTS. Securities may be purchased on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and a
purchaser 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 purchaser generally will not be obligated to pay the
full purchase price if the issuer fails to perform under a refunding
contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer. A purchaser 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.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
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. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The funds will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder 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 security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The funds will enter into
reverse repurchase agreements with parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SOURCES OF LIQUIDITY OR CREDIT SUPPORT. Issuers may employ
various forms of credit and liquidity enhancements, including letters
of credit, guarantees, puts, and demand features, and insurance
provided by domestic or foreign entities such as banks and other
financial institutions. FMR may rely on its evaluation of the credit
of the liquidity or credit enhancement provider in determining
whether to purchase a security supported by such enhancement. 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. Changes in the credit quality of the entity providing the
enhancement could affect the value of the security or a fund's share
price.
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. A 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 purchase 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 generally marketable; and the possibility that the maturities
of the underlying securities may be different from those of the
commitments.
TEMPORARY DEFENSIVE POLICIES. Each fund 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.
TENDER OPTION BONDS are created by coupling an intermediate- or
long-term, fixed-rate, municipal 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, 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
in 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 are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
In many instances bonds and participation interests have tender
options or demand features that permit the holder to tender (or put)
the bonds to an institution at periodic intervals and to receive the
principal amount thereof. Variable rate instruments structured in this
fashion are considered to be essentially equivalent to other variable
rate securities. The IRS has not ruled whether the interest on these
instruments is tax-exempt. Fixed-rate bonds that are subject to third
party puts and participation interests in such bonds held by a bank in
trust or otherwise may have similar features.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, 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, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a 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 more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
SPECIAL CONSIDERATIONS REGARDING 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, although the validity
of the personal property is the subject of litigation . 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 enacted legislation which
gives local governments the option of reducing property taxes
and simplifying their local tax system by collecting an earned income
or other type of tax. The General Assembly may, in the future,
consider other local tax reform measures.
PENNSYLVANIA TAXES. The Commonwealth General Fund budgets for
fiscal 1996 through 2000 included various tax reduction measures. Tax
reductions included in the enacted fiscal 1999 budget totaled an
estimated $380.2 million. The major components of the tax reductions
are (i) a reduction in the tax rate for the capital stock and
franchise tax from 11.99 mils to 10.99 mils, (ii) a repeal of the
gross receipts tax on regulated gas utilities, (iii) a reduction of
the minimum capital stock and franchise tax from $300 to $200, (iv)
raising the annual cap on net operating loss carryovers from $1
million to $2 million, (v) increasing the weighting of the sales
factor of the corporate tax apportionment formula from 50% to 60%, and
(vi) a reduction of various other miscellaneous items. Most of the
major changes are effective January 1, 1999.
In the fall of 1998, Pennsylvania enacted the Keystone
Opportunity Zone Act, which provides for the creation of 12 "keystone
opportunity zones" designed to spur economic development by foregoing
state and local taxes under certain circumstances. The legislation
provides for relief from, among other things, corporate net income
taxes, capital stock/foreign franchise taxes, personal income taxes
and sales and use taxes (on purchases used and consumed by businesses
in the zone).
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.
The five-year period ending with fiscal 1998 was a time of economic
growth with modest rates of growth at the beginning of the period and
larger increases during the most recent years. Throughout the period,
inflation has remained relatively low, helping to restrain expenditure
growth. Favorable economic conditions have helped total revenues and
other sources rise at an annual average of 4.2% during the five-year
period. The annual growth rate for taxes of 4.3% almost matched the
total revenue rate. License and fee revenues rose at a 7.9% annual
rate, largely because of various motor vehicle fee increases effective
for fiscal 1998. Other revenues, mostly charges for sales and services
and investment income, increased at an average annual rate of 17.6%.
Expenditure and other uses during the fiscal 1994 through fiscal 1998
period rose at a 3.8% average annual rate, led by a 10.2% average
annual increase for protection of person and property costs.
Operations during the 1998 fiscal year increased the unappropriated
balance of Commonwealth revenues by $86.4 million to $488.7 million at
June 30, 1998 (prior to transfers). Higher than estimated revenues,
offset in part by increased reserves for tax refunds, and slightly
lower expenditures than budgeted were responsible for the increase.
Commonwealth revenues (prior to tax refunds) during the fiscal year
totaled $18,123.2 million, $676.1 million (3.9%) above the estimate
made at the time the budget was enacted. Tax revenue in fiscal 1998
grew 4.8% over tax revenues during fiscal 1997. This rate of increase
includes the effect legislated tax reductions that affected receipts
during both fiscal years and therefore understates the actual
underlying rate of growth of tax revenue for fiscal 1998. Non-tax
revenues were $27.5 million (8.6%) over estimate, mostly due to
greater than anticipated interest earnings for the fiscal year.
Reserves established during fiscal 1998 for tax refunds totaled $910
million. This amount is a $370 million increase of tax refund reserves
for fiscal 1997 (representing a 68.5% increase). The fiscal 1998
amount includes a one-time addition intended to fund all fiscal 1998
tax refund liabilities, including that portion to be paid during
fiscal 1999.
Expenditures from all fiscal 1998 appropriations (including pooled
financing expenditures and net of current year lapses) totaled
$17,229.8 million. This represents an increase of 4.5% over fiscal
1997 appropriation expenditures. Lapses of appropriation authority
during the fiscal year totaled $161.8 million including $58.8 million
from fiscal 1998 appropriations. These appropriation lapses were used
to fund $120.5 million of supplemental fiscal 1998 appropriations.
For GAAP purposes, assets increased $705.1 million in fiscal 1998
and liabilities rose by $111.1 million. These changes contributed to a
$310.3 million rise in the undesignated-unreserved balance for June
30, 1998 to $497.6 million, the highest level achieved since audited
GAAP reporting was instituted in 1984.
The 1999 fiscal year ended with an unappropriated surplus (prior to
the transfer to the Tax Stabilization Reserve Fund) of $702.9 million,
an increase of $214.2 million from June 30, 1998. Transfers to the Tax
Stabilization Reserve Fund total $225.4 million for fiscal year 1999
consisting of $105.4 million representing the statutory 15% of the
fiscal year-end unappropriated surplus and an additional $150 million
from the unappropriated surplus authorized by the General Assembly.
The $447.5 million balance of the unappropriated surplus was carried
over to fiscal year 2000. The higher unappropriated surplus was
generated by tax revenues that were $712.0 million (3.9%) above
estimate (after tax reductions enacted with the 1999 fiscal year
budget that were estimated to be $241.0 million) and $61.0 million of
non-tax revenue (18.4%) above estimate. Higher than anticipated
appropriation lapses also contributed to the higher surplus. A portion
of the higher revenues and appropriation lapses were used for
supplemental fiscal 1999 appropriations totaling $357.8 million.
Including the supplemental appropriations and net of appropriation
lapses, expenditures for fiscal 1999 totaled $18,144.9 million, a 5.9%
increase over expenditures during fiscal 1998.
The General Fund budget for the 2000 fiscal year was approved by
the General Assembly in May 1999. The adopted budget includes
estimated spending from Commonwealth revenues of $19,061.5 million and
estimated revenues (net of estimated tax refunds and enacted tax
changes) of $18,699.9 million. Funds to cover the $361.6 million
difference between estimated revenues and projected spending will be
obtained from a draw down of the projected fiscal 1999 year-end
balance. The level of proposed spending represents an increase of 3.8%
over the spending authorized for fiscal 1999 of $18,367.5 million.
Enacted tax changes effective for fiscal 2000 total a net reduction of
$380.2 million for the General Fund.
The estimate of Commonwealth revenue for fiscal 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4%
rate from the second quarter of 1999 to the second quarter of 2000.
Growth of real gross domestic product is expected to be restrained by
a slowing of the rate of consumer spending to a level consistent with
personal income gains and by smaller gains in business investment in
response to falling capacity utilization and profits. Slowing economic
growth is expected to cause the unemployment rate to rise through the
fiscal year but inflation is expected to remain moderate. Trends for
the Pennsylvania economy are expected to maintain their close
association with national economic trends. Personal income growth is
anticipated to remain slightly below that of the U.S. while the
Pennsylvania unemployment rate is anticipated to be very close to the
national rate.
Commonwealth revenues (excluding the estimated cost of enacted tax
reductions) are projected to increase by 2.8% over fiscal 1999
receipts. Appropriations from Commonwealth funds increased by 3.8%
over fiscal 1999 appropriations. Enacted tax cuts for fiscal 2000
total an estimated $380.2 million to the General fund. According to a
November 30, 1999 press release from the Pennsylvania Secretary of
Revenue, General Fund revenues for December, 1999 totaled $1.7 billion
- - $23.9 million, or 1.4% more than anticipated. Fiscal year-to-date
General Fund collections total $8.6 billion, which is $177 million, or
2.1% above estimate.
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
1989 4.5% 5.3%
1990 5.4% 5.6%
1991 7.0% 6.8%
1992 7.6% 7.5%
1993 7.1% 6.9%
1994 6.2% 6.1%
1995 5.9% 5.6%
1996 5.3% 5.4%
1997 5.2% 4.9%
1998 4.6% 4.5%
1999 4.3% 4.3%
As of August 1999 , the seasonally adjusted unemployment rate
for the Commonwealth was 4.5 %, compared to 4.2 % for the
United States.
From time to time, certain Pennsylvania municipalities and
political subdivisions have experienced economic downturns. For
example, the financial condition of the City of Philadelphia in the
early 1990s 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.
The Pennsylvania Intergovernmental Cooperation Authority ("PICA")
was created by Commonwealth legislation in 1991 to assist Philadelphia
in remedying its fiscal emergencies. 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 June 15, 1999.
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 expired on December 31, 1996.
Its ability to refund existing outstanding debt is unrestricted. PICA
had $1,014.1 million in special revenue bonds outstanding as of
June 30, 1999. Neither the taxing power nor the credit of the
Commonwealth is pledged to pay debt service on PICA's bonds.
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 October 1999 , Pennsylvania General Obligation
Bonds were rated Aa3 by Moody's, AA by Fitch and AA by S&P.
SPECIAL CONSIDERATIONS REGARDING PUERTO RICO
The fiscal year of the Government of Puerto Rico begins each July
1. The Governor is constitutionally required to submit to the
Legislature an annual balanced budget of capital improvements and
operating expenses of the central government for the ensuing fiscal
year. The annual budget is prepared by the Office of Management and
Budget ("OMB"), working with the Planning Board, the Department of the
Treasury, and other government offices and agencies. Section 7 of
Article VI of the Constitution provides that "The appropriations made
for any fiscal year shall not exceed the total revenues, including
available surplus, estimated for said fiscal year unless the
imposition of taxes sufficient to cover said appropriations is
provided by law."
The annual budget, which is developed utilizing elements of program
budgeting and zero-base budgeting, includes an estimate of revenues
and other resources for the ensuing fiscal year under: (i) laws
existing at the time the budget is submitted; and (ii) legislative
measures proposed by the Governor and submitted with the proposed
budget, as well as the Governor's recommendations as to appropriations
that in his judgment are necessary, convenient, and in conformity with
the four-year investment plan prepared by the Planning Board.
A Budgetary Fund was created by Act No. 147 of June 18, 1980, as
amended (the "Budgetary Fund Act"), to cover the appropriations
approved in any fiscal year in which the revenues available for such
fiscal year are insufficient, honor the public debt, and provide for
unforeseen circumstances in the provision of public services. The
Budgetary Fund Act was amended in 1994 to require that an annual
legislative appropriation equal to one third of one percent (.33%) of
the total budgeted appropriations for each fiscal year be deposited in
the Budgetary Fund. In 1997, the Budgetary Fund Act was further
amended to increase the annual legislative appropriation required to
be deposited in the Budgetary Fund to one percent (1%) of the total
revenues of the preceding fiscal year, beginning in fiscal year 2000.
In addition, other income (not classified as revenues) that is not
assigned by law to a specific purpose is also required to be deposited
in the Budgetary Fund. The maximum balance of the Budgetary Fund may
not exceed six percent (6%) of the total appropriations included in
the budget for the preceding fiscal year.
In Puerto Rico, the central government has many functions which in
the fifty states are the responsibility of local government, such as
providing public education and police and fire protection. The central
government also makes large annual grants to the University of Puerto
Rico and to the municipalities. Debt service on Sugar Corporation
notes paid by the Government of Puerto Rico is included in current
expenses for economic development, and debt service on Urban Renewal
and Housing Corporation bonds and notes and on Housing Bank and
Finance Agency mortgage subsidy bonds paid by the Government of Puerto
Rico is included in current expenses for housing.
Approximately 25.2% of the General Fund is committed, including
debt service on direct debt of the Commonwealth and on the debt of the
Sugar Corporation, municipal subsidies, grants to the University of
Puerto Rico, contributions to Aqueduct and Sewer Authority, and rental
payments to Public Building Authority, among other.
In the fiscal 1999 budget revenues and other resources of all
budgetary funds total $10,308,078,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 1999 are
accounted for by increases in personal income taxes (up $258,354,000),
retained non-resident income tax (up $176,921,000), general excise tax
of 5% (up $60,259,000), motor vehicles and accessories (up
$61,569,000), federal excise taxes on off-shore shipments (up
$33,033,000), special excise tax on certain petroleum products (up
$20,282,000), corporation income taxes (up $17,347,000), registration
and document certification fees (up $13,433,000), alcoholic beverages
(up $5,347,000), licenses (up $4,681,000), electronic lottery (up
$4,965,000) and decreases in property taxes (down $3,460,000), customs
(down $11,864,000) and tollgate taxes (down $56,420,000).
Current expenses and capital improvements of all budgetary funds
total $10,687,869,000, an increase of $951,255,000 from fiscal 1998.
The major changes in General Fund expenditures by program in fiscal
1999 are: public safety and protection (up $187,444,000), education
(up $165,661,000), health (up $160,256,000), general government (up
$77,714,000), other debts (up $69,721,000), welfare (up $24, 182,000),
economic development (up $15,865,000), special pension contributions
(up $6,115,000), and decreases in transportation and communications
(down $83,000), housing (down $620,000), debt service (down
$13,849,000), and contributions to municipalities (down
$37,969,000).
The general obligation bond authorization for the fiscal 1999
budget was $475,000,000.
In the fiscal 2000 budget proposal revenues and other resources of
all budgetary funds total $10,426,475,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 2000 are
accounted for by increases in personal income taxes (up $199,000,000),
corporation income taxes (up $102,000,000), general excise tax of 5%
(up $65,000,000), income tax withheld from non-residents (up
$44,000,000), motor vehicles and accessories (up $22,000,000),
alcoholic beverages (up $13,000,000), registration and document
certification fees (up $10,000,000), and decreases in property taxes
(down $2,000,000), special excise tax on certain petroleum products
(down $3,000,000), cigarettes (down $6,000,000), federal excise taxes
on off-shore shipments (down $24,000,000), and tollgate taxes (down
$14,000,000).
Current expenses and capital improvements of all budgetary funds
total $11,012,166,000, an increase of $324,297,000 from fiscal 1999.
The major changes in General Fund expenditures by program in fiscal
2000 are: general government (up $157,265,000), health (up
$83,310,000), debt service (up $94,550,000), contributions to
municipalities (up $66,296,000), education (up $75,035,000),
transportation and communications (up $13,636,000), special pension
contributions (up $3,792,000), housing (down $4,645,000), economic
development (down $30,201,000), public safety and protection (down
$26,999,000), and other debts service (down $106,488,000).
The general obligation bond authorization for the fiscal 2000
budget was $475,000,000.
The Government of Puerto Rico is required to contribute directly to
three retirement systems for public employees. The Government of
Puerto Rico is responsible for approximately 66% of total employer
contributions to Employees Retirement System and 100% and 99% of total
employer contributions to the Judiciary and Teachers Retirement
Systems, respectively. As of July 1, 1998 the total pension benefit
obligation for the Employees Retirement System and the Judiciary
Retirement System was $7,638,000,000 and $95,5000,000, respectively,
and the unfunded pension benefit obligation for the same period was
$5,963,000,000 and $28,400,000, respectively. As of June 30, 1998, the
accrued pension liability of the Teachers Retirement System was
$3,154,678,299, the value of assets amounted to $2,135,436,000, and
the resulting unfunded accrued liability was $1,019,242,299, an
increase of $48,437,260 from the prior valuation made as of June 30,
1997.
On February 1, 1990, the Legislature of Puerto Rico enacted Act No.
1 amending the organic act of the Employees Retirement System to
reduce the future pension liabilities of the Employees Retirement
System. Also, Act No. 305 of September 24, 1999, further amends the
organic act of the Employees Retirement System to change it,
prospectively, from a defined benefit system to a defined contribution
system. Based on actuarial studies conducted by the actuary of the
Employees Retirement System, it is expected that the implementation of
the defined contribution system will allow the Government of Puerto
Rico to reduce the current actuarial deficit of the Employees
Retirement System. Also, the law approving the sale of a controlling
interest in PRTC to a consortium led by GTE International
Telecommunications Incorporated provides that any future proceeds
received by the Government from the sale of its remaining stock
ownership in PRTC will be transferred to the Employees Retirement
System to reduce its accumulated unfunded pension benefit obligation.
It is recognized that it will be necessary to further strengthen the
finances of the Teachers Retirement System in order to assure that
combined contributions and investment income continue to exceed
benefit payments, avoiding the possible future drawdown of assets.
The economy of Puerto Rico is fully integrated with that of the United
States. In fiscal 1998 , trade with the United States accounted
for approximately 90 % of Puerto Rico's exports and
approximately 61 % of its imports. In this regard, in fiscal
1998 Puerto Rico experienced a $ 8.5 billion positive
adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1998, aggregate
personal income was $33.7 billion ($30.8 billion in 1992 prices) and
personal per capita income was $8,817 ($8,063 in 1992 prices). Gross
product in fiscal 1995 was $28.4 billion ($25.9 billion in 1992
prices) and gross product in fiscal 1999 was $38.1 billion ($29.7
billion in 1992 prices). This represents an increase in gross product
of 34% from fiscal 1995 to 1999 (14.5% in 1992 prices).
Puerto Rico's economic expansion, which has lasted over ten years,
continued throughout the five year period from fiscal 1995
through fiscal 1999 . 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, increases in the level of federal transfers, low oil
prices and the relatively low cost of borrowing funds during the
period.
Average employment increased from 1,051,000 in fiscal 1995, to
1,147,000 in fiscal 1999. Unemployment, although at relatively low
historical levels, remains above the U.S. average. Average
unemployment decreased from 13.8% in fiscal 1995, to 12.5% in fiscal
1999.
Manufacturing is the largest sector in the economy , accounting
for $ 23.0 billion or 42.8 % of gross domestic product in
fiscal 1998 . The manufacturing sector employed 141,068
workers as of March 1999 . Manufacturing in Puerto Rico is now
more diversified than during earlier phases of industrial development.
In the last two decades , industrial development has tended to
be more capital intensive and dependent on skilled labor. This gradual
shift is best exemplified by heavy investment in pharmaceuticals,
scientific instruments, computers, microprocessors, and electrical
products over the last decade. While total employment in the
manufacturing sector decreased by 12,205 from March 1997 to March
1999, other indicators suggest that manufacturing production did not
decrease. Average weekly hours worked increased 5.2%, industrial
energy consumption increased 0.7% and exports increased 45.7% from
fiscal 1997 to fiscal 1999. Most of the decreases in employment have
been concentrated in the labor intensive industries, particularly
apparel, textile and tuna manufacturing. The service s
sector, which includes wholesale and retail trade and finance,
insurance, real estate, hotels and related services, and other
services, ranks second in its contribution to gross domestic product
and it is the sector that employs the greatest number of people. In
fiscal 1998, the service sector generated $19.6 billion in gross
domestic product or 36.5% of the total. Employment in this sector grew
from 478,079 in fiscal 1994 to 572,765 in fiscal 1998, a cumulative
increase of 19.8%. This increase was greater than the 12.5% cumulative
growth in employment over the same period. The Government sector of
the Commonwealth plays an important role in the economy of the island.
In fiscal year 1998, the Government accounted for $5.2 billion of
Puerto Rico's gross domestic product, or 9.8% of the total, and
provided 21.5% of the total employment. The construction industry has
experienced real growth since fiscal 1987. In fiscal 1999, investment
in construction rose to an unprecedented $6.6 billion, an increase of
23.9% as compared to $5.4 billion for fiscal 1998. Tourism also
contributes significantly to the island economy, accounting for 6.4%
of the island's gross domestic product in fiscal 1998.
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. Another
initiative is the improvement and expansion of Puerto Rico's
infrastructure to facilitate private sector development and growth,
such as the construction of the water pipeline and cogeneration
facilities described below and the construction of a light rail system
for the San Juan metropolitan area.
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 11,095 at the end of
fiscal 1999 and to a projected 12,650 by the end of
fiscal 2000 .
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 g overnmental
operations and sold a number of its assets to private parties. Among
these are: (i) the Government sold the assets of the Puerto Rico
Maritime Authority; (ii ) the Aqueducts and Sewer Authority
executed 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; (iii)
the Electric Power Authority executed power purchase contracts
with private power producers under which two cogeneration plants (with
a total capacity of approximately 874 megawatts), using
fuels other than oil , will be constructed; (iv ) the
Corrections Administration entered into operating agreements with two
private companies for the operation of three new correctional
facilities; (v) the Government entered into a definitive
agreement to sell certain assets of a pineapple juice processing
business and sold certain mango growing operations; ( vi ) the
Government is in the process of transferring to local sugar cane
growers certain sugar processing facilities; (vii) the
Government sold three hotel properties and is currently
negotiating the sale of a complex consisting of two hotels and a
convention center; and (viii) the Government sold a
controlling interest in the Puerto Rico Telephone Company, a
subsidiary of the Telephone Authority, to a consortium led by GTE
International Telecommunications Incorporated.
One of the goals of the Rossello administration is to change
Puerto Rico's public health care system from one in which the
Government provides free health services to low income individuals
through public health facilities owned and administered by the
Government to one in which all medical services are provided by the
private sector and the Government provides comprehensive health
insurance coverage for qualifying (generally low income) Puerto Rico
residents. Under this new system, the Government selects, through a
bidding system, one private health insurance company in each of
several designated regions of the island and pays such insurance
company the insurance premium for each eligible beneficiary within
such region. This new health insurance system is now covering
77 municipalities out of a total of 78 on the island. It is
expected that the last municipality will be added in July
2000 . The total cost of this program will depend on the number of
municipalities included in the program, the number of participants
receiving coverage, and the date coverage commences. As of August
1, 1999 , over 1.7 million persons were participating in the
program at an estimated annual cost to Puerto Rico for fiscal
2000 of approximately $ 994 million. In conjunction with
this program, the operation of certain public health facilities has
been transferred to private entities. The Government's current
privatization plan for health facilities provides for the transfer of
ownership of all health facilities to private entities. The Government
has sold forty-four health facilities to private companies and
is currently in the process of closing the sale of fourteen
additiona l health facilities to such companies.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, particularly those under the Puerto Rico
Industrial Incentives Program and Sections 30A and 936 of the Internal
Revenue Code 1986, as amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial
incentive laws designed to stimulate industrial investment.
Under these laws, companies engaged in manufacturing and certain other
designated activities were eligible to receive full or partial
exemption from income, property, and other taxes. The most recent of
these laws is Act No. 135 of December 2, 1997 (the "1998 Tax
Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are available to
new companies as well as companies currently conducting tax-exempt
operations in Puerto Rico that choose to renegotiate their existing
tax exemption grant. Activities eligible for tax exemption include
manufacturing, certain services performed for markets outside Puerto
Rico, the production of energy from local renewable sources for
consumption in Puerto Rico, and laboratories for scientific and
industrial research. For companies qualifying thereunder, the 1998 Tax
Incentives Law imposes income tax rates ranging from 2% to 7%. In
addition, it grants 90% exemption from property taxes, 100% exemption
from municipal license taxes during the first eighteen months of
operation and between 80% and 60% thereafter, and 100% exemption from
municipal excise taxes. The 1998 Tax Incentives Law also provides
various special deductions designated to stimulate employment and
productivity, research and development, and capital investment in
Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to repatriate or
distribute their profits free of dividend taxes. In addition,
passive income derived from designated investments will continue to be
fully exempt from income and municipal license taxes. Individual
shareholders of an exempted business are allowed a credit against
their Puerto Rico income taxes equal to 30% of their proportionate
share in the exempted business' income tax liability. Gain from the
sale or exchange of shares of an exempted business by its shareholders
during the exemption period will be subject to a 4% income tax rate.
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", also known as the "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 Bill Clinton on August 20, 1996
(the "1996 Amendments"), the tax credit, as described below, 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 C redit 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 C redit") 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 C redit 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 C redit, 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 C redit,
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 were
operating in Puerto Rico on October 13, 1995, and had elected 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.
PROPOSAL TO EXTEND THE PHASEOUT OF SECTION 30A. During 1997, the
Government of Puerto Rico proposed to Congress the enactment of a new
permanent federal incentive program similar to that provided under
Section 30A. Such a program would provide U.S. companies a tax credit
based on qualifying wages paid and other wage-related expenses, such
as fringe benefits, as well as depreciation expenses for certain
tangible assets and research and development expenses. 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. The fiscal 1998, fiscal 1999 and fiscal 2000
budgets submitted by President Clinton to Congress included a
proposal to modify Section 30A to (i) extend the availability of the
Section 30A C redit indefinitely; (ii) make it available to
companies establishing operations in Puerto Rico after October 13,
1995; and (iii) eliminate the income cap. This proposal was not
included in the 1998 or 1999 budgets approved by Congress .
While the Government of Puerto Rico plans to continue lobbying for
this proposal, it is not possible at this time to predict whether the
Section 30A C redit will be so modified.
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. 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.
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
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and investment
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; the reasonableness
of any commissions; and, if applicable, arrangements for payment of
fund expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that 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
above.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment 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 investment accounts; and effect securities transactions
and perform functions incidental thereto (such as clearance and
settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that 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 a 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.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer 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 a 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 that fund or 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.
To the extent permitted by applicable law, FMR is authorized to
allocate portfolio transactions in a manner that takes into account
assistance received in the distribution of shares of the funds or
other Fidelity funds and to use the research services of brokerage and
other firms that have provided such assistance. 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.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment 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 of each fund 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, 1999 and 1998, the
portfolio turnover rates were 28% and 25%, respectively, for Spartan
Pennsylvania Municipal Income.
A fund may pay both commissions and spreads in connection with the
placement of portfolio transactions. For the fiscal years ended
December 31, 1999, 1998 and 1997, the funds paid no brokerage
commissions.
For the fiscal year ended December 31, 1999 the funds paid no
brokerage commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
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 or its affiliates,
investment decisions for each fund are made independently from those
of other funds or investment accounts managed by FMR or its
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these funds or investment accounts.
Simultaneous transactions are inevitable when several funds and
investment 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 investment 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
Each fund's net asset value per share (NAV) is the value of a single
share. The NAV of each fund is computed by adding the value of the
fund's investments, cash, and other assets, subtracting its
liabilities, and dividing the result by the number of shares
outstanding.
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 of other open-end investment
companies are valued at their respective NAVs.
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 value of such securities. For
example, securities and other assets for which there is no readily
available market value may be valued in good faith by a committee
appointed by the Board of Trustees. In making a good faith
determination of the value of a security, the committee may review
price movements in futures contracts and American Depositary Receipts
(ADRs), market and trading trends, the bid/ask quotes of brokers and
off-exchange institutional trading.
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.
At such intervals as they deem appropriate, the Trustees consider the
extent to which NAV calculated by using market valuations would
deviate from the $1.00 per share calculated using amortized cost
valuation. 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
A fund 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. The share price of a bond
fund, the yield of a fund, and 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 (MONEY MARKET FUND). To compute the yield for the
money market fund 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 an effective yield by compounding
the base period return over a one-year period. In calculating the
money market fund's yield and effective yield, the yield quoted is
reduced by the effect of applicable income taxes payable on the
shareholder's dividends, using the maximum rate for individual income
taxation. 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 applicable
regulation.
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.
YIELD CALCULATIONS (BOND FUND). Yields for the fund are computed by
dividing the fund's interest and 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 NAV at the end of the period, and annualizing the
result (assuming compounding of income) in order to arrive at an
annual percentage rate. Yields do not reflect Spartan Pennsylvania
Municipal Income's short-term trading fee. 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.
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 tax-equivalent yield of a fund reflects a comparison of the
fund's yield to the yield of a fully taxable investment.
Tax-equivalent yields are calculated by dividing that portion of a
fund's yield that is tax-exempt by the result of one minus the
applicable specified combined federal and/or state income tax rate and
adding the quotient to that portion, if any, of the fund's yield that
is not tax-exempt.
The following tables show the effect of a shareholder's tax status on
tax-equivalent yield under federal and state income tax
laws for 2000 . The second table shows the tax-equivalent
yields at various income brackets of hypothetical tax-exempt
obligations yielding from 2.0% to 7.0% . Of course, no assurance
can be given that a fund will achieve any specific tax-exempt yield.
