Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
A Statement of Additional Information dated December 22, 1993 has been
filed with the Securities and Exchange Commission, and is incorporated
herein by reference (is legally considered a part of this prospectus). The
Statement of Additional Information is available free upon request by
calling Fidelity at 1-800-544-8888.
Mutual fund shares are not deposits or obligations of, or endorsed or
guaranteed by, any bank, nor are they federally insured or otherwise
protected by the FDIC, the Federal Reserve Board, or any other agency.
Spartan New York Intermediate Municipal seeks a high level of current
income exempt from federal income tax and New York state and city income
taxes while maintaining an average maturity of three to 10 years.
SPARTAN(Registered trademark)
NEW YORK
INTERMEDIATE
MUNICIPAL
PORTFOLIO
PROSPECTUS
DECEMBER 22, 1993
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
SNI-pro-1293
(Registered trademark)
82 Devonshire Street, Boston, MA 02109
<r>CONTENTS</r>
KEY FACTS 3 THE FUND AT A GLANCE
3 WHO MAY WANT TO INVEST
EXPENSES AND PERFORMANCE 4 EXPENSES The fund's yearly
operating expenses.
5 PERFORMANCE How the fund has
done over time.
YOUR ACCOUNT 6 DOING BUSINESS WITH FIDELITY
6 TYPES OF ACCOUNTS Different
ways to set up your account.
7 HOW TO BUY SHARES Opening an
account and making additional
investments.
9 HOW TO SELL SHARES Taking money
out and closing your account.
11 INVESTOR SERVICES S ervices to
help you manage your account.
13 DIVIDENDS, CAPITAL GAINS, AND
TAXES
SHAREHOLDER AND 15 TRANSACTION DETAILS Share price
ACCOUNT POLICIES calculations and the timing of
purchases and redemptions.
17 EXCHANGE RESTRICTIONS
THE FUND IN DETAIL 18 CHARTER How the fund is
organized.
19 BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
20 INVESTMENT PRINCIPLES The fund's
overall approach to investing.
20 SECURITIES AND INVESTMENT
PRACTICES
KEY FACTS
THE FUND AT A GLANCE
GOAL: High current tax-free income for New York residents. As with any
mutual fund there is no assurance that the fund will achieve its goal.
STRATEGY: Invests mainly in investment-grade securities whose interest is
exempt from federal income tax and New York state and city income taxes,
while maintaining an average maturity of three to 10 years.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the
management arm of Fidelity Investments, which was established in 1946 and
is now America's largest mutual fund manager.
WHO MAY WANT TO INVEST
This non-diversified fund may be appropriate for New York investors in
higher tax brackets who seek high current income that is exempt from
federal and state taxes. A fund's level of risk , and potential
reward , depend on the quality and maturity of its investments. With
its focus on medium- to high-quality investments and intermediate maturity,
this fund has a moderate risk level and yield potential.
By itself, the fund does not constitute a balanced investment plan. The
value of the fund's investments and the income they generate will vary from
day to day, generally reflecting changes in interest rates, market
conditions, and other federal and state political and economic news. When
you sell your shares, they may be worth more or less than what you paid for
them.
The Spartan family of funds is designed for cost-conscious investors
looking for higher yields through lower costs. The Spartan
Approach(Registered trademark) requires investors to make high minimum
investments and, in some cases, to pay for individual transactions.
THE SPECTRUM OF
FIDELITY FUNDS
Broad categories of Fidelity
funds are presented here in
order of ascending risk.
Generally, investors seeking
to maximize return must
assume greater risk. Spartan
New York Intermediate
Municipal is in the INCOME
category.
(bullet) MONEY MARKET Seeks
income and stability by
investing in high-quality,
short-term investments.
(arrow) INCOME Seeks income by
investing in bonds.
(bullet) GROWTH AND INCOME
Seeks long-term growth and
income by investing in stocks
and bonds.
(bullet) GROWTH Seeks long-term
growth by investing mainly in
stocks.
(checkmark)
<r>EXPENSES & PERFORMANCE</r>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund. See page 11 for more information.
Maximum sales charge on purchases and
reinvested dividends None
Deferred sales charge on redemptions None
Exchange and wire transaction fees $5.00
Checkwriting fee, per check written $2.00
Account closeout fee $5.00
THESE FEES ARE WAIVED if your account balance at the time of the
transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund
pays a management fee to FMR. Expenses are factored into the fund's share
price or dividends and are not charged directly to shareholder accounts
(see page 13 ).
The following are projections based on estimated expenses, and are
calculated as a percentage of average net assets.
Management fee (after reimbursement) 0.00 %
12b-1 fee None
Other expenses 0.00 %
Total fund operating expenses 0.00 %
EXAMPLES: Let's say, hypothetically, that the fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses after
the number of years indicated, first assuming that you leave your account
open, and then assuming that you close your account at the end of the
period.
Account open Account closed
After 1 year $ 0 $ 5
After 3 years $ 0 $ 5
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FMR has voluntarily agreed to temporarily limit Spartan New York
Intermediate Municipal's operating expenses to .00% . If this
agreement were not in effect, the management fee, other expenses, and total
operating expenses would be .55%, .00%, and .55% respectively. Expenses
eligible for reimbursement do not include interest, taxes, brokerage
commissions, or extraordinary expenses.
UNDERSTANDING
EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
PERFORMANCE
This section would normally show how the fund has done over time. Because
the fund was new when this prospectus was printed, its performance is not
included. Twice a year, you will receive a report detailing the fund's
recent strategies, performance, and holdings. For current performance or a
free annual report, call 1-800-544-8888.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering
periods of less than one year assume that performance will remain constant
for the rest of the year.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. A
TAX-EQUIVALENT YIELD shows what an investor would have to earn before taxes
to equal a tax-free yield. Yields are calculated according to a standard
that is required for all stock and bond funds. Because this differs from
other accounting methods, the quoted yield may not equal the income
actually paid to shareholders.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions and
any change in a fund's share
price.
(checkmark)
<r>YOUR ACCOUNT</r>
DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(bullet) For mutual funds, 1-800-544-8888
(bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 75 walk-in Investor Centers across the country .
TYPES OF ACCOUNTS
You may set up an account directly in the fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in the fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed below.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANTS
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two
or more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S FUTURE NEEDS
These custodial accounts provide a way to give money to a child and
obtain tax benefits. An individual can give up to $10,000 a year per child
without paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR
OTHER GROUPS
Requires a special application.
HOW TO BUY SHARES
THE FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. The fund's shares are sold without a sales charge.
Shares are purchased at the next NAV calculated after your investment is
received and accepted. NAV is normally calculated at 4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page 8. If there is no application accompanying
this prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(bullet) Mail in an application with a check, or
(bullet) Open your account by exchanging from another Fidelity fund.
If you buy shares by check or Fidelity Money Line(Registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business
days to ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
TO ADD TO AN ACCOUNT $1,000
Through automatic investment plans $500
MINIMUM BALANCE $5,000
UNDERSTANDING THE
SPARTAN APPROACH(Registered trademark)
Fidelity's Spartan Approach is
based on the principle that
lower fund expenses can
increase returns. The Spartan
funds keep expenses low in
two ways. First, higher
investment minimums reduce
the effect of a fund's fixed
costs, many of which are paid
on a per-account basis.
Second, unlike most mutual
funds that include transaction
costs as part of overall fund
expenses, Spartan
shareholders pay directly for
the transactions they make.
(checkmark)
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TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
PHONE (bullet) Exchange from another (bullet) Exchange from another
1-800-544-7777 Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.
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<TABLE>
<CAPTION>
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MAIL (bullet) Complete and sign the (bullet) Make your check
application. Make your payable to "Spartan
check payable to New York Intermediate
"Spartan New York Municipal Portfolio."
Intermediate Municipal Indicate your fund
Portfolio." account number on
Mail to the address your check.
indicated on the Mail to the address
application. printed on your account
statement.
(bullet) Exchange by mail: call
1-800-544-6666 for
instructions.
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IN PERSON (bullet) Bring your application (bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.
</TABLE>
<TABLE>
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WIRE (bullet) There may be a $5.00 (bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(bullet) Call 1-800-544-7777 to (bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify "Spartan New
Bank Routing York Intermediate
#021001033, Municipal Portfolio" and
Account #00163053. include your account
Specify "Spartan New number and your
York Intermediate name.
Municipal Portfolio" and
include your new
account number and
your name.
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<TABLE>
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AUTOMATICALLY (bullet) Not available (bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or
call 1-800-544-6666 to
add it.
TDD - SERVICE FOR THE DEAF AND HEARING-IMPAIRED: 1-800-544-0118
</TABLE>
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
NAV is normally calculated at 4 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(bullet) You wish to redeem more than $100,000 worth of shares,
(bullet) Your account registration has changed within the last 30 days,
(bullet) The check is being mailed to a different address than the one on
your account (record address),
(bullet) The check is being made payable to someone other than the account
owner, or
(bullet) The redemption proceeds are being transferred to a Fidelity
account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(bullet) Your name,
(bullet) The fund's name,
(bullet) Your fund account number,
(bullet) The dollar amount or number of shares to be redeemed, and
(bullet) Any other applicable requirements listed in the table at right.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account, you may write an unlimited number
of checks. Do not, however, try to close out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS
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IF YOUR ACCOUNT BALANCE IS LESS THAN $50,000, THERE ARE FEES FOR INDIVIDUAL REDEMPTION
TRANSACTIONS: $2.00 FOR EACH CHECK YOU WRITE AND $5.00 FOR EACH EXCHANGE, BANK WIRE,
AND ACCOUNT CLOSEOUT.
</TABLE>
<TABLE>
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<S> <C> <C>
PHONE All account types (bullet) Maximum check request:
1-800-544-7777 $100,000.
(bullet) For Money Line transfers to
your bank account ;
minimum: none; maximum:
$100,000.
(bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.
MAIL OR IN PERSON Individual, Joint (bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Trust names appear on the
account.
(bullet) The trustee must sign the
letter indicating capacity as
Business or trustee. If the trustee's name
Organization is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
(bullet) At least one person
Executor, authorized by corporate
Administrator, resolution to act on the
Conservator, account must sign the letter.
Guardian (bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(bullet) Call 1-800-544-6666 for
instructions.
WIRE All account types (bullet) You must sign up for the wire
feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.
</TABLE>
CHECK All account types (bullet) Minimum check: $1,000.
(bullet) All account owners must sign
a signature card to receive a
checkbook.
(TDD_GRAPHIC) TDD - SERVICE FOR THE DEAF AND HEARING-IMPAIRED:
1-800-544-0118
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(bullet) Confirmation statements (after every transaction, except
reinvestments, that affects your account balance or your account
registration)
(bullet) Account statements (quarterly)
(bullet) Financial reports (every six months)
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of the fund.
