FIDELITY MUNICIPAL TRUST II, 485BPOS, 1996-02-15

FIDELITY MUNICIPAL TRUST II
485BPOS, 1996-02-15

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 33-43986)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 12 [X]
and
REGISTRATION STATEMENT (No. 811-6454)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
Fidelity Municipal Trust II
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-563-7000
Arthur S. Loring, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b)
(X) on February 20, 1996 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on ( ) pursuant to paragraph (a)(i)
( ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on ( ) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date for a
previously filed
post-effective amendment.
Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file the Notice required by
such Rule before February 29, 1996.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
FORM N-1A

ITEM NUMBER PROSPECTUS SECTION

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page

2 a .............................. Expenses

b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest

3 a .............................. Financial Highlights

b .............................. *

c, d .............................. Performance

4 a i............................. Charter

ii........................... The Funds at a Glance; Investment Principles and
Risks

b .............................. Investment Principals and Risks

c .............................. Who May Want to Invest; Investment Principles
and Risks

5 a .............................. Charter

b i............................. Cover Page: The Funds at a Glance; Doing
Business with Fidelity; Charter

ii........................... Charter

iii.......................... Expenses; Breakdown of Expenses

c .............................. Charter

d .............................. Charter; Breakdown of Expenses

e .............................. Cover Page; Charter

f .............................. Expenses

g i............................. Charter
. *
ii............................
..

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C>
5A .............................. Performance

6 a i............................. Charter

ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions

iii.......................... Charter

b ............................. *

c .............................. Transaction Details; Exchange Restrictions

d .............................. *

e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services

f, g .............................. Dividends, Capital Gains, and Taxes

7 a .............................. Cover Page; Charter

b .............................. Expenses; How to Buy Shares; Transaction Details

c .............................. *

d .............................. How to Buy Shares

e .............................. *

f .............................. Breakdown of Expenses

8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions

9 .............................. *

</TABLE>

* Not Applicable
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A

ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION

<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page

12 ............................ Descrption of the Trusts

13 a - c ............................ Investment Policies and Limitations

d ............................ *

14 a - c ............................ Trustees and Officers

15 a, b ............................ *

c ............................ Trustees and Officers

16 a i ............................ FMR, Portfolio Transactions

ii ............................ Trustees and Officers

iii ............................ Management Contracts

b ............................ Management Contracts

c, d ............................ Interests of FMR Affiliates

e ............................ *

f ............................ Distribution and Service Plans

g ............................ *

h ............................ Description of the Trusts

i ............................ Interests of FMR Affiliates

17 a ............................ Portfolio Transactions

b ............................ *

c ............................ Portfolio Transactions

d, e ............................ *

18 a ............................ Description of the Trusts

b ............................ *

19 a ............................ Additional Purchase and Redemption Information

b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities

c ............................ *

20 ............................ Distributions and Taxes

21 a, b ............................ Interests of FMR Affiliates

c ............................ *

22 ............................ Performance

23 ............................ Financial Statements

</TABLE>

* Not Applicable

* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
the funds' most recent financial reports and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated February 20,
1996. The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference (legally forms a
part of the prospectus). For a free copy of either document, call Fidelity
at 1-800-544-8888.
Investments in the money market fund are neither insured nor guaranteed by
the U.S. government, and there can be no assurance that the fund will
maintain a stable $1.00 share price.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC, Federal
Reserve Board or any other agency, and are subject to investment risks,
including possible loss of principal amount invested.

LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION 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.
PFR-pro-296
Each fund seeks a high level of current income free from federal income tax
and Pennsylvania personal income tax.
SPARTAN(REGISTERED TRADEMARK)
PENNSYLVANIA
MUNICIPAL
FUNDS
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND invests in
high-quality, short-term municipal money market securities and is designed
to maintain a stable $1.00 share price.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND seeks to provide higher
yields by investing in a broader range of municipal securities.
PROSPECTUS
FEBRUARY 20, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109

CONTENTS

KEY FACTS THE FUNDS AT A GLANCE

WHO MAY WANT TO INVEST

EXPENSES Each fund's yearly
operating expenses.

FINANCIAL HIGHLIGHTS A summary
of each fund's financial data.

PERFORMANCE How each fund has
done over time.

THE FUNDS IN DETAIL CHARTER How each fund is
organized.

INVESTMENT PRINCIPLES AND RISKS
Each fund's overall approach to
investing.

BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.

YOUR ACCOUNT DOING BUSINESS WITH FIDELITY

TYPES OF ACCOUNTS Different
ways to set up your account.

HOW TO BUY SHARES Opening an
account and making additional
investments.

HOW TO SELL SHARES Taking money
out and closing your account.

INVESTOR SERVICES Services to
help you manage your account.

SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES

TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.

EXCHANGE RESTRICTIONS

KEY FACTS

THE FUNDS AT A GLANCE
GOAL: High current tax-free income for Pennsylvania residents.
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FTX), a subsidiary
of FMR, chooses investments for Spartan Pennsylvania Municipal Money
Market.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
PENN MUNICIPAL MONEY MARKET
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and Pennsylvania
personal income tax, while maintaining a stable $1.00 share price.
SIZE: As of December 31, 1995, the fund had over $241 million in
assets.
PENN MUNICIPAL INCOME
STRATEGY: Invests mainly in longer-term, investment-grade municipal
securities whose interest is free from federal income tax and Pennsylvania
personal income tax.
SIZE: As of December 31, 1995, the fund had over $ 288 million in
assets.
WHO MAY WANT TO INVEST
These non-diversified funds may be appropriate for investors in higher tax
brackets who seek high current income that is free from federal income tax
and Pennsylvania personal income tax. Each fund's level of risk and
potential reward depend on the quality and maturity of its investments.
The money market fund is managed to keep its share price stable at
$1.00. The bond fund with its broader range of investments, has the
potential for higher yields, but also carries a higher degree of risk. You
should consider your investment objective and tolerance for risk when
making an investment decision.
The value of the funds' investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other federal and state political and economic news. When you sell your
shares of the bond fund , they may be worth more or less than what
you paid for them. By themselves, these funds do not constitute a balanced
investment plan.
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.

EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or
hold shares of a fund. See page and pages through for more
information about these fees.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Redemption fee (as a % of amount redeemed
on shares held less than 180 days)
for money market fund None
for bond fund .50%
Exchange and wire transaction fees $5.00
Checkwriting fee, per check written
(available for the money market fund) $2.00
Account closeout fee $5.00
Annual account maintenance fee
(for accounts under $2,500) $12.00
THESE FEES ARE WAIVED (except for the redemption fee) if your account
balance at the time of the transaction is $50,000 or more.
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. Expenses are factored into each fund's
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The following are projections based on historical expenses and are
calculated as a percentage of average net assets.
P ENN MUNICIPAL MONEY MARKET
Management fee .50%

12b-1 fee None

Other expenses .00%

Total fund operating expenses .50%

P ENN MUNICIPAL INCOME
Management fee .55 %

12b-1 fee None

Other expenses .00%

Total fund operating expenses .55%

EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as just described. For every
$1,000 you invested, here's how much you would pay in total expenses 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:
P ENN MUNICIPAL MONEY MARKET
Account Account
open closed

After 1 year $ 5 $ 10

After 3 years $ 16 $ 21

After 5 years $ 28 $ 33

After 10 years $ 63 $ 68

P ENN MUNICIPAL INCOME
Account Account
open closed

After 1 year $ 6 $ 11

After 3 years $ 18 $ 23

After 5 years $ 31 $ 36

After 10 years $ 69 $ 74

These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.
FINANCIAL HIGHLIGHTS
The tables that follow are included in the funds' Annual Report and have
been audited by Coopers & Lybrand L.L.P., independent accountants. Their
reports on the financial statements and financial highlights are included
in the Annual Report. The financial statements and financial highlights are
incorporated by reference into (are legally a part of) the funds' Statement
of Additional Information.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
48.Selected Per-Share
Data and Ratios

49.Years
ended 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986D
December 31

50.Net asset $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
value, 0 0 0 0 0 0 0 0 0 0
beginning of period

51.Income
from .035 .026 .022 .029 .045 .059 .062 .049 .042 .015
Investment
Operations
Net interest
income

52.Less (.035) (.026 (.022 (.029) (.045) (.059) (.062) (.049) (.042) (.015)
Distributions ) )
From net interest
income

53.Net asset $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
value, 0 0 0 0 0 0 0 0 0 0
end of period

54.Total
return C 3.56 2.61 2.21 2.90 4.55 6.05 6.35 5.05 4.27 1.51
% % % % % % % % % %

55.Net assets,
end $ 242 $ 258 $ 241 $ 243 $ 290 $ 320 $ 177 $ 117 $ 64 $ 19
of period
(In millions)

56.Ratio of .50% .50% .50% .47% .34% .13% .28% .30% .50% .30%
expenses to B B B B B B A,B
average net assets

57.Ratio of
net 3.50 2.58 2.19 2.88 4.47 5.92 6.17 5.02 4.26 3.73
interest income % % % % % % % % % %A
to average net
assets

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
58.Selected
Per-Share Data and
Ratios

59.Years
ended 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 D
December 31

60.Net
asset $ 9.62 $ 11.13 $ 10.5 $ 10.3 $ 9.88 $ 9.90 $ 9.66 $ 9.07 $ 10.3 $ 10.0
value, 0 0 90 70 0 0 0 0 50 00
beginning of
period

61.Income .590 .652 .679 .693 .701 .701 .676 .661 .695 .270
from
Investment
Operations
Net interest
income

62. Net 1.049 (1.201 .679 .219 .489 (.020) .240 .590 (1.280 .350
realized and ) )
unrealized
gain (loss)

63. Total
from 1.639 (.549) 1.358 .912 1.190 .681 .916 1.251 (.585) .620
investment
operations

64.Less (.590) (.652) (.679) (.693) (.701) (.701) (.676) (.661) (.695) (.270)
Distributions
From net
interest
income

65. From net -- (.310) (.140) -- -- -- -- -- -- --
realized gain

66. Total (.590) (.962) (.819) (.693) (.701) (.701) (.676) (.661) (.695) (.270)
distributions

67. Redempti .001 .001 .001 .001 .001 -- -- -- -- --
on fees
added to paid
in capital

68.Net asset $ 10.6 $ 9.62 $ 11.1 $ 10.5 $ 10.3 $ 9.88 $ 9.90 $ 9.66 $ 9.07 $ 10.3
value, 70 0 30 90 70 0 0 0 0 50
end of period

69.Total 17.44 (5.04) 13.18 9.11 12.49 7.20% 9.80% 14.21 (5.73) 6.23%
return C % % % % % % %

70.Net
assets, $ 288 $ 242 $ 306 $ 242 $ 199 $ 143 $ 104 $ 63 $ 42 $ 8
end of period
(In millions)

71.Ratio of .55% .55% .55% .55% .55% .60%B .78%B .84%B .63%B .30%A
expenses to ,B
average net
assets

72.Ratio of
net 5.73 6.33% 6.13 6.65 6.96 7.22% 6.90% 7.05% 7.28% 6.66%
interest
income % % % % A
to average net
assets

73.Portfolio 49% 26% 38% 8% 6% 8% 23% 31% 54% 38%
turnover rate

</TABLE>

A ANNUALIZED
B FMR VOLUNTARILY AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES
DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO
WOULD HAVE BEEN HIGHER.
C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED. TOTAL RETURNS WOULD HAVE BEEN LOWER
HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN.
D FROM AUGUST 6, 1986 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1986
E EFFECTIVE JANUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INTEREST INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
PERFORMANCE
Mutual fund performance can be measured as TOTAL RETURN or YIELD. The total
returns that follow are based on historical fund results and do not reflect
the effect of any transaction fees you may have paid. The figures would be
lower if fees were taken into account.
Each fund's fiscal year runs from January 1 through December 31. The tables
below show each fund's performance over past fiscal years compared to a
measure of inflation.
PENN MUNICIPAL MONEY MARKET
Fiscal periods Pas Past Life
ended t 1 5 of
December 31, yea year fund
1995 r s A

Average 3.56 3.17 4.14 %
annual % %
total return

Cumulative 3.56 16.87 46.55
total return % % %

Consumer
2.54 14.72 40.18
Price Index B % % %

PENN MUNICIPAL INCOME
Fiscal periods Pas Past Life
ended t 1 5 of
December 31, yea year fund
1995 r s A

Average 17.44 9.15 8.13 %
annual % %
total return

Cumulative 17.44 54.93 108.59
total return % % %

Consumer
2.54 14.72 40.18
Price Index B % % %

A F ROM AUGUST 6, 1986
B CUMULATIVE TOTAL RETURN
EXPLANATION OF TERMS
UNDERSTANDING
PERFORMANCE
YIELD illustrates the income
earned by a fund over a
recent period. Seven-day
yields are the most common
illustration of money market
performance. 30-day yields
are usually used for bond
funds. Yields change daily,
reflecting changes in interest
rates.
TOTAL RETURN reflects both the
reinvestment of income and
capital gain distributions, and
any change in a fund's share
price.
(checkmark)
TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
YIELD refers to the income generated by an investment in a fund over a
given period of time, expressed as an annual percentage rate. When a money
market fund yield assumes that income earned is reinvested, it is called an
EFFECTIVE YIELD. A TAX-EQUIVALENT YIELD shows what an investor would have
to earn before taxes to equal a tax-free yield. Yields for the bond fund
are calculated according to a standard that is required for all stock and
bond funds. Because this differs from other accounting methods, the quoted
yield may not equal the income actually paid to shareholders.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The funds' recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders. For
current performance or a free annual report, call 1-800-544-8888.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUNDS IN DETAIL

CHARTER
EACH FUND IS A MUTUAL FUND: an investment that pools shareholders' money
and invests it toward a specified goal. In technical terms, the
money market fund is currently a non-diversified fund of Fidelity Municipal
Trust II, and the bond fund is currently a non-diversified fund of
Fidelity Municipal Trust. Both trusts are open-end management investment
companies. Fidelity Municipal Trust II was organized as a Delaware business
trust on June 20, 1991. Fidelity Municipal Trust was organized as a
Massachusetts business trust on June 22, 1984. There is a remote
possibility that one fund might become liable for a misstatement in the
prospectus about another fund.
EACH FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the funds' activities,
review contractual arrangements with companies that provide services to the
funds, and review performance. The majority of trustees are not otherwise
affiliated with Fidelity.
THE FUNDS MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These
meetings may be called to elect or remove trustees, change fundamental
policies, approve a management contract, or for other purposes.
Shareholders not attending these meetings are encouraged to vote by proxy.
Fidelity will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. For the money market fund,
you are entitled to one vote for each share you own. For the bond fund, the
number of votes you are entitled to is based upon the dollar value of your
investment.
FMR AND ITS AFFILIATES
FIDELITY FACTS
Fidelity offers the broadest
selection of mutual funds in
the world.
(solid bullet) Number of Fidelity mutual
funds: over 210
(solid bullet) Assets in Fidelity mutual
funds: over $ 354 billion
(solid bullet) Number of shareholder
accounts: over 23 million
(solid bullet) Number of investment
analysts and portfolio
managers: over 200
(checkmark)
The funds are managed by FMR, which chooses their investments and handles
their business affairs. FTX, loc ated in Irving, Texas, has primary
responsi bility for providing investment management services for the
money market fund .
Steven Harvey is manager of Spartan Pennsylvania Municipal Income ,
which he has managed since October 1993. Mr. Harvey also manages Ohio
Municipal Income , Massachusetts Municipal Income , and Spartan
Maryland Municipal Income. Previously, he managed Minnesota Municipal
Income and was an analyst following tax-free bonds. Mr. Harvey joined
Fidelity in 1986.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
Fidelity Distributors Corporation (FDC) distributes and markets Fidelity's
funds and services. Fidelity Service Co. (FSC) performs transfer agent
servicing functions for the funds.
FMR Corp. is the ultimate parent company of FMR and FTX. Members of the
Edward C. Johnson 3d family are the predominant owners of a class of shares
of common stock representing approximately 49% of the voting power of FMR
Corp. Under the Investment Company Act of 1940 (the 1940 Act), control of a
company is presumed where one individual or group of individuals owns more
than 25% of the voting stock of that company; therefore, the Johnson family
may be deemed under the 1940 Act to form a controlling group with respect
to FMR Corp.
UMB Bank, n.a., is each fund's transfer agent, although it employs FSC to
perform these functions for the funds. It is located at 1010 Grand Avenue,
Kansas City, Missouri.
To carry out the funds' transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that a fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND seeks to
earn high current income that is free from federal income tax and
Pennsylvania personal income tax while maintaining a stable $1.00 share
price by investing in high-quality, short-term municipal money market
securities of all types. FMR normally invests at least 65% of the fund's
total assets in state tax-free securities, and normally invests so that at
least 80% of its income distributions are free from federal income tax.
When you sell your shares, they should be worth the same amount as when you
bought them. Of course, there is no guarantee that the fund will maintain a
stable $1.00 share price. The fund follows industry-standard guidelines on
the quality and maturity of its investments, which are designed to help
maintain a stable $1.00 share price. The fund will purchase only
high-quality securities that FMR believes present minimal credit risks and
will observe maturity restrictions on securities it buys. I n general,
securities with longer maturities are more vulnerable to price changes,
although they may provide higher yields. It is possible that a major
change in interest rates or a default on the fund's investments could cause
its share prices (and the value of your investment) to change.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND seeks high current income
that is free from federal income tax and Pennsylvania personal income tax
by investing primarily in municipal securities judged by FMR to be of
investment-grade quality, although it can also invest in some lower quality
securities. FMR normally invests so that at least 80% of the fund's income
is free from federal and Pennsylvania personal income taxes.
A lthough the bond fund can invest in securities of any maturity, FMR
seeks to manage the fund so that it generally reacts to changes in interest
rates similarly to municipal bonds with maturities between 8 and 18 years.
As of December 31, 1995, the fund's dollar-weighted average maturity was
14.1 years.
EACH FUND'S performance is affected by the economic and political
conditions within the state of Pennsylvania. Historically,
Pennsylvania has been identified as a heavy industry state, although
that reputation has changed somewhat recently, as the industrial
composition of the Commonwealth diversified when the coal, steel, and
railroad industries began to decline. The major sources of growth in the
Commonwealth are expected to be in the service sector, including trade,
education, and financial institutions.
The money market fund stresses preservation of capital, liquidity, and
income. The bond fund seeks to provide a higher level of income by
investing in a broader range of securities.
The total return from a bond is a combination of income and price gains or
losses. While income is the most important component of bond returns over
time, the bond fund's emphasis on income does not mean that the fund
invests only in the highest-yielding bonds available, or that it can avoid
risks to principal. In selecting investments for the fund, FMR considers a
bond's income potential together with its potential for price gains or
losses. FMR focuses on assembling a portfolio of income-producing
securities that it believes will provide the best tradeoff between risk and
return within the range of securities that are eligible investments for the
fund.
Each fund's yield and the bond fund's share price change daily and are
based on interest rates, market conditions, other economic and political
news, and on the quality and maturity of its investments. In general, bond
prices rise when interest rates fall, and vice versa. This effect is
usually more pronounced for longer-term securities. Lower-quality
securities offer higher yields, but also carry more risk. FMR may use
various investment techniques to hedge a portion of the bond fund's risks,
but there is no guarantee that these strategies will work as intended. When
you sell your shares of the bond fund, they may be worth more or less than
what you paid for them.
If you are subject to the federal alternative minimum tax, you should note
that each fund may invest all of its assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.
FMR normally invests each fund's assets according to its investment
strategy. The funds do not expect to invest in federally taxable
obligations, and the bond fund does not expect to invest in state
taxable obligations. Each fund also reserves the right to invest without
limitation in short-term instruments, to hold a substantial amount of
uninvested cash, or to invest more than normally permitted in taxable
obligations for temporary, defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related risks.
Any restrictions listed supplement those discussed earlier in this section.
A complete listing of each fund's limitations and more detailed information
about the funds' investments are contained in the funds' SAI. Policies and
limitations are considered at the time of purchase; the sale of instruments
is not required in the event of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques
unless it believes that they are consistent with a fund's investment
objective and policies and that doing so will help a fund achieve its goal.
Current holdings and recent investment strategies are described in each
fund's financial reports which are sent to shareholders twice a year. For a
free SAI or financial report, call 1-800-544-8888.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. In
general, bond prices rise when interest rates fall, and vice versa. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower-quality debt securities (sometimes called "municipal junk bonds") are
con sidered to have speculati ve characteristics, and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more
than higher-quality securities and may decline significantly in periods of
general or regional economic difficulty.
The table o n page provides a summary of ratings assigned to debt
holdings (not including money market instruments) in the bond fund's
portfolio. These figures are dollar-weighted averages of month-end
portfolio holdings during fiscal 1995, and are presented as a percentage of
total security investments. These percentages are historical and do not
necessarily indicate the fund's current or future debt holdings.
PENN MUNICIPAL INCOME
Fiscal 1995 Debt Holdings, by Rating MOODY'S
INVESTORS SERVICE, INC. STANDARD & POOR'S
Rating Average A Rating Averag
eA
INVESTMENT GRADE
Highest quality Aaa 40.1 % AAA 40.0 %
High quality Aa 5.9 % AA 8.4 %
Upper-medium grade A 8.6 % A 11.3 %
Medium grade Baa 13.8 % BBB 14.3 %
LOWER QUALITY
Moderately speculative Ba 5.2 % BB 1.9 %
Speculative B 0.0 % B 0.0 %
Highly speculative Caa 0.0 % CCC 0.0 %
Poor quality Ca 0.0 % CC 0.0 %
Lowest quality, no interest C C
In default, in arrears -- D 0.0 %
73.6 % 75.9 %
A THE DOLLAR-WEIGHTED AVERAGE OF DEBT SECURITIES NOT RATED BY MOODY'S OR
S&P AMOUNTED TO 14.2 %. THIS MAY INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES. FMR
HAS DETERMINED THAT UNRATED SECURITIES THAT ARE LOWER-QUALITY ACCOUNT FOR
13.0 % OF THE FUND'S TOTAL SECURITY INVESTMENTS. REFER TO THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION FOR A MORE COMPLETE DISCUSSION OF
THESE RATINGS.