While each fund invests principally in obligations whose
interest is exempt from federal and applicable state income
tax, some portion of the income received by the fund may be
taxable.
Use the first table to find your approximate effective tax bracket
taking into account federal and state taxes for 2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
2000 TAX RATES ***
Taxable Income*
Single Return Joint Return Federal Marginal Rate Pennsylvania State Marginal
Rate
26,251 - 63,550 43,851 - 105,950 28.00% 2.80%
63,551 - 132,600 105,951 - 161,450 31.00% 2.80%
132,601 - 288,350 161,451 - 288,350 36.00% 2.08%
288,351 - and up 288,351 - and up 39.60% 2.80%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
2000 TAX RATES ***
Taxable Income*
Single Return Joint Return Federal Marginal Rate Combined Federal and State
Effective Rate**
26,251 - 63,550 43,851 - 105,950 28.00% 30.02%
63,551 - 132,600 105,951 - 161,450 31.00% 32.93%
132,601 - 288,350 161,451 - 288,350 36.00% 37.79%
288,351 - and up 288,351 - and up 39.60% 41.29%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the alternative minimum tax, the
phaseout of personal exemptions, limitations on itemized deductions,
and other credits, exclusions, and adjustments which may increase a
taxpayer's marginal tax rate. Assumes a shareholder itemizes
deductions. An increase in a shareholder's marginal tax rate would
increase that shareholder's tax-equivalent yield.
*** Does not take into account local taxes, if any, payable on fund
distributions.
Having determined your effective tax bracket, use the following
table to determine the tax-equivalent yield for a given tax-exempt
obligation's yield.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
If your combined federal and state effective tax rate in 2000 is:
30.02% 32.93% 37.79% 41.29%
If a tax-exempt obligation's Tax-equivalent yield would be:
yield is:
2.0% 2.86% 2.98% 3.22% 3.41%
3.0% 4.29% 4.47% 4.82% 5.11%
4.0% 5.72% 5.96% 6.43% 6.81%
5.0% 7.14% 7.46% 8.04% 8.52%
6.0% 8.57% 8.95% 9.65% 10.22%
7.0% 10.00% 10.44% 11.25% 11.92%
</TABLE>
A fund may invest a portion of its assets in obligations that are
subject to federal and/or state income taxes. When a fund
invests in these obligations, its tax-equivalent yield may be
lower. In the table above, the tax-equivalent yields are calculated
assuming investments are 100% exempt from federal and state income
taxes.
RETURN CALCULATIONS. 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 a fund's NAV over a
stated period. A cumulative return reflects actual performance over a
stated period of time. Average annual 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 return of
100% over ten years would produce an average annual 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 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 returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote
unaveraged or cumulative returns reflecting the simple change in value
of an investment over a stated period. Average annual and cumulative
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. Returns may be broken
down into their components of income and capital (including capital
gains and changes in share price) to illustrate the relationship of
these factors and their contributions to return. Returns may be quoted
on a before-tax or after-tax basis. After-tax returns reflect the
return of a hypothetical account after payment of federal and/or state
taxes using assumed tax rates. After-tax returns may assume that taxes
are paid at the time of distribution or once a year or are paid in
cash or by selling shares, that shares are held through the entire
period, sold on the last day of the period, or sold at a future date,
and distributions are reinvested or paid in cash. Returns may or
may not include the effect of a fund's small account fee or the
effect of a fund's account closeout fee. Excluding a
fund's small account fee or account closeout fee from a return
calculation produces a higher return figure. 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 NAVs, adjusted NAVs,
and benchmark indexes 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 BOND FUND RESULTS. The following table shows the fund's
yield, tax-equivalent yield, and returns for the fiscal periods ended
December 31, 1999.
HISTORICAL MONEY MARKET FUND RESULTS. The following table shows the
fund's 7-day yield, tax-equivalent yield, and returns for the fiscal
periods ended December 31, 1999 .
For Spartan Pennsylvania Municipal Income, returns do not include the
effect of the fund's 0.50% short-term trading fee, applicable to
shares held less than 180 days.
The tax-equivalent yields for Spartan Pennsylvania Municipal Money
Market and Spartan Pennsylvania Municipal Income are based on a
combined effective federal and state income tax rate of
37.79%.
As of December 31, 1999, an estimated 0.87% of Spartan Pennsylvania
Municipal Money Market's income was subject to state taxes. Note that
Spartan Pennsylvania Municipal Money Market may invest in securities
whose income is subject to the federal alternative minimum tax.
As of December 31, 1999 none of Spartan Pennsylvania Municipal
Income's income was subject to state taxes. Note that Spartan
Pennsylvania Municipal Income may invest in securities whose income is
subject to the federal alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Seven-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
Spartan PA Municipal Money 4.13% 6.65% 2.91% 3.24% 3.45%
Market
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Ten Years
Spartan PA Municipal Money 2.91% 17.28% 40.35%
Market
</TABLE>
The returns in the preceding table do not include the effect of the $5
account closeout fee for the fund.
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's returns would have been lower.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Thirty-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
Spartan PA Municipal Income 4.97% 7.99% (2.16)% 6.49% 6.83%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Ten Years
Spartan PA Municipal Income (2.16)% 36.95% 93.68%
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's returns would have been lower.
The following tables show the income and capital elements of each
fund's cumulative return. The tables compare each fund's return to the
record of the Standard & Poor's 500 Index (S&P 500)(registered
trademark), the Dow Jones Industrial Average (DJIA), and the cost of
living, as measured by the Consumer Price Index (CPI), over the same
period . The S&P 500 and DJIA comparisons are provided to show
how each fund's return compared to the record of a market
capitalization-weighted 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, 1999 , assuming all distributions were reinvested.
Returns are based on past results and are not an indication of future
performance. Tax consequences of different investments have not been
factored into the figures below.
During the 10-year period ended December 31, 1999 , a
hypothetical $10,000 investment in Spartan Pennsylvania Municipal
Money Market would have grown to $14,035.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA INDEXES
MUNICIPAL MONEY MARKET
Fiscal Year
Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 10,000 $ 4,035 $ 0 $ 14,035 $ 53,289
1998 $ 10,000 $ 3,637 $ 0 $ 13,637 $ 44,024
1997 $ 10,000 $ 3,221 $ 0 $ 13,221 $ 34,240
1996 $ 10,000 $ 2,791 $ 0 $ 12,791 $ 25,674
1995 $ 10,000 $ 2,393 $ 0 $ 12,393 $ 20,880
1994 $ 10,000 $ 1,967 $ 0 $ 11,967 $ 15,177
1993 $ 10,000 $ 1,662 $ 0 $ 11,662 $ 14,980
1992 $ 10,000 $ 1,410 $ 0 $ 11,410 $ 13,608
1991 $ 10,000 $ 1,088 $ 0 $ 11,088 $ 12,642
1990 $ 10,000 $ 605 $ 0 $ 10,605 $ 9,688
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SPARTAN PENNSYLVANIA INDEXES
MUNICIPAL MONEY MARKET
Fiscal Year Ended DJIA Cost of Living
1999 $ 53,747 $ 13,347
1998 $ 42,276 $ 12,998
1997 $ 35,805 $ 12,791
1996 $ 28,677 $ 12,577
1995 $ 22,281 $ 12,173
1994 $ 16,297 $ 11,872
1993 $ 15,525 $ 11,562
1992 $ 13,270 $ 11,253
1991 $ 12,367 $ 10,936
1990 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Money Market on January 1, 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
$14,035 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller,
and cash payments for the period would have amounted to $3,395
for dividends. The money market fund did not distribute any capital
gains during the period. The figures in the table do not include the
effect of the fund's account closeout fee.
During the 10-year period ended December 31, 1999 a
hypothetical $10,000 investment in Spartan Pennsylvania Municipal
Income would have grown to $19,368 .
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN PENNSYLVANIA INDEXES
MUNICIPAL INCOME
Fiscal Year
Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value S&P 500
Investment Distributions Gain Distributions
1999 $ 10,162 $ 8,151 $ 1,055 $ 19,368 $ 53,289
1998 $ 10,939 $ 7,843 $ 1,013 $ 19,795 $ 44,024
1997 $ 10,919 $ 6,978 $ 819 $ 18,716 $ 34,240
1996 $ 10,596 $ 5,935 $ 744 $ 17,275 $ 25,674
1995 $ 10,778 $ 5,190 $ 640 $ 16,608 $ 20,880
1994 $ 9,717 $ 3,848 $ 577 $ 14,142 $ 15,177
1993 $ 11,242 $ 3,465 $ 185 $ 14,892 $ 14,980
1992 $ 10,697 $ 2,461 $ 0 $ 13,158 $ 13,608
1991 $ 10,475 $ 1,584 $ 0 $ 12,059 $ 12,642
1990 $ 9,980 $ 740 $ 0 $ 10,720 $ 9,688
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SPARTAN PENNSYLVANIA INDEXES
MUNICIPAL INCOME
Fiscal Year Ended DJIA Cost of Living
1999 $ 53,747 $ 13,347
1998 $ 42,276 $ 12,998
1997 $ 35,805 $ 12,791
1996 $ 28,677 $ 12,577
1995 $ 22,281 $ 12,173
1994 $ 16,297 $ 11,872
1993 $ 15,525 $ 11,562
1992 $ 13,270 $ 11,253
1991 $ 12,367 $ 10,936
1990 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Pennsylvania Municipal Income on January 1, 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
$19,537 . 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 $6,061
for dividends and $727 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 Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on
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 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
indexes prepared by Lipper or other organizations. When comparing
these indexes, 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, a 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 bond fund may advertise
risk ratings, including symbols or numbers, prepared by independent
rating agencies.
A fund's performance may also be compared to that of each benchmark
index representing the universe of securities in which the fund may
invest. The return of each index reflects reinvestment of all
dividends and capital gains paid by securities included in each index.
Unlike a fund's returns, however, each index's returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index.
The municipal bond fund may compare its performance to the Lehman
Brothers Municipal Bond Index, a market value-weighted index for
investment-grade municipal bonds with maturities of one year or more.
Issues included in the index have been issued after December 31,
1990 and have been issued as part of an offering of at least $50
million. After December 31, 1995, zero coupon bonds and issues subject
to the alternative minimum tax are included in the index. Issues
included in the index prior to January 1, 2000 have an outstanding par
value of at least $3 million; while issues included in the index after
January 1, 2000 have an outstanding par value of at least $5
million.
Spartan Pennsylvania Municipal Income may also compare its performance
to that of the Lehman Brothers Pennsylvania Municipal Bond Index, a
market value-weighted index of Pennsylvania investment-grade municipal
bonds with maturities of one year or more. Issues included in the
index have been issued after December 31, 1990 and have been issued as
part of an offering of at least $50 million. After December 31, 1995,
zero coupon bonds and issues subject to the alternative minimum tax
are included in the index. Issues included in the index prior to
January 1, 2000 have an outstanding par value of at least $3 million;
while issues included in the index after January 1, 2000 have an
outstanding par value of at least $5 million.
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 indexes.
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 returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes that may be developed and made
available in the future.
The 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)/Pennsylvania Tax-Free, which is reported in IBC's
MONEY FUND REPORT(trademark), covers 13 tax-free money market
funds.
The bond fund may compare and contrast in advertising the relative
advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal bond 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 sales
charges of many municipal bond mutual funds are lower than the
purchase cost of individual municipal bonds, which are generally
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; and
charitable giving. 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
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 bond fund may also discuss or illustrate
examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate price movements over specific periods of
time for a bond fund. 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, 1999 , FMR advised over $ 35 billion in
municipal fund assets, $ 143 billion in taxable fixed-income
fund assets, $ 149 billion in money market fund assets,
$ 630 billion in equity fund assets, $ 22 billion in
international fund assets, and $ 41 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, a 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, EXCHANGE AND REDEMPTION INFORMATION
A fund may make redemption payments in whole or in part in
readily marketable securities or other property, valued for this
purpose as they are valued in computing each fund's NAV, if FMR
determines it is in the best interests of the fund . Shareholders
that receive 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.
DISTRIBUTIONS AND TAXES
DIVIDENDS. To the extent that each fund's income is designated as
federally tax-exempt interest, the dividends declared by the fund are
also federally tax-exempt. Short-term capital gains are taxable as
dividends, but do not qualify for the dividends-received deduction.
Each 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.
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 Spartan Pennsylvania Municipal Money Market's policies
of investing so that at least 80% of its income distributions 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.
A portion of the gain on municipal bonds purchased at market discount
after April 30, 1993 is taxable to shareholders as ordinary income,
not as capital gains. Dividends resulting from a recharacterization of
gain from the sale of bonds purchased at market discount after April
30, 1993 are not considered income for purposes of Spartan
Pennsylvania Municipal Money Market's policy of investing so that at
least 80% of its income distributions is free from federal income tax.
PENNSYLVANIA TAXES. To the extent that each fund's distributions are
derived from interest on Pennsylvania state tax-free (municipal)
securities (the income from which is exempt from Pennsylvania personal
income taxes), 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. In the case of residents of the City of Philadelphia,
interest on Pennsylvania state tax-free (municipal) securities, and
distributions which are designated as capital gain dividends for
federal income tax purposes, will be exempt from the Philadelphia
school district investment income tax.
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. It should be noted, however, that at present,
Pennsylvania counties generally have stopped assessing personal
property taxes. This is due, in part, to ongoing litigation
challenging the validity of the tax.
CAPITAL GAIN DISTRIBUTIONS. Each fund's long-term capital gain
distributions are federally taxable to shareholders generally as
capital gains. The money market fund may distribute any net realized
capital gains once a year or more often, as necessary.
As of December 31, 199 9 , Spartan Pennsylvania Municipal
Money Market had a capital loss carryforward aggregating
approximately $ 54,000 . This loss carryforward, of which
$ 17,000 , $ 10,000 , and $ 27,000 will expire on
December 31, 2002 , 2003 , and 2004 , 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" under Subchapter M of the Internal
Revenue Code 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.
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. It is up to you or your tax preparer to determine
whether the sale of shares of a fund resulted in a capital gain or
loss or other tax consequence to you. 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.
TRUSTEES AND OFFICERS
The Trustees , Member of the Advisory Board, and executive
officers of the trusts are listed below. The Board of Trustees governs
each fund and is responsible for protecting the interests of
shareholders. The Trustees are experienced executives who meet
periodically throughout the year to oversee each fund's activities,
review contractual arrangements with companies that provide services
to each fund, and review each fund's performance. 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 or its affiliates. The business address of
each Trustee, Member of the Advisory Board, and officer who is an
"interested person" (as defined in the 1940 Act) 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(registered trademark), 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 ( 69 ), 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 Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; and a Director of FDC. Abigail Johnson,
Member of the Advisory Board of Fidelity Municipal Trust and Fidelity
Municipal Trust II, is Mr. Johnson's daughter.
ABIGAIL P. JOHNSON ( 38 ), Member of the Advisory Board of
Fidelity Municipal Trust and Fidelity Municipal Trust II, is Vice
President of certain Equity Funds (1997), and is a Director of FMR
Corp. (1994). Before assuming her current responsibilities, Ms.
Johnson managed a number of Fidelity funds. Edward C. Johnson 3d,
Trustee and President of the Funds, is Ms. Johnson's father.
RALPH F. COX (67), 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 Waste Management
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
and Bonneville Pacific (independent power and petroleum production).
In addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (68), Trustee. Mrs. Davis is retired from Avon
Products, Inc. where she held various positions including Senior Vice
President of Corporate Affairs and Group Vice President of U.S. sales,
distribution, and manufacturing. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing), and the TJX Companies, Inc. (retail stores), and
previously served as a Director of Hallmark Cards, Inc., Nabisco
Brands, Inc. , and Standard Brands, Inc. In addition, she is a member
of the Board of Directors of the Southampton Hospital in Southampton,
N.Y. (1998).
ROBERT M. GATES (56), 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 a Director of Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (automotive, space, defense, and
information technology). Mr. Gates previously served as a Director of
LucasVarity PLC (automotive components and diesel engines). He is
currently serving as Dean of the George Bush School of Government and
Public Service at Texas A & M University (1999-2000). Mr. Gates also
is a Trustee of the Forum for International Policy and of the
Endowment Association of the College of William and Mary. In addition,
he is a member of the National Executive Board of the Boy Scouts of
America.
DONALD J. KIRK (67), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business. 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 previously served as a Director
of General Re Corporation (reinsurance, 1987-1998) and as a Director
of Valuation Research Corp. (appraisals and valuations, 1993-1995). He
serves as Chairman of the Board of Directors of National Arts
Stabilization Inc., Chairman of the Board of Trustees of the Greenwich
Hospital Association, Director of the Yale-New Haven Health Services
Corp. (1998), Vice Chairman 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).
NED C. LAUTENBACH (55), Trustee (2000), has been a partner of
Clayton, Dubilier & Rice, Inc. (private equity investment firm) since
September 1998. Mr. Lautenbach was Senior Vice President of IBM
Corporation from 1992 until his retirement in July 1998. From 1993 to
1995 he was Chairman of IBM World Trade Corporation. He also was a
member of IBM's Corporate Executive Committee from 1994 to July 1998.
He is a Director of PPG Industries Inc. (glass, coating and chemical
manufacturer), Dynatech Corporation (global communications equipment),
Eaton Corporation (global manufacturer of highly engineered products)
and ChoicePoint Inc. (data identification, retrieval, storage, and
analysis).
*PETER S. LYNCH ( 56 ), Trustee, is Vice Chairman and Director of
FMR. 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 (66), Trustee (1997), is the Interim Chancellor
for the University of North Carolina at Chapel Hill. Previously he had
served from 1995 through 1998 as Vice President of Finance for the
University of North Carolina (16-school system). 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), Duke-Weeks Realty Corporation
(real estate, 1994), Carolina Power and Light Company (electric
utility, 1996), the Kenan Transport Company (trucking, 1996), and
Dynatech Corporation (electronics, 1999). Previously, he was a
Director of First American Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy served as a member of the Board of
Visitors for the University of North Carolina at Chapel Hill
(1994-1998) and currently serves on the Board of Visitors of the
Kenan-Flager Business School (University of North Carolina at Chapel
Hill, 1988).
GERALD C. McDONOUGH (71), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director and
Chairman of the Board 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 (66), Trustee (1993), is Chairman Emeritus, of
Lexmark International, Inc. (office machines, 1991) where he still
remains a member of the Board. 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). He is a
Board member of Dynatech Corporation (electronics, 1999).
*ROBERT C. POZEN ( 53 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), 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 (71), 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 National Life Insurance Company of Vermont and American Software,
Inc. Mr. Williams was previously a Director of ConAgra, Inc.
(agricultural products), Georgia Power Company (electric utility), and
Avado, Inc. (restaurants).
DWIGHT D. CHURCHILL ( 46 ), is Vice President of Bond Funds,
Group Leader of the Bond Group, Senior Vice President of FMR (1997),
and Vice President of FIMM (1998). Mr. Churchill joined Fidelity in
1993 as Vice President and Group Leader of Taxable Fixed-Income
Investments.
BOYCE I. GREER ( 43 ), is Vice President of Money Market Funds
(1997), Group Leader of the Money Market Group (1997), Senior Vice
President of FMR (1997), and Vice President of FIMM (1998). 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).
FRED L. HENNING, JR. (60), is President of Fidelity Investments
Fixed-Income Division (1998), and Senior Vice President of FMR and of
Fidelity Investments Money Management, Inc. Mr. Henning joined
Fidelity in 1977 as portfolio manager for Fidelity Daily Income Trust
Fund. Since then, he has held a number of positions with FMR and its
affiliates and serves as an officer of other investment companies
managed or advised by FMR.
DIANE M. MCLAUGHLI N (36), is Vice President of Spartan
Pennsylvania Municipal Money Market Fund (1997) and other funds
advised by FMR. Prior to her current responsibilities, Ms. McLaughlin
served as a senior trader and managed a variety of funds.
CHRISTINE THOMPSO N (41), is Vice President of Spartan
Pennsylvania Municipal Income Fund (1998) and other funds advised by
FMR. Prior to her current responsibilities, Ms. Thompson managed a
variety of Fidelity funds.
ERIC D. ROITER ( 51 ), Secretary (1998), is Vice President (1998)
and General Counsel of FMR (1998) and Vice President and Clerk of FDC
(1998). Prior to joining Fidelity, Mr. Roiter was with the law firm of
Debevoise & Plimpton, as an associate (1981-1984) and as a partner
(1985-1997), and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981). Mr. Roiter was an
Adjunct Member, Faculty of Law, at Columbia University Law School
(1996-1997).
ROBERT A. DWIGHT (41), Treasurer (2000), is Treasurer of the
Fidelity funds and is an employee of FMR. Prior to becoming Treasurer
of the Fidelity funds, he served as President of Fidelity Accounting
and Custody Services (FACS). Before joining Fidelity, Mr. Dwight was
Senior Vice President of fund accounting operations for The Boston
Company.
MARIA F. DWYER (41), Deputy Treasurer (2000), is Deputy Treasurer
of the Fidelity funds and is a Vice President (1999) and an employee
(1996) of FMR. Prior to joining Fidelity, Ms. Dwyer served as Director
of Compliance for MFS Investment Management.
MATTHEW N. KARSTETTER ( 38 ), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
STANLEY N. GRIFFITH ( 53 ), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO ( 53 ), Assistant Treasurer, is an employee of
FMR.
THOMAS J. SIMPSON ( 41 ), Assistant Treasurer (1996), is
Assistant Treasurer of Fidelity's Fixed-Income Funds (1998) 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, 1999 .
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Member of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board Spartan PA Muni MarketB Spartan PA IncomeB Fund Complex*,A
Edward C. Johnson 3d** $ 0 $ 0 $ 0
Abigail P. Johnson** $ 0 $ 0 $ 0
Ralph F. Cox $ 57 $ 75 $ 217,500
Phyllis Burke Davis $ 55 $ 73 $ 211,500
Robert M. Gates $ 57 $ 75 $ 217,500
E. Bradley Jones*** $ 57 $ 75 $ 217,500
Donald J. Kirk $ 57 $ 75 $ 217,500
Ned C. Lautenbach**** $ 13 $ 17 $ 54,000
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 56 $ 74 $ 214,500
Gerald C. McDonough $ 70 $ 93 $ 269,000
Marvin L. Mann $ 57 $ 75 $ 217,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 56 $ 74 $ 213,000
</TABLE>
* Information is for the calendar year ended December 31, 1999 for
236 funds in the complex.
** Interested Trustees of the funds and Ms. Johnson are
compensated by FMR.
*** Mr. Jones served on the Board of Trustees through December 31,
1999.
**** During the period from October 14, 1999 through December 31,
1999, Mr. Lautenbach served as a Member of the Advisory Board.
Effective January 1, 2000, Mr. Lautenbach serves as a Member of the
Board of Trustees.
A Compensation figures include cash, amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the calendar year ended December 31, 1999, the Trustees
accrued required deferred compensation from the funds as follows:
Ralph F. Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$75,000; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation as follows: Ralph F. Cox, $53,735; William O.
McCoy, $53,735; and Thomas R. Williams, $62,319.
B Compensation figures include cash .
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 subject to vesting and 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 31, 1999 , the Trustees, Member of the Advisory
Board, and officers of each fund owned, in the aggregate, less than
1 % of each fund 's total outstanding shares.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and Fidelity Investments Money Management, Inc. (FIMM). 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
investment 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.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT 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 (SPARTAN PENNSYLVANIA MUNICIPAL INCOME).
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-RELATED EXPENSES (SPARTAN PENNSYLVANIA MUNICIPAL MONEY
MARKET). Under the terms of its management contract with the fund, FMR
is responsible for payment of all operating expenses of the 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, 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'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 the
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 Spartan Pennsylvania Municipal Money
Market 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 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, Spartan Pennsylvania Municipal Money Market pays FMR a
monthly management fee at the annual rate of 0.50% of the fund's
average net assets throughout the month.
The management fee paid to FMR by Spartan Pennsylvania Municipal Money
Market is reduced by an amount equal to the fees and expenses paid by
the fund to the non-interested Trustees.
For the services of FMR under the management contract, Spartan
Pennsylvania Municipal Income 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 1 billion .3700%
3 - 6 .3400 50 .2188
6 - 9 .3100 100 .1869
9 - 12 .2800 150 .1736
12 - 15 .2500 200 .1652
15 - 18 .2200 250 .1587
18 - 21 .2000 300 .1536
21 - 24 .1900 350 .1494
24 - 30 .1800 400 .1459
30 - 36 .1750 450 .1427
36 - 42 .1700 500 .1399
42 - 48 .1650 550 .1372
48 - 66 .1600 600 .1349
66 - 84 .1550 650 .1328
84 - 120 .1500 700 .1309
120 - 156 .1450 750 .1291
156 - 192 .1400 800 .1275
192 - 228 .1350 850 .1260
228 - 264 .1300 900 .1246
264 - 300 .1275 950 .1233
300 - 336 .1250 1,000 .1220
336 - 372 .1225 1,050 .1209
372 - 408 .1200 1,100 .1197
408 - 444 .1175 1,150 .1187
444 - 480 .1150 1,200 .1177
480 - 516 .1125 1,250 .1167
516 - 587 .1100 1,300 .1158
587 - 646 .1080 1,350 .1149
646 - 711 .1060 1,400 .1141
711 - 782 .1040
782 - 860 .1020
860 - 946 .1000
946 - 1,041 .0980
1,041 - 1,145 .0960
1,145 - 1,260 .0940
Over 1,260 .0920
</TABLE>
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 $826 billion of group net assets - the approximate
level for December 1999 - was 0.1267 %, which is the
weighted average of the respective fee rates for each level of group
net assets up to $826 billion.
The individual fund fee rate for Spartan Pennsylvania Municipal Income
is 0.25%. Based on the average group net assets of the funds advised
by FMR for December 1999 , 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 PA Muni Income 0.1267% + 0.25% = 0.3767%
</TABLE>
One-twelfth of the management fee rate is applied to the fund's
average net assets for the 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, and the amount of credits
reducing management fees for each fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund Fiscal Years Ended December 31 Amount of Credits Reducing Management Fees Paid to FMR
Management Fees
Spartan PA Muni Money Market 1999 $ 6,708 $ 986,037*
1998 $ 7,349 $ 1,081,018*
1997 $ 8,083 $ 1,132,820*
Spartan PA Muni Income 1999 $ N/A $ 994,734
1998 $ 2,847 $ 1,458,366(dagger)
1997 $ 347 $ 1,443,945(dagger)
</TABLE>
* After reduction of fees and expenses paid by the fund to the
non-interested Trustees.
(dagger) Prior to January 1, 1999, Spartan Pennsylvania Municipal
Income paid FMR a monthly management fee at an annual rate of 0.55% of
the fund's average net assets throughout the month. FMR paid all of
the other expenses of the fund with limited exceptions. The
management fee paid to FMR for periods prior to January 1, 1999 was
reduced by an amount equal to the 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), which, in the case of
certain funds, is subject to revision or discontinuance . 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 returns and
yield, and repayment of the reimbursement by a fund will lower its
returns and yield.
SUB-ADVISER. FMR has entered into a sub-advisory agreement with
FIMM pursuant to which FIMM has primary responsibility for
choosing investments for each fund. Prior to January 23,
1998 , FMR Texas Inc. (FMR Texas) had primary responsibility for
providing investment management services to the money market fund. On
January 23, 1998, FMR Texas was merged into FIMM, which succeeded to
the operations of FMR Texas.
Under the terms of the sub-advisory agreements, FMR pays FIMM
fees equal to 50% of the management fee payable to FMR under its
management contract with each fund. The fees paid to FIMM are not
reduced by any voluntary or mandatory expense reimbursements that may
be in effect from time to time.
On behalf of the money market fund , for the fiscal year ended
December 31, 1997 , FMR paid FMR Texas a fee of $ 570,451.
On behalf of the money market fund, for the fiscal years ended
December 31, 1999 and 1998, FMR paid FIMM fees of $ 496,373 and
$ 544,184 , respectively.
On behalf of Spartan Pennsylvania Municipal Income, for the fiscal
year ended December 31, 1999, FMR paid FIMM a fee of
$497,367 .
DISTRIBUTION SERVICES
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR. 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.
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 providing services
intended to result in the sale of fund shares and/or shareholder
support services. In addition, each Plan provides that FMR, directly
or through FDC, may pay intermediaries, such as banks, broker-dealers
and other service-providers, that provide those services. Currently,
the Board of Trustees has authorized such payments for Spartan
Pennsylvania Municipal Money Market and Spartan Pennsylvania Municipal
Income 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 or stabilization of cash flows 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 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.