Note that exchanges out of the fund are limited to four per calendar year,
and that they may have tax consequences for you. For complete policies and
restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page 19.
SYSTEMATIC WITHDRAWAL PLANS let you set up monthly or quarterly redemptions
from your account.
FIDELITY MONEY LINE(Registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS
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FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(bullet) For existing accounts, call
1-800-544-6666 for an application.
(bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.
DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(bullet) Changes require a new authorization
form.
FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND
MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.
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<TABLE>
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A BECAUSE ITS SHARE PRICE FLUCTUATES, THE FUND MAY NOT BE AN APPROPRIATE
CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
</TABLE>
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in October
and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The fund offers four
options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
4. DIRECTED DIVIDENDS(Registered trademark) OPTION. Your dividend and
capital gain distributions will be automatically invested in another
identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of the
date the fund deducts the distribution from its share price. The mailing of
distribution checks will begin within seven days.
TAXES
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS.
(checkmark)
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the fund's tax implications.
TAXES ON DISTRIBUTIONS. Interest income that the fund earns is distributed
to shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. The fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
To the extent the fund's income dividends are derived from state tax-free
investments, they will be free from New York state and city income taxes.
TAXES ON TRANSACTIONS. Your redemptions - including exchanges to other
Fidelity funds - are subject to capital gains tax. A capital gain or loss
is the difference between the cost of your shares and the price you receive
when you sell them.
Whenever you sell shares of the fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before the fund deducts a
capital gain distribution from its NAV, you will pay the full price for the
shares and then receive a portion of the price back in the form of a
taxable distribution.
SHAREHOLDER AND ACCOUNT POLICIES
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding up the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market quotations,
if available. Since market quotations are often unavailable, assets are
usually valued by a method that the Board of Trustees believes accurately
reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and the REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require the fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Note that Fidelity will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the identity of the
caller. Fidelity will request personalized security codes or other
information, and may also record calls. You should verify the accuracy of
your confirmation statements immediately after you receive them. If you do
not want the ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page 17 . Purchase orders may be refused if, in FMR's opinion,
they are of a size that would disrupt management of the fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(bullet) All of your purchases must be made in U.S. dollars and checks
must be drawn on U.S. banks.
(bullet) Fidelity does not accept cash.
(bullet) When making a purchase with more than one check, each check must
have a value of at least $50.
(bullet) The fund reserves the right to limit the number of checks
processed at one time.
(bullet) If your check does not clear, your purchase will be cancelled and
you could be liable for any losses or fees the fund or its transfer agent
has incurred.
(bullet) The fund reserves the right to limit all accounts maintained or
controlled by any one person to a maximum total balance of $2 million.
(bullet) You begin to earn dividends as of the first business day
following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUND THROUGH A BROKER, who may charge you
a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
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 financial institution could be held liable
for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(bullet) Normally, redemption proceeds will be mailed to you on the next
business day, but if making immediate payment could adversely affect the
fund, it may take up to seven days to pay you.
(bullet) Shares will earn dividends through the date of redemption;
however, shares redeemed on a Friday or prior to a holiday will continue to
earn dividends until the next business day.
(bullet) Fidelity Money Line redemptions generally will be credited to
your bank account on the second or third business day after your phone
call.
(bullet) The fund may hold payment on redemptions until it is reasonably
satisfied that investments made by check or Fidelity Money Line have been
collected, which can take up to seven business days.
(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.
(bullet) If you sell shares by writing a check and the amount of the check
is greater than the value of your account, your check will be returned to
you and you may be subject to additional charges.
THE FEES FOR INDIVIDUAL TRANSACTIONS are waived if your account balance at
the time of the transaction is $50,000 or more. Otherwise, you should note
the following:
(bullet) The $2.00 checkwriting charge will be deducted from your account.
(bullet) The $5.00 exchange fee will be deducted from the amount of your
exchange.
(bullet) The $5.00 wire fee will be deducted from the amount of your
wire .
(bullet) The $5 . 00 account closeout fee does not apply to exchanges
or wires, but it will apply to checkwriting.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed and the $5.00 account closeout fee will be
charged.
FIDELITY MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
EXCHANGE RESTRICTIONS
As a shareholder, you have the privilege of exchanging shares of the fund
for shares of other Fidelity funds. However, you should note the following:
(bullet) The fund you are exchanging into must be registered for sale in
your state.
(bullet) You may only exchange between accounts that are registered in the
same name, address, and taxpayer identification number.
(bullet) Before exchanging into a fund, read its prospectus.
(bullet) If you exchange into a fund with a sales charge, you pay the
percentage-point difference between that fund's sales charge and any sales
charge you have previously paid in connection with the shares you are
exchanging. For example, if you had already paid a sales charge of 2% on
your shares and you exchange them into a fund with a 3% sales charge, you
would pay an additional 1% sales charge.
(bullet) Exchanges may have tax consequences for you.
(bullet) Because excessive trading can hurt fund performance and
shareholders, the fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year. Accounts under common
ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(bullet) The fund reserves the right to refuse exchange purchases by any
person or group if, in FMR's judgment, the fund would be unable to invest
the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
(bullet) Your exchanges may be restricted or refused if the fund receives
or anticipates simultaneous orders affecting significant portions of the
fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the fund.
Although the fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. The
fund reserves the right to terminate or modify the exchange privilege in
the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.
<
r>THE FUND IN DETAIL</r>
CHARTER
SPARTAN NEW YORK INTERMEDIATE MUNICIPAL IS A MUTUAL FUND: an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the fund is currently a non-diversified fund of Fidelity
New York Municipal Trust, an open-end management investment company
organized as a Massachusetts business trust on April 25, 1983.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Fidelity will
mail proxy materials in advance, including a voting card and information
about the proposals to be voted on. You are entitled to one vote for each
share you own.
FMR AND ITS AFFILIATES
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs.
David Murphy is manager of Spartan New York Intermediate Municipal which
he has managed since it commenced operations on December 22, 1993. Mr.
Murphy also manages Limited Term Municipals, Spartan Short-Intermediate
Municipal, New York Tax-Free Insured, Spartan Intermediate Municipal and
Spartan New Jersey Municipal High Yield. Before joining Fidelity in 1989,
he managed municipal bond funds at Scudder, Stevens & Clark.
FDC distributes and markets Fidelity's funds and services. Fidelity Service
Co. (FSC) performs transfer agent servicing functions for the fund.
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds
in the world.
(bullet) Number of Fidelity mutual
funds: over 200
(bullet) Assets in Fidelity mutual
funds: over $200 billion
(bullet) Number of shareholder
accounts: over 14 million
(bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
FMR Corp. is the parent company of these organizations. Through ownership
of voting common stock, Edward C. Johnson 3d (President and a trustee of
the trust), Johnson family members, and various trusts for the benefit of
the Johnson family form a controlling group with respect to FMR Corp.
United Missouri Bank, N.A., is the fund's transfer agent, although it
employs FSC to perform these functions for the fund. It is located at 1010
Grand Avenue, Kansas City, Missouri.
To carry out the fund's transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that the fund
receives services and commission rates comparable to those of other
broker-dealers.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. The fund pays
the fee at the annual rate of .55% of its average net assets.
FSC performs many transaction and accounting functions for the fund. These
services include processing shareholder transactions and calculating the
fund's share price. FMR, and not the fund, pays for these services.
To offset shareholder service costs, FMR or its affiliates collect the
fund's $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire
purchases and redemptions, and the $2.00 checkwriting charge.
The fund has adopted a Distribution and Service Plan. This plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. It is important to
note, however, that the fund does not pay FMR any separate fees for this
service.
The fund's portfolio turnover rate for fiscal 1994 is estimated to
not exceed 100%. This rate varies from year to year.
INVESTMENT PRINCIPLES
THE FUND SEEKS HIGH CURRENT INCOME that is exempt from federal
income tax and from New York state and city income taxes. FMR normally
invests at least 65% of the fund's total assets in New York municipal
securities, and normally invests at least 80% of the fund's assets in
municipal securities whose interest is free from federal income tax.
If you are subject to the federal alternative minimum tax, you should note
that the fund may invest all of its assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
The fund's level of risk and potential reward depend on the quality and
maturity of its investments. The fund invests mainly in
investment - grade quality municipal bonds, although it may also
invest in lower-quality bonds. The fund's dollar - weighted average
maturity will normally range from three to 10 years. Typically,
lower-quality, longer-term investments carry more risk and higher yield
potential.
The fund's yield and share price will change based on changes in interest
rates. In general, bond prices rise when interest rates fall, and vice
versa. FMR may use various investment techniques to hedge the fund's risks,
but there is no guarantee that these strategies will work as intended. When
you sell your shares, they may be worth more or less than what you paid for
them.
The fund's performance is also closely tied to the economic and political
conditions within the state of New York. Both the city and state of
New York have recently experienced significant financial difficulties, and
the state's credit standing is one of the lowest in the country. It is
not currently possible to determine the impact of these factors on the
ability of New York issuers to meet their obligations.
FMR normally invests the fund's assets according to its investment strategy
and does not expect to invest in federally or state
tax able obligations. When FMR considers it appropriate, however, it
may temporarily invest substantially in cash that is not earning interest
or in short-term instruments, or may invest more than normally
permitted in taxable obligations.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, and strategies FMR may employ in
pursuit of the fund's investment objective. A summary of risks and
restrictions associated with these instrument types and investment
practices is included as well. Policies and limitations are considered at
the time of purchase; the sale of instruments is not required in the event
of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
fund achieve its goal. As a shareholder, you will receive financial reports
every six months detailing fund holdings and describing recent investment
activities.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Investment-grade debt securities are medium- to high-quality securities.
Some, however, may possess speculative characteristics and may be more
sensitive to economic changes and changes in the financial condition of
issuers.
RESTRICTIONS: The fund may not invest more than 40% of its total assets in
securities rated below A by Moody's Investors Service, Inc. or Standard
& Poor's Corporation, and unrated securities judged by FMR to be of
equivalent quality. The fund does not intend to invest more than 5% of its
assets in securities rated Ba/BB or lower, and unrated securities of
equivalent quality.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities
may be issued in anticipation of future revenues, and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. A security's credit may be
enhanced by a bank, insurance company, or other financial institution. The
fund may own a municipal security directly or may own one through a
participation interest.
NEW YORK MUNICIPAL SECURITIES include obligations issued by the state of
New York or its counties, municipalities, authorities, or other
subdivisions. The ability of issuers to repay their debt can be affected by
many factors that impact the economic vitality of either the state or a
region within the state.
