SPARTAN(Registered trademark) PENNSYLVANIA MUNICIPAL MONEY MARKET
PORTFOLIO
SPARTAN(Registered trademark) PENNSYLVANIA MUNICIPAL HIGH YIELD PORTFOLIO
SUPPLEMENT TO THE PROSPECTUS
DATED FEBRUARY 24, 1993
The following information replaces the fifth sentence of the second
paragraph in the section entitled "Investment Objectives and Policies"
beginning on page 6.
"State tax-free obligations include municipal obligations issued by the
Commonwealth of Pennsylvania, its counties, municipalities, authorities,
and other political subdivisions, and some municipal obligations issued by
territories and possessions of the U.S., such as Puerto Rico, Guam, and the
Virgin Islands."
Effective December 3, 1993, the following language replaces the first
sentence in the "State Taxes'' paragraph of the section entitled
"Distributions and Taxes" on page 13.
"To the extent that each fund's distributions are derived from interest
on state tax-free obligations, its income dividends will be exempt from the
Pennsylvania personal income tax. However, distributions attributable to
capital gains from the sale of state tax-free obligations are not exempt
from the Pennsylvania personal income tax."
The following information supplements that found in the Appendix beginning
on page 24.
"PUERTO RICAN MUNICIPAL SECURITIES include general obligations of the
Commonwealth of Puerto Rico and its political subdivisions and public
corporations. The economy of Puerto Rico is closely linked with that of the
United States and will depend on several factors including the condition of
the U.S. economy, the exchange rate for U.S. dollars, the price stability
of oil imports, and interest rates. In addition, recent legislation has
reduced certain tax incentives which have been important to the development
of the manufacturing sector in Puerto Rico. It is not possible to determine
at this time when, or if, these changes will have a significant impact on
the economy of Puerto Rico."
PFR-93- 3
December 15, 1993
SPARTAN(Registered trademark) PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO
SPARTAN(Registered trademark) PENNSYLVANIA MUNICIPAL HIGH YIELD PORTFOLIO
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 24, 1993
The following information supplements that found on page 10.
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.
PFRB-93- 3 (page 1 of 3) December 15, 1993
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 incometaxed 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.
The following tables update those found in the section entitled
"Performance" beginning on page 13.
1993 TAX RATES AND TAX-EQUIVALENT YIELDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Marginal Combined Pennsylvania
Taxable Income Taxable Income Federal Income Pennsylvania and Federal Income
Single Return Joint Return Tax Bracket Marginal Rate Tax Bracket*
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
$22,101 - 53,500 $36, 901 - 89,150 28% 2.8% 30.02%
53,501 - 115,000 89,151 - 140,000 31% 2.8% 32.93%
115,001 - 250,000 140,001 - 250,000 36% 2.8% 37.79%
250,001 & 250,001 & above 39.6% 2.8% 41.29%
above
</TABLE>
* Effective tax bracket takes into account Pennsylvania personal income tax
rate of 2.8%, tax-effected to reflect the federal tax benefit for persons
who itemize deductions.
Having determined your effective tax bracket above, use the table below to
determine the tax-equivalent yield for a given tax-free yield.
If your combined effective federal and state personal income tax rate in
1993 is:
30.02% 32.93% 37.79% 41.29%
To match these
tax-free rates: Your taxable investment would have to earn the following
yield:
2.0% 2.86% 2.98% 3.22% 3.41%
3.0% 4.29% 4.47% 4.82% 5.11%
4.0% 5.72% 5.96% 6.43% 6.81%
5.0% 7.14% 7.46% 8.04% 8.52%
6.0% 8.57% 8.95% 9.65% 10.22%
7.0% 10.00% 10.44% 11.25% 11.92%
8.0% 11.43% 11.93% 12.86% 13.63%
(page 2 of 3)
Effective December 3, 1993, the following language replaces the first
sentence in the "STATE AND LOCAL INCOME TAXES'' paragraph of the section
entitled "DISTRIBUTIONS AND TAXES" on page 18.
"To the extent that each fund's distributions are derived from interest
on state tax-free obligations, its income dividends will be exempt from
the Pennsylvania personal income tax. However, distributions attributable
to capital gains from the sale of state tax-free obligations are not exempt
from the Pennsylvania personal income tax."
(page 3 of 3)