FDC may compensate intermediaries that satisfy certain criteria
established from time to time by FDC relating to the level or type of
services provided by the intermediary, the sale or expected sale of
significant amounts of shares, or other factors.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each fund has entered into a transfer agent agreement with
Citibank, N.A. (Citibank) , which is located at 111 Wall
Street, New York, New York . Under the terms of the agreements,
Citibank provides transfer agency, dividend disbursing, and
shareholder services for each fund. Citibank 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
Citibank .
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type and fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC collects a $5.00 exchange fee for each exchange out
of Spartan Pennsylvania Municipal Money Market.
FSC also collects Spartan Pennsylvania Municipal Money Market's $5.00
wire transaction fee.
FSC also collects Spartan Pennsylvania Municipal Money Market's $5.00
account closeout fee.
FSC also collects Spartan Pennsylvania Municipal Money Market's $2.00
checkwriting fee.
In addition, Citibank receives the pro rata portion of the
transfer agency fees applicable to shareholder accounts in a qualified
state tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and in each
Fidelity Freedom Fund and Fidelity Four-in-One Index Fund, funds of
funds managed by an FMR affiliate, according to the percentage of
the QSTP's, Freedom Fund's or Fidelity Four-in-One Index Fund's
assets that is invested in a fund, subject to certain limitations in
the case of Fidelity Four-in-One Index 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
Citibank . Under the terms of the agreements, Citibank
provides pricing and bookkeeping services for each fund.
Citibank 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
Citibank .
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 rates for pricing and bookkeeping services for Spartan
Pennsylvania Municipal Income are 0.0275% of the first $500
million of average net assets, 0.0175% of average net assets between
$500 million and $3 billion, 0.0021% of average net assets
between $3 billion and $25 billion, and 0.00075% of average
net assets in excess of $25 billion . The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by Spartan Pennsylvania Municipal Income
to FSC for the past three fiscal years are shown in the table below.
Fund 1999 1998 1997
Spartan PA Muni Income $ 79,026 $ N/A $ N/A
For Spartan Pennsylvania Municipal Money Market, 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 the fund.
DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Spartan Pennsylvania Municipal Income Fund is a
fund of Fidelity Municipal Trust, an open-end management investment
company organized as a Massachusetts business trust on June 22,
1984. On February 20, 1996, Spartan Pennsylvania Municipal Income Fund
changed its name from Spartan Pennsylvania Municipal High Yield
Portfolio to Spartan Pennsylvania Municipal Income Fund.
C urrently, there are four funds in Fidelity Municipal Trust:
Spartan Michigan Municipal Income Fund, Spartan Minnesota Municipal
Income Fund, Spartan Ohio Municipal Income Fund and Spartan
Pennsylvania Municipal Income Fund. Spartan Pennsylvania Municipal
Money Market Fund is a fund of Fidelity Municipal Trust II, an
open-end management investment company organized as a Delaware
business trust on June 20, 1991 . On February 20, 1996, Spartan
Pennsylvania Municipal Money Market Fund changed its name from Spartan
Pennsylvania Municipal Money Market Portfolio to Spartan Pennsylvania
Municipal Money Market Fund. Cu rrently, there are three funds in
Fidelity Municipal Trust II: Fidelity Michigan Municipal Money Market
Fund, Fidelity Ohio Municipal Money Market Fund and Spartan
Pennsylvania Municipal Money Market Fund. The Trustees are permitted
to create additional funds in the trusts.
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 to the rights of creditors, are allocated to such
fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in a trust shall be charged with the
liabilities and expenses attributable to such fund. Any general
expenses of the respective trusts shall be allocated between or among
any one or more of its funds.
The assets of the Massachusetts trust received for the issue or sale
of shares of each of its funds and all income, earnings, profits, and
proceeds thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the Massachusetts trust shall be
charged with the liabilities and expenses attributable to such fund.
Any general expenses of the Massachusetts trust shall be allocated
between or among any one or more of its funds.
The assets of the Delaware trust received for the issue or sale of
shares of each of its funds and all income, earnings, profits, and
proceeds thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the Delaware trust shall be charged
with the liabilities and expenses attributable to such fund. Any
general expenses of the Delaware trust shall be allocated between or
among any one or more of its funds.
SHAREHOLDER LIABILITY - MASSACHUSETTS TRUST. The Massachusetts trust
is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the
trust.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
trust or fund. 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 relating to the
trust or to a fund shall include a provision limiting the obligations
created thereby to the Massachusetts trust or to one or more funds and
its or their assets. The Declaration of Trust further provides that
shareholders of a fund shall not have a claim on or right to any
assets belonging to any other fund.
The Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. 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.
SHAREHOLDER 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. The Trust Instrument
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 relating to the trust or to a
fund shall include a provision limiting the obligations created
thereby to the trust or to one or more funds and its or their assets.
The Trust Instrument further provides that shareholders of a fund
shall not have a claim on or right to any assets belonging to any
other fund.
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 solely by reason of his or her
being or having been a shareholder and not because of his or her acts
or omissions or for some other reason. 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 a 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.
VOTING RIGHTS - MASSACHUSETTS TRUST. Each fund's capital consists of
shares of beneficial interest. As a shareholder, you are entitled to
one vote for each dollar of net asset value you own. The voting rights
of shareholders can be changed only by a shareholder vote. Shares may
be voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to, or merger with, another open-end management investment
company or series thereof, or upon liquidation and distribution of its
assets. Generally, the merger of the trust or a fund with another
entity or the sale of substantially all of the assets of the trust or
a fund to another entity requires approval by a vote of shareholders
of the trust or the fund. The Trustees may, however, reorganize or
terminate the trust or any of its funds without prior shareholder
approval. In the event of the dissolution or liquidation of the trust,
shareholders of each of its funds are entitled to receive the
underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of the fund
available for distribution.
VOTING RIGHTS - DELAWARE TRUST. Each fund's capital consists of shares
of beneficial interest. As a shareholder, you are entitled to one vote
for each dollar of net asset value you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to another open-end management investment company or series
thereof, or upon liquidation and distribution of its assets. Generally
such terminations must be approved by a vote of shareholders. In the
event of the dissolution or liquidation of the trust, shareholders of
each of its funds are entitled to receive the underlying assets of
such fund available for distribution. In the event of the dissolution
or liquidation of a fund, shareholders of that fund are entitled to
receive the underlying assets of the fund available for distribution.
Under the Trust Instrument, the Trustees may, without shareholder
vote, in order to change the form of organization of the trust cause
the trust to merge or consolidate with one or more trusts,
partnerships, associations, limited liability companies or
corporations, as long as the surviving entity is an open-end
management investment company, or is a fund thereof, that will succeed
to or assume the trust's registration statement, or cause the trust to
incorporate under Delaware law.
CUSTODIAN. Citibank, N.A., 111 Wall Street, New York, New York ,
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.
FMR, its officers and directors, its affiliated companies, and members
of 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. PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts , serves as independent accountant for each fund. 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, 1999, and report of the auditor, are
included in the fund's annual report and are incorporated herein
by reference.
APPENDIX
Spartan, Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Focus, Fidelity Investments, and Magellan are registered trademarks of
FMR.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.
Like securities of all mutual
funds, these securities have
not been approved or
disapproved by the
Securities and Exchange
Commission, and the
Securities and Exchange
Commission has not
determined if this
prospectus is accurate or
complete. Any
representation to the
contrary is a criminal
offense.
FIDELITY'S
OHIO MUNICIPAL
FUNDS
FIDELITY
OHIO MUNICIPAL
MONEY MARKET FUND
(fund number 419, trading symbol FOMXX)
SPARTAN (REGISTERED TRADEMARK)
OHIO MUNICIPAL
INCOME FUND
(fund number 088, trading symbol FOHFX)
PROSPECTUS
FEBRUARY 28, 2000
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
82 DEVONSHIRE STREET, BOSTON, MA 02109
CONTENTS
FUND SUMMARY 2 INVESTMENT SUMMARY
3 PERFORMANCE
4 FEE TABLE
FUND BASICS 6 INVESTMENT DETAILS
7 VALUING SHARES
SHAREHOLDER INFORMATION 8 BUYING AND SELLING SHARES
15 EXCHANGING SHARES
15 ACCOUNT FEATURES AND POLICIES
18 DIVIDENDS AND CAPITAL GAIN
DISTRIBUTIONS
18 TAX CONSEQUENCES
FUND SERVICES 19 FUND MANAGEMENT
19 FUND DISTRIBUTION
APPENDIX 19 FINANCIAL HIGHLIGHTS
FUND SUMMARY
INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
OHIO MUNICIPAL MONEY MARKET FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally investing in municipal money market
securities, including shares of a municipal money market fund managed
by an affiliate of FMR.
(small solid bullet) Normally investing so that at least 80% of the
fund's income distributions is exempt from federal and Ohio income
taxes.
(small solid bullet) Potentially investing more than 25% of assets in
municipal securities that finance similar types of projects.
(small solid bullet) Investing in compliance with industry-standard
requirements for money market funds for the quality, maturity and
diversification of investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a money market security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Entities located in foreign
countries can be affected by adverse political, regulatory, market or
economic developments in those countries.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Ohio can affect the credit quality of
issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. A decline in the credit
quality of an issuer or the provider of credit support or a
maturity-shortening structure for a security can cause the price of a
money market security to decrease.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the fund seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund.
INVESTMENT OBJECTIVE
SPARTAN OHIO MUNICIPAL INCOME FUND seeks a high level of current
income exempt from federal income tax and Ohio personal income tax.
The fund also seeks income exempt from certain business or corporate
taxes.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Normally investing in investment-grade municipal
debt securities (those of medium and high quality).
(small solid bullet) Normally investing at least 80% of assets in
municipal securities whose interest is exempt from federal and Ohio
personal income taxes.
(small solid bullet) Potentially investing more than 25% of assets in
municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers Ohio 4 Plus Year Enhanced
Municipal Bond Index.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features and
current pricing, trading opportunities, and the credit quality of its
issuer to select investments.
PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) GEOGRAPHIC CONCENTRATION. Unfavorable political
or economic conditions within Ohio can affect the credit quality of
issuers located in that state.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently from
the value of the market as a whole.
In addition, the fund is considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund. As a result, changes in the market value of a single
issuer could cause greater fluctuations in share price than would
occur in a more diversified fund.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in each fund's
performance from year to year and compares the bond fund's performance
to the performance of a market index and an average of the performance
of similar funds over various periods of time. Spartan Ohio
Municipal Income also compares its performance to the performance of
an additional index over various periods of time. Data for the
additional index for Spartan Ohio Municipal Income is available only
from June 30, 1993 to the present. Returns are based on past results
and are not an indication of future performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR-BY-YEAR RETURNS
OH MUNICIPAL MONEY MARKET
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
5.90% 4.50% 2.81% 2.09% 2.50% 3.48% 3.08% 3.29% 3.09% 2.86%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 5.9
Row: 2, Col: 1, Value: 4.5
Row: 3, Col: 1, Value: 2.81
Row: 4, Col: 1, Value: 2.09
Row: 5, Col: 1, Value: 2.5
Row: 6, Col: 1, Value: 3.48
Row: 7, Col: 1, Value: 3.08
Row: 8, Col: 1, Value: 3.29
Row: 9, Col: 1, Value: 3.09
Row: 10, Col: 1, Value: 2.86
DURING THE PERIODS SHOWN IN THE CHART FOR OHIO MUNICIPAL MONEY MARKET,
THE HIGHEST RETURN FOR A QUARTER WAS 1.46 % (QUARTER ENDED
DECEMBER 31 , 19 90 ) AND THE LOWEST RETURN FOR A QUARTER
WAS 0.49 % (QUARTER ENDED MARCH 31 , 19 94 ).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN OH MUNICIPAL INCOME
Calendar Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
7.50% 11.45% 8.66% 12.56% -5.55% 16.39% 4.23% 8.74% 5.79% -2.83%
</TABLE>
Percentage (%)
Row: 1, Col: 1, Value: 7.5
Row: 2, Col: 1, Value: 11.45
Row: 3, Col: 1, Value: 8.66
Row: 4, Col: 1, Value: 12.56
Row: 5, Col: 1, Value: -5.55
Row: 6, Col: 1, Value: 16.39
Row: 7, Col: 1, Value: 4.23
Row: 8, Col: 1, Value: 8.739999999999998
Row: 9, Col: 1, Value: 5.79
Row: 10, Col: 1, Value: -2.83
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN OHIO MUNICIPAL
INCOME, THE HIGHEST RETURN FOR A QUARTER WAS 6.95 % (QUARTER
ENDED MARCH 31 , 19 95 ) AND THE LOWEST RETURN FOR A
QUARTER WAS -5.64 % (QUARTER ENDED MARCH 31 ,
19 94 ).
AVERAGE ANNUAL RETURNS
For the periods ended Past 1 year Past 5 years Past 10 years
December 31, 1999
Ohio Municipal Money Market 2.86% 3.16% 3.35%
Spartan Ohio Municipal Income -2.83% 6.28% 6.50%
Lehman Bros. Municipal Bond -2.06% 6.91% 6.89%
Index
Lehman Bros. OH 4 Plus Year -2.45% 6.76% n/a
Enhanced Municipal Bond Index
Lipper OH Municipal Debt -4.02% 5.75% 6.18%
Funds Average
If FMR had not reimbursed certain fund expenses during these periods,
each fund's returns would have been lower.
The Lehman Brothers Municipal Bond Index is a market value-weighted
index of investment-grade municipal bonds with maturities of one year
or more.
The Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index is
a market value-weighted index of Ohio investment-grade municipal bonds
with maturities of four years or more.
The Lipper Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold, or sell shares of a fund. The annual fund
operating expenses provided below for each fund do not reflect the
effect of any reduction of certain expenses during the period.
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
Sales charge (load) on None
purchases and reinvested
distributions
Deferred sales charge (load) None
on redemptions
Annual account maintenance $12.00
fee (for accounts under
$2,500)
ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
OH MUNICIPAL MONEY MARKET Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.19%
Total annual fund operating 0.57%
expenses
SPARTAN OH MUNICIPAL INCOME Management fee 0.38%
Distribution and Service None
(12b-1) fee
Other expenses 0.14%
Total annual fund operating 0.52%
expensesA
A EFFECTIVE APRIL 1, 1997, FMR HAS VOLUNTARILY AGREED TO REIMBURSE THE
FUND TO THE EXTENT THAT TOTAL OPERATING EXPENSES (EXCLUDING INTEREST,
TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES), AS A
PERCENTAGE OF ITS AVERAGE NET ASSETS, EXCEED 0.55%. THIS ARRANGEMENT
CAN BE DISCONTINUED BY FMR AT ANY TIME.
T hrough arrangements with each fund's custodian and transfer
agent, 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 would have been
0.56 % for Ohio Municipal Money Market and 0.51 % for
Spartan Ohio Municipal Income.
This EXAMPLE helps you compare the cost of investing in the funds with
the cost of investing in other mutual funds.
Let's say, hypothetically, that each fund's annual return is 5% and
that your shareholder fees and each fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account at the end of each time period
indicated:
OH MUNICIPAL MONEY MARKET 1 year $ 58
3 years $ 183
5 years $ 318
10 years $ 714
SPARTAN OH MUNICIPAL INCOME 1 year $ 53
3 years $ 167
5 years $ 291
10 years $ 653
FUND BASICS
INVESTMENT DETAILS
INVESTMENT OBJECTIVE
OHIO MUNICIPAL MONEY MARKET FUND 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.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in municipal money market
securities, including shares of a municipal money market fund managed
by an affiliate of FMR.
FMR normally invests the fund's assets so that at least 80% of the
fund's income distributions is exempt from federal and Ohio income
taxes. Municipal securities whose interest is exempt from federal and
Ohio income taxes include securities issued by U.S. territories and
possessions, such as Guam, the Virgin Islands, and Puerto Rico, and
their political subdivisions and public corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Ohio income tax. Although FMR does not
currently intend to invest the fund's assets in municipal securities
whose interest is subject to federal income tax, FMR may invest all of
the fund's assets in municipal securities whose interest is subject to
the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, housing, transportation, and utilities.
In buying and selling securities for the fund, FMR complies with
industry-standard requirements for money market funds regarding the
quality, maturity, and diversification of the fund's investments. FMR
stresses maintaining a stable $1.00 share price, liquidity, and
income.
INVESTMENT OBJECTIVE
SPARTAN OHIO MUNICIPAL INCOME FUND seeks a high level of current
income exempt from federal income tax and Ohio personal income tax.
The fund also seeks income exempt from certain business or corporate
taxes.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests the fund's assets in investment-grade municipal
debt securities (those of medium and high quality).
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is exempt from federal and Ohio personal
income taxes. Municipal securities whose interest is exempt from
federal and Ohio income taxes include securities issued by U.S.
territories and possessions, such as Guam, the Virgin Islands, and
Puerto Rico, and their political subdivisions and public corporations.
FMR may invest the fund's assets in municipal securities whose
interest is subject to Ohio personal income tax. Although FMR does not
currently intend to invest the fund's assets in municipal securities
whose interest is subject to federal income tax, FMR may invest all of
the fund's assets in municipal securities whose interest is subject to
the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, housing, transportation, and utilities.
FMR uses the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond
Index as a guide in structuring the fund and selecting its
investments. FMR manages the fund to have similar overall interest
rate risk to the index. As of December 31, 1999, the dollar-weighted
average maturity of the fund and the index was approximately
13.3 and 14.6 years, respectively.
FMR allocates the fund's 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 and maturity.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR analyzes a
security's structural features and current price compared to its
estimated long-term value, any short-term trading opportunities
resulting from market inefficiencies, and the credit quality of its
issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates, or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable, or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest but
are sold at a discount from their face values. Municipal debt
securities include general obligation bonds of municipalities, local
or state governments, project or revenue-specific bonds, or
pre-refunded or escrowed bonds.
MONEY MARKET SECURITIES are high-quality, short-term securities that
pay a fixed, variable, or floating interest rate. Securities are often
specifically structured so that they are eligible investments for a
money market fund. For example, in order to satisfy the maturity
restrictions for a money market fund, some money market securities
have demand or put features, which have the effect of shortening the
security's maturity. Municipal money market securities include
variable rate demand notes, commercial paper, municipal notes, and
shares of municipal money market funds.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
and private purposes, including general financing for state and local
governments, or financing for a specific project or public facility.
Municipal securities may be fully or partially backed by the local
government, by the credit of a private issuer, by the current or
anticipated revenues from a specific project or specific assets, or by
domestic or foreign entities providing credit support such as letters
of credit, guarantees, or insurance.
PRINCIPAL INVESTMENT RISKS
Many factors affect each fund's performance. Because FMR concentrates
each fund's investments in Ohio, the fund's performance is expected to
be closely tied to economic and political conditions within that state
and to be more volatile than the performance of a more geographically
diversified fund.
The money market fund's yield will change daily based on changes in
interest rates and other market conditions. Although the fund is
managed to maintain a stable $1.00 share price, there is no guarantee
that the fund will be able to do so. For example, a major increase in
interest rates or a decrease in the credit quality of the issuer of
one of the fund's investments could cause the fund's share price to
decrease. While the fund will be charged premiums by a mutual
insurance company for coverage of specified types of losses related to
default or bankruptcy on certain securities, the fund may incur losses
regardless of the insurance.
The bond fund's yield and share price change daily based on changes in
interest rates and market conditions and in response to other
economic, political, or financial developments. The fund's reaction to
these developments will be affected by the types and maturities of
securities in which the fund invests, the financial condition,
industry and economic sector, and geographic location of an issuer,
and the fund's level of investment in the securities of that issuer.
Because FMR may invest a significant percentage of the fund's
assets in a single issuer, the fund's performance could be closely
tied to the market value of that one issuer and could be more volatile
than the performance of more diversified funds. When you sell your
shares of a fund, they could be worth more or less than what you paid
for them.
The following factors can significantly affect a fund's performance:
MUNICIPAL MARKET VOLATILITY. Municipal securities can be significantly
affected by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes, or the
rights of municipal security holders. Because many municipal
securities are issued to finance similar projects, especially those
relating to education, health care, transportation, and utilities,
conditions in those sectors can affect the overall municipal market.
In addition, changes in the financial condition of an individual
municipal insurer can affect the overall municipal market.
INTEREST RATE CHANGES. Debt and money market securities have varying
levels of sensitivity to changes in interest rates. In general, the
price of a debt or money market security can fall when interest rates
rise and can rise when interest rates fall. Securities with longer
maturities can be more sensitive to interest rate changes. In other
words, the longer the maturity of a security, the greater the impact a
change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily
move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and long-term
securities tend to react to changes in long-term interest rates.
FOREIGN EXPOSURE. Entities located in foreign countries that provide
credit support or a maturity-shortening structure can involve
increased risks. Extensive public information about the provider may
not be available and unfavorable political, economic, or governmental
developments could affect the value of the security.
GEOGRAPHIC CONCENTRATION. 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.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of security or issuer, and changes in general
economic or political conditions can affect the credit quality or
value of an issuer's securities. Lower-quality debt securities (those
of less than investment-grade quality) tend to be more sensitive to
these changes than higher-quality debt securities. Entities providing
credit support or a maturity-shortening structure also can be affected
by these types of changes. Municipal securities backed by current or
anticipated revenues from a specific project or specific assets can be
negatively affected by the discontinuance of the taxation supporting
the project or assets or the inability to collect revenues for the
project or from the assets. If the Internal Revenue Service determines
an issuer of a municipal security has not complied with applicable tax
requirements, interest from the security could become taxable and the
security could decline significantly in value. In addition, if the
structure of a security fails to function as intended, interest from
the security could become taxable or the security could decline in
value.
In response to market, economic, political, or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect a fund's
performance, and a fund could distribute income subject to federal or
Ohio income tax.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
OHIO MUNICIPAL MONEY MARKET FUND 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 FUND 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.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates each fund's NAV as of the close of
business 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). Each fund's
assets are valued as of this time for the purpose of computing the
fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
The money market fund's assets are valued on the basis of amortized
cost.
The bond fund's assets are valued primarily on the basis of
information furnished by a pricing service or market quotations. If
market quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the
exchange or market on which the security is principally traded, that
security may be valued by another method that the Board of Trustees
believes accurately reflects fair value. A security's valuation may
differ depending on the method used for determining value.
SHAREHOLDER INFORMATION
BUYING AND SELLING SHARES
GENERAL INFORMATION
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-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
web site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's web site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use Fidelity Automated Service Telephone (FASTSM),
1-800-544-5555.
(small solid bullet) For exchanges, redemptions, and account
assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and brokerage information,
1-800-544-6666.
(small solid bullet) For retirement information, 1-800-544-4774.
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5587
You may buy or sell shares of the funds through an investment
professional. If you invest through an investment professional, the
procedures for buying, selling, and exchanging shares of a fund and
the account features and policies may differ. Additional fees may also
apply to your investment in a fund, including a transaction fee if you
buy or sell shares of the fund through a broker or other investment
professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of each fund is the fund's NAV. Each fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of a fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, a fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
that fund. For these purposes, FMR may consider an investor's trading
history in that fund or other Fidelity funds, and accounts under
common ownership or control.
Each fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, 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) Fidelity 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
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (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 order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT
For OH Muni Money Market $5,000
For Spartan OH Muni Income $10,000
TO ADD TO AN ACCOUNT
For OH Muni Money Market $500
Through regular investment plans $100
For Spartan OH Muni Income $1,000
Through regular investment plans $500
MINIMUM BALANCE
For OH Muni Money Market $2,000
For Spartan OH Muni Income $5,000
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory ServicesSM
or a qualified state tuition program.
In addition, each fund may waive or lower purchase minimums in other
circumstances.
KEY INFORMATION
PHONE 1-800-544-6666 TO OPEN AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
Call the phone number at left.
(small solid bullet) Use
Fidelity Money
Line(registered trademark)
to transfer from your bank
account.
INTERNET WWW.FIDELITY.COM TO OPEN AN ACCOUNT
(small solid bullet) Complete
and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN ACCOUNT
(small solid bullet) Exchange
from another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer from your bank
account.
MAIL FIDELITY INVESTMENTS TO OPEN AN ACCOUNT
P.O. BOX 770001 CINCINNATI, (small solid bullet) Complete
OH 45277-0002 and sign the application.
Make your check payable to
the complete name of the
fund. Mail to the address at
left.
TO ADD TO AN ACCOUNT
(small solid bullet) Make
your check payable to the
complete name of the fund.
Indicate your fund account
number on your check and
mail to the address at left.
(small solid bullet) Exchange
from another Fidelity fund.
Send a letter of instruction
to the address at left,
including your name, the
funds' names, the fund
account numbers, and the
dollar amount or number of
shares to be exchanged.
IN PERSON TO OPEN AN ACCOUNT
(small solid bullet) Bring
your application and check
to a Fidelity Investor
Center. Call 1-800-544-9797
for the center nearest you.
TO ADD TO AN ACCOUNT
(small solid bullet) Bring
your check to a Fidelity
Investor Center. Call
1-800-544-9797 for the
center nearest you.
WIRE TO OPEN AN ACCOUNT
(small solid bullet) Call
1-800-544-6666 to set up
your account and to arrange
a wire transaction.
(small solid bullet) Wire
within 24 hours to: Bankers
Trust Company, Bank Routing
# 021001033, Account #
00163053.
(small solid bullet) Specify
the complete name of the
fund and include your new
fund account number and your
name.
TO ADD TO AN ACCOUNT
(small solid bullet) Wire to:
Bankers Trust Company, Bank
Routing # 021001033, Account
# 00163053.
(small solid bullet) Specify
the complete name of the
fund and include your fund
account number and your name.
AUTOMATICALLY TO OPEN AN ACCOUNT
(small solid bullet) Not
available.
TO ADD TO AN ACCOUNT
(small solid bullet) Use
Fidelity Automatic Account
Builder(registered
trademark) or Direct Deposit.
(small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from a
Fidelity money market fund.
SELLING 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 in proper form.
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 sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 15 or 30 days, depending on your account;
(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.
When you place an order to sell shares, note the following:
(small solid bullet) If you are selling some but not all of your Ohio
Municipal Money Market shares, leave at least $2,000 worth of shares
in the account to keep it open, except accounts not subject to account
minimums. If you are selling some but not all of your Spartan Ohio
Municipal Income shares, leave at least $5,000 worth of shares in the
account to keep it open, except accounts not subject to account
minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
a fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(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) Redemption proceeds may be paid in securities or
other property rather than in cash if FMR determines it
is in the best interests of a fund.
(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) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY INFORMATION
PHONE 1-800-544-6666 (small solid bullet) Call the
phone number at left to
initiate a wire transaction
or to request a check for
your redemption.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
(small solid bullet) Exchange
to another Fidelity fund.
Call the phone number at left.
INTERNET WWW.FIDELITY.COM (small solid bullet) Exchange
to another Fidelity fund.
(small solid bullet) Use
Fidelity Money Line to
transfer to your bank account.
MAIL FIDELITY INVESTMENTS INDIVIDUAL, JOINT TENANT,
P.O. BOX 660602 DALLAS, TX SOLE PROPRIETORSHIP, UGMA,
75266-0602 UTMA
(small solid bullet) Send a
letter of instruction to the
address at left, including
your name, the fund's name,
your fund account number,
and the dollar amount or
number of shares to be sold.
The letter of instruction
must be signed by all
persons required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Send a
letter of instruction to the
address at left, including
the trust's name, the fund's
name, the trust's fund
account number, and the
dollar amount or number of
shares to be sold. The
trustee must sign the letter
of instruction 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) Send a
letter of instruction to the
address at left, including
the firm's name, the fund's
name, the firm's fund
account number, and the
dollar amount or number of
shares to be sold. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Call
1-800-544-6666 for
instructions.
IN PERSON INDIVIDUAL, JOINT TENANT,
SOLE PROPRIETORSHIP, UGMA,
UTMA
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on the
account.
TRUST
(small solid bullet) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. The
trustee must sign the letter
of instruction 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) Bring a
letter of instruction to a
Fidelity Investor Center.
Call 1-800-544-9797 for the
center nearest you. At least
one person authorized by
corporate resolution to act
on the account must sign the
letter of instruction.
(small solid bullet) Include
a corporate resolution with
corporate seal or a
signature guarantee.
EXECUTOR, ADMINISTRATOR,
CONSERVATOR, GUARDIAN
(small solid bullet) Visit a
Fidelity Investor Center for
instructions. Call
1-800-544-9797 for the
center nearest you.
AUTOMATICALLY (small solid bullet) Use
Fidelity Automatic Exchange
Service to exchange from the
money market fund to another
Fidelity fund.
(small solid bullet) Use
Personal Withdrawal Service
to set up periodic
redemptions from your bond
fund account.
CHECK (small solid bullet) Write a
check to sell shares from
your account.
EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
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 policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only 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) Exchanges may have tax consequences for you.
(small solid bullet) Currently, there is no limit on the number of
exchanges out of Ohio Municipal Money Market.
(small solid bullet) Spartan Ohio Municipal Income may 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 will be counted together
for purposes of the four exchange limit.
(small solid bullet) Each fund may 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.
The funds may terminate or modify the exchange privileges in the
future.