Other securities that provide state tax-free income include general
obligations of U.S. territories and possessions such as Guam, the Virgin
Islands, and Puerto Rico, and their political subdivisions and public
corporations. The economy of Puerto Rico is closely linked to the U.S.
economy, and will depend on the strength of the U.S. dollar, interest
rates, the price stability of oil imports, and the continued existence of
favorable tax incentives. Recent legislation reduced these incentives, but
it is impossible to predict what impact the changes will have.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and
credit quality of these securities.
ASSET-BACKED SECURITIES may include pools of purchase contracts, financing
leases, or sales agreements entered into by municipalities. These
securities usually rely on continued payments by a municipality, and may
also be subject to prepayment risk.
VARIABLE AND FLOATING-RATE INSTRUMENTS may have interest rates that move in
tandem with a benchmark, helping to stabilize their prices. Inverse
floaters have interest rates that move in the opposite direction from the
benchmark, making the instrument's market value more volatile.
PUT FEATURES entitle the holder to put (sell back) an instrument to the
issuer or a financial intermediary. In exchange for this benefit, the fund
may pay periodic fees or accept a lower interest rate. Demand features and
standby commitments are types of put features.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the fund's yield.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of other securities may be subject to legal restrictions.
Difficulty in selling securities may result in a loss or may be costly to
the fund.
RESTRICTIONS: The fund may not purchase a security if, as a result, more
than 10% of its assets would be invested in illiquid securities.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: The fund is considered non-diversified. With respect to 50%
of total assets, the fund may not invest more than 5% of its total assets
in any one issuer. The fund may not invest more than 25% of its total
assets in any one issuer. These limitations do not apply to U.S. government
securities. The fund may invest more than 25% of its total assets in
tax-free securities that finance similar types of projects.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency
purposes , but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
The fund seeks a high level of current income exempt from federal income
tax and New York state and city income taxes. Under normal conditions, the
fund will invest at least 80% of its assets in municipal securities
whose interest is free from federal income tax. The fund may borrow
only for temporary or emergency purposes, but not in an amount
exceeding 33% of its total assets.
This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(registered trademark) NEW YORK INTERMEDIATE MUNICIPAL PORTFOLIO
A FUND OF FIDELITY NEW YORK MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 22, 1993
This Statement is not a prospectus but should be read in conjunction with
the fund's current Prospectus (dated December 22, 1993). Please retain this
document for future reference. To obtain an additional copy of the
Prospectus , please call Fidelity Distributors Corporation at
1-800-544-8888.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations 2
Special Factors Affecting New York 8
Special Factors Affecting Puerto Rico 12
Portfolio Transactions 13
Valuation of Portfolio Securities 14
Performance 14
Additional Purchase and Redemption Information 17
Distributions and Taxes 17
FMR 18
Trustees and Officers 18
Management Contract 19
Distribution and Service Plan 20
Interest of FMR Affiliates 20
Description of the Trust 21
Appendix 21
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
United Missouri Bank, N.A. (United Missouri) and Fidelity Service Co. (FSC)
SNI-ptb-1293
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations set forth below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval. THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objectives, policies, and limitations as the fund
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company," the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (2)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to invest more than 25% of its
total assets in industrial revenue bonds related to a single industry.
(vii) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(viii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(ix) The fund does not currently intend to 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.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions"
beginning on page 6 .
AFFILIATED BANK TRANSACTIONS. Pursuant to exemptive orders issued by the
Securities and Exchange Commission (SEC), the fund may engage in
transactions with banks that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. Such
transactions may be entered into only pursuant to procedures established
and periodically reviewed by the Board of Trustees. These transactions may
include repurchase agreements with custodian banks; purchases, as
principal, of short-term obligations of, and repurchase agreements with,
the 50 largest U.S. banks (measured by deposits); transactions in municipal
securities; and transactions in U.S. government securities with affiliated
banks that are primary dealers in these securities.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security (and more than
seven days in the future). Typically, no interest accrues to the purchaser
until the security is delivered. The fund may receive fees for entering
into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If the fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
INTERFUND BORROWING PROGRAM. The fund has received permission from the SEC
to lend money to and borrow money from other funds advised by FMR or its
affiliates,but will participate in the interfund borrowing program only as
a borrower. Interfund loans normally will extend overnight, but can have a
maximum duration of seven days. The fund will borrow through the program
only when the costs are equal to or lower than the cost of bank loans.
Loans may be called on one day's notice, and the fund may have to borrow
from a bank at a higher interest rate if an interfund loan is called or not
renewed.
REFUNDING CONTRACTS. The fund may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the fund
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
The fund generally will not be obligated to pay the full purchase price if
it fails to perform under a refunding contract. Instead, refunding
contracts generally provide for payment of liquidated damages to the issuer
(currently 15-20% of the purchase price). The fund may secure its
obligations under a refunding contract by depositing collateral or a letter
of credit equal to the liquidated damages provisions of the refunding
contract. When required by SEC guidelines, the fund will place liquid
assets in a segregated custodial account equal in amount to its obligations
under refunding contracts.
VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS.(VRDOs/FRDOs) are tax-exempt
obligations that bear variable or floating interest rates and carry rights
that permit holders to demand payment of the unpaid principal balance plus
accrued interest from the issuers or certain financial intermediaries.
Floating-rate securities have interest rates that change whenever there is
a change in a designated base rate while variable-rate instruments provide
for a specified periodic adjustment in the interest rate. These formulas
are designed to result in a market value for the VRDO or FRDO that
approximates its par value.
The fund may invest in fixed-rate bonds that are subject to third party
puts and in participation interests in such bonds held by a bank in trust
or otherwise. These bonds and participation interests have tender options
or demand features that permit the fund to tender (or put) their bonds to
an institution at periodic intervals and to receive the principal amount
thereof. The fund consider variable-rate instruments structured in this way
(Participating VRDOs) to be essentially equivalent to other VRDOs they
purchase. The IRS has not ruled whether the interest on Participating VRDOs
is tax-exempt and, accordingly, the fund intends to purchase these
instruments based on opinions of bond counsel.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, the fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the fund, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
ZERO COUPON BONDS. The fund may purchase units of beneficial interest in
pools of purchase contracts, financing leases, and sales agreements entered
into by municipalities. These municipal obligations may be created when a
municipality enters into an installment purchase contract or lease with a
vendor and may be secured by the assets purchased or leased by the
municipality. However, except in a very limited circumstances, there will
be no recourse against the vendor if the municipality stops making
payments. The market for tax-exempt asset-backed securities is still
relatively new. These obligations are more likely to involve unscheduled
prepayments of principal.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. The fund may
acquire standby commitments to enhance the liquidity of portfolio
securities, but only when the issuers of the commitments present minimal
risk of default.
Ordinarily the fund will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third
party at any time. The fund may purchase standby commitments separate from
or in conjunction with the purchase of securities subject to such
commitments. In the latter case, the fund would pay a higher price for the
securities acquired, thus reducing their yield to maturity. Standby
commitments will not affect the dollar-weighted average maturity of the
fund, or the valuation of the securities underlying the commitments.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the fund; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
MUNICIPAL LEASE OBLIGATIONS. The fund may invest a portion of its assets in
municipal leases and participation interests therein. These obligations,
which may take the form of a lease, an installment purchase, or a
conditional sale contract, are issued by state and local governments and
authorities to acquire land and a wide variety of equipment and facilities.
Generally, the fund will not hold such obligations directly as a lessor of
the property, but will purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives
the fund a specified, undivided interest in the obligation in proportion to
its purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
FEDERALLY TAXABLE OBLIGATIONS. The fund does not intend to invest in
securities whose interest is federally taxable; however, from time to time,
the fund may invest a portion of its assets on a temporary basis in
fixed-income obligations whose interest is subject to federal income tax.
For example, [the / each] fund may invest in obligations whose interest is
federally taxable pending the investment or reinvestment in municipal
securities of proceeds from the sale of its shares or sales of portfolio
securities.
Should the fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The funds standards for high-quality, taxable obligations are
essentially the same as those described by Moody's Investors Service, Inc.
(Moody's) in rating corporate obligations within its two highest ratings of
Prime-1 and Prime-2, and those described by Standard & Poor's
Corporation (S&P) in rating corporate obligations within its two
highest ratings of A-1 and A-2.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before the New York legislature
that would affect the state tax treatment of the funds' distributions. If
such proposals were enacted, the availability of municipal obligations and
the value of the [fund's / funds'] holdings would be affected and the
Trustees would reevaluate the funds' investment objectives and policies.
The fund anticipates being as fully invested as practicable in municipal
securities; however, there may be occasions when, as a result of maturities
of portfolio securities, sales of fund shares, or in order to meet
redemption requests, the fund may hold cash that is not earning income. In
addition, there may be occasions when, in order to raise cash to meet
redemptions, the fund may be required to sell securities at a loss.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment). Investments currently considered
by the fund to be illiquid include over-the-counter options. Also, FMR may
determine some restricted securities and municipal lease obligations to be
illiquid. However, with respect to over-the-counter options the fund
writes, all or a portion of the value of the underlying instrument may be
illiquid depending on the assets held to cover the option and the nature
and terms of any agreement the fund may have to close out the option before
expiration. In the absence of market quotations, illiquid investments are
priced at fair value as determined in good faith by a committee appointed
by the Board of Trustees. If through a change in values, net assets, or
other circumstances, the fund were in a position where more than 10% of its
net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time the fund may be permitted
to sell a security under an effective registration statement. If, during
such a period, adverse market conditions were to develop, the fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security.
LOWER-RATED MUNICIPAL SECURITIES. The fund may invest a portion of its
assets in lower-rated municipal securities as described in the Prospectus.
While the market for New York municipals is considered to be adequate,
adverse publicity and changing investor perceptions may affect the ability
of outside pricing services used by the fund to value its portfolio
securities, and the fund's ability to dispose of lower-rated bonds. The
outside pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed-upon price on an agreed-upon date within a number of days from
the date of purchase. 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. A repurchase agreement is a taxable
obligation which involves the obligation of the seller to pay the
agreed-upon price, which obligation is in effect secured by the value (at
least equal to the amount of the agreed-upon resale price and marked to
market daily) of the underlying security. The fund may engage in repurchase
agreements with respect to any security in which it is authorized to
invest. While it does not presently appear possible to eliminate all risks
from these transactions (particularly the possibility of a decline in the
market value of the underlying securities, as well as delays and costs to
the fund in connection with bankruptcy proceedings), it is the fund's
policy to limit repurchase agreement transactions to parties whose
creditworthiness has been reviewed and found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness has been found satisfactory by FMR. Such
transactions may increase fluctuations in the market value of the fund's
assets and may be viewed as a form of leverage.