RESTRICTIONS: The bond fund does not currently intend to invest more
than one-third of its assets in bonds judged by FMR to be of equivalent
quality to those rated Ba or lower by Moody's and BB or lower by S&P, and
does not currently intend to invest in bonds of equivalent quality to bonds
rated lower than B. The fund does not currently intend to invest in bonds
rated below Caa by Moody's or CCC by S&P.
MONEY MARKET SECURITIES are high-quality, short-term obligations issued by
municipalities, local and state governments, and other entities. These
obligations may carry fixed, variable, or floating interest rates. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets so that
they are eligible investments for money market funds. If the structure does
not perform as intended, adverse tax or investment consequences may result.
MUNICIPAL SECURITIES are issued to raise money for a variety of public or
private purposes, including general financing for state and local
governments, or financing for specific projects or public facilities. They
may be issued in anticipation of future revenues and may be backed by the
full taxing power of a municipality, the revenues from a specific project,
or the credit of a private organization. The value of some or all municipal
securities may be affected by uncertainties in the municipal market related
to legislation or litigation involving the taxation of municipal securities
or the rights of municipal securities holders. A fund may own a municipal
security directly or through a participation interest.
CREDIT SUPPORT. Issuers may employ various forms of credit enhancement,
including letters of credit, guarantees, or insurance from a bank,
insurance company, or other entity. These arrangements expose the fund to
the credit risk of the entity. In the case of foreign entities, extensive
public information about the entity may not be available and the entity may
be subject to unfavorable political, economic, or governmental developments
which might affect its ability to honor its commitment.
STATE MUNICIPAL SECURITIES include municipal obligations issued by
the Commonwealth of Pennsylvania or its counties, municipalities,
authorities, or other subdivisions. The ability of issuers to repay their
debt can be affected by many factors that impact the economic vitality of
either the state or a region within the state.
Other state municipal securities include general obligations
of the U.S. territories and possessions such as Guam, the Virgin Islands,
Puerto Rico, and their political subdivisions and public corporations. The
economy of Puerto Rico is closely linked to the U.S. economy and
will be 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 revised these incentives, but
the government of Puerto Rico anticipates only a slight reduction in the
average real growth rates for the economy.
ASSET-BACKED SECURITIES include interests in pools of purchase contracts,
financing leases, or sales agreements entered into by municipalities. These
securities usually rely on continued payments by a municipality, and may
also be subject to prepayment risk.
VARIABLE AND FLOATING RATE SECURITIES have interest rates that are
periodically adjusted either at specific intervals or whenever a benchmark
rate changes. Inverse floaters have interest rates that move in the
opposite direction from a benchmark, making the security's market value
more volatile.
RESTRICTIONS: The money market fund may not purchase certain types of
variable and floating rate securities which are inconsistent with the
fund's goal of maintaining a stable share price.
MUNICIPAL LEASE OBLIGATIONS are used by municipalities to acquire land,
equipment, or facilities. If the municipality stops making payments or
transfers its obligations to a private entity, the obligation could lose
value or become taxable.
PUT FEATURES entitle the holder to put (sell back) a security to the issuer
or a financial intermediary. In exchange for this benefit, the funds may
pay periodic fees or accept a lower interest rate. The credit quality of
the investment may be affected by the creditworthiness of the put provider.
Demand features, standby commitments, and tender options are types of put
features.
PRIVATE ENTITIES may be involved in some municipal securities. For example,
industrial revenue bonds are backed by private entities, and resource
recovery bonds often involve private corporations. The viability of a
project or tax incentives could affect the value and credit quality of
these securities.
ADJUSTING INVESTMENT EXPOSURE. A fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts and purchasing indexed securities.
FMR can use these practices to adjust the risk and return characteristics
of a fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
RESTRICTIONS: The money market fund may not use investment techniques which
are inconsistent with the fund's goal of maintaining a stable share price.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some illiquid securities and some other securities may be
subject to legal restrictions. Difficulty in selling securities may result
in a loss or may be costly to a fund.
RESTRICTIONS: A fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid securities.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect a fund's yield or the market value of its assets.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry or type of
project. Economic, business, or political changes can affect all securities
of a similar type. A fund that is not diversified may be more sensitive to
these changes, and also to changes in the market value of a single issuer
or industry.
RESTRICTIONS: The funds are considered non-diversified. Generally,
to meet federal tax requirements at the close of each quarter, a fund does
not invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any one issuer. These limitations do not apply to U.S. government
securities. A fund may invest more than 25% of its total assets in tax-free
securities that finance similar types of projects.
BORROWING. A fund may borrow from banks or from other funds advised by FMR,
or through reverse repurchase agreements. If a bond fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is
paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: A fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraphs restate all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraphs, can be changed without shareholder approval.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET seeks as high a level of
current income, exempt from federal income tax and Pennsylvania personal
income tax, as is consistent with preservation of capital. The fund will
normally invest so that at least 80% of its income distributions are exempt
from federal income tax.
SPARTAN PENNSYLVANIA MUNICIPAL INCOME seeks as high a level of
current income, exempt from federal income tax and Pennsylvania personal
income tax, as is consistent with its investment characteristics. The fund
will normally invest so that at least 80% of its income is exempt from
federal and Pennsylvania income taxes. FMR anticipates that the fund
ordinarily will be fully invested in obligations whose interest is exempt
from federal income tax and Pennsylvania personal income tax. The fund
invests primarily in municipal bonds judged by FMR to be of
investment-grade quality, although it may invest up to one-third of its
assets in lower quality bonds. The fund may not purchase bonds that are
judged by FMR to be of equivalent quality to those rated lower than B.
EACH FUND may borrow only for temporary or emergency purposes, but not in
an amount exceeding 33% of its total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the funds pay fees related to their daily
operations. Expenses paid out of a fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs. FMR in turn pays fees to an affiliate who provides
assistance with these services for the money market fund .
FMR may, from time to time, agree to reimburse the funds for management
fees above a specified limit. FMR retains the ability to be repaid by a
fund if expenses fall below the specified limit prior to the end of the
fiscal year. Reimbursement arrangements, which may be terminated at any
time without notice, can decrease a fund's expenses and boost its
performance.
MANAGEMENT FEE
The management fee is calculated and paid to FMR every month. Each fund
pays a management fee at a fixed annual rate of its average net assets:
.50% for the money market fund and .55% for the bond fund.
FMR HAS A SUB-ADVISORY AGREEMENT with FTX, which has primary responsibility
for providing investment management for the money market fund , while
FMR retains responsibility for providing other management services. FMR
pays FTX 50% of its management fee (before expense reimbursements)
for these services.
FSC performs many transaction and accounting functions for the funds. These
services include processing shareholder transactions and calculating each
fund's share price. FMR, and not the funds, pays for these services.
To offset shareholder service costs, FMR or its affiliates also collect the
funds' $5.00 exchange fee, $5.00 account closeout fee, $5.00 fee for wire
purchases and redemptions, and, for the money market fund , the $2.00
checkwriting charge. For fiscal 1995, these fees amounted to $ 2,420 ,
$ 1,228 , $ 220 , and $ 4,830 , respectively, for the
money market fund and $ 1,605 , $ 1,120 , and $ 230 ,
respectively, for the bond fund .
Each fund has adopted a Distribution and Service Plan. These plans
recognize that FMR may use its resources, including management fees, to pay
expenses associated with the sale of fund shares. This may include payments
to third parties, such as banks or broker-dealers, that provide shareholder
support services or engage in the sale of the fund's shares. It is
important to note, however, that the funds do not pay FMR any separate fees
for this service.
For fiscal 1995, the portfolio turnover rates for the bond fund was
49 %. This rate varies from year to year.
YOUR ACCOUNT

DOING BUSINESS WITH FIDELITY
Fidelity Investments was established in 1946 to manage one of America's
first mutual funds. Today, Fidelity is the largest mutual fund company in
the country, and is known as an innovative provider of high-quality
financial services to individuals and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage Services,
Inc. (FBSI). Fidelity is also a leader in providing tax-sheltered
retirement plans for individuals investing on their own or through their
employer.
Fidelity is committed to providing investors with practical information to
make investment decisions. Based in Boston, Fidelity provides customers
with complete service 24 hours a day, 365 days a year, through a network of
telephone service centers around the country.
To reach Fidelity for general information, call these numbers:
(small solid bullet) For mutual funds, 1-800-544-8888
(small solid bullet) For brokerage, 1-800-544-7272
If you would prefer to speak with a representative in person, Fidelity has
over 80 walk-in Investor Centers across the country.
TYPES OF ACCOUNTS
You may set up an account directly in a fund or, if you own or intend to
purchase individual securities as part of your total investment portfolio,
you may consider investing in a fund through a brokerage account.
If you are investing through FBSI or another financial institution or
investment professional, refer to its program materials for any special
provisions regarding your investment in the fund.
The different ways to set up (register) your account with Fidelity are
listed in the table that follows.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA).
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Requires a special application.
HOW TO BUY SHARES
EACH FUND'S SHARE PRICE, called net asset value (NAV), is calculated every
business day. The money market fund is managed to keep its share
price stable at $1.00. Each fund's shares are sold without a sales charge.
Shares are purchased at the next share price calculated after your
investment is received and accepted. Share price is normally calculated at
4 p.m. Eastern time.
IF YOU ARE NEW TO FIDELITY, complete and sign an account application and
mail it along with your check. You may also open your account in person or
by wire as described on page . If there is no application accompanying this
prospectus, call 1-800-544-8888.
IF YOU ALREADY HAVE MONEY INVESTED IN A FIDELITY FUND, you can:
(small solid bullet) Mail in an application with a check, or
(small solid bullet) Open your account by exchanging from another Fidelity
fund.
If you buy shares by check or Fidelity Money Line(registered trademark),
and then sell those shares by any method other than by exchange to another
Fidelity fund, the payment may be delayed for up to seven business days to
ensure that your previous investment has cleared.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000
For the money market fund $25,000
TO ADD TO AN ACCOUNT $1,000
Through automatic investment plans $500
MINIMUM BALANCE $5,000
For the money market fund $10,000
These minimums may vary for investments through Fidelity Portfolio Advisory
Services. Refer to the product materials for details.

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 1-800-544-777 (phone_graphic) (small solid bullet) Exchange from another (small solid bullet) Exchange from another
Fidelity fund account Fidelity fund account
with the same with the same
registration, including registration, including
name, address, and name, address, and
taxpayer ID number. taxpayer ID number.
(small solid bullet) Use Fidelity Money
Line to transfer from
your bank account. Call
before your first use to
verify that this service
is in place on your
account. Maximum
Money Line: $50,000.

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Mail (mail_graphic) (small solid bullet) Complete and sign the (small solid bullet) Make your check
application. Make your payable to the complete
check payable to the name of the fund.
complete name of the Indicate your fund
fund of your choice. account number on
Mail to the address your check and mail to
indicated on the the address printed on
application. your account statement.
(small solid bullet) Exchange by mail: call
1-800-544-6666 for
instructions.

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In Person (hand_graphic) (small solid bullet) Bring your application (small solid bullet) Bring your check to a
and check to a Fidelity Fidelity Investor Center.
Investor Center. Call Call 1-800-544-9797 for
1-800-544-9797 for the the center nearest you.
center nearest you.

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Wire (wire_graphic) (small solid bullet) There may be a $5.00 (small solid bullet) There may be a $5.00
fee for each wire fee for each wire
purchase. purchase.
(small solid bullet) Call 1-800-544-7777 to (small solid bullet) Wire to:
set up your account Bankers Trust
and to arrange a wire Company,
transaction. Bank Routing
(small solid bullet) Wire within 24 hours to: #021001033,
Bankers Trust Account #00163053.
Company, Specify the complete
Bank Routing name of the fund and
#021001033, include your account
Account #00163053. number and your
Specify the complete name.
name of the fund and
include your new
account number and
your name.

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Automatically (automatic_graphic) (small solid bullet) Not available. (small solid bullet) Use Fidelity Automatic
Account Builder. Sign
up for this service
when opening your
account, or call
1-800-544-6666 to add
it.

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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118

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HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares. Your shares will be sold at
the next share price calculated after your order is received and accepted.
Share price is normally calculated at 4 p.m. Eastern time.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least $5,000
worth of shares in the account ($10,000 for the money market fund )
to keep it open.
TO SELL SHARES BY BANK WIRE OR FIDELITY MONEY LINE, you will need to sign
up for these services in advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if authorized
under state law), securities exchange or association, clearing agency, or
savings association. A notary public cannot provide a signature guarantee.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
(small solid bullet) Your name,
(small solid bullet) The fund's name,
(small solid bullet) Your fund account number,
(small solid bullet) The dollar amount or number of shares to be redeemed,
and
(small solid bullet) Any other applicable requirements listed in the table
that follows.
Unless otherwise instructed, Fidelity will send a check to the record
address. Deliver your letter to a Fidelity Investor Center, or mail it to:
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
CHECKWRITING
If you have a checkbook for your account in the money market fund ,
you may write an unlimited number of checks. Do not, however, try to close
out your account by check.
ACCOUNT TYPE SPECIAL REQUIREMENTS

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IF YOU SELL SHARES OF T HE BOND FUND AFTER HOLDING THEM LESS THAN 180 DAYS, THE FUND
WILL DEDUCT A REDEMPTION FEE EQUAL TO .50% OF THE VALUE OF THOSE SHARES. 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.

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Phone 1-800-544-777 (phone_graphic) All account types (small solid bullet) Maximum check request:
$100,000.
(small solid bullet) For Money Line transfers to
your bank account; minimum:
$10; maximum: $100,000.
(small solid bullet) You may exchange to other
Fidelity funds if both
accounts are registered with
the same name(s), address,
and taxpayer ID number.

Mail or in Person (mail_graphic)(hand_graphic) Individual, Joint (small solid bullet) The letter of instruction must
Tenant, be signed by all persons
Sole Proprietorship required to sign for
, UGMA, UTMA transactions, exactly as their
Trust names appear on the
account.
(small solid bullet) The trustee must sign the
letter indicating capacity as
Business or trustee. If the trustee's name
Organization is not in the account
registration, provide a copy of
the trust document certified
within the last 60 days.
(small solid bullet) At least one person
Executor, authorized by corporate
Administrator, resolution to act on the
Conservator, account must sign the letter.
Guardian (small solid bullet) Include a corporate
resolution with corporate seal
or a signature guarantee.
(small solid bullet) Call 1-800-544-6666 for
instructions.

Wire (wire_graphic) All account types (small solid bullet) You must sign up for the wire
feature before using it. To
verify that it is in place, call
1-800-544-6666. Minimum
wire: $5,000.
(small solid bullet) Your wire redemption request
must be received by Fidelity
before 4 p.m. Eastern time
for money to be wired on the
next business day.