Other funds may have different exchange restrictions, and may impose
trading fees of up to 3.00% of the amount exchanged. Check each
fund's prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
funds.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between accounts, or out of your account. While
automatic investment programs 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 retirement, a home, educational expenses,
and other long-term financial goals. Automatic withdrawal or exchange
programs can be a convenient way to provide a consistent income flow
or to move money between your investments.
<TABLE>
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<S> <C> <C>
FIDELITY AUTOMATIC ACCOUNT
BUILDER(registered
trademark) TO MOVE MONEY
FROM YOUR BANK ACCOUNT TO A
FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$100 for OH Muni Money Market Monthly or quarterly (small solid bullet) To set
$500 for Spartan OH Muni Income up for a new account,
complete the appropriate
section on the fund
application.
(small solid bullet) To set
up for existing accounts,
call 1-800-544-6666 or visit
Fidelity's web site for an
application.
(small solid bullet) To make
changes, 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 FUND.A
MINIMUM FREQUENCY PROCEDURES
$100 for OH Muni Money Market Every pay period (small solid bullet) To set
$500 for Spartan OH Muni Income up for a new account, check
the appropriate box on the
fund application.
(small solid bullet) To set
up for an existing account,
call 1-800-544-6666 or visit
Fidelity's web site for an
authorization form.
(small solid bullet) To make
changes you will need a new
authorization form. Call
1-800-544-6666 or visit
Fidelity's web site to
obtain one.
A BECAUSE BOND FUND SHARE
PRICES FLUCTUATE, THAT FUND
MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF
YOUR ENTIRE CHECK.
FIDELITY AUTOMATIC EXCHANGE
SERVICE TO MOVE MONEY FROM A
FIDELITY MONEY MARKET FUND
TO ANOTHER FIDELITY FUND.
MINIMUM FREQUENCY PROCEDURES
$100 for OH Muni Money Market Monthly, bimonthly, (small solid bullet) To set
$500 for Spartan OH Muni Income quarterly, or annually up, call 1-800-544-6666
after both accounts are
opened.
(small solid bullet) To make
changes, call 1-800-544-6666
at least three business days
prior to your next scheduled
exchange date.
</TABLE>
PERSONAL WITHDRAWAL SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM YOUR BOND
FUND ACCOUNT TO YOU OR TO
YOUR BANK ACCOUNT.
FREQUENCY PROCEDURES
Monthly (small solid bullet) To set
up, call 1-800-544-6666.
(small solid bullet) To make
changes, call Fidelity at
1-800-544-6666 at least
three business days prior to
your next scheduled
withdrawal date.
OTHER FEATURES. The following other features are also available to buy
and sell shares of the funds.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(small solid bullet) You must sign up for the wire feature before
using it. Complete the appropriate section on the application when
opening your account, or call 1-800-544-6666 to add the feature after
your account is opened. Call 1-800-544-6666 before your first use to
verify that this feature is set up on your account.
(small solid bullet) To sell shares by wire, you must designate the
U.S. commercial bank account(s) into which you wish the redemption
proceeds deposited.
FIDELITY MONEY LINE
TO TRANSFER MONEY BETWEEN YOUR BANK ACCOUNT AND YOUR FUND ACCOUNT.
(small solid bullet) You must sign up for the Money Line feature
before using it. Complete the appropriate section on the application
and then call 1-800-544-6666 or visit Fidelity's web site before your
first use to verify that this feature is set up on your account.
(small solid bullet) Most transfers are complete within three business
days of your call.
(small solid bullet) Minimum purchase: $100 for OH Muni Money Market
and $500 for Spartan OH Muni Income
(small solid bullet) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544-0240 OR VISIT FIDELITY'S WEB SITE FOR MORE INFORMATION.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) For access to research and analysis tools.
FIDELITY ONLINE TRADING
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S WEB
SITE.
(small solid bullet) For account balances and holdings;
(small solid bullet) To review recent account history;
(small solid bullet) To obtain quotes;
(small solid bullet) For mutual fund and brokerage trading; and
(small solid bullet) To access third-party research on companies,
stocks, mutual funds and the market.
FAST
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATICALLY BY PHONE USING TOUCH
TONE OR SPEECH RECOGNITION.
CALL 1-800-544-5555.
(small solid bullet) For account balances and holdings;
(small solid bullet) For mutual fund and brokerage trading;
(small solid bullet) To obtain quotes;
(small solid bullet) To review orders and mutual fund activity; and
(small solid bullet) To change your personal identification number
(PIN).
CHECKWRITING
TO REDEEM SHARES FROM YOUR ACCOUNT.
(small solid bullet) To set up, complete the appropriate section on
the application.
(small solid bullet) All account owners must sign a signature card to
receive a checkbook.
(small solid bullet) You may write an unlimited number of checks.
(small solid bullet) Minimum check amount: $500 for OH Muni Money
Market and $1,000 for Spartan OH Muni Income.
(small solid bullet) Do not try to close out your account by check.
(small solid bullet) To obtain more checks, call Fidelity at
1-800-544-6666.
POLICIES
The following policies apply to you as a shareholder.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund or another fund and certain transactions through automatic
investment or withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(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 a fund. Call Fidelity at 1-800-544-8544 if you
need additional copies of financial reports or prospectuses.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's web site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's web
site for more information.
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 sell and
exchange by telephone, call Fidelity for instructions.
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.
Fidelity may 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 Fidelity, 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
accounts with Fidelity maintained by Fidelity Service Company, Inc. 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 $2,000 for Ohio Municipal Money
Market or $5,000 for Spartan Ohio Municipal Income (except accounts
not subject to account minimums), you will be given 30 days' notice to
reestablish the minimum balance. If you do not increase your balance,
Fidelity may close your account and send the proceeds to you. Your
shares will be sold at the NAV on the day your account is closed.
Fidelity may charge a FEE FOR CERTAIN SERVICES, such as providing
historical account documents.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each fund earns interest, dividends, and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. Each fund may also realize capital gains
from its investments, and distributes these gains (less losses), if
any, to shareholders as capital gain distributions.
The bond fund normally declares dividends daily and pays them monthly.
The bond fund normally pays capital gain distributions in February and
December.
Distributions you receive from the money market fund consist primarily
of dividends. The money market fund normally declares dividends daily
and pays them monthly.
EARNING DIVIDENDS
Shares begin to earn dividends on the first business day following the
day of purchase.
Shares earn dividends until, but not including, the next business day
following the day of redemption.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
each fund's distributions:
1. REINVESTMENT OPTION. Your dividends 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 will be automatically reinvested in additional shares of
the fund. Your dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital gain distributions, if any,
will be paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gain distributions, if any,
will be automatically invested in shares of another identically
registered Fidelity fund, automatically reinvested in additional
shares of the fund, or paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in a fund could have tax
consequences for you.
TAXES ON DISTRIBUTIONS. Ohio Municipal Money Market seeks to earn
income and pay dividends exempt from federal income tax and Ohio
personal income tax.
Spartan Ohio Municipal Income seeks to earn income and pay
dividends exempt from federal income tax, Ohio personal income tax ,
and certain business or corporate taxes in Ohio.
A portion of the dividends you receive may be subject to federal,
state, or local income tax or may be subject to the federal
alternative minimum tax. You may also receive taxable distributions
attributable to a fund's sale of municipal bonds.
For federal tax purposes, each fund's distributions of short-term
capital gains and gains on the sale of bonds characterized as market
discount are taxable to you as ordinary income, while each fund's
distributions of long-term capital gains, if any, are taxable to you
generally as capital gains.
For Ohio personal income tax purposes, distributions derived from
interest on municipal securities of Ohio issuers and from interest on
qualifying securities issued by U.S. territories and possessions are
g enerally exempt from tax. Distributions that are federally taxable
as capital gains are generally exempt from Ohio personal income tax to
the extent derived from municipal securities of Ohio issuers.
A ll other distributions may be taxable for Ohio personal income tax
purposes.
If a fund's distributions exceed its income and capital gains realized
in any year, all or a portion of those distributions may be treated as
a return of capital to shareholders for federal income tax or Ohio
personal income tax purposes. A return of capital generally will not
be taxable to you but will reduce the cost basis of your shares and
result in a higher reported capital gain or a lower reported capital
loss when you sell your shares.
If you buy shares when a fund has realized but not yet distributed
income or capital gains, you will be "buying a dividend" by paying the
full price for the shares and then receiving a portion of the price
back in the form of a potentially taxable distribution.
Any taxable distributions you receive from a fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your bond fund redemptions, including
exchanges, may result in a capital gain or loss for federal and Ohio
personal income tax purposes. A capital gain or loss on your
investment in the fund generally is the difference between the cost of
your shares and the price you receive when you sell them.
FUND SERVICES
FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
FMR is each fund's manager.
As of March 25, 1999 , FMR had approximately $521.7
billion in discretionary assets under management.
As the manager, FMR is responsible for choosing each fund's
investments and handling its business affairs.
Fidelity Investments Money Management, Inc. (FIMM), in Merrimack, New
Hampshire, serves as sub-adviser for each fund. FIMM is primarily
responsible for choosing investments for each fund.
FIMM is an affiliate of FMR. As of March 29, 1999 , FIMM had
approximately $159.8 billion in discretionary assets under
management.
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.
From time to time a manager, analyst, or other Fidelity employee
may express views regarding a particular company, security, industry,
or market sector. The views expressed by any such person are the views
of only that individual as of the time expressed and do not
necessarily represent the views of Fidelity or any other person in the
Fidelity organization. Any such views are subject to change at any
time based upon market or other conditions and Fidelity disclaims any
responsibility to update such views. These views may not be relied on
as investment advice and, because investment decisions for a Fidelity
fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any Fidelity fund.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each fund pays a management fee to FMR. 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, dividing by
twelve, and multiplying the result by the fund's average net assets
throughout the month.
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 1999, the group fee rate was 0.1267% for Ohio
Municipal Money Market and Spartan Ohio Municipal Income . The
individual fund fee rate is 0.25% for Ohio Municipal Money Market
and Spartan Ohio Municipal Income .
The total management fee for the fiscal year ended December 31, 1999,
was 0.38 % of the fund's average net assets for Ohio Municipal
Money Market and 0.38 % of the fund's average net assets for
Spartan Ohio Municipal Income.
FMR pays FIMM for providing sub-advisory services.
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 discontinued by FMR at any time, can
decrease a fund's expenses and boost its performance.
FUND DISTRIBUTION
Fidelity Distributors Corporation (FDC) distributes each fund's
shares.
Each fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that 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 providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees of each fund has authorized
such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of a fund, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this prospectus and in the related
statement of additional information (SAI), in connection with the
offer contained in this prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This prospectus and the related SAI do
not constitute an offer by the funds or by FDC to sell shares of the
funds to or to buy shares of the funds from any person to whom it is
unlawful to make such offer.
APPENDIX
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand
each fund's financial history for the past 5 years. Certain
information reflects financial results for a single fund share. The
total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the fund (assuming
reinvestment of all dividends and distributions). This information
has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose reports, along with each fund's financial
highlights and financial statements, are included in each fund's
annual report. A free copy of the annual report is available upon
request.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OHIO MUNICIPAL MONEY MARKET FUND
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
period
Income from Investment
Operations
Net interest income .028 .030 .032 .030 .034
Less Distributions
From net interest income (.028) (.030) (.032) (.030) (.034)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
TOTAL RETURN A 2.86% 3.09% 3.29% 3.08% 3.48%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 489,971 $ 400,737 $ 364,472 $ 327,593 $ 296,220
(000 omitted)
Ratio of expenses to average .57% .58% .59% .60% .61%
net assets
Ratio of expenses to average .56% B .57% B .59% .59% B .61%
net assets after expense
reductions
Ratio of net interest income 2.83% 3.05% 3.24% 3.03% 3.42%
to average net assets
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SPARTAN OHIO MUNICIPAL INCOME FUND
Years ended December 31, 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 11.740 $ 11.720 $ 11.430 $ 11.590 $ 10.520
period
Income from Investment
Operations
Net interest income .536 .538 .554 .560 .618
Net realized and unrealized (.857) .125 .413 (.090) 1.070
gain (loss)
Total from investment (.321) .663 .967 .470 1.688
operations
Less Distributions
From net interest income (.536) (.538) (.554) (.560) (.618)
From net realized gain (.011) (.105) (.105) (.070) -
In excess of net realized (.012) - (.018) - -
gain
Total distributions (.559) (.643) (.677) (.630) (.618)
Net asset value, end of period $ 10.860 $ 11.740 $ 11.720 $ 11.430 $ 11.590
TOTAL RETURN A (2.83)% 5.79% 8.74% 4.23% 16.39%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 352,973 $ 396,166 $ 388,907 $ 381,626 $ 404,443
(000 omitted)
Ratio of expenses to average .52% .55% B .56% B .59% .58%
net assets
Ratio of expenses to average .51% C .55% .56% .59% .58%
net assets after expense
reductions
Ratio of net interest income 4.71% 4.58% 4.83% 4.93% 5.52%
to average net assets
Portfolio turnover rate 14% 19% 15% 43% 48%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING
THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S
EXPENSES.
You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of the fund's holdings and recent market
conditions and the fund's investment strategies that affected
performance.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8544. In addition, you may visit Fidelity's web site at
www.fidelity.com for a free copy of a prospectus or an annual or
semi-annual report or to request other information.
The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's web site (http://www.sec.gov).
You can obtain copies of this information upon paying a duplicating
fee, by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009. You can also review and copy information about the
funds, including the funds' SAI, at the SEC's Public Reference Room in
Washington, D.C. Call 1-800-SEC-0330 for information on the operation
of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS, 811-2720 AND
811-6454 .
Spartan, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, Fidelity Automatic Account Builder,
Fidelity On-Line Xpress+, and Directed Dividends are registered
trademarks of FMR Corp.
FAST and Fidelity Portfolio Advisory Services are registered
service marks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
1.539993.102 OFS/OFR-pro-0200
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
SPARTAN(registered trademark) OHIO MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 2000
This statement of additional information (SAI) is not a prospectus.
Portions of each fund's annual report are incorporated herein. The
annual report is supplied with this SAI.
To obtain a free additional copy of the prospectus, dated February 28,
2000, or an annual report, please call Fidelity(registered trademark)
at 1-800-544-8544 or visit F idelity's web si te at
www.fidelity.com.
TABLE OF CONTENTS PAGE
Investment Policies and 21
Limitations
Special Considerations 26
Regarding Ohio
Special Considerations 27
Regarding Puerto Rico
Portfolio Transactions 30
Valuation 31
Performance 31
Additional Purchase, Exchange 41
and Redemption Information
Distributions and Taxes 42
Trustees and Officers 42
Control of Investment Advisers 44
Management Contracts 45
Distribution Services 49
Transfer and Service Agent 49
Agreements
Description of the Trusts 50
Financial Statements 51
Appendix 51
OFS/OFR-ptb- 0200
1.701220.102
(fidelity_logo_graphic)(registered trademark)
82 Devonshire Street, Boston, MA 02109
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 (the
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
(THE MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET FUND'S FUNDAMENTAL
INVESTMENT LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) purchase the securities of any issuer, if as a result, the fund
would not comply with any applicable diversification requirements for
a money market fund under the Investment Company Act of 1940 and the
rules thereunder, as such may be amended from time to time;
(2) issue senior securities, except as in connection with the
insurance program established by the fund pursuant to an exemptive
order issued by the Securities and Exchange Commission or as otherwise
permitted under the Investment Company Act of 1940;
(3) 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;
(4) purchase securities on margin, except that the fund may obtain
such short-term credits as are necessary for the clearance of
transactions;
(5) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(6) underwrite securities issued by others (except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(7) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a
U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, more
than 25% of the fund's total assets would be invested in the
securities of companies whose principal business activities are in the
same industry;
(8) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(9) purchase or sell physical commodities unless acquired as a result
of ownership of securities; or
(10) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties (but
this limitation does not apply to purchases of debt securities or to
repurchase agreements).
(11) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company with substantially the
same fundamental investment objective, policies, and limitations as
the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) With respect to 75% of its total assets, the fund does not
currently intend to purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities, or securities of other money market
funds) if, as a result, more than 5% of the fund's total assets would
be invested in the securities of that issuer.
(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
(5)) .
(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 limitations (1), (7) and (i), FMR identifies the
issuer of a security depending on its terms and conditions. In
identifying the issuer, FMR will consider the entity or entities
responsible for payment of interest and repayment of principal and the
source of such payments; the way in which assets and revenues of an
issuing political subdivision are separated from those of other
political entities; and whether a governmental body is guaranteeing
the security.
For purposes of li mitatio n (i), certain securities subject to
guarantees (including insurance, letters of credit and demand
features) are not considered securities of their issuer, but are
subject to separate diversification requirements, in accordance with
industry standard requirements for money market funds.
With respect to limitation (iii), 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 were invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
INVESTMENT LIMITATIONS OF SPARTAN OHIO MUNICIPAL INCOME FUND (THE 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 in connection with the
insurance program established by the fund pursuant to an exemptive
order issued by the Securities and Exchange Commission or as otherwise
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.
(9) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor 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 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)) .
(v) The fund does not currently intend to purchase any security if, as
a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to engage in repurchase
agreements or make loans, but this limitation does not apply to
purchases of debt securities.
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor 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 (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.
With respect to limitation (v), 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 were invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page 5.
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 a 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 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of purchase
contracts, financing leases, or sales agreements entered into by
municipalities. Payment of interest and repayment of principal may be
largely dependent upon the cash flows generated by the assets backing
the securities and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. Asset-backed security
values may also be affected by other factors including changes in
interest rates, the availability of information concerning the pool
and its structure, the creditworthiness of the servicing agent for the
pool, the originator of the loans or receivables, or the entities
providing the credit enhancement. In addition, these securities may be
subject to prepayment risk.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, 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.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity, and diversification of their investments.
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.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Combined Positions, Correlation of Price Changes, Futures
Contracts, Futures Margin Payments, Limitations on Futures and Options
Transactions, Liquidity of Options and Futures Contracts ,
over-the-counter (OT C) Options, Purchasing Put and Call Options,
and Writing Put and Call Options.
COMBINED POSITIONS involve purchasing and writing 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, purchasing a put option and writing a
call option on the same underlying instrument would 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, 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. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund 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 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. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter 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 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 bond 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 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 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 purchaser or writer 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
purchaser 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 purchaser 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 purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser 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, 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. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer 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. The writer may seek
to terminate a position in a put option 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, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
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 writer 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 SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. 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
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market, and (4) the nature of the security and the market in which it
trades (including any demand, put or tender features, the mechanics
and other requirements for transfer, any letters of credit or other
credit enhancement features, any ratings, the number of holders, the
method of soliciting offers, the time required to dispose of the
security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments 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.
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. Indexed
securities may be more volatile than the underlying instruments.
Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates; however, municipal
funds currently intend to participate in this program only as
borrowers. A fund will borrow through the program only when the costs
are equal to or lower than the costs of bank loans. Interfund
borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one day's notice. 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 movements in prevailing short-term
interest rate levels-rising when prevailing short-term interest rates
fall, and vice versa. The prices of inverse floaters can be
considerably more volatile than the prices of bonds with comparable
maturities.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes and to
changes in the financial conditions of issuers. A debt 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 IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal, or may be in default. These securities are often considered
to be speculative and involve greater risk of loss or price changes
due to changes in the issuer's capacity to pay. The market prices of
lower-quality debt securities may fluctuate more than those of
higher-quality debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MONEY MARKET INSURANCE. The money market fund participates in a mutual
insurance company solely with other funds advised by FMR or its
affiliates. This company provides insurance coverage for losses on
certain money market instruments held by a participating fund
(eligible instruments), including losses from nonpayment of principal
or interest or a bankruptcy or insolvency of the issuer or credit
support provider, if any. The insurance does not cover losses
resulting from changes in interest rates or other market developments.
The money market fund is charged an annual premium for the insurance
coverage and may be subject to a special assessment of up to
approximately two and one-half times the fund's annual gross premium
if covered losses exceed certain levels. A participating fund may
recover no more than $100 million annually, including all other claims
of insured funds, and may only recover if the amount of the loss
exceeds 0.30% of its eligible instruments. The money market fund may
incur losses regardless of the insurance.
MONEY MARKET SECURITIES are high-quality, short-term obligations.
Money market securities may be structured to be, or may employ a trust
or other form so that they are, eligible investments for money market
funds. 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 a structure fails to function 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 certain 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 INSURANCE. A municipal bond may be covered by insurance that
guarantees the bond's scheduled payment of interest and repayment of
principal. This type of insurance may be obtained by either (i) the
issuer at the time the bond is issued (primary market insurance), or
(ii) another party after the bond has been issued (secondary market
insurance).
Both primary and secondary market insurance guarantee timely and
scheduled repayment of all principal and payment of all interest on a
municipal bond in the event of default by the issuer, and cover a
municipal bond to its maturity, enhancing its credit quality and
value.
Municipal bond insurance does not insure against market fluctuations
or fluctuations in a fund's share price. In addition, a municipal bond
insurance policy will not cover: (i) repayment of a municipal bond
before maturity (redemption), (ii) prepayment or payment of an
acceleration premium (except for a mandatory sinking fund redemption)
or any other provision of a bond indenture that advances the maturity
of the bond, or (iii) nonpayment of principal or interest caused by
negligence or bankruptcy of the paying agent. A mandatory sinking fund
redemption may be a provision of a municipal bond issue whereby part
of the municipal bond issue may be retired before maturity.
Because a significant portion of the municipal securities issued and
outstanding is insured by a small number of insurance companies, an
event involving one or more of these insurance companies could have a
significant adverse effect on the value of the securities insured by
that insurance company and on the municipal markets as a whole.
FMR may decide to retain an insured municipal bond that is in default,
or, in FMR's view, in significant risk of default. While a fund holds
a defaulted, insured municipal bond, the fund collects interest
payments from the insurer and retains the right to collect principal
from the insurer when the municipal bond matures, or in connection
with a mandatory sinking fund redemption.
PRINCIPAL MUNICIPAL BOND INSURERS. The various insurance companies
providing primary and secondary market insurance policies for
municipal bonds are described below. Ratings reflect each respective
rating agency's assessment of the creditworthiness of an insurer and
the insurer's ability to pay claims on its insurance policies at the
time of the assessment.
Ambac Assurance Corp., a wholly-owned subsidiary of Ambac Financial
Group Inc., is authorized to provide bond insurance in the 50 U.S.
states, the District of Columbia, and the Commonwealth of Puerto Rico.
Bonds insured by Ambac Assurance Corp. are rated "Aaa" by Moody's
Investor Service and "AAA" by Standard & Poor's.
Connie Lee Insurance Co. is a wholly-owned subsidiary of Connie Lee
Holdings Inc., which is a wholly-owned subsidiary of Ambac Assurance
Corp. All losses incurred by Connie Lee Insurance Co. that would cause
its statutory capital to drop below $75 million would be covered by
Ambac Assurance Corp. Connie Lee Insurance Co. is authorized to
provide bond insurance in 49 U.S. states, the District of Columbia,
and the Commonwealth of Puerto Rico. Bonds insured by Connie Lee
Insurance Co. are rated "AAA" by Standard & Poor's.
Financial Guaranty Insurance Co. (FGIC), a wholly-owned subsidiary of
GE Capital Services, is authorized to provide bond insurance in the 50
U.S. states and the District of Columbia. Bonds insured by FGIC are
rated "Aaa" by Moody's Investor Service and "AAA" by Standard &
Poor's.
Financial Security Assurance Inc. (FSA), a wholly-owned subsidiary of
Financial Security Assurance Holdings Ltd., is authorized to provide
bond insurance in 49 U.S. states, the District of Columbia, and three
U.S. territories. Bonds insured by FSA are rated "Aaa" by Moody's
Investor Service and "AAA" by Standard & Poor's.
Municipal Bond Investors Assurance Corp. (MBIA Insurance Corp.), a
wholly-owned subsidiary of MBIA Inc., a publicly-owned company, is
authorized to provide bond insurance in the 50 U.S. states, the
District of Columbia, and the Commonwealth of Puerto Rico. Bonds
insured by MBIA Insurance Corp. are rated "Aaa" by Moody's Investor
Service and "AAA" by Standard & Poor's.
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,
a fund will not hold these 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 purchaser a specified, undivided interest in the obligation
in proportion to its purchased interest in the total amount of the
issue.
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. If a municipality stops making payments or transfers its
obligations to a private entity, the obligation could lose value or
become taxable.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities
may be affected by uncertainties in the municipal market related to
legislation or litigation involving the taxation of municipal
securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income
tax exemption for interest on municipal securities are introduced
before Congress from time to time. Proposals also may be introduced
before the Ohio legislature that would affect the state tax treatment
of a municipal fund's distributions. If such proposals were enacted,
the availability of municipal securities and the value of a municipal
fund's holdings would be affected and the Trustees would reevaluate
the fund's investment objectives and policies. 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 a money market fund to maintain a stable net asset value
per share (NAV).
PUT FEATURES entitle the holder to sell a security back to the issuer
or a third party at any time or at specified intervals. In exchange
for this benefit, a fund may accept a lower interest rate. Securities
with put features 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.
REFUNDING CONTRACTS. Securities may be purchased on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and a
purchaser 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 purchaser generally will not be obligated to pay the
full purchase price if the issuer fails to perform under a refunding
contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer. A purchaser 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.
REPURCHASE AGREEMENTS involve an agreement to purchase a security and
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. As protection against the risk
that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The funds will engage in repurchase agreement transactions
with parties whose creditworthiness has been reviewed and found
satisfactory by FMR.
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. 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 holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder 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 security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The funds will enter into
reverse repurchase agreements with parties whose creditworthiness has
been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SOURCES OF LIQUIDITY OR CREDIT SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other financial
institutions. FMR may rely on its evaluation of the cre dit of the
liquidity or credi t enhancement provider in determining whether to
purchase a security supported by such enhancement. 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. Changes in the
credit quality of the entity providing the enhancement could affect
the value of the security or a fund's share price.
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. A 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 purchase 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 generally marketable; and the possibility that the maturities
of the underlying securities may be different from those of the
commitments.
TEMPORARY DEFENSIVE POLICIES. Each fund 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.
TENDER OPTION BONDS are created by coupling an intermediate- or
long-term, fixed-rate, municipal 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, 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
in 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 are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
In many instances bonds and participation interests have tender
options or demand features that permit the holder to tender (or put)
the bonds to an institution at periodic intervals and to receive the
principal amount thereof. Variable rate instruments structured in this
fashion are considered to be essentially equivalent to other variable
rate securities. The IRS has not ruled whether the interest on these
instruments is tax-exempt. Fixed-rate bonds that are subject to third
party puts and participation interests in such bonds held by a bank in
trust or otherwise may have similar features.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, 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, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a 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 more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
SPECIAL CONSIDERATIONS REGARDING OHIO
The following information constitutes only a brief summary of some
of the many complex factors that may have an effect on securities
issued by or on behalf of (or in certificates of participation in
lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the
State or its political subdivisions (Ohio Obligations). The
information does not apply to "conduit" obligations on which the
public issuer itself has no financial responsibility. This information
is derived from official statements of certain Ohio issuers published
in connection with their issuance of securities and from other
publicly available information, and is believed to be accurate. No
independent verification has been made of any of the following
information.
Generally, the creditworthiness of Ohio Obligations of local
issuers is unrelated to that of obligations of the State itself, and
the State has no responsibility to make payments on those local
obligations.
There may be specific factors that at particular times apply in
connection with investment in particular Ohio Obligations or in those
obligations of particular Ohio issuers. It is possible that the
investment may be in particular Ohio Obligations, or in those
particular issuers, as to which those factors apply. However, the
information below is intended only as a general summary, and is not
intended as a discussion of any specific factors that may affect any
particular obligation or issuer.
Ohio is the seventh most populous state. The 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census
estimate for 1998 is 11,209,000.
While diversifying more into the service and other
non-manufacturing areas, the Ohio economy continues to rely in part on
durable goods manufacturing largely concentrated in motor vehicles and
equipment, steel, rubber products and household appliances. As a
result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an important
segment of the economy, with over half the State's area devoted to
farming and approximately 16% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported
1990 average monthly State rate was 5.7%, compared to the 5.5%
national figure. However, in recent years the annual State rates were
below the national rates (4.3% versus 4.5% in 1998). The unemployment
rate and its effects vary among geographic areas of the State.
There can be no assurance that future national, regional or
state-wide economic difficulties, and the resulting impact on State or
local government finances generally, will not adversely affect the
market value of Ohio Obligations held in the Ohio fund or the ability
of particular obligors to make timely payments of debt service on (or
lease payments relating to) those Obligations.