INVERSE FLOATERS are instruments whose interest rates bear an inverse
relationship to the interest rate on another security or the value of an
index. Changes in the interest rate on the other security or index
inversely affect the residual interest rate paid on the inverse floater,
with the result that the inverse floater's price will be considerably more
volatile than that of a fixed-rate bond. For example, a municipal issuer
may decide to issue two variable-rate instruments instead of a single
long-term, fixed-rate bond. The interest rate on one instrument reflects
short-term interest rates, while the interest rate on the other instrument
(the inverse floater) reflects the approximate rate the issuer would have
paid on a fixed-rate bond, multiplied by two, minus the interest rate paid
on the short-term instrument. Depending on market availability, the two
portions may be recombined to form a fixed-rate municipal bond. The market
for inverse floaters is relatively new.
INDEXED SECURITIES. The fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, or other
financial indicators. Indexed securities typically, but not always, are
debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. Indexed
securities may have principal payments as well as coupon payments that
depend on the performance of one or more interest rates. Their coupon rates
or principal payments may change by several percentage points for every 1%
interest rate change. One example of indexed securities is inverse
floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund intends to file 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, before engaging in any purchases or sales of futures
contracts or options on futures contracts. The fund intends to comply with
Section 4.5 of the regulations under the Commodity Exchange Act, which
limits the extent to which the fund can commit assets to initial margin
deposits and option premiums.
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 25% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the fund's investments in futures contracts and
options, and the fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information may be
changed as regulatory agencies permit.
FUTURES CONTRACTS. When the fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
the fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of the fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of the fund, the fund may
be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, the fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures
contract the fund will be required to make margin payments to an FCM as
described above for futures contracts. The fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would expect to profit, although its
gain would be limited to the amount of the premium it received. If security
prices remain the same over time, it is likely that the writer will also
profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This
loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option
should mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
COMBINED POSITIONS. The fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, the fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the fund's current or
anticipated investments exactly. The fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, the fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
fund greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply with
guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of
the fund's assets could impede portfolio management or the fund's ability
to meet redemption requests or other current obligations.
HEALTH CARE INDUSTRY. The health care industry is subject to regulatory
action by a number of private and governmental agencies, including federal,
state, and local governmental agencies. A major source of revenues for the
health care industry is payments from Medicare and Medicare 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; medical and
technological advances which dramatically alter the need for health
services or the way in which such services are delivered; and efforts by
employers, insurers, and governmental agencies to reduce the costs of
health insurance and health care services.
SPECIAL FACTORS AFFECTING NEW YORK
The financial condition of the State of New York (the State), its public
authorities and public benefit corporations (the Authorities) and its local
governments, particularly The City of New York (the City), could affect the
market values and marketability of, and therefore the net asset value per
share and the interest income of, the funds, or result in the default of
existing obligations, including obligations which may be held by the funds.
The following section provides only a brief summary of the complex factors
affecting the financial situation in New York and is based on information
obtained from the State, certain of its Authorities, the City and certain
other localities, as publicly available on the date of this Statement of
Additional Information. The information contained in such publicly
available documents has not been independently verified. It should be noted
that the creditworthiness of obligations issued by local issuers may be
unrelated to the creditworthiness of the State, and that there is no
obligation on the part of the State to make payment on such local
obligations in the event of default in the absence of a specific guarantee
or pledge provided by the State.
The State and the City have been facing serious financial difficulties and
have each experienced recent declines in their credit standings. Standard
& Poor's Corporation and Moody's Investors Service Inc. have each
assigned ratings for the State's general obligation bonds that are among
the three lowest of the 50 states. The ratings of certain related debt of
other issuers for which the State has an outstanding moral obligation,
lease purchase, guarantee or other contractual obligation are generally
linked directly to the State's rating. Should the financial condition of
the State, its Authorities, or its local governments deteriorate, their
respective credit ratings could be further reduced, and the market value
and marketability of their outstanding notes and bonds could be adversely
affected, and their respective access to the public credit markets
jeopardized.
ECONOMIC FACTORS. New York is the second most populous state, and
historically has been one of the wealthiest states in the nation. However,
the State economy has grown more slowly than that of the nation as a whole,
resulting in the gradual erosion of its relative economic affluence (due to
factors such as relative costs for taxes, labor, and energy). The State's
manufacturing and maritime base have been seriously eroded, as illustrated
by the decline of the steel industry in the Buffalo area and of the apparel
and textile industries in the City. In addition, the City experienced
substantial socio-economic changes, as a large segment of its population
and a significant share of corporate headquarters and other businesses
relocated (many out-of-state).
Both the State and the City experienced substantial revenue increases in
the mid-1980s attributable directly (corporate income and financial
corporations taxes) and indirectly (personal income and a variety of other
taxes) to growth in new jobs, rising profits, and capital appreciation
derived from the finance sector of the City's economy. From 1977 to its
1988 peak, the finance, insurance, and real estate sectors rose 55%, to
account in 1988 for 23% of total earnings in the City and 14% statewide
(compared to 7% nationwide). The finance sector's growth was a catalyst for
the New York metropolitan region's related business and professional
services, retail trade and residential and commercial real estate markets.
The then rising real estate market contributed to City revenues, as higher
property values and new construction added to collections from property
taxes, mortgage recording, and transfer taxes and sales taxes on building
materials. The boom on Wall Street more than compensated for the continued
erosion of the State's (and the City's) manufacturing and maritime base,
since average wages in finance and related business and professional
services were substantially higher (thereby providing a net increase of
higher incomes, taxed at even higher marginal rates).
However, the effects of the October 1987 stock market crash and the 1990-92
national recession have had a disproportionately adverse impact on the New
York metropolitan region, as private sector job losses since 1989 have
offset all the prior employment gains of the 1980s. Declines in both
employment and earnings in the finance sector contributed to declines in
retail sales and real estate values. In addition, a number of widely
publicized bankruptcies among highly leveraged retailing, brokerage and
real estate development companies occurred. The effects of the recession
have extended to banking, insurance, business services (such as law,
accounting and advertising), publishing and communications. Factors which
may inhibit the City's economic recovery include (i) credit restraints
imposed by the weak financial condition of several major money center banks
located in the City; (ii) increases in combined State and local tax
burdens, if uncompetitive tax rates are imposed; (iii) perceived declines
in the quality of life attributable to service reductions and the
deterioration of the City's aging and dilapidated infrastructure; or (iv)
additional employment losses in the City's banking sector or corporate
headquarters complex due to further corporate relocations or
restructurings. The City's future economic condition will also likely be
affected by its competitive position as a world financial center (compared
to London, Tokyo, Frankfurt, and competing regional U.S. centers).
While the State's economy (the nation's second largest) is broader-based
than that of the City, particular industries are concentrated in and have a
disproportionate impact on certain areas, such as aerospace in Long Island,
heavy industry in Buffalo, photographic and optical equipment in Rochester,
machinery and transportation equipment in Syracuse and Utica-Rome,
computers in Binghamton and in the Mid-Hudson Valley, and electrical
equipment in Schenectedy. Of the six largest private employers in the State
outside the City, three derive a significant share of their revenues from
contracts with the Defense Department, whose budget (and contract outlays)
may be further reduced during the 1990s. In addition, State government has
a significant local economic impact on the Albany area and on communities
where state university campuses or corrections and mental health facilities
are located. Constraints on economic growth, taxpayer resistance to
proposed substantial increases in local tax rates, and reductions in State
aid in regions apart from the City have contributed to financial
difficulties for several county and other local governments.
These recent trends have had, and may continue to have, an adverse impact
on both State and local government revenue receipts. The adverse fiscal
impact on the State and its local governments (especially the City, Suffolk
County and Buffalo) of the 1990-92 national recession has been substantial,
and could worsen if the recession deepens or is protracted locally.
THE STATE. The State has been experiencing substantial financial
difficulties, with General Fund (the principal operating account) deficits
incurred in each of the past five fiscal years (ending March 31). The
State's accumulated General Fund deficit (on a GAAP-basis) grew 91% from
FY1986-87 to FY1990-91, and reached a then-record $6.265 billion (audited)
by March 31, 1991. Due largely to the accounting treatment of State aid to
local governments now paid by New York State Local Government Assistance
Corporation (as described below), the State had a General Fund surplus (on
a GAAP basis) of $1.668 billion in FY1991-92 (although the State issued
$531 million of its deficit notes at fiscal year end to avert a cash-basis
deficit). As a consequence, the accumulated General Fund deficit at March
31, 1992 was restated to be $4.616 billion. In the process of adopting the
FY1992-93 budget, the State was required to close a potential $4.8 billion
revenue and expenditure gap. While the State is expected to end FY1992-93
with a modest cash basis surplus for FY1992-93, published reports indicate
that it faces a potential $3.7 billion gap in preparing a FY1993-94 budget.
There can be no assurance that the State will not face budget gaps in
future years, resulting from a disparity between tax revenues projected
from a lower recurring-receipts base and the spending required to maintain
State programs at current levels. Furthermore, the State is a party to
numerous lawsuits in which an adverse decision could require extraordinary
expenditures. Certain major budgetary considerations affecting the State
are outlined below.
REVENUE BASE. The State's principal revenue sources are economically
sensitive, and include the personal income tax (55% of estimated FY1992-93
General Fund tax receipts), user taxes and fees (16%), and business taxes
(19%). One-fourth of the 4% State sales tax has been dedicated to pay debt
service of the New York Local Government Assistance Corporation, and has
correspondingly reduced General Fund receipts. Capital gains are a
significant component of income tax collections. Auto sales and building
materials are significant components of retail sales tax collections. Tax
rates are relatively high and may impose political and economic constraints
on the ability of the State to further increase its taxes. State
legislation enacted in 1987 phased in a reduction in the top rate of the
State's personal income tax; these tax cuts have substantially reduced the
recurring revenues of the State. The final phase-in (originally scheduled
for October 1990) has been deferred three times, and is currently scheduled
for 1993. If the additional personal income tax rate cut is implemented as
scheduled and the surcharge on business income is reduced from the current
15% to 10% as required by current law, State receipts could fall by
approximately $1 billion. In the absence of countervailing economic growth
or expenditure cuts such actions could make the achievement of a balanced
State budget more difficult in future years.