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Check (check_graphic) All account types (small solid bullet) Minimum check: $1,000.
(small solid bullet) All account owners must sign
a signature card to receive a
checkbook.

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(tdd_graphic) TDD - Service for the Deaf and Hearing Impaired: 1-800-544-0118

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INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
FIDELITY'S TELEPHONE REPRESENTATIVES are available 24 hours a day, 365 days
a year. Whenever you call, you can speak with someone equipped to provide
the information or service you need.
24-HOUR SERVICE
ACCOUNT ASSISTANCE
1-800-544-6666
ACCOUNT BALANCES
1-800-544-7544
ACCOUNT TRANSACTIONS
1-800-544-7777
PRODUCT INFORMATION
1-800-544-8888
QUOTES
1-800-544-8544
RETIREMENT ACCOUNT
ASSISTANCE
1-800-544-4774
AUTOMATED SERVICE
(checkmark)
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except reinvestments, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed
to your household, even if you have more than one account in the fund. Call
1-800-544-6666 if you need copies of financial reports or historical
account information.
TRANSACTION SERVICES
EXCHANGE PRIVILEGE. You may sell your fund shares and buy shares of other
Fidelity funds by telephone or in writing. There may be a $5.00 fee for
each exchange out of the funds, unless you place your transaction on
Fidelity's automated exchange services.
Note that exchanges out of a fund are limited to four per calendar year,
and that they may have tax consequences for you. For details on policies
and restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see page .
SYSTEMATIC WITHDRAWAL PLANS let you set up periodic redemptions from your
account.
FIDELITY MONEY LINE(registered trademark) enables you to transfer money by
phone between your bank account and your fund account. Most transfers are
complete within three business days of your call.
REGULAR INVESTMENT PLANS
One easy way to pursue your financial goals is to invest money regularly.
Fidelity offers convenient services that let you transfer money into your
fund account, or between fund accounts, automatically. While regular
investment plans do not guarantee a profit and will not protect you against
loss in a declining market, they can be an excellent way to invest for a
home, educational expenses, and other long-term financial goals.
REGULAR INVESTMENT PLANS

FIDELITY AUTOMATIC ACCOUNT BUILDERSM
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO A FIDELITY FUND

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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly or (small solid bullet) For a new account, complete the
quarterly appropriate section on the fund
application.
(small solid bullet) For existing accounts, call
1-800-544-6666 for an application.
(small solid bullet) To change the amount or frequency of
your investment, call 1-800-544-6666 at
least three business days prior to your
next scheduled investment date.

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DIRECT DEPOSIT
TO SEND ALL OR A PORTION OF YOUR PAYCHECK OR GOVERNMENT CHECK TO A FIDELITY FUNDA

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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Every pay (small solid bullet) Check the appropriate box on the fund
period application, or call 1-800-544-6666 for an
authorization form.
(small solid bullet) Changes require a new authorization
form.

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FIDELITY AUTOMATIC EXCHANGE SERVICE
TO MOVE MONEY FROM A FIDELITY MONEY MARKET FUND TO ANOTHER FIDELITY FUND

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MINIMUM FREQUENCY SETTING UP OR CHANGING
$500 Monthly, (small solid bullet) To establish, call 1-800-544-6666 after
bimonthly, both accounts are opened.
quarterly, or (small solid bullet) To change the amount or frequency of
annually your investment, call 1-800-544-6666.

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A BECAUSE BOND FUND SHARE PRICES FLUCTUATE, THAT FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR DIRECT DEPOSIT OF YOUR ENTIRE CHECK.
SHAREHOLDER AND ACCOUNT POLICIES

DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net investment income and
capital gains, if any, to shareholders each year. Income dividends are
declared daily and paid monthly. Capital gains earned by the bond fund are
normally distributed in February and December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. If the option you prefer is not listed on the
application, call 1-800-544-6666 for instructions. The bond fund offers
four options and the money market fund offers three:
5. REINVESTMENT OPTION. Your dividend and capital gain distributions, if
any, will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned this
option.
6. INCOME-EARNED OPTION. Your capital gain distributions, if any, will be
automatically reinvested, but you will be sent a check for each dividend
distribution. This option is not available for the money market
fund.
7. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions, if any.
8. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividend and
capital gain distributions, if any, will be automatically invested in
another identically registered Fidelity fund.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions, if any, will be reinvested at the NAV as
of the date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days, or longer for a December
ex-dividend date.
UNDERSTANDING
DISTRIBUTIONS
As a fund shareholder, you
are entitled to your share of
the fund's net income and
gains on its investments. The
fund passes its earnings
along to its investors as
DISTRIBUTIONS.
Each fund earns interest from
its investments. These are
passed along as DIVIDEND
DISTRIBUTIONS. The fund may
realize capital gains if it sells
securities for a higher price
than it paid for them. These
are passed along as CAPITAL
GAIN DISTRIBUTIONS. Money
market funds usually don't
make capital gain
distributions.
(checkmark)
TAXES
As with any investment, you should consider how an investment in a tax-free
fund could affect you. Below are some of the funds' tax implications.
TAXES ON DISTRIBUTIONS. Interest income that a fund earns is distributed to
shareholders as income dividends. Interest that is federally tax-free
remains tax-free when it is distributed.
However, gain on the sale of tax-free bonds results in taxable
distributions. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends. Long-term capital gain
distributions are taxed as long-term capital gains. These distributions are
taxable when they are paid, whether you take them in cash or reinvest them.
However, distributions declared in December and paid in January are taxable
as if they were paid on December 31. Fidelity will send you and the IRS a
statement showing the tax status of the distributions paid to you in the
previous year.
The interest from some municipal securities is subject to the federal
alternative minimum tax. Each fund may invest up to 100% of its assets in
these securities. Individuals who are subject to the tax must report this
interest on their tax returns.
To the extent that a fund's distributions are derived from interest on
state tax-free securities , they will be free from the Pennsylvania
personal income tax. Capital gain distributions from the funds will be
fully taxable for purposes of the Pennsylvania personal income tax.
Distributions from the fund will also be exempt from the Philadelphia
School District investment income tax for individuals who are residents of
the City of Philadelphia to the extent that such distributions are derived
from interest on state tax-free securities , or to the extent that
such distributions are designated as capital gain dividends for federal
income tax purposes. Investments in the funds will be free from the
Pennsylvania county personal property taxes to the extent that the
funds' assets are comprised of state tax-free securities (or certain other
qualifying tax-free securities) on the an annual assessment date.
During fiscal 1995, 100 % of each fund's income dividends was free
from federal and Pennsylvania personal income taxes . 45.7% of the
money market fund's and 8.2% of the bond fund's income dividends were
subject to the federal alternative minimum tax.
TAXES ON TRANSACTIONS. Your bond fund redemptions - including
exchanges to other Fidelity funds - are subject to capital gains tax. A
capital gain or loss is the difference between the cost of your shares and
the price you receive when you sell them.
Whenever you sell shares of a fund, Fidelity will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive a consolidated transaction statement every January. However, it is
up to you or your tax preparer to determine whether this sale resulted in a
capital gain and, if so, the amount of tax to be paid. Be sure to keep your
regular account statements; the information they contain will be essential
in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before a fund deducts a capital
gain distribution from its NAV, you will pay the full price for the shares
and then receive a portion of the price back in the form of a taxable
distribution.
There are tax requirements that all funds must follow in order to avoid
federal taxation. In its effort to adhere to these requirements, the fund
may have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4 p.m. Eastern time.
EACH FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The money market fund values the securities it owns on the basis of
amortized cost. This method minimizes the effect of changes in a security's
market value and helps the fund to maintain a stable $1.00 share price. For
the bond fund, assets are valued primarily on the basis of market
quotations, if available. Since market quotations are often unavailable,
assets are usually valued by a method that the Board of Trustees believes
accurately reflects fair value.
EACH FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Fidelity may only be
liable for losses resulting from unauthorized transactions if it does not
follow reasonable procedures designed to verify the identity of the caller.
Fidelity will request personalized security codes or other information, and
may also record calls. You should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want the
ability to redeem and exchange by telephone, call Fidelity for
instructions.
IF YOU ARE UNABLE TO REACH FIDELITY BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail or by
visiting a Fidelity Investor Center.
EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. Each fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "Exchange Restrictions"
on page . Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
(small solid bullet) All of your purchases must be made in U.S. dollars and
checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check, each
check must have a value of at least $50.
(small solid bullet) Each fund reserves the right to limit the number of
checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will be
cancelled and you could be liable for any losses or fees a fund or its
transfer agent has incurred.
(small solid bullet) The money market fund reserves the right to
limit all accounts maintained or controlled by any one person to a maximum
total balance of $2 million.
(small solid bullet) You begin to earn dividends as of the first business
day following the day of your purchase.
TO AVOID THE COLLECTION PERIOD associated with check and Money Line
purchases, consider buying shares by bank wire, U.S. Postal money order,
U.S. Treasury check, Federal Reserve check, or direct deposit instead.
YOU MAY BUY OR SELL SHARES OF THE FUNDS THROUGH A BROKER, who may charge
you a fee for this service. If you invest through a broker or other
institution, read its program materials for any additional service features
or fees that may apply.
CERTAIN FINANCIAL INSTITUTIONS that have entered into sales agreements with
FDC may enter confirmed purchase orders on behalf of customers by phone,
with payment to follow no later than the time when a fund is priced on the
following business day. If payment is not received by that time, the
financial institution could be held liable for resulting fees or losses.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect a fund, it may take up to seven days to pay you.
(small solid bullet) Shares will earn dividends through the date of
redemption; however, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day.
(small solid bullet) Fidelity Money Line redemptions generally will be
credited to your bank account on the second or third business day after
your phone call.
(small solid bullet) Each fund may hold payment on redemptions until it is
reasonably satisfied that investments made by check or Fidelity Money Line
have been collected, which can take up to seven business days.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) If you sell shares by writing a check and the amount
of the check is greater than the value of your account, your check will be
returned to you and you may be subject to additional charges.
THE REDEMPTION FEE for the bond fund , if applicable, will be
deducted from the amount of your redemption. This fee is paid to the fund
rather than FMR, and it does not apply to shares that were acquired through
reinvestment of distributions. If shares you are redeeming were not all
held for the same length of time, those shares you held longest will be
redeemed first for purposes of determining whether the fee applies.
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:
(small solid bullet) The $2.00 checkwriting charge will be deducted from
your account.
(small solid bullet) The $5.00 exchange fee will be deducted from the
amount of your exchange.
(small solid bullet) The $5.00 wire fee will be deducted from the amount of
your wire.
(small solid bullet) The $5.00 account closeout fee does not apply to
exchanges or wires, but it will apply to checkwriting.
FIDELITY RESERVES THE RIGHT TO DEDUCT AN ANNUAL MAINTENANCE FEE of $12.00
from accounts with a value of less than $2,500, subject to an annual
maximum charge of $60.00 per shareholder. It is expected that accounts will
be valued on the second Friday in November of each year. Accounts opened
after September 30 will not be subject to the fee for that year. The fee,
which is payable to the transfer agent, is designed to offset in part the
relatively higher costs of servicing smaller accounts. The fee will not be
deducted from retirement accounts (except non-prototype retirement
accounts), accounts using regular investment plans, or if total assets in
Fidelity funds exceed $50,000. Eligibility for the $50,000 waiver is
determined by aggregating Fidelity mutual fund accounts maintained by FSC
or FBSI which are registered under the same social security number or which
list the same social security number for the custodian of a Uniform
Gifts/Transfers to Minors Act account.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000 ($10,000 for the money market
fund ), you will be given 30 days' notice to reestablish the minimum
balance. If you do not increase your balance, Fidelity reserves the right
to close your account and send the proceeds to you. Your shares will be
redeemed at the NAV on the day your account is closed 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 a fund for
shares of other Fidelity funds. However, you should note the following:
(small solid bullet) The fund you are exchanging into must be registered
for sale in your state.
(small solid bullet) You may only exchange between accounts that are
registered in the same name, address, and taxpayer identification number.
(small solid bullet) Before exchanging into a fund, read its prospectus.
(small solid bullet) If you exchange into a fund with a sales charge, you
pay the percentage-point difference between that fund's sales charge and
any sales charge you have previously paid in connection with the shares you
are exchanging. For example, if you had already paid a sales charge of 2%
on your shares and you exchange them into a fund with a 3% sales charge,
you would pay an additional 1% sales charge.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) Because excessive trading can hurt fund performance
and shareholders, each fund reserves the right to temporarily or
permanently terminate the exchange privilege of any investor who makes more
than four exchanges out of the fund per calendar year. Accounts under
common ownership or control, including accounts with the same taxpayer
identification number, will be counted together for purposes of the four
exchange limit.
(small solid bullet) Each fund reserves the right to refuse exchange
purchases by any person or group if, in FMR's judgment, the fund would be
unable to invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
(small solid bullet) Your exchanges may be restricted or refused if a fund
receives or anticipates simultaneous orders affecting significant portions
of the fund's assets. In particular, a pattern of exchanges that coincides
with a "market timing" strategy may be disruptive to a fund.
Although the funds will attempt to give you prior notice whenever they are
reasonably able to do so, they may impose these restrictions at any time.
The funds reserve the right to terminate or modify the exchange privilege
in the future.
OTHER FUNDS MAY HAVE DIFFERENT EXCHANGE RESTRICTIONS, and may impose
administrative fees of up to $7.50 and redemption fees of up to 1.50% on
exchanges. Check each fund's prospectus for details.

This prospectus is printed on recycled paper using soy-based inks.
SPARTAN(Registered trademark) PENNSYLVANIA MUNICIPAL MONEY MARKET FUND
A FUND OF FIDELITY MUNICIPAL TRUST II
SPARTAN(Registered trademark) PENNSYLVANIA MUNICIPAL INCOME FUND
A FUND OF FIDELITY MUNICIPAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 20, 1996
This Statement is not a prospectus but should be read in conjunction with
the funds' current Prospectus (dated February 20, 1996). Please ret ain
this docum ent for future reference. The funds' financial statements and
financial highlights, included in the Annual Report for the fiscal year
ended December 31, 1995, ar e in corporated herein by reference. To
obtain an additional copy of the Prospectus or the Annual Report, please
call Fidelity Distributors Corporation at 1-800-544-8888.
TABLE OF CONTENTS PAGE