The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending
its July 1 to June 30 fiscal year (FY) or fiscal biennium in a deficit
position. Most State operations are financed through the General
Revenue Fund (GRF), for which the personal income and sales-uses taxes
are the major sources. Growth and depletion of GRF ending fund
balances show a consistent pattern related to national economic
conditions, with the ending FY balance reduced during less favorable
and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary
actions to ensure resource/expenditure balances during less favorable
economic periods. Those procedures included general and selected
reductions in appropriations spending.
The 1992-93 biennium presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain
budget differences an interim appropriations act was enacted effective
July 1, 1991; it included GRF debt service and lease rental
appropriations for the entire biennium, while continuing most other
appropriations for a month. Pursuant to the general appropriations act
for the entire biennium, passed on July 11, 1991, $200 million was
transferred from the Budget Stabilization Fund (BSF, a cash and
budgetary management fund) to the GRF in FY 1992.
Based on updated results and forecasts in the course of that FY,
both in light of a continuing uncertain nationwide economic situation,
there was projected and then timely addressed an FY 1992 imbalance in
GRF resources and expenditures. In response, the Governor ordered most
State agencies to reduce GRF spending in the last six months of FY
1992 by a total of approximately $184 million; the $100.4 million BSF
balance and additional amounts from certain other funds were
transferred late in the FY to the GRF, and adjustments were made in
the timing of certain tax payments.
A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million
in selected GRF spending reductions and subsequent executive and
legislative action (a combination of tax revisions and additional
spending reductions). The June 30, 1993 ending GRF fund balance was
approximately $111 million, of which, as a first step to
replenishment, $21 million was deposited in the BSF.
None of the spending reductions were applied to appropriations
needed for debt service or lease rentals relating to any State
obligations.
The 1994-95 biennium presented a more affirmative financial
picture. Based on June 30, 1994 balances, an additional $260 million
was deposited in the BSF. The biennium ended June 30, 1995 with a GRF
ending fund balance of $928 million, of which $535.2 million was
transferred into the BSF. The significant GRF fund balance, after
leaving in the GRF an unreserved and undesignated balance of $70
million, was transferred to the BSF and other funds including school
assistance funds and, in anticipation of possible federal program
changes, a human services stabilization fund.
From a higher than forecast 1996-97 mid-biennium GRF fund balance,
$100 million was transferred for elementary and secondary school
computer network purposes and $30 million to a new State
transportation infrastructure fund. Approximately $400.8 million
served as a basis for temporary 1996 personal income tax reductions
aggregating that amount. The 1996-1997 biennium-ending GRF fund
balance was $834.9 million. Of that, $250 million went to school
building construction and renovation, $94 million to the school
computer network, $44.2 million for school textbooks and instructional
materials and a distance learning program, and $34 million to the BSF,
and the $263 million balance to a State income tax reduction fund.
The 1998-99 biennium ending GRF balances were $1.5 billion (cash)
and $976 million (fund). Of that fund balance, $325.7 million has been
transferred to school building assistance, $46.3 million to the BSF,
$90 million to supply classroom computers and for interactive video
distance learning, and the remaining amount to the State income tax
reduction fund. The BSF had a December 3, 1999 balance of over $953
million.
The GRF appropriations acts for the current 2000-01 biennium (one
for all education purposes, and one for general GRF purposes) were
passed on June 24 and June 28, 1999, respectively, and promptly signed
(after selective vetoes) by the Governor. Those acts provided for
total GRF biennial expenditures of over $39.8 billion. Necessary GRF
debt service and lease-rental appropriations for the entire biennium
were requested in the Governor's proposed budget and incorporated in
the appropriations bills as introduced, and were included in the bills
versions as passed by the House and the Senate and in the acts as
passed and signed.
The State's incurrence or assumption of debt without a vote of the
people is, with exceptions noted below, prohibited by current State
constitutional provisions. The State may incur debt, limited in amount
to $750,000, to cover casual deficits or failures in revenues or to
meet expenses not otherwise provided for. The Constitution expressly
precludes the State from assuming the debts of any local government or
corporation. (An exception is made in both cases for any debt incurred
to repel invasion, suppress insurrection or defend the State in
war.)
By 16 constitutional amendments approved from 1921 to date (the
latest adopted in 1999) Ohio voters authorized the incurrence of State
debt and the pledge of taxes or excises to its payment. At December 3,
1999, over $1.2 billion (excluding certain highway bonds payable
primarily from highway use receipts) of this debt was outstanding. The
only such State debt at that date still authorized to be incurred were
portions of the highway bonds, and the following: (a) up to $100
million of obligations for coal research and development may be
outstanding at any one time ($22.3 million outstanding); (b) $240
million of obligations previously authorized for local infrastructure
improvements, no more than $120 million of which may be issued in any
calendar year (over $1.06 billion outstanding) and (c) up to $200
million in general obligation bonds for parks, recreation and natural
resources purposes which may be outstanding at any one time ($112.7
million outstanding, with no more than $50 million to be issued in any
one year). Legislation passed December 9, 1999 authorizing the
issuance of $300 million of general obligations pursuant to the 1999
constitutional amendment discussed below.
The electors in 1995 approved a constitutional amendment extending
the local infrastructure bond program (authorizing an additional $1.2
billion of State full faith and credit obligations to be issued over
10 years for the purpose), and authorizing additional highway bonds
(expected to be payable primarily from highway use receipts). The
latter authorizes not more than $1.2 billion to be outstanding at any
time and not more than $220 million to be issued in a fiscal year.
A constitutional amendment approved by the voters at the November
1999 general election authorizes State general obligation debt to pay
costs of facilities for a system of common schools throughout the
State and facilities for state supported and assisted institutions of
higher education. That, and other debt represented by direct
obligations of the State (including that authorized by the Ohio Public
Facilities Commission and Ohio Building Authority, and some authorized
by the Treasurer), may not be issued if future FY total debt service
on those direct obligations to be paid from the GRF or net lottery
proceeds exceeds 5% of total estimated revenues of the State for the
GRF and from net State lottery proceeds during the FY of issuance.
The Constitution also authorizes the issuance of State obligations
for certain purposes, the owners of which do not have the right to
have excises or taxes levied to pay debt service. Those special
obligations include obligations issued by the Ohio Public Facilities
Commission and the Ohio Building Authority, and certain obligations
issued by the State Treasurer, over $5.5 billion of which were
outstanding at December 3, 1999.
In recent years, State agencies have participated in transportation
and office building projects that may have some local as well as well
as State use and benefit, in connection with which the State enters
into lease purchase agreements with terms ranging from 7 to 20 years.
Certificates of participation, or special obligation bonds of the
State or a local agency, are issued that represent fractionalized
interests in or payable from the State's anticipated payments. The
State estimates highest future FY payments under those agreements (as
December 3, 1999) to be approximately $31.9 million (of which $27
million is payable from sources other than the GRF, such as federal
highway money distributions). State payments under all those
agreements are subject to biennial appropriations, with the lease
terms being two years subject to renewal if appropriations are
made.
A 1990 constitutional amendment authorizes greater State and
political subdivision participation (including financing) in the
provision of housing. The General Assembly may for that purpose
authorize the issuance of State obligations secured by a pledge of all
or such portion as it authorizes of State revenues or receipts (but
not by a pledge of that State's full faith and credit).
A 1994 constitutional amendment pledges the full faith and credit
and taxing power of the State to meeting certain guarantees under the
State's tuition credit program which provides for purchase of tuition
credits, for the benefit of State residents, guaranteed to cover a
specified amount when applied to the cost of higher education tuition.
(A 1965 constitutional provision that authorized student loan
guarantees payable from available State moneys has never been
implemented, apart from a "guarantee fund" approach funded essentially
from program revenues.)
State and local agencies issue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes).
By judicial interpretation, these obligations are not "debt" within
constitutional provisions. In general, payment obligations under
lease-purchase agreements of Ohio public agencies (in which
certificates of participation may be issued) are limited in duration
to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal
period.
Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 47% in recent years) of their operating moneys
from State subsidies, but are dependent on local; property taxes, and
in 126 districts (as of November 3, 1999) on voter-authorized income
taxes, for significant portions of their budgets. Litigation, similar
to that in other states, has been pending questioning the
constitutionality of Ohio's system of school funding. The Ohio Supreme
Court has concluded that aspects of the system (including basic
operating assistance and the loan program referred to below) are
unconstitutional, and ordered the State to provide for and fund a
system complying with the Ohio Constitution, staying its order to
permit time for responsive corrective actions. After a further
hearing, the trial court has decided that steps taken to date by the
State to enhance school funding have not met the requirements of the
Supreme Court decision. The State has appealed to the Supreme Court,
before which oral arguments were heard on November 16, 1999. That
Court has issued a stay, pending appeal, of the implementation of the
trial court's order. A small number of the State's 612 local school
districts have in any year required special assistance to avoid
year-end deficits. A now superseded program provided for school
district cash need borrowing directly from commercial lenders, with
diversion of State subsidy distributions to repayment if needed.
Recent borrowings under this program totalled $87.2 million for 20
districts in FY 1996 (including $42.1 million for one), $113.2 million
for 12 districts in FY 1997 (including $90 million to one for
restructuring its prior loans), and $23.4 million for 10 districts in
FY 1998.
Ohio's 943 incorporated cities and villages rely primarily on
property and municipal income taxes for their operations. With other
subdivisions, they also receive local government support and property
tax relief moneys distributed by the State.
For those few municipalities and school districts that on occasion
have faced significant financial problems, there are statutory
procedures for a joint State/local commission to monitor the fiscal
affairs and for development of a financial plan to eliminate deficits
and cure any defaults. (Similar procedures have recently been extended
to counties and townships.) Since inception for municipalities in
1979, these "fiscal emergency" procedures have been applied to 27
cities and villages; for 21 of them the fiscal situation was resolved
and the procedures terminated (no municipality is currently in
preliminary "fiscal watch" status). As of December 3, 1999, a school
district "fiscal emergency" provision was applied to 10 districts, and
nine were on preliminary "fiscal watch" status.
At present the State itself does not levy ad valorem taxes on real
or tangible personal property. Those taxes are levied by political
subdivisions and other local taxing districts. The Constitution has
since 1934 limited to 1% of true value in money the amount of the
aggregate levy (including a levy for unvoted general obligations) of
property taxes by all overlapping subdivisions, without a vote of the
electors or a municipal charter provision, and statutes limit the
amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general
obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
SPECIAL CONSIDERATIONS REGARDING PUERTO RICO
The fiscal year of the Government of Puerto Rico begins each July 1.
The Governor is constitutionally required to submit to the Legislature
an annual balanced budget of capital improvements and operating
expenses of the central government for the ensuing fiscal year. The
annual budget is prepared by the Office of Management and Budget
("OMB"), working with the Planning Board, the Department of the
Treasury, and other government offices and agencies. Section 7 of
Article VI of the Constitution provides that "The appropriations made
for any fiscal year shall not exceed the total revenues, including
available surplus, estimated for said fiscal year unless the
imposition of taxes sufficient to cover said appropriations is
provided by law."
The annual budget, which is developed utilizing elements of program
budgeting and zero-base budgeting, includes an estimate of revenues
and other resources for the ensuing fiscal year under: (i) laws
existing at the time the budget is submitted; and (ii) legislative
measures proposed by the Governor and submitted with the proposed
budget, as well as the Governor's recommendations as to appropriations
that in his judgment are necessary, convenient, and in conformity with
the four-year investment plan prepared by the Planning Board.
A Budgetary Fund was created by Act No. 147 of June 18, 1980, as
amended (the "Budgetary Fund Act"), to cover the appropriations
approved in any fiscal year in which the revenues available for such
fiscal year are insufficient, honor the public debt, and provide for
unforeseen circumstances in the provision of public services. The
Budgetary Fund Act was amended in 1994 to require that an annual
legislative appropriation equal to one third of one percent (.33%) of
the total budgeted appropriations for each fiscal year be deposited in
the Budgetary Fund. In 1997, the Budgetary Fund Act was further
amended to increase the annual legislative appropriation required to
be deposited in the Budgetary Fund to one percent (1%) of the total
revenues of the preceding fiscal year, beginning in fiscal year 2000.
In addition, other income (not classified as revenues) that is not
assigned by law to a specific purpose is also required to be deposited
in the Budgetary Fund. The maximum balance of the Budgetary Fund may
not exceed six percent (6%) of the total appropriations included in
the budget for the preceding fiscal year.
In Puerto Rico, the central government has many functions which in the
fifty states are the responsibility of local government, such as
providing public education and police and fire protection. The central
government also makes large annual grants to the University of Puerto
Rico and to the municipalities. Debt service on Sugar Corporation
notes paid by the Government of Puerto Rico is included in current
expenses for economic development, and debt service on Urban Renewal
and Housing Corporation bonds and notes and on Housing Bank and
Finance Agency mortgage subsidy bonds paid by the Government of Puerto
Rico is included in current expenses for housing.
Approximately 25.2% of the General Fund is committed, including debt
service on direct debt of the Commonwealth and on the debt of the
Sugar Corporation, municipal subsidies, grants to the University of
Puerto Rico, contributions to Aqueduct and Sewer Authority, and rental
payments to Public Building Authority, among other.
In the fiscal 1999 budget revenues and other resources of all
budgetary funds total $10,308,078,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 1999 are
accounted for by increases in personal income taxes (up $258,354,000),
retained non-resident income tax (up $176,921,000), general excise tax
of 5% (up $60,259,000), motor vehicles and accessories (up
$61,569,000), federal excise taxes on off-shore shipments (up
$33,033,000), special excise tax on certain petroleum products (up
$20,282,000), corporation income taxes (up $17,347,000), registration
and document certification fees (up $13,433,000), alcoholic beverages
(up $5,347,000), licenses (up $4,681,000), electronic lottery (up
$4,965,000) and decreases in property taxes (down $3,460,000), customs
(down $11,864,000) and tollgate taxes (down $56,420,000).
Current expenses and capital improvements of all budgetary funds total
$10,687,869,000, an increase of $951,255,000 from fiscal 1998. The
major changes in General Fund expenditures by program in fiscal 1999
are: public safety and protection (up $187,444,000), education (up
$165,661,000), health (up $160,256,000), general government (up
$77,714,000), other debts (up $69,721,000), welfare (up $24, 182,000),
economic development (up $15,865,000), special pension contributions
(up $6,115,000), and decreases in transportation and communications
(down $83,000), housing (down $620,000), debt service (down
$13,849,000), and contributions to municipalities (down $37,969,000).
The general obligation bond authorization for the fiscal 1999 budget
was $475,000,000.
In the fiscal 2000 budget proposal revenues and other resources of all
budgetary funds total $10,426,475,000 excluding balances from the
previous fiscal year and general obligation bonds authorized. The
estimated net increase in General Fund revenues in fiscal 2000 are
accounted for by increases in personal income taxes (up $199,000,000),
corporation income taxes (up $102,000,000), general excise tax of 5%
(up $65,000,000), income tax withheld from non-residents (up
$44,000,000), motor vehicles and accessories (up $22,000,000),
alcoholic beverages (up $13,000,000), registration and document
certification fees (up $10,000,000), and decreases in property taxes
(down $2,000,000), special excise tax on certain petroleum products
(down $3,000,000), cigarettes (down $6,000,000), federal excise taxes
on off-shore shipments (down $24,000,000), and tollgate taxes (down
$14,000,000).
Current expenses and capital improvements of all budgetary funds total
$11,012,166,000, an increase of $324,297,000 from fiscal 1999. The
major changes in General Fund expenditures by program in fiscal 2000
are: general government (up $157,265,000), health (up $83,310,000),
debt service (up $94,550,000), contributions to municipalities (up
$66,296,000), education (up $75,035,000), transportation and
communications (up $13,636,000), special pension contributions (up
$3,792,000), housing (down $4,645,000), economic development (down
$30,201,000), public safety and protection (down $26,999,000), and
other debts service (down $106,488,000).
The general obligation bond authorization for the fiscal 2000 budget
was $475,000,000.
The Government of Puerto Rico is required to contribute directly to
three retirement systems for public employees. The Government of
Puerto Rico is responsible for approximately 66% of total employer
contributions to Employees Retirement System and 100% and 99% of total
employer contributions to the Judiciary and Teachers Retirement
Systems, respectively. As of July 1, 1998 the total pension benefit
obligation for the Employees Retirement System and the Judiciary
Retirement System was $7,638,000,000 and $95,5000,000, respectively,
and the unfunded pension benefit obligation for the same period was
$5,963,000,000 and $28,400,000, respectively. As of June 30, 1998, the
accrued pension liability of the Teachers Retirement System was
$3,154,678,299, the value of assets amounted to $2,135,436,000, and
the resulting unfunded accrued liability was $1,019,242,299, an
increase of $48,437,260 from the prior valuation made as of June 30,
1997.
On February 1, 1990, the Legislature of Puerto Rico enacted Act No. 1
amending the organic act of the Employees Retirement System to reduce
the future pension liabilities of the Employees Retirement System.
Also, Act No. 305 of September 24, 1999, further amends the organic
act of the Employees Retirement System to change it, prospectively,
from a defined benefit system to a defined contribution system. Based
on actuarial studies conducted by the actuary of the Employees
Retirement System, it is expected that the implementation of the
defined contribution system will allow the Government of Puerto Rico
to reduce the current actuarial deficit of the Employees Retirement
System. Also, the law approving the sale of a controlling interest in
PRTC to a consortium led by GTE International Telecommunications
Incorporated provides that any future proceeds received by the
Government from the sale of its remaining stock ownership in PRTC will
be transferred to the Employees Retirement System to reduce its
accumulated unfunded pension benefit obligation. It is recognized that
it will be necessary to further strengthen the finances of the
Teachers Retirement System in order to assure that combined
contributions and investment income continue to exceed benefit
payments, avoiding the possible future drawdown of assets.
The economy of Puerto Rico is fully integrated with that of the United
States. In fiscal 1998, trade with the United States accounted for
approximately 90% of Puerto Rico's exports and approximately 61% of
its imports. In this regard, in fiscal 1998 Puerto Rico experienced a
$8.5 billion positive adjusted merchandise trade balance.
Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently each fiscal year. In fiscal 1998, aggregate
personal income was $33.7 billion ($30.8 billion in 1992 prices) and
personal per capita income was $8,817 ($8,063 in 1992 prices). Gross
product in fiscal 1995 was $28.4 billion ($25.9 billion in 1992
prices) and gross product in fiscal 1999 was $38.1 billion ($29.7
billion in 1992 prices). This represents an increase in gross product
of 34% from fiscal 1995 to 1999 (14.5% in 1992 prices).
Puerto Rico's economic expansion, which has lasted over ten years,
continued throughout the five year period from fiscal 1995 through
fiscal 1999. 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,
increases in the level of federal transfers, low oil prices and the
relatively low cost of borrowing funds during the period.
Average employment increased from 1,051,000 in fiscal 1995, to
1,147,000 in fiscal 1999. Unemployment, although at relatively low
historical levels, remains above the U.S. average. Average
unemployment decreased from 13.8% in fiscal 1995, to 12.5% in fiscal
1999.
Manufacturing is the largest sector in the economy, accounting for
$23.0 billion or 42.8% of gross domestic product in fiscal 1998. The
manufacturing sector employed 141,068 workers as of March 1999.
Manufacturing in Puerto Rico is now more diversified than during
earlier phases of industrial development. In the last two decades,
industrial development has tended to be more capital intensive and
dependent on skilled labor. This gradual shift is best exemplified by
heavy investment in pharmaceuticals, scientific instruments,
computers, microprocessors, and electrical products over the last
decade. While total employment in the manufacturing sector decreased
by 12,205 from March 1997 to March 1999, other indicators suggest that
manufacturing production did not decrease. Average weekly hours worked
increased 5.2%, industrial energy consumption increased 0.7% and
exports increased 45.7% from fiscal 1997 to fiscal 1999. Most of the
decreases in employment have been concentrated in the labor intensive
industries, particularly apparel, textile and tuna manufacturing. The
services sector, which includes wholesale and retail trade and
finance, insurance, real estate, hotels and related services, and
other services, ranks second in its contribution to gross domestic
product and it is the sector that employs the greatest number of
people. In fiscal 1998, the service sector generated $19.6 billion in
gross domestic product or 36.5% of the total. Employment in this
sector grew from 478,079 in fiscal 1994 to 572,765 in fiscal 1998, a
cumulative increase of 19.8%. This increase was greater than the 12.5%
cumulative growth in employment over the same period. The Government
sector of the Commonwealth plays an important role in the economy of
the island. In fiscal year 1998, the Government accounted for $5.2
billion of Puerto Rico's gross domestic product, or 9.8% of the total,
and provided 21.5% of the total employment. The construction industry
has experienced real growth since fiscal 1987. In fiscal 1999,
investment in construction rose to an unprecedented $6.6 billion, an
increase of 23.9% as compared to $5.4 billion for fiscal 1998. Tourism
also contributes significantly to the island economy, accounting for
6.4% of the island's gross domestic product in fiscal 1998.
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. Another
initiative is the improvement and expansion of Puerto Rico's
infrastructure to facilitate private sector development and growth,
such as the construction of the water pipeline and cogeneration
facilities described below and the construction of a light rail system
for the San Juan metropolitan area.
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 11,095 at the end of fiscal
1999 and to a projected 12,650 by the end of fiscal 2000.
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 Government sold the assets of the Puerto Rico
Maritime Authority; (ii) the Aqueducts and Sewer Authority executed 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; (iii) the Electric Power Authority
executed power purchase contracts with private power producers under
which two cogeneration plants (with a total capacity of approximately
874 megawatts), using fuels other than oil, will be constructed; (iv)
the Corrections Administration entered into operating agreements with
two private companies for the operation of three new correctional
facilities; (v) the Government entered into a definitive agreement to
sell certain assets of a pineapple juice processing business and sold
certain mango growing operations; (vi) the Government is in the
process of transferring to local sugar cane growers certain sugar
processing facilities; (vii) the Government sold three hotel
properties and is currently negotiating the sale of a complex
consisting of two hotels and a convention center; and (viii) the
Government sold a controlling interest in the Puerto Rico Telephone
Company, a subsidiary of the Telephone Authority, to a consortium led
by GTE International Telecommunications Incorporated.
One of the goals of the Rossello administration is to change Puerto
Rico's public health care system from one in which the Government
provides free health services to low income individuals through public
health facilities owned and administered by the Government to one in
which all medical services are provided by the private sector and the
Government provides comprehensive health insurance coverage for
qualifying (generally low income) Puerto Rico residents. Under this
new system, the Government selects, through a bidding system, one
private health insurance company in each of several designated regions
of the island and pays such insurance company the insurance premium
for each eligible beneficiary within such region. This new health
insurance system is now covering 77 municipalities out of a total of
78 on the island. It is expected that the last municipality will be
added in July 2000. The total cost of this program will depend on the
number of municipalities included in the program, the number of
participants receiving coverage, and the date coverage commences. As
of August 1, 1999, over 1.7 million persons were participating in the
program at an estimated annual cost to Puerto Rico for fiscal 2000 of
approximately $994 million. In conjunction with this program, the
operation of certain public health facilities has been transferred to
private entities. The Government's current privatization plan for
health facilities provides for the transfer of ownership of all health
facilities to private entities. The Government has sold forty-four
health facilities to private companies and is currently in the process
of closing the sale of fourteen additional health facilities to such
companies.
One of the factors assisting the development of the manufacturing
sector in Puerto Rico has been the federal and Commonwealth tax
incentives available, particularly those under the Puerto Rico
Industrial Incentives Program and Sections 30A and 936 of the Internal
Revenue Code 1986, as amended (the "Code").
Since 1948, Puerto Rico has promulgated various industrial incentive
laws designed to stimulate industrial investment. Under these laws,
companies engaged in manufacturing and certain other designated
activities were eligible to receive full or partial exemption from
income, property, and other taxes. The most recent of these laws is
Act No. 135 of December 2, 1997 (the "1998 Tax Incentives Law").
The benefits provided by the 1998 Tax Incentives Law are available to
new companies as well as companies currently conducting tax-exempt
operations in Puerto Rico that choose to renegotiate their existing
tax exemption grant. Activities eligible for tax exemption include
manufacturing, certain services performed for markets outside Puerto
Rico, the production of energy from local renewable sources for
consumption in Puerto Rico, and laboratories for scientific and
industrial research. For companies qualifying thereunder, the 1998 Tax
Incentives Law imposes income tax rates ranging from 2% to 7%. In
addition, it grants 90% exemption from property taxes, 100% exemption
from municipal license taxes during the first eighteen months of
operation and between 80% and 60% thereafter, and 100% exemption from
municipal excise taxes. The 1998 Tax Incentives Law also provides
various special deductions designated to stimulate employment and
productivity, research and development, and capital investment in
Puerto Rico.
Under the 1998 Tax Incentives Law, companies are able to repatriate or
distribute their profits free of dividend taxes. In addition, passive
income derived from designated investments will continue to be fully
exempt from income and municipal license taxes. Individual
shareholders of an exempted business are allowed a credit against
their Puerto Rico income taxes equal to 30% of their proportionate
share in the exempted business' income tax liability. Gain from the
sale or exchange of shares of an exempted business by its shareholders
during the exemption period will be subject to a 4% income tax rate.
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", also known as the "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 Bill Clinton on August 20, 1996 (the
"1996 Amendments"), the tax credit, as described below, 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 were operating
in Puerto Rico on October 13, 1995, and had elected 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.
PROPOSAL TO EXTEND THE PHASEOUT OF SECTION 30A. During 1997, the
Government of Puerto Rico proposed to Congress the enactment of a new
permanent federal incentive program similar to that provided under
Section 30A. Such a program would provide U.S. companies a tax credit
based on qualifying wages paid and other wage-related expenses, such
as fringe benefits, as well as depreciation expenses for certain
tangible assets and research and development expenses. 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. The fiscal 1998, fiscal 1999 and fiscal 2000 budgets
submitted by President Clinton to Congress included a proposal to
modify Section 30A to (i) extend the availability of the Section 30A
Credit indefinitely; (ii) make it available to companies establishing
operations in Puerto Rico after October 13, 1995; and (iii) eliminate
the income cap. This proposal was not included in the 1998 or 1999
budgets approved by Congress. While the Government of Puerto Rico
plans to continue lobbying for this proposal, it is not possible at
this time to predict whether the Section 30A Credit will be so
modified.
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. 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.
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
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and investment
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; the reasonableness
of any commissions; and, if applicable, arrangements for payment of
fund expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contracts"), that 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
above.
Each fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment 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 investment accounts; and effect securities transactions
and perform functions incidental thereto (such as clearance and
settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that 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 a 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.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, a
fund may pay a broker-dealer 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 a 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 that fund or 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.
To the extent permitted by applicable law, FMR is authorized to
allocate portfolio transactions in a manner that takes into account
assistance received in the distribution of shares of the funds or
other Fidelity funds and to use the research services of brokerage and
other firms that have provided such assistance. 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.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment 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 of each fund 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 end ed December 31, 1999 and 1998, the
portfolio turnover rates were 14% and 19%, respectively, for Spartan
Ohio Municipal Income.
A fund may pay both commissions and spreads in connection with the
placement of portfolio transactions. Fo r the fiscal years en ded
December 31, 1999, 1998, and 1997, the funds paid no brokerage
commissions.
For the fiscal year ended December 31, 1999, the funds paid no
brokerage commissions to firms that provided research services.
The Trustees of each fund have approved procedures in conformity with
Rule 10f-3 under the 1940 Act whereby a fund may purchase securities
that are offered in underwritings in which an affiliate of FMR
participates. These procedures prohibit the funds from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the funds could purchase in the underwriting.
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 or its affiliates,
investment decisions for each fund are made independently from those
of other funds or investment accounts managed by FM R or its
aff iliates. It sometimes happens that the same security is held in
the portfolio of more than one of these funds or investment accounts.
Simultaneous transactions are inevitable when several funds and
investment 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 investment 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
Each fund's NAV is the value of a single share. The NAV of each fund
is computed by adding the value of the fund's investments, cash, and
other assets, subtracting its liabilities, and dividing the result by
the number of shares outstanding.
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 of other open-end investment
companies are valued at their respective NAVs.
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 value of such securities. For example,
securities and other assets for which there is no readily available
market value may be valued in good faith by a committee appointed by
the Board of Trustees. In making a good faith determination of the
value of a security, the committee may review price movements in
futures contracts and American Depositary Receipts (ADRs), market and
trading trends, the bid/ask quotes of brokers and off-exchange
institutional trading.
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.
At such intervals as they deem appropriate, the Trustees consider the
extent to which NAV calculated by using market valuations would
deviate from the $1.00 per share calculated using amortized cost
valuation. 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
A fund 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. The share price of a bond
fund, the yield of a fund, and 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 (MONEY MARKET FUND). To compute the yield for the
money market fund 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 an effective yield by compounding
the base period return over a one-year perio d. In calculating the
money market fund's yield and effective yield, the yield quoted is
reduced by the effect of applicable income taxes payable on the
shareholder's dividends, using the maximum rate for individual income
taxation. 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 applicable
regulation.
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.