STATE DEBT. The State has the heaviest debt burden of any state (with
nearly $5.0 billion of general obligation and $16.8 billion of
lease-purchase or other contractual debt outstanding as of June 30, 1992),
and debt service costs absorb a large share of the State's budget. The
State is also obligated with respect to nearly $8.2 billion for statutory
moral obligations for 9 of its Authorities and for guarantees of $498
million of other Authority debt. In addition, the State has one of the
largest seasonal financing requirements of any municipal issuer, and is
required each spring to borrow substantial sums from public credit markets
to finance its accumulated General Fund deficit and its scheduled payments
of aid to local governments and school districts. No assurance can be given
that the State will be able to continue to meet its financing requirements
in the public credit markets at the times or in the amounts required. The
annual Spring Borrowing is contingent on the certification by the State
Comptroller that the newly adopted State budget is balanced. Prior delays
in the Spring Borrowing in recent years owing to delayed enactment of the
State budget have resulted in delays in the scheduled payments of State aid
and have consequently caused various local governments and school districts
to experience cash flow difficulties. For the fourth consecutive year, a
growing budget gap caused the State at the end of its fiscal year to issue
$531 million of its short-term notes (payable from the next year's tax
receipts) to finance its FY1991-92 deficit. The State recently created the
New York State Local Government Assistance Corporation (LGAC) as a
financing vehicle to reduce the State's seasonal financing needs by having
LGAC finance the State's local assistance payments by issuing long-term
debt, payable over 30 years from a portion of the State sales tax. The
enabling legislation for LGAC contains a covenant restricting the amount of
the State's Spring Borrowing, which may reduce the State's fiscal
flexibility.
BUDGETARY FLEXIBILITY. A major share of the State's General Fund budget is
accounted for by contractually required expenses (such as pension and debt
service costs) and by federally mandated programs (such as AFDC and
Medicaid). In addition, State aid for school districts comprises a major
share of the budget, and total appropriations and distribution of such aid
is especially contentious politically. Furthermore, the State has utilized
a substantial range of actions of a non-recurring nature in recent years to
finance its General Fund operations, including tapping excess monies in
special funds, refinancing outstanding debt to reduce reserve fund
requirements and current (but not long-term) debt service costs,
recalculating pension fund contributions, selling state assets, reimbursing
past General Fund expenditures by the issuance of Authority debt, and
deferring payment for expenditures to future fiscal years. Such actions may
have reduced the State's ability to respond to unanticipated events in the
future.
POLITICAL FACTORS. Political control of the Legislature has been divided
between the Senate and the Assembly for most of the State's recent history,
and has contributed to protracted State budget negotiations that have
delayed enactment of the State budget past the April 1 constitutional
deadline in each of the past eight years. In addition, the independently
elected State Comptroller audits state agencies, Authorities and local
governments, and issues reports from time to time that may result in
adverse publicity or conflicting fiscal projections.
LABOR COSTS. The State government workforce is mostly unionized, subject to
the Taylor Law which authorizes collective bargaining and prohibits (but
has not historically prevented) strikes and work slowdowns. Costs for
employee health benefits have increased substantially, and can be expected
to further increase. The State has a substantial unfunded liability for
future pension benefits, and has utilized changes in its pension fund
investment return assumptions to reduce current contribution requirements.
If such investment earnings assumptions are not sustained by actual
results, additional State contributions will be required in future years to
meet the State's contractual obligations.
PUBLIC ASSISTANCE. The State has the second largest number of persons
receiving public assistance (AFDC and Home Relief) of any state. AFDC costs
are shared among the federal government, the State and its counties
(including the City) by statutory formula. Caseloads tend to rise
significantly during economic downturns, but have fallen only in the later
stages of past economic recoveries.
MEDICAID. The State participates in the federal Medicaid program under a
state plan approved by the Health Care Financing Administration. The
federal government provides 50% of eligible program costs, with the
remainder shared by the State and its counties (including the City). The
Governor has proposed that the State assume local costs for Medicaid, but
enabling legislation has not yet been adopted. Basic program eligibility
and benefits are determined by federal guidelines, but the State provides a
number of optional benefits and expanded eligibility. Program costs have
increased substantially in recent years, and account for a rising share of
the State budget. Federal law requires the State adopt reimbursement rates
for hospitals and nursing homes that are reasonable and adequate to meet
the costs that must be incurred by efficiently and economically operated
facilities in providing patient care, a standard that has led to past
litigation by hospitals and nursing homes seeking higher reimbursement from
the State. Cutbacks in State spending for Medicaid may adversely affect the
financial condition of hospitals and health care institutions that are the
obligors of bonds that may be held by the funds.
ENERGY COSTS. Increases in energy costs, especially for heating oil and
gasoline, may exceed budgeted amounts. Such costs are related to the
severity of winter conditions and to international developments affecting
the petroleum market.
ENVIRONMENTAL PROTECTION. Federal legislation and Environment Protection
Agency regulations mandate compliance with various standards for air and
water pollution and hazardous wastes. Many jurisdictions within the State
(including the City) are not in compliance with such standards, and are
subject to a range of penalties. No assurance can be given that the State
or its local governments will meet such standards within the current
deadlines for compliance under such regulations or consent decrees, or that
such deadlines will be further extended. The costs of compliance are
substantial, as may be the costs of penalties that may be imposed on the
State or its local governments.
THE STATE AUTHORITIES. The State's Authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the
State itself, and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization. The New York
State Public Authorities Control Board approves the issuance of debt and
major contracts by ten of the Authorities. As of September 30, 1991, there
were 17 Authorities that had outstanding debt of $100 million or more, the
aggregate debt of which (including refunding bonds and moral obligation or
State-guaranteed debt) then totaled approximately $57.1 billion. In recent
years the State has provided financial assistance through appropriations,
in some cases of a recurring nature, to certain Authorities for operating
and other expenses and, (from 1976 to 1987) in fulfillment of its
commitments on moral obligation indebtedness or otherwise, for debt
service. The State has budgeted operating assistance of approximately $853
million for the Metropolitan Transportation Authority (MTA) and $20 million
for four other Authorities (including the State Housing Finance Agency and
the State Urban Development Corporation) during FY1992-93. This assistance
is expected to continue to be required (and may increase) in future years.
Failure by the State to appropriate necessary amounts or to take other
action to permit the Authorities to meet their obligations could result in
a default by one or more of the Authorities (as happened in 1975 by the
Urban Development Corporation).
The MTA, where credit standing was recently cut, oversees the operation of
the City's subway and bus lines by its affiliates, the New York City
Transit Authority and the Manhattan and Bronx Surface Transit Operating
Authority (collectively, the "TA"). MTA subsidiaries operate certain
commuter rail and bus lines in the New York metropolitan area. An
affiliated agency, the Triborough Bridge and Tunnel Authority (TBTA),
operates certain intrastate toll bridges and tunnels. To maintain its
facilities and equipment, which deteriorated significantly in the late
1970s due to deferred maintenance, the MTA prepares a four year capital
program subject to approval by the MTA Capital Program Review Board. The
proposed 1992-1996 program (rejected by the Review Board) projected total
spending requirements of $10 billion, but identified only $6 billion in
potential funding. The MTA is facing a substantial budget deficit in 1993
(not accounting for any wage increase) in TA operations due to a falloff in
ridership, reduced collections from dedicated taxes (mortgage recording and
realty transfer taxes) and reduced State and City aid. Because fares are
not sufficient to finance its mass transit operations, the MTA has depended
and will continue to depend for operating support upon a system of State,
local government and TBTA support, and, to the extent available, federal
assistance (including loans, grants and operating subsidies). A regional
business tax surcharge, which provided $59 million in revenues to the MTA
in 1991, is scheduled to expire, unless extended by the Legislature, in
November 1993. In addition, the City provides a substantial subsidy to the
TA. There can be no assurance that any such assistance will continue at any
particular level or in any fixed relationship to the operating costs and
capital needs of the MTA.
THE CITY. In the early 1970s, the City incurred substantial operating
deficits, and its financial controls, accounting practices, and disclosure
policies were widely criticized. In 1975, the City encountered severe
financial difficulties and lost access to the public credit markets. The
State Legislature responded in 1975 by creating the Municipal Assistance
Corporation For The City of New York (MAC) to provide financing assistance
for the City and the Financial Control Board to exercise certain oversight
and review functions with respect to the City's finances. The Financial
Control Board's powers over the City were suspended in June 1986, but would
be reinstated (under current law) if the City experiences certain adverse
financial circumstances. At the time of the fiscal crisis, the State
provided substantial financial assistance to the City, the federal
government provided the City with direct seasonal loans and guarantees on
the City's long-term debt, and the City's labor unions accepted deferrals
of wage increases and approved purchases of City bonds by the pension
funds. No assurance can be given that similar assistance would again be
made available if needed, particularly given the current budgetary
constraints faced by both the federal and State governments.
The City provides services usually undertaken by counties, school districts
or special districts in other large urban areas. State law requires the
City to allocate at least 40% of its General Fund to Board of Education
operations, and mandates the City to assume the local share of public
assistance and Medicaid costs. The City had GAAP operating surpluses of
$567 million in FY1987, $225 million in FY1988, $409 million in FY1989,
$253 million in FY1990, $27 million in FY1991 and $570 million in FY1992
before discretionary transfers and expenditures. The City has experienced
substantial financial difficulties in the early 1990s, primarily related to
the impact of the recession on the local economy (reducing revenues from
most major taxes and increasing public assistance and Medicaid caseloads),
rising health care costs for City employees and for Medicaid, and the
repeated deferral of the sale of the New York Coliseum site to a private
developer. In response, the City implemented gap-closing programs in FY1990
and in FY1991 which enabled the City to offset a potential $3.2 billion
deficit in FY1991 and to achieve modest GAAP surpluses in those years. The
programs initially relied primarily on actions of a non-recurring nature,
but included substantial property tax rate increases and a personal income
tax surcharge imposed in FY1991 and selected service cutbacks. Reductions
in State aid, larger than budgeted labor settlements and increased police
expenditures added to the adverse budgetary impact of the local recession,
confronting the City with a potential $3.3 billion imbalance during FY1992
budget negotiations. This initial budget gap was closed by adoption of a
budget providing for various tax increases and significant service
reductions. Aid to nonprofit cultural institutions in the City was
significantly reduced (as was State aid to such institutions), including
certain institutions that are obligors of bonds that may be held by the
funds.
The City's four year financial plan for FY1993-FY1996 (as modified by the
Mayor's preliminary budget for FY1994), while projecting a modest budget
surplus for FY1993, recommended measures to close a potential budget gap of
$2.1 billion in FY1994; the Mayor further identified potential budget gaps
in later fiscal years (rising to $3.8 billion in FY1996). The plan
contained numerous assumptions concerning factors which may impact the
City's budget, such as: the willingness and ability of MAC to take actions
necessary in transitional funding for FY1994 and FY1995; the willingness
and ability of the federal and State governments to provide financial
assistance and to take other actions contemplated by the City; the ultimate
disposition of the City's wage settlements (which could be determined
through binding arbitration); the performance of the City economy
(particularly to the extent tax collections and public assistance caseloads
are affected); and the extent actual earnings on pension fund assets are
consistent with the 9% return assumed in determining the currently planned
level of required City contributions. No assurance can be given that the
assumptions used by the City will be realized. Furthermore, actions taken
in recent fiscal years to avert deficits may have reduced the City's
flexibility in responding to future budgetary imbalances, and have deferred
certain expenditures to later fiscal years.