Investment Policies and Limitations

Special Considerations Affecting Pennsylvania

Special Considerations Affecting Puerto Rico

Portfolio Transactions

Valuation of Portfolio Securities

Performance

Additional Purchase and Redemption Information

Distributions and Taxes

FMR

Trustees and Officers

Management Contracts

Distribution and Service Plans

Contracts with FMR Affiliates

Description of the Trusts

Financial Statements

Appendix

INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
INVESTMENT SUB-ADVISER
FMR Texas Inc. (FTX) (money market fund)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
UMB Bank, n.a. (UMB)
Fidelity Service Co. (FSC)
PFR-ptb-296
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of a fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
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 listed below,
th e inves tment policies and limitations described in this Statement
of Additional Information are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET
FUND
(MONEY MARKET FUND)
THE FOLLOWING ARE THE MONEY MARKET FUND'S FUNDAMENTAL INVESTMENT
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) sell securities short (except by selling futures contracts), unless it
owns, or by virtue of ownership of other securities has the right to
obtain, securities equivalent in kind and amount to the securities sold;
(3) purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, and provided that the fund
may make initial and variation margin payments in connection with the
purchase or sale of futures contracts or of options on futures contracts;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(5) underwrite securities issued by others, except to the extent that the
purchase of municipal bonds in accordance with the fund's investment
objective, policies, and limitations, either directly from the issuer, or
from an underwriter for an issuer, may be deemed to be underwriting;
(6) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments;
(9) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties (but this limit
does not apply to purchases of debt securities or to repurchase
agreements); or
(10) invest in oil, gas or other mineral exploration or development
programs.
(11) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objectives, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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) With respect to 75% of its to tal assets, the fund does not
currently intend to purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
(iii) The fund may borrow mo ney only (a) from a bank or from a
registered investment company or portfolio for which FMR or an affiliate
serves as investment adviser or (b) by engaging in reverse repurchase
agreements with any party (reverse repurchase agreements are treated as
borrowings for purposes of fundamental investment limitation (4)). The fund
will not purchase any security while borrowings representing more than 5%
of its total assets are outstanding. The fund will not borrow from other
funds advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(iv) The fund does not currently int end to purchase any security if,
as a result, more than 10% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to legal
or contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(v) The fund does not currently intend to purchase or sell futures
contracts or call options. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying
securities, and does not apply to securities that incorporate features
similar to options or futures contracts.
(vi) The fund does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary broker's commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
( viii ) The fund does not currently intend to purchase the securities
of any issuer if those officers and Trustees of the trust and those
officers and directors of FMR who individually own more than 1/2 of 1% of
the securities of such issuer together own more than 5% of such issuer's
securities.
( i x) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For the money market fund's policies on quality and maturity, see
the section entitled "Quality and Maturity" on page .
For purposes of limitations (6) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
INVESTMENT LIMITATIONS OF SPARTAN PENNSYLVANIA MUNICIPAL INCOME FUND
( BOND F UND)
THE FOLLOWING ARE THE BOND FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
fund's total assets would be invested in securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this limit
does not apply to purchases of debt securities or to repurchase agreements.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) 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) With re spect to 75% of its total assets, the fund does not
currently intend to purchase the securities of any issuer (other than
securities issued or guaranteed by the U.S. government or any of its
agencies or instrumentalities) if, as a result, the fund would hold more
than 10% of the outstanding voting securities of that issuer.
(iii) The fund does not curre ntly 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.
( iv ) 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.
(v) 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.
(vi) The fund d oes 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.
(vii) The fund does not currently intend to engage in repur cha se
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.
( i x) The fund does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.
(x) The fund does not currently intend to purchase the securities of any
issuer if those officers and Trustees of the trust and those officers and
directors of FMR who individually own more than 1/2 of 1% of the securities
of such issuer together own more than 5% of such issuer's securities.
For purposes of limitations (4) and (i), FMR identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer,
FMR will consider the entity or entities responsible for payment of
interest and repayment of principal and the source of such payments; the
way in which assets and revenues of an issuing political subdivision are
separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
For the bond fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" on
page 6 .
Each fund's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the funds.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
borrowings. In accordance with exemptive orders issued by the Securities
and Exchange Commission (SEC), the Board of Trustees has established and
periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. Each fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by a fund to purchase or sell specific securities at a
predetermined price or yield, with payment and delivery taking place after
the customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered. The bond
f und may receive fees for entering into delayed-delivery
transactions.
When purchasing securities on a delayed-delivery basis, each fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because a fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If a fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When a fund has sold a security on a delayed-delivery
basis, the fund does not participate in further gains or losses with
respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, the fund could miss
a favorable price or yield opportunity, or could suffer a loss.
Each fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
FEDERALLY TAXABLE OBLIGATIONS. Under normal conditions, the funds do not
intend to invest in securities whose interest is federally taxable.
However, from time to time on a temporary basis, each fund may invest a
portion of its assets in fixed-income obligations whose interest is subject
to federal income tax.
Should a fund invest in federally taxable obligations, it would purchase
securities that in FMR's judgment are of high quality. These would include
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities; obligations of domestic banks; and repurchase
agreements. The bond fund's s tandards for high-quality, taxable
obligations are essentially the same as those described by Moody's
Investors Service, Inc. (Moody's) in rating corporate obligations within
its two highest ratings of Prime-1 and Prime-2, and those described by
Standard & Poor's (S&P) in rating corporate obligations within its two
highest ratings of A-1 and A-2. The money market fund will purchase taxable
obligations only if they meet its quality requirements.
Proposals to restrict or eliminate the federal income tax exemption for
interest on municipal obligations are introduced before Congress from time
to time. Proposals also may be introduced before the Pennsylvania
legislature that would affect the state tax treatment of the funds'
distributions. If such proposals were enacted, the availability of
municipal obligations and the value of the funds' holdings would be
affected and the Trustees would reevaluate the funds' investment objectives
and policies.
FUTURES AND OPTIONS. The following sections pertain to futures and options:
Asset Coverage for Futures and Options Positions, Combined Positions,
Correlation of Price Changes, Futures Contracts, Futures Margin Payments,
Limitations on Futures and Options Transactions, Liquidity of Options and
Futures Contracts, OTC Options, Purchasing Put and Call Options, and
Writing Put and Call Options.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The funds will
comply with guidelines established by the SEC with respect to
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
fund's assets could impede portfolio management or the fund's ability to
meet redemption requests or other current obligations.
COMBINED POSITIONS. A fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, a fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match a fund's current or
anticipated investments exactly. The funds may invest in options and
futures contracts based on securities with different issuers, maturities,
or other characteristics from the securities in which they typically
invest, which involves a risk that the options or futures position will not
track the performance of a fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. A fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in a fund's options or futures positions are poorly correlated with
its other investments, the positions may fail to produce anticipated gains
or result in losses that are not offset by gains in other investments.
FUTURES CONTRACTS. When a fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
a fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a fund's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When a fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of a fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of a fund, the fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The bond fund has filed a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the fund can
commit assets to initial margin deposits and option premiums.
In addition, the fund will not: (a) sell futures contracts, purchase
put options, or write call options if, as a result, more than 25% of the
fund's total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; or (c) purchase call options if, as a result, the current
value of option premiums for call options purchased by the fund would
exceed 5% of the fund's total assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on a fund's investments in futures contracts
and options, and a fund's policies regarding futures contracts and
options discussed elsewhere in this Statement of Additional Information may
be changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for a fund to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions,
and potentially could require a fund to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, a
fund's access to other assets held to cover its options or futures
positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter (OTC) options (options not
traded on exchanges) generally are established through negotiation with the
other party to the option contract. While this type of arrangement allows
the funds greater flexibility to tailor an option to its needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a fund obtains
the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. A fund may also terminate a put option position by closing it out in
the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When a fund writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the
option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. A fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates a fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of a fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of a fund's investments, FMR may consider various factors,
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
For the money market fund, FMR may determine some restricted securities
and municipal lease obligations to be illiquid.
For the bond fu nd, investments currently considered to be illiquid
include over-the-counter options. Also, FMR may determine some restricted
securities and municipal lease obligations to be illiquid. However, with
respect to over-the-counter options a fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets
held to cover the option and the nature and terms of any agreement the fund
may have to close out the option before expiration.
In the absence of market quotations, illiquid investments for the money
market fund are valued for purposes of monitoring amortized cost valuation,
and for t he bond fun d are priced at fair value as determined in good
faith by a committee appointed by the Board of Trustees. If through a
change in values, net assets, or other circumstances, a fund were in a
position where more than 10% of its net assets was invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
INDEXED SECURITIES. A fund may purchase securities whose prices are indexed
to the prices of other securities, securities indices, or other financial
indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Indexed securities may
have principal payments as well as coupon payments that depend on the
performance of one or more interest rates. Their coupon rates or principal
payments may change by several percentage points for every 1% interest rate
change. One example of indexed securities is inverse floaters.
The performance of indexed securities depends to a great extent on the
performance of the security or other instrument to which they are indexed,
and may also be influenced by interest rate changes. At the same time,
indexed securities are subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
INTERFUND BORROWING PROGRAM. Pu rsuant to an exemptive order issued
by the SEC, each fund has received permission to lend money to, and borrow
money from, other funds advised by FMR or its affiliates, but will
participate in the interfund borrowing program only as a borrower.
Interfund borrowings normally extend overnight, but can have a maximum
duration of seven days. A fund will borrow through the program only when
the costs are equal to or lower than the costs of bank loans. Loans may be
called on one day's notice, and a fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
INVE RSE FLOATERS have variable interest rates that typically move in the
opposite direction from prevailing short-term interest rate levels - rising
when prevailing short-term interest rates fall, and vice versa. This
interest rate feature can make the prices of inverse floaters
considerab ly more volatile than bonds with comparable maturities.
LOWER-QUALITY MUNICIPAL SECURITIES. T he b ond fund may invest a
portion of its assets in lower-quality municipal securities as described in
the Prospectus.
While the market for Pennsylvania municipals is considered to be adequate,
adverse publicity and changing investor perceptions may affect the ability
of outside pricing services used by a fund to value its portfolio
securities, and the fund's ability to dispose of lower-quality bonds. The
outside pricing services are monitored by FMR and reported to the Board to
determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly
traded.
Each fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to
be in the best interest of the fund's shareholders.
MONEY MARKET SECURITIES are high-quality, short-term obligations. Some
money market securities employ a trust or other similar structure to modify
the maturity, price characteristics, or quality of financial assets. For
example, put features can be used to modify the maturity of a security or
interest rate adjustment features can be used to enhance price stability.
If the structure does not perform as intended, adverse tax or investment
consequences may result. Neither the Internal Revenue Service (IRS) nor any
other regulatory authority has ruled definitively on certain legal issues
presented by structured securities. Future tax or other regulatory
determinations could adversely affect the value, liquidity, or tax
treatment of the income received from these securities or the nature and
timing of distributions made by the fund s.
MUNICIPAL LEASES and participation interests therein may take the form of a
lease, an installment purchase, or a conditional sale contract and are
issued by state and local governments and authorities to acquire land or a
wide variety of equipment and facilities. Generally, the funds will not
hold such obligations directly as a lessor of the property, but will
purchase a participation interest in a municipal obligation from a bank or
other third party. A participation interest gives a fund a specified,
undivided interest in the obligation in proportion to its purchased
interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt.
These may include voter referenda, interest rate limits, or public sale
requirements. Leases, installment purchases, or conditional sale contracts
(which normally provide for title to the leased asset to pass to the
governmental issuer) have evolved as a means for governmental issuers to
acquire property and equipment without meeting their constitutional and
statutory requirements for the issuance of debt. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer
has no obligation to make future payments under the lease or contract
unless money is appropriated for such purposes by the appropriate
legislative body on a yearly or other periodic basis. Non-appropriation
clauses free the issuer from debt issuance limitations.
MUNICIPAL MARKET DISRUPTION RISK. The value of municipal securities may be
affected by uncertainties in the municipal market related to legislation or
litigation involving the taxation of municipal securities or the rights of
municipal securities holders in the event of a bankruptcy. Municipal
bankruptcies are relatively rare, and certain provisions of the U.S.
Bankruptcy Code governing such bankruptcies are unclear and remain
untested. Further, the application of state law to municipal issuers could
produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the
municipal securities market generally, certain specific segments of the
market, or the relative credit quality of particular securities. Any of
these effects could have a significant impact on the prices of some or all
of the municipal securities held by a fund, making it more difficult for
the money market fund to maintain a stable net asset value per share.
MUNICIPAL SECTORS:
WATER AND SEWER. Water and sewer revenue bonds are often considered to have
relatively secure credit as a result of their issuer's importance, monopoly
status, and generally unimpeded ability to raise rates. Despite this, lack
of water supply due to insufficient rain, run-off, or snow pack is a
concern that has led to past defaults. Further, public resistance to rate
increases, costly environmental litigation, and Federal environmental
mandates are challenges faced by issuers of water and sewer bonds.
PUT FEATURES entitle the holder to sell a security back to the issuer or a
third party at any time or at specified intervals. They are subject to the
risk that the put provider is unable to honor the put feature (purchase the
security). Put providers often support their ability to buy securities on
demand by obtaining letters of credit or other guarantees from other
entities. Demand features, standby commitments, and tender options are
types of put features.
QUALITY AND MATURITY (MONEY MARKET FUND ONLY). Pursuant to procedures
adopted by the Board of Trustees, the fund may purchase only high-quality
securities that FMR believes present minimal credit risks. To be considered
high-quality, a security must be rated in accordance with applicable rules
in one of the two highest categories for short-term securities by at least
two nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of equivalent
quality by FMR.
High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest
rating category (e.g., Standard & Poor's A-1 or SP-1), and second tier
securities are those deemed to be in the second highest rating category
(e.g., Standard & Poor's A-2 or SP-2).
The fund currently intends to limit its investments to securities with
remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, the fund may look to an interest rate reset or demand feature.
REFUNDING CONTRACTS. A fund may pur chase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the fund
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
A fund generally will not be obligated to pay the full purchase price if it
fails to perform under a refunding contract. Instead, refunding contracts
generally provide for payment of liquidated damages to the issuer
(currently 15-20% of the purchase price). A fund may secure its obligations
under a refunding contract by depositing collateral or a letter of credit
equal to the liquidated damages provisions of the refunding contract. When
required by SEC guidelines, a fund will place liquid assets in a segregated
custodial account equal in amount to its obligations under refunding
contracts.
REPURCHASE AGREEMENTS. In a repurchase agreement, a fund purchases a
security and simultaneously commits to sell that security back to the
original seller at an agreed-upon price. The resale price reflects the
purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. To protect the
fund from the risk that the original seller will not fulfill its
obligation, the securities are held in an account of the fund at a bank,
marked-to-market daily, and maintained at a value at least equal to the
sale price plus the accrued incremental a mount. While it does not
presently appear possible to eliminate all risks from these transactions
(particularly the possibility that the value of the underlying security
will be less than the resale price, as well as delays and costs to a fund
in connection with bankruptcy proceedings), it is each fund's current
policy to engage in repurchase agreement transactions with parties whose
creditworthiness has been reviewed and found satisfactory by FMR.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, a fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time
it decides to seek registration and the time it may be permitted to sell a
security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a fund might obtain a
less favorable price than prevailed when it decided to seek registration of
the security. However, in general, the money market fund anticipates
holding restricted securities to maturity or selling them in an exempt
transaction.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
fund will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
SOURCES OF CRED IT OR LIQUIDITY SUPPORT. FMR may rely on its evaluation
of the credit of a bank or another entity in determining whether to
purchase a security supported by a letter of credit g uarantee,
insurance or other source of credit or liquidity.
STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at
an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. Each fund may
acquire standby commitments to enhance the liquidity of portfolio
securities.
Ordinarily a fund will not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party
at any time. A fund may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In
the latter case, the fund would pay a higher price for the securities
acquired, thus reducing their yield to maturity.
Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. FMR may
rely upon its evaluation of a bank's credit in determining whether to
support an instrument supported by a letter of credit. In evaluating a
foreign bank's credit, FMR will consider whether adequate public
information about the bank is available and whether the bank may be subject
to unfavorable political or economic developments, currency controls, or
other governmental restrictions that might affect the bank's ability to
honor its credit commitment.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the
commitments are exercised; the fact that standby commitments are not
marketable by the funds; and the possibility that the maturities of the
underlying securities may be different from those of the commitments.
TENDER OPTION BONDS are created by coupling an intermediate- or long-term,
fixed-rate, tax-exempt bond (generally held pursuant to a custodial
arrangement) with a tender agreement that gives the holder the option to
tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other
financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a
remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After
payment of the tender option fee, a fund effectively holds a demand
obligation that bears interest at the prevailing short-term tax-exempt
rate. In selecting tender option bonds for the funds, FMR will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and
the third party provider of the tender option. In certain instances, a
sponsor may terminate a tender option if, for example, the issuer of the
underlying bond defaults on interest payments.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments of
the interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while floating
rate securities have interest rates that change whenever there is a change
in a designated benchmark rate. Some variable or floating rate securities
have put features.
ZERO COUPON BONDS do not make regular interest payments. Instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, a fund takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
SPECIAL CON SIDERATIONS AFFECTING PENNSYLVANIA
The following highlights only some of the more significant financial trends
and problems affecting Pennsylvania, and is based on information drawn from
official statements and prospectuses relating to securities offerings of
the Commonwealth of Pennsylvania, its agencies and instrumentalities, as
available on the date of this Statement of Additional Information. FMR has
not independently verified any of the information contained in such
official statements and other publicly available documents, but is not
aware of any fact which would render such information inaccurate.
OVERVIEW. Because the funds concentrate their investments in Pennsylvania,
there are risks associated with the funds that would not exist if the
funds' investments were more widely diversified. These risks include the
possible enactment of new legislation in Pennsylvania that could affect
obligations of the state or its political subdivisions, municipalities or
agencies, economic factors that could affect such obligations, and varying
levels of supply and demand for obligations of the Commonwealth and its
political subdivisions, municipalities, and agencies.
CONSTITUTIONAL AND STATUTORY REVENUE LIMITATIONS. The Constitution of
Pennsylvania requires that all taxes shall be uniform, upon the same class
of subjects, within the territorial limits of the authority levying the
tax, and shall be levied and collected under the general laws of the
Commonwealth of Pennsylvania.
The Constitution of Pennsylvania provides that the General Assembly may
exempt from taxation certain persons and property. For instance, the
General Assembly may establish exemption or special tax treatment for
classes based on age, disability, infirmity, or poverty.
Local taxes (other than Philadelphia) are generally authorized under the
Local Tax Enabling Act. This statute generally authorizes, and imposes
limits on, the ability of political subdivisions to impose taxes.
Pennsylvania's political subdivisions consist of counties, municipalities,
and school districts. The Local Tax Enabling Act does not apply to counties
whose taxing authority is limited for the most part to real estate and
personal property taxes. Most Philadelphia taxes (other than real estate
and personal property taxes) are imposed pursuant to the general authority
of the Sterling Act and the Little Sterling Act, applicable to the City and
School District, respectively. Each of these statutes grants broad taxing
powers, but generally prohibits taxing what the Commonwealth taxes. The
Philadelphia business privilege tax is imposed under the authority of the
First Class City Tax Reform Act.
The Pennsylvania Intergovernmental Cooperation Authority Act for cities of
the first class authorizes Philadelphia to enact a combination of a sales
tax, a realty transfer tax or a wage and net profits tax for the benefit of
the Pennsylvania Intergovernmental Cooperation Authority ("PICA"). The PICA
tax on wages and net profits reduces the amount of wage and net profits
taxes imposed under the Sterling Act (prior to the imposition of the PICA
tax), so that the combined rate of tax remains the same. Other local taxes
are specially enacted or authorized for certain classes of localities,
including Philadelphia and Pittsburgh.
Among the legislation currently being considered by the Pennsylvania
General Assembly is a Bill which would give local governments the option of
reducing property taxes and simplifying their local tax system by
collecting an earned income tax.
PENNSYLVANIA TAXES. Although Pennsylvania state taxes had, in general, been
lowered during the 1980s, the fiscal 1992 budget for the Commonwealth
included in excess of $2.7 billion of tax increases, consisting largely of
tax-rate increases and expansion of the existing tax base. Some of the more
significant tax changes include d an increase in the personal income
tax rate from 2.1% to 2.8% (with an additional .3% surtax for the period
July 1, 1991 through June 30, 1992); an increase in the Pennsylvania
corporate net income tax rate from 8.5% to 10.5% (plus an additional surtax
of 1.75%); repeal of the Pennsylvania corporate net income tax net
operating loss carryover; an increase in the Pennsylvania capital
stock/foreign franchise tax rate from 9.5 mills to 13 mills (dropping to
12.75 mills for taxable years beginning on or after January 1, 1992); and
an expansion of the sales and use tax base.
The fiscal 1995 budget include d tax reductions totalling an
estimated $166.4 million. Some of the more significant changes
include d an increase in the Pennsylvania personal income tax
dependent exemption for low income working families; a reduction in the
Pennsylvania corporate net income tax rate from 12.25% to 9.99% to be
phased-in over a period of four years; and reinstatement of a Pennsylvania
corporate net income tax net operating loss carryover to be phased-in over
a period of three years with an annual cap of $500,000. Several other
changes to the Pennsylvania sales tax, the Pennsylvania inheritance tax and
the Pennsylvania capital stock/franchise tax were also enacted.
Tax changes (generally reductions) enacted with the fiscal 1996 budget
totalled $282.9 million. The largest dollar value changes were in the
corporate net income tax where the scheduled 1997 reduction of the tax rate
to 9.99% was accelerated to the 1995 tax year. Some of the other more
significant changes include a double weighting for the sales factor of the
corporate minimum allowance for the corporate net income tax net operating
loss deduction from $500,000 to $1,000,000; an increase in the capital
stock/ franchise tax exemption amount to $100,000; the repeal of the tax on
annuities; and acceleration of the phase-out of the inheritance tax on
transfers of certain property to a surviving spouse. In addition, a 90-day
tax amnesty program was authorized and implemented from mid-October 1995
through mid-January 1996.
GENERAL ECONOMIC CONDITIONS IN PENNSYLVANIA. Historically, the key
industries in Pennsylvania were in the areas of manufacturing and mining,
with steel and coal industries of national importance. These industries
have made Pennsylvania vulnerable not only to cyclical economic
fluctuations, but also to pronounced long-term changes in the nation's
economic structure. In recent years, the state has experienced growth in
the services sector, including trade, medical and health services,
education, and financial institutions. Manufacturing has fallen behind both
the services sector and the trade sector as the largest single source of
employment within the Commonwealth. This growth in the services and trade
sector has helped diversify Pennsylvania's economy and reduce the state's
unemployment rate.
Financial conditions during the fiscal years 1990 through 1994 were
distinguished by slow economic growth and a rapid expansion of the costs of
certain governmental programs that together placed significant stress on
the Commonwealth's budget. These problems were particularly evident during
the fiscal years 1990 and 1991 when revenues were significantly below
projections and expenditures, largely driven by demand for public welfare
services, rose above budget amounts. As a result, each of those fiscal
years ended with a negative unreserved-undesignated fund balance. Actions
taken during fiscal 1992 to bring the General Fund budget into balance,
including tax increases and expenditure restraints, resulted in a $1.1
billion reduction in the unreserved-undesignated fund deficit for combined
governmental fund types and a return to a positive fund balance. Financial
performance continued to improve during the 1993 and 1994 fiscal years. the
fund balance for governmental fund types increased from $1,692.8 million on
June 30, 1993, as restated, to $1,982.0 million on June 30, 1994.
The 1994 fiscal year closed with revenues of $15.2 billion (on a budgetary
basis), $38.6 million above the fiscal year estimate. Additional revenues
were provided by higher than anticipated sales tax revenues and a reduction
in tax refund reserves resulting from a favorable decision in a pending tax
litigation. Personal income tax revenues, however, were below estimate.
Expenditures (net of certain pooled financing expenditures and
appropriation lapses) totaled $14.9 billion, representing a 7.2% increase
over fiscal 1993 expenditures.
Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in the fiscal year-end unappropriated balance. The
fiscal 1995 unappropriated surplus (prior to reserves for transfers to the
Tax Stabilization Reserve Fund) was $540 million, an increase of $204.2
million over the fiscal 1994 closing unappropriated surplus (prior to
transfers). Commonwealth revenues totalled $16,224.6 million, $459.4
million (2.9%) above the estimate of revenues used at the time the budget
was enacted. The higher than estimated revenues from tax sources were due
to faster economic growth in the national and state economy than had been
projected when the budget was adopted. Expenditures (excluding pooled
financing expenditures but including $65.5 million of supplemental
appropriations) totalled $15,674.7 million, representing a 5% increase in
spending over fiscal 1994.
The enacted fiscal 1996 budget provides for expenditures from Commonwealth
revenues of $16,161.7 million, a 2.7% increase over total appropriations
from Commonwealth revenues in fiscal 1995. The fiscal 1996 budget is based
on anticipated Commonwealth revenues, net of enacted tax changes, of
Commonwealth revenues of .3%. Excluding the estimated effects of tax
changes enacted in 1994 and 1995, Commonwealth revenues for fiscal 1996 are
estimated to increase by 2.9%.
The following table shows the average annual unemployment rate for
Pennsylvania and the nation for the periods indicated. This information is
drawn from official statements and prospectuses relating to securities
offerings of the state of Pennsylvania, its agencies, and
instrumentalities. No independent verification of the information contained
in such official statements and other publicly available documents has been
made.
Period Pennsylvania United States