YIELD CALCULATIONS (BOND FUND). Yields for the fund are computed by
dividing the fund's interest and 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 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 a 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
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 a fund's holdings, thereby reducing a fund's
current yield. In periods of rising interest rates, the opposite can
be expected to occur.
The tax-equivalent yield of a fund reflects a comparison of the
fund's yield to the yield of a fully taxable investment.
Tax-equivalent yields are calculated by dividing that portion of a
fund's yield that is tax-exempt by the result of one minus a specified
combined federal and/or state income tax rate and adding the quotient
to that portion, if any, of the fund's yield that is not
tax-exempt.
The following tables show the effect of a shareholder's tax status
on tax-equivalent yield under federal and state income tax laws for
2000. The second table shows the tax-equivalent yields at various
income brackets of hypothetical tax-exempt obligations yielding from
2% to 7%. Of course, no assurance can be given that a fund will
achieve any specific tax-exempt yield. While each fund invests
principally in obligations whose interest is exempt from federal and
applicable state income tax, some portion of the income received by
the fund may be taxable.
Use the first table to find your approximate effective tax bracket
taking into account federal and state taxes for 2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 TAX RATES****
Taxable Income*
Single Return Joint Return Federal Marginal Rate Ohio State Marginal Rate**
$ 20,000 $ 26,250 $ 20,000 $ 40,000 15.00% 4.46%
$ 40,001 $ 43,850 15.00% 5.20%
$ 26,251 $ 40,000 28.00% 4.46%
$ 40,001 $ 63,550 $ 43,851 $ 80,000 28.00% 5.20%
$ 80,001 $ 100,000 28.00% 5.94%
$ 100,001 $ 105,950 28.00% 6.90%
$ 63,551 $ 80,000 31.00% 5.20%
$ 80,001 $ 100,000 31.00% 5.94%
$ 100,001 $ 132,600 $ 105,951 $ 161,450 31.00% 6.90%
$ 132,601 $ 200,000 $ 161,451 $ 200,000 36.00% 6.90%
$ 200,001 $ 288,350 $ 200,001 $ 288,350 36.00% 7.50%
$ 288,351 and up $ 288,351 and up 39.60% 7.50%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
2000 TAX RATES****
Taxable Income*
Single Return Joint Return Federal Marginal Rate Combined Federal and State
Effective Rate***
$ 20,000 $ 26,250 $ 20,000 $ 40,000 15.00% 18.7885%
$ 40,001 $ 43,850 15.00% 19.4209%
$ 26,251 $ 40,000 28.00% 31.2090%
$ 40,001 $ 63,550 $ 43,851 $ 80,000 28.00% 31.7447%
$ 80,001 $ 100,000 28.00% 32.2790%
$ 100,001 $ 105,950 28.00% 32.9680%
$ 63,551 $ 80,000 31.00% 34.5887%
$ 80,001 $ 100,000 31.00% 35.1007%
$ 100,001 $ 132,600 $ 105,951 $ 161,450 31.00% 35.7610%
$ 132,601 $ 200,000 $ 161,451 $ 200,000 36.00% 40.4160%
$ 200,001 $ 288,350 $ 200,001 $ 288,350 36.00% 40.8000%
$ 288,351 and up $ 288,351 and up 39.60% 44.1300%
</TABLE>
* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of credits available to joint filers which may
decrease a taxpayer's state marginal rate.
*** Excludes the impa ct of the alternative minimum tax, the
phaseout of personal exemptions, limitations on itemized deductions,
and other credits, exclusions, and adjustments which may increase a
taxpayer's marginal tax rate. Assumes a shareholder itemizes
deductions. An increase in a shareholder's marginal tax rate would
increase that shareholder's tax-equivalent yield.
**** Does n ot take into acc ount local taxes, if any, payable on
fund distributions.
Having determined your effective tax bracket, use the following
table to determine the tax-equivalent yield for a given tax-free
yield.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
If your combined federal and state effective tax rate in 2000 is:
31.21% 31.74% 32.28% 32.97% 34.59% 35.10% 35.76% 40.42% 40.80%
To match these
tax-free yields: Your taxable investment would
have to earn the following
yield:
2% 2.91% 2.93% 2.95% 2.98% 3.06% 3.08% 3.11% 3.36% 3.38%
3% 4.36% 4.40% 4.43% 4.48% 4.59% 4.62% 4.67% 5.03% 5.07%
4% 5.81% 5.86% 5.91% 5.97% 6.12% 6.16% 6.23% 6.71% 6.76%
5% 7.27% 7.33% 7.38% 7.46% 7.64% 7.70% 7.78% 8.39% 8.45%
6% 8.72% 8.79% 8.86% 8.95% 9.17% 9.25% 9.34% 10.07% 10.14%
7% 10.18% 10.26% 10.34% 10.44% 10.70% 10.79% 10.90% 11.75% 11.82%
</TABLE>
A 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.
RETURN CALCULATIONS. 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 a fund's NAV over a
stated period. A cumulative return reflects actual performance over a
stated period of time. Average annual 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 return of
100% over ten years would produce an average annual 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 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 returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote unaveraged or
cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative 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. Returns may be broken
down into their components of income and capital (including capital
gains and changes in share pric e) to illu strate the
relationship of these factors and their contributions to return.
Returns may be quoted on a before-tax or after-tax basis. After-tax
returns reflect the return of a hypothetical account after payment of
federal and/or state taxes using assumed tax rates. After-tax returns
may assume that taxes are paid at the time of distribution or once a
year or are paid in cash or by selling shares, that shares are held
through the entire period, sold on the last day of the period, or sold
at a future date, and distributions are reinvested or paid in cash.
Returns may or may not include the effect of a fund's small
account fee. Excluding a fund's small account fee from a return
calculation produces a higher return figure. 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 NAVs, adjusted NAVs,
and benchmark indexes 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 BOND FUND RESULTS. The following table shows the fund's
yield, tax-equivalent yield, and returns for the fiscal period ended
December 31, 1999.
HISTORICAL MONEY MARKET FUND RESULTS. The following table shows the
fund's 7-day yield, tax-equivalent yield, and returns for the fiscal
period ended December 31, 1999.
The tax-equivalent yields for Ohio Municipal Money Market and Spartan
Ohio Municipal Income are based on a combined effective federal and
sta te income tax rate of 40.80% .
As of December 31, 1999, an estimated 0.85% of Ohio Municipal Money
Market's income was subject to state taxes. Note that Ohio Municipal
Money Market may invest in securities whose income is subject to the
federal alternative minimum tax.
As of December 31, 1999, none of Spartan Ohio Municipal Income's
income was subject to state taxes. Note that Spartan Ohio Municipal
Income may invest in securities whose income is subject to the federal
alternative minimum tax.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Returns
Seven-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
OH Municipal Money Market 3.99% 6.74% 2.86% 3.16% 3.35%
Average Annual Returns
Thirty-Day Yield Tax- Equivalent Yield One Year Five Years Ten Years
Spartan OH Municipal Income 4.95% 8.36% -2.83% 6.28% 6.50%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative Returns
One Year Five Years Ten Years
OH Municipal Money Market 2.86% 16.83% 39.08%
Cumulative Returns
One Year Five Years Ten Years
Spartan OH Municipal Income -2.83% 35.60% 87.68%
</TABLE>
Note: If FMR had not reimbursed certain fund expenses during
these periods, each fund's returns would have been lower.
The following tables show the income and capital elements of each
fund's cumulative return. The tables compare each fund's return to the
record of the Standard & Poor's 500SM Index (S&P 500 (registered
trademark) ), the Dow Jones Industrial Average (DJIA), and the cost
of living, as measured by the Consumer Price Index (CPI), over the
same period. The S&P 500 and DJIA comparisons are provided to show how
each fund's return compared to the record of a market
capitalization-weighted i ndex 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, 1999, assuming all distributions were reinvested. Returns
are based on past results and are not an indication of future
performance. Tax consequences of different investments have not been
factored into the figures below.
During the 10-year period ended December 31, 1999, a hypothetical
$10,000 investment in Ohio Municipal Money Market would have grown to
$13,908.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
OHIO MUNICIPAL MONEY MARKET
Fiscal Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1999 $ 10,000 $ 3,908 $ 0 $ 13,908
1998 $ 10,000 $ 3,522 $ 0 $ 13,522
1997 $ 10,000 $ 3,117 $ 0 $ 13,117
1996 $ 10,000 $ 2,698 $ 0 $ 12,698
1995 $ 10,000 $ 2,319 $ 0 $ 12,319
1994 $ 10,000 $ 1,905 $ 0 $ 11,905
1993 $ 10,000 $ 1,615 $ 0 $ 11,615
1992 $ 10,000 $ 1,377 $ 0 $ 11,377
1991 $ 10,000 $ 1,066 $ 0 $ 11,066
1990 $ 10,000 $ 590 $ 0 $ 10,590
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OHIO MUNICIPAL MONEY MARKET INDEXES
Fiscal Year Ended S&P 500 DJIA Cost of Living
1999 $ 53,289 $ 53,747 $ 13,347
1998 $ 44,024 $ 42,276 $ 12,998
1997 $ 34,240 $ 35,805 $ 12,791
1996 $ 25,674 $ 28,677 $ 12,577
1995 $ 20,880 $ 22,281 $ 12,173
1994 $ 15,177 $ 16,297 $ 11,872
1993 $ 14,980 $ 15,525 $ 11,562
1992 $ 13,608 $ 13,270 $ 11,253
1991 $ 12,642 $ 12,367 $ 10,936
1990 $ 9,688 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Ohio
Municipal Money Market on January 1, 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 $13,908. If distributions had
not been reinvested, the amount of distributions earned from the fund
over time would have been smaller, and cash payments for the period
would have amounted to $3,304 for dividends. The fund did not
distribute any capital gains during the period.
During the 10-year period ended December 31, 1999, a hypothetical
$10,000 investment in Spartan Ohio Municipal Income would have grown
to $18,768.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SPARTAN OHIO MUNICIPAL INCOME
Fiscal Year Ended Value of Initial $10,000 Value of Reinvested Dividend Value of Reinvested Capital Total Value
Investment Distributions Gain Distributions
1999 $ 10,065 $ 7,733 $ 970 $ 18,768
1998 $ 10,880 $ 7,424 $ 1,010 $ 19,314
1997 $ 10,862 $ 6,557 $ 839 $ 18,258
1996 $ 10,593 $ 5,564 $ 634 $ 16,791
1995 $ 10,741 $ 4,827 $ 541 $ 16,109
1994 $ 9,750 $ 3,599 $ 491 $ 13,840
1993 $ 11,140 $ 3,214 $ 299 $ 14,653
1992 $ 10,704 $ 2,314 $ 0 $ 13,018
1991 $ 10,491 $ 1,489 $ 0 $ 11,980
1990 $ 10,046 $ 704 $ 0 $ 10,750
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SPARTAN OHIO MUNICIPAL INCOME INDEXES
Fiscal Year Ended S&P 500 DJIA Cost of Living
1999 $ 53,289 $ 53,747 $ 13,347
1998 $ 44,024 $ 42,276 $ 12,998
1997 $ 34,240 $ 35,805 $ 12,761
1996 $ 25,674 $ 28,677 $ 12,577
1995 $ 20,880 $ 22,281 $ 12,176
1994 $ 15,177 $ 16,297 $ 11,872
1993 $ 14,980 $ 15,525 $ 11,562
1992 $ 13,608 $ 13,270 $ 11,253
1991 $ 12,642 $ 13,367 $ 10,936
1990 $ 9,688 $ 9,946 $ 10,611
</TABLE>
Explanatory Notes: With an initial investment of $10,000 in Spartan
Ohio Municipal Income on January 1, 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 $19,102. 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 $5,855 for dividends an d $705 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 Lipp er Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Generally, Lipper rankings are based on
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 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
indexes prepared by Lipper or other organizations. When comparing
these indexes, 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, a 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 bond fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
A fund's performance may also be compared to that of each
benchmark index representing the universe of securities in which the
fund may invest. The return of each index reflects reinvestment of all
dividends and capital gains paid by securities included in each index.
Unlike a fund's returns, however, each index's returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
The municipal bond fund may compare its performance to the Lehman
Brothers Municipal Bond Index, a market value-weighted index for
investment-grade municipal bonds with maturities of one year or more.
Issues included in the index have been issued after December 31, 1990
and have been issued as part of an offering of at least $50
million. After December 31, 1995, zero coupon bonds and issues subject
to the alternative minimum t ax are included in the index. Issues
included in the index prior to January 1, 2000 have an outstanding par
value of at least $3 million; while issues included in the index after
January 1, 2000 have an outstanding par value of at least $5
million.
Spartan Ohio Municipal Income may also compare its performance to that
of the Lehman Brothers Ohio 4 Plus Year Enhanced Municipal Bond Index,
a market value-weighted index of Ohio investment-grade municipal bonds
with maturities of four years or more.
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 indexes.
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 returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes that may be developed and made
available in the future.
The 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)/Ohio Tax-Free Money Market, whic h is reported
in IBC's MONEY FUND REPORT(trademark), covers 13 tax- free money
market funds.
The bond fund may compare and contrast in advertising the relative
advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal bond 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 sales
charges of many municipal bond mutual funds are lower than the
purchase cost of individual municipal bonds, which are generally
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; and
charitable giving. 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
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 bond fund may also discuss or illustrate
examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate price movements over specific periods of
time for a bond fund. Each point on the momentum indicator represents
a 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, 1999, FMR advised over $35 billion in muni cipal
fund assets, $143 billion in taxable fixed-income fund assets, $149
billion in money market fund assets, $630 billion in equity fund
assets, $22 billion in international fund assets, and $41 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, a 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, EXCHANGE AND REDEMPTION INFORMATION
A fund may make redemption payments in whole or in part in readily
marketable securities or other property, valued for this purpose as
they are valued in computing each fund's NAV, if FMR determines it is
in the best interests of the fund. Shareholders that receive
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.
DISTRIBUTIONS AND TAXES
DIVIDENDS. To the extent that each fund's income is designated as
federally tax-exempt interest, the dividends declared by the fund are
also federally tax-exempt. Short-term capital gains are taxable as
dividends, but do not qualify for the dividends-received deduction.
Each 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.
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 Ohio Municipal Money Market's policies of investing so
that at least 80% of its income distributions 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.
A portion of the gain on municipal bonds purchased at market discount
after April 30, 1993 is taxable to shareholders as ordinary income,
not as capital gains. Dividends resulting from a recharacterization of
gain from the sale of bonds purchased at market discount after April
30, 1993 are not considered income for purposes of Ohio Municipal
Money Market's policy of investing so that at least 80% of its income
distributions is free from federal income tax.
OHIO TAXES. Under current Ohio law, individuals and estates that are
subject to the Ohio personal income tax, or municipal or school
district income taxes in Ohio will not be subject to such taxes on
distributions with respect to shares of the Ohio Municipal Money
Market Fund or the Ohio Municipal Income Fund (each, an "Ohio Fund")
("Distributions") to the extent that the Distributions are properly
attributable to interest on obligations of the State of Ohio,
political subdivisions thereof or agencies or instrumentalities of
Ohio or its political subdivisions ("Ohio Obligations"). Corporations
that are subject to the Ohio corporation franchise tax will not be
required to include Distributions in their tax base for purposes of
calculating the Ohio corporation franchise tax on the net income basis
to the extent that such Distributions either represent exempt-interest
dividends for federal income tax purposes or are properly attributable
to interest on Ohio Obligations. However, shares of an Ohio Fund will
be included in a corporation's tax base for purposes of calculating
the Ohio corporation franchise tax on the net worth basis.
Distributions that consist of interest on obligations of the United
States or its territories or possessions or of any authority,
commission, or instrumentality of the United States ("Territorial
Obligations") the interest on which is exempt from state income taxes
under the laws of the United States are exempt from the Ohio personal
income tax, and municipal and school district income taxes in Ohio,
and, provided, in the case of Territorial Obligations, such interest
is excluded from gross income for federal income tax purposes, are
excluded from the net income base of the Ohio corporation franchise
tax.
Distributions properly attributable to gain on the sale, exchange or
other disposition of Ohio Obligations will not be subject to the Ohio
personal income tax, or municipal or school district income taxes in
Ohio, and will not be included in the net income base of the Ohio
corporation franchise tax. Distributions attributable to other sources
generally will not be exempt from the Ohio personal income tax,
municipal or school district income taxes in Ohio, or the net income
base of the Ohio corporation franchise tax.
It is assumed for purposes of this discussion of Ohio state and local
taxes that each Ohio Fund will continue to qualify as a regulated
investment company under the Internal Revenue Code and that at all
time at least 50% of the value of the total assets of each of the Ohio
Funds consists of Ohio Obligations or similar obligations of other
states or their subdivisions.
CAPITAL GAIN DISTRIBUTIONS. Each fund's long-term capital gain
distributions are federally taxable to shareholders generally as
capital gains. The money market fund may distribute any net realized
capital gains once a year or more often, as necessary.
As of December 31, 1999, Ohio Municipal Money Market had a
capital loss carryforward aggregating approximately $ 77 ,000.
This loss carryforward, of which $1,000, $50,000, $6,000, and $20,000
will expire on December 31, 2003, 2004, 2005, and 2007,
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" under Subchapter M of the Internal
Revenue Code 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.
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. It is up to you or your tax preparer to determine
whether the sale of shares of a fund resulted in a capital gain or
loss or other tax consequence to you. 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.
TRUSTEES AND OFFICERS
The Trustees, Member of the Advisory Board, and executive officers of
the trusts are listed below. The Board of Trustees governs each fund
and is responsible for protecting the interests of shareholders. The
Trustees are experienced executives who meet periodically throughout
the year to oversee each fund's activities, review contractual
arrangements with companies that provide services to each fund, and
review each fund's performance. 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 or its affiliates. The business address of each
Trustee, Member of the Advisory Board, and officer who is an
"interested person" (as defined in the 1940 Act) 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 (69), 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 Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.; and a Director of FDC. Abigail Johnson,
Member of the Advisory Board of Fidelity Municipal Trust and Fidelity
Municipal Trust II, is Mr. Johnson's daughter.
ABIGAIL P. JOHNSON (38), Member of the Advisory Board of Fidelity
Municipal Trust and Fidelity Municipal Trust II (1999), is Vice
President of certain Equity Funds (1997), and is a Director of FMR
Corp. (1994). Before assuming her current responsibilities, Ms.
Johnson managed a number of Fidelity funds. Edward C. Johnson 3d,
Trustee and President of the Funds, is Ms. Johnson's father.
RALPH F. COX (67), 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 Waste Management
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
and Bonneville Pacific (independent power and petroleum production).
In addition, he is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (68), Trustee. Mrs. Dav is is retired from Avon
Products, Inc. where she held various positions including Senior Vice
President of Corporate Affairs and G roup Vice President of U.S.
sales, distribution, and manufacturing. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing), and the TJX Companies, Inc. (retail stores), and
previously served as a Director of Hallmark Cards, Inc., Nabisco
Brands, Inc., and Standard Brands, Inc. In addition, she is a member
of the Board of Directors of the Southampton Hospital in Southampton,
N.Y. (1998).
ROBERT M. GATES (56), 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 a Director of Charles Stark
Draper Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (automotive, space , defense, and
information technology). Mr. Gates previously served as a Director of
Lucas Varity PLC (automotive components and diesel engines). He is
currently serving as Dean of the George Bush School of Government and
Public Service at Texas A&M University (1999-2000). M r. Gates also
is a Trustee of the Forum for International Policy and of the
Endowment Association of the College of William and Mary. In addition,
he is a member of the National Executive Board of the Boy Scouts of
America.
DONALD J. KIRK (67), Trustee, is Executive-in-Residence (1995) at
Columbia University Graduate School of Business. 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 previously served as a Director
of General Re Corporation (reinsurance, 1987-199 8) and as a
Director of Valuation R esearch Corp. (appraisals and valuations,
1993-1995). He serves as Chairman of the Board of Directors of
National Arts Stabilization Inc., Chairman of the Board of Trustees of
the Greenwich Hospital Association, Director of the Yale-New Haven
Health Services Corp. (1998), Vice Chairman 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).
NED C. LAUTENBACH (55), Trustee (2000), has been a partner of
Clayton, Dubilier & Rice, Inc. (private equity investment firm) since
September 1998. Mr. Lautenbach was Senior Vice President of IBM
Corporation from 1992 until his retirement in July 1998. From 1993 to
1995 he was Chairman of IBM World Trade Corporation. He also was a
member of IBM's Corporate Executive Committee from 1994 to July 1998.
He is a Director of PPG Industries Inc. (glass, coating and chemical
manufacturer), Dynatech Corporation (global communications equipment),
Eaton Corporation (global manufacturer of highly engineered products)
and ChoicePoint Inc. (data identification, retrieval, storage, and
analysis).
*PETER S. LYNCH (56), Trustee, is Vice Chairman and Director of FMR.
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 (66), Trustee (1997), is the Interim Chancellor
for the University of North Carolina at Chapel Hill. Previously he had
served from 1995 through 1998 as Vice President of Finance for the
University of North Carolina (16-school system). 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), Duke-Weeks Realty Corporation
(real estate, 1994), Carolina Power and Light Company (electric
utility, 1996), the Kenan Transport Company (trucking, 1996), and
Dynatech Corporation (electronics, 1999). Previously, he was a
Director of First American Corporation (bank holding company,
1979-1996). In addition, Mr. McCoy served as a member of the Board of
Visitors for the University of North Carolina at Chapel Hill
(1994-1998) and currently serves on the Board of Visitors of the
Kenan-Flager Business School (University of North Carolina at Chapel
Hill, 1988).
GERALD C. McDONOUGH (71), Trustee and Chairman of the non-interested
Trustees, is Chairman of G.M. Management Group (strategic advisory
services). Mr. McDonough is a Director and Chairman of the Board 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 (66), Trustee (1993), is Chairman Emeritus, of Lexmark
International, Inc. (office machines, 1991) w here he still remains
a member of the Board. Prior to 1991, he held the positions of Vice
President of International Business Machines Cor poration ("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). He is a
Board member of Dynatech Corporation (electronics, 1999).
*ROBERT C. POZEN (53), Trustee (1997) and Senior Vice President, is
also President and a Director of FMR (1997); and President and a
Director of Fidelity Investments Money Management, Inc. (1998),
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 (71), 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 National Life Insurance Company of Vermont and American
Software, Inc. Mr. Willia ms was previously a Director of ConAgra,
Inc. (agricultural products), Georgia Power Company (electric
utility), and Avado, Inc. (restaurants).
DWIGHT D. CHURCHILL (46), is Vice President of Bond Funds, Group
Leader of the Bond Group, Senior Vice President of FMR (1997), and
Vice President of FIMM (1998). Mr. Churchill joined Fidelity in 1993
as Vice President and Group Leader of Taxable Fixed-Income
Investments.
BOYCE I. GREER (43), is Vice President of Money Market Funds (1997),
Group Leader of the Money Market Group (1997), Senior Vice President
of FMR (1997), and Vice President of FIMM (1998). 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).
FRED L. HENNING, JR. (60), is President of Fidelity
Investments Fixed-Income Division (1995), Senior Vice President of
FMR (1995), and Senior Vice President of FIMM (1998). Before assuming
his current responsibilities, Mr. Henning was head of Fidelity's Money
Market Division.
SCOTT A. ORR (37), is Vice President of Fidelity Ohio Municipal Money
Market Fund (1996), and other funds advised by FMR. Prior to his
current responsibilities, Mr. Orr managed a variety of Fidelity funds.
GEORGE A. FISCHER (38), is Vice President of Spartan Ohio Municipal
Income Fund (1997), and other funds advised by FMR. Mr. Fischer is
also a Vice President of Fidelity Management Trust Company, the unit
of Fidelity which serves institutional investment businesses worldwide
by managing assets for corporate and public employee retirement funds,
endowments, foundations, and other major institutions. Prior to his
current responsibilities, Mr. Fischer managed a variety of Fidelity
funds.
ERIC D. ROITER (51), Secretary (1998), is Vice President (1998) and
General Counsel of FMR (1998) and Vice President and Clerk of FDC
(1998). Prior to joining Fidelity, Mr. Roiter was with the law firm of
Debevoise & Plimpton, as an associate (1981-1984) and as a partner
(1985-1997), and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981). Mr. Roiter was an
Adjunct Member, Faculty of Law, at Columbia University Law School
(1996-1997).
ROBERT A. DWIGHT (41), Treasurer (2000), is Treasurer of the
Fidelity funds and is an employee of FMR. Prior to becoming Treasurer
of the Fidelity funds, he served as President of Fidelity Accounting
and Custody Services (FACS). Before joining Fidelity, Mr. Dwight was
Senior Vice President of fund accounting operations for The Boston
Company.
MARIA F. DWYER (41), Deputy Treasurer (2 000), is Depu ty
Treasurer of the Fidelity funds and is Vice President (1999) and an
employee (1996) of FMR. Prior to joining Fidelity, Ms. Dwyer served as
Director of Compliance for MFS Investment Management.
MATTHEW N. KARSTETTER (38), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
STANLEY N. GRIFFITH (53), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO (53), Assistant Treasurer, is an employee of FMR.
THOMAS J. SIMPSON (41), Assistant Treasurer (1996), is Assistant
Treasurer of Fidelity's Fixed-Income Funds (1998) 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, 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
Trustees and Member of the Aggregate Compensation from Aggregate Compensation from Total Compensation from the
Advisory Board OH Muni Money MarketB Spartan OH Muni IncomeB Fund Complex*,A
Edward C. Johnson 3d** $ 0 $ 0 $ 0
Abigail P. Johnson** $ 0 $ 0 $ 0
Ralph F. Cox $ 122 $ 110 $ 217,500
Phyllis Burke Davis $ 118 $ 107 $ 211,500
Robert M. Gates $ 122 $ 110 $ 217,500
E. Bradley Jones**** $ 122 $ 110 $ 217,500
Donald J. Kirk $ 122 $ 110 $ 217,500
Ned C. Lautenbach*** $ 30 $ 25 $ 54,000
Peter S. Lynch** $ 0 $ 0 $ 0
William O. McCoy $ 120 $ 109 $ 214,500
Gerald C. McDonough $ 151 $ 136 $ 269,000
Marvin L. Mann $ 122 $ 110 $ 217,500
Robert C. Pozen** $ 0 $ 0 $ 0
Thomas R. Williams $ 119 $ 108 $ 213,000
</TABLE>
* Informati on is for the calendar ye ar ended December 31, 1999
for 236 funds in the complex.
** Interested Trustees of the funds and Ms. Johnson are compensated by
FMR.
*** During the period from October 14, 1999 through December 31,
1999, Mr. Lautenbach s erved as a Member of the Advisory Board.
Effective January 1, 2000, Mr. Lautenbach serves as a Member of the
Board of Trustees.
**** M r. Jones served on t he Board of Trustees through December
31, 1999.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For
th e calendar year ended December 31, 1999, the Trustees accrued
required deferred compensation from the funds as follows: Ralph F.
Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $75,000;
E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,735; William O. McCoy, $53,735; and Thomas
R. Williams, $62,319.
B Compensation figure s include cash.
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 subject to vesting and 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 31, 1999, the Trustees, Members of the Advisory
Board, and officers of each fund owned, in the aggregate, less than 1%
of each fund's total ou tstanding shares.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and FIMM. 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
investment 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.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services.
MANAGEMENT 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Assets Annualized Rate Group Net Assets Effective Annual Fee Rate
0 - $3 billion .3700% $ 1 billion .3700%
3 - 6 .3400 50 .2188
6 - 9 .3100 100 .1869
9 - 12 .2800 150 .1736
12 - 15 .2500 200 .1652
15 - 18 .2200 250 .1587
18 - 21 .2000 300 .1536
21 - 24 .1900 350 .1494
24 - 30 .1800 400 .1459
30 - 36 .1750 450 .1427
36 - 42 .1700 500 .1399
42 - 48 .1650 550 .1372
48 - 66 .1600 600 .1349
66 - 84 .1550 650 .1328
84 - 120 .1500 700 .1309
120 - 156 .1450 750 .1291
156 - 192 .1400 800 .1275
192 - 228 .1350 850 .1260
228 - 264 .1300 900 .1246
264 - 300 .1275 950 .1233
300 - 336 .1250 1,000 .1220
336 - 372 .1225 1,050 .1209
372 - 408 .1200 1,100 .1197
408 - 444 .1175 1,150 .1187
444 - 480 .1150 1,200 .1177
480 - 516 .1125 1,250 .1167
516 - 587 .1100 1,300 .1158
587 - 646 .1080 1,350 .1149
646 - 711 .1060 1,400 .1141
711 - 782 .1040
782 - 860 .1020
860 - 946 .1000
946 - 1,041 .0980
1,041 - 1,145 .0960
1,145 - 1,260 .0940
Over 1,260 .0920
</TABLE>
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 $826 billion of group net assets - the approximate
level for December 1999 was 0.1267%, which is the weighted average
of the respective fee rates for each level of group net assets up to
$8 26 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 1999, 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
OH Municipal Money Market 0.1267% + 0.25% = 0.3767%
Spartan OH Municipal Income 0.1267% + 0.25% = 0.3767%
</TABLE>
One-twelfth of the management fee rate is applied to each fund's
average net assets for the 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 December 31 Management Fees Paid to FMR
Ohio Municipal Money Market 1999 $ 1,654,961
1998 $ 1,438,770
1997 $ 1,294,155
Spartan Ohio Municipal Income 1999 $ 1,461,190
1998 $ 1,501,901
1997 $ 1,474,962
</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), which is subject to revision
or discontinuance. 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 returns and
yield, and repayment of the reimbursement by a fund will lower its
returns and yield.