The City projects that local revenues will provide approximately 68% of
total revenues in FY1993 while Federal aid, including categorical grants,
will provide 11% and State aid, including unrestricted aid and categorical
grants, will provide 21%. As a proportion of total revenues, State aid
remained relatively constant over the period from 1980 to 1990, while
federal aid was sharply reduced (having provided nearly 20% of total FY1980
revenues). The largest source of the City's revenues is the real estate tax
(approximately 26% of total revenues for FY1993), at rates levied by the
City Council (subject to certain State constitutional limits). In the event
of a reduction in total assessments, higher tax rates would be required to
maintain the same amount of tax revenue. The City derives the remainder of
its tax revenues from a variety of other economically sensitive local taxes
(subject to authorization by the Legislature), including: a local sales and
compensating use tax (dedicated primarily to MAC debt service) imposed in
addition to the State's tax; the personal income tax on City residents and
the earnings tax on non-residents; a general corporation tax; and a
financial corporation tax. High tax burdens in the City impose political
and economic constraints on the ability of the City to increase local tax
rates.
The City is the largest municipal debt issuer in the nation, and has more
than doubled its debt load since the end of FY1986, in large measure to
rehabilitate its extensive, aging physical plant. The City's seasonal
borrowing needs increased significantly during FY1990 and FY1991, largely
due to delayed State aid payments, and totalled $2.25 billion in FY1993.
The City's current $19.1 billion capital financing program (most of which
would be used to reimburse the City's general fund for capital expenditures
the City expects to incur) reflects major reductions in the City's 1993-96
capital plan, which will reduce future debt service requirements, but may
adversely affect the condition of its deteriorating physical plant. No
assurance can be given that the credit markets will absorb the projected
amounts of City obligations, which are essential if the City is to meet its
planned operating and capital expenditures. Furthermore, the ability of the
City to obtain credit enhancement and to sell its bonds at favorable
interest rates is constrained by capacity limits established by the major
bond insurance companies and reinsurers to limit their credit exposure
risks.
A voter-approved study of secession by Staten Island (one of five
counties/boroughs, comprising 4% of the City's population and 19% of its
land area) is being undertaken, and State law provides a complex mechanism
for such secession. The State Legislature is also considering establishment
of a similar secession mechanism for Queens.
OTHER LOCALITIES. The State provides substantial financial assistance to
its political subdivisions, totalling approximately 71% of General Fund
disbursements in the State's FY1991-92, primarily for aid to elementary,
secondary and higher education (49% of local assistance) and Medicaid and
income maintenance (36%). The Legislature has enacted substantial
reductions from previously budgeted levels of State aid since December
1990. To the extent the State is constrained by its financial condition,
State assistance to localities may be further reduced, compounding the
serious fiscal constraints already experienced by many local governments.
Localities also face anticipated and potential problems resulting from
pending litigation (including challenges to local property tax
assessments), judicial decisions and socio-economic trends.
At December 31, 1991, the total indebtedness of all localities in the
State, other than New York City, was approximately $13.3 billion. A small
portion (approximately $51 million) of this indebtedness represented
borrowing to finance budgetary deficits issued pursuant to enabling State
legislation (requiring budgetary review by the State Comptroller. Seventeen
localities had outstanding indebtedness for deficit financing at the close
of their fiscal year ending 1990 (compared to 11 in 1988). Subsequently,
certain counties and other local governments have encountered significant
financial difficulties, including the counties of Suffolk (whose long-term
debt ratings were reduced below investment grade by Standard & Poor's
for several months during 1991), Nassau, Monroe, and Westchester, and the
City of Buffalo. The State has imposed financial control on New York City
from 1977 to 1986 and on the City of Yonkers since 1984 under an appointed
control board in response to fiscal crises encountered by such
municipalities. The Legislature imposed certain limited fiscal restraints
on Nassau and Suffolk Counties, and authorized their issuance of deficit
bonds to finance over several years their respective 1992 operating
deficits.
SPECIAL FACTORS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the "Commonwealth"
or "Puerto Rico"), and is based on information drawn from official
statements and prospectuses relating to the securities offerings of Puerto
Rico, its agencies and instrumentalities, as available on the date of this
Statement of Additional Information. FMR has not independently verified any
of the information contained in such official statements, prospectuses and
other publicly available documents, but is not aware of any fact which
would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1992 trade with the United States accounted for
approximately 88% of Puerto Rico's exports and approximately 68% of its
imports. In this regard, in fiscal 1992 Puerto Rico experienced a
$2,940,300,000 positive adjusted merchandise trade balance. Since fiscal
1987 personal income, both aggregate and per capita, have increased
consistently each fiscal year. In fiscal 1992 aggregate personal income was
$22.7 billion and personal per capita income was $6,360. Gross domestic
product in fiscal 1989, 1990, 1991 and 1992 was $19,954,000, $21,619,000,
$22,857,000, and $23,620,000 respectively. For fiscal 1993, an increase in
gross domestic product of 2.9% over fiscal 1992 is forecasted. However,
actual growth in the Puerto Rico economy will depend on several factors
including the condition of the U.S. economy, the exchange rate for the U.S.
dollar, the price stability of oil imports, and interest rates. Due to
these factors there is no assurance that the economy of Puerto Rico will
continue to grow.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the United States average. Despite long
term improvements the unemployment rate rose from 15.2% to 16.5% from
fiscal 1991 to fiscal 1992. At the end of the third quarter of fiscal 1993
the unemployment rate in Puerto Rico stood at 17.3%. There is a possibility
that the unemployment rate will continue to increase.
The economy of Puerto Rico has undergone a transformation in the later half
of this century from one centered around agriculture, to one dominated by
the manufacturing and service industries. Manufacturing is the cornerstone
of Puerto Rico's economy, accounting for $13.2 billion or 38.7% of gross
domestic product in 1992. However, manufacturing has experienced a basic
change over the years as a result of the influx of higher wage, high
technology industries such as the pharmaceutical industry, electronics,
computers, micro-processors, scientific instruments and high technology
machinery. The service sector, which includes wholesale and retail trade,
finance and real estate, ranks second in its contribution to gross domestic
product and is the sector that employs the greatest number of people. In
fiscal 1992, the service sector generated $13.0 billion in gross domestic
product or 38.3% of the total and employed over 449,000 workers providing
46% of total employment. The government sector and tourism also contribute
to the island economy each accounting for $3.7 billion and $1.5 billion in
fiscal 1992, respectively.
Much of the development of the manufacturing sector of the economy of
Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application a credit against their U.S. corporate income tax
on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico ("active income"), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
source investment income ("passive income"). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
On August 16, 1993, President Clinton signed a bill amending Section 936.
Under the amendments, U.S. corporations with operations in Puerto Rico can
elect to receive a federal income tax credit equal to: 40% of the credit
currently available, phased in over a five year period, starting at 60% of
the current credit, or a credit based on investment and wages. The
investment and wage credit would equal the sum of (i) 60% of qualified
compensation to employees, (ii) a specified percentage of depreciation
deductions with respect to tangible property located in Puerto Rico, and
(iii) a portion of income taxed paid to Puerto Rico, up to a 9% effective
tax rate, subject to certain requirements. It is not possible to determine
at this time whether the reductions in tax incentives for operations in
Puerto Rico will have a significant impact on the economy of Puerto Rico or
the time period in which such impact would arise.
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 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 will consider
various relevant factors, including, but not limited to: the size and type
of the transaction; the nature and character of the markets for the
security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions.
The fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). The selection of such broker-dealers
generally is made by FMR (to the extent possible consistent with execution
considerations) based upon the quality of research and execution services
provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the fund may be useful to FMR in rendering investment management
services to the fund or its other clients, and, conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
transactions with brokerage firms that have provided assistance in the
distribution of shares of the fund or shares of other Fidelity funds, to
the extent permitted by law. FMR may use research services provided by and
place agency transactions with Fidelity Brokerage Services, Inc. (FBSI), a
subsidiary of FMR Corp., if the commissions are fair, reasonable, and
comparable to commissions charged by non-affiliated, qualified brokerage
firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, except in accordance with
regulations of the SEC. Pursuant to such regulations, the Board of Trustees
has approved a written agreement that permits FBSI to effect portfolio
transactions on national securities exchanges and to retain compensation in
connection with such transactions.
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.
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds are managed by
the same investment adviser, particularly when the same security is
suitable for the investment objective of more than one fund.
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 a formula considered by the officers of the funds involved to be
equitable to 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 Board of Trustees that the
desirability of retaining FMR as investment adviser to the fund outweighs
any disadvantages that may be said to exist from exposure to simultaneous
transactions.
VALUATION OF PORTFOLIO SECURITIES
Valuations of portfolio securities furnished by the pricing service
employed by the fund are based upon a computerized matrix system or
appraisals by the pricing service, in each case in reliance upon
information concerning market transactions and quotations from recognized
municipal securities dealers. The methods used by the pricing service and
the quality of valuations so established are reviewed by officers of the
fund and FSC under the general supervision of the Board of Trustees. There
are a number of pricing services available, and the Trustees, or officers
acting on behalf of the Trustees, on the basis of on-going evaluation of
these services, may use other pricing services or discontinue the use of
any pricing service in whole or in part.
PERFORMANCE
The fund may quote performance in various ways. All performance information
supplied by the fund in advertising is historical and is not intended to
indicate future returns. The fund's share price, yield, and total returns
fluctuate in response to market conditions and other factors. The value of
the fund's shares when redeemed may be worth more or less than their
original cost.
YIELD CALCULATIONS. Yields used in advertising are computed by dividing the
fund's interest income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive distributions
during the period, dividing this figure by the fund's net asset value per
share (NAV) at the end of the period and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate.
Income is calculated for purposes of 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 purposes of determining 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.
The fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment to equal the fund's tax-free yield.
Tax-equivalent yields are calculated by dividing the fund's yield by the
result of one minus a stated federal and state tax rate. (If only a portion
of the fund's yield is tax-exempt, only that portion is adjusted in the
calculation.)
The following table shows the effect of a shareholder's tax status on
effective yield under federal, state, and county income tax laws for 1993.