1987 5.7% 6.2%

1988 5.1% 5.5%

1989 4.5% 5.3%

1990 5.4% 5.5%

1991 6.9% 6.7%

1992 7.5% 7.4%

1993 7.1% 6.8%

1994 6.2% 6.1%

As of October, 199 5 , the seasonally adjusted unemployment rate for
the Commonwealth was 5.1 % , compared to 5.5% for the United
States .
There is various litigation pending against the Commonwealth, its officers,
and employees. In 1978, the Pennsylvania General assembly approved a
limited waiver of sovereign immunity. Damages for any loss are limited to
$250,000 for each person and $1 million for each accident. The Supreme
Court held that this limitation is constitutional. approximately 3,500
suits against the Commonwealth are pending, some of which, if decided
adversely to the Commonwealth, could have a material adverse impact on
governmental operations .
Certain Pennsylvania municipalities and political subdivisions have also
experienced economic downturns. For example, the financial condition of the
City of Philadelphia had impaired its ability to borrow and resulted in its
obligations being downgraded by the major rating services to below
investment grade. (However, these obligations have since been upgraded
to Baa/BBB by Moody's and S&P, respectively). Legislation provided for
the establishment of the Pennsylvania Intergovernmental Cooperation
Authority (PICA) to assist Philadelphia in remedying fiscal emergencies was
enacted by the General Assembly and approved by the Governor in June 1991.
PICA is designed to provide assistance through the issuance of funding debt
to liquidate budget deficits and to make factual findings and
recommendations to the City concerning its budgetary and fiscal affairs. At
this time Philadelphia is operating under a five-year fiscal plan (for
1996-2000) approved by PICA on April 17 , 199 5, as modified on
July 12, 1995 . The audited general fund balance as of June 30,
199 4 showed a surplus of approximately $ 15.4 million. The
unaudited preliminary General Fund balanced as of June 30, 199 5
estimates a surplus of approximately $ 80.5 million.
All of the foregoing factors could affect the outstanding obligations of
the Commonwealth and its municipalities and political subdivisions,
including obligations held by the funds. Further, there can be no assurance
that the same factors that adversely affect the economy of the Commonwealth
generally will not also adversely affect the market value or marketability
of obligations issued by local units of government or local authorities in
the Commonwealth, or the ability of the obligators to pay the principal of
or interest on such obligations. In November 199 5 , Pennsylvania
General Obligation Bonds were rated A1 by Moody's and AA- by Fitch and S&P.
SPECIAL CONSIDERATIONS AFFECTING PUERTO RICO
The following only highlights some of the more significant financial trends
and problems affecting the Commonwealth of Puerto Rico (the "Commonwealth"
or "Puerto Rico"), and is based on information drawn from official
statements and prospectuses relating to the securities offerings of Puerto
Rico and its agencies and instrumentalities, as available on the date of
this Statement of Additional Information. FMR has not independently
verified any of the information contained in such official statements,
prospectuses, and other publicly available documents, but is not aware of
any fact which would render such information materially inaccurate.
The economy of Puerto Rico is closely linked with that of the United
States, and in fiscal 1994 trade with the United States accounted for
approximately 87% of Puerto Rico's exports and approximately 67% of its
imports. In this regard, in fiscal 1994 Puerto Rico experienced a $4.3
billion positive adjusted merchandise trade balance. Since fiscal 1985,
personal income, both aggregate and per capita, has increased consistently
each year. In fiscal 1994 aggregate personal income was $25.7 billion and
personal per capita income was $7,047. Gross domestic product in fiscal
1993, 1994, and 1995 was $25.2 billion, $26.6 billion, and $28.3 billion,
respectively. For fiscal 1996, an increase in gross domestic product of
2.7% over fiscal 1995 is forecasted. However, actual growth in the Puerto
Rico economy will depend on several factors, including the condition of the
U.S. economy, the exchange rate for the U.S. dollar and the price stability
of oil imports and interest rates. Due to these factors, there is no
assurance that the economy of Puerto Rico will continue to grow.
Puerto Rico's economy continued to expand throughout the five-year period
from fiscal 1991 through fiscal 1995. While trends in the Puerto Rico
economy generally follow those of the United States, Puerto Rico did not
experience a recession primarily because of its strong manufacturing base,
which has a large component of non-cyclical industries. Other factors
behind the continued expansion included Commonwealth-sponsored economic
development programs, stable prices of oil imports, low exchange rates for
the U.S. dollar, and the relatively low cost of borrowing funds during the
period.
Puerto Rico has made marked improvements in fighting unemployment.
Unemployment is at a low level compared to that of the late 1970s, but it
still remains significantly above the U.S. average. The unemployment rate
declined from 16.0% to 13.8% from fiscal 1994 to fiscal 1995.
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 $16.3 billion or 41.5% of gross
domestic product in fiscal 1994. However, manufacturing has experienced a
basic change over the years as a result of the influx of higher wages, high
technology industries such as the pharmaceutical industry, electronics,
computers, micro processors, scientific instruments, and high technology
machinery. The service sector, which employs the largest number of people,
includes wholesale and retail trade, finance, and real estate, and ranks
second in its contribution to gross domestic product. In fiscal 1994, the
service sector generated $15.0 billion in gross domestic product and
employed over 478,000 workers. The government sector of the Commonwealth
plays an important role in Puerto Rico's economy. In fiscal year 1994, the
government accounted for $4.1 billion of Puerto Rico's gross domestic
product and provided 22.2% of the total employment. Tourism also
contributes significantly to the island economy, accounting for $1.8
billion of gross domestic product in fiscal 1995.
The present administration, which took office in January 1993, envisions
major economic reforms and has developed a new economic development program
to be implemented in the next few years. This program is based on the
premise that the private sector will be the primary vehicle for economic
development and growth. The program promotes changing the role of the
government from one of being a provider of most basic services to one of
being a facilitator for private sector initiatives and will encourage
private sector investment by reducing regulatory restraints. The program
contemplates the development of initiatives that will foster private
investment, both external and internal, in areas that are served more
efficiently and effectively by the private sector. The program also
contemplates a general revision of the tax system to expand the tax base,
reduce top personal and corporate tax rates, and simplify a highly complex
system. On October 31, 1994, legislation was enacted which provided for
comprehensive revisions to Puerto Rico's income tax system. Other important
goals for the new program are to reduce the size of the government's direct
contribution to gross domestic product and, to facilitate private sector
development and growth which would be realized through a reduction in
government consumption and an increase in government investment in order to
improve and expand Puerto Rico's infrastructure.
Much of the development of the manufacturing sector of the economy of
Puerto Rico is attributable to federal and Commonwealth tax incentives,
most notably section 936 of the Internal Revenue Code of 1986, as amended
("Section 936") and the Commonwealth's Industrial Incentives Program.
Section 936 currently grants U.S. corporations that meet certain criteria
and elect its application, a credit against their U.S. corporate income tax
on the portion of the tax attributable to (i) income derived from the
active conduct of a trade or business in Puerto Rico ("active income"), or
from the sale or exchange of substantially all the assets used in the
active conduct of such trade or business, and (ii) qualified possession
sources investment income ("passive income"). The Industrial Incentives
Program, through the 1987 Industrial Incentives Act, grants corporations
engaged in certain qualified activities a fixed 90% exemption from
Commonwealth income and property taxes and a 60% exemption from municipal
license taxes.
Pursuant to recently enacted amendments to the Internal Revenue Code (the
"Code"), and for taxable years commencing after 1993, two alternative
limitations will apply to the Section 936 credit against active business
income and sale of assets as previously described. The first option will
limit the credit against such income to 40% of the credit allowed under
current law, with a five-year phase-in period starting at 60% of the
current credit. The second option will limit the allowable credit to the
sum of (i) 60% of qualified compensation paid to employees (as defined in
the Code); (ii) a specified percentage of depreciation deductions; and
(iii) a portion of the Puerto Rico income taxes paid by the Section 936
corporation, up to a 9% effective tax rate.
At present, it is difficult to forecast what the long-term effects of the
new limitations to the Section 936 credit will be on the economy of Puerto
Rico. However, preliminary econometric studies by the government of Puerto
Rico and private sector economists (assuming no enhancements to the
existing Industrial Incentives Program) project only a slight reduction in
average real growth rates for the economy of Puerto Rico. These studies
also show that particular industry groups will be affected differently. For
example, manufacturers of pharmaceuticals and beverages may suffer a larger
reduction in tax benefits due to their relatively higher profit margins. In
addition, the above limitations are not expected to reduce the tax credit
currently enjoyed by labor-intensive, lower profit margin industries, which
represent approximately 40% of the total employment by Section 936
corporations in Puerto Rico.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of each fund by FMR pursuant to authority contained in the fund's
managem ent contract. In the case of the money market, FMR has
granted investment management authority to the sub-adviser (see the section
entitled "Management Contracts"), and the sub-adviser is authorized to
place orders for the purchase and sale of portfolio securities, and will do
so in accordance with the policies described below. FMR is also responsible
for the placement of transaction orders for other investment companies and
accounts for which it or its affiliates act as investment adviser.
Securities purchased and sold by the money market fund generally will be
traded on a net basis (i.e., without commission). In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, FMR considers various relevant factors, including, but not limited
to, the size and type of the transaction; the nature and character of the
markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm;
the broker-dealer's execution services rendered on a continuing basis; and
the reasonableness of any commissions.
The funds may execute portfolio transactions with broker-dealers who
provide research and execution services to the funds or other accounts over
which FMR or its affiliates exercise investment discretion. Such services
may include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; and the availability of
securities or the purchasers or sellers of securities. In addition,
suc h broker-dealers may furnish analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio
strategy, and performance of accounts; effect securities transactions, and
perform functions incidental thereto (such as clearance and settlement).
FMR maintains a listing of broker-dealers who provide such services on a
regular basis. However, as many transactions on behalf of the money market
fund are placed with broker-dealers (including broker-dealers on the list)
without regard to the furnishing of such services, it is not possible to
estimate the proportion of such transactions directed to such
broker-dealers solely because such services were provided. The selection of
such broker-dealers generally is made by FMR (to the extent possible
consistent with execution considerations) based upon the quality of
research and execution services provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the funds may be useful to FMR in rendering investment management
services to the funds or its other clients, and conversely, such research
provided by broker-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the funds. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause
each fund to pay such higher commissions, FMR must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or FMR's overall
responsibilities to the funds and its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value on the
brokerage and research services provided, or to determine what portion of
the compensation should be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the funds, or shares of other Fidelity
funds to the extent permitted by law. FMR may use research services
provided by and place agency transactions with Fidelity Brokerage Services,
Inc. (FBSI), a subsidiary of FMR Corp., if the commissions are fair,
reasonable, and comparable to commissions charged by non-affiliated,
qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
Each fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the funds and review the commissions paid by each fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
For the fiscal periods ended December 31, 1995 and 1994, the bond
fund's portfolio turnover rates were 49% and 26%,
respectively .
For fiscal 1 995, 1994, an d 1993, the funds paid no brokerage
commissions.
From time to time the Trustees will review whether the recapture for the
benefit of the funds of some portion of the brokerage commissions or
similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine in the exercise of their business
judgment whether it would be advisable for each fund to seek such
recapture.
Although the Trustees and officers of each fund are substantially the same
as those of other funds managed by FMR, investment decisions for each fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as each fund is concerned. In other cases,
however, the ability of the funds to participate in volume transactions
will produce better executions and prices for the funds. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to each fund outweighs any disadvantages that may be
said to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
MONEY MARKET FUND. The fund values its investments on the basis of
amortized cost. This technique involves valuing an instrument at its cost
as adjusted for amortization of premium or accretion of discount rather
than its value based on current market quotations or appropriate
substitutes which reflect current market conditions. The amortized cost
value of an instrument may be higher or lower than the price the fund would
receive if it sold the instrument.
Valuing the fund's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the
Investment Company Act of 1940. The fund must adhere to certain conditions
under Rule 2a-7.
The Board of Trustees of the trust oversees FMR's adherence to SEC rules
concerning money market funds, and has established procedures designed to
stabilize the fund's net asset value ( NAV ) at $1.00. At such
intervals as they deem appropriate, the Trustees consider the extent to
which NAV calculated by using market valuations would deviate from $1.00
per share. If the Trustees believe that a deviation from the fund's
amortized cost per share may result in material dilution or other unfair
results to shareholders, the Trustees have agreed to take such corrective
action, if any, as they deem appropriate to eliminate or reduce, to the
extent reasonably practicable, the dilution or unfair results. Such
corrective action could include selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; establishing NAV
by using available market quotations; and such other measures as the
Trustees may deem appropriate.
During periods of declining interest rates, the fund's yield based on
amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder in the fund would be able to
obtain a somewhat higher yield than would result if the fund utilized
market valuations to determine its NAV. The converse would apply in a
period of rising interest rates.
BOND FUND. 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. Futures contracts and options are
valued on the basis of market quotations if available.
PERFORMANCE
The funds may quote performance in various ways. All performance
information supplied by the funds in advertising is historical and is not
intended to indicate future r eturns. A bond fund's share price, and
each fund's yield and total return fluctuate in response to market
conditions and other factors, and the value of a bond fund's shares when
redeemed may be more or less than their original cost.
YIELD CALCULATIONS. To compute the money market fund's yield for a period,
the net change in value of a hypothetical account containing one share
reflects the value of additional shares purchased with dividends from the
one original share and dividends declared on both the original share and
any additional shares. The net change is then divided by the value of the
account at the beginning of the period to obtain a base period return. This
base period return is annualized to obtain a current annualized yield. The
money market fund also may calculate a compound effective yield by
compounding the base period return over a one-year period. In addition to
the current yield, the money market fund may quote yields in advertising
based on any historical seven-day period. Yields for the money market fund
are calculated on the same basis as other money market funds, as required
by regulation.
For the bond fund, yields are computed b y divid ing the fund's
interest income for a given 30-day or one-month period, net of expenses, by
the average number of shares entitled to receive dividends during the
period, dividing this figure by the fund's net asset value per share (NAV)
at the end of the period, and annualizing the result (assuming compounding
of income) in order to arrive at an annual percentage rate. Yields do not
reflect the fund's .50% redemption fee, which applies to shares held less
than 180 days. Income is calculated for purposes of the bond fund's yield
quotations in accordance with standardized methods applicable to all stock
and bond funds. In general, interest income is reduced with respect to
bonds trading at a premium over their par value by subtracting a portion of
the premium from income on a daily basis, and is increased with respect to
bonds trading at a discount by adding a portion of the discount to daily
income. Capital gains and losses generally are excluded from the
calculation.
Income ca lculated for the purposes of determining th e bond fund's
yield differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, the bond fund's
yield may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
Yield information may be useful in reviewing a fund's performance and in
providing a basis for comparison with other investment alternatives.
However, each fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates a
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
A fund's tax-equivalent yield is the rate an investor would have to earn
from a fully taxable investment before taxes to equal the fund's
tax-free yield. Tax-equivalent yields are calculated by dividing a fund's
yield by the result of one minus a stated federal or combined federal and
state and city tax rate. If only a portion of a fund's yield is tax-exempt,
only that portion is adjusted in the calculation.
The following tables show the effect of a shareholder's tax status on
effective yield under federal and state income tax laws for 1996. The
second and third table s 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 3.0% to 8.0%. Of course, no assurance can be given that a fund will
achieve any specific tax-exempt yield. While the funds invest principally
in obligations whose interest is exempt from federal and state income tax,
other income received by the funds may be taxable. The tables do not take
into account local taxes, if any, payable on fund distributions.
Use the first table to find your approximate effective tax bracket taking
into account federal and state taxes for 19 96.
1996 TAX RATES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Combined Combined