FMR voluntarily agreed to reimburse Spartan Ohio Municipal Income Fund
if and to the extent that the fund's aggregate operating expenses,
including management fees, were in excess of an annual rate of its
average net assets. The table below shows the periods of reimbursement
and levels of expense limitations for the applicable fund; the dollar
amount of management f ees incurred under the 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>
Period of Expense Limitation Aggregate Operating Expense
From To Limitation
Spartan OH Municipal Income January 1, 1999 December 31, 1999 0.55%
January 1, 1998 December 31, 1998 0.55%
April 1, 1997 December 31, 1997 0.55%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Years Ended December 31 Management Fee Before Amount of Management Fee
Reimbursement Reimbursement
Spartan OH Municipal Income 1999 $ 1,461,190 $ 0
1998 $ 1,501,901 $ 17,115
1997 $ 1,474,962 $ 68,123
</TABLE>
SUB-ADVISER. FMR has entered into a sub-advisory agreement with FIMM
pursuant to which FIMM has primary responsibility for choosing
investments for each fund. Prior to January 23, 1998, FMR Texas Inc.
(FMR Texas) had primary responsibility for providing investment
management services to the money market fund. On January 23, 1998, FMR
Texas was merged into FIMM, which succeeded to the operations of FMR
Texas.
Under the terms of the sub-advisory agreements, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR under its management
contract with each fund. The fees paid to FIMM are not reduced by any
voluntary or mandatory expense reimbursements that may be in effect
from time to time.
On behalf of the money market fund, for the fiscal year ended December
31, 1997, FMR paid FMR Texas fees of $647,078. On behalf of the money
market fund, for the fiscal years ended December 31 , 1999
an d 1998, FMR paid FIMM fees of $827,481 and $719,385,
respectively.
On behalf of Spartan Ohio Municipal Income, for the fiscal
y ears ended December 31, 1999, FMR paid FIMM fees of $730,595.
DISTRIBUTION SERVICES
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR. 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.
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 providing services intended to
result in the sale of fund shares and/or shareholder support services.
In addition, each Plan provides that FMR, directly or through FDC, may
pay intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for 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 or stabilization of cash flows 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 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.
FDC may compensate intermediaries that satisfy certain criteria
established from time to time by FDC relating to the level or type of
services provided by the intermediary, the sale or expected sale of
significant amounts of shares, or other factors.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each fund has entered into a transfer agent agreement with
Citibank, N.A. (Citibank ), which is located at 111 Wall Street,
New York, New York. Under the terms of the agreements, Citibank
provides transfer agency, dividend disbursing, and shareholder
services for each fund. Citibank 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 C itibank.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type and fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, Citibank receives the pro rata portion of the transfer
agency fees applicable to shareholder accounts in a qualified state
tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and in each
Fidelity Freedom Fund and Fidelity Four-in-One Index Fund, funds of
funds managed by an FMR affiliate, according to the percentage of the
QSTP's, Freedom Fund's or Fidelity Four-in-One Index Fund's assets
that is invested in a fund, subject to certain limitations in the case
of Fidelity Four-in-One Index Fu nd.
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
Citibank. Under the terms of the agreements, Citibank provides pricing
and bookkeeping services for each fund. Citibank 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 Citibank.
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 rates for pricing and bookkeeping services for the domestic
fixed-income fund are 0.0275% of the first $500 million of average net
assets, 0.0175% of average net assets bet ween $500 million and $3
billion, 0.0021% of average net assets between $3 billion and $25
billion, and 0.00075% of average net assets in excess of $25
bil lion. The fee, not including reimbursement for out-of-pocket
expenses, is limited to a minimum of $60,000 per year.
The annual rates for pricing and bookkeeping services for the money
market fund are 0.0150% of the first $500 million of average net
assets, 0.0075% of average net assets betw een $500 million and $10
billion, 0.0021% of average net assets between $10 billion and $25
billion, and 0.00075% of average net assets in excess of $25
billio n. The fee, not including reimbursement for out-of-pocket
expenses, is limited to a minimum of $40,000 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 1999 1998 1997
Ohio Municipal Money Market $ 84,685 $ 78,676 $ 73,517
Spartan Ohio Municipal Income $ 118,286 $ 166,327 $ 166,043
DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Spartan Ohio Municipal Income Fund is a fund of
Fidelity Municipal Trust, an open-end management investment company
organized as a Massachusetts business trust on June 22, 1984. On
February 26, 1996, Spartan Ohio Municipal Income Fund changed its name
from Fidelity Ohio Tax-Free High Yield Portfolio to Fidelity Ohio
Municipal Income Fund. On April 1, 1997, Spartan Ohio Municipal Income
Fund changed its name from Fidelity Ohio Municipal Income Fund to
Spartan Ohio Municipal Income Fund. Currently, there are
five funds in Fidelity Municipal Trust: Spartan Michigan
Municipal Income Fund, Spartan Minnesota Municipal Income Fund,
Spartan Municipal Income Fund Spartan Ohio Municipal Income Fund, and
Spartan Pennsylvania Municipal Income Fund. The Trustees are permitted
to create additional funds in the trust. Ohio Municipal Money Market
Fund is a fund of Fidelity Municipal Trust II, an open-end management
investment company organized as a Delaware business trust on June 20,
1991. Currently, there are three funds in Fidelity Municipal Trust II:
Fidelity Michigan Municipal Money Market Fund, Fidelity Ohio Municipal
Money Market Fund, and Spartan Pennsylvania Municipal Money Market
Fund The Trustees are permitted to create additional funds in the
trust.
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 to the rights of creditors, are allocated to such
fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in a trust shall be charged with the
liabilities and expenses attributable to such fund. Any general
expenses of the respective trusts shall be allocated between or among
any one or more of its funds.
The assets of the Massachusetts trust received for the issue or sale
of shares of each of its funds and all income, earnings, profits, and
proceeds thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the Massachusetts trust shall be
charged with the liabilities and expenses attributable to such fund.
Any general expenses of the Massachusetts trust shall be allocated
between or among any one or more of its funds.
The assets of the Delaware trust received for the issue or sale of
shares of each of its funds and all income, earnings, profits, and
proceeds thereof, subject to the rights of creditors, are allocated to
such fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the Delaware trust shall be charged
with the liabilities and expenses attributable to such fund. Any
general expenses of the Delaware trust shall be allocated between or
among any one or more of its funds.
SHAREHOLDER LIABILITY - MASSACHUSETTS TRUST. The Massachusetts trust
is an entity commonly known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for the obligations of the
trust.
The Declaration of Trust contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
trust or fund. 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 relating to the
trust or to a fund shall include a provision limiting the obligations
created thereby to the Massachusetts trust or to one or more funds and
its or their assets. The Declaration of Trust further provides that
shareholders of a fund shall not have a claim on or right to any
assets belonging to any other fund.
The Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. 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.
SHAREHOLDER 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. The Trust Instrument
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 relating to the trust or to a
fund shall include a provision limiting the obligations created
thereby to the trust or to one or more funds and its or their assets.
The Trust Instrument further provides that shareholders of a fund
shall not have a claim on or right to any assets belonging to any
other fund.
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 solely by reason of his or her
being or having been a shareholder and not because of his or her acts
or omissions or for some other reason. 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 a 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.
VOTING RIGHTS - MASSACHUSETTS TRUST. Each fund's capital consists of
shares of beneficial interest. As a shareholder, you are entitled to
one vote for each dollar of net asset value you own. The voting rights
of shareholders can be changed only by a shareholder vote. Shares may
be voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to, or merger with, another open-end management investment
company or series thereof, or upon liquidation and distribution of its
assets. Generally, the merger of the trust or a fund with another
entity or the sale of substantially all of the assets of the trust or
a fund to another entity requires approval by a vote of shareholders
of the trust or the fund. The Trustees may, however, reorganize or
terminate the trust or any of its funds without prior shareholder
approval. In the event of the dissolution or liquidation of the trust,
shareholders of each of its funds are entitled to receive the
underlying assets of such fund available for distribution. In the
event of the dissolution or liquidation of a fund, shareholders of
that fund are entitled to receive the underlying assets of the fund
available for distribution.
VOTING RIGHTS - DELAWARE TRUST. Each fund's capital consists of shares
of beneficial interest. As a shareholder, you are entitled to one vote
for each dollar of net asset value you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale of its
assets to another open-end management investment company or series
thereof, or upon liquidation and distribution of its assets. Generally
such terminations must be approved by a vote of shareholders. In the
event of the dissolution or liquidation of the trust, shareholders of
each of its funds are entitled to receive the underlying assets of
such fund available for distribution. In the event of the dissolution
or liquidation of a fund, shareholders of that fund are entitled to
receive the underlying assets of the fund available for distribution.
Under the Trust Instrument, the Trustees may, without shareholder
vote, in order to change the form of organization of the trust cause
the trust to merge or consolidate with one or more trusts,
partnerships, associations, limited liability companies or
corporations, as long as the surviving entity is an open-end
management investment company, or is a fund thereof, that will succeed
to or assume the trust's registration statement, or cause the trust to
incorporate under Delaware law.
CUSTODIAN. Citibank, N.A., 111 Wall Street, New York, New York,
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.
FMR, its officers and directors, its affiliated companies, and members
of 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. PricewaterhouseCoopers LLP , 160 Federal Street, Boston,
Massachusetts, serves as independent accountant for each fund. 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, 1999, and report of the auditor, are
included in the fund's annual report and are incorporated herein by
reference.
APPENDIX
Spartan, Fidelity, Fidelity Investments, (Pyramid) Design, and
Fidelity Focus, are registered trademarks of FMR Corp.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.
Fidelity Municipal Trust
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust of Registrant, dated December 16, 1998, is
incorporated herein by reference to Exhibit (a) of
Post-Effective Amendment No. 89.
(b) Bylaws of the Trust, as amended and dated May 19, 1994, are
incorporated herein by reference to Exhibit 2(a) of Fidelity
Union Street Trust's (File No. 2-50318) Post-Effective Amendment
No. 87.
(c) Not applicable.
(d) (1) Management Contract, dated January 1, 1999, between
Spartan Michigan Municipal Income Fund and Fidelity
Management & Research Company is incorporated herein by
reference to Exhibit d(1) of Post-Effective Amendment No.
89.
(2) Management Contract, dated January 1, 1999, between Spartan
Minnesota Municipal Income Fund and Fidelity Management &
Research Company is incorporated herein by reference to
Exhibit d(2) of Post-Effective Amendment No. 89.
(3) Management Contract, dated January 1, 1999, between Spartan
Ohio Municipal Income Fund and Fidelity Management &
Research Company is incorporated herein by reference to
Exhibit d(3) of Post Effective Amendment No. 89.
(4) Management Contract, dated January 1, 1999, between Spartan
Pennsylvania Municipal Income Fund and Fidelity Management
& Research Company is incorporated herein by reference to
Exhibit d(4) of Post-Effective Amendment No. 89.
(5) Form of Management Contract between Spartan Municipal
Income Fund and Fidelity Management & Research Company is
filed herein as Exhibit d(5).
(6) Sub-Advisory Agreement, dated January 1, 1999, between
Spartan Michigan Municipal Income Fund and Fidelity
Investments Money Management, Inc., is incorporated herein
by reference to Exhibit d(5) of Post-Effective Amendment
No. 89.
(7) Sub-Advisory Agreement, dated January 1, 1999, between
Spartan Minnesota Municipal Income Fund and Fidelity
Investments Money Management, Inc., is incorporated herein
by reference to Exhibit d(6) of Post-Effective Amendment
No. 89.
(8) Sub-Advisory Agreement, dated January 1, 1999, between
Spartan Ohio Municipal Income Fund and Fidelity Investments
Money Management, Inc., is incorporated herein by reference
to Exhibit d(7) of Post-Effective Amendment No. 89.
(9) Sub-Advisory Agreement, dated January 1, 1999, between
Spartan Pennsylvania Municipal Income Fund and Fidelity
Investments Money Management, Inc., is incorporated herein
by reference to Exhibit d(8) of Post-Effective Ammendment
No. 89.
(10) Form of Sub-Advisory Agreement between Spartan Municipal
Income Fund and Fidelity Investments Money Management,
Inc., is filed herein as Exhibit d(10).
(e) (1) 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(a) of Post-Effective Amendment No. 67.
(2) General Distribution Agreement between Fidelity Michigan
Tax-Free Portfolio (currently known as Spartan Michigan
Municipal Income Fund) and Fidelity Distributors Corporation,
dated April 1, 1987, is incorporated herein by reference to
Exhibit 6(e) of Post-Effective Amendment No. 67.
(3) 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.
(4) 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.
(5) General Distribution Agreement between Spartan Municipal
Income Fund and Fidelity Distributors Corporation, dated
February 28, 2000, is filed herein as Exhibit e(5).
(6) 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).
(f) (1) 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.
(g) (1) Custodian Agreement, Appendix A, Appendix B, and Appendix C,
dated May 1, 1998, between Citibank, N.A. and the Registrant
are incorporated herein by reference to Exhibit g(5) of
Fidelity Union Street Trust's (File No. 2-50318)
Post-Effective Amendment No. 102.
(h) Not applicable.
(i) (1) Legal Opinion of Kirkpatrick and Lockhart LLP for Spartan
Michigan Municipal Income Fund, Spartan Minnesota Municipal
Income fund, Spartan Municipal Income Fund, Spartan Ohio
Municipal Income Fund, and Spartan Pennsylvania Municipal
Income Fund, dated February 18, 2000, is filed herein as
Exhibit i(1).
(j) (1) Consent of PricewaterhouseCoopers LLP for Spartan Michigan
Municipal Fund, Spartan Minnesota Municipal Fund, Spartan
Ohio Municipal Fund, and Spartan Pennsylvania Municipal Fund,
dated February 22, 2000, is filed herein as Exhibit j(1).
(2) Consent of PricewaterhouseCoopers LLP for Spartan Municipal
Income Fund, dated February 22, 2000, is filed herein as
Exhibit j(2).
(k) Not applicable.
(l) Not applicable.
(m) (1) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Michigan Municipal Income Fund is incorporated herein
by reference to Exhibit m(1) of Post-Effective Amendment No.
90.
(2) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Minnesota Municipal Income Fund is incorporated
herein by reference to Exhibit m(2) of Post-Effective
Amendment No. 90.
(3) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Ohio Municipal Income Fund is incorporated herein by
reference to Exhibit m(3) of Post-Effective Amendment No. 90.
(4) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Pennsylvania Municipal Income Fund is incorporated
herein by reference to Exhibit m(4) of Post-Effective
Amendment No. 90.
(5) Distribution and Service Plan pursuant to Rule 12b-1 for
Spartan Municipal Income Fund is filed herein as Exhibit
m(5).
(n) Not applicable.
(o) Not applicable.
Item 24. Trusts Controlled by or under Common Control with this Trust
The Board of Trustees of the Trust is the same as the board of other
Fidelity funds, each of which has Fidelity Management & Research
Company, or an affiliate, as its investment adviser. In addition, the
officers of the Trust are substantially identical to those of the
other Fidelity funds. Nonetheless, the Trust takes the position that
it is not under common control with other Fidelity funds because the
power residing in the respective boards and officers arises as the
result of an official position with the respective trusts.
Item 25. 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 Trust 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 or her in connection with any
claim, action, suit or proceeding in which he or she is involved by
virtue of his or her service as a trustee or officer and against any
amount incurred in settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other adjudicatory body to
be liable to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties (collectively, "disabling conduct"), or not to have
acted in good faith in the reasonable belief that his or her action
was in the best interest of the Trust. In the event of a settlement,
no indemnification may be provided unless there has been a
determination, as specified in the Declaration of Trust, that the
officer or trustee did not engage in disabling conduct.
Pursuant to Section 11 of the Distribution Agreement, the Trust
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 (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees
incurred in connection therewith) 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
Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading
under the 1933 Act, or any other statute or the common law. However,
the Trust 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
Trust by or on behalf of the Distributor. In no case is the indemnity
of the Trust in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any
liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("FSC") is appointed sub-transfer agent, the Transfer Agent agrees to
indemnify FSC for FSC'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 Fund for the same events. Under the Transfer
Agency Agreement, the Trust 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 Trust, including by a shareholder which names the Transfer
Agent and/or the Trust 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 its duties) which results from
the negligence of the Trust, 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 Trust, 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 Trust, or as a result of the Transfer Agent's acting
in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Item 26. Business and Other Connections of Investment Advisers
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
82 Devonshire Street, Boston, MA 02109
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.
Edward C. Johnson 3d Chairman of the Board and
Director of FMR; President
and Chief Executive Officer
of FMR Corp.; Chairman of
the Board and Director of
FMR Corp., Fidelity
Investments Money
Management, Inc. (FIMM),
Fidelity Management &
Research (U.K.) Inc. (FMR
U.K.), and Fidelity
Management & Research (Far
East) Inc. (FMR Far East);
Chairman of the Executive
Committee of FMR; Chairman
and Representative Director
of Fidelity Investments
Japan Limited (FIJ);
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 FIMM, FMR U.K.,
and FMR Far East; Director
of Strategic Advisers, Inc.;
Previously, General Counsel,
Managing Director, and
Senior Vice President of FMR
Corp.
Peter S. Lynch Vice Chairman of the Board
and Director of FMR.
John Avery Vice President of FMR.
Robert Bertelson Vice President of FMR.
John H. Carlson Vice President of FMR and of
funds advised by FMR.
Robert C. Chow Vice President of FMR.
Dwight D. Churchill Senior Vice President of FMR
and Vice President of Bond
Funds advised by FMR; Vice
President of FIMM.
Laura B. Cronin Vice President of FMR and
Treasurer of FMR, FIMM, FMR
U.K., and FMR Far East.
Barry Coffman Vice President of FMR.
Arieh Coll Vice President of FMR.
Catherine Collins Vice President of FMR.
Frederic G. Corneel Tax Counsel of FMR.
William Danoff Senior Vice President of FMR
and Vice President of funds
advised by FMR.
Scott E. DeSano Vice President of FMR.
Penelope Dobkin Vice President of FMR and of
a fund advised by FMR.
Walter C. Donovan Vice President of FMR.
Bettina Doulton Senior Vice President of FMR
and of funds advised by FMR.
Stephen DuFour Vice President of FMR.
Maria F. Dwyer Vice President of FMR and
Deputy Treasurer of the
Fidelity funds.
Margaret L. Eagle Vice President of FMR and of
a fund advised by FMR.
William R. Ebsworth Vice President of FMR.
David Felman Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR
and Vice President of a fund
advised by FMR.
Karen Firestone Vice President of FMR.
Michael B. Fox Assistant Treasurer of FMR,
FIMM, FMR U.K., and FMR Far
East; Vice President and
Treasurer of FMR Corp. and
Strategic Advisers, Inc.;
Vice President of FMR U.K.,
FMR Far East, and FIMM.
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., FMR
Far East, and Strategic
Advisers, Inc.; Secretary of
FIMM; Vice President Deputy
General Counsel FMR Corp.
David L. Glancy Vice President of FMR and of
a fund advised by FMR.
Barry A. Greenfield Vice President of FMR.
Boyce I. Greer Senior Vice President of FMR
and Vice President of Money
Market Funds advised by FMR;
Vice President of FIMM.
Bart A. Grenier Senior Vice President of FMR
and Vice President of
High-Income Funds advised by
FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR
and Vice President of funds
advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR;
Senior Vice President of
FIMM; Vice President of
Fixed-Income Funds advised
by FMR.
Bruce T. Herring Vice President of FMR.
Robert F. Hill Vice President of FMR and
Director of Technical
Research.
Frederick Hoff Vice President of FMR.
Abigail P. Johnson Senior Vice President of FMR
and Vice President of funds
advised by FMR; Director of
FMR Corp.; Associate
Director and Senior Vice
President of Equity Funds
advised by FMR.
David B. Jones Vice President of FMR.
Steven Kaye Senior Vice President of FMR
and of a fund advised by FMR.
Francis V. Knox Vice President of FMR;
Compliance Officer of FMR
U.K. and FMR Far East.
Harris Leviton Vice President of FMR.
Bradford E. Lewis Vice President of FMR and of
funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of
funds advised by FMR.
Shigeki Makino Vice President of FMR.
Charles A. Mangum Vice President of FMR and of
a fund advised by FMR.
Kevin McCarey Vice President of FMR and of
a fund advised by FMR.
James McDowell Senior Vice President of FMR.
Neal P. Miller Vice President of FMR.
Jacques Perold Vice President of FMR.
Stephen Peterson Senior Vice President of FMR.
Alan Radlo Vice President of FMR.
Eric D. Roiter Vice President, General
Counsel, and Clerk of FMR
and Secretary of funds
advised by 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.
Richard A. Silver Vice President of FMR.
Carol A. Smith-Fachetti Vice President of FMR.
Steven J. Snider Vice President of FMR and of
funds advised by 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;
Previously, Senior Vice
President and Director of
Operations and Compliance of
FMR U.K.
Thomas M. Sprague Vice President of FMR and of
funds advised by FMR.
Robert E. Stansky Senior Vice President of FMR
and Vice President of a fund
advised by FMR.
Scott D. Stewart Vice President of FMR.
Beth F. Terrana Senior Vice President of FMR
and Vice President of funds
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
and Vice President of funds
advised by FMR; Director of
FMR Corp.
Jason Weiner Vice President of FMR.
Steven S. Wymer Vice President of FMR and of
a fund advised by FMR.
(4) FIDELITY INVESTMENTS MONEY MANAGEMENT, INC. (FIMM)
1 Spartan Way, Merrimack, NH 03054
FIMM provides investment advisory services to Fidelity Management &
Research Company. The directors and officers of the Sub-Adviser have
held the following positions of a substantial nature during the past
two fiscal years.
Edward C. Johnson 3d Chairman of the Board and
Director of FIMM, FMR, FMR
Corp., FMR Far East, and FMR
U.K.; Chairman of the
Executive Committee of FMR;
President and Chief
Executive Officer of FMR
Corp.; Chairman and
Representative Director of
Fidelity Investments Japan
Limited (FIJ); President and
Trustee of funds advised by
FMR.
Robert C. Pozen President and Director of
FIMM; Senior Vice President
and Trustee of funds advised
by FMR; President and
Director of FMR, FMR U.K.,
and FMR Far East; Director
of Strategic Advisers, Inc.,
Previously, General Counsel,
Managing Director, and
Senior Vice President of FMR
Corp.
Fred L. Henning Jr. Senior Vice President of
FIMM; Senior Vice President
of FMR and Vice President of
Fixed-Income Funds advised
by FMR.
Boyce I. Greer Vice President of FIMM;
Senior Vice President of FMR
and Vice President of Money
Market Funds advised by FMR.
Dwight D. Churchill Vice President of FIMM;
Senior Vice President of FMR
and Vice President of Bond
Funds advised by FMR.
Laura B. Cronin Treasurer of FIMM, FMR Far
East, FMR U.K., and FMR and
Vice President of FMR.
Michael B. Fox Assistant Treasurer of FIMM,
FMR U.K., FMR Far East, and
FMR; Vice President and
Treasurer of FMR Corp. and
Strategic Advisers, Inc.;
Vice President of FIMM, FMR
U.K., and FMR Far East.
Jay Freedman Secretary of FIMM; Clerk of
FMR U.K., FMR Far East, FMR
Corp., FMRC, and Strategic
Advisers, Inc.; Assistant
Clerk of FMR; Vice President
Deputy General Counsel FMR
Corp.
Susan Englander Hislop Assistent Secretary of FIMM;
Assistant Clerk of FMR U.K.,
FMR Far East, and Strategic
Advisers, Inc.
Stanley N. Griffith Assistant Secretary of FIMM.
Item 27. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for
all funds advised by FMR or an affiliate.
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Fund
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
James Curvey Director None
Martha B. Willis President None
Eric D. Roiter Vice President 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 28. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company, Fidelity Service
Company, Inc. or Fidelity Investments Institutional Operations
Company, Inc., 82 Devonshire Street, Boston, MA 02109, or the funds'
custodian, Citibank, N.A., 111 Wall Street, New York, NY.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for the effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment No. 91 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 18th day of February 2000.
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.
<TABLE>
<CAPTION>
<S> <C> <C>
(Signature) (Title) (Date)
/s/Edward C. Johnson 3d President and Trustee February 18, 2000
(dagger)
Edward C. Johnson 3d (Principal Executive Officer)
/s/Robert A. Dwight Treasurer February 18, 2000
Robert A. Dwight
/s/Robert C. Pozen Trustee February 18, 2000
Robert C. Pozen
/s/Ralph F. Cox Trustee February 18, 2000
*
Ralph F. Cox
/s/Phyllis Burke Davis Trustee February 18, 2000
*
Phyllis Burke Davis
/s/Robert M. Gates Trustee February 18, 2000
*
Robert M. Gates
/s/Donald J. Kirk Trustee February 18, 2000
*
Donald J. Kirk
/s/Ned C. Lautenbach Trustee February 18, 2000
*
Ned C. Lautenbach
/s/Peter S. Lynch Trustee February 18, 2000
*
Peter S. Lynch
/s/Marvin L. Mann Trustee February 18, 2000
*
Marvin L. Mann
/s/William O. McCoy Trustee February 18, 2000
*
William O. McCoy
/s/Gerald C. McDonough Trustee February 18, 2000
*
Gerald C. McDonough
/s/Thomas R. Williams Trustee February 18, 2000
*
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 16, 1999 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:
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash
Fidelity Advisor Series III Portfolios
Fidelity Advisor Series IV Fidelity Institutional
Fidelity Advisor Series V Tax-Exempt Cash Portfolios
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts
Fidelity Beacon Street Trust Municipal Trust
Fidelity Boston Street Trust Fidelity Money Market Trust
Fidelity California Municipal Fidelity Mt. Vernon Street
Trust Trust
Fidelity California Municipal Fidelity Municipal Trust
Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal
Fidelity Charles Street Trust Trust
Fidelity Commonwealth Trust Fidelity New York Municipal
Fidelity Concord Street Trust Trust II
Fidelity Congress Street Fund Fidelity Phillips Street Trust
Fidelity Contrafund Fidelity Puritan Trust
Fidelity Corporate Trust Fidelity Revere Street Trust
Fidelity Court Street Trust Fidelity School Street Trust
Fidelity Court Street Trust II Fidelity Securities Fund
Fidelity Covington Trust Fidelity Select Portfolios
Fidelity Daily Money Fund Fidelity Sterling Performance
Fidelity Destiny Portfolios Portfolio, L.P.
Fidelity Deutsche Mark Fidelity Summer Street Trust
Performance Fidelity Trend Fund
Portfolio, L.P. Fidelity U.S.
Fidelity Devonshire Trust Investments-Bond Fund, L.P.
Fidelity Exchange Fund Fidelity U.S.
Fidelity Financial Trust Investments-Government
Fidelity Fixed-Income Trust Securities
Fidelity Government Fund, L.P.
Securities Fund Fidelity Union Street Trust
Fidelity Hastings Street Trust Fidelity Union Street Trust II
Fidelity Yen Performance
Portfolio, L.P.
Newbury Street Trust
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
Variable Insurance Products
Fund III
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:
Colchester Street Trust Fidelity Hastings Street Trust
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional
Fidelity Advisor Series III Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts
Fidelity Advisor Series VII Municipal Trust
Fidelity Advisor Series VIII Fidelity Money Market Trust
Fidelity Beacon Street Trust Fidelity Mt. Vernon Street
Fidelity Boston Street Trust Trust
Fidelity California Municipal Fidelity Municipal Trust
Trust Fidelity Municipal Trust II
Fidelity California Municipal Fidelity New York Municipal
Trust II Trust
Fidelity Capital Trust Fidelity New York Municipal
Fidelity Charles Street Trust Trust II
Fidelity Commonwealth Trust Fidelity Oxford Street Trust
Fidelity Concord Street Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Court Street Trust Fidelity School Street Trust
Fidelity Court Street Trust II Fidelity Securities Fund
Fidelity Covington Trust Fidelity Select Portfolios
Fidelity Destiny Portfolios Fidelity Summer Street Trust
Fidelity Devonshire Trust Fidelity Trend Fund
Fidelity Exchange Fund Fidelity U.S.
Fidelity Financial Trust Investments-Bond Fund, L.P.