They show the approximate yield a taxable security must provide at various
income brackets to produce after-tax yields equivalent to those of
hypothetical tax-exempt obligations yielding from 2.0% to 8.0%. Of course,
no assurance can be given that the fund will achieve any specific
tax-exempt yield. While the fund invests principally in obligations whose
interest is exempt from federal and state income tax, other income received
by the fund may be taxable.
Use this table to find your approximate effective tax bracket on investment
income as a New York resident with triple taxes (federal, state, and New
York City) or double taxes (federal and state) for 1994.
1994 TAX RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Marginal Federal New York New York New York
Taxable Income Taxable Income Income City Income State Income Marginal
Single Return* Joint Return* Tax Bracket Tax Bracket Tax Bracket Tax Bracket
</TABLE>
Double Triple
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
$ 22,101 - $ 25,000 $ 36,901 - $ 45,000 28% 12.28% 7.88% 33.67% 36.83%
25,001 - 53,500 45,001 - 89,500 28% 12.28% 7.88% 33.67% 36.84%
53,501 - 60,000 89,501 - 108,000 31% 12.28% 7.88% 36.43% 39.47%
60,001 - 115,000 108,001 - 140,000 31% 12.28% 7.88% 36.43% 39.51%
115,001 - 250,000 140,001 - 250,000 36% 12.28% 7.88% 41.04% 43.89%
250,001 + 250,001 + 39.6% 12.28% 7.88% 44.36% 47.05%
</TABLE>
*Taxable income (gross income after all exemptions, adjustments, and
deductions) based on 1994 tax rates.
Having determined your effective tax bracket above, use the appropriate
table below to determine the tax-equivalent yield for a given tax-free
yield.
NEW YORK CITY RESIDENTS - TRIPLE TAXES - 1994
If your effective combined federal, state, and New York City personal
income tax rate in 1994 is:
36.83% 36.84% 39.47% 39.51% 43.89% 47.05%
To match these
tax-free yields: Your taxable investment would have to earn the following
yield:
2% 3.17% 3.17% 3.30% 3.31% 3.56% 3.78%
3% 4.75% 4.75% 4.96% 4.96% 5.35% 5.67%
4% 6.33% 6.33% 6.61% 6.61% 7.13% 7.55%
5% 7.92% 7.92% 8.26% 8.27% 8.91% 9.44%
6% 9.50% 9.50% 9.91% 9.92% 10.69% 11.33%
7% 11.08% 11.08% 11.56% 11.57% 12.48% 13.22%
8% 12.66% 12.66% 13.22% 13.23% 14.26% 15.11%
NEW YORK STATE RESIDENTS (OUTSIDE NYC) - DOUBLE TAXES - 1994
If your effective combined federal and state personal income tax rate in
1994 is:
33.67% 36.43% 41.04% 44.36%
To match these
tax-free yields: Your taxable investment would have to earn the following
yield:
2% 3.02% 3.15% 3.39% 3.59%
3% 4.52% 4.72% 5.09% 5.39%
4% 6.03% 6.29% 6.78% 7.19%
5% 7.54% 7.87% 8.48% 8.99%
6% 9.05% 9.44% 10.18% 10.78%
7% 10.55% 11.01% 11.87% 12.58%
8% 12.06% 12.59% 13.57% 14.38%
The fund may invest a portion of its assets in obligations that are subject
to state or federal income taxes. When the fund invests in these
obligations, its tax-equivalent yields will be lower. In the table above,
tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
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
fund's securities of the 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 yields. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's returns, including the effect of reinvesting
dividends and capital gain distributions (if any), and any change in the
fund's NAV over the period. Average annual total returns are calculated by
determining the growth or decline in value of a hypothetical historical
investment in the fund over a stated period, and then calculating the
annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value had been constant over the
entire 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 that would equal 100% growth on a compounded basis in ten years.
Average annual returns covering periods of less than one year are
calculated by determining the fund's total return for the period, extending
that return for a full year (assuming that performance remains constant
over the year), and quoting the result as an annual return. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to actual year-to-year
performance of the fund.
In addition to average annual total returns, the fund may quote unaverage
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration and may omit or include the effect of the fund's $5.00 account
closeout fee or other charges for special transactions or services.
Omitting fees and charges will cause the fund's total return figures to be
higher.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by 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.
The fund's performance may be compared to the performance of other mutual
funds in general, or to the performance of particular types of mutual
funds. These comparisons may be expressed as mutual fund rankings prepared
by Lipper Analytical Services, Inc. (Lipper), an independent service
located in Summit, New Jersey that monitors the performance of mutual
funds. Lipper generally ranks funds on the basis of total return, assuming
reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and is prepared without regard to tax
consequences. Lipper may also rank funds based on yield. In addition to the
mutual fund rankings, the fund's performance may be compared to mutual fund
performance indices prepared by Lipper.
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.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. For
example, Fidelity's FundMatchsm Program includes a workbook describing
general principles of investing, such as asset allocation, diversification,
risk tolerance, and goal setting; a questionnaire designed to help create a
personal financial profile; and an action plan offering investment
alternatives. Materials may also include discussions of Fidelity's three
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the Consumer Price Index), and
combinations of various capital markets. The performance of these capital
markets is based on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND AVERAGES(registered
trademark)/All Tax-Free, which is reported in the MONEY FUND
REPORT(registered trademark), covers over 300 tax-free money market funds.
The Bond Fund Report AverageS(registered trademark)/ all taxfree ,
which is reported in the BOND FUND REPORT(registered trademark), covers
over 360 taxfree bond funds. When evaluating comparisons to
money market funds, investors should consider the relevant differences in
investment objectives and policies. Specifically, money market funds invest
in short-term, high-quality instruments and seek to maintain a stable $1.00
share price. The fund, however, invests in longer-term instruments and its
share price changes daily in response to a variety of factors.
The fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar cost averaging; saving for college; charitable
giving; and the Fidelity credit card. In addition, Fidelity may quote
financial or business publications and periodicals, including model
portfolios or allocations, as they relate to fund management, investment
philosophy, and investment techniques. Fidelity may also reprint, and use
as advertising and sales literature, articles from Fidelity Focus, a
quarterly magazine provided free of charge to Fidelity fund shareholders.
The fund may present its fund number, Quotron(registered trademark) number,
and CUSIP number, and discuss or quote its current portfolio manager.
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 October 31, 1993, FMR advised tax-free funds with a total value of
over $ 25 billion. As of October 31, 1993, FMR managed 31
Spartan funds with approximately $ 20 billion in assets. According to
the Investment Company Institute, over the past eight years, assets in
tax-exempt funds increased from $ 45 billion in 1984 to approximately
$ 182 billion at the end of 1992.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1994:
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day
(observed). Although FMR expects the same holiday schedule to be observed
in the future, the NYSE may modify its holiday schedule at any time.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that portfolio securities are traded in other markets on days when
the NYSE is closed, the fund's NAV may be affected on days when investors
do not have access to the fund to purchase or redeem shares.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes, and
will incur any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), the fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, the fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that the fund's income is derived from federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. The fund will send each shareholder a notice in
January describing the tax status of dividends and capital gain
distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to one half of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
The fund purchases municipal obligations based on opinions of bond counsel
regarding the federal income tax status of the obligations. These opinions
generally will be based upon covenants by the issuers regarding continuing
compliance with federal tax requirements. If the issuer of an obligation
fails to comply with its covenants at any time, interest on the obligation
could become federally taxable retroactive to the date the obligation was
issued.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities (referred to as "qualified bonds" in the Internal
Revenue Code) is subject to the federal alternative minimum tax (AMT),
although the interest continues to be excludable from gross income for
other purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the fund's policies of investing so
that at least 80% of its income is free from federal income tax.
Interest from private activity securities is a tax preference item for the
purposes of determining whether a taxpayer is subject to the AMT and the
amount of AMT to be paid, if any. Private activity securities issued after
August 7, 1986 to benefit a private or industrial user or to finance a
private facility are affected by this rule.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time that
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund and such shares are held
six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. A portion of the gain on bonds
purchased at a discount after April 30, 1993 and short-term capital gains
distributed by the fund are federally taxable to shareholders as dividends,
not as capital gains. Distributions from short-term capital gains do not
qualify for the dividends-received deduction. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased at a discount after April 30, 1993 are not considered income for
purposes of the fund's policy of investing so that at least 80% of its
income is free from federal income tax.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" for tax purposes, so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
the fund intends to distribute substantially all of its net investment
income and net realized capital gains (if any) within each calendar year as
well as on a fiscal year basis. The fund also intends to comply with other
tax rules applicable to regulated investment companies, including a
requirement that capital gains from the sale of securities held less than
three months constitute less than 30% of the fund's gross income for each
fiscal year. Gains from some futures contracts and options are included in
this 30% calculation, which may limit the fund's investments in such
instruments. The fund is treated as a separate entity from the other funds
of Fidelity New York Municipal Trust for tax purposes.
NEW YORK TAX MATTERS. As long as a fund continues to qualify as a regulated
investment company under the federal Code, it will not incur New York
income or franchise tax liability on income and capital gains distributed
to shareholders. New York personal income tax law also provides that
exempt-interest dividends paid by a regulated investment company, or series
thereof, from interest on obligations which are exempt from tax under New
York law are excludable from gross income.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on distributions received from the fund. Investors should
consult their tax advisers to determine whether the fund is suitable to
their particular tax situation.
FMR
FMR is a wholly owned subsidiary of FMR Corp., a parent company organized
in 1972. At present, the principal operating activities of FMR Corp. are
those conducted by three of its divisions as follows: FSC, which is the
transfer and shareholder servicing agent for certain of the funds advised
by FMR; Fidelity Investments Institutional Operations Company, which
performs shareholder servicing functions for certain institutional
customers; and Fidelity Investments Retail Marketing Company, which
provides marketing services to various companies within the Fidelity
organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc.
(FMR U.K.) and Fidelity Management & Research (Far East) Inc. (FMR Far
East), both wholly owned subsidiaries of FMR formed in 1986, supply
investment research, and may supply portfolio management services, to FMR
in connection with certain funds advised by FMR. Analysts employed by FMR,
FMR U.K., and FMR Far East research and visit thousands of domestic and
foreign companies each year. FMR Texas Inc., a wholly owned subsidiary of
FMR formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees and
officers also serve in similar capacities for other funds advised by FMR.