Pennsylvania Pennsylvania,

Marginal and Federal,

Federal Federal and City of

Taxable Income Income Marginal Effective Philadelphia

Single Return* Joint Return* Tax Bracket Tax Rate Tax Bracket** Tax Bracket**

</TABLE>

State of City of
Pennsylvania Philadelphia

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 24,001 - $ 58,150 $ 40,101 - $ 96,900 28% 2.8% 4.86% 30.02% 33.52%

58,151 - 121,300 96,901 - 147,700 31% 2.8% 4.86% 32.93% 36.29%

121,301 - 263,750 147,701 - 263,750 36% 2.8% 4.86% 37.79% 40.90%

263,751 & above 263,751 & above 39.6% 2.8% 4.86% 41.29% 44.23%

</TABLE>

* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions, limitations
on itemized deductions, and other credits, exclusions, and adjustments
which may increase a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.
Having determined your effective tax bracket, use the following table to
determine the tax-equivalent yield for a given tax-free yield.
CITY OF PHILADELPHIA RESIDENTS - TRIPLE TAXES - 1996
If your effective combined federal , state and Philadelphia personal
income tax rate in 1996 is:
33.52% 36.29 % 4 0. 90% 44.23 %

To match these

tax-free yields: Your taxable investment would have to earn the following yield:

3% 4.51 % 4.71 % 5.08 % 5.38 %

4% 6.02 % 6.28 % 6.77 % 7.17 %

5% 7.52 % 7.85 % 8.46 % 8.96 %

6% 9.02 % 9.42 % 10.15 % 10.76 %

7% 10.53 % 10.99 % 11.84 % 12.55 %

8% 12.03 % 12.56 % 13.54 % 14.34 %

</TABLE>

PENNSYLVANIA (OUTSIDE PHILADELPHIA) - DOUBLE TAXES - 1996
If your effective combined federal and state personal income tax rate in
1996 is:
30.02% 32.93% 37.79% 41.29%

To match these

tax-free yields: Your taxable investment would have to earn the following yield:

3% 4.29% 4.47% 4.82% 5.11%

4% 5.72% 5.96% 6.43% 6.81%

5% 7.14% 7.46% 8.04% 8.52%

6% 8.57% 8.95% 9.65% 10.22%

7% 10.00% 10.44% 11.25% 11.92%

8% 11.43% 11.93% 12.86% 13.63%

</TABLE>

Each fund may invest a portion of its assets in obligations that are
subject to state or federal income taxes. When a fund invests in these
obligations, its tax-equivalent yield will be lower. In the table above,
the tax-equivalent yields are calculated assuming investments are 100%
federally and state tax-free.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of a fund's return, including the effect of reinvesting dividends
and capital gain distributions, and any change in the fund's NAV over a
stated period. Average annual total returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in a
fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative total return of 100% over ten years would produce an average
annual total return of 7.18%, which is the steady annual rate of return
that would equal 100% growth on a compounded basis in ten years. Wh ile
average annual total returns are a convenient means of comparing investment
alternatives, investors should realize that a fund's performance is not
constant over time, but changes from year to year, and that average annual
total returns represent averaged figures as opposed to the actual
year-to-year performance of the fund.
In addition to average annual total returns, a fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before-tax or after-tax basis and may or may not include the effect of the
bond fund's .50% redemption fee on shares held less than 180 days.
Excluding a fund's redemption fee from a total return calculation produces
a higher total return figure. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration, and may omit or include the effect of the $5.00 account
closeout fee.
NET ASSET VALUE. Charts and graphs using a fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund and
reflects all elements of its return. Unless otherwise indicated, a fund's
adjusted NAVs are not adjusted for sales charges, if any.
HISTORICAL FUND RESULTS. The following tables show the money market fund's
7-day yield, the bond fund's 30-day yield, each fund's tax-equivalent
yield, and total returns for periods ended December 31, 1995. Total return
figures include the effect of the $5.00 account closeout fee based on an
average size account, but not the bond fund's .50% redemption fee,
applicable to shares held less than 180 days.
The tax-equivalent yield is based on a combined effective federal and state
income tax rate of 37.79% and reflects that, as of December 31, 1995, none
of the funds ' income was subject to state taxes. Note that each fund
may invest in securities whose income is subject to the federal alternative
minimum tax.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Annual Total Returns Cumulative Total Returns
Tax-Equivalent One Five Life of One Five Life of
Yield Yield Year Years Fund* Year Years Fund*

Money Market 4.15% 6.67 % 3.56 % 3.17 % 4.14 % 3.56 % 16.86 % 46.54 %
Fund

Bond Fund 4.94% 7.94 % 17.43 % 9.15 % 8.13 % 17.43 % 54.92 % 108.58 %

</TABLE>

* From August 6, 1986 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these periods,
the funds' total returns would have been lower.
The following table shows the income and capital elements of each fund's
cumulative total return. The table compares each fund's return to the
record of the Standard & Poor's Composite Index of 500 Stocks (S&P
500 (registered trademark) ), the Dow Jones Industrial Average (DJIA),
and the cost of living (measured by the Consumer Price Index, or CPI) over
the same period. The CPI information is as of the month end closest to the
initial investment date for each fund. The S&P 500 and DJIA comparisons are
provided to show how each fund's total return compared to the record of a
broad average of common stocks and a narrower set of stocks of major
industrial companies, respectively, over the same period. Of course, since
each fund invests in short-term fixed-income securities, common stocks
represent a different type of investment from the fund. Common stocks
generally offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than a
fixed-income investment such as the funds. Figures for the S&P 500 and DJIA
are based on the prices of unmanaged groups of stocks and, unlike the
funds' returns, do not include the effect of paying brokerage commissions
or other costs of investing.
During the period from August 6, 1986 (commencement of operations) to
December 31, 1995, a hypothetical $10,000 investment in the money market
fund would have grown to $ 14,655 , assuming all distributions
were reinvested. This was a period of fluctuating interest rates and bond
prices and the figures below should not be considered representative of the
dividend income or capital gain or loss that could be realized from an
investment in the fund today.
SPARTAN PENNSYLVANIA MUNICIPAL MONEY MARKET FUND INDICES

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of

Initial Reinvested Reinvested Cost

Year Ended $10,000 Dividend Capital Gain Total of

December 31 Investment Distributions Distributions Value S&P 500 DJIA Living**

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $10,000 $ 4,655 $ 0 $ 14,655 $ 34,960 $ 38,852 $ 14,018

1994 10,000 4,151 0 14,151 25,411 28,416 13,671

1993 10,000 3,790 0 13,790 25,081 27,070 13,315

1992 10,000 3,491 0 13,491 22,784 23,138 12,959

1991 10,000 3,111 0 13,111 21,167 21,565 12,594

1990 10,000 2,540 0 12,540 16,222 17,343 12,219

1989 10,000 1,825 0 11,825 16,743 17,437 11,516

1988 10,000 1,118 0 11,118 12,715 13,234 11,005

1987 10,000 584 0 10,584 10,904 11,416 10,539

1986* 10,000 151 0 10,151 10,359 10,828 10,091

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Value of Value of Value of

Initial Reinvested Reinvested Cost

Year Ended $10,000 Dividend Capital Gain Total of

December 31 Investment Distributions Distributions Value S&P 500 DJIA Living**

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 10,670 $ 9,385 $ 804 $ 20,859 $ 34,960 $ 38,852 $ 14,018

1994 9,620 7,418 725 17,763 25,411 28,416 13,671

1993 11,130 7,342 232 18,704 25,081 27,070 13,315

1992 10,590 5,936 0 16,526 22,784 23,138 12,959

1991 10,370 4,776 0 15,146 21,167 21,565 12,594

1990 9,880 3,584 0 13,464 16,222 17,343 12,219

1989 9,900 2,660 0 12,560 16,743 17,437 11,516

1988 9,660 1,778 0 11,438 12,715 13,234 11,005

1987 9,070 945 0 10,015 10,904 11,416 10,539

1986* 10,350 273 0 10,623 10,359 10,828 10,091

</TABLE>

* From August 6, 1986 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on August 6,
1986, the net amount invested in fund shares was $10,000. The cost of the
initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to
$ 19,668 . If distributions had not been reinvested, the amount of
distributions earned from the fund over time would have been smaller, and
cash payments for the period would have amounted to $ 6,319 for
dividends and $ 450 for capital gains distributions. Tax consequences
of different investments have not been factored into the above figures. The
figures in the table do not reflect the effect of the fund's $5.00 account
closeout fee , or the fund's .50% redemption fee applicable to shares
held less than 180 days.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, a fund's performance may be
compared to stock, bond, and money market mutual fund performance indices
prepared by Lipper or other organizations. When comparing these indices, it
is important to remember the risk and return characteristics of each type
of investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability of
principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
A fund may be compared in advertising to Certificates of Deposit (CDs) or
other investments issued by banks or other depository institutions. Mutual
funds differ from bank investments in several respects. For example, a fund
may offer greater liquidity or higher potential returns than CDs, a fund
does not guarantee your principal or your return, and fund shares are not
FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
A fund may compare its performance or the performance of securities in
which it may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donoghue's MONEY FUND AVERAGES(trademark)/All
Tax-Free, which is reported in the MONEY FUND REPORT(registered trademark),
covers over 395 tax-free money market funds. The Bond Fund Report
AverageS(trademark)/Municipal, which is reported in the BOND FUND
REPORT(registered trademark), covers over 559 tax-free bond funds.
When evaluating comparisons to money market funds, investors should
consider the relevant differences in investment objectives and policies.
Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. Bond funds,
however, invests in longer-term instruments and its share price changes
daily in response to a variety of factors.
A fund may compare and contrast in advertising the relative advantages of
investing in a mutual fund versus an individual municipal bond. Unlike
tax-free mutual funds, individual municipal bonds offer a stated rate of
interest and, if held to maturity, repayment of principal. Although some
individual municipal bonds might offer a higher return, they do not offer
the reduced risk of a mutual fund that invests in many different
securities. The initial investment requirements and sales charges of many
tax-free mutual funds are lower than the purchase cost of individual
municipal bonds, which are generally issued in $5,000 denominations and are
subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include other Fidelity funds; retirement investing;
brokerage products and services; model portfolios or allocations; saving
for college or other goals; charitable giving; and the Fidelity credit
card. In addition, Fidelity may quote or reprint financial or business
publications and periodicals as they relate to current economic and
political conditions, fund management, portfolio composition, investment
philosophy, investment techniques, the desirability of owning a particular
mutual fund, and Fidelity services and products. Fidelity may also reprint,
and use as advertising and sales literature, articles from Fidelity Focus,
a quarterly magazine provided free of charge to Fidelity fund shareholders.
A fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, the
bond fund may also discuss or illustrate examples of interest rate
sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific periods
of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a fund at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when
prices are low. While such a strategy does not assure a profit or guard
against loss in a declining market, the investor's average cost per share
can be lower than if fixed numbers of shares are purchased at the same
intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares during periods of low price levels.
As of December 31, 1995, FMR advised over $ 26.5 billion in tax-free
fund assets, $ 81 billion in money market fund assets, $ 240
billion in equity fund assets, $ 49 billion in international fund
assets, and $ 23 billion in Spartan fund assets. The funds may
reference the growth and variety of money market mutual funds and the
adviser's innovation and participation in the industry. The equity funds
under management figure represents the largest amount of equity fund assets
under management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, each fund may compare its total
expense ratio to the average total expense ratio of similar funds tracked
by Lipper. A fund's total expense ratio is a significant factor in
comparing bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Each fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1996: New
Year' s Day, President's Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day. Although FMR expects the same holiday schedule to be observed in the
future, the NYSE may modify its holiday schedule at any time. In addition,
the funds will not process wire purchases and redemptions on days when the
Federal Reserve Wire System is closed.
FSC normally determines each fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the Securities and
Exchange Commission (SEC). To the extent that portfolio securities are
traded in other markets on days when the NYSE is closed, a fund's NAV may
be affected on days when investors do not have access to the fund to
purchase or redeem shares. In addition, trading in some of a fund's
portfolio securities may not oc cur on days when the fund is open for
business.
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing a fund's NAV. Shareholders receiving securities or other property
on redemption may realize a gain or loss for tax purposes, and will incur
any costs of sale, as well as the associated inconveniences.
Pursuant to Rule 11a-3 under the Investment Company Act of 1940 (the 1940
Act), each fund is required to give shareholders at least 60 days' notice
prior to terminating or modifying its exchange privilege. Under the Rule,
the 60-day notification requirement may be waived if (i) the only effect of
a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of
an exchange, or (ii) the fund suspends the redemption of the shares to be
exchanged as permitted under the 1940 Act or the rules and regulations
thereunder, or the fund to be acquired suspends the sale of its shares
because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
In the Prospectus, each fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by
any person or group if, in FMR's judgment, the fund would be unable to
invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. To the extent that each fund's income is designated as federally
tax-exempt interest, the daily dividends declared by the fund are also
federally tax-exempt. Short-term capital gains are distributed as dividend
income, but do not qualify for the dividends-received deduction. These
gains will be taxed as ordinary income. Each fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions (if any) for the prior year.
Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security
benefits, may be subject to federal income tax on up to 85% of such
benefits to the extent that their income, including tax-exempt income,
exceeds certain base amounts.
Each fund purchases municipal securit ies that are free from federal
income tax based on opinions of counsel regarding their tax status. These
opinions generally will be based on covenants by the issuers or other
parties regarding continuing compliance with federal tax requirements. If
at any time the covenants are not complied with, distribution to
shareholders of interest on a security could become federally taxable
retroactive to the date the security was issued. For certain types of
structure securities, opinions of counsel may also be based on the effect
of the structure on the federal and state tax treatment of the income.
As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities is subject to the federal alternative minimum tax
(AMT), although the interest continues to be excludable from gross income
for other tax purposes. Interest from private activity securities will be
considered tax-exempt for purposes of the bond fund's polic y
of investing so that at least 80% of its income is free from federal income
tax and the money market fund's policy of investing so that at least 80%
of its income distributions are free from federal income tax . Interest
from private activity securities is a tax preference item for the purposes
of determining whether a taxpayer is subject to the AMT and the amount of
AMT to be paid, if any. Private activity securities issued after August 7,
1986 to benefit a private or industrial user or to finance a private
facility are affected by this rule.
A portion of the gain on bonds purchased with market discount after April
30, 1993 and short-term capital gains distributed by each fund are taxable
to shareholders as dividends, not as capital gains. Dividend distributions
resulting from a recharacterization of gain from the sale of bonds
purchased with market discount after April 30, 1993 are not considered
income for purposes of the bond fund's policy of investing so that at least
80% of its income is free from federal income tax and the money market
fund's policy of investing so that at least 80% of its income distributions
are free from federal income tax. The money market fund may distribute any
net realized short-term capital gains and taxable market discount once a
year or more often, as necessary, to maintain its net asset value at $1.00
per share.
Corporate investors should note that a tax preference item for purposes of
the corporate AMT is 75% of the amount by which adjusted current earnings
(which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for
a period of six months or less, the loss will be disallowed to the extent
of the amount of exempt-interest dividend.
PENNSYLVANIA TAXES. To the extent that each fund's distributions are
derived from interest on state tax-free securities , its income
dividends will be exempt from the Pennsylvania personal income tax.
However, distributions attributable to capital gains (whether or not
from state tax-free securities) are not exempt from the
Pennsylvania personal income tax. Distributions of interest earned from
non-exempt obligations are not exempt from the Pennsylvania personal income
tax. The funds' dividends may or may not be exempt from current or future
taxes of certain Pennsylvania municipalities.
To the extent a fund's investments on the annual assessment date
consist of (i) municipal obligations of the Commonwealth of
Pennsylvania and its political subdivisions or municipal authorities, and
(ii) obligations of the United States, including certain obligations of
Puerto Rico, the Virgin Islands and Guam, and any U.S. territories or
possessions whose obligations are immune from state and local taxation
under federal law, collectively referred to as exempt obligations, shares
purchased as an investment in either of the funds will not be taxable for
purposes of the Pennsylvania county personal property tax. Any holdings
other than exempt obligations may result in shares of the funds being
wholly or partially subject to the taxes described above.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by each fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of a fund, and such shares are held six
months or less and are sold at a loss, the portion of the loss equal to the
amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes. Short-term capital gains distributed by
each fund are taxable to shareholders as dividends, not as capital gains.
The money market fund does not anticipate distributing long-term capital
gains.
As of December 31, 19 95 , the bond fund had a capital loss
carryforward aggregating approximately $ 176,917, which will expire
on December 31, 2003, is available to offset future capital gains.
As of December 31, 1995, the money market fund had a capital loss
carryforward aggregating approximately $39,000. This loss carryforward of
which $5,000, $5,000, $19,000, and $10,000 will expire on December 31,
1997, 1998, 2002, and 2003, respectively, is available to offset future
capital gains.
TAX STATUS OF THE FUNDS. Each fund int ends to qu alify each year as a
"regulated investment company" for tax purposes so that it will not be
liable for federal tax on income and capital gains distributed to
shareholders. In order to qualify as a regulated investment company and
avoid being subject to federal income or excise taxes at the fund level,
each fund intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as
on a fiscal year basis. Each fund intends to comply with other tax rules
applicable to regulated investment companies, including a requirement that
capital gains from the sale of securities held less than three months
constitute less than 30% of the fund's gross income for each fiscal year.
Gains from some futures contracts and options are included in this 30%
calculation, which may limit a fund's investments in such instruments.
Each fund is treated as a separate entity from the other funds of Fidelity
Municipal Trust (Spartan Pennsylvania Municipal Income Fund) and Fidelity
Municipal Trust II (Spartan Pennsylvania Municipal Money Market Fund) for
t ax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting each fund and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax situation.
FMR
All of the stock of FMR is owned by FMR Corp., its parent organized in
1972. The voting common stock of FMR Corp. is divided into two classes.
Class B is held predominantly by members of the Edward C. Johnson 3d family
and is entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family member
employees of FMR Corp. and its affiliates and is entitled to 51% of the
vote on any such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Under the Investment Company Act of 1940 (the 1940 Act),
control of a company is presumed where one individual or group of
individuals owns more than 25% of the voting stock of that company.
Therefore, through their ownership of voting common stock and the execution
of the shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group w ith respect to
FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by three of its divisions as follows: FSC, which is the transfer
and shareholder servicing agent for certain of the funds advised by FMR;
Fidelity Investments Institutional Operations Company, which performs
shareholder servicing functions for institutional customers and funds sold
through intermediaries; and Fidelity Investments Retail Marketing Company,
which provides marketing services to various companies within the Fidelity
organization.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that sets forth all employees'
fiduciary responsibilities regarding the funds, establishes procedures for
personal investing and restricts certain transactions. For example, all
personal trades in most securities require pre-clearance, and participation
in initial public offerings is prohibited. In addition, restrictions on the
timing of person al investing in rela tion to trades by Fidelity funds
and on short-term trading have been adopted.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust s are listed below.
Except as indicated, each individual has held the office shown or other
offices in the same company for the last five years. Trustees and officers
elected or appointed to Fidelity Municipal Trust II prior to the
money market fund's conversion from a series of Fidelity Municipal Trust
served in identical capacities. All persons named as Trustees also serve in
similar capacities for other funds advised by FMR. The business address of
each Trustee and officer who is an "interested person" (as defined in the
Investment Company Act of 1940) is 82 Devonshire Street, Boston,
Massachusetts 02109, which is also the address of FMR. Th e business
address of all the other Trustees is Fidelity Investments, P.O. Box 9235,
Boston, Massachusetts 02205-9235. Those Trustees who are "interested
persons" by virtue of their affiliation with either the trust or FMR
are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (65), T rustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman and a
Director of FMR Texas Inc., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.
*J. GARY BURKHEAD (54), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (63), Trustee (1991), is a consultant to Western Mining
Corporation (1994). Prior to February 1994, he was President of Greenhill
Petroleum Corporation (petroleum exploration and production, 1990). Until
March 1990, Mr. Cox was President and Chief Operating Officer of Union
Pacific Resources Company (exploration and production). He is a Director of
Sanifill Corporation (non-hazardous waste, 1993) and CH2M Hill Companies
(engineering). In addition, he served on the Board of Directors of the
Norton Company (manufacturer of industrial devices, 1983-1990) and
continues to serve on the Board of Directors of the Texas State Chamber of
Commerce, and is a member of advisory boards of Texas A&M University and
the University of Texas at Austin.
PHYLLIS BURKE DAVIS (64), Trustee (1992). Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of BellSouth
Corporation (telecommunications), Eaton Corporation (manufacturing, 1991),
and the TJX Companies, Inc. (retail stores, 1990), and previously served as
a Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (71), Trustee, is a financial consultant. Prior to
September 1986, Mr. Flynn was Vice Chairman and a Director of the Norton
Company (manufacturer of industrial devices). He is currently a Trustee of
College of the Holy Cross and Old Sturbridge Village, Inc., and he
previously served as a Director of Mechanics Bank (1971-1995).
E. BRADLEY JONES (68), Trustee (1990). Prior to his retirement in 1984, Mr.
Jones was Chairman and Chief Executive Officer of LTV Steel Company. He is
a Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products, 1990),
and he previously served as a Director of NACCO Industries, Inc. (mining
and marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc.
(1985-1995). In addition, he serves as a Trustee of First Union Real Estate
Investments, a Trustee and member of the Executive Committee of the
Cleveland Clinic Foundation, a Trustee and member of the Executive
Committee of University School (Cleveland), and a Trustee of Cleveland
Clinic Florida.
DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Vice Chairman of the Board of Directors of the
National Arts Stabilization Fund, Vice Chairman of the Board of Trustees of
the Greenwich Hospital Association, and as a Member of the Public Oversight
Board of the American Institute of Certified Public Accountants' SEC
Practice Section (1995).
*PETER S. LYNCH (52), Trustee (1990) is Vice Chairman and Director of FMR
(1992). Prior to May 31, 1990, he was a Director of FMR and Executive Vice
President of FMR (a position he held until March 31, 1991); Vice President
of Fidelity Magellan Fund and FMR Growth Group Leader; and Managing
Director of FMR Corp. Mr. Lynch was also Vice President of Fidelity
Investments Corporate Services (1991-1992). He is a Director of W.R. Grace
& Co. (chemicals) and Morrison Knudsen Corporation (engineering and
construction). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and Society
for the Preservation of New England Antiquities, and as an Overseer of the
Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH (66), Trustee, is Chairman of G.M. Management Group
(strategic advisory services). Prior to his retirement in July 1988, he was
Chairman and Chief Executive Officer of Leaseway Transportation Corp.
(physical distribution services). Mr. McDonough is a Director of
ACME-Cleveland Corp. (metal working, telecommunications and electronic
products), Brush-Wellman Inc. (metal refining), York International Corp.
(air conditioning and refrigeration), Commercial Intertech Corp. (water
treatment equipment, 1992), and Associated Estates Realty Corporation (a
real estate investment trust, 1993).
EDWARD H. MALONE (71), Trustee. Prior to his retirement in 1985, Mr. Malone
was Chairman, General Electric Investment Corporation and a Vice President
of General Electric Company. He is a Director of Allegheny Power Systems,
Inc. (electric utility), General Re Corporation (reinsurance) and Mattel
Inc. (toy manufacturer). In addition, he serves as a Trustee of the Naples
Philharmonic Center for the Arts and Rensselaer Polytechnic Institute, and
he is a member of the Advisory Boards of Butler Capital Corporation Funds
and Warburg, Pincus Partnership Funds.
MARVIN L. MANN (62), Trustee (1993) is Chairman of the Board, President,
and Chief Executive Officer of Lexmark International, Inc. (office
machines, 1991). Prior to 1991, he held the positions of Vice President of
International Business Machines Corporation ("IBM") and President and
General Manager of various IBM divisions and subsidiaries. Mr. Mann is a
Director of M.A. Hanna Company (chemicals, 1993) and Infomart (marketing
services, 1991), a Trammell Crow Co. In addition, he serves as the Campaign
Vice Chairman of the Tri-State United Way (1993) and is a member of the
University of Alabama President's Cabinet (1990).
THOMAS R. WILLIAMS (67), Trustee, is President of The Wales Group, Inc.
(management and financial advisory services). Prior to retiring in 1987,
Mr. Williams served as Chairman of the Board of First Wachovia Corporation
(bank holding company), and Chairman and Chief Executive Officer of The
First National Bank of Atlanta and First Atlanta Corporation (bank holding
company). He is currently a Director of BellSouth Corporation
(telecommunications), ConAgra, Inc. (agricultural products), Fisher
Business Systems, Inc. (computer software), Georgia Power Company (electric
utility), Gerber Alley & Associates, Inc. (computer software), National
Life Insurance Company of Vermont, American Software, Inc., and AppleSouth,
Inc. (restaurants, 1992).
FRED L. HENNING, JR. (56), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
DEBORAH WATSON (36) is manager and Vice President of Spartan Pennsylvania
Municipal Money Market, which she has managed since September 1989. She
also manages California Tax-Free Money Market, Spartan California Municipal
Money Market, Tax-Exempt Money Market Trust, and Capital Reserves:
Municipal Money Market. Previously, she managed Spartan Florida Municipal
Money Market. Ms. Watson joined Fidelity in 1982.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995).
THOMAS D. MAHER (50), Assistant Vice President (1990), is Assistant Vice
President of Fidelity's money market funds and Vice President and Associate
General Counsel of FMR Texas Inc. (1990). Prior to 1990, Mr. Maher was an
employee of FMR.
JOHN H. COSTELLO (49), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (49), Assistant Treasurer (1994), is an employee of FMR
(1994). Prior to becoming Assistant Treasurer of the Fidelity funds, Mr.
Rush was Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial
Officer of Fidelity Brokerage Services, Inc. (1990-1993); and Vice
President, Assistant Controller, and Director of the Accounting Department
- - First Boston Corp. (1986-1990).
The following table s set forth information describing the
compensation of each current trustee of each fund for his or her services
as trustee for the fiscal year ended December 31, 1995.
COMPENSATION TABLE
Aggregate Compensation