Fidelity Fixed-Income Trust Fidelity U.S.
Fidelity Government Investments-Government
Securities Fund Securities
Fund, L.P.
Fidelity Union Street Trust
Fidelity Union Street Trust II
Newbury Street Trust
Variable Insurance Products
Fund
Variable Insurance Products
Fund II
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, 2000.
WITNESS our hands on this sixteenth day of December, 1999.
/s/Edward C. Johnson 3d /s/Peter S. Lynch
Edward C. Johnson 3d Peter S. Lynch
/s/Ralph F. Cox /s/William O. McCoy
Ralph F. Cox William O. McCoy
/s/Phyllis Burke Davis /s/Gerald C. McDonough
Phyllis Burke Davis Gerald C. McDonough
/s/Ned C. Lautenbach /s/Marvin L. Mann
Ned C. Lautenbach Marvin L. Mann
/s/Donald J. Kirk /s/Thomas R. Williams
Donald J. Kirk Thomas R. Williams
/s/Robert C. Pozen /s/Robert M. Gates
Robert C. Pozen Robert M. Gates
EXHIBIT d(5)
FORM OF
MANAGEMENT CONTRACT
between
FIDELITY MUNICIPAL TRUST:
SPARTAN MUNICIPAL INCOME FUND
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this __ day of _______ 200_, by and between Fidelity
Municipal Trust, a Massachusetts business trust which may issue one or
more series of shares of beneficial interest (hereinafter called the
"Fund"), on behalf of Spartan Municipal Income Fund (hereinafter
called the "Portfolio"), and Fidelity Management & Research Company, a
Massachusetts corporation (hereinafter called the "Adviser") as set
forth in its entirety below.
1. (a) Investment Advisory Services. The Adviser undertakes to act
as investment adviser of the Portfolio and shall, subject to the
supervision of the Fund's Board of Trustees, direct the investments of
the Portfolio in accordance with the investment objective, policies
and limitations as provided in the Portfolio's Prospectus or other
governing instruments, as amended from time to time, the Investment
Company Act of 1940 and rules thereunder, as amended from time to time
(the "1940 Act"), and such other limitations as the Portfolio may
impose by notice in writing to the Adviser. The Adviser shall also
furnish for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the
investments of the Portfolio; and shall pay the salaries and fees of
all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all
personnel of the Fund or the Adviser performing services relating to
research, statistical and investment activities. The Adviser is
authorized, in its discretion and without prior consultation with the
Portfolio, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the
Portfolio. The investment policies and all other actions of the
Portfolio are and shall at all times be subject to the control and
direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for
the performance by its affiliates of) the management and
administrative services necessary for the operation of the Fund. The
Adviser shall, subject to the supervision of the Board of Trustees,
perform various services for the Portfolio, including but not limited
to: (i) providing the Portfolio with office space, equipment and
facilities (which may be its own) for maintaining its organization;
(ii) on behalf of the Portfolio, supervising relations with, and
monitoring the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be
necessary or desirable; (iii) preparing all general shareholder
communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered,
maintaining the registration and qualification of the Portfolio's
shares under federal and state law; and (vii) investigating the
development of and developing and implementing, if appropriate,
management and shareholder services designed to enhance the value or
convenience of the Portfolio as an investment vehicle.
The Adviser shall also furnish such reports, evaluations, information
or analyses to the Fund as the Fund's Board of Trustees may request
from time to time or as the Adviser may deem to be desirable. The
Adviser shall make recommendations to the Fund's Board of Trustees
with respect to Fund policies, and shall carry out such policies as
are adopted by the Trustees. The Adviser shall, subject to review by
the Board of Trustees, furnish such other services as the Adviser
shall from time to time determine to be necessary or useful to perform
its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser. The Adviser shall use its best efforts
to seek to execute portfolio transactions at prices which are
advantageous to the Portfolio and at commission rates which are
reasonable in relation to the benefits received. In selecting brokers
or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) to the Portfolio and/or the other
accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to
the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Adviser and its affiliates have with respect to accounts over which
they exercise investment discretion. The Trustees of the Fund shall
periodically review the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of
the Fund are or may be or become interested in the Adviser as
directors, officers or otherwise and that directors, officers and
stockholders of the Adviser are or may be or become similarly
interested in the Fund, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
3. The Adviser will be compensated on the following basis for the
services and facilities to be furnished hereunder. The Adviser shall
receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month, composed of a Group Fee
and an Individual Fund Fee.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the
monthly average of the net assets of the registered investment
companies having Advisory and Service or Management Contracts with the
Adviser (computed in the manner set forth in the fund's Declaration of
Trust or other organizational document) determined as of the close of
business on each business day throughout the month. The Group Fee Rate
shall be determined on a cumulative basis pursuant to the following
schedule:
Average Net Assets Annualized Fee Rate (for each
level)
0 - $ 3 billion .3700%
3 - 6 .3400
6 - 9 .3100
9 - 12 .2800
12 - 15 .2500
15 - 18 .2200
18 - 21 .2000
21 - 24 .1900
24 - 30 .1800
30 - 36 .1750
36 - 42 .1700
42 - 48 .1650
48 - 66 .1600
66 - 84 .1550
84 - 120 .1500
120 - 156 .1450
156 - 192 .1400
192 - 228 .1350
228 - 264 .1300
264 - 300 .1275
300 - 336 .1250
336 - 372 .1225
372 - 408 .1200
408 - 444 .1175
444 - 480 .1150
480 - 516 .1125
Over 516 .1100
4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase or sale of securities and
other investment instruments; (iii) fees and expenses of the Fund's
Trustees other than those who are "interested persons" of the Fund or
the Adviser; (iv) legal and audit expenses; (v) custodian, registrar
and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Fund and the Portfolio's
shares for distribution under state and federal securities laws; (vii)
expenses of printing and mailing reports and notices and proxy
material to shareholders of the Portfolio; (viii) all other expenses
incidental to holding meetings of the Portfolio's shareholders,
including proxy solicitations therefor; (ix) a pro rata share, based
on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management
Contracts with the Adviser, of 50% of insurance premiums for fidelity
and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements
thereto; (xii) expenses of printing and mailing Prospectuses and
Statements of Additional Information and supplements thereto sent to
existing shareholders; and (xiii) such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or
proceedings to which the Portfolio is a party and the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or other investment
instrument.
6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until June
30, 200_ and indefinitely thereafter, but only so long as the
continuance after such date shall be specifically approved at least
annually by vote of the Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Portfolio.
(b) This Contract may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 6, the terms of any continuance or modification of this
Contract must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to the Contract or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract, without payment
of any penalty, by action of its Trustees or Board of Directors, as
the case may be, or with respect to the Portfolio by vote of a
majority of the outstanding voting securities of the Portfolio. This
Contract shall terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust
or other organizational document and agrees that the obligations
assumed by the Fund pursuant to this Contract shall be limited in all
cases to the Portfolio and its assets, and the Adviser shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio or any other Portfolios of the Fund. In
addition, the Adviser shall not seek satisfaction of any such
obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Portfolio under the
Declaration of Trust or other organizational document are separate and
distinct from those of any and all other Portfolios.
8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, as now in effect or
as hereafter amended, and subject to such orders as may be granted by
the Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
____
Exhibit d(10)
FORM OF
SUB-ADVISORY AGREEMENT
between
FIDELITY INVESTMENTS MONEY MANAGEMENT, INC.
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this __ day of _____, ____ by and between Fidelity
Investments Money Management, Inc., a New Hampshire corporation with
principal offices at Contra Way, P.O. Box 9600, Merrimack, New
Hampshire (hereinafter called the ``Sub--Adviser") and Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the ``Adviser").
WHEREAS the Adviser has entered into a Management Contract with
Fidelity Municipal Trust, a Massachusetts business trust which may
issue one or more series of shares of beneficial interest (hereinafter
called the ``Fund"), on behalf of Spartan Municipal Income Fund
(hereinafter called the ``Portfolio"), pursuant to which the Adviser
is to act as investment manager and adviser to the Portfolio, and
WHEREAS the Sub-Adviser was formed for the purpose of providing
investment management of money market and fixed-income mutual funds,
both taxable and tax-exempt, advising generally with respect to money
market and fixed-income instruments, and managing or providing advice
with respect to cash management.
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Adviser and the Sub-Adviser agree
as follows:
1. (a) The Sub-Adviser shall, subject to the supervision of the
Adviser, direct the investments of all or such portion of the
Portfolio's assets as the Adviser shall designate in accordance with
the investment objective, policies and limitations as provided in the
Portfolio's Prospectus or other governing instruments, as amended from
time to time, the Investment Company Act of l940 and rules thereunder,
as amended from time to time (the ``l940 Act"), and such other
limitations as the Portfolio may impose by notice in writing to the
Adviser or Sub-Adviser. The Sub-Adviser shall also furnish for the
use of the Portfolio office space and all necessary office facilities,
equipment and personnel for servicing the investments of the
Portfolio; and shall pay the salaries and fees of all personnel of the
Sub-Adviser performing services for the Portfolio relating to
research, statistical and investment activities. The Sub-Adviser is
authorized, in its discretion and without prior consultation with the
Portfolio or the Adviser, to buy, sell, lend and otherwise trade in
any stocks, bonds and other securities and investment instruments on
behalf of the Portfolio. The investment policies and all other
actions of the Portfolio are and shall at all times be subject to the
control and direction of the Fund's Board of Trustees.
(b) The Sub-Adviser shall also furnish such reports, evaluations,
information or analyses to the Fund and the Adviser as the Fund's
Board of Trustees or the Adviser may request from time to time or as
the Sub-Adviser may deem to be desirable. The Sub-Adviser shall make
recommendations to the Fund's Board of Trustees with respect to
Portfolio policies, and shall carry out such policies as are adopted
by the Trustees. The Sub-Adviser shall, subject to review by the
Board of Trustees, furnish such other services as the Sub-Adviser
shall from time to time determine to be necessary or useful to perform
its obligations under this Agreement and which are not otherwise
furnished by the Adviser.
(c) The Sub-Adviser shall place all orders for the purchase and sale
of portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Adviser, which may include brokers or
dealers affiliated with the Adviser or Sub-Adviser. The Sub-Adviser
shall use its best efforts to seek to execute portfolio transactions
at prices which are advantageous to the Portfolio and at commission
rates which are reasonable in relation to the benefits received. In
selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and/or
the other accounts over which the Sub-Adviser, Adviser or their
affiliates exercise investment discretion. The Sub-Adviser is
authorized to pay a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction
for the Portfolio which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if the Sub-Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer.
This determination may be viewed in terms of either that particular
transaction or the overall responsibilities which the Sub-Adviser and
its affiliates have with respect to accounts over which they exercise
investment discretion. The Trustees of the Fund shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
2. As compensation for the services to be furnished by the
Sub-Adviser hereunder, the Adviser agrees to pay the Sub-Adviser a
monthly fee equal to 50% of the management fee which the Portfolio is
obligated to pay the Adviser under the Portfolio's Management Contract
with the Adviser in respect of that portion of the Portfolio's assets
managed by the Sub-Adviser during such month. Such fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Adviser, if any, in effect from time to time.
3. It is understood that Trustees, officers, and shareholders of the
Fund are or may be or become interested in the Adviser or the
Sub-Adviser as directors, officers or otherwise and that directors,
officers and stockholders of the Adviser or the Sub-Adviser are or may
be or become similarly interested in the Fund, and that the Adviser or
the Sub-Adviser may be or become interested in the Fund as a
shareholder or otherwise.
4. It is understood that the Portfolio will pay all its expenses
other than those expressly stated to be payable by the Sub-Adviser
hereunder or by the Adviser under the Management Contract with the
Portfolio, which expenses payable by the Portfolio shall include,
without limitation, (i) interest and taxes; (ii) brokerage commissions
and other costs in connection with the purchase or sale of securities
and other investment instruments; (iii) fees and expenses of the
Fund's Trustees other than those who are ``interested persons" of the
Fund, the Sub-Adviser or the Adviser; (iv) legal and audit expenses;
(v) custodian, registrar and transfer agent fees and expenses; (vi)
fees and expenses related to the registration and qualification of the
Fund and the Portfolio's shares for distribution under state and
federal securities laws; (vii) expenses of printing and mailing
reports and notices and proxy material to shareholders of the
Portfolio; (viii) all other expenses incidental to holding meetings of
the Portfolio's shareholders, including proxy solicitations therefor;
(ix) a pro rata share, based on relative net assets of the Portfolio
and other registered investment companies having Advisory and Service
or Management Contracts with the Adviser, of 50% of insurance premiums
for fidelity and other coverage; (x) its proportionate share of
association membership dues; (xi) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements
thereto; (xii) expenses of printing and mailing Prospectuses and
Statements of Additional Information and supplements thereto sent to
existing shareholders; and (xiii) such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or
proceedings to which the Portfolio is a party and the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.
5. The Services of the Sub-Adviser to the Adviser are not to be
deemed to be exclusive, the Sub-Adviser being free to render services
to others and engage in other activities, provided, however, that such
other services and activities do not, during the term of this
Agreement, interfere, in a material manner, with the Sub-Adviser's
ability to meet all of its obligations with respect to rendering
investment advice hereunder. The Sub-Adviser shall for all purposes
be an independent contractor and not an agent or employee of the
Adviser or the Fund.
6. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part
of the Sub-Adviser, the Sub-Adviser shall not be subject to liability
to the Advisor, the Trust or to any shareholder of the Portfolio for
any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.
7. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 7, this Agreement shall continue in force until June
30, 1999, and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Fund's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretive releases of, the Commission.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 7, the terms of any continuance or modification of the
Agreement must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to such Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Adviser, the Sub-Adviser or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or by vote of a majority of its
outstanding voting securities. This Agreement shall terminate
automatically upon the termination of the Management Contract between
the Fund, on behalf of the Portfolio, and the Adviser. This Agreement
shall terminate automatically in the event of its assignment.
8. The Sub-Adviser is hereby expressly put on notice of the
limitation of shareholder liability as set forth in the Declaration of
Trust or other organizational document of the Fund and agrees that any
obligations of the Fund or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Adviser shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Adviser seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
9. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT GIVING
EFFECT TO THE CHOICE OF LAWS PROVISIONS THEREOF.
The terms ``registered investment company," ``vote of a majority of
the outstanding voting securities," ``assignment," and ``interested
persons," when used herein, shall have the respective meanings
specified in the Investment Company Act of 1940 as now in effect or as
hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]
Exhibit e(5)
GENERAL DISTRIBUTION AGREEMENT
between
FIDELITY MUNICIPAL TRUST:
SPARTAN MUNICIPAL INCOME FUND
and
FIDELITY DISTRIBUTORS CORPORATION
Agreement made this 28th day of February, 2000, between Fidelity
Municipal Trust, a Massachusetts business trust having its principal
place of business in Boston, Massachusetts and which may issue one or
more series of beneficial interest ("Issuer"), with respect to shares
of Spartan Municipal Income Fund, a series of the Issuer, and Fidelity
Distributors Corporation, a Massachusetts corporation having its
principal place of business in Boston, Massachusetts ("Distributors").
In consideration of the mutual promises and undertakings herein
contained, the parties agree as follows:
1. Sale of Shares - The Issuer grants to Distributors the right to
sell shares on behalf of the Issuer during the term of this Agreement
and subject to the registration requirements of the Securities Act of
1933, as amended ("1933 Act"), and of the laws governing the sale of
securities in the various states ("Blue Sky Laws") under the following
terms and conditions: Distributors (i) shall have the right to sell,
as agent on behalf of the Issuer, shares authorized for issue and
registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among the funds advised by
Fidelity Management & Research Company ("FMR") or any of its
affiliates.
2. Sale of Shares by the Issuer - The rights granted to the
Distributor shall be nonexclusive in that the Issuer reserves the
right to sell its shares to investors on applications received and
accepted by the Issuer. Further, the Issuer reserves the right to
issue shares in connection with the merger or consolidation, or
acquisition by the Issuer through purchase or otherwise, with any
other investment company, trust, or personal holding company.
3. Shares Covered by this Agreement - This Agreement shall apply to
unissued shares of the Issuer, shares of the Issuer held in its
treasury in the event that in the discretion of the Issuer treasury
shares shall be sold, and shares of the Issuer repurchased for resale.
4. Public Offering Price - Except as otherwise noted in the Issuer's
current Prospectus and/or Statement of Additional Information, all
shares sold to investors by the Distributor or the Issuer will be sold
at the public offering price. The public offering price for all
accepted subscriptions will be the net asset value per share, as
determined in the manner described in the Issuer's current Prospectus
and/or Statement of Additional Information, plus a sales charge (if
any) described in the Issuer's current Prospectus and/or Statement of
Additional Information. The Issuer shall in all cases receive the net
asset value per share on all sales. If a sales charge is in effect,
the Distributor shall have the right subject to such rules or
regulations of the Securities and Exchange Commission as may then be
in effect pursuant to Section 22 of the Investment Company Act of 1940
to pay a portion of the sales charge to dealers who have sold shares
of the Issuer. If a fee in connection with shareholder redemptions is
in effect, the Issuer shall collect the fee on behalf of Distributors
and, unless otherwise agreed upon by the Issuer and Distributors,
Distributors shall be entitled to receive all of such fees.
5. Suspension of Sales - If and whenever the determination of net
asset value is suspended and until such suspension is terminated, no
further orders for shares shall be processed by the Distributor except
such unconditional orders as may have been placed with the Distributor
before it had knowledge of the suspension. In addition, the Issuer
reserves the right to suspend sales and the Distributor's authority to
process orders for shares on behalf of the Issuer if, in the judgment
of the Issuer, it is in the best interests of the Issuer to do so.
Suspension will continue for such period as may be determined by the
Issuer.
6. Solicitation of Sales - In consideration of these rights granted to
the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the Issuer. This shall not prevent the Distributor from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. This does not obligate
the Distributor to register as a broker or dealer under the Blue Sky
Laws of any jurisdiction in which it is not now registered or to
maintain its registration in any jurisdiction in which it is now
registered. If a sales charge is in effect, the Distributor shall
have the right to enter into sales agreements with dealers of its
choice for the sale of shares of the Issuer to the public at the
public offering price only and fix in such agreements the portion of
the sales charge which may be retained by dealers, provided that the
Issuer shall approve the form of the dealer agreement and the dealer
discounts set forth therein and shall evidence such approval by filing
said form of dealer agreement and amendments thereto as an exhibit to
its currently effective Registration Statement under the 1933 Act.
7. Authorized Representations - The Distributor is not authorized by
the Issuer to give any information or to make any representations
other than those contained in the appropriate registration statements
or Prospectuses and Statements of Additional Information filed with
the Securities and Exchange Commission under the 1933 Act (as these
registration statements, Prospectuses and Statements of Additional
Information may be amended from time to time), or contained in
shareholder reports or other material that may be prepared by or on
behalf of the Issuer for the Distributor's use. This shall not be
construed to prevent the Distributor from preparing and distributing
sales literature or other material as it may deem appropriate.
8. Portfolio Securities - Portfolio securities of the Issuer may be
bought or sold by or through the Distributor, and the Distributor may
participate directly or indirectly in brokerage commissions or
"spreads" for transactions in portfolio securities of the Issuer.
9. Registration of Shares - The Issuer agrees that it will take all
action necessary to register shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be
available for sale the number of shares the Distributor may reasonably
be expected to sell. The Issuer shall make available to the
Distributor such number of copies of its currently effective
Prospectus and Statement of Additional Information as the Distributor
may reasonably request. The Issuer shall furnish to the Distributor
copies of all information, financial statements and other papers which
the Distributor may reasonably request for use in connection with the
distribution of shares of the Issuer.
10. Expenses - The Issuer shall pay all fees and expenses (a) in
connection with the preparation, setting in type and filing of any
registration statement, Prospectus and Statement of Additional
Information under the 1933 Act and amendments for the issue of its
shares, (b) in connection with the registration and qualification of
shares for sale in the various states in which the Board of Trustees
of the Issuer shall determine it advisable to qualify such shares for
sale (including registering the Issuer as a broker or dealer or any
officer of the Issuer as agent or salesman in any state), (c) of
preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Issuer in their capacity as such,
and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements
thereto sent to existing shareholders.
As provided in the Distribution and Service Plan adopted by the
Issuer, it is recognized by the Issuer that FMR may make payment to
Distributors with respect to any expenses incurred in the distribution
of shares of the Issuer, such payments payable from the past profits
or other resources of FMR including management fees paid to it by the
Issuer.
11. Indemnification - The Issuer 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 (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damages, or expense and
reasonable counsel fees incurred in connection therewith) 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 Issuer (as from time to time amended) included an untrue
statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading under the 1933 Act, or any other statute or the common law.
However, the Issuer 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
Issuer by or on behalf of the Distributor. In no case (i) is the
indemnity of the Issuer in favor of the Distributor or any person
indemnified to be deemed to protect the Distributor or any person
against any liability to the Issuer or its security holders to which
the Distributor or such person would otherwise be subject by reason of
wilful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Issuer to
be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or person, as the case may be,
shall have notified the Issuer in writing of the claim within a
reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served
upon the Distributor or any such person (or after the Distributor or
such person shall have received notice of service on any designated
agent). However, failure to notify the Issuer of any claim shall not
relieve the Issuer from any liability which it may have to the
Distributor or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
paragraph. The Issuer shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any claims, but if the Issuer elects to
assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Issuer elects
to assume the defense of any suit and retain counsel, the Distributor,
officers or directors or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Issuer does not elect to
assume the defense of any suit, it will reimburse the Distributor,
officers or directors or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Issuer agrees to notify the Distributor
promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance
or sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Issuer and each of its Board members and officers
and each person, if any, who controls the Issuer within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the 1933 Act or
any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Issuer (as from time to time amended) included an untrue statement of
a material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon, and in
conformity with information furnished to the Issuer by or on behalf of
the Distributor. In no case (i) is the indemnity of the Distributor
in favor of the Issuer or any person indemnified to be deemed to
protect the Issuer or any person against any liability to which the
Issuer or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties under this Agreement, or (ii) is the Distributor to be liable
under its indemnity agreement contained in this paragraph with respect
to any claim made against the Issuer or any person indemnified unless
the Issuer or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the
nature of the claim shall have been served upon the Issuer or any such
person (or after the Issuer or such person shall have received notice
of service on any designated agent). However, failure to notify the
Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Issuer or any person against whom
the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to
the Distributor, it shall be entitled to participate, at its own
expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if the Distributor elects
to assume the defense, the defense shall be conducted by counsel
chosen by it and satisfactory to the Issuer, to its officers and Board
and to any controlling person or persons, defendant or defendants in
the suit. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the Issuer or controlling
persons, defendant or defendants in the suit, shall bear the fees and
expense of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will
reimburse the Issuer, officers and Board or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Distributor agrees
to notify the Issuer promptly of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of
the shares.
12. Effective Date - This agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force
until January 31, 1988 and thereafter from year to year, provided
continuance is approved annually by the vote of a majority of the
Board members of the Issuer, and by the vote of those Board members of
the Issuer who are not "interested persons" of the Issuer and, if a
plan under Rule 12b-1 under the Investment Company Act of 1940 is in
effect, by the vote of those Board members of the Issuer who are not
"interested persons" of the Issuer and who are not parties to the
Distribution and Service Plan or this Agreement and have no financial
interest in the operation of the Distribution and Service Plan or in
any agreements related to the Distribution and Service Plan, cast in
person at a meeting called for the purpose of voting on the approval.
This Agreement shall automatically terminate in the event of its
assignment. As used in this paragraph, the terms "assignment" and
"interested persons" shall have the respective meanings specified in
the Investment Company Act of 1940 as now in effect or as hereafter
amended. In addition to termination by failure to approve continuance
or by assignment, this Agreement may at any time be terminated by
either party upon not less than sixty days' prior written notice to
the other party.
13. Notice - Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Issuer, at 82 Devonshire Street,
Boston, Massachusetts, and if to the Distributor, at 82 Devonshire
Street, Boston, Massachusetts.
14. Limitation of Liability - The Distributor is expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Issuer and agrees that the obligations
assumed by the Issuer under this contract shall be limited in all
cases to the Issuer and its assets. The Distributor shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Issuer. Nor shall the Distributor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee of the Issuer. The Distributor understands that
the rights and obligations of each series of shares of the Issuer
under the Issuer's Declaration of Trust are separate and distinct from
those of any and all other series.
IN WITNESS WHEREOF, the Issuer has executed this instrument in its
name and behalf, and its seal affixed, by one of its officers duly
authorized, and the Distributor has executed this instrument in its
name and behalf, and its corporate seal affixed, by one of its
officers duly authorized, as of the day and year first above written.
FIDELITY MUNICIPAL TRUST
By /s/Robert C. Pozen
Robert C. Pozen
FIDELITY DISTRIBUTORS CORPORATION
By /s/Edward L. McCartney
Edward L. McCartney
Exhibit i(1)
Kirkpatrick & Lockhart llp 1800 Massachusetts Avenue, NW
Second Floor
Washington, DC 20036-1800
202.778.9000
www.kl.com
February 18, 2000
Fidelity Municipal Trust
82 Devonshire Street
Boston, Massachusetts 02109
Ladies and Gentlemen:
You have requested our opinion, as counsel to Fidelity Municipal
Trust (the "Trust"), as to certain matters regarding the issuance of
Shares of the Trust. As used in this letter, the term "Shares" means
the shares of beneficial interest of Spartan Michigan Municipal Income
Fund, Spartan Minnesota Municipal Income Fund, Spartan Ohio Municipal
Income Fund, Spartan Pennsylvania Municipal Income Fund, and Spartan
Municipal Income Fund, each a series of the Trust.
As such counsel, we have examined certified or other copies, believed
by us to be genuine, of the Trust's Declaration of Trust and by-laws
and such resolutions and minutes of meetings of the Trust's Board of
Trustees as we have deemed relevant to our opinion, as set forth
herein. Our opinion is limited to the laws and facts in existence on
the date hereof, and it is further limited to the laws (other than the
conflict of law rules) in the Commonwealth of Massachusetts that in
our experience are normally applicable to the issuance of shares by
unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and
the regulations of the Securities and Exchange Commission ("SEC")
thereunder.
Based on present laws and facts, we are of the opinion that the
issuance of the Shares has been duly authorized by the Trust and that,
when sold in accordance with the terms contemplated by Post-Effective
Amendment No. 91 to the Trust's Registration Statement on Form N-1A
and each subsequent Post-Effective Amendment ("PEA") to said
registration statement, including receipt by the Trust of full payment
for the Shares and compliance with the 1933 Act and the 1940 Act, the
Shares will have been validly issued, fully paid and non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under
certain circumstances, be held personally liable for the obligations
of the Trust. The Declaration of Trust states that all persons
extending credit to, contracting with or having any claim against the
Trust or the Trustees shall look only to the assets of the appropriate
series of the Trust for payment under such credit, contract or claim;
and neither the shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally liable
therefor. It also requires that every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the Trustees
relating to the Trust shall include a recitation limiting the
obligation represented thereby to the Trust and its assets. The
Declaration of Trust further provides: (1) for indemnification from
the assets of the series of the Trust for all loss and expense of any
shareholder held personally liable for the obligations of the Trust by
virtue of ownership of shares of the Trust; and (2) for the series of
the Trust to assume the defense of any claim against the shareholder
for any act or obligation of the series of the Trust. Thus, the risk
of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust or series
would be unable to meet its obligations.
We hereby consent to this opinion accompanying or being incorporated
by reference in the PEA when it is filed with the SEC.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
/s/Kirkpatrick & Lockhart LLP
EXHIBIT J(1)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the
Prospectuses and Statements of Additional Information in
Post-Effective Amendment No. 91 to the Registration Statement on Form
N-1A of Fidelity Municipal Trust: Spartan Michigan Municipal Income
Fund, Spartan Minnesota Municipal Income Fund, Spartan Ohio Municipal
Income Fund, and Spartan Pennsylvania Municipal Income Fund of our
reports dated February 10, 2000 on the financial statements and
financial highlights included in the December 31, 1999 Annual Reports
to Shareholders of the above referenced funds.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectuses and "Auditor" in the
Statements of Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 2000
EXHIBIT J(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the
Prospectus and Statement of Additional Information in Post-Effective
Amendment No. 91 to the Registration Statement on Form N-1A of
Fidelity Municipal Trust: Spartan Municipal Income Fund (formerly
Fidelity Court Street Trust: Spartan Municipal Income Fund), of our
report dated January 6, 2000 on the financial statements and financial
highlights included in the November 30, 1999 Annual Report to
Shareholders of Spartan Municipal Income Fund.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Auditor" in the
Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 2000
Exhibit m(5)
DISTRIBUTION AND SERVICE PLAN
of Fidelity Municipal Trust
Spartan 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 Municipal Income Fund (the "Portfolio"), a series of shares
of Fidelity Court Street 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 April 30, 2000 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, or to increase materially the amount
spent by the Portfolio for distribution 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.