Unless otherwise noted, the business address of each Trustee and officer is
82 Devonshire Street, Boston, Massachusetts 02109, which is also the
address of FMR. Those Trustees who are "interested persons" (as defined in
the Investment Company Act of 1940) by virtue of their affiliation with
either the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; Chairman of the Board and of the
Executive Committee of FMR; a Director of FMR, Chairman and a Director of
FMR Texas Inc. (1989), Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc. and Fidelity Management & Research (Far
East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is
President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Prior to his retirement in March 1990, Mr. Cox was
President and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of Bonneville Pacific
Corporation (independent power, 1989) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University
and the University of Texas at Austin.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls , OH, Trustee
(1990). Prior to his retirement in 1984, Mr. Jones was Chairman and Chief
Executive Officer of LTV Steel Company. Prior to May 1990, he was Director
of National City Corporation (a bank holding company) and National City
Bank of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation (1988), Hyster-Yale Materials Handling, Inc. (1989), and
RPM, Inc. (manufacturer of chemical products, 1990). In addition, he serves
as a Trustee of First Union Real Estate Investments; Chairman of the Board
of Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the Financial
Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance, 1987), the National Arts Stabilization Fund and
the Greenwich Hospital Association (1989).
*PETER S. LYNCH, Trustee (1990) is Vice President of Fidelity Investments
Corporate Services, Inc. (1991). Prior to his retirement on May 31, 1990,
he was a Director of FMR (1989) and Executive Vice President of FMR (1987)
(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 is a Director of W.R. Grace & Co. (chemicals, 1989) and
Morrison Knudsen Corporation (engineering and construction, 1988). In
addition, he serves as a Trustee of Boston College, Massachusetts Eye &
Ear Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine Arts
of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products, 1987), Brush-Wellman Inc.
(metal refining), York International Corp. (air conditioning and
refrigeration, 1989), Commercial Intertech Corp. (water treatment
equipment, 1992), and Associated Estates Realty Corporation (a real estate
investment trust, 1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee (1988).
Prior to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company. He
is a Director of Allegheny Power Systems, Inc. (electric utility), General
Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). He is also
a Trustee of Rensselaer Polytechnic Institute and of Corporate Property
Investors and a member of the Advisory Boards of Butler Capital Corporation
Funds and Warburg, Pincus Partnership Funds.
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee (1988), 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, 1985-1987), and Chairman and Chief Executive Officer of The First
National Bank of Atlanta and First Atlanta Corporation (bank holding
company, 1976-1987). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software, 1988), Georgia Power Company
(electric utility), Gerber Alley & Associates, Inc. (computer software,
1987), National Life Insurance Company of Vermont, American Software, Inc.
(1989), and AppleSouth, Inc. (restaurants, 1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and
Senior Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
ARTHUR S. LORING, Secretary, is Vice President and General Counsel of FMR,
Vice President - Legal of FMR Corp., and Clerk of FDC.
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the funds based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
As of the date of this Statement of Additional Information, FMR owns the
majority of the outstanding shares of the fund.
MANAGEMENT CONTRACT
The fund employs FMR to furnish investment advisory and other services.
Under FMR's 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, and
compensates all officers of the trust, all Trustees who are "interested
persons" of the trust or of FMR, and all personnel of the trust or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the fund. These services include providing facilities
for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the fund's
records and the registration of the fund's shares under federal and state
law; developing management and shareholder services for the fund; and
furnishing reports, evaluations, and analyses on a variety of subjects to
the Board of Trustees.
FMR is responsible for the payment of all expenses of the fund with certain
exceptions. Specific expenses payable by FMR include, without limitation,
the fees and expenses of registering and qualifying the trust, the fund,
and its shares for distribution under federal and state securities laws;
expenses of typesetting for printing the prospectus and statement of
additional information; custodian charges, audit and legal expenses;
insurance expense; association membership dues; and the expenses of mailing
reports to shareholders, shareholder meetings, and proxy solicitations. FMR
also provides for transfer agent and dividend disbursing services and
portfolio and general accounting record maintenance through FSC.
FMR pays all other expenses of the fund with the following exceptions: fees
and expenses of all Trustees who are not "interested persons" of the trust
or FMR (the non-interested Trustees); interest on borrowings; taxes;
brokerage commissions (if any); and 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 the officers and Trustees with
respect to litigation.
FMR is the fund's manager pursuant to a management contract dated
December 16, 1993, which was approved by FMR, then the sole
shareholder on December 16 , 1993. For the services of FMR under the
contract, the fund pays FMR a monthly management fee at the annual rate of
.55 % of the fund's average net assets. FMR reduces its fee by an
amount equal to the fees and expenses of the non-interested Trustees.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operating expenses (excluding interest, taxes, brokerage
commissions, and extraordinary expenses). To defray shareholder service
costs, FMR or its affiliates also collect the fund's $5.00 exchange fee,
$5.00 account closeout fee, and $5.00 fee for wire purchases and
redemptions.
DISTRIBUTION AND SERVICE PLAN
The fund has adopted a distribution and service plan (the plan) under Rule
12b-1 under the Investment Company Act of 1940 (the Rule). The Rule
provides in substance that a mutual fund may not engage directly or
indirectly in financing any activity that is primarily intended to result
in the sale of shares of the fund except pursuant to a plan adopted by the
fund under the Rule. The Board of Trustees has adopted the plan to allow
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 payment by the fund to FMR of management fees should be deemed to
be indirect financing by the fund of the distribution of its shares, such
payment is authorized by the fund's plan.
The plan specifically recognizes that FMR, either directly or through FDC,
may use its management fee revenue, past profits, or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the fund. In addition, the
plan provides that FMR may use its resources, including its management fee
revenue, to make payments to third parties that provide assistance in
selling the fund's shares, or to third parties, including banks, that
render shareholder support services.
The fund's plan has been approved by the Trustees. As required by the Rule,
the Trustees carefully considered all pertinent factors relating to the
implementation of the plan prior to its approval, and have determined that
there is a reasonable likelihood that the plan will benefit the fund and
its shareholders. In particular, the Trustees noted that the plan does not
authorize payments by the fund other than those made to FMR under its
management contract with the fund. To the extent that the plan gives FMR
and FDC greater flexibility in connection with the distribution of shares
of the fund, additional sales of the fund's shares may result.
Additionally, certain shareholder support services may be provided more
effectively under the plan by local entities with whom shareholders have
other relationships. The plan was approved by FMR, as initial shareholder,
on December 16 , 1993.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. The fund may execute portfolio
transactions with and purchase securities issued by depository institutions
that receive payments under the plan. No preference will be shown in the
selection of investments for the instruments of such depository
institutions. 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.
INTEREST OF FMR AFFILIATES
United Missouri is the fund's custodian and transfer agent. United Missouri
has entered into a sub-contract with FSC, an affiliate of FMR, under the
terms of which FSC performs the processing activities associated with
providing transfer agent and shareholder servicing functions for the fund.
United Missouri has an additional sub-contract with FSC, pursuant to which
FSC performs the calculations necessary to determine the fund's NAV and
dividends and maintains the fund's accounting records. United Missouri is
entitled to reimbursement for fees paid to FSC from FMR, who must bear
these costs pursuant to its management contract with the fund.
The fund has a distribution agreement with FDC, a Massachusetts corporation
organized on July 18, 1960. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The distribution agreement calls for FDC to use
all reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered at NAV.
Promotional and administrative expenses in connection with the offer and
sale of shares of the fund are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Spartan New York Intermediate Municipal Portfolio is a
fund of Fidelity New York Municipal Trust, an open-end management
investment company organized as a Massachusetts business trust on April 25,
1983. On January 8, 1990, the trust's name was changed from Fidelity New
York Tax-Free Fund to Fidelity New York Municipal Trust. Currently, there
are five funds of the trust: Fidelity New York Tax-Free Insured Portfolio,
Fidelity New York Tax-Free High Yield Portfolio, Spartan New York Municipal
Money Market Portfolio, Spartan New York Municipal High Yield Portfolio,
and Spartan New York Intermediate Municipal Portfolio. The Declaration of
Trust permits the Trustees to create additional funds.
In the event that FMR ceases to be the investment adviser to the trust or a
fund, the right of the trust or fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn.
The assets of the trust received for the issue or sale of shares of each
fund and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are especially allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets of
each fund are segregated on the books of account, and are to be charged
with the liabilities with respect to such fund and with a share of the
general expenses of the trust. Expenses with respect to the trust are to be
allocated in proportion to the asset value of the respective funds, except
where allocations of direct expense can otherwise be fairly made. The
officers of the trust, subject to the general supervision of the Board of
Trustees, have the power to determine which expenses are allocable to a
given fund, or which are general or allocable to all of the funds. In the
event of the dissolution or liquidation of the trust, shareholders of each
fund are entitled to receive as a class the underlying assets of such fund
available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of
Trust provides that the trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
trust or its Trustees shall include a provision limiting the obligations
created thereby to the trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects a Trustee
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
Any delay in repayment to a lending fund could result in a lost investment
opportunity or additional borrowing costs.
VOTING RIGHTS. The fund's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable,
except as set forth under the "Shareholder and Trustee Liability" heading
above. Shareholders representing 10% or more of the trust or one of its
funds may, as set forth in the Declaration of Trust, call meetings of the
trust or fund for any purpose related to the trust or fund, as the case may
be, including, in the case of a meeting of the entire trust, the purpose of
voting on removal of one or more Trustees.
The trust or any fund may be terminated upon the sale of its assets to
another open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally, such terminations
must be approved by vote of the holders of a majority of the outstanding
shares of the trust or the fund. If not so terminated, the trust and its
funds will continue indefinitely.
CUSTODIAN. United Missouri Bank, N.A. 1010 Grand Avenue, Kansas City,
Missouri is custodian of the assets of the fund. The custodian is
responsible for the safekeeping of the fund's assets and the appointment of
subcustodian banks and clearing agencies. The custodian takes no part in
determining the investment policies of the fund or in deciding which
securities are purchased or sold by the fund. The fund may, however, invest
in obligations of the custodian and may purchase securities from or sell
securities to the custodian.
FMR, its officers and directors, its affiliated companies, and the trust's
Trustees may from time to time have transactions with various banks,
including banks serving as custodian for certain of the 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. Price Waterhouse serves as the trust's independent
accountant. The auditor examines financial statements for the fund and
provides other audit, tax, and related services.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
The descriptions that follow are examples of eligible ratings for the fund.
The fund may, however, consider the ratings for other types of investments
and the ratings assigned by other rating organizations when determining the
eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND
MUNICIPAL NOTES:
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade (MIG, or VMIG for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short
run. Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG-3/VMIG-3 - This designation denotes favorable quality, with all
security elements accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well
established.
MIG-4/VMIG-4 - This designation denotes adequate quality protection
commonly regarded as required of an investment security is present and,
although not distinctly or predominantly speculative, there is specific
risk.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS OF STATE AND
MUNICIPAL NOTES:
SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest.
SP-3 - Speculative capacity to pay principal and interest.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times in the future. Uncertainty of position
characterizes bonds in this class.
Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols
Aa1, A1, Baa1, Ba1, and B1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