J. Gary Ralph F. Phyllis Richard Edward C. E. Donald Peter S. Gerald C. Edward Marvin L. Thomas
Burkhead** Cox Burke J. Flynn Johnson 3d** Bradley J. Kirk Lynch** McDonough H. Mann R.
Davis Jones Malone Williams

Bond Fund $ 0 $ 110 $ 107 $ 138 $ 0 $ 110 $ 113 $ 0 $ 110 $ 110 $ 110 $ 107

Money 0 100 98 125 0 100 103 0 100 100 100 98
Market Fund

</TABLE>

<TABLE>
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<S> <C> <C> <C>
Trustees Pension or Estimated Annual Total
Retirement Benefits Upon Compensation
Benefits Accrued Retirement from from the Fund
as Part of Fund the Fund Complex* Complex*
Expenses from the
Fund Complex*

J. Gary Burkhead** $ 0 $ 0 $ 0

Ralph F. Cox 5,200 52,000 12 8 ,000

Phyllis Burke Davis 5,200 52,000 12 5 ,000

Richard J. Flynn 0 52,000 1 60 ,500

Edward C. Johnson 3d** 0 0 0

E. Bradley Jones 5,200 49,400 12 8 , 0 00

Donald J. Kirk 5,200 52,000 12 9 , 5 00

Peter S. Lynch** 0 0 0

Gerald C. McDonough 5,200 52,000 12 8 ,000

Edward H. Malone 5,200 44,200 128,000

Marvin L. Mann 5,200 52,000 12 8 ,000

Thomas R. Williams 5,200 52,000 12 5 , 0 00

</TABLE>

* Information is as December 31, 199 5 for 2 19 funds in the
complex.
** Interested trustees of the fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the Plan). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee (designated securities). The amount paid to the
Trustee under the Plan will be determined based upon the performance of
such investments. Deferral of Trustees' fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate the fund to retain the services of
any Trustee or to pay any particular level of compensation to the Trustee.
Each fund may invest in such designated securities under the plan without
shareholder approval.
Under a retirement program adopted in July 1988, the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments is not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-interested Trustees, receive retirement benefits under the program.
On December 31, 1995, the Trustees and officers of each fund owned,
in the aggregate, less than 1 % of each fund's total outstanding
shares.
MANAGEMENT CONTRACTS
Each fund employs FMR to furnish investment advisory and other services.
Under its management contract with each fund, FMR acts as investment
adviser and, subject to the supervision of the Board of Trustees, directs
the investments of each fund in accordance with its investment objective,
policies, and limitations. FMR also provides each fund with all necessary
office facilities and personnel for servicing each fund's investments,
compensates all officers of each fund and all Trustees who are "interested
persons" of the trusts or of FMR, and all personnel of each fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of each fund. These services include providing facilities
for maintaining each fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters, and
other persons dealing with each fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining each
fund's records and the registration of each fund's shares under federal and
state laws; developing management and shareholder services for each fund;
and furnishing reports, evaluations, and analyses on a variety of subjects
to the Trustees.
FMR is responsible for the payment of all expenses of each fund with
certain exceptions. Specific expenses payable by FMR include, without
limitation, expenses for the typesetting, printing, and mailing proxy
materials to shareholders; legal expenses, and the fees of the custodian,
auditor and non-interested Trustees; costs of typesetting, printing, and
mailing prospectuses and statements of additional information, notices and
reports to shareholders; each fund's proportionate share of insurance
premiums and Investment Company Institute dues. 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 each fund with the following exceptions:
fees and expenses of all Trustees of the trust who are not "interested
persons" of the trust or FMR (the non-interested Trustees); interest on
borrowings; taxes; brokerage commissions (if any); and such nonrecurring
expenses as may arise, including costs of any litigation to which a fund
may be a party, and any obligation it may have to indemnify the officers
and Trustees with respect to litigation.
FMR is the manager of the bond fund pursuant to a management contract dated
August 1, 1990, which was approved by shareholders on July 18, 1990. FMR is
the manager of the money market fund pursuant to a management contract
dated February 28, 1992, which was approved by Fidelity Municipal Trust as
the then sole shareholder of the money market fund on February 28,
1992, in conjunction with an Agreement and Plan to convert the fund from a
series of a Massachusetts business trust to a series of a Delaware business
trust. The Agreement and Plan was approved by public shareholders of the
money market fund on December 11, 1991. The money market fund's contract is
identical to the fund's prior contract with FMR. The management fee paid to
FMR is reduced by an amount equal to the fees and expenses of the
non-interested Trustees.
For the services of FMR under each contract, the money market fund and the
bond fund pay FMR a monthly management fee at the annual rates of .50% and
.55%, respectively, of average net assets throughout the month. Fees
received by FMR, after reduction of fees and expenses of the non-interested
Trustees, for the last three fiscal years are shown in the following table.
MONEY MARKET FUND:

Fiscal Year Ended Management Fees

December 31 Paid to FMR

1995 $ 1,133,238

1994 1,140,476

1993 1,092,498

BOND FUND:
Fiscal Year Ended Management Fees

December 31 Paid to FMR

1995 $ 1,494,332

1994 1,507,849

1993 1,555,647

FMR may, from time to time, voluntarily reimburse all or a portion of each
fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses). FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year. Expense reimbursements
by FMR will increase each fund's total returns and yield and repayment of
the reimbursement by each fund will lower its total returns and yield.
To defray shareholder service costs, FMR or its affiliates also collect the
funds' $5.00 exchange fee, $5.00 account closeout fee, and $5.00 fee
for wire purchases and redemptions, and the money market fund's $2.00
checkwriting charge. Shareholder transaction fees and charges collected for
fiscal 1995, 1994, and 1993 are indicated in the tables below.
MONEY MARKET FUND:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fiscal Year Ended Exchange Account Wire Checkwriting

December 31 Fees Closeout Fees Fees Charges

1995 $ 2,420 $ 1,228 $ 220 $ 4,830

1994 3,060 1,357 355 5,548

1993 5,950 1,586 345 6,653

</TABLE>

BOND FUND:
Fiscal Year Ended Exchange Account Wire

December 31 Fees Closeout Fees Fees

1995 $ 1,605 $ 1,120 $ 230

1994 3,969 1,805 310

1993 3,615 1,055 380

SUB-ADVISER. On behalf of the money market fund, FMR has entered into a
sub-advisory agreement with FTX pursuant to which FTX has primary
responsibility for providing portfolio investment management services to
the fund.
Under the sub-advisory agreement, dated February 28, 1992 , which was
approved by Fidelity Municipal Trust as the then sole shareholder of the
fund on February 28, 1992 in conjunction with an agreement and plan to
convert the fund from a series of a Massachusetts business trust to a
series of a Delaware business trust as approved by public shareholders of
the fund on December 11, 1991, FMR pays FTX fees equal to 50% of the
management fee payable to FMR under its management contract with the money
market fund. The fees paid to FTX are not reduced by any voluntary or
mandatory expense reimbursements that may be in effect from time to time.
On behalf of the money market fund, for fiscal 1995, 1994, and 1993, FMR
paid FTX fees of $ 566,619 , $570,238 and $546,249, respectively.
DISTRIBUTION AND SERVICE PLANS
The Trustees have approved Distribution and Service Plans on behalf of the
funds (the Plans) pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the Rule). The Rule provides in substance that a mutual fund may
not engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of a fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect payment by
the funds of distribution expenses.
Under each Plan, if the payment of management fees by the funds to FMR is
deemed to be indirect financing by the funds of the distribution of their
shares, such payment is authorized by the Plans. Each Plan also
specifically recognizes that FMR, either directly or through FDC, may use
its management fee revenue, past profits, or other resources, without
limitation, to pay promotional and administrative expenses in connection
with the offer and sale of shares of each fund. In addition, each Plan
provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that assist in selling shares
of each fund, or to third parties, including banks, that render shareholder
support services.
No third party payments were made in fiscal 1995 on behalf of the
funds .
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and have
determined that there is a reasonable likelihood that the Plan will benefit
the fund and its shareholders. In particular, the Trustees noted that the
Plans do not authorize payments by a fund other than those made to FMR
under its management contract with the fund. To the extent that each Plan
gives FMR and FDC greater flexibility in connection with the distribution
of shares of each fund, additional sales of fund shares may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders have
other relationships.
The money market fund's P lan was approved by shareholders , in
connection with a reorganization transaction on February 28, 1992,
pursuant to an Agreement and Plan of Conversion . The bond fund's Plan
was approved by shareholders on December 31, 1986.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services, or
servicing and recordkeeping functions. FDC intends to engage banks only to
perform such functions. However, changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the funds
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences. In addition, state securities laws on
this issue may differ from the interpretations of federal law expressed
herein, and banks and financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase securities
issued by, depository institutions that receive payments under the Plans.
No preference for the instruments of such depository institutions will be
shown in the selection of investments.
CONTRACTS WITH FMR AFFILIATES
UMB Bank, n.a. (UMB) is each fund's custodian and transfer agent. UMB has
entered into sub-contracts with FSC, an affiliate of FMR, under the terms
of which FSC performs the processing activities associated with providing
transfer agent and shareholder servicing functions for each fund. Under
this arrangement, FSC receives annual account fees and asset-based fees for
each retail account and certain institutional accounts based on account
size. With respect to certain institutional retirement accounts, FSC
receives asset-based fees only. With respect to certain other institutional
retirement accounts, FSC receives annual account fees and asset based fees
based on fund type. In addition, these fees are subject to increases based
on postal rate changes. FSC also collects small account fees from certain
accounts with balances of less than $2,500. UMB has additional
sub-contracts with FSC, pursuant to which FSC performs the calculations
necessary to determine each fund's net asset value per share and dividends
and maintains each fund's accounting records. Under this arrangement, FSC
receives a fee based on each fund's average net assets. UMB is entitled to
reimbursement from FMR for fees paid to FSC since FMR must bear these costs
pursuant to its management contract with each fund.
Each fund has a distribution agreement with FDC, a Massachusetts
corporation organized on July 18, 1960. FDC is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The distribution agreement calls
for FDC to use all reasonable efforts, consistent with its other business,
to secure purchasers for shares of each fund, which are continuously
offered at net asset value. Promotional and administrative expenses in
connection with the offer and sale of shares are paid by FMR.
DESCRIPTION OF THE TRUSTS
TRUSTS' ORGANIZATION. Spartan Pennsylvania Municipal Income Fund is a
fund of Fidelity Municipal Trust (the Massachusetts trust) , an
open-end management investment company originally organized as a Maryland
corporation on November 22, 1976 and reorganized as a Massachusetts
business trust on June 22, 1984, at which time its name changed from
Fidelity Municipal Bond Fund, Inc. to Fidelity Municipal Bond Fund. On
March 1, 1986, the trust's name was changed to Fidelity Municipal Trust.
Currently, there are seven funds of the Massachusetts trust: Fidelity
Municipal Bond Fund; Fidelity Aggressive Municipal Fund; Fidelity Insured
Municipal Income Fund; Fidelity Ohio Municipal Income Fund; Fidelity
Michigan M unicipal Income Fund; Fidelity Minnesota Municipal Income
Fund; and Spartan Pennsylvania Municipal Income Fund. The Massachusetts
trust's Declaration of Trust permits the Trustees to create additional
funds.
Spartan Pennsylvania Municipal Money Market Fund is a fund of
Fidelity Municipal Trust II (the Delaware trust) , an open-end
management investment company organized as a Delaware business trust on
June 20, 1991. Currently, there are three funds of the Delaware trust:
Fidelity Ohio Municipal Money Market Fund; Fidelity Michigan Municipal
Money Market Fund; and Spartan Pennsylvania Municipal Money Market Fund.
The Delaware trust's Trust Instrument permits the Trustees to create
additional funds.
In the event that FMR ceases to be investment adviser to a trust or any of
its funds, the right of the trust or the fund to use the identifying names
"Fidelity" and "Spartan" may be withdrawn. There is a remote possibility
that one fund might become liable for ant misstatement in its prospectus or
statement of additional information about another fund.
The assets of each trust received for the issue or sale of shares of each
of its funds and all income, earnings, profits, and proceeds thereof,
subject only to the rights of creditors, are especially allocated to such
fund, and constitute the underlying assets of such fund. The underlying
assets of each fund are segregated on the books of account, and are to be
charged with the liabilities with respect to such fund and with a share of
the general expenses of their respective trusts. Expenses with respect to
the trusts are to be allocated in proportion to the asset value of their
respective funds, except where allocations of direct expense can otherwise
be fairly made. The officers of the trusts, subject to the general
supervision of the Boards of Trustees, have the power to determine which
expenses are allocable to a given fund, or which are general or allocable
to all of the funds of a certain trust. In the event of the dissolution or
liquidation of a trust, shareholders of each fund of that trust are
entitled to receive as a class the underlying assets of such fund available
for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY - MASSACHUSETTS TRUST. The Massachusetts
trust is an entity of the type commonly known as "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable for the obligations of the
trust. The Declaration of Trust provides that the Massachusetts trust shall
not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the Massachusetts trust or its
Trustees shall include a provision limiting the obligations created thereby
to the Massachusetts trust and its assets. The Declaration of Trust
provides for indemnification out of each fund's property of any
shareholders held personally liable for the obligations of the fund. The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the fund itself would be unable to
meet its obligations. FMR believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects Trustees
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
SHAREHOLDER AND TRUSTEE LIABILITY - DELAWARE TRUST. The Delaware trust is a
business trust organized under Delaware law. Delaware law provides that
shareholders shall be entitled to the same limitations of personal
liability extended to stockholders of private corporations for profit. The
courts of some states, however, may decline to apply Delaware law on this
point. The Trust Instrument contains an express disclaimer of shareholder
liability for the debts, liabilities, obligations, and expenses of the
Delaware trust and requires that a disclaimer be given in each contract
entered into or executed by the Delaware trust or its Trustees. The Trust
Instrument provides for indemnification out of each fund's property of any
shareholder or former shareholder held personally liable for the
obligations of the fund. The Trust Instrument also provides that each fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
Delaware law does not apply, no contractual limitation of liability was in
effect, and the fund is unable to meet its obligations. FMR believes that,
in view of the above, the risk of personal liability to shareholders is
extremely remote.
The Trust Instrument further provides that the Trustees shall not be
personally liable to any person other than the Delaware trust or its
shareholders; moreover, the Trustees shall not be liable for any conduct
whatsoever, provided that Trustees are not protected against any liability
to which they would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved
in the conduct of their office.
VOTING RIGHTS - BOTH TRUSTS. Each fund's capital consists of shares of
beneficial interest. As a shareholder of the Massachusetts trust, you
receive one vote for each dollar value of net asset value you own. As a
shareholder of the Delaware trust, you receive one vote for each
share you own. The shares have no preemptive or conversion rights;
voting and dividend rights, the right of redemption, and the privilege of
exchange are described in the Prospectus. Shares are fully paid and
nonassessable, except as set forth under the respective "Shareholder and
Trustee Liability" headings above. Shareholders representing 10% or more of
a trust or one of its funds may, as set forth in the Declaration of Trust
or Trust Instrument, call meetings of the trust or fund for any purpose
related to the trust or fund, as the case may be, including, in the case of
a meeting of an entire trust, the purpose on voting on removal of one or
more Trustees.
A trust or any fund may be terminated upon the sale of its assets to (or,
in the case of the Delaware trust and its funds, merger with) another
open-end management investment company or series thereof, or upon
liquidation and distribution of its assets. Generally such terminations
must be approved for the Delaware trust by vote of the holders of a
majority of the outstanding shares of the trust or the fund and for the
Massachusetts trust by a vote of holders of a majority of the trust or
fund, as determined by the current value of each shareholder's investment
in the fund or trust; however, the Trustees of the Delaware trust may,
without prior shareholder approval, change the form of the organization of
the Delaware trust by merger, consolidation, or incorporation. If not so
terminated or reorganized, the trusts and their funds will continue
indefinitely.
Under the Trust Instrument, the Trustees may, without shareholder vote,
cause the Delaware trust to merge or consolidate into one or more trusts,
partnerships, or corporations, so long as the surviving entity is an
open-end management investment company that will succeed to or assume the
Delaware trust registration statement, or cause the Delaware trust to be
incorporated under Delaware law. Each fund of Fidelity Municipal Trust II
may also invest all of its assets in another investment company.
CUSTODIAN. UMB , 1010 Grand Avenue, Kansas City, Missouri, is
custodian of the assets of the fund. The custodian is responsible for the
safekeeping of a fund's assets and the appointment of the subcustodian
banks and clearing agencies. The custodian takes no part in determining the
investment policies of a fund or in deciding which securities are purchased
or sold by a fund. However, a fund may invest in obligations of the
custodian and may purchase securities from or sell securities to the
custodian. The Bank of New York and Chemical Bank, each headquartered in
New York, also may serve as a special purpose custodian of certain assets
in connection with pooled repurchase agreement transactions.
FMR, its officers and directors, its affiliated companies, and the Board of
Trustees may, from time to time, conduct transactions with various banks,
including banks serving as custodians for certain funds advised by FMR.
Transactions that have occurred to date include mortgages and personal and
general business loans. In the judgment of FMR, the terms and conditions of
those transactions were not influenced by existing or potential custodial
or other fund relationships.
AUDITOR. Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts (bond fund) and 1999 Bryan Street, Dallas, Texas (money
market fund) serves as the trusts' independent accountant. The auditor
examines financial statements for the funds and provides other audit, tax,
and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the fiscal
year ended December 31, 1995 are included in the fund's Annual Report,
which is a separate report supplied with this Statement of Additional
Information. Each fund's financial statements and financial highlights are
incorporated herein by reference.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if its is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
When a municipal bond issuer has committed to call an issue of bonds and
has established an independent escrow account that is sufficient to, and is
pledged to, refund that issue, the number of days to maturity for the
prerefunded bond is considered to be the number of days to the announced
call date of the bonds.
The descriptions that follow are examples of eligible ratings for the
funds. A fund may, however, consider the ratings for other types of
investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND
MUNICIPAL NOTES:
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade (MIG, or VMIG for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important in the short
run. Symbols used will be as follows:
MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG-3/VMIG-3 - This designation denotes favorable quality. All security
elements are accounted for, but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG-4/VMIG-4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and,
although not distinctly or predominantly speculative, there is specific
risk.
DESCRIPTION OF STANDARD & POOR'S RATINGS OF STATE AND MUNICIPAL NOTES:
SP-1 - Strong capacity to pay principal and interest. An issue determined
to possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of
the notes.
SP-3 - Speculative capacity to pay principal and interest.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA - Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
There are nine basic rating categories for long-term obligations. They
range from AAA (highest quality) to C (lowest quality). Those bonds within
the AA, A, BAA, BA and B categories that Moody's believes possess the
strongest credit attributes within those categories are designated by the
symbols AA1, A1, BAA1, BA1 and B1.
DESCRIPTION OF STANDARD & POOR'S MUNICIPAL BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
Funds of Fidelity Municipal Trust II
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
Funds of Fidelity Municipal Trust
CROSS REFERENCE SHEET
FORM N-1A

ITEM NUMBER PROSPECTUS SECTION

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 .............................. Cover Page

2 a .............................. Expenses

b, c .............................. Contents; The Funds at a Glance; Who May Want
to Invest

3 a .............................. Financial Highlights

b .............................. *

c, d .............................. Performance

4 a i............................. Charter

ii........................... The Funds at a Glance; Investment Principles and
Risks

b .............................. Investment Principles and Risks

c .............................. Who May Want to Invest; Investment Principles
and Risks

5 a .............................. Charter

b i............................. Cover Page; The Funds at a Glance; Charter;
Doing Business with Fidelity

ii........................... Charter

iii.......................... Expenses; Breakdown of Expenses

c .............................. Charter
d .............................. Charter; Breakdown of Expenses

e .............................. Cover Page; Charter

f .............................. Expenses

g i............................. Charter
ii............................ *

5 A .............................. Performance

6 a i............................. Charter

ii........................... How to Buy Shares; How to Sell Shares;
Transaction Details; Exchange Restrictions

iii.......................... Charter

b ............................. *

c .............................. Transaction Details; Exchange Restrictions

d .............................. *

e .............................. Doing Business with Fidelity; How to Buy Shares;
How to Sell Shares; Investor Services

f, g .............................. Dividends, Capital Gains, and Taxes

7 a .............................. Cover Page; Charter

b .............................. Expenses; How to Buy Shares; Transaction Details

c .............................. *

d .............................. How to Buy Shares

e .............................. *

f .............................. Breakdown of Expenses

8 .............................. How to Sell Shares; Investor Services; Transaction
Details; Exchange Restrictions

9 .............................. *

</TABLE>

* Not Applicable
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
Funds of Fidelity Municipal Trust II
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
Funds of Fidelity Municipal Trust

CROSS REFERENCE SHEET
(CONTINUED)
FORM N-1A

ITEM NUMBER STATEMENT OF ADDITIONAL INFORMATION SECTION

<TABLE>
<CAPTION>
<S> <C> <C> <C>
10, 11 ............................ Cover Page

12 ............................ Description of the Trusts

13 a - c ............................ Investment Policies and Limitations

d ............................ Portfolio Transactions

14 a - c ............................ Trustees and Officers

15 a, b ............................ *

c ............................ Trustees and Officers

16 a i ............................ FMR; Portfolio Transactions

ii ............................ Trustees and Officers

iii ............................ Management Contracts

b ............................ Management Contracts

c, d ............................ Contracts with FMR Affiliates

e ............................ *

f ............................ Distribution and Service Plans

g ............................ *

h ............................ Description of the Trusts

i ............................ Contracts with FMR Affiliates

17 a ............................ Portfolio Transactions

b ............................ Portfolio Transactions

c ............................ Portfolio Transactions

d, e ............................ *

18 a ............................ Description of the Trusts

b ............................ *

19 a ............................ Additional Purchase and Redemption Information

b ............................ Additional Purchase and Redemption Information;
Valuation of Portfolio Securities

c ............................ *

20 ............................ Distributions and Taxes

21 a, b ............................ Contracts with FMR Affiliates

c ............................ *

22 a ............................ Performance
b ............................ Performance

23 ............................ Financial Statements

</TABLE>

* Not Applicable
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how each
fund invests and the services available to shareholders.
To learn more about each fund and its investments, you can obtain a copy of
the funds' most recent financial reports and portfolio listing, or a copy
of the Statement of Additional Information (SAI) dated February 20,
1996 . The SAI has been filed with the Securities and Exchange
Commission (SEC) and is incorporated herein by reference (legally forms a
part of the prospectus). For a free copy of either document, call Fidelity
at 1-800-544-8888.
Investments in the money market funds are neither insured nor guaranteed by
the U.S. government, and there can be no assurance that a fund will
maintain a stable $1.00 share price.
Mutual fund shares are not deposits or obligations of, or guaranteed by,
any depository institution. Shares are not insured by the FDIC,
Federa l Reserve Board or any other agency, and are subject to
investment risks, including the possible loss of principal amount
invested .

FIDELITY
MICHIGAN,
MINNESOTA,
AND
OHIO
MUNICIPAL
FUNDS
Each of these funds seeks a high level of current income free from federal
income tax and the income tax of its state. The MONEY MARKET FUNDS are
designed to maintain a stable $1.00 share price. The BOND FUNDS seek to
provide higher yields by investing in a broader range of municipal
securities.
FIDELITY MICHIGAN MUNICIPAL MONEY MARKET FUND
FIDELITY OHIO MUNICIPAL MONEY MARKET FUND
FIDELITY MICHIGAN MUNICIPAL INCOME FUND
FIDELITY MINNESOTA MUNICIPAL INCOME FUND
FIDELITY OHIO MUNICIPAL INCOME FUND
PROSPECTUS
FEBRUARY 20, 1996(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
LIKE ALL MUTUAL
FUNDS, THESE
SECURITIES HAVE NOT
BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION, NOR HAS
THE SECURITIES AND
EXCHANGE
COMMISSION OR ANY
STATE SECURITIES
COMMISSION PASSED
UPON THE ACCURACY
OR ADEQUACY OF THIS
PROSPECTUS. ANY
REPRESENTATION TO
THE CONTRARY IS A
CRIMINAL OFFENSE.
OMM-pro-296

CONTENTS

KEY FACTS THE FUNDS AT A GLANCE

WHO MAY WANT TO INVEST

EXPENSES Each fund's yearly
operating expenses.

FINANCIAL HIGHLIGHTS A summary
of each fund's financial data.

PERFORMANCE How each fund has
done over time.

THE FUNDS IN DETAIL CHARTER How each fund is
organized.

INVESTMENT PRINCIPLES AND RISKS
Each fund's overall approach to
investing.

BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.

YOUR ACCOUNT DOING BUSINESS WITH FIDELITY

TYPES OF ACCOUNTS Different
ways to set up your account.

HOW TO BUY SHARES Opening an
account and making additional
investments.

HOW TO SELL SHARES Taking money
out and closing your account.

INVESTOR SERVICES Services to
help you manage your account.

SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS,
ACCOUNT POLICIES AND TAXES

TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.

EXCHANGE RESTRICTIONS

KEY FACTS

THE FUNDS AT A GLANCE
MANAGEMENT: Fidelity Management & Research Company (FMR) is the management
arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager. FMR Texas Inc. (FTX), a subsidiary
of FMR, chooses investments for for the money market funds.
As with any mutual fund, there is no assurance that a fund will achieve its
goal.
MICHIGAN MONEY MARKET
GOAL: High current tax-free income for Michigan residents while maintaining
a stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and Michigan
income tax.
OHIO MONEY MARKET
GOAL: High current tax-free income for Ohio residents while maintaining a
stable $1.00 share price.
STRATEGY: Invests in high-quality, short-term municipal money market
securities whose interest is free from federal income tax and Ohio
individual income tax.
MICHIGAN MUNICIPAL INCOME
GOAL: High current tax-free income for Michigan residents.
STRATEGY: Invests mainly in longer-term, investment grade municipal
securities whose interest is free from federal income tax and Michigan
income tax.
MINNESOTA MUNICIPAL INCOME
GOAL: High current tax-free income for Minnesota residents.
STRATEGY: Invests mainly in longer-term, investment grade municipal
securities whose interest is free from federal income tax and Minnesota
personal income tax.
OHIO MUNICIPAL INCOME
GOAL: High current tax-free income for Ohio residents.
STRATEGY: Invests mainly in longer-term, investment grade municipal
securities whose interest is free from federal income tax and Ohio
individual income tax.
WHO MAY WANT TO INVEST
These non-diversified funds may be appropriate for investors in higher tax
brackets who seek high current income that is free from federal income tax
and Ohio, Michigan, or Minnesota income taxes. Each fund's level of risk
and potential reward, depend on the quality and maturity of its
investments. Each money market fund is managed to keep its share price
stable at $1.00. The bond funds, with their broader range of investments,
have the potential for higher yields, but also carry a higher degree of
risk. You should consider your investment objective and tolerance for risk
when making an investment decision.
The value of the funds' investments and the income they generate will vary
from day to day, and generally reflect interest rates, market conditions,
and other federal and state political and economic news. When you sell your
bond fund shares they may be worth more or less than what you paid for
them. By themselves, these funds do not constitute a balanced investment
plan.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy, sell or
hold shares of a fund. See page for more information about these
fees.
Maximum sales charge on purchases and
reinvested distributions None
Deferred sales charge on redemptions None
Exchange fee None
Annual account maintenance fee
(for accounts under $2,500) $12.00
ANNUAL FUND OPERATING EXPENSES are paid out of each fund's assets. Each
fund pays a management fee to FMR. It also incurs other expenses for
services such as maintaining shareholder records and furnishing shareholder
statements and financial reports. A fund's expenses are factored into its
share price or dividends and are not charged directly to shareholder
accounts (see page ).
The operating expenses on page are projections based on historical
expenses, and are calculated as a percentage of average net assets.
EXAMPLES: Let's say, hypothetically, that each fund's annual return is 5%
and that its operating expenses are exactly as described on page .
For every $1,000 you invested, the chart shows how much you would pay in
total expenses if you close your account after the number of years
indicated.
These examples illustrate the effect of expenses, but are not meant to
suggest actual or expected costs or returns, all of which may vary.

UNDERSTANDING

EXPENSES
Operating a mutual fund
involves a variety of
expenses for portfolio
management, shareholder
statements, tax reporting, and
other services. These costs
are paid from the fund's
assets; their effect is already
factored into any quoted
share price or return.
(checkmark)
MICHIGAN MONEY MARKET
Operating expenses Example